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United States Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES AT OF 1933
INTEGRAL TECHNOLOGIES, INC
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(Name of small business issuer in its charter)
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Nevada 3663 98-0163519
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(State or jurisdiction of (Primary Standard Industrial I.R.S. Employer Identification No.
incorporation or organization Classification Code Number)
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805 W. Orchard Drive, Suite 3
Bellingham, Washington 98225
(360) 752-1982
(Address and telephone number of principal executive offices)
805 W. Orchard Drive, Suite 3
Bellingham, Washington 98225
(Address of principal place of business or intended principal
place of business)
William A. Ince
805 W. Orchard Drive, Suite 3
Bellingham, Washington 98225
(360) 752-1982
(Name, address and telephone number of agent for service)
Copies to:
Troy A. Young, Esq.
Futro & Trauernicht, LLC
1401 Seventeenth Street, 11th Floor
Denver, Colorado 80202
phone: (303) 295-3360
facsimile: (303) 295-1563
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Approximate date of proposed sale to the public: From time to time after the
effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ___
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ___
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ___
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. ___
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of each Class of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered Per Security (1) Price Fee
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Common Stock, par $0.001(2) 12,000,000 $1.5775 $18,930,000 $4,997.52
Common Stock, par $0.001 (3) 495,000 $1.5775 $780,862.50 $206.15
Common Stock, par $0.001 (4) 2,650,000 $1.5775 $4,180,375 $1,103.62
Common Stock, par $0.001 (5) 1,325,000 $1.80 $2,385,000 $629.64
Total............................... ............... ...................... $26,276,237.50 $6,936.93
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(1) In accordance with Rule 457(c), the aggregate offering price of shares of
common stock of Integral is estimated solely for purposes of calculating the
registration fees payable pursuant hereto, as determined in accordance with Rule
457(c), using the average of the high and low sales price reported by the OTC
Bulletin Board for the Common Stock on July 14, 2000, which was $1.5775 per
share and, with respect to shares of common stock of Integral issuable upon
exercise of outstanding warrants, the higher of (1) such average sales price or
(2) the exercise price of such warrants.
(2) Includes up to 10,800,000 share of common stock held by certain selling
securityholders and issuable pursuant to an equity line investment agreement
with Swartz Private Equity, LLC and up to 1,200,000 shares upon the exercise of
common stock purchase warrants issuable to Swartz. The warrants are issuable to
Swartz from time to time when Integral exercises its put right to sell shares of
common stock to Swartz. Pursuant to the terms of the investment agreement,
Integral is required to issue Swartz warrants to purchase a number of shares of
common stock equal to 10% of the number of shares sold to Swartz pursuant to the
agreement. The exercise price of a warrant will initially be equal to 110% of
the market price on the date that Integral exercises its put right to sell
shares of its common stock to Swartz, but is subject to downward adjustment
under certain circumstances.
(3) Issuable upon the exercise of common stock commitment warrants issued to
Swartz Private Equity, LLC, on December 13, 1999. The exercise price of the
warrants is initially $1.306, but is subject to downward adjustment under
certain circumstances. On each six month anniversary of the date of issuance,
Integral will calculate a reset exercise price that will be equal to 110% of the
lowest closing bid price of the common stock for the five trading days ending on
each six month anniversary date. The exercise price will be equal to the lowest
reset exercise price determined on any six month anniversary of the date of
issuance preceding the date on which the warrant is exercised, subject to
anti-dilution adjustments.
(4) Represents outstanding shares of common stock held by certain selling
securityholders.
(5) Issuable upon the exercise of common stock purchase warrants held by certain
selling securityholders. The exercise price of the warrants is $1.80 per
underlying share.
The company hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the company shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act or until the registration statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said
section 8(a), may determine.
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PROSPECTUS
INTEGRAL TECHNOLOGIES, INC.
As of July __, 2000
The Resale of 16,470,000 Shares of Common Stock
The selling price of the shares will be determined by market factors at the time
of their resale.
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This prospectus relates to the resale by the selling shareholders of up to
16,470,000 shares of common stock. The selling shareholders may sell the stock
from time to time in the over-the-counter market at the prevailing market price
or in negotiated transactions. Of the shares offered:
o up to 12,000,000 shares are issuable to Swartz Private Equity,
LLC based on an investment agreement dated May 11, 2000;
o up to 495,000 shares are issuable upon the exercise of
warrants issued or issuable to Swartz under the investment
Agreement;
o 2,650,000 shares are outstanding and are held by other selling
securityholders; and
o up to 1,325,000 shares are issuable upon the exercise of
outstanding warrants held by other selling securityholders.
We will receive no proceeds from the sale of the shares by the selling
shareholders. However, we have received proceeds from the sale of shares that
are presently outstanding. We may receive up to $25 million of proceeds from the
sale of shares to Swartz pursuant to the investment agreement. In addition, we
may receive additional proceeds from the exercise of warrants held by Swartz and
other selling securityholders.
Our common stock is quoted on the over-the-counter Electronic Bulletin Board
under the symbol ITKG. On June 30, 2000, the average of the bid and asked prices
of the common stock on the Bulletin Board was $2.03 per share.
Investing in the common stock involves a high degree of risk. You should invest
in the common stock only if you can afford to lose your entire investment. See
"Risk Factors" beginning on page 6 of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Please read this prospectus carefully. It describes our company, finances,
products and services. Federal and state securities laws require that we include
in this prospectus all the important information that you will need to make an
investment decision.
You should rely only on the information contained or incorporated by reference
in this prospectus to make your investment decision. We have not authorized
anyone to provide you with different information. The selling shareholders are
not offering these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front page of this prospectus.
The following table of contents has been designed to help you find important
information contained in this prospectus. We encourage you to read the entire
prospectus.
TABLE OF CONTENTS
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SECTION PAGE
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1. Prospectus Summary.....................................................................5
2. Statement Concerning Forward Looking Statements........................................5
3. Risk Factors...........................................................................6
4. Use of Proceeds.......................................................................10
5. Description of Integral...............................................................10
6. Legal Proceedings ....................................................................16
7. Description of Property...............................................................17
8. Market for Common Stock and Related Shareholder Matters...............................17
9. Plan of Operation.....................................................................18
10. Directors and Executive Officers......................................................20
11. Significant Employees, Consultants and Advisors.......................................21
12. Ownership of Securities by Beneficial Owners and Management...........................23
13. Executive Compensation................................................................25
14. Certain Relationships and Related Transactions........................................29
15. Selling Securityholders...............................................................30
16. Plan of Distribution..................................................................33
17. Description of Securities, Debentures and Warrants....................................34
18. Legal Matters.........................................................................35
19. Indemnification Disclosure............................................................35
20. Changes In and Disagreements With Accountants.........................................35
21. Where You Can Find More Information...................................................35
22. Index to Financial Statements........................................................F-1
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and does not contain all of the information you should
consider before investing in the common stock. You should read the entire
prospectus carefully, including, but not limited to, the "Risk Factors" section.
The Offering
Securities Offered 16,470,000 shares of Common Stock
Offering Price The shares being registered hereunder are being
offered by the selling securityholders from time to
time at the then current market price.
Dividend Policy Integral does not anticipate paying dividends on its
Common Stock in the foreseeable future.
Use of Proceeds The shares offered herein are being sold by the
selling securityholders and as such, Integral
will not receive any of the proceeds of the offering
(see, "Use of Proceeds" section).
Material Risk Factors This offering involves a high degree of
risk, elements of which include possible lack of
profitability, competition, breach of leasing
agreements, death or incapacity of management and
inadequate insurance coverage. There is a risk to
investors due to the speculative nature of this
investment, historical losses from operations, a
shortage of capital, lack of dividends, dilution
factors, control by present shareholders and economic
conditions in general. There is a material risk that
we may have insufficient funding to engage in any or
all of the proposed activities.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated herein by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, concerning
our future operations. Forward-looking statements are statements that estimate
the happening of future events, are not based on historical fact and are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may be identified by
the use of forward-looking terminology such as "believes", "intends",
"projects", "forecasts", "predicts", "may", "will", "expects", "estimates",
"anticipates", "probable", "continue" or similar terms, variations of those
terms or the negative of those terms. The "risk factors" included in this
prospectus under the caption "risk factors" constitute cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statements. The forward-looking
statements contained in this prospectus and the documents incorporated herein by
reference have been compiled by our management based upon assumptions they
consider reasonable. These assumptions are subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control. Actual results could differ materially from those currently
anticipated due to a number of factors, including those identified under "risk
factors" and elsewhere in this prospectus. Accordingly, there can be no
assurance that such statements, estimates and projections will be realized. The
forecasts and actual results will likely vary and those variations may be
material. We make no representation or warranty as to the accuracy or
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completeness of such statements, estimates or projections contained in this
prospectus or that any forecast contained in this prospectus will be achieved.
These forward-looking statements have been compiled as of the date of this
prospectus or the date of the documents incorporated herein by reference, as the
case may be, and you should evaluate them with consideration of any changes
occurring after the date of this prospectus or the documents incorporated herein
by reference in which such forward-looking statements appear. We do not intend
to update these forward-looking statements. We cannot give you any assurance
that any of the assumptions relating to the forward-looking statements specified
in this prospectus or the documents incorporated herein by reference will prove
to be accurate. We urge you and your advisors to review these forward-looking
statements, to consider the assumptions upon which they are based and to
ascertain their reasonableness.
RISK FACTORS
An investment in our common stock involves major risks. The Investor should
carefully consider the following risk factors, in addition to all of the other
information available to the Investor, in determining whether to purchase shares
of our stock.
WE ARE A HIGHLY SPECULATIVE INVESTMENT. Integral has been operating at a loss
since inception, and you cannot assume that Integral's plans will either
materialize or prove successful. There is no assurance that Integral's
operations will become profitable. In the event Integral's plans are
unsuccessful, you may lose all or a substantial part of your investment. For
these and other reasons, the purchase of Integral's stock must be considered a
highly speculative investment.
WE HAVE A HISTORY OF OPERATING LOSSES AND FINANCIAL INSTABILITY. For the quarter
ended March 31, 2000 (unaudited), Integral had a net loss of approximately
$386,664. These losses are expected to continue for an undetermined time. As of
March 31, 2000 (unaudited), Integral had stockholders' equity of $4,586,312, an
accumulated deficit of $4,331,898, and a working capital of $3,604,660. The long
term financial success of Integral will depend largely upon facts related to
Integral's operations. A report by Integral's independent auditors for the
period ended June 30, 1999 stated that There is substantial doubt as to whether
Integral will be able to continue operations. There can be no assurance as to
whether Integral will be able to achieve profitable operations or sustained
revenues.
WE CANNOT BE SURE THAT FUTURE CAPITAL WILL BE AVAILABLE. Integral's business
will continue to require substantial funds for capital expenditures and related
operating expenses in pursuit of our business plans. The timing and amount of
such spending is difficult to predict accurately and will depend upon many
factors. To the extent required, Integral may seek additional funds through
additional private placements that will be exempt from registration. Any such
additional private placements will not require prior shareholder approval and
may include offerings of equity securities such as common stock or preferred
stock which is convertible into common stock, or debt securities such as notes
or debentures convertible into common stock. If additional funds are raised by
issuing equity or debt securities, further dilution to shareholders could occur.
Additionally, investors purchasing future equity or debt securities could be
granted registration rights by Integral. There can be no assurance that
additional financing will be available when needed or on terms acceptable to
Integral.
WE DEPEND ON EXISTING MANAGEMENT; NO ADDITIONAL LIFE INSURANCE ON KEY PERSONNEL
IS CARRIED. Integral's future success depends in a significant part upon the
continued service of certain key management personnel. Competition for such
personnel is intense, and there can be no assurance that Integral can retain its
key managerial personnel or that it can attract, assimilate or retain other
highly qualified managerial personnel in the future. The loss of key personnel,
especially if without advance notice, or the inability to hire or retain
qualified personnel could have a material adverse effect upon Integral's
business, financial condition and result of operations. Integral does not
currently maintain additional life insurance on the life of any of its key
officers, directors, employees or consultants. To date, Integral has relied on
loans from management and management's ability to raise capital through debt and
equity private placement financings to fund its operations.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS. Integral's by-laws provide that
Integral will indemnify a current or past director or officer, or person who has
acted in such capacity for another corporation at the request of Integral, (and
such person's heirs and legal representatives) against all reasonably incurred
costs and amounts paid to settle an action, in a proceeding where he has been
named as a party because of his role.
Integral has been advised that while indemnification may be invoked to disclaim
liability for damages by directors, officers or persons controlling Integral
under these circumstances, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy and is therefore
unenforceable.
PATENTS AND PROPRIETARY RIGHTS SUBJECT TO UNCERTAINTY; POSSIBLE INFRINGEMENT BY
INTEGRAL. Integral relies on a combination of patents, trademarks, copyright and
trade secret laws, confidentiality procedures and licensing arrangements to
protect its intellectual property rights. Integral currently has three U.S.
provisional patent applications pending. Integral is considering additional
patent applications. There can be no assurance that any patents held by Integral
will not be challenged and invalidated, that patents will issue from any of the
Integral's pending applications or that any claims allowed from existing or
pending patents will be of sufficient scope or strength or be issued in all
countries where Integral's products can be sold so as to provide meaningful
protection or any commercial advantage to Integral. Competitors of Integral may
also be able to design around its patents.
Integral obtained its rights to some of its technologies pursuant to a chain of
agreements and sublicenses. Accordingly, there can be no assurance Integral will
not be subject to claims from prior parties related to these technologies or
that any such parties will not attempt to exploit the technology independently
of Integral's rights to do so. There is no assurance that Integral's
technologies or products do not and will not infringe the patents or proprietary
rights of third parties.
Problems with patents or other rights could potentially increase the cost of
Integral's products or delay or preclude new product development and
commercialization by Integral. If infringement claims against Integral are
deemed valid it may seek licenses that might not be available on acceptable
terms or at all. Litigation could be costly and time-consuming but may be
necessary to protect Integral's technology and could have a materially adverse
effect on Integral and its business prospects. There can be no assurance that
any application of Integral's technologies will not infringe upon the
proprietary rights of others or that licenses required by Integral from others
will be available on commercially reasonable terms, if at all.
PENDING LITIGATION. Integral, NextAntennas.com, Inc. (now "Antek Wireless,
Inc."), Emergent Technologies Corporation and Jack Parsons, a director of
Integral, are defendants in a lawsuit filed in May 2000 in the United States
District Court for the Northern District of West Virginia by IAS Communications,
Inc. IAS claims that, pursuant to agreement by and among IAS, Integral Concepts,
Inc. and Emergent, IAS acquired the exclusive right to commercial applications
of certain patented and proprietary antenna technology developed at West
Virginia University and Emergent acquired exclusive rights to military
applications of such technology. IAS claims that Emergent breached its agreement
by pursuing commercial applications of the technology. IAS further claims that
all defendants misappropriated certain trade secrets and interfered with IAS's
economic relations. In addition, IAS claims that Jack Parsons breached certain
fiduciary duties. IAS seeks injunctive relief prohibiting the defendants from
disclosing certain information related to the technology; an order requiring
defendants to account for any profits from the alleged conduct, return any
proprietary materials to IAS and destroy all devices created in violation of
IAS's rights; and a money judgment in an amount to be determined at trial, but
no less than $15,000,000. It is the opinion of management of Integral that the
claims filed by IAS have no factual basis and are groundless and frivolous. The
defendants have filed answers denying IAS's claims. There is no assurance that
the outcome of the litigation will be favorable to Integral, and an unfavorable
outcome would have a material, adverse effect on the business of the Company.
PREFERRED STOCK. The Articles of Incorporation of Integral authorize the
issuance of 20,000,000 shares of preferred stock. The preferred stock may be
divided into one or more series. The board of directors is
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authorized to determine the rights, provisions, privileges and restrictions and
number of authorized shares of any series of preferred stock. Additionally, the
preferred stock can have other rights, including voting and economic rights that
are senior to the common stock. The issuance of preferred stock could adversely
affect the market value of the common stock.
1,000,000 shares of preferred stock have been designated as Series A Convertible
Preferred Stock of which 664,410 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 Integral's common stock reported by the OTC Bulletin
Board over the ten trading days preceding the date of conversion);
o may be redeemed by Integral within one year after issue at $1.50, after one
year but less than two years at $2.00, after two years but less than three
years at $2.50, after three years but less than four years at $3.00, and
after four years but less than five years at $3.50;
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 Integral.
The details of the dividend rates, liquidation preferences, redemption
provisions, conversion rights, voting rights, and other rights, preferences,
privileges and restrictions are set forth in the "Designation of Rights and
Preferences of Series A Convertible Preferred Stock," that was filed as an
amendment to the Articles of Incorporation on November 16, 1999.
WE HAVE NEVER PAID DIVIDENDS. The board of directors of Integral has the sole
authority to determine whether cash dividends will be paid. This decision will
depend on many factors including Integral's earnings, capital requirements and
financial condition. Integral has not paid cash dividends in the past and does
not anticipate paying cash dividends in the near future.
HOW FUTURE ISSUANCES OF COMMON STOCK WILL AFFECT YOUR RIGHTS AS A SHAREHOLDER.
Integral has a non-qualified stock option plan which 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. The options issued under this plan were reserved for issuance
either directly or pursuant to options, to officers, directors, employees and
consultants of Integral and its subsidiaries. As of June 30, 2000, approximately
1,690,000 of these shares have been issued under the plan, and the remainder are
under option. When additional shares are issued under this plan, your stock
ownership will be diluted. Additional stock or options to acquire stock of
Integral can be granted at any time by the board of directors, usually without
shareholder approval.
HOW FUTURE SALES OF COMMON STOCK MAY AFFECT YOU. Future sales of common stock by
management personnel and others may be made under Rule 144 of the 1933 Act. In
general, under Rule 144, a person who has held their stock for one year may,
under certain circumstances, sell within any three-month period a number of
shares which is not greater than one percent of the then outstanding shares of
common stock or (if qualified) the average weekly trading volume in shares
during the four calendar weeks immediately prior to such sale. Under certain
circumstances, the sale of shares which have been held for two years by a person
who is not affiliated with Integral is also permitted. Management personnel and
others have or may acquire shares of common stock which are exempt from
registration pursuant to Rule 701 or may be registered on Form S-8 and which may
be sold in compliance with state securities laws without restriction by
non-affiliates in, and by those affiliated with Integral either (i) under Rule
144 but without the one-year holding period or (ii) pursuant to an effective
reoffer prospectus filed for the Form
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S-8. Future sales of common stock may have an adverse effect on the current
market price of the common stock and adversely affect Integral's ability to
obtain future funding as well as create a potential market overhang.
OUR STOCK HAS BEEN LIMITED IN ITS PUBLIC TRADING; VOLATILITY OF STOCK. There has
been a limited public trading market for the common stock of Integral, and there
can be no assurance that an active trading market will be sustained upon the
completion of the offering. The issuance of common stock on conversion of the
debentures or exercise of the warrants and the subsequent sale of the common
stock pursuant to this prospectus can dilute the common stock and adversely
affect the market price of the common stock. There can be no assurance that the
market price of the stock will not decline below its current price. The market
price for securities of telecommunications and internet companies have
historically been highly volatile. Integral believes that fluctuations in its
operating results and even mild expressions of interest on a particular day
(being traded on the OTC Bulletin Board) can cause the market price of its
shares to fluctuate, perhaps substantially. The stock can expect to experience
substantial price changes in short periods of time, owing to the
unpredictability of the Bulletin Board. Stock markets in the United States have,
from time to time, experienced significant price and volume fluctuations which
are not necessarily related to Integral net worth or any other established
criteria of value. It can be expected that substantial price swings will occur
in the stock for the foreseeable future, and percentage changes in stock indices
(such as the Dow Jones Industrial Average) could be magnified, particularly in
downward movements of the markets. These fluctuations may adversely affect the
price of the common stock.
RESTRICTIONS ON SECONDARY TRADING. While it is posted on the OTC Bulletin Board
and trades below $5.00 per share, Integral's common stock will be subject to
restrictions imposed by law that limit the ability of broker-dealers which sell
such securities to anyone other than established customers and investors which
meet certain sophisticated investor tests. These restrictions can affect the
ability of broker-dealers to sell Integral's stock and can also affect your
ability to resell your stock in any trading market that may develop.
TECHNOLOGIES IN VARIOUS STAGES OF DEVELOPMENT; NO ASSURANCE OF COMPLETION; MAY
BE SUBJECT TO ADDITIONAL DELAYS. Integral's technologies and products are in
various stages of development. There can be no assurance that additional
products can be introduced or technologies completed to production or
marketability due to the inherent risks of new product and technology
development, limitations on financing, competition, obsolescence, loss of key
personnel and other factors. Although certain technology of Integral may be
licensable at the current stage of development, there can be no assurance
thereof. Integral has generated virtually no revenues from its various
technologies to date and there is no assurance of revenues in the future.
Integral's development projects are high risk in nature, where unanticipated
technical obstacles can arise at any time and result in lengthy and costly
delays or in a determination that a further development is not feasible.
The development of Integral's technologies has taken longer than anticipated by
management and could be subject to additional delays. Therefore, there can be no
assurance of timely completion and introduction of these technologies on a
cost-effective basis, or that such technologies, if introduced, will achieve
market acceptance.
FUTURE DEPENDENCE ON MARKET ACCEPTANCE OF INTEGRAL'S TECHNOLOGIES AND PRODUCTS.
The future of Integral is dependent upon the success of the current and future
generations of one or more of Integral's technologies. There can be no assurance
that Integral can introduce any of its technologies or new products or that, if
introduced, they will achieve market acceptance such that in combination with
existing products they will sustain Integral or allow it to achieve profitable
operations.
SIGNIFICANT COMPETITION AND POSSIBLE OBSOLESCENCE. Technological competition
from other and longer established antenna companies is significant and expected
to increase. Most of the companies with which Integral competes and expects to
compete have far greater capital resources and more significant research and
development staffs, marketing and distribution programs and facilities, and many
of them have substantially greater experience in the production and marketing of
products. Integral's
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ability to compete effectively may be adversely affected by the ability of these
competitors to devote greater resources to the sale and marketing of their
products than are available to Integral. In addition, one or more of Integral's
competitors may succeed or may have already succeeded in developing technologies
and products that are more effective than any of those offered or being
developed by Integral, rendering Integral's technology and products obsolete or
noncompetitive.
DEPENDENCE ON OUTSIDE MANUFACTURERS AND SUPPLIERS. Currently, we rely, and
intend to continue to rely, on outside suppliers for raw materials and
components used in our antenna products. We also rely, and until we are able to
open our own assembly plant in the future we will continue to rely, on outside
manufacturers to assemble our antenna products. There can be no assurance that
these suppliers and manufacturers will be able to meet our cost and performance
requirements in the future. In the event that any of our suppliers or
manufacturers should become too expensive or suffer from quality control
problems or financial difficulties, we would have to find alternative sources,
which could disrupt our business and have an adverse effect on our financial
condition.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling
securityholders.
DESCRIPTION OF INTEGRAL
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. Integral 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, Integral, 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.
Through two of its subsidiaries, Antek Wireless, Inc. ("Antek") and
Emergent Technologies Corp. ("Emergent"), Integral has been researching and
developing six new antenna technologies.
Through a third subsidiary, Integral Vision Systems, Inc. ("Integral
Vision"), Integral has been researching and developing the 3D and 2D Color
Machine Vision technology.
Integral has directly been researching and developing the RF Plasma
Injection System technology.
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RECENT DEVELOPMENTS
Focus on antenna products
As a result of the developments with Antek and the commercial interest
in its antenna products, specifically the first commercial order that will
result in revenue, Integral presently intends to focus substantially all of its
resources on the commercialization and sales of the Antek antenna products.
EMPLOYEES
Integral and its subsidiaries currently employ a total of twelve people
on a full-time basis. Research and development activities are conducted
primarily by four employees. However, Integral also relies on the expertise of
several technical advisors who are consulted as needed on a part-time, contract
basis.
SUBSIDIARIES
ANTEK WIRELESS, INC.
Company Background
Antek Wireless, Inc. ("Antek"), a wholly-owned subsidiary of Integral,
was incorporated in the State of Delaware on November 2, 1999 as
NextAntennas.Com, Inc. The change of name to Antek became effective July 7,
2000. Antek develops and commercializes new antenna technologies. The focus of
Antek will be to continue to develop and commercialize new antenna technologies
which will meet the needs of the wireless telecommunications industry.
The Antenna Industry
Antek has developed six new antenna designs for use in different
wireless technology markets:
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 Integral.
The GPS antenna is for use with asset "tracking" and/or location
identification technologies. The FCC has mandated that by 2002, US wireless
carriers provide their subscribers with the technology that
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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.
Patents on Antek Antenna Products
Integral 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 Integral
will be granted any patents on its technologies; however, in the event that
patents are not granted, Antek will continue to attempt to commercialize these
technologies without the protection of a patent. In the event that any patents
are issued, Antek will have the exclusive right to use in the U.S. the antenna
design(s) described in each issued patent for the 20-year life of the patent.
Product Manufacturing and Distribution
Antek is not in the manufacturing business. Antek relies on third-party
manufacturing companies to manufacture Antek's antenna products on a timely
basis, while protecting the intellectual properties of Antek's products and
providing the customer with a high quality product.
Antek antenna products will not be sold directly to the general public,
but rather to businesses and manufacturers who will use the antennas in their
products.
Barriers to Entry into Market Segment
In the antenna market, Integral will be competing with other
established antenna providers that are much larger and better capitalized than
Integral. In order to compete, management believes that Integral must
demonstrate to potential users that the Antek antenna products have an advantage
over other antennas on the market in terms of performance and cost.
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 Integral. The exclusive rights to commercialize the
CTHA technology were licensed by WVURC to a private company called Integral
Concepts, Inc., which is wholly-owned by Dr. Smith. On January 2, 1996,
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<PAGE> 13
Integral Concepts sublicensed the exclusive, worldwide rights to commercialize
the CTHA technology for governmental and military applications to Emergent,
which was at that time owned by Dr. Smith and Denzel Jack Parsons, who is
presently a director of Integral. Pursuant to the sublicense agreement, a modest
annual minimum royalty payment is due from Emergent to Integral Concepts.
On March 1, 1996, Integral acquired a 10% equity interest in Emergent
from Emergent in exchange for $100,000. By an agreement dated December 10, 1997,
Integral acquired an additional 70% equity interest in Emergent from Messrs.
Smith and Parsons (which represented 100% of their ownership of Emergent) in
exchange for 1,800,000 shares of common stock of Integral (see "Item 7. Certain
Relationships and Related Transactions" below for additional details), which
resulted in Integral owning 80% of Emergent. Presently, Integral owns 76.625% of
Emergent, as a result of the conversion of promissory notes into shares of
common stock of Emergent by non-affiliated minority shareholders of Emergent.
Product Development
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 Integral to predict when or if revenue will
be realized. There is also the possibility that additional research and
development will be required.
Presently, Integral is not pursuing further development of CTHA
technology and is focusing its research and development resources on other
antenna technologies.
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 Integral. The exclusive rights to
commercialize this technology was licensed by WVURC to a private company called
Integral Concepts, Inc., which is wholly owned by Dr. Smith. On February 5,
1994, Integral Concepts sublicensed the exclusive, worldwide (excluding Canada)
rights to commercialize this technology to Integral Vision, which was at that
time owned by Mr. Smith and two other persons. Pursuant to the sublicense
agreement, a modest annual minimum royalty payment is due from Integral Vision
to Integral Concepts.
In March 1997, Integral acquired a 100% equity interest in Integral
Vision from Dr. Smith and two other persons in exchange for 100,000 shares of
common stock of Integral (see "Item 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.
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<PAGE> 14
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
products that comes off a production line.
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 Integral is directing minimal resources on this
technology due to Integral'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
Integral 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.
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<PAGE> 15
The Market
This device employs spectral analysis and sophisticated numerical
algorithms. As a digital device, Integral's counterfeit detector can be
programmed and reprogrammed to change its processes.
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 Integral is directing minimal resources on this
technology due to Integral'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
Integral'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 Integral
Integral has directly (rather than through subsidiaries) acquired the
rights to commercialize the RF Plasma Ignition System technology, which is
described below. This technology was created at the Center for Industrial
Research Applications ("CIRA"), a research center run by West Virginia
University Research Corporation ("WVURC"), which is a subsidiary of West
Virginia University ("WVU"). This technology was developed by students at WVU
under the direction of Dr. James Smith, who is a Director of CIRA and a
professor at WVU and was also a co-founder of Integral. The exclusive rights to
commercialize this technology were licensed by WVURC to a private company called
Integral Concepts, Inc., which is wholly owned by Dr. Smith. On February 15,
1996, Integral Concepts sublicensed the exclusive, worldwide rights to
commercialize these technologies to Integral. Pursuant to the sublicense
agreements, a modest annual minimum royalty payment is due from Integral 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 Integral 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
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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.
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 Integral is directing minimal resources on this
technology due to Integral's financial situation and limited resources, but is
seeking strategic partners who would be interested in financing the
commercialization of this technology.
INVESTMENT IN CONTINENTAL DIVIDE ROBOTICS
On March 14, 2000, Integral executed a letter of understanding with
Continental Divide Robotics ("CDR") related to the acquisition of a minority
interest in CDR. CDR has developed certain proprietary hardware and software
which may be used to track individuals. The technology is currently being
field-tested in the criminal justice system for the purpose of tracking
parolees. Future implementations of the technology include consumer and military
applications.
Although the terms of the definitive agreement have not been
finalized, the parties contemplate that Integral will acquire up to a 40%
interest in CDR. To date, Integral has paid $300,000 of $500,000 payable to
acquire 21% of CDR's outstanding common stock. The letter of understanding
contemplates that Integral may acquire an additional 19% interest for $2.3
million.
LEGAL PROCEEDINGS
A. Integral, NextAntennas.com (now "Antek Wireless, Inc."), Emergent
Technologies Corporation and Jack Parsons are defendants in a lawsuit filed in
May 2000 in the United States District Court for the Northern District of West
Virginia by IAS Communications, Inc. IAS claims that, pursuant to agreement by
and among IAS, Integral Concepts, Inc. and Emergent, IAS acquired the exclusive
right to commercial applications of certain patented and proprietary antenna
technology developed at West Virginia University and Emergent acquired exclusive
rights to military applications of such technology. IAS claims that Emergent
breached its agreement by pursuing commercial applications of the technology by
entering into an agreement with ARINC, Inc, a multinational areospace technology
company. IAS further claims that all defendants misappropriated certain trade
secrets and interfered with IAS's economic relations with ARINC, Inc. In
addition, IAS claims that Jack Parsons breached certain fiduciary duties that he
owed IAS due to his position as an officer and director of an IAS/Emergent joint
venture.
IAS seeks injunctive relief prohibiting the defendants from disclosing
certain information related to the technology; an order requiring defendants:
(1) to account for any profits from the alleged conduct; and (2) return any
proprietary materials to IAS and destroy all devices created in violation of
IAS's rights. IAS also seeks a money judgment in an amount to be determined at
trial, but no less than $15,000,000.
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It is the opinion of management of integral that the claims filed by IAS
have no factual basis and are groundless and frivolous. The defendants have
filed answers denying IAS's claims.
B. A dispute exists between WVU and Integral with respect to the development
work performed by WVU on the Plasma Ignition System and Counterfeit Detection
Technology. The dispute in the amount of $354,244 relates to the following:
o WVU advised Integral that development work had been halted as of August 1,
1997, but continued to bill Integral for $127,442 in costs for the period
August 1, 1997 to December 31, 1999;
o WVU billed Integral $226,802 for equipment related to the development work
done for Integral. WVU claims that it is entitled to retain ownership of
the equipment while Integral believes that title to the equipment should be
transferred to Integral if Integral is to pay for the equipment; and
o To date Integral has paid $398,434 for development work to WVU, but WVU has
failed to deliver required prototypes.
Included in current liabilities is the amount of $397,296 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
Integral 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).
DESCRIPTION OF PROPERTY
Neither Integral nor its subsidiaries own any real property. Integral
and its subsidiaries lease office space in Vancouver, B.C., Canada, Bellingham,
Washington and San Jose, California.
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
There is a limited public market for the common stock of Integral which
historically has traded on the NASD OTC Bulletin Board under the symbol "ITKG"
where it began trading on February 27, 1997.
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
1st Qtr. 2000 $ 0.687 $8.25
2nd Qtr. 2000 $ 1.50 $5.50
</TABLE>
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The source of this information is America Online and Yahoo! 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 June 29, 2000 there were approximately 124 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, Integral 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 Integral, and other factors as deemed relevant by
Integral's Board of Directors.
PLAN OF OPERATION
As a development stage company, the Company has had no revenues from operations
from inception (February 12, 1996) through March 31, 2000, and has incurred a
net loss of approximately $4.3 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.
In December 1999, Antek Wireless, Inc., a subsidiary of the Company, received
its first commercial, revenue-generating order for its GPS/LEOS antenna from
ARINC, Inc., an operator of communication and processing systems for the
aviation and transportation industry. The Company has successfully completed
filling this initial order. 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.
During the quarter ended March 31, 2000, the Company completed a private
placement of common stock and common stock purchase warrants which resulted in
aggregate cash proceeds to the Company of nearly $4 million.
As a result of the developments with Antek 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 Antek 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 Antek 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 Antek antenna products, and anticipates
filing additional provisional patent applications as warranted over the next
twelve months.
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's antenna subsidiary, Antek Wireless,
Inc. will employ additional staff in order to further enhance its management
team. It is expected that, within the next year, a Chief Executive Officer, a
Chief Financial Officer and a Chief Technical Officer will be added. In
addition, approximately five sales people and three administration people will
be added.
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
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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. The Company may require additional
financing, and no assurances can be given that financing will be available to
the Company in the amounts required, or that, if available, will be 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.
DIRECTORS AND EXECUTIVE OFFICERS
(a) Directors and Executive Officers of Registrant. Integral 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 Integral 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 Antek. Integral's subsidiary,
Antek, has a Board of Directors which is comprised of four members who
hold office until the next annual meeting of shareholders or until a
successor is elected or appointed. The members of the Board and the
executive officers of Antek and their respective age and position are
as follows:
<TABLE>
<CAPTION>
Director of
Name Age Position with Antek Antek 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
Abraham Wei 40 Director July 2000
Joseph Jeng 45 Director July 2000
</TABLE>
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(c) Directors and Executive Officers of Emergent. Integral's subsidiary,
Emergent, has a Board of Directors which is compromised 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>
(d) Directors and Executive Officers or Integral Vision. Integral's
subsidiary, Integral Vision, has a Board of Directors which is
comprised of two members. Each director holds office until the next
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 INTEGRAL
WILLIAM ROBINSON: (CHAIRMAN AND CEO): As a co-founder, and significant
shareholder of Integral, Mr. Robinson has been responsible since the inception
of Integral of securing funding, including the commitment of personal funds, in
order to ensure the ongoing operations of Integral and its subsidiaries.
Together with Mr. Ince, he has been responsible for the development and
implementation of corporate strategies.
During the period 1988 to 1996, Mr. Robinson was President of Achieva
Development Corporation. 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 Integral, is
responsible, along with Mr. Robinson for the development and implementation of
corporate strategies. He is responsible for cash management of Integral and its
subsidiaries.
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Prior to his engagement with Integral, 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 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 Integral's subsidiary, Emergent.
SIGNIFICANT EMPLOYEES, CONSULTANTS AND ADVISORS
ABRAHAM WEI: Mr. Wei, chairman of the board of Antek, serves as an advisor to
Integral on a variety of issues relating to market opportunities, product
manufacturing and ongoing corporate development of the company.
As the CEO and founder of Vpacket Communications, 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 seven years at Ascend Communications, Inc.,
most recently as Vice President, Worldwide Sales Operations. Prior to that
position, Mr. Wei was Vice President of Manufacturing Operations and 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 B.S. in Computer Science
from the University of California, Berkley.
DAVID WASSOM (VICE-PRESIDENT OF WORLDWIDE SALES-ANTENNA PRODUCTS-ANTEK): The
appointment of Mr. Wassom as Vice President Worldwide Sales is the first step in
the implementation of an infrastructure which will provide for the
commercialization of the Company's line of antenna products on a timely basis.
Mr. Wassom will assess the current status of the Company's antenna sales. He
will focus on (1) those customers who have placed orders and are awaiting
delivery; (2) potential customers who are in the process of testing the
Company's antennas; and 3) those prospective customers who have expressed an
interest in the antennas through the request of such information as performance,
form factor and cost. In addition, Mr. Wassom will set up a sales force
comprised of both full time sales representatives and sales agents. The
territories to be covered initially will be North America and the Far East.
21
<PAGE> 22
Mr. Wassom has over 11 years of experience in the electronics industry. Prior to
joining the Integral team, Mr. Wassom was a Major Account Executive for TAARCOM,
one of the oldest and most respected Manufacturer's Representatives in the San
Francisco Bay Area. He was the recipient of the "Salesman of the Year" award at
TAARCOM and participated in the creation of the sales and marketing tools used
by a worldwide sales force.
During his 5 years at TAARCOM, Mr. Wassom was responsible for growing the sales
in his territory from $100K to over $60M. At TAARCOM, he was the Worldwide Sales
Manager responsible for Ascend Communications (acquired by Lucent Technologies),
achieving sales growth with this TAARCOM customer from $19K to over $35M.
MR. JEFFRY PHILLIPS (VICE-PRESIDENT OF WORLDWIDE OPERATIONS-ANTENNA PRODUCTS
ANTEK): Mr. Phillips is responsible for identifying market opportunities, and
all operational issues relating to the manufacturing, distribution and
productization of Integral's line of antenna products.
Mr. Phillips has over 18 years of successful experience in technology and
product management within the wireless and wired industries. In addition, he has
demonstrated a proven management ability to lead multi-functional teams in
assessing market requirements, identifying technology applications to meet
current and predicted market trends, and establishing product strategies and
effective product roadmaps for business optimization.
As a former Managing Director of TRW Wireless Communications of Sunnyvale CA,
Mr. Phillips successfully created a new ventures wireless unit within TRW. This
wireless division developed, marketed, manufactured, and serviced the new line
of anti-cellular fraud products, called PhonePrint. His key responsibility was
executing the "spin-out" of this business unit from TRW, into a new entity now
known as Corsair Communications. Corsair was capitalized by Kleiner Perkins
Caulfield & Byers, and Sevin Rosen Funds. Within five months of the new business
launch, Mr. Phillips captured the first major contract and sale ($10M) for
Corsair, with AirTouch Communications. Mr. Phillips later went on to
successfully develop strategic partner alliances with such companies as
AirTouch, AT&T, NYNEX and PhilTel, for product development, field trial
evaluations, and market acceptance in the U.S. and Asia.
DANIEL HARRELL (VICE PRESIDENT PRODUCT DEVELOPMENT AND OPERATIONS, ANTEK): 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 ANTEK): 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 Integral 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
22
<PAGE> 23
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 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.
JOSEPH JENG: Mr. Jeng, a member of Antek's board of directors, serves as an
advisor to Integral on a variety of issues, including electronic commerce and
strategic planning. Mr. Jeng is a general partner at Atrix Investment, LLC, a
private equity investment firm, where he specializes in electronic commerce and
enabling technology sectors.
Mr. Jeng has several years of leadership experience in the technology sector,
including global strategic planning. Mr. Jeng has founded or co-founded numerous
companies, including Altatron, Inc., a leading electronics contract
manufacturer, Ultron Inc., a PC workstation and component company, and Kentek
Corporation. In addition, Mr. Jeng was the president of Digital Optics Inc. and
was an executive at Spectra-Physics, Inc.
In addition to serving on Antek's board of directors, Mr. Jeng serves as the
chairman of the board at Kentek, Altatron and eTrons and Uhere, which are
electronic commerce companies. Mr. Jeng is a member of the board of Cashfac
Ltd., a banking software and electronics communications network company,
Advanced Telecommunication Components Ltd, Vista Land Development Corporation
and vpacket.com.
Mr. Jeng received his B.S. from National Taiwan University. He received an M.A.
in Physics and an M.B.A. from Harvard University.
RICHARD SLEZAK: Mr. Slezak continues to advise Integral 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.
OWNERSHIP OF SECURITIES BY BENEFICIAL OWNERS AND MANAGEMENT
A. Common Stock
The following table sets forth, as of June 30, 2000 the stock ownership
of each person known by Integral to be the beneficial owner of five percent or
more of Integral's common stock, each Officer and Director individually and all
Directors and Officers of Integral as a group. Each person is believed to have
sole voting and investment power over the shares except as noted.
23
<PAGE> 24
<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 1,808,533 6.8%
---------------------------------------------- -------------------------- -----------------------------
William A. Ince (5)
#3 - 1070 West Pender St.
Vancouver, B.C. V6E 2N7 1,763,333 6.7%
---------------------------------------------- -------------------------- -----------------------------
James Smith
Route 4, Box E36
Bruceton Mills, WV 26330 1,857,140 7.1%
---------------------------------------------- -------------------------- -----------------------------
Denzel Jack Parsons
209 Joy Lane
Bridgeport, WV 26330 1,120,000 4.3%
============================================== ========================== =============================
All officers and directors of Integral as a
group (3 persons) 4,691,866 17.5%
=============================================================================================================
</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 Integral's common stock
reported by the OTC Bulletin Board over the ten trading days preceding
the date of conversion. As of June 30, 2000 the conversion rate was
$2.03, so the 442,197 shares of Series A owned by Mr. Robinson were
convertible into 217,831 shares of common stock, and the 212,213 shares
of Series A owned by Mr. Ince were convertible into 104,538 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 26,032,062 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 Integral and each of its
subsidiaries. Beneficial ownership figure includes 350,000 shares
underlying options granted but not yet exercised.
(5) Mr. Ince is an officer and director of Integral and each of its
subsidiaries. Beneficial ownership figure includes 350,000 shares
underlying options granted but not yet exercised.
B. Series A Convertible Preferred Stock
The following table sets forth, as of June 30, 2000, the stock
ownership of each person known by Integral to be the beneficial owner of five
percent or more of Integral's Series A Convertible Preferred Stock, each Officer
and Director individually and all Directors and Officers of Integral as a group.
Each person is believed to have sole voting and investment power over the shares
except as noted.
24
<PAGE> 25
<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 Integral 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 Integral and each of its
subsidiaries.
(4) Mr. Ince is an officer and director of Integral and each of its
subsidiaries.
EXECUTIVE COMPENSATION
(a) General
The following information discloses all plan and non-plan compensation
awarded to, earned by, or paid to the executive officers of Integral for all
services rendered in all capacities to Integral and its subsidiaries. No
executive officer of Integral or its subsidiaries received a total annual salary
and bonus exceeding $100,000 for the fiscal year ended June 30, 1999, or
otherwise meets the reporting requirements of Item 402 of Regulation S-B.
(b) Summary Compensation Table
The following table The following table sets forth all compensation,
including bonuses, stock option awards and other payments, paid or accrued by
Integral and/or its subsidiaries, during the fiscal years ended June 30, 1999,
1998 and 1997 to or for Integral's Chief Executive Officer and each of the other
executive officers of Integral.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------------
(a) (b) (c) (d) (e)
Name Other
And Year Annual
Principal Ended Salary Bonus Compensation
Position June 30 ($) ($) ($)
-------------------------------- ------------ ---------------- ---------------- --------------------
<S> <C> <C> <C> <C>
William S. Robinson, Director, 1999 $105,000 -0- -0-
Chairman, CEO, Treasurer (n1) 1998 $ 90,000 -0- -0-
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>
25
<PAGE> 26
(n1) Pursuant to an employment agreement entered into between
Integral 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 Integral. In April 1999, Mr. Robinson received
333,333 shares of common stock in lieu of $50,000 salaries
accrued in fiscal year ending June 30, 1998. 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
Integral 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 Integral. In April 1999,
Mr. Ince received 333,333 shares of common stock in lieu of
$50,000 salaries accrued in fiscal year ending June 30, 1998.
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 $175,000 in
accrued salaries. See, Item 4, Sales of Unregistered
Securities, subparagraph (n).
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------------------
Awards Payouts
------------------------------------ ---------------
(a) (b) (f) (g) (h) (i)
Name Restricted
And Year Stock Shares LTIP All Other
Principal Ended Award(s) Underlying Payouts Compensation
Position June 30 ($) 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, Director, 1999 -0- 230,000(n1) -0- -0-
President, Secretary, 1998 -0- -0- -0- -0-
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.
Integral did not grant any stock appreciation rights for the year ended June 30,
1999.
26
<PAGE> 27
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
(a) (b) (c) (d) (e)
% of Total
Number of Options/SARS
Securities Granted to
Underlying Employees Exercise or
Options/SARs in Fiscal Base Price Expiration
Name Granted (#) Year (n1) ($/Sh) Date
---------------------------------- ------------------- ------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
William S. Robinson, Chairman, 230,000(n2) 10.1% $.15 01/30/01
CEO, Treasurer
William A. Ince, Director, 230,000(n3) 10.1% $.15 01/30/01
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 Integral'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. 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>
27
<PAGE> 28
(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 Integral 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 Integral's business. These expenses would include
out-of-pocket expenses for such items as travel, telephone, and postage.
(g) Employment Contracts and Termination of Employment and
Change-in-Control Arrangements
Integral 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:
<TABLE>
<S> <C>
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
</TABLE>
Pursuant to the employment agreements, in the event Integral terminates
the employment of the executive without cause, then the executive shall be
entitled to severance pay equal to twelve month's base salary based on the base
salary then in effect at the termination. In addition, the employment agreements
provide that in the event Integral is indebted to the executive for a minimum of
three months salary, the executive shall have the option to convert such unpaid
salary into shares of common stock of Integral at market price (average daily
closing over the previous month).
Integral's Board of Directors has complete discretion as to the
appropriateness of (a) key-man life insurance, (b) obtaining officer and
director liability insurance, (c) employment contracts with and compensation of
executive officers and directors, (d) indemnification contracts, and (e)
incentive plan to award executive officers and key employees.
Integral's Board of Directors is responsible for reviewing and
determining the annual salary and other compensation of the executive officers
and key employees of Integral. The goals of Integral are to align compensation
with business objectives and performance and to enable Integral to attract,
retain and reward executive officers and other key employees who contribute to
the long-term success of Integral. Integral intends to provide base salaries to
its executive officers and key employees sufficient to provide
28
<PAGE> 29
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, Integral adopted an employee benefit and
consulting services compensation plan (the "Plan"), which, as amended, covers up
to 15% of the shares of Integral's outstanding common stock on any given date.
Under the Plan, Integral may issue common stock and/or options to purchase
common stock to certain officers, directors and employees and consultants of
Integral and its subsidiaries. The purpose of the Plan is to promote the best
interests of Integral and its shareholders by providing a means of non-cash
remuneration to eligible participants who contribute to operating progress and
earning power of Integral. The Plan is administered by Integral's Board of
Directors or a committee thereof which has the discretion to determine from time
to time the eligible participants to receive an award; the number of shares of
stock issuable directly or to be granted pursuant to option; the price at which
the option may be exercised or the price per share in cash or cancellation of
fees or other payment which Integral or its subsidiaries is liable if a direct
issue of stock and all other terms on which each option shall be granted. 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 Integral 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 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).
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) On February 16, 1996, in connection with the formation of Integral, the
following affiliates were issued shares of common stock.
<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, Integral issued 175,000 shares to each
of Dr. James Smith and Denzel Jack Parsons, each being affiliates of Integral.
These shares were issued for cash at a price of approximately $.11 per share.
These transactions were exempt from Registration under Section 504 of Regulation
D of the Securities Act of 1933, as amended.
(c) Pursuant to an agreement and plan of reorganization between Integral and
Integral Vision, pursuant to which Integral Vision became a wholly-owned
subsidiary of Integral, Dr. James Smith was issued 57,140 shares of common stock
of Integral in exchange for his 57.14% interest in Integral Vision.
(d) In February 1997, in anticipation of Integral acquiring a controlling
interest in Emergent, Integral issued 1,800,000 shares of Common Stock, all of
which were held in escrow. Prior to closing, Integral agreed to release to
Denzel Jack Parsons 300,000 shares. Upon closing of the acquisition in April
1999, 300,000 shares were delivered to Dr. James E. Smith, and 1,200,000 shares
were delivered to Denzel Jack Parsons.
29
<PAGE> 30
(e) Dr. James E. Smith is a significant shareholder of Integral. He is a
professor of West Virginia University ("WVU"). Dr. Smith is also the sole
shareholder of Integral Concepts. Integral is a party to various agreements with
Integral Concepts, WVU and the West Virginia University Research Corporation
("WVURC").
On April 12, 1994, WVURC granted an exclusive license to Integral
Concepts: (1) to manufacture CTHAs and to license others to do so; and (2) to
sublicense others to manufacture, market, sell copies of, license and distribute
CTHAs. The consideration for the license was: (1) $1.00 and (2) a royalty of
$3,000 per year or 10% of the net revenues received by Integral Concepts
whichever is greater.
On January 2, 1996, Integral Concepts entered into a sublicense with
Registrant's subsidiary, Emergent, wherein Integral Concepts granted to Emergent
the exclusive worldwide right to manufacture, sell copies of, sublicense to and
distribute the process and equipment related to the design, construction and
operation of the CTHA and to further sublicense to others the rights to
manufacture, sell copies of, license and distribute the same, to military and
government applications worldwide. The term of the license agreement granted by
Integral Concepts is perpetual and requires the payment of a minimum annual
royalty of $3,000. Further, Emergent will pay a minimum annual royalty of 10% of
the net royalties derived from sales, licenses or sublicenses of the CTHA
technology with a credit for the minimum royalty.
SELLING SECURITYHOLDERS
The following table provides certain information with respect to the selling
shareholders' beneficial ownership of our common stock as of June 27, 2000, and
as adjusted to give effect to the sale of all of the shares offered hereby. To
the best of our knowledge, none of the selling shareholders currently is an
affiliate of ours, and none of them has had a material relationship with us
during the past three years. None of the selling shareholders are or were
affiliated with registered broker-dealers. See "Plan of Distribution." The
selling shareholders possess sole voting and investment power with respect to
the securities shown.
<TABLE>
<CAPTION>
SHARES
MAXIMUM BENEFICIALLY
SHARES SHARES OWNED AFTER
BENEFICIALLY OFFERED IN OFFERING(2)
NAME OF SELLING OWNED PRIOR OFFERING -------------
SECURITYHOLDER TO OFFERING(1) NUMBER NUMBER PERCENT
-------------- --------------- ----------- -------- -------
<S> <C> <C> <C> <C>
Swartz Private Equity, LLC 12,495,000 12,495,000 0 0
Donald R. Sheldon 1,500,000 1,500,000 0 0
Sundar Nari LLC 1,500,000 1,500,000 0 0
Guardian Capital Ventures Ltd. 180,000 180,000 0 0
Regulus Capital Corporation 300,000 300,000 0 0
David Vandy 189,000 75,000 114,000 *
Pamela Vandy 575,250 150,000 425,250 1.01%
Carmen Aisentat 60,000 60,000 0 0
Sandi Wahlroth 30,000 30,000 0 0
Gus Wahlroth 30,000 30,000 0 0
Patrick Robinson 150,000 150,000 0 0
</TABLE>
30
<PAGE> 31
(1) Represents the maximum number of shares of common stock that
we may sell to Swartz in connection with the investment
agreement, shares issuable to Swartz upon exercise of its
common stock commitment warrant and upon the exercise by
Swartz of the maximum number of purchase warrants issuable in
connection with the investment agreement. Represents common
stock held by other selling securityholders or issuable upon
exercise of warrants held by such selling securityholders. It
is expected that neither Swartz nor other selling
securityholders will own beneficially more than 9.9% of our
outstanding common stock at any time.
(2) Assumes that all shares being registered for resale will be
resold by the selling shareholders and none will be held by
the selling shareholders for their own accounts.
* represents less than 1% of outstanding shares of Integral
common stock.
We are registering the shares for resale by the selling securityholders
in accordance with registration rights granted to the selling securityholders.
We will pay the registration and filing fees, printing expenses, listing fees,
blue sky fees, if any, and fees and disbursements of our counsel in connection
with this offering, but the selling securityholders will pay any underwriting
discounts, selling commissions and similar expenses relating to the sale of the
shares, as well as the fees and expenses of their counsel. In addition, we have
agreed to indemnify the selling securityholders and certain affiliated parties,
against certain liabilities, including liabilities under the Securities Act, in
connection with the offering. Certain selling securityholders have agreed to
indemnify Integral against certain losses. Insofar as indemnification for
liabilities under the Securities Act may be permitted to our directors or
officers, or persons controlling the company, the company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
THE INVESTMENT AGREEMENT
On May 11, 2000 we entered into an Investment Agreement and a
Registration Rights Agreement with Swartz Private Equity, LLC ("Swartz").
Pursuant to the terms of the Investment Agreement, we may, in our sole
discretion and subject to certain restrictions, periodically sell ("Put") shares
of Integral's common stock for up to $25,000,000 to Swartz, beginning on the
effective registration of such Put shares and continuing for a period of
thirty-six (36) months thereafter. The Investment Agreement allows us to choose
to sell common stock to Swartz at times which we decide are advantageous. The
Investment Agreement is not a debt instrument. Any Put exercised by us is the
sale of common stock and not a loan.
PUT RIGHTS. An advance put notice must be delivered to Swartz at least ten
business days prior to the date that we intend to sell the common stock to
Swartz. The advance put notice must state the put date as well as the number of
shares of common stock that we intend to put to Swartz. At our option, the
notice may also state a minimum purchase price per share which cannot be greater
than 80% of the closing bid price of our common stock on the date of the advance
put notice.
After the registration statement to which this prospectus relates is
declared effective, the number of shares of common stock sold to Swartz in a put
may not exceed the lesser of (I) the maximum put amount set forth in our Advance
Put Notice; (ii) $2,000,000 worth of common stock; (iii) 15% of the aggregate
reported trading volume of our common stock, excluding block trades of 20,000 or
more shares of our common stock, during the 20 business days after the date of
our put notice, excluding any trading days in which the common stock trades
below a minimum price, if any, that we specify in our put notice; (iv) 15% of
the aggregate daily reported trading volume of our common stock, excluding block
trades of 20,000 or more shares of our common stock, during the 20 business days
before the put date; or (v) a number of shares that, when added to the number of
shares acquired by Swartz under the investment agreement during the 31 days
preceding the put date, would exceed 9.99% of our total number of shares of
common stock outstanding (as calculated under Section 13(d) of the Securities
Exchange Act of 1934).
31
<PAGE> 32
PUT PRICE. The purchase price for the Put Shares will be equal to the lesser of
the Market Price for such Put minus $.25 or 91% of the Market Price (lowest
closing bid price for the Common Stock on the principal market during the twenty
day pricing period following the date of the Put Notice), but in no event can it
be less than our designated minimum put share price, if any, as set forth in the
Advance Put Notice.
WARRANTS. At the time of each Put, Swartz will be issued a Purchase Warrant
which will give the holder the right to purchase up to ten percent (10%) of the
number of Put shares issued to Swartz in that Put. Each Purchase Warrant will be
exercisable at a price equal to 110% of the Market Price for such put. Each
Purchase Warrant will be immediately exercisable and will terminate on a date
which is five years after the date of issuance. The terms of the Purchase
Warrants allow for a non-cash exercise (so long as the shares underlying the
warrants are not registered pursuant to an effective registration statement).
The shares underlying the Commitment Warrants are being registered pursuant to
the registration statement to which this Prospectus relates.
COMMITMENT WARRANTS. In partial consideration of the Investment Agreement, we
issued warrants to Swartz (the "Commitment Warrants") to purchase 495,000 shares
of our Common Stock. The Commitment Warrants are currently exercisable at the
price of $1.306 per share. Each Commitment Warrant is immediately exercisable
and terminates five years after the date of issuance. The shares underlying the
Commitment Warrants are being registered pursuant to the registration statement
to which this Prospectus relates.
SHORT SALES. Swartz and its affiliates are prohibited from engaging in short
sales of our Common Stock unless they have received a Put Notice and the amount
of shares involved in a short sale does not exceed the number of shares
specified in the Put Notice.
CANCELLATION OF PUTS. We must cancel a particular put if between the date of the
advance put notice and the last day of the pricing period:
- we discover an undisclosed material fact relevant to a shareholder's
investment decision;
- the registration statement registering resales of the Common Shares becomes
ineffective; or
- shares are delisted from the then primary exchange.
The pricing period for that Put shall end as of the preceding business day, and
the Put shall remain effective for the shortened pricing period.
NON-USAGE FEE. If we have not put a minimum of $1,000,000 in aggregate Put
Dollar Amount during any six month period of time during the term of the
Investment Agreement, we will be required to pay Swartz a non-usage fee equal to
the difference of $100,000 minus 10% of the aggregate Put Dollar Amount of the
Put Shares put to Swartz during such six month period. In the event that we
deliver a termination notice to Swartz or an automatic termination occurs, we
must pay Swartz a termination fee the greater of the non-usage fee for the
applicable period or the difference of $200,000 minus 10% of the aggregate Put
Dollar Amount of the Put Shares put to Swartz during all Puts to such date.
SHAREHOLDER APPROVAL. We may issue more than 20% of our outstanding shares. If
we become listed on the Nasdaq Small Cap Market or Nasdaq National Market, then
we must get shareholder approval to issue more than 20% of our outstanding
shares. Since we are currently a bulletin board company, we do not need
shareholder approval.
TERMINATION OF INVESTMENT AGREEMENT. We may also terminate our right to initiate
further puts or terminate the Investment Agreement by providing Swartz with
notice of such intention to terminate; however, any such termination will not
affect any other rights or obligations we have concerning the Investment
Agreement or any related agreement.
32
<PAGE> 33
RESTRICTIVE. During the term of the Investment Agreement and for a period of six
months thereafter, we are prohibited from certain transactions. These include
the issuance of any equity securities in a private transaction, or any debt in a
private transaction which are convertible or exercisable into shares of Common
Stock at a price based on the trading price of the Common Stock. We are also
prohibited from entering into any private equity line type agreements similar to
the Investment Agreement without obtaining Swartz's prior written approval.
RIGHT OF FIRST REFUSAL. Swartz has a right of first refusal to purchase equity
securities offered by us in a private transaction or any debt securities in a
private transaction which closes on or prior to six (6) months after the
termination of the Investment Agreement.
SWARTZ'S RIGHT OF INDEMNIFICATION. We are obligated to indemnify Swartz
(including their stockholders, officers, directors, employees and agents) from
all liability and losses resulting from any misrepresentations or breaches we
made in connection with the Investment Agreement, our Registration Rights
Agreement, other related agreements or the registration statement.
PLAN OF DISTRIBUTION
Each selling shareholder is free to offer and sell his or her common
shares at such times, in such manner and at such prices as he or she may
determine. The types of transactions in which the common shares are sold may
include transactions in the over-the-counter market (including block
transactions), negotiated transactions, the settlement of short sales of common
shares or a combination of such methods of sale. The sales will be at market
prices prevailing at the time of sale or at negotiated prices. Such transactions
may or may not involve brokers or dealers. The selling shareholders have advised
us that they have not entered into agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their shares. The
selling shareholders do not have an underwriter or coordinating broker acting in
connection with the proposed sale of the common shares.
The selling shareholders may sell their shares directly to purchasers
or to or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders. They may also receive compensation
from the purchasers of common shares for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). Swartz
is, and each remaining selling shareholder and any broker-dealer that assists in
the sale of the common stock may be deemed to be, an underwriter within the
meaning of Section 2(a)(11) of the Securities Act. Any commissions received by
such broker-dealers and any profit on the resale of the common shares sold by
them while acting as principals might be deemed to be underwriting discounts or
commissions.
Because Swartz is and the remaining selling shareholders may be deemed
to be "underwriters" within the meaning of Section 2(a)(11) of the Securities
Act, the selling shareholders will be subject to prospectus delivery
requirements.
We have informed the selling shareholders that the anti-manipulation
rules of the SEC, including Regulation M promulgated under the Securities and
Exchange Act, may apply to their sales in the market and has provided the
selling shareholders with a copy of such rules and regulations.
Selling shareholders also may resell all or a portion of the common
shares in open market transactions in reliance upon Rule 144 under the
Securities Act, provided they meet the criteria and conform to the requirements
of such Rule.
We are responsible for all costs, expenses and fees incurred in
registering the shares offered hereby. The selling shareholders are responsible
for brokerage commissions, if any, attributable to the sale of such securities.
33
<PAGE> 34
DESCRIPTION OF SECURITIES
(a) Capital Stock
Integral is presently authorized to issue 50,000,000 shares of its
common stock, with a par value of $0.001 per share, and 20,000,000 shares of
Preferred Stock, $.001 par value, of which 1,000,000 have been designated as
Series A Convertible Preferred. As of March 31, 2000, 22,879,562 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 Integral have no preemptive rights to acquire
additional shares of common stock or other securities. The common stock is not
subject to redemption and carries no subscription or conversion rights. In the
event of liquidation of Integral, the shares of common stock are entitled to
share equally in corporate assets after satisfaction of all liabilities.
The outstanding shares of common stock are fully paid and
non-assessable. There are no outstanding options, warrants or rights to purchase
shares of Integral's common stock, other than disclosed in this Registration
Statement.
(c) Preferred Stock
Integral's Articles of Incorporation authorize Integral to issue
20,000,000 shares of preferred stock, $.001 par value. The preferred stock may
be divided into and issued in one or more series as may be determined by
resolution of the board of directors. The board of directors is authorized,
without any further action by the shareholders, to determine dividend rates,
liquidation preferences, redemption provisions, sinking fund provisions,
conversion rights, voting rights, and other rights, preferences, privileges and
restrictions of any wholly unissued series of preferred stock and the number of
shares constituting any such series. In addition, such preferred stock could
have other rights, including voting and economic rights senior to the common
stock so that the issuance of such preferred stock could adversely affect the
market value of the common stock. The creation of one or more series of
preferred stock also may have the effect of delaying, deferring or preventing a
change in control of Integral without any action by shareholders.
Integral has designated 1,000,000 of the shares of preferred stock
as Series A Convertible Preferred Stock, of which 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 Integral's common stock
reported by the OTC Bulletin Board over the ten trading days
preceding the date of conversion);
34
<PAGE> 35
o may be redeemed by Integral within one year after issue at $1.50,
after one year but less than two years at $2.00, after two years
but less than three years at $2.50, after three years but less
than four years at $3.00, and after four years but less than five
years at $3.50;
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
Integral.
The details of the dividend rates, liquidation preferences, redemption
provisions, conversion rights, voting rights, and other rights, preferences,
privileges and restrictions are set forth in the "Designation of Rights and
Preferences of Series A Convertible Preferred Stock," that was filed as an
amendment to Integral's Articles of Incorporation on November 8, 1999.
LEGAL MATTERS
The validity of the securities offered by the prospectus is being
passed upon for the company by the law firm of Futro & Trauernicht LLC,
attorneys and counselors at law, 1401 17th Street, Suite 1150, Denver, CO 80202.
INDEMNIFICATION DISCLOSURE FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
company pursuant to the Nevada General Corporation Law or the provisions of the
company's Articles of Incorporation, as amended, or Bylaws, or otherwise, the
company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for the indemnification
against such liabilities (other than the payment by the company of expenses
incurred or paid by a director, officer or controlling person of the company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
WHERE YOU CAN FIND MORE INFORMATION
We file reports and other information with the Securities and Exchange
Commission (the "Commission). You may read and copy any document we file at the
Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Regional Offices of the Commission at
Seven World Trade Center, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Please call
1-800-SEC-0330 for further information concerning the Public Reference Room. Our
filings also are available to the public from the Commission's website at
www.sec.gov.
35
<PAGE> 36
We are not required to deliver an annual report to shareholders;
however, upon request, we will provide at no cost to our shareholders, annual
reports containing audited financial statements.
You may request a copy of these filings, at no cost, by writing or
calling us at:
FINANCIAL STATEMENTS
The audited financial statements of the company as of June 30, 1999,
June 30, 1998 and June 30, 1997 included in this prospectus have been audited by
Pannell Kerr Forster, Vancouver, Canada, an independent public accounting firm,
as indicated in its report thereto, and are included herein in reliance upon the
authority of Pannell Kerr Forster, as experts in accounting and auditing and in
giving said reports.
36
<PAGE> 37
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants ..................................................... F-2
Consolidated Balance Sheets, June 30, 1999 and 1998 .................................. F-3
Consolidated Statements of Operations, Years ended
June 30, 1999, 1998 and 1997 and period from February 12, 1996
(inception) through June 30, 1999 ..................................................... F-4
Consolidated Statements of Shareholders' Equity (Deficiency), Years
ended June 30, 1999, 1998 and 1997 and period from
February 12, 1996 (inception) through June 30, 1996 ................................... F-5
Consolidated Statements of Cash Flows, Years ended
June 30, 1999, 1998 and 1997 and period from February 12, 1996
(inception) through June 30, 1999 ..................................................... F-6
Notes to Consolidated Financial Statements, Years ended
June 30, 1999, 1998 and 1997 and period from February 12, 1996
(inception) through June 30, 1999 ..................................................... F-7
Report of Independent Accountants ..................................................... F-18
Consolidated Balance Sheets June 30, 1999 and March 31, 2000
and 1999 (unaudited) .................................................................. F-19
Consolidated Statements of Income (Loss) from inception (February 16,
1996) to March 31, 2000 (unaudited) and for the three months
ended March 31, 2000 and 1999 (unaudited) and for the nine months
ended March 31, 2000 and 1999 (unaudited) ............................................. F-20
Consolidated Statements of Changes in Stockholders' Equity for the
period ended March 31, 2000 (unaudited) ............................................... F-21
Consolidated Statements of Cash Flows from Inception
(February 16, 1996) to March 31, 2000 (unaudited) and for the nine
months ended March 31, 2000 and 1999 (unaudited) ...................................... F-22
Notes to Consolidated Financial Statements (unaudited) ................................ F-23
</TABLE>
F-1
<PAGE> 38
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(U.S. DOLLARS)
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-2
<PAGE> 39
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-3
<PAGE> 40
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-4
<PAGE> 41
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-5
<PAGE> 42
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-6
<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)
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-7
<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)
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> <C>
5 Years Machinery, furniture and equipment -
5 Years Computer hardware and software -
3 Years Leasehold improvements -
</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
F-8
<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)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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).
(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.
F-9
<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)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(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.
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.
F-10
<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)
5. ACQUISITIONS (continued)
(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%.
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>
F-11
<PAGE> 48
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
(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.
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
F-12
<PAGE> 49
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)
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.
(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.
F-13
<PAGE> 50
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)
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.
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.
F-14
<PAGE> 51
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)
<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.
(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.
F-15
<PAGE> 52
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)
10. RELATED PARTY TRANSACTIONS (continued)
(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.
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.
F-16
<PAGE> 53
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)
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> 54
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE DIRECTORS AND SHAREHOLDERS OF
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
We have reviewed the accompanying consolidated balance sheet and statements of
operations and deficit, cash flows and stockholders' equity of Integral
Technologies Inc., as of March 31, 2000, and for the three-month and nine-month
periods then ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying statements for them to be in conformity with
generally accepted accounting principles.
"Pannell Kerr Forster"
Chartered Accountants
Vancouver, Canada
May 10, 2000
F-18
<PAGE> 55
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED OPERATIONS AND DEFICIT
(UNAUDITED)
(U.S. DOLLARS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 3,604,660 $ 647
Accounts receivable 63,391 0
Deposits-suppliers 107,820 0
----------- -----------
TOTAL CURRENT ASSETS 3,775,871 647
----------- -----------
FIXED, at cost 81,073 81,075
Less: accumulated depreciation (45,430) (38,837)
----------- -----------
TOTAL FIXED ASSETS 35,643 42,238
----------- -----------
OTHER
License agreements and intangibles 1,622,928 1,622,928
----------- -----------
TOTAL ASSETS $ 5,434,442 $ 1,665,813
=========== ===========
LIABILITIES
CURRENT
Accounts payable and accruals $ 321,553 $ 544,511
Due to West Virginia University 397,296 397,296
Due to minority interest 66,018 79,412
Customer deposits 63,263 0
----------- -----------
TOTAL CURRENT LIABILITIES 848,130 1,021,219
LONG-TERM DEBT 0 376,170
----------- -----------
TOTAL LIABILITIES 848,130 1,397,389
----------- -----------
STOCKHOLDERS' EQUITY
PREFERRED STOCK, $0.001 Par Value, 20,000,000 shares authorized
664,410 Class A (1998 - none) issued and outstanding 664,410 0
LIABILITY TO ISSUE COMMON STOCK 3,991,000 0
COMMON STOCK AND PAID IN CAPITAL IN EXCESS OF $0.01 PAR VALUE
50,000,000 Shares authorized
22,879,062 (1999 - 20,625,396) issued and outstanding 4,250,575 4,016,267
PROMISSORY NOTES RECEIVABLE (34,068) (284,068)
OTHER COMPREHENSIVE INCOME 46,293 44,679
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE (4,331,898) (3,508,454)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,586,312 268,424
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,434,442 $ 1,665,813
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE> 56
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED OPERATIONS AND DEFICIT
(UNAUDITED)
(U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS FEB. 16, 1996
ENDED ENDED ENDED ENDED (INCEPTION)
MARCH 31, MARCH 31, MARCH 31, MARCH 31, THROUGH
2000 1999 2000 1999 MARCH 31, 2000
------------ ------------ ------------ ------------ --------------
(note 6) (note 6)
<S> <C> <C> <C> <C> <C>
EXPENSES
Interest on beneficial conversion feature $ 0 $ 78,500 $ 0 $ 169,000 $ 566,456
Write-down of license and operating assets 0 0 0 0 424,652
Research and development 5,427 6,000 66,976 7,707 975,089
Travel and entertainment 23,553 23,336 44,290 26,849 311,680
Consulting 119,308 86,209 215,258 144,059 828,253
Salaries and benefits 126,704 52,500 246,705 157,500 761,064
Legal and accounting 92,484 42,833 102,984 74,301 350,885
Bank charges and interest, net (42,563) 14,912 57,216 (8,789) 193,559
Insurance
Advertising 11,269 0 13,219 0 97,350
Telephone 12,623 6,426 23,365 19,385 127,294
General and administrative 24,109 6,781 36,119 13,005 177,459
Rent 12,835 4,014 24,706 12,573 94,060
Minority interest's share of subsidiary's losses (1,085) 0 (13,394) 0 (13,394)
Depreciation and amortization 2,000 2,000 6,000 6,000 40,334
------------ ------------ ------------ ------------ ------------
386,664 323,511 823,444 621,590 4,934,741
Extraordinary item-cancellation of debt 0 0 0 0 (602,843)
------------ ------------ ------------ ------------ ------------
NET LOSS FOR PERIOD 386,664 323,511 823,444 621,590 4,331,898
DEFICIT, BEGINNING OF PERIOD 3,945,234 2,402,512 3,508,454 2,104,433
------------ ------------ ------------ ------------ ------------
DEFICIT, END OF PERIOD $ 4,331,898 $ 2,726,023 $ 4,331,898 $ 2,726,023 $ 4,331,898
============ ============ ============ ============ ============
NET LOSS PER COMMON SHARE $ 0.02 $ 0.02 $ 0.04 $ 0.04
============ ============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 22,717,479 17,313,627 22,417,870 15,397,865
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE> 57
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(U.S. DOLLARS)
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
PREFERRED STOCK COMMON STOCK
NUMBER NUMBER SUBSCRIPTIONS
OF SHARES AMOUNT OF SHARES AMOUNT RECEIVED
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1998 12,575,396 $ 1,786,630 $ 0
Common share issued for
Cash 200,000 50,000
Exercise of stock options 445,000 80,500
Promissory note 1,683,789 252,568
Settlement of lawsuit 150,000 15,000
Services (directors) 666,666 100,000
Share issue costs (100,500)
Services 250,000 50,000
Conversion of convertible
debentures 3,869,120 525,813
Acquisition of subsidiary 1,800,000 619,200
Stock option compensation
benefit 70,600
Interest on beneficial
conversion 566,456
Held in escrow 447,091
Promissory note issued
during the year
Foreign currency translation
Net loss for year
----------- ----------- ----------- ----------- -----------
Balance June 30, 1999 0 0 22,087,062 4,016,267 0
----------- ----------- ----------- ----------- -----------
Repayment of promissory
note
Common shares issued for
Exercise of stock options 792,500 158,750
for settlement of debt 281,182 281,182
for settlement of debt 383,228 383,228
Subscriptions received 3,991,000
Released from escrow 75,558
Foreign currency translation
Net loss for period
----------- ----------- ----------- ----------- -----------
Balance, March 31, 2000 664,410 $ 664,410 22,879,562 $ 4,250,575 $ 3,991,000
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
OTHER TOTAL
PROMISSORY COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
NOTE INCOME DEFICIT EQUITY
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, June 30, 1998 0 $ 36,235 $(2,104,433) $ (281,568)
Common share issued for
Cash 50,000
Exercise of stock options 80,500
Promissory note 252,568
Settlement of lawsuit 15,000
Services (directors) 100,000
Share issue costs (100,500)
Services 50,000
Conversion of convertible
debentures 525,813
Acquisition of subsidiary 619,200
Stock option compensation
benefit 70,600
Interest on beneficial
conversion 566,456
Held in escrow 0
Promissory note issued
during the year (284,068) (284,068)
Foreign currency translation 8,444 8,444
Net loss for year (1,404,021) (1,404,021)
----------- ----------- ----------- -----------
Balance June 30, 1999 (284,068) 44,679 (3,508,454) 268,424
----------- ----------- ----------- -----------
Repayment of promissory
note 250,000 250,000
Common shares issued for 0
Exercise of stock options 158,750
for settlement of debt 281,182
for settlement of debt 383,228
Subscriptions received 3,991,000
Released from escrow 75,558
Foreign currency translation 1,614 1,614
Net loss for period (823,444) (823,444)
----------- ----------- ----------- -----------
Balance, March 31, 2000 $ (34,068) $ 46,293 $(4,331,898) $ 4,586,312
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE> 58
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(U.S. DOLLARS)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 12,
1996
NINE MONTHS ENDED (INCEPTION)
MARCH 31 THROUGH
2000 1999 MARCH 31, 2000
----------- ----------- --------------
(note 6)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (823,444) $ (621,590) $(4,331,898)
Adjustments to reconcile net loss to
net cash used in operating activities
Minority interests' share of subsidiary's loss (13,394) 0 (13,394)
Extraordinary item 0 0 (602,843)
Consulting services and financing fees 0 0 248,036
Depreciation and amortization 6,593 6,000 45,430
Stock option compensation benefit 0 0 70,600
Interest on beneficial conversion 0 169,000 566,456
Settlement of lawsuit 0 0 15,000
Write-down of license and operating assets 0 0 424,654
Changes in non-cash working capital
Due from affiliated company 0 (31,300) (116,000)
Promissory notes receivable 250,000 0 (34,068)
Receivables and deposits (171,211) 0 (173,823)
Accounts payable and accruals 223,535 0 768,049
Due to West Virginia University
Research Corporation 0 0 397,296
----------- ----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (527,921) (477,890) (2,736,505)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of property, equipment and
intangibles assets 0 (33,908) (111,539)
Assets acquired and liabilities assumed
on purchase of subsidiary 0 (129,474) (129,474)
Investment in and advances to affiliated
companies 0 0 (750,000)
License agreements 0 0 (124,835)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES 0 (163,382) (1,115,848)
----------- ----------- -----------
FINANCING ACTIVITIES
Advances from stockholders 0 79,412 1,078,284
Repayments to stockholders 0 (94,046) (94,046)
Liability to issue common stock 3,991,000 84,000 3,991,000
Proceeds from issuance of common stock 234,308 180,176 2,157,890
Proceeds from convertible debentures 0 600,000 600,000
Repayment of long term debt (94,988) 0 (94,988)
Share issue costs 0 (100,500) (227,420)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,130,320 749,042 7,410,720
----------- ----------- -----------
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH 1,614 8,000 46,293
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 3,604,013 279,152 3,604,660
CASH, BEGINNING OF PERIOD 647 480 0
----------- ----------- -----------
CASH, END OF PERIOD $ 3,604,660 $ 279,632 $ 3,604,660
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE> 59
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(U.S. DOLLARS)
1. BASIS OF PRESENTATION
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States for interim financial information. These financial statement are
condensed and do not include all disclosures required for annual financial
statements. The organization and business of the Company, accounting
policies followed by the Company and other information are contained in the
notes to the Company's audited consolidated financial statements filed as
part of the Company's June 30, 1999 Form 10-KSB.
In the opinion of the Company's management, these financial statements
reflect all adjustments necessary to present fairly the Company's
consolidated financial position at March 31, 2000 and June 30, 1999 and the
consolidated results of operations and the consolidated statements of cash
flows for the nine months ended March 31, 2000 and 1999. The results of
operations for the three months ended March 31, 2000 are not necessarily
indicative of the results to be expected for the entire fiscal year.
2. PRIVATE PLACEMENT
During the quarter ended March 31, 2000, the Company competed a private
placement whereby 2,650,000 common shares of the Company will be issued at
a price of $1.50 per common share and 1,325,000 common share purchase
warrants for $0.001 per warrant exercisable into common shares at a price
of $1.80 for a period of two years. The warrants may be redeemed by the
Company at $.01 per warrant if the market value of the common stock of the
Company trades above $10.00 for 10 consecutive days.
As at March 31, 2000, $3,975,000 has been received in connection with the
above private placement and subsequent to March 31, 2000, the 2,650,000
common shares were issued.
3. PREFERRED SHARES
During the nine month period ended March 31, 2000, the Company designated
1,000,000 of its authorized 20,000,000 preferred shares as Series A
Convertible Preferred Stock with a par value of $0.001 each. 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.
See notes to consolidated financial statements.
F-23
<PAGE> 60
INTEGRAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(U.S. DOLLARS)
The Company settled $383,229 of accounts payable and $281,182 of long-term
debt, both amounts due to two officers and directors of the Company, by
issuing $664,410 Series A Convertible Preferred Stock.
4. SUBSEQUENT EVENT
Subsequent to March 31, 2000, 80,000 shares were issued on exercise of
stock options during the quarter for total proceeds to the Company of
$16,000. Subsequent to March 31, 2000, 287,500 options were exercised and
shares issued in consideration of services rendered in the amount of
$65,000.
5. COMPARATIVE FIGURES
Operating results for the three and nine month periods ended March 31, 1999 were
not audited or reviewed.
See notes to consolidated financial statements.
F-24
<PAGE> 61
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Integral's Articles of Incorporation and Bylaws provided Integral may
indemnify a controlling person, officer or director from liability for acting in
such capacities, to the full extent permitted by the law of the State of Nevada.
The Articles of Incorporation further provide that, to the full extent permitted
by the Nevada Corporation Code, as the same exists or may hereafter be amended,
a director or officer of Integral shall not be liable to Integral or its
shareholders for monetary damages for breach of fiduciary duty as a director or
officer.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution
of the securities being registered, other than underwriting compensation, are:
<TABLE>
<S> <C>
SEC filing fee for Registration Statement: $6,936.93
Accounting Fees $10,000
Legal Fees and Expenses $45,000
Miscellaneous $5,000
Total: $66,936.93
</TABLE>
All of the expenses above will be paid by the company.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the issuance and sales of securities of
Integral without registration since formation of Integral.
(a) On February 16, 1996 Integral issued a total of 6,000,000 shares of Common
Stock to four persons who were founders of Integral. 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. Integral 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, Integral 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
Integral. 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. Integral 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 Integral and
Integral Vision dated March 11, 1997, pursuant to which Integral Vision became a
wholly-owned subsidiary of Integral, three persons owning 100% of Integral
Vision were issued a total of 100,000 shares of Common Stock of Integral (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.
Integral 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.
37
<PAGE> 62
(d) In October 1997, Integral 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 Integral,
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. Integral believes that
this transaction was exempt from registration under Section 504 of Regulation D.
(e) Pursuant to an agreement and plan of reorganization between Integral and
Emergent dated December 10, 1997, pursuant to which Emergent became a controlled
subsidiary of Integral, two persons owning 100% of Emergent were issued a total
of 1,800,000 shares of Common Stock of Integral (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. Integral 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, Integral issued 50,000 shares of its common stock to one
person who was not an affiliate of Integral for consulting services rendered to
Integral 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. Integral believes this transaction was
exempt from registration pursuant to Section 4(2) of the Securities Act.
(g) In November 1998, Integral issued 200,000 shares to two persons who were not
affiliates of Integral 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. Integral believes that this transaction
was exempt from registration under Section 504 of Regulation D.
(h) In December 1998, Integral sold 200,000 shares to one person who was not an
affiliate of Integral 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.
Integral believes that this transaction was exempt from registration under
Section 504 of Regulation D.
(i) In January 1999, Integral 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. Integral believes that this transaction
was exempt from registration under Section 504 of Regulation D.
(j) Between January 1999 and March 1999, Integral 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. Integral believes that this transaction was exempt from registration
under Section 504 of Regulation D.
(k) In April 1999, Integral issued a total of 666,666 shares of its common
stock, 333,333 to each of William S. Robinson and William A. Ince in
consideration of management fees owing in the amount of $50,000 to each of
William S. Robinson and William A. Ince. Messrs. Robinson and Ince are officers
and directors of Integral 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. Integral believes this transaction was
exempt from registration pursuant to Section 4(2) of the Securities Act.
38
<PAGE> 63
(l) In April 1999, Integral issued a total of 150,000 shares of its common stock
(valued at $15,000) jointly to two persons who were not affiliates of Integral
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. Integral believes this
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act.
(m) In May 1999, Integral issued a total of 445,000 shares of its common stock
to members of Integral'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 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. Integral believes that transaction was exempt from
registration pursuant to Rule 701 of the Securities Act.
(n) In July 1999, Integral issued 50,000 shares of its common stock to one
person for consulting services rendered to Integral 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.
Integral believes this transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act.
(o) In September 1999, Integral issued an aggregate 654,401 shares of its Series
A Convertible Preferred Stock to officers and directors of Integral. William S.
Robinson received 175,000 shares of Series A in lieu of $175,000 in accrued
salaries through September 30, 1999 and 267,197 shares of Series A in repayment
of $267,197 in loans made to Integral. William A. Ince received 175,000 shares
of Series A in lieu of $175,000 in accrued salaries through September 30, 1999
and 47,213 shares of Series A in repayment of $47,213 in loans made to Integral.
Messrs. Robinson and Ince are officers and directors of Integral 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.
Integral believes this transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act.
(p) In November 1999, Integral issued a total of 405,000 shares of its common
stock to members of Integral'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. Integral believes that
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
(q) In February 2000, Integral issued 200,000 shares of its common stock
pursuant to its employee benefit and consulting services plan to one person. The
exercise price of the shares issued was $.20 per share, and the exercise price
was paid in cash. The transaction did not involve any public offering, the
securities were issued under a plan structured in compliance with Rule 701 of
the Securities Act, no sales commissions were paid, and a restrictive legend was
placed on each certificate evidencing the shares. Integral believes that the
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
(r) In March 2000, Integral issued 87,500 shares of its common stock pursuant to
its employee benefit and consulting services plan to one person. The exercise
price of the shares issued was $.23 per share, and the exercise price was paid
in cash. The transaction did not involve any public offering, the securities
were issued under a plan structured in compliance with Rule 701 of the
Securities Act, no sales commissions were paid, and a restrictive legend was
placed on each certificate evidencing the shares. Integral believes that the
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
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<PAGE> 64
(s) In March 2000, Integral completed a private placement with 10 investors,
sold 2,650,000 shares and warrants to purchase 1,325,000 shares at an exercise
price of $1.80 per share. The transaction did not involve any public offering,
no sales commissions were paid, and a restrictive legend was placed on each
certificate evidencing the shares. Integral believes that the transaction was
exempt from registration pursuant to Section 4(2) and Section 4(6) of the
Securities Act and/or Rule 506 of Regulation D.
(t) In April 2000, Integral issued 287,500 shares of its common stock pursuant
to its employee benefit and consulting services plan to one person. The exercise
price of the shares ranged between $.15 and $.40 per share, and the exercise
price was paid in cash. The transaction did not involve any public offering, the
securities were issued under a plan structured in compliance with Rule 701 of
the Securities Act, no sales commissions were paid, and a restrictive legend was
placed on each certificate evidencing the shares. Integral believes that the
transaction was exempt from registration pursuant to Rule 701 of the Securities
Act.
(u) In April 2000, Integral issued 80,000 shares of its common stock pursuant to
its employee benefit and consulting services plan to one person. The exercise
price of the shares was $.20 per share, and the exercise price was paid in cash.
The transaction did not involve any public offering, the securities were issued
under a plan structured in compliance with Rule 701 of the Securities Act, no
sales commissions were paid, and a restrictive legend was placed on each
certificate evidencing the shares. Integral believes that the transaction was
exempt from registration pursuant to Rule 701 of the Securities Act.
(v) In June 2000, Integral issued 135,000 shares to two individuals in
consideration for two one year promissory notes bearing an 8% interest rate. The
exercise price was $.20 per share. One promissory note is in the amount of
$20,000 and the other is in the amount of $7,500. These transactions did not
involve any public offering, the securities were issued under a Plan structured
in compliance with Rule 701 of the Securities Act, no sales commissions were
paid, and a restrictive legend was placed on each certificate evidencing the
shares. Integral believes that transaction was exempt from registration pursuant
to Rule 701 of the Securities Act.
EXHIBITS
2.1 Agreement and Plan of Reorganization between Integral and Integral
Vision Systems, Inc. dated March 11, 1997. (Incorporated by reference
to Exhibit 2.1 of Integral's registration statement on Form 10-SB (file
no. 0-28353) filed December 2, 1999.)
2.2 Agreement and Plan of Reorganization between Integral and Emergent
Technologies Corporation dated December 10, 1997. (Incorporated by
reference to Exhibit 2.2 of Integral's registration statement on Form
10-SB (file no. 0-28353) filed December 2, 1999.)
3.1 Articles of Incorporation, as amended and currently in effect.
(Incorporated by reference to Exhibit 3.1 of Integral's registration
statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
3.2 Bylaws, as amended and restated on December 31, 1997. (Incorporated by
reference to Exhibit 3.2 of Integral's registration statement on Form
10-SB (file no. 0-28353) filed December 2, 1999.)
4.1 Form of Securities Purchase Agreement between Integral and certain
parties related to the purchase of Integral common stock to be
registered pursuant to this offering (filed herewith).
4.2 Form of Common Stock Purchase Warrant related to the offering of
securities described in Exhibit 4.1 (filed herewith).
40
<PAGE> 65
4.3 Investment Agreement dated May 11, 2000, by and between Integral and
Swartz Private Equity, LLC (filed herewith).
4.4 Warrant to purchase common stock issued to Swartz Private Equity, LLC
on May 11, 2000, exercisable to purchase an aggregate of 495,000 shares
of common stock at $1.306 per share (subject to adjustment) until
December 13, 2004, granted to Swartz in connection with the offering of
securities described in Exhibit 4.3 (filed herewith).
4.5 Registration Rights Agreement, dated May 11, 2000, by and between
Integral and Swartz Private Equity, LLC, related to the registration of
the common stock to be sold pursuant to Exhibit 4.3 (filed herewith).
4.6 Warrant to Purchase Common Stock to be issued from time to time in
connection with the offering of securities described in Exhibit 4.3
(filed herewith).
4.7 Warrant Side Agreement dated May 11, 2000 between Integral and Swartz
related to the offering of securities described in Exhibit 4.3 (filed
herewith).
5.1 Legal opinion of Futro & Trauernicht LLC (filed herewith).
10.1 Sublicense Agreement between Integral's subsidiary, Emergent
Technologies Corporation, and Integral Concepts, Inc., dated January 2,
1996, relating to the Toroidal Helical Antenna. (Incorporated by
reference to Exhibit 10.1 of Integral's registration statement on Form
10-SB (file no. 0-28353) filed December 2, 1999.)
10.2 Agreement between Integral and West Virginia University Research
Corporation on Behalf of West Virginia University dated February 9,
1996, relating to RF Quarter-Wave Coaxial Cavity Resonator.
(Incorporated by reference to Exhibit 10.2 of Integral's registration
statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
10.3 Agreement between Integral and West Virginia University Research
Corporation on Behalf of West Virginia University dated February 9,
1996, relating to Counterfeit Currency Determination Prototype.
(Incorporated by reference to Exhibit 10.3 of Integral's registration
statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
10.4 Sublicense Agreement between Integral Concepts, Inc. and Integral dated
February 15, 1996, relating to the design, construction and operation
of a Plasma Ignition System. (Incorporated by reference to Exhibit 10.4
of Integral's registration statement on Form 10-SB (file no. 0-28353)
filed December 2, 1999.)
10.5 Employment Agreement between Integral and William S. Robinson dated
October 1, 1997 and Addendum dated March 15, 1999. (Incorporated by
reference to Exhibit 10.5 of Integral's registration statement on Form
10-SB (file no. 0-28353) filed December 2, 1999.)
10.6 Employment Agreement between Integral and William A. Ince dated October
1, 1997 and Addendum dated March 15, 1999. (Incorporated by reference
to Exhibit 10.6 of Integral's registration statement on Form 10-SB
(file no. 0-28353) filed December 2, 1999.)
10.7 Employee Benefit And Consulting Services Compensation Plan, as restated
January 10, 1999. (Incorporated by reference to Exhibit 10.7 of
Integral's registration statement on Form 10-SB (file no. 0-28353)
filed December 2, 1999.)
10.8 Sublicense Agreement between Integral's subsidiary, Integral Vision
Systems, Inc., and Integral Concepts, Inc., dated February 15, 1994,
relating to vision system technologies.
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<PAGE> 66
(Incorporated by reference to Exhibit 10.8 of Integral's registration
statement on Form 10-SB/A-1 (file no. 0-28353) filed February 8, 2000).
21.2 Subsidiaries of Integral (filed herewith).
23.1 Consent of Futro & Trauernicht LLC (contained in Exhibit 5.1).
23.2 Consent of Pannell Kerr Forster (filed herewith).
27 Financial Data Schedule. (Filed herewith).
UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the forgoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospects filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and (iii) To include any additional or changed material information on the plan
of distribution.
(2) For the purpose of determining any liability under the Securities
Act, to treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of such securities at that time to be
the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination of the offering.
(b) The undersigned Registrant, hereby requesting acceleration of the effective
date of the registration statement under Rule 461 under the Securities Act,
hereby undertakes to include the following:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of the expenses
incurred or paid by a director, officer, or controlling person of the small
business issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
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<PAGE> 67
SIGNATURES
In accordance with the Securities Act of 1933, the company certifies
that it has reasonable grounds to believe that it meets all of the requirements
of filing on Form SB-2 and authorized this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
INTEGRAL TECHNOLOGIES, INC.
By: /s/ William S. Robinson Date: 7/21/00
----------------------- --------
William S. Robinson, Chairman
In accordance with the Securities Act of 1933, this registration
statement was signed by the following persons in the capacities and on the dates
stated:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ William S. Robinson Chairman, Chief Executive
----------------------- Officer, Treasurer and Director 7/21/00
William S. Robinson -------
/s/ William A. Ince President, Secretary, Chief Financial
------------------- Officer and Director 7/21/00
William A. Ince -------
/s/ Denzel Jack Parsons Director 7/21/00
----------------------- -------
Denzel Jack Parsons
</TABLE>
43
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization between Integral and Integral
Vision Systems, Inc. dated March 11, 1997. (Incorporated by reference
to Exhibit 2.1 of Integral's registration statement on Form 10-SB (file
no. 0-28353) filed December 2, 1999.)
2.2 Agreement and Plan of Reorganization between Integral and Emergent
Technologies Corporation dated December 10, 1997. (Incorporated by
reference to Exhibit 2.2 of Integral's registration statement on Form
10-SB (file no. 0-28353) filed December 2, 1999.)
3.1 Articles of Incorporation, as amended and currently in effect.
(Incorporated by reference to Exhibit 3.1 of Integral's registration
statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
3.2 Bylaws, as amended and restated on December 31, 1997. (Incorporated by
reference to Exhibit 3.2 of Integral's registration statement on Form
10-SB (file no. 0-28353) filed December 2, 1999.)
4.1 Form of Securities Purchase Agreement between Integral and certain
parties related to the purchase of Integral common stock to be
registered pursuant to this offering (filed herewith).
4.2 Form of Common Stock Purchase Warrant related to the offering of
securities described in Exhibit 4.1 (filed herewith).
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.3 Investment Agreement dated May 11, 2000, by and between Integral and
Swartz Private Equity, LLC (filed herewith).
4.4 Warrant to purchase common stock issued to Swartz Private Equity, LLC
on May 11, 2000, exercisable to purchase an aggregate of 495,000 shares
of common stock at $1.306 per share (subject to adjustment) until
December 13, 2004, granted to Swartz in connection with the offering of
securities described in Exhibit 4.3 (filed herewith).
4.5 Registration Rights Agreement, dated May 11, 2000, by and between
Integral and Swartz Private Equity, LLC, related to the registration of
the common stock to be sold pursuant to Exhibit 4.3 (filed herewith).
4.6 Warrant to Purchase Common Stock to be issued from time to time in
connection with the offering of securities described in Exhibit 4.3
(filed herewith).
4.7 Warrant Side Agreement dated May 11, 2000 between Integral and Swartz
related to the offering of securities described in Exhibit 4.3 (filed
herewith).
5.1 Legal opinion of Futro & Trauernicht LLC (filed herewith).
10.1 Sublicense Agreement between Integral's subsidiary, Emergent
Technologies Corporation, and Integral Concepts, Inc., dated January 2,
1996, relating to the Toroidal Helical Antenna. (Incorporated by
reference to Exhibit 10.1 of Integral's registration statement on Form
10-SB (file no. 0-28353) filed December 2, 1999.)
10.2 Agreement between Integral and West Virginia University Research
Corporation on Behalf of West Virginia University dated February 9,
1996, relating to RF Quarter-Wave Coaxial Cavity Resonator.
(Incorporated by reference to Exhibit 10.2 of Integral's registration
statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
10.3 Agreement between Integral and West Virginia University Research
Corporation on Behalf of West Virginia University dated February 9,
1996, relating to Counterfeit Currency Determination Prototype.
(Incorporated by reference to Exhibit 10.3 of Integral's registration
statement on Form 10-SB (file no. 0-28353) filed December 2, 1999.)
10.4 Sublicense Agreement between Integral Concepts, Inc. and Integral dated
February 15, 1996, relating to the design, construction and operation
of a Plasma Ignition System. (Incorporated by reference to Exhibit 10.4
of Integral's registration statement on Form 10-SB (file no. 0-28353)
filed December 2, 1999.)
10.5 Employment Agreement between Integral and William S. Robinson dated
October 1, 1997 and Addendum dated March 15, 1999. (Incorporated by
reference to Exhibit 10.5 of Integral's registration statement on Form
10-SB (file no. 0-28353) filed December 2, 1999.)
10.6 Employment Agreement between Integral and William A. Ince dated October
1, 1997 and Addendum dated March 15, 1999. (Incorporated by reference
to Exhibit 10.6 of Integral's registration statement on Form 10-SB
(file no. 0-28353) filed December 2, 1999.)
10.7 Employee Benefit And Consulting Services Compensation Plan, as restated
January 10, 1999. (Incorporated by reference to Exhibit 10.7 of
Integral's registration statement on Form 10-SB (file no. 0-28353)
filed December 2, 1999.)
10.8 Sublicense Agreement between Integral's subsidiary, Integral Vision
Systems, Inc., and Integral Concepts, Inc., dated February 15, 1994,
relating to vision system technologies.
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
(Incorporated by reference to Exhibit 10.8 of Integral's registration
statement on Form 10-SB/A-1 (file no. 0-28353) filed February 8, 2000).
21.2 Subsidiaries of Integral (filed herewith).
23.1 Consent of Futro & Trauernicht LLC (contained in Exhibit 5.1).
23.2 Consent of Pannell Kerr Forster (filed herewith).
27 Financial Data Schedule. (Filed herewith).
</TABLE>
