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EXCEL - IDEA: XBRL DOCUMENT - INTEGRAL TECHNOLOGIES INC | Financial_Report.xls |
EX-32.2 - EXHIBIT 32.2 - INTEGRAL TECHNOLOGIES INC | ex32_2.htm |
EX-10.46 - EXHIBIT 10.46 - INTEGRAL TECHNOLOGIES INC | ex10_46.htm |
EX-10.41 - EXHIBIT 10.41 - INTEGRAL TECHNOLOGIES INC | ex10_41.htm |
EX-10.43 - EXHIBIT 10.43 - INTEGRAL TECHNOLOGIES INC | ex10_43.htm |
EX-31.1 - EXHIBIT 31.1 - INTEGRAL TECHNOLOGIES INC | ex31_1.htm |
EX-10.44 - EXHIBIT 10.44 - INTEGRAL TECHNOLOGIES INC | ex10_44.htm |
EX-10.42 - EXHIBIT 10.42 - INTEGRAL TECHNOLOGIES INC | ex10_42.htm |
EX-21.4 - EXHIBIT 21.4 - INTEGRAL TECHNOLOGIES INC | ex21_4.htm |
EX-32.1 - EXHIBIT 32.1 - INTEGRAL TECHNOLOGIES INC | ex32_1.htm |
EX-31.2 - EXHIBIT 31.2 - INTEGRAL TECHNOLOGIES INC | ex31_2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
T | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended June 30, 2014
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o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
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For the transition period from: ______________ to ______________
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Commission file number: 0-28353
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INTEGRAL TECHNOLOGIES, INC.
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(Name of small business issuer as specified in its charter)
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Nevada
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98-0163519
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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805 W. Orchard Drive, Suite 7, Bellingham, Washington
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98225
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(Address of principal executive offices)
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(Zip Code)
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Issuer’s telephone number: (360) 752-1982
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value
Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No T
Indicate by check mark if the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No T
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No o
Indicate by check mark whether the issuer has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No o
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company T
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes o No T
The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 2013 (based on an average of the bid and ask prices of approximately $0.29) was approximately $$22,474,730.
The number of shares of the issuer’s common stock, $.001 par value, outstanding as of September 2, 2014, was 100,443,529 shares.
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Page
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PART I
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Item 1.
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2
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Item 1A.
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8
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Item 1B.
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14
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Item 2.
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14
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Item 3.
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14
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Item 4.
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14
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PART II
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Item 5.
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14
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Item 6.
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15
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Item 7.
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15
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Item 7A.
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18
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Item 8.
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Item 9.
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19
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Item 9A.
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19
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Item 9B.
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20
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PART III
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Item 10.
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21
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Item 11.
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25
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Item 12.
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28
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Item 13.
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30
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Item 14.
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31
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Item 15.
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32
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34
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PART I
CAUTIONARY STATEMENT IDENTIFYING IMPORTANT FACTORS
THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO
DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS
Readers of this document, and any document incorporated by reference herein, are advised that this document and documents incorporated by reference into this document contain both statements of historical facts and forward looking statements. Such forward-looking statements are characterized by future or conditional verbs such as “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. Such statements are only predictions and our actual results may differ materially from those anticipated in these forward-looking statements. We believe that it is important to communicate future expectations to investors. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated by the forward looking statements since there may be events in the future that we are not able to accurately predict or control. Factors that may cause such differences include, but are not limited to, those discussed under Item 1A. Risk Factors and elsewhere in this Form 10-K for the year ended June 30, 2014, as filed with the Securities and Exchange Commission include, but are not limited to, (i) projections of revenues, income or loss, earnings or loss per share, capital expenditures, dividends, capital structure and other financial items, (ii) statements of the plans and objectives of Integral Technologies, Inc. or our management or Board of Directors, including the introduction of new products, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities, (iii) statements of future economic performance, and (iv) statements of assumptions underlying other statements and statements about our company or our business.
This document, and any documents incorporated by reference herein, also identifies important factors that could cause actual results to differ materially from those indicated by forward looking statements. These risks and uncertainties include price competition, the decisions of customers, the actions of competitors, the effects of government regulation, possible delays in the introduction of new products and services, customer acceptance of products and services, our ability to secure debt and/or equity financing on reasonable terms, and other factors that are described herein and/or in documents incorporated by reference herein.
The cautionary statements made above and elsewhere should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by Integral Technologies, Inc. Forward looking statements are beyond the ability of our company to control and in many cases we cannot predict what factors would cause results to differ materially from those indicated by the forward looking statements. We do not undertake any duty to update forward looking statements and the estimates and assumptions associated with them as circumstances change, except to the extent required by applicable federal securities laws.
BUSINESS DEVELOPMENT
Integral Technologies, Inc. ("Integral," the "Company" or "we") is, incorporated under the laws of the State of Nevada on February 12, 1996. To date, we have expended resources on the research and development of several different types of technologies.
Presently, we are focusing substantially all of our resources on researching, developing, engineering and commercializing our ElectriPlast® technology. The technology possesses a multitude of applications in a myriad of industries. These include the auto industry, the aerospace, consumer electronics, and commercial aviation industries, among others. One key factor that could drive demand for ElectriPlast® is the need for light-weighting. Automotive and aerospace are leading the way to achieve reduced emissions and increased fuel economy. Light-weighting involves the substitution of lighter materials, often times carbon-fiber based, for heavier (aluminum and other metals) materials.
On May 21, 2010, President Obama asked the EPA and NHTSA to jointly develop a national program that would “produce a new generation of clean vehicles,” to lower oil usage. The government has mandated that auto manufacturers comply with CAFÉ (Corporate Average Fuel Economy) standards by the year 2025. To become more energy efficient, auto manufacturers are required to have their fleets achieving 54.5 MPG (miles per gallon) by then. According to a 2009 issue of Car and Driver Magazine, in 2009, car fleets averaged 32.5 CAFE MPG and trucks averaged 24.5 MPG. The Obama administration’s mandate is expected to nearly double fuel efficiency by 2025.
We apply a significant portion of our resources to the protection of our intellectual property through patent filings. One source of income will be from up-front licensing fees as is the case with our manufacturing license agreement for the use of our patents and proprietary “know-how” for the manufacture of the ElectriPlast® pellets by Hanwha L&C of Korea. We expect to derive future income from additional manufacturing license fees, and other license fees related to the use our patents and proprietary “know how” by third-parties for the development and manufacture of a variety of ElectriPlast® applications. We also expect to generate income from royalties from the sale of ElectriPlast® materials by our licensees as well as from our direct sales efforts.
Our business model calls for the Company to generate revenue from license fees from the use of our patent portfolio and proprietary “know-how”, to generate revenue through the sale of ElectriPlast® material either through a royalty revenue stream or from direct sales of ElectriPlast®, and by providing technical services through our Detroit Tech Center to companies needing our expertise in applying ElectriPlast® in their applications. The Company’s management and engineering team has expertise and know-how in the ideas related to the use of the product.
In particular, our business model calls for collaborating with leading resin and fiber suppliers, manufacturers, and technology innovators to manufacture ElectriPlast®, and develop new product applications for ElectriPlast® . We anticipate that these relationships will lead to greater market penetration and adoption for our products. In view of these goals, we have recently formed relationships with BASF, Delphi Automotive PLC and Hanwha L&C, and believe that we now have several key global relationships to help us expand our operations both domestically and internationally.
During the fiscal year, several actions were taken by the Company to better position the commercialization of ElectriPlast. The Company continued to emphasize the expansion of ElectriPlast's technical and engineering capabilities. On January 24, 2014, Integral announced the opening of its ElectriPlast Tech Center in Detroit, which provides facility upgrades for staff expansion, while adding resources for greater internal testing, engineering and product development. The Detroit Tech Center's engineering staff has over 50 years of expertise and Integral plans to add to this team in the near future. With the opening of the Detroit facility, Integral subsequently announced that it closed its Fort Washington, Pennsylvania office at the end of January. The Company also announced the appointment of Integral's Chairman of the Board, James Eagan, to the position of CEO of ElectriPlast. Mr. Eagan replaced Herbert Reedman Jr., who led the commercialization efforts for ElectriPlast over the past three years. Mr. Reedman resigned his position as an Integral Board member and as President, and remained an adviser to Integral's Board of Directors. Integral’s CEO, Doug Bathauer was appointed President of the Company. The Company also announced the hiring of Slobodan ("Bob") Pavlovic to its Detroit Tech Center engineering team. Pavlovic, an innovator in conductive plastic applications and a veteran of the auto and aircraft industry, adds more than 34 years of experience in advanced engineering to the company. On February 20, 2014, William Ince resigned as chief financial officer of the Company, effective immediately. There was no disagreement or dispute between Mr. Ince and the Company which led to his resignation.
The Company has continuing needs for funding to address operating requirements as well as to realize growth opportunities. Integral announced on February 20, 2014 that Bart Snell was named the Company's Chief Financial Officer. Snell brought extensive financial and accounting experience to Integral, including roles with various emerging growth and public companies in the technology, telecommunication and manufacturing industries. Snell will assist the CEO and Board in overseeing the company's development and financial growth.
TECHNOLOGIES
ElectriPlast®
We have researched and developed an innovative, electrically and thermally conductive resin-based material called “ElectriPlast®.” The ElectriPlast® polymer is a compounded formulation of resin-based materials that are conductively loaded, or doped, with a proprietary-controlled, balanced concentration of micron conductive materials, and then pelletized using our patented manufacturing process. The conductive loading or doping within this pellet is then homogenized using conventional molding techniques and conventional molding equipment. The end result is a product that can be molded into any of the infinite shapes and sizes associated with plastics and rubbers, is non-corrosive, and can serve as an electrically conductive alternative material to metal.
ElectriPlast® is a patented non-corrosive, durable, conductive plastic pellet that replaces the metallic component currently used for shielding and conductive devices, thus creating applications never before possible and with a 40-60% weight reduction. ElectriPlast's® intellectual property rights and 55 issued patents and 10 pending applications cover both the material and its applications.
Various examples of applications for ElectriPlast® include antennas, shielding, lighting circuitry, switch actuators, resistors, batteries, medical devices, thermal management and cable connector bodies, among many others. We have been working to introduce these new applications and the ElectriPlast® technology on a global scale.
The ElectriPlast® intellectual property (IP) portfolio is the centerpiece of Integral’s strategy to aggressively develop, protect, and market its innovations. Integral’s patent holdings encompass a broad range of ElectriPlast® developments which extend beyond the core technology to include key applications, and manufacturing processes
ElectriPlast® can be fabricated into virtually any shape or dimension using low-cost capital investment equipment, such as injection molding and extrusion versus stamping. Its design flexibility, shorter development cycle and speed of manufacturing create a valuable market edge for customers.
Jasper Rubber Products, Inc., is Integral’s US manufacturer of its proprietary ElectriPlast® product line (“Jasper”) (www.jasperrubber.com), and Hanwha L&C is the Korean manufacturer.
Jasper, founded in 1949, is a leader in innovative rubber and plastics development. It manufactures a full range of products for customers in the major appliance, oil filter, and automotive industries, a number of which are Fortune 500 companies.
Hanwha L&C is part of the Hanwha Group (“Hanwha”) of companies that collectively form one of the largest conglomerates in South Korea. Headquartered in Seoul, Hanwha’s businesses include chemicals, munitions, plastics and similar materials for aerospace, automotive and consumer goods industries, as well as solar, pharmaceuticals, financial services, renewable energy, manufacturing and construction. Hanwha Group is on Forbes’ list of Top Global Companies.
Patents/Trademarks on Technologies
Our intellectual property portfolio consists of over fourteen years of accumulated research and design knowledge and trade secrets. We have sought United States (“US”) patent protection for many of our ideas related to our ElectriPlast® technologies. Currently, we have filed 116 non-provisional US patent applications, 55 of which have been issued as patents, with 51 of those issued patents not yet expired. No assurances can be given that all patent applications will be approved; however, to the extent that patents are not granted, we will continue to attempt to commercialize these technologies without the protection of patents. As patents are issued, we will have the exclusive right to use and license the design(s) described in each issued patent for the life of the patent in the US.
Of the 116 non-provisional applications filed that have not issued as patents, 9 are currently pending, and 52 are no longer pending. Integral continues to pursue intellectual property protection through its patent and trademark portfolio while constantly evaluating its filings to judiciously apply resources to our most critical technologies. Integral has filed 12 Canadian patent applications, 2 of which have issued, with 10 no longer being active. Integral has filed an International patent application, which has not yet published.
Integral has a registered US trademark for ELECTRIPLAST®, a registered US trademark for INTEGRAL (with design)®, and a pending US trademark application for WHERE LIGHTWEIGHTING STARTSTM. In addition, Integral has a registered mark for ELECTRIPLAST® in China, Japan, Korea, Europe and Taiwan. In addition, Integral has a registered mark for WHERE LIGHTWEIGHTING STARTS® in Europe, Japan and Korea. These applications and registrations establish rights for the use of these marks in commerce.
Product Manufacturing and Distribution
We are not currently in the manufacturing business. As demand continues to grow and our need to increase capacity, reduce manufacturing costs and to improve margins, we would consider directly entering into the manufacturing business, including the possibility of acquiring existing assets or an operating company to help us accelerate this process. We have entered into a non-exclusive manufacturing agreement with Jasper Rubber, discussed herein, which provides for Jasper to manufacture ElectriPlast® for us.
Working with Jasper, we have refined the manufacturing and molding process of ElectriPlast®. The Jasper facility has production capacity able to meet our current and near term projected needs as well as the ability to rapidly increase capacity.
In June 2013, we signed a 10-year agreement with Hanwha L&C that grants Hanwha L&C an exclusive right to sell, distribute and manufacture ElectriPlast® in South Korea. Additionally, Hanwha has acquired non-exclusive sales and distribution rights to ElectriPlast® in Japan, Taiwan and China. Hanwha L&C is part of the Hanwha Group of companies that collectively form one of the largest conglomerates in South Korea, and is a global supplier in both automotive and consumer goods materials.
We also signed a Letter of Intent ("LOI") with chemical leader BASF Corporation to jointly explore the North American market for ElectriPlast's patented line of conductive thermoplastics. Together with BASF, we will approach key OEMs and Tier 1 manufacturers with opportunities for conductive thermoplastics as a lightweight material alternative to metals. As the world's leading chemical company, BASF’s portfolio ranges from chemicals, plastics, performance products and crop protection products to oil and gas.
As an engineered raw material, our technologies will not be sold directly to the general public, but rather to businesses and manufacturers of certain products who will incorporate our technologies as components in the design of their end-products. In addition to our current relationships, we are also exploring other opportunities for potential global partnerships in the automotive industry, as well as other industries, including consumer electronics, cable and wire, and telecommunications.
Barriers to Entry into Market Segment
We have been working to introduce the ElectriPlast® technology as an alternative to metal for use as an electrically conductive material. Although gaining rapidly, little industry knowledge exists today regarding the science and use of conductive resins as an alternative material or how to apply the material to specific applications. As with any new technology, a prospective client must first become educated on the uses of the material, then investigate, test, trial and accept that the alternative material is an adequate, to superior cost effective replacement option. Until there is greater knowledge and broader acceptance of ElectriPlast as a viable metal replacement technology, we will continue to experience prolonged selling cycles.
SUMMARY OF AGREEMENTS
Our business model calls for collaborating with leading technology innovators to develop new product applications for ElectriPlast® and to license our intellectual property for its manufacture and commercialization across many industries. Below is a summary of each of our commercial agreements concerning our ElectriPlast® technology:
(note: we have not received any significant revenue from these agreements unless noted)
Patent License Agreement with Heatron, Inc.
In March 2006, we entered into a Patent License Agreement with Heatron, Inc. (“Heatron”), pursuant to which we granted to Heatron the rights to use our ElectriPlast® technology for specific applications in the heating and LED lighting markets. Heatron, founded in 1977 and based in Leavenworth, Kansas, is an industry leader in heating element and thermal management designs and solutions.
We granted to Heatron a non-exclusive, non-sublicensable, non-assignable, worldwide license; however, Heatron’s rights were exclusive for the initial two years. The agreement will terminate upon the expiration of the last patent licensed under the agreement, or earlier under certain other circumstances.
Any revenue to be generated by us under the agreement will be from future sales of products manufactured by Heatron containing the ElectriPlast® technology.
Patent License Agreement with Jasper Rubber Products, Inc.
In August 2006, we entered into a Patent License Agreement with Jasper, pursuant to which we granted to Jasper the rights to use our ElectriPlast® technology for specific applications within its customer base. Jasper, founded in 1949, and based in Jasper, Indiana, is an industry leader in innovative rubber and plastics development. Jasper manufactures a full range of molded, extruded, lathe-cut rubber and thermoplastic products for customers in the major appliance, oil filter, and automotive industries, a number of which are Fortune 500 companies.
We granted to Jasper a non-exclusive, non-sublicensable, non-assignable, worldwide license. The agreement will terminate upon the expiration of the last patent licensed under the agreement, or earlier under certain circumstances.
Any revenue to be generated by us under the agreement will be from future sales of products manufactured by Jasper containing the ElectriPlast® technology.
Manufacturing Agreement with Jasper Rubber Products, Inc.
In November 2006, we entered into a Manufacturing Agreement with Jasper, pursuant to which Jasper manufactures resin-based conductive, moldable capsules incorporating our ElectriPlast® technology. The primary term of the agreement is five years, subject to automatic renewal or termination under certain conditions. Jasper agreed that during the term of the agreement and for a period of 12 months after its expiration or termination for any reason, Jasper will not directly or indirectly compete with us or our ElectriPlast® technology.
In July 2007, we entered into Amendment One to the Manufacturing Agreement (“Amendment One”) with Jasper. The primary purposes of Amendment One were 1) to replace in its entirety Section 4 of the Manufacturing Agreement concerning “Pricing, Invoicing and Payment”, and 2) to authorize Jasper to sell, on our behalf, products incorporating our ElectriPlast® technology. As revised by Amendment One, Section 4 of the Manufacturing Agreement now reflects more definitive information concerning definitions and calculations of “hourly payment”, “sales royalties”, “gross margin”, “manufacturing costs” and “payment terms”. These revisions were mutually agreed upon following several months of production test-runs and cost evaluations.
Patent License Agreement with ADAC Plastics, Inc. d/b/a ADAC Automotive.
In November 2006, we entered into a Patent License Agreement with ADAC Plastics, Inc. d/b/a ADAC Automotive (“ADAC”), pursuant to which we granted to ADAC the rights to use our ElectriPlast® technology for use in car antennas, cup holder heating elements, driver’s seat heating elements and light-emitting diode (LED) packs manufactured and sold by specified customers of ADAC. ADAC is a full-service automotive supplier dedicated to the production of door handles and components, cowl vent grilles, exterior trim, and marker lighting. Founded in 1975 as ADAC Plastics, Inc., the Grand Rapids, Michigan-based company operates facilities in North America and the United Kingdom.
We granted to ADAC a non-exclusive, non-sublicensable, non-assignable, worldwide license. The agreement will terminate upon the expiration of the last patent licensed under the agreement, or earlier under certain circumstances.
Any revenue to be generated by us under the agreement will be from future sales of products manufactured by ADAC containing the ElectriPlast® technology. We have not yet derived revenues from this agreement.
Patent License Agreement with Esprit Solutions Limited
In December 2006, we entered into a Patent License Agreement with Esprit Solutions Limited (“Esprit”), pursuant to which we granted to Esprit the rights to use our ElectriPlast® technology for the manufacture and sale of products to Esprit’s customer base in the Aerospace/Defense Interconnection and Protective Components Industry. Esprit, based in the United Kingdom, specializes in high performance protective systems within the Aerospace and Defense markets.
We granted to Esprit a non-exclusive, non-sublicensable, non-assignable, worldwide license. The agreement will terminate upon the expiration of the last patent licensed under the agreement, or earlier under certain circumstances.
Any revenue to be generated by us under the agreement will be from raw materials fees.
Patent License Agreement with Knowles Electronics, LLC
In January 2007, we entered into a Patent License Agreement with Knowles Electronics, LLC (“Knowles”), pursuant to which we granted to Knowles the rights to use our proprietary ElectriPlast® technology for the manufacture and sale of electromagnetic field (EMF) protected molded components. Knowles is the world's leading provider of microphones and receivers to the hearing health industry. They are credited with the miniaturization of the acoustic transducer, which has enabled the design and manufacture of smaller hearing aids.
We granted to Knowles a non-exclusive, non-sub-licensable, non-assignable, worldwide license. The agreement will terminate upon the expiration of the last patent licensed under the agreement, or earlier under certain circumstances.
Any revenue to be generated by us under the agreement will be from raw materials fees.
Co-Development Agreement with Delphi Automotive PLC
In June of 2013, we entered into a co-development agreement with Delphi Automotive PLC to jointly develop wire and cable insulation applications using ElectriPlast® conductive resin technology. Integral and Delphi will focus their joint development efforts on replacing the copper braiding in wire and cable applications with the lighter and more cost effective plastic hybrid material ElectriPlast®. The resulting applications are expected to be lighter, less costly to manufacture and substantially easier to install. Delphi Automotive PLC is a leading global supplier of electronics and technologies for automotive, commercial vehicle and other market segments. Operating major technical centers, manufacturing sites and customer support facilities in 32 countries, Delphi delivers real-world innovations that make products smarter and safer as well as more powerful and efficient.
Letter of Intent with BASF
In June of 2013, we signed a Letter of Intent ("LOI") with chemical leader BASF Corporation to jointly explore the North American market for ElectriPlast's patented line of conductive thermoplastics. Along with BASF, we will approach key OEMs and Tier 1 manufacturers with opportunities for conductive thermoplastics as a lightweight material alternative to metals. As the world's leading chemical company, BASF’s portfolio ranges from chemicals, plastics, performance products and crop protection products to oil and gas.
Patent License Agreement with Hanwha L&C Corp.
On June 21, 2013, we entered into a 10-year license agreement with Hanwha L&C Corp., a global high-tech materials maker based in South Korea. The agreement granted Hanwha L&C Corp. an exclusive, non-transferrable, non-sub licensable, license to manufacture, sell and distribute Integral's line of conductive plastics, ElectriPlast®, in South Korea, as well as a non-exclusive, non-transferable, non-sub licensable right to sell and distribute ElectriPlast® for Japan, Taiwan and China markets. The Company may terminate Hanwha's rights in Japan and Taiwan, with certain considerations provided to Hanwha, if it desires to enter into an exclusive agreement with a third party for those territories. There was a one-time license fee and it requires an ongoing royalty fee for the life of the agreement.
See item 7 for amount of revenue recognized during the year ended June 30, 2014.
EMPLOYEES/CONSULTANTS
We currently rely on both full and part-time associates, who work on our behalf either as employees or on a contractual basis.
SEC REPORTS AVAILABLE ON WEBSITE
Our website address is www.itkg.net. Information found on our website is not incorporated by reference into this report. We make available free of charge through our website our Securities and Exchange Commission, or SEC, filings furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Use of Social Media:
Investors and others should note that we currently announce material information using SEC filings, press releases, public conference calls and webcasts. In the future, we will continue to use these channels to distribute material information about the Company and may also utilize our website and/or various social media to communicate important information about the Company, key personnel, new brands and services, trends, new marketing campaigns, corporate initiatives and other matters. Information that we post on our website or on social media channels could be deemed material; therefore, we encourage investors, the media, our customers, business partners and others interested in our Company to review the information we post on our website as well as the following social media channels: Facebook, YouTube and Twitter.
Any updates to the list of social media channels we may use to communicate material information will be posted on the Investor Relations page of the Company`s website at www.itkg.net
An investment in our common stock involves major risks. Before you invest in our common stock, you should be aware that there are various risks, including those described below. You should carefully consider these risk factors together with all of the other information included in this annual report on Form 10-K before you decide to invest in shares of our common stock.
Purchase of our stock is a highly speculative and you could lose your entire investment. We have been operating at a loss since inception, and you cannot assume that our business plans will either materialize or prove successful. In the event our plans are unsuccessful, you may lose all or substantially all of your investment. The purchase of our stock must be considered a highly speculative investment.
We have incurred substantial losses from inception and we have never generated revenues; failure to achieve profitability in the future would likely cause the market price for our common stock to decline significantly. We have generated net losses from inception and we have an accumulated deficit of approximately $48.5 million as of June 30, 2014. We have experienced significant operating losses to date, including net losses of $4.5 million for fiscal year 2014 and $3.8 million in fiscal year 2013. As of June 30, 2014, we had approximately $200,000 in cash. Our financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary as a result of this uncertainty. As a result of the substantial doubt about our ability to continue as a going concern, we may experience possible adverse effects from our customers, on our creditworthiness, or on investor confidence, any of which may have a material adverse effect on our business and the trading price of our common stock.
If we do not generate adequate revenues in our fiscal year ending June 30, 2015, we will be required to raise substantial capital to continue our operations. Unless we generate adequate revenues from operations (we have had no revenue to date) in the near future, we will require additional financing to carry out our business plans next year, and such financing may not be available at that time. If we require additional financing, we may seek additional funds through private placements that will be exempt from registration and will not require prior shareholder approval. If additional funds are raised by issuing common stock, or securities that are convertible into common stock (such as preferred stock, warrants, or convertible debentures), further dilution to shareholders could occur. Additionally, investors could be granted registration rights by us that could result in market overhang and depress the market price of the common stock. If we fail to obtain sufficient additional financing, we will not be able to implement our business plans in an effective or timely manner.
Additional financing is necessary for the implementation of our growth strategy. We may require additional debt and/or equity financing to pursue our growth strategy. Given our limited operating history and existing losses, there can be no assurance that we will be successful in obtaining additional financing. Lack of additional funding could force us to curtail substantially our growth plans or cease of operations. Furthermore, the issuance by us of any additional securities pursuant to any future fundraising activities undertaken by us would dilute the ownership of existing shareholders and may reduce the price of our common stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations.
We may be unable to manage our growth or implement our expansion strategy. We may not be able to expand our product and service offerings, our client base and markets, or implement the other features of our business strategy at the rate or to the extent presently planned. Our projected growth will place a significant strain on our administrative, operational and financial resources. If we are unable to successfully manage our future growth, establish and continue to upgrade our operating and financial control systems, recruit and hire necessary personnel or effectively manage unexpected expansion difficulties, our financial condition and results of operations could be materially and adversely affected.
If we are unable to compete effectively with our competitors, we will not be successful generating revenues or attaining profits. Our ability to generate revenues and achieve profitability is directly related to our ability to compete with our competitors. Most of the companies with which we compete and expect 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. In each market, we face competition from companies with established technologies. Currently, we believe that we will be able to compete because of the relative performance, price and adaptability of our unique ElectriPlast® technology. Our beliefs are based only on our research and development testing efforts. If we are unable to compete effectively, we will not be successful in generating revenues or attaining profits.
Loss of key personnel could cause a major disruption in our day-to-day operations and we could lose our relationships with customers and third-parties with whom we do business. Our success is heavily dependent on the continued active participation of our current executive officers listed under “Management.” Loss of the services of one or more of our officers could have a material adverse effect upon our business, financial condition or results of operations. Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel. Competition for qualified employees among companies in the technology industry is intense, and the loss of any of such persons, or an inability to attract, retain and motivate any additional highly skilled employees required for the expansion of our activities, could have a materially adverse effect on us. The inability on our part to attract and retain the necessary personnel and consultants and advisors could have a material adverse effect on our business, financial condition or results of operations.
If future market acceptance of our ElectriPlast® technology is poor, we will not be able to generate adequate sales to achieve profitable operations. Our future is dependent upon the success of our current and future marketing efforts put towards our ElectriPlast® technology. Our ElectriPlast® technology will be marketed to manufacturers of products that will benefit from the incorporation of any of the ElectriPlast® applications into their products. As of June 30, 2014, we have not generated substantial revenue from our ElectriPlast® technology. If future market acceptance of our ElectriPlast® technology is poor, we will not be able to generate adequate sales to achieve profitable operations.
We rely entirely on contract manufacturers and suppliers to manufacture and distribute our products. If they experience manufacturing or distribution difficulties, or are otherwise unable to manufacture and distribute sufficient quantities to meet demand, our commercialization efforts may be materially harmed. We have no internal manufacturing or distribution capabilities. Instead, we rely on a combination of contract manufacturers and our partners to manufacture Electriplast, and to distribute that product to third party purchasers. Our manufacturers may experience problems with their respective manufacturing and distribution operations and processes, including for example, quality issues, including product specification and stability failures, quality procedural deviations, improper equipment installation or operation, utility failures, contamination and natural disasters. Any delay or disruption in the availability of our products from third parties could result in production disruptions, delays or higher costs with consequent adverse effects on us.
Dependence on outside suppliers and manufacturers could disrupt our business if they fail to meet our expectations. Currently, we rely on outside suppliers and manufacturers to produce ElectriPlast® for us. While we have entered into formal arrangements with outside suppliers and manufacturers for the production of ElectriPlast® if any of them should become too expensive or suffer from quality control problems or financial difficulties, we would have to find alternative sources. If alternative sources are not readily available, this could significantly disrupt our business.
Our patent and other intellectual property rights may be subject to uncertainty and may be challenged or circumvented by competitors. We rely on a combination of patents, patent applications, trademarks, trade secrets and confidentiality procedures to protect our intellectual property rights, which we believe will give us a competitive advantage over our competitors. We have sought US patent protection for many of our ideas related to our ElectriPlast® technologies. Our intellectual property portfolio consists of over thirteen years of accumulated research and design knowledge and trade secrets. We have sought United States (“US”) patent protection for many of our ideas related to our ElectriPlast® technologies. Currently, we have filed 116 non-provisional US patent applications, 55 of which have been issued as patents, with 51 of those issued patents not yet expired. No assurances can be given that all patent applications will be approved; however, to the extent that patents are not granted, we will continue to attempt to commercialize these technologies without the protection of patents. As patents are issued, we will have the exclusive right to use and license the design(s) described in each issued patent for the life of the patent in the US.
Of the 116 non-provisional applications filed that have not issued as patents, 9 are currently pending, and 52 are no longer pending. Integral continues to pursue intellectual property protection through its patent and trademark portfolio while constantly evaluating its filings to judiciously apply resources to our most critical technologies. Integral has filed 12 Canadian patent applications, 2 of which have issued, with 10 no longer being active.
Integral has one pending US trademark application for ELECTRIPLASTTM, one registered US trademark for ELECTRIPLAST®, a registered US trademark for INTEGRAL (with design)®, and a pending US trademark application for WHERE LIGHTWEIGHTING STARTSTM. In addition, Integral has a registered mark for ELECTRIPLAST® in China, Japan, Europe and Taiwan, plus a pending trademark application in Korea for ELECTRIPLASTTM. In addition, Integral has pending trademark applications in China, Japan, Europe, Korea and Taiwan for WHERE LIGHTWEIGHTING STARTSTM. These applications and registration establish rights for the use of these marks in commerce.
The issuance of a patent is not conclusive as to its validity or enforceability and, if a patent is issued, it is uncertain how much protection, if any, will be given to our patent if we attempt to enforce it. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications or that we were the first to invent the technology. Our competitors have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies. Litigation, which could be costly and time consuming, may be necessary to enforce our current patents, or any patent issued in the future, or to determine the scope and validity of the proprietary rights of third parties. A competitor may successfully challenge the validity or enforceability of a patent or challenge the extent of the patent’s coverage. If the outcome of litigation is adverse to us, third parties may be able to use our patented technology without payment to us. Even if we are successful in defending such litigation, the cost of litigation to uphold the patent can be substantial.
It is possible that competitors may infringe upon our patents or successfully avoid them through design innovation. To stop these activities we may need to file a lawsuit. These lawsuits are expensive and would consume time and other resources of the Company. In addition, there is a risk that a court would decide that our patent is not valid, that we do not have the right to stop the other party from using the inventions, or that the competitor’s activities do not infringe our patent.
Our competitive position is also dependent upon unpatented technology and trade secrets, which may be difficult to protect. Competitors may independently develop substantially equivalent proprietary information and techniques that would legally circumvent our intellectual property rights. The inability to adequately protect our intellectual property rights, or any substantial expenses incurred in protecting our intellectual property rights, could have a material adverse affect on our financial condition and results of operations.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. The PTO and various foreign governmental patent agencies require compliance with a number of procedural, documentaries, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.
Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property, which could limit our ability to compete. We rely in part on trade secret protection in order to protect our proprietary trade secrets and unpatented know-how. However, trade secrets are difficult to protect, and we cannot be certain that others will not develop the same or similar technologies on their own. We have taken steps, including entering into confidentiality agreements with our employees, consultants, outside collaborators and other advisors, to protect our trade secrets and unpatented know-how. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party by us during the course of the party’s relationship with us. We also typically obtain agreements from these parties which provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets or know-how is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets or know-how. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.
The use of our technologies could potentially conflict with the rights of others. Our competitors, or others, may have or may acquire patent rights that they could enforce against us. If our products conflict with patent rights of others, third parties could bring legal actions against us, our suppliers or customers, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to alter our products or obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any legal action and a required license under the patent may not be available on acceptable terms or at all. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial. The inability to adequately protect our intellectual property rights, or any substantial expenses incurred in protecting our intellectual property rights, could have a material adverse affect on our financial condition and results of operations.
If there are defects and errors in the Company’s technology, it may lose revenues. Developing, marketing and sale of our products and services may subject us to product liability claims. We currently do not have insurance coverage against product liability risks. Although we intend to purchase such insurance, such insurance coverage may not be adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome, product liability claims may result in decreased demand for a service, injury to our reputation, and loss of revenues. Defects and errors in current or future services or products could result in delay or prevent further deployment of the Company’s technology, lost revenues, or a delay in or failure to achieve market acceptance. Any of these scenarios could seriously harm the Company’s business and operating results. If the Company’s products contain defects not discovered in the process of development or in its current deployment, it could seriously undermine the perceived trust and security needed for a commercial system and could delay or prevent market acceptance of its technology resulting in material adverse effects to the Company’s business and operating results. Any defect or error could also deter potential customers, result in loss of customer confidence and adversely affect the Company’s existing customer relationships and may result in losses that could be material to us.
How future issuances of common stock pursuant to our stock plans will affect you. We have three non-qualified stock plans in effect. As of June 30, 2014, approximately 2,639,500 (2001-764,500, 2003-1,375,000, 2009-500,000) shares are available under the 2001 and 2003 plans for future issuance, either directly or pursuant to options, to our officers, directors, employees and consultants. As of June 30, 2014, approximately 5,250,000 shares are issued and have fully vested under our option plans, at a weighted-average exercise price of approximately $0.43 per share. Additional stock or options to acquire our stock of can be granted at any time by our board of directors, usually without shareholder approval. When shares of common stock are issued directly or upon the exercise of options under these plans, your ownership may be diluted.
We do not expect to be able to pay cash dividends in the foreseeable future, so you should not make an investment in our stock if you require dividend income. The payment of cash dividends, if any, in the future rests within the discretion of our board of directors and will depend upon, among other things, our earnings, our capital requirements and our financial condition, as well as other relevant factors. We have not paid or declared any cash dividends upon our common stock since our inception and by reason of our present financial status. Our contemplated future financial requirements do not contemplate or anticipate making any cash distributions upon our common stock in the foreseeable future.
The market price of our common stock is highly volatile, and several factors that are beyond our control, including our common stock being historically thinly traded, could adversely affect its market price. Historically, our common stock has been thinly traded and the market price has been highly volatile. During the year ended June 30, 2014, the closing bid price of our common stock has been quoted on the OTC Bulletin Board from as low as $0.24 to as high as $0.58. These quotations reflect interdealer prices without retail markup, markdown, or commission and may not represent actual transactions. For these and other reasons, our stock price is subject to significant volatility and will likely be adversely affected if our revenues or earnings (or lack of revenues or earnings) in any quarter fail to meet the investment community’s expectations. Additionally, the market price of our common stock could be subject to significant fluctuations in response to:
· | announcements of new products or sales offered by us or our competitors; |
· | actual or anticipated variations in quarterly operating results; |
· | changes in financial estimates by securities analysts, if any; |
· | significant developments relating to our relationships with our customers or suppliers; |
· | customer demand for our products; |
· | investor perceptions of our industry in general; |
· | announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures |
· | changes in the market’s perception of us or the nature of our business; and |
· | sales of our common stock. |
Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources. Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.
Future sales of common stock into the public marketplace will increase the public float and may adversely affect the market price. As of June 30, 2014, approximately six million shares of common stock were available for sale by both affiliates (officers and directors) and non-affiliates under Rule 144 of the Securities Act of 1933, as amended. In general, under Rule 144, a person who has held stock for six months and is not an affiliate of the Company may sell their shares without limitation under Rule 144. Future sales of common stock will increase the public float and may have a material adverse effect on the market price of the common stock, which in turn could have a material adverse affect on our ability to obtain future funding as well as create a potential market overhang.
If our common stock remains subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected. Unless our securities are listed on a national securities exchange, or we have net tangible assets of $5,000,000 or more and our common stock has a market price per share of $5.00 or more, transactions in our common stock will be subject to the SEC’s “penny stock” rules. If our common stock remains subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.
Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:
• | make a special written suitability determination for the purchaser; |
• | receive the purchaser’s written agreement to the transaction prior to sale; |
• | provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and |
• | obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed. |
As a result, if our common stock becomes subject to the penny stock rules, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.
Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions requiring stockholder approval. Our directors, executive officers and principal stockholders, and their respective affiliates, beneficially own approximately 13.4% of our outstanding shares of common stock. As a result, these stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:
• | delaying, deferring or preventing a change in corporate control; |
• | impeding a merger, consolidation, takeover or other business combination involving us; or |
• | discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. |
If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline. The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
None.
We do not own any real property. We lease office space in Bellingham, Washington and Canton, Michigan. We principally use the Bellingham, Washington office space as our corporate headquarters. All manufacturing of our products occurs at the Jasper facility. Our corporate headquarters and operations are located in Bellingham WA, where, as of June 30, 2014, we lease and occupy approximately 2,000 rentable square feet of office space at our Bellingham, Washington facility. Rent expense for the year ended June 30, 2014 and 2013 totaled approximately $22,056 and $22,056, respectively. Our lease is month to month. Our technology center is located in Canton MI. where as of June 30, 2014 we lease and occupy approximately 2,000 rentable square feet of office space at the Canton MI facility. Rent expense for the year ended June 30,2014 and June 30, 2013 was approximately $30,000 and nil respectively.. This lease expires on June 30, 2018. We believe that our facilities are suitable and adequate for our needs for the foreseeable future.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business. We are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse affect on business, financial condition or operating results.
Not applicable.
PART II
Market Information
There is a limited public market for our common stock. On May 9, 1997, our common stock began publicly trading on the OTC Bulletin Board under the symbol "ITKG," and it currently trades on the OTCQB. The following table sets forth the range of high and low bid quotations for our common stock for each quarter of the fiscal years ended June 30, 2014 and 2013.
Quarter Ended
|
Low Bid
|
High Bid
|
||||||
|
||||||||
September 30, 2012
|
$
|
0.29
|
$
|
0.39
|
||||
December 31, 2012
|
$
|
0.20
|
$
|
0.38
|
||||
March 31, 2013
|
$
|
0.20
|
$
|
0.37
|
||||
June 30, 2013
|
$
|
0.28
|
$
|
0.45
|
||||
|
||||||||
September 30, 2013
|
$
|
0.35
|
$
|
0.58
|
||||
December 31, 2013
|
$
|
0.28
|
$
|
0.47
|
||||
March 31, 2014
|
$
|
0.24
|
$
|
0.39
|
||||
June 30, 2014
|
$
|
0.25
|
$
|
0.39
|
The source of this information is the OTC Bulletin Board and other quotation services. The quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
Holders
As of September 2, 2014 there were approximately 297 holders, of record of our common stock (this number does not include beneficial owners who hold shares at broker/dealers in “street-name”).
Dividends
To date, we have not paid any dividends on our common stock and do 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, our financial condition, and other factors as deemed relevant by our Board of Directors.
Recent Sales of Unregistered Securities
Information regarding the issuance and sales of securities without registration during the fiscal year ended June 30, 2014, has previously been included in Quarterly Reports on Forms 10-Q and Current Reports on Form 8-K filed during the period covered by this report. Information regarding the recent sales of unregistered securities can be found in note 5 of the financial statements.
Repurchases of equity securities
We did not repurchase any of our outstanding equity securities during the fourth quarter ended June 30, 2014.
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those financial statements appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under "Risk Factors" in Item 1A of this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
Integral focuses the majority of our resources on researching, developing and commercializing our ElectriPlast® technologies. The technology possesses a multitude of applications in a myriad of industries. These include the auto industry, the aerospace, consumer electronics, and commercial aviation industries, among others. One key factor that could drive demand for ElectriPlast is the need for light-weighting. Automotive and aerospace are leading the way to achieve reduced emissions and increased fuel economy. Light-weighting involves the substitution of lighter materials, often times using carbon-fiber based, for heavier (aluminum and other metals) materials.
In addition, Integral allocates resources to expand and protect the extensive intellectual property holdings surrounding its ElectriPlast® technology. Our business strategy focuses on the leveraging of our intellectual property rights and our strength in product design and material innovation. We are focusing our business development and marketing efforts on securing licensing and/or joint development agreements in areas for which we currently hold patents covering specific materials, components, parts, applications or end-products incorporating conductive resins and ElectriPlast technology. Integral collaborates with suppliers, Tier1 vendors, OEM's and manufacturers of products who would benefit from the incorporation of any of the ElectriPlast® applications.
ElectriPlast® is an innovative, electrically and thermally conductive resin-based material. The ElectriPlast® polymer is a compounded formulation of resin-based materials, which are conductively loaded, or doped, with a proprietary-controlled, balanced concentration of micron conductive materials, then pelletized. The conductive loading or doping within this pellet is then homogenized using conventional molding techniques and conventional molding equipment. The end result is a product that can be molded into any of the infinite shapes and sizes associated with plastics and rubbers, is non-corrosive, and can serve as an electrically conductive alternative material to metal.
Various examples of applications for ElectriPlast® where Integral holds patent protection are: antennas, electronics shielding, lighting/LED circuitry, motors, switch actuators, resistors, medical devices, thermal management, toys and cable connector bodies, among others. We have been working to introduce these new applications and the ElectriPlast® technology on a global scale.
During the fiscal year ended June 30, 2014, several actions were taken by the Company to better position the commercialization of ElectriPlast. The Company continued to emphasize the expansion of ElectriPlast's technical and engineering capabilities. On January 24, 2014, Integral announced the opening of its ElectriPlast Tech Center in Detroit, which provides facility upgrades for staff expansion, while adding resources for greater internal testing, engineering and product development. The Detroit Tech Center's engineering staff has over 50 years of expertise and Integral plans to add to this team in the near future. With the opening of the Detroit facility, Integral subsequently announced that it closed its Fort Washington, Pennsylvania office at the end of January. The Company also announced the appointment of Integral's Chairman of the Board, James Eagan, to the position of CEO of ElectriPlast. Mr. Eagan replaced Herbert Reedman Jr., who led the commercialization efforts for ElectriPlast over the past three years. Mr. Reedman resigned his position as an Integral Board member and as President, and remained an adviser to Integral's Board of Directors. Integral’s CEO, Doug Bathauer was appointed President of the Company. The Company also announced the hiring of Slobodan ("Bob") Pavlovic to its Detroit Tech Center engineering team. Pavlovic, an innovator in conductive plastic applications and a veteran of the auto and aircraft industry, adds more than 34 years of experience in advanced engineering to the company. On February 20, 2014, William Ince resigned as chief financial officer of the Company, effective immediately. There was no disagreement or dispute between Mr. Ince and the Company which led to his resignation.
The Company has continuing needs for funding to address operating requirements as well as to realize growth opportunities. Integral announced on February 20, 2014 that Bart Snell was been named the Company's Chief Financial Officer. Snell brought extensive financial and accounting experience to Integral, including roles with various emerging growth and public companies in the technology, telecommunication and manufacturing industries. Snell will assist the CEO and Board in overseeing the company's development and financial growth.
To date we have recorded nominal revenues. We are still considered a development stage company for accounting purposes. From inception on February 12, 1996 through June 30, 2014, we have accrued an accumulated deficit of approximately $48.5 million.
As of June 30, 2014, our assets were $251,429, consisting of cash of $199,777, prepaid expense of $23,831 and fixed assets of $27,821.
As of June 30, 2014, current liabilities of $1,083,220 consisting of accounts payable and accruals of $973,220, a deferred liability of 50,000, and a promissory note of $60,000. During the year, we extinguished our convertible debentures and our preferred stock. Non-current liabilities consist of deferred liability of $420,833 and promissory note of $229,500.
As of June 30, 2014, total stockholders' deficit was $1,482,124.
Results of Operations of the Year Ended June 30, 2014 compared to the Year Ended June 30, 2013
Our net loss for the year ended June 30, 2014, was $4,526,508 compared to a net loss of $3,749,790 for the prior fiscal year, a difference of $776,718. The fiscal year ended June 30, 2014 included the addition of $29,167 of license revenue arising from the current amortization of the $500,000 payment by Hanwha L&C to the Company for the 10-year license extended by the Company to Hanwha as of June 30, 2013. During the fiscal year, the Company took several actions to reduce and redirect operating expenses, and incurred one-time termination expense of $675,000 representing the fair value of common shares to be issued in relation to closing the Fort Washington, Pennsylvania office. Total expenses for the year ended June 30, 2014 were $4,202,900 compared to $3,571,313 for the year ended June 30, 2013. Total expenses after removing the one-time termination expense, were essentially unchanged from the year ending June 30, 2013. Net loss was $4,526,508 for the period ended June 30, 2014 included the effect of increased interest expense of $271,507 during 2014 compared to the same period in 2013 associated with the convertible debentures, and net effect of extinguishing the convertible debt.
Selling, general, and administrative expense was primarily comprised of consulting expense, salaries and benefits, advertising and travel, legal and professional expense, and general and administrative expenses. This expense was $3,460,272 for the year ended June 30, 2014 compared to $3,482,115 for the year ended June 30, 2013.
Consulting fees for the year ended June 30, 2014 were $1,862,786, including non-cash, stock based compensation charges for options previously granted of $100,076. In addition, shares were issued for services rendered valued at $828,283. This is compared to consulting fees of $2,260,810 for the year ended June 30, 2013, that included non-cash, stock based compensation charges for options granted of $131,679. In addition, shares were issued for services rendered valued at $974,125. As described in the notes to the financial statements, the fair value of options granted and shares issued for services were valued using the Black-Scholes option pricing model. Consulting fees declined primarily due to the closure of the Fort Washington, Pennsylvania office.
Salaries and benefits for the year ended June 30, 2014 were $915,339, including non-cash, stock based compensation for options and warrants granted and restricted stock award grants of $166,167. This compared to salaries and benefits of $275,000 for the year ended June 30,2013, that included stock based compensation of nil.
Advertising and travel expense was $181,273 for the year ended June 30, 2014, compared to $152,314 for the year ended June 30, 2013. Legal and accounting expense was $169,591 for the year ended June 30, 2014, compared to $472,833 for the year ended June 30, 2013
General and administrative expense was $331,283 for the year ended June 30, 2014, compared to $235,835 for the year ended June 30, 2013.
Research and development costs incurred during the year ended June 30, 2014 were $67,628, a modest decrease of $21,570, from $89,198 incurred during the year ended June 30, 2013.
During the fiscal year ended June 30, 2014, the Company took several actions to reduce and redirect operating expenses, and incurred one-time termination expense of $675,000 representing the fair value of common shares to be issued in relation to closing the Fort Washington, Pennsylvania office.
Operating loss was $4,173,733 for the year ended June 30, 2014, compared to $3,571,313 for the year ended June 30, 2013, and was essentially the same as the comparable period for 2013 if the one-time termination expense is excluded from 2014.
Other income includes gain on extinguishment of debt, and other non-revenue related income. Other income was $199,205 for the year ended June 30, 2014 compared to $272,457 for the period ended June 30, 2014.
Other expense includes loss on extinguishment of convertible debentures, and financing fees. Other expense was $150,076 for the year ended June 30, 2014, compared to $320,537 for the period ended June 30, 2013.
Our net loss for the year ended June 30, 2014, was offset somewhat by license revenue of $29,718. The License revenue represents the 10-year amortization of the two tranches of $250,000 payments from our Hanwha agreement.
For the year ended June 30, 2014, our cash used in operating activities was $2,288,512 compared to $1,785,964 used in 2013. Much of the increase in cash used in operating activities was associated with the reduction in liabilities, with accounts payable and accruals decreasing $1,297,507 to $973,220 for the year ended June 30, 2014 from $2,270,727 for the same period in 2013. Convertible debentures and derivative financial liabilities were eliminated for the year ended June 30, 2014, which represented a reduction of $588,929 from the year ended June 30, 2013.
For the year ended June 30, 2014, our cash provided by financing activities was $1,984,219 compared to $2,146,099 provided in 2013, represented by proceeds of $1,695,696 from issuance of common stock (2013 - $2,199,670) share issuance costs of $168,010 (2013-$199,910) proceeds from promissory notes of $394,500 and proceeds from convertible debentures of $345,000 (2013 - $377,500). This was offset by repayment of promissory note of $105,000 (2013 - $123,696) and repayment of convertible debentures of $321,132 (2013 - $120,865).
Liquidity and Capital Resources
As of June 30, 2014, we had $199,777 in cash on hand, and we estimate that we will require $3.0 million of additional financing to carry out our business plan and to continue to operate during our fiscal year ending June 30, 2015. Accordingly, management believes that until we generate revenues/income from operations (we have none to date), additional funding will be required to carry out our business plan.
Based on our current cash and cash equivalents levels and expected cash flow from operations, we believe our current cash position is not sufficient to fund our cash requirements during the next twelve months, including operations and capital expenditures. We intend to license our proprietary technology and services or obtain equity and/or debt financing to support our current and proposed operations and capital expenditures. There can be no assurance, however, that any such opportunities may arise, or that any such acquisitions may be consummated. Additional financing may not be available on satisfactory terms when required. In addition, the trading price of our common stock and a downturn in the equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. We currently have no firm commitments for any additional capital. There is no guarantee that we will be successful in raising the funds required. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
The Company has used approximately $28,000,000 in cash from operations since inception in 1996, which has been funded primarily from proceeds from the issuance of common stock. The company has issued warrants which have the potential to yield $12,800,000 calculated as 28,292,715 warrants at a weighted average exercise price of $0.45. In the event the stock price rises to certain levels in the future and that some or all of the warrant holders elect to acquire Common Stock shares by exercising their warrants, prior to the expiry date, the Company may raise additional funds from warrant holders. We have no ability to forecast future stock price movements nor are we able to determine how many warrant holder would elect to acquire shares by exercising their warrants.
We are not currently in the manufacturing business. As demand continues to grow and our need to increase capacity, reduce manufacturing costs and to improve margins, we would consider directly entering into the manufacturing business, including the possibility of acquiring existing assets or an operating company to help us accelerate this process, however this will only be possible through additional capital.
Critical Accounting Policies and Estimates
The Company accounts for stock-based compensation expense associated with stock options and other forms of equity compensation by estimating the fair value of share-based payment awards on the date of grant using a Black-Scholes option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Company’s statement of operations. The Company uses the straight-line single-option method to recognize the value of stock-based compensation expense for all share-based payment awards. Stock-based compensation expense recognized in the statement of operations is reduced for estimated forfeitures, as it is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
OFF-BALANCE SHEET ARRANGEMENTS
We had no off-balance sheet arrangements as of June 30, 2014.
As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information called for by this Item.
The full text of our audited consolidated financial statements as of June 30, 2014 and 2013 and for the years ended June 30, 2014 and 2014, begins on page F-1 of this Annual Report on Form 10-K.
None.
Disclosure Controls and Procedures
The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the “Exchange Act.” These rules refer to the controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our Exchange Act reports is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.. Based on this evaluation, as described below, management concluded that our disclosure controls and procedures were ineffective as of June 30, 2014.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes these policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end of the period covered by this report. Our evaluation was based on the criteria for smaller public companies set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under those criteria, our management concluded that, as of June 30, 2014, our internal control over financial reporting is not effective due to the material weakness described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The primary factors contributing to the material weakness, which relates to our financial statement close process, were as follows:
· | Ineffective controls over periodic financial disclosures and reporting processes. |
While management believes that the Company’s financial statements previously filed in the Company’s SEC reports have been properly recorded and disclosed in accordance with US GAAP, based on the material weakness identified above, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:
· | On June 9, 2014 the Integral Board approved the retention of the Myriad CPA Group to provide all transactional bookkeeping and accounting services, perform a qualified, independent review over all significant transactions included in our financial reports as well as our period-end financial disclosures included in our periodic filings for our quarterly and annual SEC financial filing data. |
· | We defined our cash disbursement process and established a two-stage approval and release process for all disbursements. |
Management believes the actions described above will remediate the material weakness we have identified and strengthen our internal control over financial reporting. Our management intends to substantially complete these identified remedial actions during the fiscal year ended June 30, 2015.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the exemption provided to issuers that are neither “large accelerated filers” nor “accelerated filers” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Changes in Internal Control Over Financial Reporting
No significant changes in the Company's internal control over financial reporting have come to management's attention during the Company's last fiscal quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
There are inherent limitations to the effectiveness of any system of internal control over financial reporting, such as resource constraints, judgments used in decision-making, assumptions about the likelihood of future events, the possibility of human error and the risk of fraud. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to the preparation and presentation of financial statements in accordance with accounting principles generally accepted in the United States. Moreover, projections of any evaluation of effectiveness in future periods are subject to the risk that controls may be inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate over time. Our management, including our chief executive officer and chief financial officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or fraud.
N/A
PART III
The following table sets forth certain information regarding the directors and executive officers of Integral Technologies, Inc as of September 25, 2014:
Name
|
Age
|
Position with Company
|
Director of Company Since
|
|
|
|
|
Doug Bathauer
|
49
|
Director, CEO, President and Treasurer
|
November 2012
|
|
|
|
|
William A. Ince
|
63
|
Director, Secretary
|
February 1996
|
|
|
|
|
James Eagan
|
51
|
Director, Chairman
|
January 2011
|
|
|
|
|
W. Bartlett Snell
|
62
|
Chief Financial Officer
|
February 2014
|
|
|
|
|
Richard Blumberg
|
65
|
Independent Director
|
November 2012
|
James Eagan
(Director and Chairman)
Mr. Eagan is the Chairman of Integral Technologies, Inc, and on January 23, 2014 he was appointed Chief Executive Officer of ElectriPlast Corporation. Mr. Eagan replaced the previous ElectriPlast CEO, Herbert Reedman, who resigned as president and director of Integral Technologies, Inc.
James Eagan is a former satellite telecommunications executive and a co-founder of ORBCOMM, LLC. As Executive Vice President, Chief Marketing Officer and Director of ORBCOMM, he was responsible for developing a new business model, slashing costs, raising capital, and growing the subscriber base.
He led pioneering efforts in the mobile satellite industry where he was responsible for launching low cost satellite services in North America and Asia Pacific. Prior to ORBCOMM, Mr. Eagan was with Lockheed Martin and started his career as a naval officer. He is a graduate of the University of California Los Angeles and received his MBA from George Washington University.
Doug Bathauer
(Director, CEO, President and Treasurer)
Mr. Bathauer was appointed to the Board and as the Chief Executive Officer of the Company upon the resignation of Mr. William Robinson, our former Director and Chief Executive Officer, on November 8, 2012. Mr. Bathauer drives the development and implementation of company strategies. Prior to CEO, Mr. Bathauer was Vice President of Corporate Development for Integral and was responsible for Integral’s corporate development efforts which included corporate communications, business development, and capital funding. Before joining Integral, Mr. Bathauer worked with some of the leading firms in the financial services industry providing financial and investment advice to early stage and small growth companies. Over his career Mr. Bathauer has advised a broad portfolio of corporate clients including consumer product, technology and renewable energy companies, assisting them in raising capital, corporate restructuring, and establishing national distribution channels. He is a graduate of Purdue University.
W. Bartlett Snell
(CFO)
On February 20, 2014, the board of directors of the Company appointed Bart Snell as Chief Financial Officer of the Company, effective immediately. Mr. Snell is responsible for all accounting, planning, and treasury operations of the company as well as an active contributor to the strategic direction of the Company.
Since September 2007, Mr. Snell has served as CEO of PowerSource Solutions, Inc., an outsource executive consulting company. From June 2004 until September 2007, Mr. Snell served as CFO and General Manager of Aptara Corp., a publishing services company. From February 1999 until July 2002, Mr. Snell served as Senior Vice President and CFO of Motient Corp. (previously American Mobile Satellite Corp.), a terrestrial and satellite wireless network provider company. Mr. Snell started his career at IBM Corp, where he served in a number of increasingly senior positions including CFO, IBM Australia. Mr. Snell received his Bachelor of Science from the University of Virginia in Commerce (Accounting) and his MBA from the University of Texas.
William A. Ince
(Director, Secretary)
Mr. Ince, a co-founder of our Company (since 1996), has been responsible for the development and implementation of corporate strategies and playing a key role in bringing our groundbreaking ‘ElectriPlast®’ technology to the marketplace.
Mr. Ince brings with him a background as a professional accountant and experience from management positions in finance and operations in several private companies. For the last 30 years he has been leveraging his extensive industry experience to deliver results focused business strategies. He has consulted to both private and public companies in the areas of marketing and finance, as well as turn-around situations.
Richard Blumberg
(Director-Independent Director )
Mr. Blumberg is a graduate from the University of Illinois with a degree in electrical engineering and computer science and from Stanford University with a degree in law. Over the course of his extensive, multifarious career, Mr. Blumberg has worked tirelessly to put that proficiency to use. He has acted as one of the principals of a medical-legal and class action labor litigation firm, achieving judgments in the hundreds of millions of dollars. He has served as CEO of leading wind power development company Energy Logics, and, while there, oversaw the buyout of the company, which went on to successfully develop a 120 MW wind farm in Montana. Most recently, Blumberg has worked as a venture capital entrepreneur in high-tech and life sciences companies and is also currently a major shareholder in Insync Analytics, the co-developer of an analytical trading tool presently used in-house to trade stocks and commodities.
Non-Executive Officer
Mohamed Zeidan-
(Chief Technology Officer)
Mr. Zeidan is the Company’s Chief Technology Officer, and is located at the company’s Detroit Tech Center. Previously, starting in 2009 he served in a similar capacity as an outside consultant. Mr. Zeidan has over 25 years of experience in automotive engineering and engineering management. Mr. Zeidan was the Chief Technology Officer and Director of Hybrid Engineering at Lear, creating the Hybrid Engineering Department that developed innovative technologies resulting in major business growth. Prior to Lear, he worked at United Technologies Automotive (“UTA”) for nearly 14 years in Advanced Engineering for many Global OEM programs-from Advance Phase through Production Launch, managing the complete life cycle of the technology.
Mr. Zeidan and his team identify partners for joint development opportunities where ElectriPlast® is introduced into the customers products and taken through product implementation, including prototype testing to secure technology approval and validation, resulting in a contract award to the Company.
Slobodan Pavlovic-
(Vice President, Engineering)
Mr. Pavlovic is Vice President of Engineering, and is located at the Company’s Detroit Tech Center. Pavlovic, an innovator in conductive plastic applications and a veteran of the auto and aircraft industry, brings more than 34 years of experience in advanced engineering to the Company. His world-class engineering expertise is another critical element advancing ElectriPlast's transformative impact on a variety of product materials by reducing weight while preserving key conductive and shielding properties.
Pavlovic spent the past eight years at Lear Corporation serving as Vice President of Global High Voltage/High Power (HV/HP) Systems and Components. He led Lear's advanced engineering groups making Lear a leader in the use of conductive plastics for HV/HP applications. Prior to Lear, Mr. Pavlovic spent five years at Amphenol Tuchel Electronics, a leader in connectors, serving as Director of Advanced Engineering. Pavlovic spent six years as a Manager and Director of Advanced Engineering at FCI, a supplier of electronic and electrical interconnect systems. There, he served as the "Subject Matter Expert" leading and directing multidisciplinary engineering groups in the development and launch of new technologies and products. Mr. Pavlovic also spent 12 years in development of jet engines and engine accessories at Air Depot Orao.
Board Committees
Our Company has a Board of Directors that is currently comprised of four members. Each director holds office until the next annual meeting of shareholders or until a successor is elected or appointed.
Our Board of Directors does not currently have any committees and as such the Board as a whole carries out the functions of audit, nominating and compensation committees. We expect our Board of Directors, in the future, to appoint an audit committee, a nominating committee and a compensation committee and to adopt charters relative to each such committee. We intend to appoint such persons to committees of the Board of Directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek listing on a national securities exchange.
The Board of Directors selects our independent public accountant, establishes procedures for monitoring and submitting information or complaints related to accounting, internal controls or auditing matters, engages outside advisors, and makes decisions related to funding the outside auditory and non-auditory advisors.
Audit Committee Financial Expert
We do not currently have an “audit committee financial expert” as defined under Item 407(e) of Regulation S-K. As discussed above, our Board of Directors plans to form an Audit Committee. In addition, the Board is actively seeking to appoint an individual to the Board of Directors and the Audit Committee who would be deemed an audit committee financial expert.
Code of Ethics
On September 20, 2004, the Board of Directors established a written code of ethics that applies to each of our senior executive officers. A copy of that code is available on our corporate website at http://www.itkg.com. A copy of our Code of Business Conduct and Ethics will also be provided free of charge upon request to: Secretary, Integral Technologies Inc. 805 West Orchard Dr. Suite 7, Bellingham WA 98225.
Section 16(a) Beneficial Ownership Reporting Compliance (update)
Section 16(a) of the Securities Exchange Act of 1934 requires our Company's officers and directors, and persons who own more than 10% of a registered class of our Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Officers, directors, and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of copies of such reports received or written representations from certain reporting persons, we believe that, during the year ended June 30, 2014, all Section 16(a) filing requirements applicable to our officers, directors and ten percent shareholders were timely complied with by such persons, except for the following: (1) William S. Robinson filed a late Form 4 on September 27, 2010 regarding the acquisition of 500,000 options for the purchase of Common Stock that were granted on July 14, 2009; (2) William A. Ince filed a late Form 4 on September 27, 2010 regarding the acquisition of 500,000 options for the purchase of Common Stock on July 14, 2009; and (3) Richard P. Blumberg, a 10% security holder, filed a late Form 3 on June 28, 2010 relating to the acquisition of Common Stock on December 9, 2009.
The following information discloses all plan and non-plan compensation awarded to, earned by, or paid to our executive officers, and other individuals for whom disclosure is required, for all services rendered in all such capacities to Integral and our subsidiaries.
Summary Compensation Table
The following table sets forth all compensation, including bonuses, stock option awards and other payments, paid or accrued by Integral and/or its subsidiaries, to or for Integral’s principal executive officer and two other highest paid executive officers whose total annual salary and bonus exceeded $100,000 (collectively, the “named executive officers”), during the fiscal years ended June 30, 2014 and 2013.
Name and Principal Position
|
Fiscal Year Ended June 30
|
Salary ($)
|
Bonus ($)
|
Stock Awards(n1)
|
Options Awards ($)
|
Non-Equity Incentive Plan Compensation ($)
|
Nonqualified Deferred Compensation Earnings ($)
|
All Other Compensation ($) (n2)
|
Total ($)
|
||||||||||||||||||||||||
James Eagan
|
2014
|
$
|
198,000
|
-0-
|
-0-
|
-0-
|
$
|
- -0-
|
$
|
-0-
|
$
|
198,000
|
|||||||||||||||||||||
Chairman, Director Chief Executive Office of wholly owned subsidiary ElectriPlast Corp
|
2013
|
$
|
168,000
|
-0-
|
$
|
-0-
|
$
|
-0-
|
0-0-
|
$
|
- -0-
|
$
|
-0-
|
$
|
168,000
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
Doug Bathauer
|
2014
|
$
|
198,000
|
-0-
|
$
|
-0-
|
-0-
|
-0-
|
-0-
|
$
|
-0
|
$
|
198,000
|
||||||||||||||||||||
Chief Executive Officer, Treasurer, Director
|
2013
|
$
|
150,000
|
-0-
|
$
|
-0-
|
-0-
|
-0-
|
-0-
|
$
|
-0
|
$
|
150,000
|
||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
William A. Ince
|
2014
|
$
|
220,000
|
-0-
|
$
|
-0-
|
-0-
|
-0-
|
-0-
|
$
|
23,189
|
$
|
243,189
|
||||||||||||||||||||
Accounting Officer, Secretary, Director
|
2013
|
$
|
220,000
|
-0-
|
$
|
-0-
|
-0-
|
-0-
|
-0-
|
$
|
23,189
|
$
|
243,189
|
(n1) | Reflects dollar amount expensed by the company during applicable fiscal year for financial statement reporting purposes pursuant to ASC 718. ASC 718 requires the company to determine the overall value of the options as of the date of grant based upon the Black-Scholes method of valuation, and to then expense that value over the service period over which the options become exercisable (vest). As a general rule, for time-in-service-based options, the company will immediately expense any option or portion thereof which is vested upon grant, while expensing the balance on a pro rata basis over the remaining vesting term of the option. For a description ASC 718 and the assumptions used in determining the value of the options under the Black-Scholes model of valuation, see the notes to the consolidated financial statements included with this report. |
(n2) | In 2014 and 2013, William A. Ince received an automobile expense allowance of $18,000. |
Executive Officer Outstanding Equity Awards At Fiscal Year-End
The following table provides certain information concerning any common stock purchase options, stock awards or equity incentive plan awards held by each of our named executive officers that were outstanding as of June 30, 2014.
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||||||||
|
Equity Incentive Plan Awards:
|
|
Equity Incentive Plan Awards:
|
Equity Incentive Plan Awards:
|
|||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
Name
|
Number of Securities Underlying Unexercised Options(#) Exercisable
|
Number of Securities Underlying Unexercised Options(#) Unexercisable
|
Number of Securities Underlying Unexercised Unearned Options (#)
|
Option Exercise Price ($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not Vested (#)
|
Market Value of Shares or Units of Stock That Have Not Vested
|
Number of Unearned Shares, Units or Other Rights That Have Not Vested
|
Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
William A. Ince (n1)
|
415,000
|
0
|
0
|
$
|
1.00
|
7/31/2014
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||
|
500,000
|
0
|
0
|
$
|
0.25
|
12/31/2014
|
|||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
Doug Bathauer (n2)
|
250,000
|
0
|
0
|
$
|
0.25
|
12/31/2015
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||
|
125,000
|
0
|
0
|
$
|
0.25
|
12/31/2014
|
|||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
James Eagan
|
100,000
|
0
|
0
|
$
|
085
|
06/01/2014
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||
|
100,000
|
0
|
0
|
$
|
0.85
|
12/01/2014
|
|||||||||||||||||||||||||||
|
100,000
|
0
|
0
|
$
|
085
|
06/01/2015
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||
|
100,000
|
0
|
0
|
$
|
0.85
|
12/01/2015
|
|||||||||||||||||||||||||||
|
100,000
|
0
|
0
|
$
|
0.85
|
06/01/2016
|
0
|
0
|
0
|
0
|
|||||||||||||||||||||||
|
100,000
|
0
|
0
|
$
|
0.85
|
06/01/2016
|
0
|
0
|
0
|
0
|
(n1) | Mr. Ince holds the following options: On July 1, 2002, Mr. Ince was granted an option to acquire 415,000 shares of common stock at an exercise price of $1.00 per share. In June 2007, the expiration date of these options was extended until December 31, 2010 and on April 10, 2010 the expiration date of these options was extended to July 31, 2014. On July 14, 2009 Mr. Ince was granted an option to acquire 500,000 shares of common stock at an exercise price of $0.25 per share. These options are exercisable after January 1, 2010 and expire on December 31, 2014. |
(n2) | Mr. Bathauer holds the following options: 250,000 options to acquire 250,000 shares of common stock at an exercise price of $0.25 per share which expire on December 31, 2015. Mr. Bathauer also holds 125,000 options to acquire 125,000 shares of common stock at an exercise price of $0,25 and expire on December 31, 2014. |
Compensation of Directors
The following table sets forth all compensation, including bonuses, stock option awards and other payments, paid or accrued by Integral and/or its subsidiaries, to or for Integral’s non-employee directors during the last completed fiscal year ended June 30, 2014.
Name
|
Fees Earned or Paid in Cash ($)
|
Stock Awards ($)
|
Options Awards ($)
|
Non-Equity Incentive Plan Compensation ($)
|
Nonqualified Deferred Compensation Earnings ($)
|
All Other Compensation ($)
|
Total ($)
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||
Richard Blumberg
|
$
|
8,000
|
-0-
|
-0-
|
-0-
|
|
|
$
|
8,000
|
Employment Contracts and Termination of Employment and Change-in-Control Arrangements
The term of Mr. Ince’s agreement is from August 1, 2009 through to July 31, 2014. The agreement calls for a compensation package of $220,000 annually for services and $1,500 per month for an automobile allowance. In addition, Integral has granted Mr. Ince options to acquire 500,000 shares of Integral’s common stock at an exercise price of $0.25 per share. These options fully vested on August 1, 2009 and may be exercised in whole or in part at any time. All options shall expire on December 31, 2014. The agreement also contains customary provisions regarding confidentiality of the Company’s proprietary information and non-competition.
In the event of termination without cause, Mr. Ince is entitled to one year’s compensation as severance.
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 and performance with business objectives of the Company and to enable Integral to attract, retain and reward executive officers and other key employees who contribute to the long-term success of Integral. Integral intends to provide base salaries to its executive officers and key employees sufficient to provide motivation to achieve certain operating goals. Although salaries are not specifically tied into performance criteria, 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Common Stock
The following table sets forth, as of June 30, 2014 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 director and executive officer individually and all directors and executive officers of Integral as a group. Each person is believed to have sole voting and investment power over the shares except as noted.
Name and Address of
Beneficial Owner (n1)
|
Amount and Nature of Beneficial Ownership(n2)
|
Percent of Class (n3)
|
Executive Officers and Directors:
|
|
|
Doug Bathauer
805 West Orchard Dr. Suite #7
Bellingham WA 98225
|
493,823
|
.5%
|
William A. Ince
805 W. Orchard Dr., Suite #7
Bellingham, WA 98225
|
3,176,925
|
3.2%
|
Bart Snell
P.O. Box1271
Mac Lean VA 22101
|
286,000
|
.29%
|
James Eagan
805 West Orchard Dr. Suite 7
Bellingham WA 98225
|
1,600,000
|
1.6%
|
Richard P. Blumberg (n4)
|
7,731,142 (n4)
|
7.8%
|
All executive officers and directors as a group (5 persons)
|
13,287,890
|
13.4%
|
(n1) | Unless otherwise indicated, all shares are directly beneficially owned and investing power is held by the persons named. |
(n2) | Includes vested options beneficially owned but not yet exercised and outstanding, if any. |
(n3) | Based upon 98,985,442 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. |
(n4) | Based on information contained in Schedule 13G filed with the SEC on February 5, 2012, filed by Richard P. Blumberg whose address is 2357 Hobart Ave. S.W., Seattle, WA 98116. Richard P. Blumberg has sole voting power with respect to 4,940,667 and has shared voting power over 2,790,475 shares. |
Equity Compensation Plan Information
The following information concerning the Company’s equity compensation plans is as of the end of the fiscal year ended June 30, 2014:
Plan category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
Weighted-average exercise price of options, warrants and rights
|
Number of securities available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
|
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity compensation plans approved by security holders
|
N/A
|
N/A
|
N/A
|
Equity compensation plans not approved by security holders
|
5,250,000
|
$0.43
|
2,639,500
|
Total
|
5,250,000
|
$0.43
|
2,639,500
|
As of June 30, 2014, Integral has three Employee Benefit and Consulting Services Compensation Plans (the “Plans”) in effect.
On January 2, 2001, Integral adopted an employee benefit and consulting services compensation plan entitled the Integral Technologies, Inc. 2001 Stock Plan (the “2001 Plan”), which was amended on December 17, 2001. As amended, the 2001 Plan covers up to 3,500,000 shares of common stock. The 2001 Plan has not previously been approved by security holders.
On April 4, 2003, Integral adopted an employee benefit and consulting services compensation plan entitled the Integral Technologies, Inc. 2003 Stock Plan (the “2003 Plan”). The 2003 Plan covers up to 1,500,000 shares of common stock. The 2003 Plan has not previously been approved by security holders.
On July 14, 2009, Integral adopted an employee benefit and consulting services compensation plan entitled the Integral Technologies, Inc. 2009 Stock Plan (the “2009 Plan”). The 2009 Plan covers up to 4,000,000 shares of common stock. The 2009 Plan has not previously been approved by security holders.
Under all three Plans, Integral may issue common stock and/or options to purchase common stock to certain officers, directors and employees and consultants of Integral and its subsidiaries. The purpose of the Plans is to promote the best interests of Integral and its shareholders by providing a means of non-cash remuneration to eligible participants who contribute to operating progress and earning power of Integral. The Plans are administered by Integral's Board of Directors or a committee thereof which has the discretion to determine from time to time the eligible participants to receive an award; the number of shares of stock issuable directly or to be granted pursuant to option; the price at which the option may be exercised or the price per share in cash or cancellation of fees or other payment which Integral or its subsidiaries is liable if a direct issue of stock and all other terms on which each option shall be granted.
Since the beginning of the last fiscal year, we have not entered into any transactions in which our officers and directors have a material interest, or that would otherwise be deemed a related-party transaction under the rules of the Securities Exchange Act of 1934.
Our Board of Directors is comprised of four members, Doug Bathauer, William A. Ince, James Eagan and Mr. Richard Blumberg. Mr. Bathauer, Mr. Ince and Mr. Eagan also serve as executive officers of the Company. We have one independent director at this time being Mr. Richard Blumberg.
ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed for professional services rendered by SRLLP for the audit of our annual financial statements and the reviews of the financial statements included in our quarterly reports on Form 10-Q during fiscal years ended June 30, 2014 and 2013 were $72,981 and $70,500, respectively. On June 9, 2014 the board approved the dismissal of Smythe Ratcliffe LLP and the appointment of Baker Tilly Virchow Krause, LLP. As such the Company will incur charges from Baker Tilly going forward.
Audit-Related Fees
There were no other fees billed by SRLLP or Baker Tilly Virchow Krause, LLP during the last two fiscal years that were reasonably related to the performance of the audit or review of our Company’s financial statements and not reported under “Audit Fees” above.
Tax Fees
There were no fees billed for professional services rendered by SRLLP or Baker Tilly Virchow Krause, LLP for tax compliance services in fiscal years ended June 30, 2014 and 2013, respectively.
All Other Fees
There were no other fees billed by SRLLP or Baker Tilly Virchow Krause, LLP during the last two fiscal years for products and services provided.
The Board of Directors selects our independent public accountant, establishes procedures for monitoring and submitting information or complaints related to accounting, internal controls or auditing matters, engages outside advisors, and makes decisions related to funding the outside auditory and non-auditory advisors.
Exhibit No. | Description |
3.03 | Articles of Incorporation, as amended and currently in effect. (Incorporated by reference to Exhibit 3.03 of Integral’s quarterly report on Form 10-QSB for the period ended March 31, 2006.) |
3.04 | Bylaws, as amended and restated on December 31, 1997. (Incorporated by reference to Exhibit 3.04 of Integral’s quarterly report on Form 10-QSB for the period ended March 31, 2006.) |
4.01 | Form of Warrant issued to the investors in the March 2014 private placement Incorporated by reference to Exhibit4.1 of Integral’s Current Report Form 8-K dated March 31, 2014 (filed April 7, 2014).) |
10.12 | Integral Technologies, Inc. 2001 Stock Plan dated January 2, 2001, as amended December 17, 2001. (Incorporated by reference to Exhibit 10.12 of Integral’s registration statement on Form S-8 (file no. 333-76058).) |
10.15 | Integral Technologies, Inc. 2003 Stock Plan dated April 4, 2003 (Incorporated by reference to Exhibit 10.15 of Integral’s registration statement on Form S-8 (file no. 333-104522).) |
10.18 | Grant of Option dated June 17, 2005 between Integral and Thomas Aisenbrey. (Incorporated by reference to Exhibit 10.18 of Integral’s Current Report Form 8-K dated June 17, 2005 (filed June 23, 2005).) |
10.19 | Agreement between the Company and The QuanStar Group, LLC dated June 20, 2005. (Incorporated by reference to Exhibit 10.18 of Integral’s Current Report Form 8-K dated June 17, 2005 (filed June 23, 2005).) |
10.20 | Patent License Agreement between the Company and Heatron, Inc. dated March 17, 2006. (Incorporated by reference to Exhibit 10.20 of Integral’s Current Report Form 8-K dated March 17, 2006 (filed April 11, 2006).) |
10.21 | Patent License Agreement between the Company and Jasper Rubber Products, Inc. dated August 25, 2006. (Incorporated by reference to Exhibit 10.21 of Integral’s Current Report Form 8-K dated August 25, 2006 (filed September 19, 2006).) |
10.22 | Grant of Option dated November 6, 2006 between Integral and Thomas Aisenbrey. (Incorporated by reference to Exhibit 10.22 of Integral’s Quarterly Report on Form 10-QSB for the period ended September 30, 2006.) |
10.23 | Manufacturing Agreement between Integral and Jasper Rubber Products, Inc. dated November 22, 2006. (Incorporated by reference to Exhibit 10.23 of Integral’s Current Report on Form 8-K dated November 27, 2006 (filed December 4, 2006).) |
10.24 | Patent License Agreement between Integral and ADAC Plastics, Inc. d/b/a ADAC Automotive, dated November 28, 2006. (Incorporated by reference to Exhibit 10.24 of Integral’s Current Report on Form 8-K dated December 18, 2006 (filed December 20, 2006).) |
10.25 | Patent License Agreement between Integral and Esprit Solutions Limited, dated December 18, 2006. (Incorporated by reference to Exhibit 10.25 of Integral’s Current Report on Form 8-K dated January 9, 2007 (filed January 19, 2007).) |
10.26 | Patent License Agreement between Integral and Knowles Electronics, LLC, dated January 18, 2007. (Incorporated by reference to Exhibit 10.26 of Integral’s Quarterly Report on Form 10-QSB for the period ended December 31, 2006.) |
10.27 | Agreement between Integral and Visionary Innovations, Inc., dated February 16, 2007. (Incorporated by reference to Exhibit 10.27 of Integral’s Quarterly Report on Form 10-QSB for the period ended March 31, 2007.) |
10.28 | Amendment One to Manufacturing Agreement between Integral and Jasper Rubber Products, Inc. dated July 19, 2007. (Incorporated by reference to Exhibit 10.28 of Integral’s Current Report on Form 8-K dated July 19, 2007 (filed July 30, 2007).) |
10.29 | Integral Technologies, Inc. 2009 Stock Option Plan dated July 14, 2009. (Incorporated by reference to Exhibit 10.29 of Integral’s Current Report on Form 10-KSB dated September 29, 2009 (filed September 29, 2009)) . |
10.30 | Employment Agreement between Integral and William Robinson dated July 14, 2009. (Incorporated by reference to Exhibit 10.30 of Integral’s Current Report on Form 10-KSB dated September 29, 2009 (filed September 29, 2009)). |
10.31 | Employment Agreement between Integral and William Ince dated July 14, 2009. (Incorporated by reference to Exhibit 10.31 of Integral’s Current Report on Form 10-KSB dated September 29, 2009 (filed September 29, 2009)). |
10.32 | Consulting Agreement between Integral and Mohamed Zeidan dated August 10, 2009. (Incorporated by reference to Exhibit 10.32 of Integral’s Current Report on Form 10-KSB dated September 29, 2009 (filed September 29, 2009)). |
10.33 | Consulting Agreement between Integral and James Eagan dated December 1, 2010. (Incorporated by reference to Exhibit 10.33 of Integral’s Current report on Form 10-k dated September 28, 2011 (filed September 28, 2011)). |
10.34 | Consulting Agreement between Integral and Herbert C. Reedman dated April 15, 2011. . (Incorporated by reference to Exhibit 10.34 of Integral’s Current report on Form 10-k dated September 28, 2011 (filed September 28,2011)). |
10.35 | Consulting Agreement between Integral and Stephen Neu dated June 1, 2011. (Incorporated by reference to Exhibit 10.35 of Integral’s Current report on Form 10-k dated September 28, 2011 (filed September 28,2011)). |
10.36 | Consulting Agreement between Integral and Paul MacKenzie dated June 1, 2011. (Incorporated by reference to Exhibit 10.36 of Integral’s Current report on Form 10-k dated September 28, 2011 (filed September 28, 2011)). |
10.37 | Separation Agreement between Integral and William Robinson dated November 8, 2012. . (Incorporated by reference to Exhibit 10.37 of Integral’s Current report on Form 10-K for the fiscal year ended June 30, 2013 (filed September 30, 2013) |
10.38 | Separation Agreement between Integral and Steven Neu dated June 13, 2013. (Incorporated by reference to Exhibit 10.38 of Integral’s Current report on Form 10-K for the fiscal year ended June 30, 2013 (filed September 30, 2013) |
10.39 | Consulting Agreement Extension between Integral and Mo Zeidan dated June 20,2013. (Incorporated by reference to Exhibit 10.38 of Integral’s Current report on Form 10-K for the fiscal year ended June 30, 2013 (filed September 30, 2013) |
10.40 | License Agreement between Integral and Hanwha L&C Corp. dated June 19, 2013. † |
10.41 | Separation Agreement between Integral and Herbert Reedman dated May 21, 2014. (filed herewith) |
10.42 | Separation Agreement between Integral and Paul Mackenzie dated March 20, 2014. (filed herewith) |
10.43 | Manufacturing and Services Agreement between Integral and Integral Asia dated February 28, 2014 (filed herewith). |
10.44 | Amended Separation Agreement between Integral and William Robinson dated May 1, 2014. (filed herewith) |
10.45 | Form of Subscription Agreement by and among Integral Technologies, Inc. and the investors in the March 2014 private placement. Incorporated by reference to Exhibit 10.1 of Integral’s Current Report Form 8-K dated March 31, 2014 (filed April 7, 2014).) |
10.46 |
Report of Registered Independent Public Accounting Firm, Smythe Ratcliffe, LLP (file herewith)
|
14.1 | Code of Ethics adopted September 20, 2004. (Incorporated by reference to Exhibit 14.1 of Integral’s annual report on Form 10-KSB for the period ended June 30, 2004.) |
21.4 | List of Subsidiaries. (file herewith) |
31.1 | Section 302 Certification by the Corporation’s Chief Executive Officer. (Filed herewith). |
31.2 | Section 302 Certification by the Corporation’s Chief Financial Officer. (Filed herewith). |
32.1 | Section 906 Certification by the Corporation’s Chief Executive Officer. (Filed herewith). |
32.2 | Section 906 Certification by the Corporation’s Chief Financial Officer. (Filed herewith). |
† Confidential treatment has been granted for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Exchange Act. In accordance with Rule 24b-2, these confidential portions have been omitted from this exhibit and filed separately with the Commission.
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
INTEGRAL TECHNOLOGIES, INC
|
|
|
|
|
Dated: September 30, 2014
|
/s/ Douglas Bathauer
|
|
|
Douglas Bathauer, Chief Executive Officer
|
|
|
|
|
|
/s/ W. Bartlett Snell
|
|
|
W. Bartlett Snell, Chief Financial Officer and Principal Accounting Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Name
|
|
Title
|
Date
|
|
|
|
|
/s/ Douglas Bathauer
|
|
Director
|
September 30, 2014
|
Douglas Bathauer
|
|
|
|
|
|
|
|
/s/ W. Bartlett Snell
|
|
CFO
|
September 30, 2014
|
W. Bartlett Snell
|
|
|
|
|
|
|
|
/s/ James Eagan
|
|
Director
|
September 30, 2014
|
James Eagan
|
|
|
|
|
|
|
|
/s/ William A Ince
|
|
Director
|
September 30, 2014
|
William A Ince
|
|
|
|
|
|
|
|
/s/ Richard Blumberg
|
|
Independent Director
|
September 30, 2014
|
Richard Blumberg
|
|
|
|
ALL DIRECTORS AND EXECUTIVE OFFICERS IDENTIFIED IN ITEM 9 NEED TO SIGN THE 10-K.
NOTE 12 - CONVERTIBLE DEBENTURES, CONTINUED
During the year ended June 30, 2014, $660,466 (2013 - $139,000) of convertible debentures were extinguished including accrued interest and any prepayment penalty by issuing 3,379,734 (2013 - 930,382) shares of common stock of the Company, and $1,122,933 (2013 - $252,456) representing the fair value of the derivative liabilities and the amortized cost of convertible debentures settled was included as additional paid-in capital. During the year ended June 30, 2014, $171,648 (2013 - $78,500) of convertible debentures were settled by paying $321,132 (2013 - $120,865) for principal, accrued interest, and any prepayment penalty. The extinguishment resulted in a net loss of $150,076 recorded in other expenses in the consolidated statements of operations for the year ended June 30, 2014.
At June 30, 2014, 0 (2013 - 1,275,271) shares of common stock of the Company would be required to settle the remaining convertible debentures.
The fair values of the derivative financial liabilities are calculated using the Black-Scholes valuation method at the consolidated balance sheet dates.
The following weighted average assumptions were used in determining the fair values of the derivative financial liabilities outstanding at inception:
|
2014
|
2013
|
||||||
Expected life (years)
|
0.87
|
0.87
|
||||||
Interest rate
|
1.10
|
%
|
1.08
|
%
|
||||
Volatility
|
80.46
|
%
|
73.62
|
%
|
||||
Dividend yield
|
N/A
|
|
N/A
|
|
||||
Estimated forfeitures
|
N/A
|
|
N/A
|
|
The following weighted average assumptions were used in determining the fair values of the derivative financial liabilities as of June 30, 2013:
|
2013
|
|||
Expected life (years)
|
0.62
|
|||
Interest rate
|
0.94
|
%
|
||
Volatility
|
70.20
|
%
|
||
Dividend yield
|
N/A
|
|
||
Estimated forfeitures
|
N/A
|
|
NOTE 13 - PROMISSORY NOTES PAYABLE
During the fiscal year ended June 30, 2013, the Company entered into the following promissory note payable agreements:
(a) | On December 31, 2011, the Company entered into a promissory note agreement with Jasper Rubber Products, Inc. for $235,129, which bears interest at 18% annually. Any unpaid principal and unpaid accrued interest is due December 30, 2012, the maturity date. Any payments made during the year shall be first applied to unpaid accrued interest, then to the reduction of principal and finally to any other accounts payable balances owing at the time of payment. |
During the year ended June 30, 2013, $132,485 was repaid by the Company representing the total remaining balance. During the year ended June 30, 2013, interest expense paid on the promissory note was $8,789.
F-26
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 13 - PROMISSORY NOTES PAYABLE, CONTINUED
During the fiscal year ended June 30, 2014, the Company entered into the following promissory note payable agreements:
(a) | Two one-month unsecured promissory notes payable totaling $60,000, which bore interest at 12% annually. Any unpaid principal and unpaid accrued interest is due January 19, 2014 and January 24, 2014, the maturity dates. In addition, the Company must issue 25,000 shares of common stock at each maturity date to settle the promissory notes. During the fiscal year ended June 30, 2014, the promissory notes payable were repaid, therefore the outstanding balance was $0. The obligations to issue 50,000 shares is still outstanding and explained in Note 5 to the financial statements under the heading "Share Obligations". |
(b) | On October 1, 2013, the Company entered into an unsecured promissory note agreement with a consultant for unpaid fees of $215,000, which bears interest at 6% annually. On April 17, 2014 the Company issued 1,264,706 shares of common stock valued at the fair market price of $0.17 per share. As of June 30, 2014, the outstanding balance on this note was $0. |
(c) | On February 1, 2014, the Company entered into an unsecured promissory note agreement with a director for unpaid consulting fees of $300,000, which bears interest at 6% annually. Any interest accrued on the outstanding balance is due at the maturity date, February 1, 2016. $5,000 is payable on the first of each month beginning March 1, 2014 through to March 1, 2015. The final payment of $272,234 consisting of principal and accrued interest is due on the maturity date. As at June 30, 2014, the balance of the outstanding note was $289,500. |
Total outstanding promissory notes as of June 30, 2014 and 2013 are as follows:
|
June 30, 2014
|
June 30, 2013
|
||||||
Current
|
$
|
60,000
|
$
|
-
|
||||
Non-current
|
229,500
|
-
|
||||||
|
$
|
289,500
|
$
|
-
|
NOTE 14 - DEFERRED REVENUE
On June 21, 2013, the Company signed a ten year license agreement with Hanwha L&C, of South Korea. The agreement grants Hanwha L&C exclusive rights to sell, distribute and manufacture Integral's patented line of conductive plastics, ElectriPlast, in South Korea, as well as non-exclusive sales and distribution rights to ElectriPlast for Japan, Taiwan and the China markets.
The agreement called for license fees as follows:
· | $250,000 (received) to be paid to the Company within 15 business days; and |
· | $250,000 (received) payment to be paid to the Company no later than one year after signing the agreement. |
The first payment of $250,000 has been recorded as deferred revenue, which will be recognized as license fee revenue in the consolidated statements of operations over the life of the ten year contract. During the fiscal year ended June 30, 2014, $29,167 (fiscal year ended June 30, 2013 - $0) has been recognized as license fee revenue.
F-27
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 14 - DEFERRED REVENUE, CONTINUED
As of June 30, 2014, the remaining deferred revenue was as follows:
|
June 30, 2014
|
June 30, 2013
|
||||||
Current
|
$
|
50,000
|
$
|
25,000
|
||||
Non-current
|
420,833
|
225,000
|
||||||
|
$
|
470,833
|
$
|
250,000
|
NOTE 15 - EXTINGUISHMENT OF DEBT
During the fiscal years ended June 30, 2014 and 2013, the following debts were extinguished:
(a) | On November 8, 2012, a director of the Company resigned from his position as director and CEO of the Company. An agreement was signed indicating that all amounts owing at the agreement date would be waived resulting in payables of $228,897 recognized as a gain on extinguishment of debt charged to accumulated deficit. Further, the agreement indicated that the Company would redeem 70,588 shares of preferred stock held by the director at $4.25 per share for a total of $300,000 as follows: |
(i) | Monthly installments of $7,500 would be paid on the fifteenth of each month starting November 15, 2012 until June 15, 2013; |
(ii) | Monthly installments of $10,000 would be paid on the fifteenth of each month starting July 15, 2013 until December 15, 2014; and |
(iii) | A lump sum payment of $60,000 on January 15, 2015. |
During the fiscal year ended June 30, 2013, $300,000 was reclassified as a liability with the $70,588 par value removed from equity and $229,412 value in excess of par charged to accumulated deficit. On January 15, 2014 the Company entered into an amended agreement to settle a portion of the redemption value by issuing 481,482 shares of common stock measured at a fair value of $0.27 per share measured on the date of the amendment. A total of $130,000 was reclassified from redeemable preferred stock to obligations to issue shares.
On April 15, 2014, the principal balance of $30,000 was settled through the issuance of 100,000 shares of common stock measured at a fair value of $0.30 per share.
On May 1, 2014, the Company entered into an amended agreement whereby the preferred stock and stock options were exchanged for 750,000 shares of common stock valued at the share price of $0.26 per share in settlement of the remaining debt. The gain of $71,932 was recorded as a gain on extinguishment of debt to accumulated deficit. As of June 30, 2014 there was no outstanding debt related to the resignation of the former director and CEO.
(b) | During the fiscal year ended June 30, 2013, legal fees included in accounts payable were derecognized as a result of becoming time barred due to the statute of limitations. A total of $355,022 has been recognized as a gain on extinguishment of liabilities in the consolidated statement of operations for the fiscal year ended June 30, 2013. |
F-28
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 15 - EXTINGUISHMENT OF DEBT, CONTINUED
(c) | On June 13, 2013, the Company signed a separation agreement with a consultant resulting in a termination of consulting services effective March 31, 2013. As a result of the termination, the Company was required to issue the following: |
(i) | 541,666 shares of common stock pursuant to a restricted stock award agreement for options vesting prior to the agreement date. These shares were issued during the fiscal year ended June 30, 2014 and were measured at a fair value of $0.44 per share (note 5(b)); and |
(ii) | 628,571 shares common stock in consideration for unpaid fees of $243,000. The modified consulting fees were recorded at the fair value of shares to be issued of $352,000 as at June 30, 2013 which were included in accounts payable and accruals. The increase in value of modified debt of $109,000 was recognized as a loss on extinguishment of liabilities in the consolidated statements of operations for the year ended June 30, 2013. |
(iii) | In addition to the above, 600,000 options previously granted to a consultant were cancelled. Of the granted options, 200,000 had not vested on the date of cancellation. As such, stock-based compensation previously recorded on the unvested options of $23,375 was reversed through consulting expenses in the consolidated statement of operations for the fiscal year ended June 30, 2014. |
(iv) | During the fiscal year ended June 30, 2014, 628,571 shares were issued to settle the above mentioned consulting fees which were measured at a fair value of $0.44 per share on the share issuance date. A total of $276,571 was recorded as equity with the decrease in value of extinguished debt of $75,429 recorded as a recovery of loss on extinguishment of debt in the consolidated statements of operations. |
(d) | On March 20, 2014, the Company signed a separation agreement with a consultant resulting in a termination of consulting services effective January 2, 2014. As a result of the termination, the Company is required to perform the following: |
(i) | 203,700 shares of common stock were issued to settle $55,000 in consulting fees included in accounts payable and accruals. These shares were issued during the fiscal year ended June 30, 2014 and were measured at a fair value of $0.27 per share; and |
(ii) | 1,000,000 shares of common stock were issued in lieu of all stock options not granted per the original consulting agreement. The shares of common stock were measured at their fair value of $0.30 per share on the date of the separation agreement. A total of $300,000 was recorded as termination agreement expense in the consolidated statements of operations. |
(e) | On March 21, 2014, the Company signed a separation agreement with a director resulting in a termination of consulting services effective January 31, 2014. As a result of the termination, the Company is required to perform the following: |
(i) | 241,666 shares of common stock were issued to settle $72,500 in consulting fees included in accounts payable and accruals. These shares were issued during the fiscal year ended June 30, 2014 and were measured at a fair value of $0.30 per share; |
(ii) | Grant 200,000 stock options at an exercise price of $0.50 per share of common stock and cancellation of 500,000 vested stock options and forfeiture of 100,000 un-vested stock options previously granted; and |
F-29
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
NOTE 15 - EXTINGUISHMENT OF DEBT, CONTINUED
(iii) | 1,250,000 shares of common stock were issued in lieu of all stock options not granted per the original consulting agreement. The shares of common stock were measured at their fair value of $0.30 per share on the date of the separation agreement. A total of $375,000 was recorded as termination agreement expense in the consolidated statements of operations. |
(f) | On December 30, 2013 the Company amended the terms of a promissory note to add a conversion option to settle the remaining balance of $51,040 through issuance of shares at a conversion price of $0.165 per share. On December 30, 2013, 309,332 shares of common stock were issued to settle the above mentioned promissory note which was measured at a fair value of $0.28 per share on the share issuance date. A total of $86,613 was recorded as equity with the loss on extinguishment of $35,573 recorded in the consolidated statement of operations. |
(g) | On October 16, 2013 the Company settled $55,052 in legal fees through issuance of shares of common stock. 125,000 shares of common stock were issued to settle the above mentioned payable balance which was measured at a fair value of $0.38 per share on the share issuance date. A total of $47,500 was recorded as equity with the gain on extinguishment of $7,552 recorded in the consolidated statement of operations. |
(h) | On October 25, 2013 the Company settled $11,726 in consulting fees through issuance of shares of common stock. 29,315 shares of common stock were issued to settle the above mentioned payable balance which was measured at a fair value of $0.37 per share on the share issuance date. |
A total of $10,847 was recorded as equity with the gain on extinguishment of $879 recorded in the consolidated statement of operations.
(i) | On January 30, 2014 the Company settled $15,000 in consulting fees to a director through issuance of shares of common stock. 50,000 shares of common stock were issued to settle the above mentioned payable balance which was measured at a fair value of $0.30 per share on the share issuance date. A total of $15,000 was recorded as equity. |
(j) | On March 31, 2014, legal fees included in accounts payable were derecognized as a result of becoming time barred due to the statute of limitations. A total of $150,367 has been recognized as a gain on extinguishment of liabilities in the consolidated statements of operations. |
NOTE 16 - LEASE AGREEMENTS
During the fiscal years June 30, 2014 and 2013, rent expense was $70,055 and $61,523, respectively. Effective July 1, 2013 the Company entered into a lease agreement whereby the Company is the lessee of office space. The agreement expires on June 30, 2018, and monthly payments are $2,500. Future minimum lease payments are as follows:
2015
|
$
|
30,000
|
||
2016
|
30,000
|
|||
2017
|
30,000
|
|||
2018
|
30,000
|
|||
|
$
|
120,000
|
F-30
Integral Technologies, Inc.
Notes to the Consolidated Financial Statements
During the fiscal year ended June 30, 2014, the Company entered into a financing arrangement to cover directors’ and officers’ liability insurance for the period December 31, 2013 to December 31, 2014. The amount financed was $61,474, which bears interest at 3.75% annually. Monthly payments of $5,814 are required to settle amounts owing. The balance outstanding at June 30, 2014 was $0.
NOTE 18 - COMMITTMENTS
During the fiscal year ended June 30, 2014, the following commitments were outstanding:
(a) | An employment agreement with an employee, dated November 1, 2013, engaging the individual to provide certain business development services to the Company in Korea. The term of the agreement is for three years and the Company is to pay the employee an annual salary of $150,000. The Company agreed to grant the employee a stock grant in the amount of 810,000 shares of the Company’s common stock. |
(b) | An employment agreement with an employee, dated February 28, 2014, engaging the individual to provide certain consulting services to the Company in Korea. The term of the agreement is for three years and the Company is to pay the employee an annual salary of $100,000. The Company agreed to grant the employee a stock grant in the amount of 540,000 shares of the Company’s common stock. |
(c) | An employment agreement with an employee, dated January 13, 2014, engaging the individual to provide certain technical expertise to the Company in the USA. The term of the agreement is for three years and the Company is to pay the employee an annual salary of $200,000. The Company agreed to grant the employee a stock grant in the amount of 500,000 shares of the Company’s common stock. |
(d) | An employment agreement with an employee, dated November 1, 2013, engaging the individual to provide the expertise as that of the Chief Technical Officer. The term of the agreement is for three years and the Company is to pay the employee an annual salary of $170,000. The Company agreed to grant the employee a stock grant in the amount of 100,000 shares of the Company’s common stock. |
(e) | Pursuant to a consulting agreement dated August 19, 2013, the Company is obligated to pay $5,000 to $10,000 per month based on the number of hours worked and to issue 6,000 shares of common stock per month beginning September 1, 2013. |
NOTE 19 - SUBSEQUENT EVENTS
The following events occurred subsequent to June 30, 2014:
(a) | Prior to June 30, 2014, the Company received $71,255 and subsequent to June 30, 2014 it received $68,000 for the exercise of warrants. In respect of this exercise of warrants, a total of 819,147 shares were issued subsequent to June 30, 2014. Also, prior to June 30, 2014, subscriptions were received for 638,940 units, each unit consisting of one share of common stock at $0.17 and one warrant at $0.001. Each warrant entitles the holder to purchase one share of common stock on or before eighteen months after the closing date at an exercise price of $0.30. In respect of this private placement, $87,370 was received prior to June 30, 2014 and $21,370 was received subsequent to June 30, 2014. |
F-31