The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are integral part of the consolidated financial statements.
The accompanying notes are integral part of the consolidated financial statements.
Notes to the Consolidated Financial Statements
NOTE 1 -
NATURE OF OPERATIONS
Integral Technologies, Inc. (the “Company” or “Integral”) was incorporated under the laws of the state of Nevada on February 12, 1996 and
has recently relocated its head office to Evansville, Indiana, USA. The Company is in the business of researching, developing and commercializing new electrically-conductive resin-based materials called ElectriPlast.
The Company will be devoting all of its resources to the research, development and commercialization of its ElectriPlast technology.
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are presented in United States dollars.
We have prepared the consolidated financial statements included herein, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The consolidated financial statements include the Company’s wholly owned subsidiaries. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed from the accompanying consolidated financial statements. The accompanying comparative year end consolidated balance sheet was derived from the audited financial statements included in the annual financial statements. The accompanying interim financial statements are unaudited, and reflect all adjustments which are in the opinion of management, necessary for a fair statement of the Company’s consolidated financial position, results of operations, and cash flows for the periods presented. Unless otherwise noted, all such adjustments are of a normal, recurring nature. All intercompany transactions and balances have been eliminated in consolidation. The Company’s results of operations and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods. Nevertheless, we believe that the disclosures are adequate to ensure the information presented is not misleading. These unaudited consolidated financial statements should be read in conjunction with our audited financial statements and the notes thereto for the year ended June 30, 2016 included in the Company’s 10-K filed with the SEC on January 17, 2017.
Principles of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries,
Integral Operating, LLC (“Operating”), Integral Vision Systems, Inc. ("IVSI"), Integral Systems Corporation (formerly Antek Wireless Inc.), Electriplast Corp. (formerly Plastenna, Inc.) (“Electriplast”), Integral Technologies Asia, Inc. (“Asia”) and its 76.625%-owned subsidiary, Emergent Technologies Corp. ("ETC"), which is currently inactive. ETC's non-controlling interest balance is immaterial to the financial statements. All intercompany balances and transactions have been eliminated.
Basic and
d
iluted
n
et
l
oss
p
er
s
hare
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the
year. Diluted net loss per common share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common share equivalents outstanding during the period. Because the Company has reported a net loss for all years presented, diluted net loss per common share is the same as basic net loss per common share for those years.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (
CONTINUED
)
Stock issued in exchange for services
The valuation of common stock issued in exchange for services
to non-employees is valued at an estimated fair market value of the Company’s stock price based upon trading, sales and other issuances of the Company's common stock. Stock-based compensation expense related to awards to non-employees is recognized based on the then-current fair value at each measurement date over the associated service period of the award, which is generally the vesting term, using the accelerated attribution method. The fair value of non-employee stock options is estimated using the Black-Scholes valuation model with assumptions generally consistent with those used for employee stock options, with the exception of the expected term, which is the remaining contractual life at each measurement date. Restricted shares are issued or become issuable when they vested and are measured at their grant date and recorded evenly over the vesting period.
Revenue recognition
The Company has not generated significant revenue since inception. Although the Company has begun to receive revenue from the sale of material for commercial applications
and a services contract, the Company continues to devote substantially all its efforts to developing the business.
The Company recognizes revenues from a contract with a plastics technology company for which it provides se
rvices and products, on a net basis. Fees are recognized monthly as services and products are provided. This is the point that revenues are considered realizable and earned.
As discussed in Note 14
, the Company signed a ten-year license agreement with Hanwha Advanced Materials Co., Ltd., (“Hanwa”), of South Korea. For license agreements that the Company enters into, revenue is recognized when all four of the following criteria are met: (i) a contract is executed, (ii) the contract price is fixed and determinable, (iii) delivery of the service or products has occurred, and (iv) collectability of the contract amounts is reasonably assured.
The Company
’s license agreements can provide for upfront license fees, maintenance payments, and/or substantive milestone payments. In accordance with revenue recognition guidance, the Company identifies all of the deliverables at the inception of the agreement. License fees which are nonrefundable fees will be evaluated for standalone value to the licensor and may be recognized upon delivery pursuant to terms of the agreement. Upfront nonrefundable fees associated with license and development agreements where the Company has continuing involvement that does not meet the requirement of a separate deliverable are recorded as deferred revenue and recognized over the estimated service period. The Company may also enter into agreements to provide engineering services. The Company recognizes revenue from engineering services as the service has been performed and amounts are reasonably assured of collection.
Foreign currency translation
The Company
’s functional and reporting currency is the US dollar. Transactions and balances for the Company’s operations that are not in US dollars are translated into US dollars at the exchange rates in effect at the balance sheet dates for monetary assets and liabilities, and at historical exchange rates for non-monetary assets and liabilities. Revenues and expenses are translated at the rate of exchange on the date of the transaction, except for amortization and depreciation, which are translated on the same basis as the related assets. Resulting translation gains or losses are included in the consolidated statements of operations. The foreign currency impact on the consolidated financial statements is immaterial.
Advertising
Advertising costs are char
ged to operations when incurred. Advertising expense was $4,837 and $31,083 for the six months ended December 31, 2016 and 2015, respectively. Advertising expense was $901 and $14,166 for the three months ended December 31, 2016 and 2015, respectively.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and development
The Company expenses all r
esearch and development expenditures as incurred.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates include valuation allowance for deferred income tax assets, the determination of the assumptions used in calculating the fair value of stock-based compensation and the determination of the assumptions used in calculating the fair value of derivative financial liabilities
and the warrant liability. Actual results could differ from those estimates and could impact future results of operations and cash flows.
F
inancial instruments
We have issued financial instruments that contain embedded conversion features that qualify as derivatives and are therefore accounted for as liabilities
. The derivative liabilities are initially recorded at fair value, with gains and losses arising from changes in fair value recognized in the consolidated statements of operations at each period end while such instruments are outstanding. The derivative liabilities relating to the convertible debt is valued using a binomial lattice model and the Black-Scholes Model where appropriate. The fair value of the warrants issued with reset provisions are measured using the Monte Carlo method.
Fair value measurements
Assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. For certain of the Company
’s financial instruments including cash and accounts payable, the carrying values approximate fair value due to their short-term nature.
ASC 820
Fair Value Measurements and Disclosures
specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad levels listed below:
|
●
|
Level 1
– Quoted prices in active markets for identical securities;
|
|
●
|
Level 2
– Other significant observable inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities); and
|
|
●
|
Level 3
– Significant unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability.
|
The fair value measurement of the derivative liability
and warrants with reset provisions are classified as a Level 3 measurement as further discussed under Fair Value Measurements.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (
CONTINUED
)
Income
taxes
The Company uses the asset and liability approach in its method of accounting for income taxes that requires the recognition of deferred tax liabilities and assets for expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance against deferred tax assets is recorded if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The impact of an uncertain tax position that is more likely than not of being sustained upon audit by the relevant taxing authority is recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained.
Stock-based compensation
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 the market price of common stock or the 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 consolidated statements 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 consolidated statements 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.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the estimated useful lives using the straight-line method of depreciation.
Amortization of the leasehold improvements is computed using the straight-line method over the lesser of the estimated useful lives of the underlying assets and the term of the related lease.
Reclassifications:
For comparability, certain
2016 fiscal year amounts have been reclassified to conform to classifications adopted in the 2017 fiscal year. These reclassifications did not have an impact on stockholders’ deficit or net loss on the 2016 fiscal year consolidated financial statements.
Recent Accounting Pronouncement
s
not yet adopted
In May 2014, the FASB issued amended revenue recognition guidance to clarify the principles for recognizing revenue from contracts with customers. The guidance requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The requirements are effective for annual reporting periods beginn
ing after December 15, 2017. Early adoption is not permitted. We are evaluating the impact of the amended revenue recognition guidance on our financial statements.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 2 -
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncement
s not yet adopted (Continued)
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity
’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosure if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern.” ASU 2014-15 applies to all entities and is effective for annual period ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
In March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation: Improvements to Employee Share-Based P
ay
ment Accounting,
which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of this ASU will have on our financial statements.
In February 2016, FASB issued ASU 2016-2,
Leases
, under which lessees will recognize most leases on the balance sheet. This will generally increase reported assets and liabilities. For public entities, this ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. ASU 2016-2 mandates a modified retrospective transition method for all entities. We are in the process of determining the impact that the updated accounting guidance will have on our financial statements.
Recent accountin
g
pronouncements adopted
In April 2015, the FASB issued Update No. 2015-03
– Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt issuance costs. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
NOTE 3
-
GOING CONCERN
These
consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the ordinary course of business. The Company’s operations have resulted in a net loss of $1,461,952 for the six months ended December 31, 2016 (2015 - $2,075,800), and an accumulated deficit as of December 31, 2016, $59,084,234 (June 30, 2016 - $57,622,282) and a working capital deficiency of $2,602,827 as of December 31, 2016, (June 30, 2016 - $1,967,917). The Company does not have sufficient revenue-producing activities to fund its expenditure requirements to continue to advance researching, developing and commercializing its conductive plastics technology, ElectriPlast. Subsequent to period end, the Company raised $9,800 pursuant to private placements (note 12). The Company estimates that, without further funding, it will deplete its cash resources within three months. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 3 -
GOING CONCERN
(CONTINUED)
These
consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate because management believes that the actions already taken or planned will mitigate the adverse conditions and events that raise doubts about the validity of the going concern assumption used in preparing these consolidated financial statements. Management intends to raise additional capital through stock and debt issuances to finance operations. If none of these events occur, there is a risk that the business will fail.
NOTE
4
-
STOCKHOLDERS’ DEFICIT
Common stock
During the
six months ended December 31, 2016, the Company completed the following private placements:
|
(i)
|
On July 27, 2016, the Company
raised $226,355 for the issuance of 1,968,304 units. Each unit consisted of one common share at $0.115 per share and one quarter share purchase warrant at $0.001 per warrant to purchase 492,076
common shares on or before April 30, 2017 at an exercise price of $0.30 per warrant.
|
|
(ii)
|
On
August 22, 2016, the Company raised $94,000 for the issuance of 817,391 units. Each unit consisted of one common share at $0.115 per share and one quarter share purchase warrant at $0.001 per warrant to purchase 204,348
common shares on or before May 31, 2017 at an exercise price of $0.30 per warrant.
|
|
(iii)
|
During December, 2016, the Company completed private placements amounting to $210,000 for the issuance of 3,000,000 units.
Each unit consisted of one common share at $0.07 per share and one quarter share purchase warrant at $0.001 per warrant to purchase 750,000
common shares on or before October 1, 2017 at an exercise price of $0.20 per warrant.
|
Pursuant to a promissory note agreement, 75,000 common shares were issued on
October 24, 2016 (note 10(d)).
During the
six months ended December 31, 2016, the Company issued shares of common stock pursuant to debt agreements:
|
(i)
|
On September 21, 2016, the Company issued 1,035,864 shares to settle the remaining balance of $69,649, the first convertible debt note with JMJ Financial (note
9).
|
|
(ii)
|
On October 11, 2016, the Company issued 75,000 shares pursuant to a debt agreement, measured at a fair value of the Company
’s common shares on that date of $10,500, recorded as interest expense (note 10).
|
During the
year ended June 30, 2016, the Company completed the following private placement:
|
(i)
|
Completed a private placement amounting to $28,000 for the issuance of 56,000 shares of common stock at $0.50 per share.
|
Preferred stock
As of
December 31, 2016, and June 30, 2016 there are no outstanding preferred shares of stock.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE
4
-
STOCKHOLDERS’ DEFICIT
(CONTINUED)
Stock-based compensation
During the
six months ended December 31, 2016, the Company recorded stock-based compensation expense with respect to vesting stock options, restricted stock and warrants and modified stock options of $89,790 (2015 - $89,792). During the three months ended December 31, 2016, the Company recorded stock-based compensation expense with respect to vesting restricted stock of $44,894 (2015 - $44,896), respectively. Stock-based compensation expense is included in selling, general, and administrative expenses.
Stock-based compensation not yet recognized at
December 31, 2016 relating to non-vested stock options was $106,785 (June 30, 2016 - $196,575), which will be recognized over a period of 1 year (2016 – 1 year).
Stock options
and restricted shares
The Company is reviewing several alternatives to
replace its 2001, 2003, and 2009 Stock Option Plans with a new omnibus stock option plan (the “New Plan”). In certain cases, we have made contractual commitments to provide shares or stock option grants in anticipation of putting in place the New Plan. The New Plan will allow us to attract and retain key employees or service providers as we continue to develop our business. We will obtain the necessary approvals based on the attributes of the plan. We anticipate that this New Plan will be implemented prior to June 30, 2017.
In January 2001, the Company adopted the Integral Technologies, Inc. 2001 Stock Plan (the "2001 Plan"), a non-qualified stock option plan under which the Company may issue up to 2,500,000 stock options and bonuses of common stock of the Company to provide incentives to officers, directors, key employees and other persons who contribute to the success of the Company. This plan was amended during December 2001 to increase the number of
common stock options that may be granted from 2,500,000 to 3,500,000 stock options. As of December 31, 2016, there were no (June 30, 2016 - nil) common stock options available under this plan.
In April 2003, the Company adopted the Integral Technologies, Inc. 2003 Stock Plan (the "2003 Plan"), a non-qualified stock option plan under which the Company may issue up to 1,500,000 stock options. As of
December 31, 2016, there were no (June 30, 2016 - nil) common stock options available under this plan.
During the fiscal year ended June 30, 2010, the Company adopted the Integral Technologies, Inc. 2009 Stock Plan (the "2009 Plan"), a non-qualified stock option plan under which the Company may issue up to 4,000,000 common stock options. As of
December 31, 2016, there were no (June 30, 2016 - nil) common stock options available under this plan.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 4
-
STOCKHOLDERS’ DEFICIT
(
CONTINUED
)
Stock option activity
The following summarizes information about the Company
’s options outstanding:
|
Number of Options
|
|
Price Per Option
|
|
Weighted Average Exercise Price
|
Outstanding, June 30,
2016
|
1,15
0,000
|
|
$ 0.25
|
to
|
$
0.85
|
|
$ 0.
37
|
Granted
|
-
|
|
|
-
|
|
|
-
|
Cancelled
|
(150,000)
|
|
|
$ 0.50
|
|
|
$ 0.50
|
Expired
|
(100,000)
|
|
|
$ 0.85
|
|
|
-
|
|
-
|
|
|
|
|
|
|
Outstanding,
December 31, 2016
|
9
00,000
|
|
$ 0.25
|
to
|
$
0.31
|
|
$ 0.3
0
|
Exercisable,
December 31, 2016
|
8
50,000
|
|
$ 0.25
|
to
|
$
0.31
|
|
$ 0.
30
|
A summary of the status of non-vested options as of
December 31, 2016, is as follows:
|
|
Number of Options
|
|
Weighted Average Grant Date Fair Value
|
|
|
|
|
|
Non-vested at June 30,
2016
|
50
,000
|
|
$ 0.25
|
|
Options granted
|
-
|
|
-
|
|
Options forfeited
|
-
|
|
-
|
|
Options vested
|
-
|
|
-
|
|
|
|
|
|
Non-vested at
December 31, 2016
|
5
0,000
|
|
$ 0.
25
|
The weighted average remaining contractual lives for options outstanding and exercisable at
December 31, 2016 are 0.79 years and 0.54 years (June 30, 2016 - 1.13 and 0.93 years), respectively.
The
following summarizes the options outstanding and exercisable:
|
|
|
|
|
Number of Options
|
Expiry Date
|
|
|
Exercise Price
|
|
December 31
, 2016
|
|
June 30,
2016
|
December 1, 2016
|
|
$0.85
|
|
-
|
|
100,000
|
December 1, 2016
|
|
$0.50
|
|
-
|
|
75,000
|
February 19, 2017
|
|
$0.31
|
|
750,000
|
|
750,000
|
June 1, 2017
|
|
|
$0.50
|
|
-
|
|
75,000
|
January 13, 2019
|
|
$0.25
|
|
50,000
|
|
50,000
|
January 13, 2020
|
|
$0.25
|
|
50,000
|
|
50,000
|
January 13, 2021
|
|
$0.25
|
|
50,000
|
|
50,000
|
Total outstanding
|
|
|
|
9
00,000
|
|
1,150,000
|
Total exercisable
|
|
|
|
8
50,000
|
|
1,100,000
|
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 4
-
STOCKHOLDERS’ DEFICIT (
CONTINUED
)
Stock option activity
(continued)
The aggregate intrinsic value of options outstanding and exercisable as
of December 31, 2016 was $nil and $nil (June 30, 2016 - $nil and $nil), respectively. The aggregate intrinsic values exclude options having a negative aggregate intrinsic value due to awards with exercise prices greater than market value. The intrinsic value is the difference between the market value of the shares and the exercise price of the award.
During the year ended June 30,
2014, the Company entered into employment agreements, whereby the employees would be granted restricted shares. The holder of a restricted share award is generally entitled at all times on and after the date of the agreement to exercise the rights of a shareholder of the Company, including the right to vote and the right to receive dividends on the shares. These shareholders do not have the ability to sell, transfer or otherwise encumber the restricted shares awards until they fully vest. The restricted shares granted vest over three or four-year periods and the grant date fair value of the awards is recognized as expense over the vesting period.
During the
six months ended December 31, 2016, the Company issued nil shares (year ended June 30, 2016 - 377,500) and is obligated to issue an additional 937,500 shares pursuant to the employment agreements.
A summary of the status of non-vested restricted shares as of
December 31, 2016, is as follows:
|
|
Number of
Restricted Stock
Awards
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
|
|
|
|
|
|
|
|
|
Non-vested at June 30,
2016
|
|
|
337,500
|
|
|
$
|
0.38
|
|
Awards granted
|
|
|
-
|
|
|
|
-
|
|
Awards forfeited
|
|
|
-
|
|
|
|
-
|
|
Awards vested
|
|
|
(337,500
|
)
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
Non-vested at
December 31, 2016
|
|
|
-
|
|
|
$
|
-
|
|
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 4
-
STOCKHOLDERS’ DEFICIT
(
CONTINUED
)
Stock purchase warrants
The following summarizes information about the Company
’s stock purchase warrants outstanding:
|
|
|
Number of Warrants
|
|
Price Per Share
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2016
|
|
12,506,309
|
|
$0.
08
|
-
|
$0.50
|
|
$0.
32
|
Granted
|
|
|
1,446,424
|
|
$0.20
|
-
|
$0.30
|
|
$0.25
|
Expired
|
|
|
(8,046,844)
|
|
$0.30
|
-
|
$0.50
|
|
$0.
37
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2016
|
|
5,905,889
|
|
$0.
08
|
-
|
$0.30
|
|
$0.
24
|
|
|
|
|
|
Number of Warrants
|
Expiry Date
|
|
|
Exercise Price
|
|
December 31
, 2016
|
|
June 30,
2016
|
|
|
|
|
|
|
|
|
November 25, 2016
|
|
$0.30
|
|
-
|
|
8,501,786
|
November 25, 2016
|
|
$0.5
0
|
|
-
|
|
2,754,523
|
April 30, 2017
|
|
$0.30
|
|
492,076
|
|
-
|
May 31, 2017
|
|
$0.30
|
|
204,348
|
|
-
|
October 31, 2017*
|
|
$0.30
|
|
3,209,465
|
|
-
|
October 31, 2017
|
|
$0.20
|
|
750,000
|
|
-
|
May 5, 2020
|
|
$0.08
|
|
1,250,000
|
|
1,250,000
|
Total
outstanding and exercisable
|
|
|
|
5,905,889
|
|
12,506,309
|
*
During the six months ended December 31, 2016, 3,209,465 warrants expiring November 25, 2016 were extended to October 31, 2017.
Share obligations
Pursuant to a consulting agreement
with the CFO dated August 19, 2013, the Company is obligated to pay $5,000 to $12,500 per month based on the number of hours worked and to issue 6,000 shares of common stock per month beginning September 1, 2013.
As of
December 31, 2016, no shares have been issued. As such, a total of 240,000 shares of common stock are issuable. The obligation to issue shares of common stock was measured at a weighted average fair value of $0.38 per share on the date each series of shares became issuable. During the six months ended December 31, 2016, $4,320 (2015 - $18,060) was recorded as an obligation to issue shares
. During the three months ended December 31, 2016, $2,040 (2015 - $8,340) was recorded as an obligation to issue shares.
As of December 31, 2016, a total balance of $91,260 (June 30, 2016 - $86,940) remains as an obligation to issue the shares within equity, as this obligation can only be satisfied in shares of common stock.
Pursuant to
a separation agreement with the previous CFO, the Company will issue 36,000 shares of common stock and settle all unpaid fees from July 1, 2016 to February 10, 2017 (effective date of resignation). The Company is currently in the process of negotiating a compensation settlement agreement
.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 4
-
STOCKHOLDERS’ DEFICIT, CONTINUED
Share obligations
(continued)
P
ursuant to director’s agreements, the Company is obligated to issue 65,000 shares of common stock. As at December 31, 2016, these shares have not been issued and as such, the grant date fair value of $29,250 has been recognized in obligation to issue shares within equity.
Pursuant to amended debt agreements, the Company is obligated to issue 725,000 shares of common stock (note 10). As at December 31, 2016, these shares have not been issued and as such, the grant date fair value of $82,000 has been recognized in obligation to issue shares within equity.
NOTE
5
-
INCOME TAXES
There are no current or deferred tax expenses for the
six months ended December 31, 2016, due to the Company's loss position. The Company has fully reserved for any benefits of these losses. The deferred tax consequences of temporary differences in reporting items for financial statement and income tax purposes are recognized as appropriate. Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Company's ability to generate taxable income within the net operating loss carry-forward period. Management has considered these factors in reaching its conclusion to provide a full valuation allowance for financial reporting purposes. As of December 31, 2016, the Company had a net operating loss carry-forward of $43,927,000.
NOTE
6
-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
Six
Months Ended
December 31
,
2016
|
|
|
Six
Months Ended
December 31
,
2015
|
|
Changes in working capital
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
26,567
|
|
|
$
|
22,716
|
|
Accounts receivable
|
|
|
(11,260
|
)
|
|
|
(5,420
|
)
|
Accounts payable and accruals
|
|
|
683,140
|
|
|
|
261,397
|
|
Related party payable
|
|
|
97,500
|
|
|
|
-
|
|
|
|
$
|
795,947
|
|
|
$
|
278,693
|
|
|
|
|
|
|
|
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
Subscriptions received in prior year
|
|
$
|
-
|
|
|
$
|
114,000
|
|
Settlement of debt
|
|
|
-
|
|
|
|
6,220
|
|
Pursuant to
debt agreements
|
|
|
10,500
|
|
|
|
-
|
|
Settlement of convertible debenture
|
|
|
113,945
|
|
|
|
222,141
|
|
NOTE
7
-
RELATED PARTY TRANSACTIONS
As
of December 31, 2016, $127,500 (June 30, 2016 - $30,000) was owed to the Company's executives for outstanding managements fees, consulting fees and business related reimbursements, and are without interest or stated terms of repayment.
NOTE 8
-
SEGMENT INFORMATION
The Company operates primarily in one business segment, the development of electronically-conductive resin-based materials, with operations located in the US.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE
9
-
CONVERTIBLE DEBENTURES
During the
six months ended December 31, 2016, $69,649 (three months ended December 31, 2016 - $nil) of the face value of debentures were extinguished by issuing 1,035,000 shares of common stock of the Company. As a result, $113,945 representing the market value of the shares issued was included in additional paid in capital and a loss on extinguishment of $33,906. The loss represents the difference between fair value of the derivative liabilities and the amortized cost of convertible debentures of $80,039 and the market value of the shares.
As of
December 31, 2016, the total amortized value of the outstanding convertible debentures were $686,408 (June 30, 2016 - $664,621), the total fair value of the outstanding derivative liabilities were $44,000 (June 30, 2016 - $142,797) and the fair value of the warrant liability was $49,200 (June 30, 2016 - $87,500).
During the
six months ended December 31, 2016, a fair value gain on the derivative liability of $34,138 (2015 fair value loss - $56,850) was recognized. During the three months ended December 31, 2016, a fair value gain on the derivative liability of $4,900 (2015 fair value loss - $56,850) was recognized. As of December 31, 2016, $34,179 of the fair value gain relates to the conversion features associated with the outstanding debentures with the remaining fair value loss of $41 relating to the conversion feature associated with the debenture that was settled and extinguished.
As of
December 31, 2016, 10,822,723 (June 30, 2016 – 1,374,041) common shares of the Company would be required to settle the remaining tranches of convertible debt at a weighted average conversion price of $0.065 (June 30, 2016 - $0.11) per common share.
As
of December 31, 2016, the face value of convertible debentures is $703,477 (June 30, 2016 - $1,189,649), which includes accrued interest of $120,000 (June 30, 2016 - $146,087).
During the
six months ended December 31, 2016, debt discount amortization of $37,167 (2015 - $204,304) was recorded as interest expense. During the three months ended December 31, 2016, debt discount amortization of $12,562 (2015 - $152,664) was recorded as interest expense.
The fair value of the derivative financial liability is calculated using
a binomial lattice valuation method at inception and the balance sheet date. The fair value of the warrant liability is calculated using the Monte Carlo Model at inception and the balance sheet date.
The following assumptions were used in determining the fair value of the derivative liabilit
ies at inception during the six months ended:
|
December 31
, 2016
|
Share price
|
0.16
|
-
|
0.50
|
Conversion price
|
0.11
|
-
|
0.37
|
Expected life (years)
|
0.78
|
-
|
2.00
|
Interest rate
|
0.42
|
-
|
0.63%
|
Volatility
|
76.39
|
-
|
101.5%
|
Dividend yield
|
|
N/A
|
|
Estimated forfeitures
|
|
N/A
|
|
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE
9
-
CONVERTIBLE DEBENTURES (CONTINUED)
The
following assumptions were used in determining the fair value of the derivative financial liabilities as of:
|
|
December 31
, 2016
|
|
June
3
0
,
2016
|
Share price
|
|
0.
09
|
|
|
0.16
|
|
Conversion price
|
|
0.06
|
|
|
0.11
|
|
Expected life (years)
|
|
0.
34
|
|
0.850
|
-
|
1.25
|
Interest rate
|
|
0.50%
|
|
0.45
|
-
|
0.50%
|
Volatility
|
|
91.50
%
|
|
91.50
|
-
|
122.29%
|
Dividend yield
|
|
N/A
|
|
|
N/A
|
|
Estimated forfeitures
|
|
N/A
|
|
|
N/A
|
|
The
following assumptions were used in determining the fair value of the derivative warrant liability as of:
|
December 31
, 2016
|
|
June
3
0, 2016
|
Share price
|
0.
09
|
|
0.16
|
Conversion price
|
0.
06
|
|
$0.09
|
Expected life (years)
|
1
.34
|
|
1.85
|
Interest rate
|
0.58%
|
|
0.58
%
|
Volatility
|
92%
|
|
92
%
|
Dividend yield
|
N/A
|
|
N/A
|
Estimated forfeitures
|
N/A
|
|
N/A
|
NOTE 1
0
–
LOAN
S
PAYABLE
During the
six months ended December 31, 2016, the Company had the following loan agreements outstanding, summarized as follows:
|
(a)
|
On Jan 1, 2016, the Company entered into a new financing arrangement to
cover directors’ and officers’ liability insurance for the period December 31, 2015 to December 31, 2016. The amount financed was $73,176, which bears interest at 3.189% annually. Monthly payments of $8,131 are required to settle amounts owing. The balance outstanding as of December 31, 2016, was $nil (June 30, 2016 - $32,522).
|
As of
December 31, 2016, $nil (June 30, 2016 – $45,609), representing the unamortized portion of prepaid insurance related to this policy, is included in prepaid expenses on the consolidated balance sheet.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 10
–
LOANS PAYABLE (CONTINUED)
|
(b)
|
On January 1, 2016, the Company entered into a
short-term loan agreement with an original maturity date of July 1, 2016, for $110,000. A one-time interest charge of 5% or $5,500 is due as of July 1, 2016. The loan was entered into to settle marketing fees payable. As of June 30, 2016, the loan balance on the consolidated balance sheet is $115,500.
|
On July 2, 2016
, the maturity date of the loan was revised to include the following loan repayment dates:
|
(i)
|
$5,500 on July 5, 2016 (paid)
|
|
(ii)
|
$25,000 on July 18, 2016 (paid)
|
|
(iii)
|
$25,000 on July 29, 2016 (paid)
|
|
(iv)
|
$25,000 on August 8, 2016 (
partially repaid); and
|
|
(v)
|
$35,000 on August 22, 2016
|
In the event of a default on the loan, the unpaid principal amount together with the interest shall immediately increase by 130% and the lender will have the right to convert the outstanding balance into shares of the Company
’s common stock.
The outstanding balance will have a variable conversion price equal to 65% of the market price. The market price is defined as the lowest trading price in the 15 days prior to the conversion date. The lender is limited to 4.99% of the issued and outstanding common stock at the time of conversion unless the market capitalization of the Company falls below $2,500,000, then the limit will increase to 9.99%.
On September 9, 2016,
the lender agreed to waive its right to conversion of the loan until January 31, 2017. The Company is in the process of amending the terms of repayment. The Company expects to settle the debt with cash, as such, no consideration for the default conversion feature has been accounted for.
|
(c)
|
On September 2, 2016, the
Company entered into a promissory note agreement and received a total of $80,000, net of $8,000 in fees. The $88,000 plus a one-time interest charge of 10% is due December 13, 2016. In the event of default (non-payment), the balance of the promissory note will increase by 140%.
|
On
December 13, 2016, the maturity date of the promissory note was extended to January 30, 2017. As consideration for the extension, the Company agreed to issue 500,000 shares. The shares were measured at the fair value on the agreement date and as such, $55,000 was recognized as an obligation to issue shares and the value of debt. During the six months ended December 31, 2016, $20,625 of the fair value of the share obligation was amortized and recognized in interest expense.
On
January 29, 2017, the maturity date of the promissory note was extended to March 2, 2017. As consideration for the extension, the Company agreed to issue 600,000 shares.
|
(d)
|
On
October 24, 2016, the Company entered into a promissory note agreement and received a total of $12,000. The note is Due November 9, 2016. In addition, the Company issued 75,000 common shares within 14 days of the start of the note. In the event of default (non-payment), the balance of the promissory note will increase by 140%. These shares were measured at the agreement date fair value with $10,500 recognized as interest expense and additional paid in capital.
|
On
November 29, 2016, the maturity date of the promissory note was extended to January 30, 2017. As consideration for the extension, the Company agreed to issue 225,000 shares. The shares were measured at the fair value on the agreement date and as such, $27,000 was recognized as an obligation to issue shares and the value of debt. During the six months ended December 31, 2016, $13,935 of the fair value of the share obligation was amortized and recognized in interest expense. The Company is in the process of amending the terms of repayment.
Integral Technologies, Inc
.
Notes to the Consolidated Financial Statements
NOTE 1
1
-
DEFERRED
REVENUE
On June 21, 2013, the Company signed a
ten-year license agreement with Hanwha Advanced Materials Co., Ltd, of South Korea. The agreement grants Hanwha 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
payments have 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 three months ended December 31, 2016, $25,000 (2015 - $25,000) has been recognized as revenue
.
As of
December 31, 2016 and June 30, 2016, the remaining deferred revenue was as follows:
|
|
December 31
,
2016
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
Non-current
|
|
|
295,833
|
|
|
|
320,833
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
345,833
|
|
|
$
|
370,833
|
|
NOTE
12
-
SUBSEQUENT EVENTS
During January 2017, the Company completed a private placement amounting to $23,800 for the issuance of 340,000 units.
Each unit consisted of one common share at $0.07 per share and one quarter share purchase warrant at $0.001 per warrant to purchase 85,000
common shares on or before October 1, 2017 at an exercise price of $0.20 per warrant. As of December 31, 2016, $14,000 had been received and recorded as share subscriptions and obligations to issue shares.