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|   | For the fiscal year ended June 30, 2010 |
|--------|-----------------------------------------|

|   | For the transition period from:   ______________ to ______________ |
|--------|-----------------------------------------------------------------------------------|
|   |                                                                              |
|   | Commission file number:     0-28353                      |

| INTEGRAL TECHNOLOGIES, INC.                                 |
|-------------------------------------------------------------|
| (Name of small business issuer as specified in its charter) |

| Nevada                                                         |   | 98-0163519                        |
|----------------------------------------------------------------|--------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (IRS Employer Identification No.) |

| 805 W. Orchard Drive, Suite 7, Bellingham, Washington |   | 98225      |
|-------------------------------------------------------|--------|------------|
| (Address of principal executive offices)              |   | (Zip Code) |

| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x |
|---------------------------|---------------------|-------------------------|-----------------------------|

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TABLE OF CONTENTS

|       |                                                                                            | Page   |
|------------|-------------------------------------------------------------------------------------------------|--------|
|       | PART I                                                                                          |   |
| Item 1.    | Business                                                                                        | 2      |
| Item 1A.   | Risk Factors                                                                                    | 6      |
| Item 1B.   | Unresolved Staff Comments                                                                       | 10     |
| Item 2.    | Properties                                                                                      | 10     |
| Item 3.    | Legal Proceedings                                                                               | 10     |
| Item 4.    | Reserved                                                                                        | 10     |
|       |                                                                                            |   |
|       | PART II                                                                                         |   |
| Item 5.    | Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 11     |
| Item 6.    | Selected Financial Data                                                                         | 12     |
| Item 7.    | Management's Discussion and Analysis of Financial Condition and Results of Operations.          | 12     |
| Item 7A.   | Quantitative and Qualitative Disclosures About Market Risk                                      | 16     |
| Item 8.    | Financial Statements and Supplementary Data                                                     | 16     |
| Item 9.    | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure            | 16     |
| Item 9A.   | Controls and Procedures                                                                         | 16     |
| Item 9B.   | Other Information                                                                               | 18     |
|       |                                                                                            |   |
|       | PART III                                                                                        |   |
| Item 10.   | Directors, Executive Officers, and Corporate Governance                                         | 19     |
| Item 11.   | Executive Compensation                                                                          | 21     |
| Item 12.   | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  | 25     |
| Item 13.   | Certain Relationship and Related Transactions, and Director Independence                        | 27     |
| Item 14.   | Principal Accountant Fees and Services                                                          | 28     |
| Item 15.   | Exhibits                                                                                        | 29     |
|       |                                                                                            |
| SIGNATURES |                                                                                            |

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ITEM 1. BUSINESS.

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ITEM 1A. RISK FACTORS

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|   | · | has a stated value and liquidation preference of $1.00; |
|--------|--------|---------------------------------------------------------|

|   | · | has a 5% annual dividend, payable in cash or shares of common stock; |
|--------|--------|----------------------------------------------------------------------|

|   | · | may be converted into shares of common stock (determined by dividing the number of shares of Series A being converted by the average of the high and low bid prices of our common stock reported by the OTC Bulletin Board over the ten trading days preceding the date of conversion); |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | may be redeemed by us within one year after issue at $1.50, after one year but less than two years at $2.00, after two years but less than three years at $2.50, after three years but less than four years at $3.00, and after four years but less than five years at $3.50; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | during the year ended June 30, 2010, an amendment was made to the Series A convertible preferred shares in which they may be redeemed after five years but less than six years after the date of issue at a redemption price of $4.00 and increasing $0.50 per year for each share of Series A Convertible Preferred Stock so redeemed. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | may be voted on all matters on an as-converted basis; and |
|--------|--------|-----------------------------------------------------------|

|   | · | may be voted as a class on any merger, share exchange, recapitalization, dissolution, liquidation or change in control of our company. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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; |
|--------|--------|----------------------------------------------------------------|

|   | · | changes in the market’s perception of us or the nature of our business; and |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | sales of our common stock. |
|--------|--------|----------------------------|

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ITEM 1B. UNRESOLVED STAFF COMMENTS

ITEM 2. PROPERTIES

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. RESERVED

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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

| Quarter Ended      |   | Low Bid |   | High Bid |
|--------------------|--------|---------|--------|----------|
|               |   |    |   |     |
| September 30, 2008 |   | $0.50   |   | $0.84    |
| December 31, 2008  |   | $0.18   |   | $0.64    |
| March 31, 2009     |   | $0.21   |   | $0.50    |
| June 30, 2009      |   | $0.21   |   | $0.30    |
|               |   |    |   |     |
| September 30, 2009 |   | $0.28   |   | $0.52    |
| December 31, 2009  |   | $0.30   |   | $0.79    |
| March 31, 2010     |   | $0.66   |   | $1.30    |
| June 30, 2010      |   | $0.70   |   | $1.07    |

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ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

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|   | · | Inadequate segregation of duties consistent  with control objectives; and |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Ineffective controls over period end financial disclosure and reporting processes. |
|--------|--------|------------------------------------------------------------------------------------|

|   | · | We have engaged an outside public accounting firm to 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. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM 9B. OTHER INFORMATION

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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

|  Name          |  Age |  Position with Company                                | Director ofCompany Since |
|---------------------|-----------|------------------------------------------------------------|--------------------------|
|                |      |                                                       |                     |
| William S. Robinson | 53        | Director, Chairman, CEO and Treasurer                      | February 1996            |
|                |      |                                                       |                     |
| William A. Ince     | 59        | Director, President, Secretary and Chief Financial Officer | February 1996            |

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ITEM 11. EXECUTIVE COMPENSATION

| Name and Principal Position                                            | Fiscal Year Ended June 30 |   | Salary ($) |    |   | Bonus ($) |   |   | Stock Awards |   |   | Options Awards ($) (n2) |   |   | Non-Equity Incentive Plan Compensation ($) |   |   | Nonqualified Deferred Compensation Earnings ($) |   |   | All OtherCompensation($) (n3) |   |   | Total ($) |   |
|------------------------------------------------------------------------|---------------------------|--------|------------|---------|--------|-----------|--------|--------|--------------|--------|--------|-------------------------|--------|--------|--------------------------------------------|--------|--------|-------------------------------------------------|--------|--------|-------------------------------|--------|--------|-----------|--------|
|                                                                   |                      |   |       |    |   |      |   |   | (n1)         |   |   |                    |   |   |                                       |   |   |                                            |   |   |                          |   |   |      |   |
| William S.                                                             | 2010                      |   | $          | 219,167 |   |      |   | -0-    |         |   | $      | 135,085                 |   |   | $                                          | -0-    |   |                                            |   | -0-    |                          |   |   | -0-       |   |   | $ | 28,282 |   |   | $ | 382,534 |   |
| Robinson                                                               | 2009                      |   | $          | 210,000 |   |      |   | -0-    |         |   |   | -0-                     |   |   | $                                          | -0-    |   |                                            |   | -0-    |                          |   |   | -0-       |   |   | $ | 28,282 |   |   | $ | 238,282 |   |
| Chief Executive Officer, Treasurer, Chairman, Director            |                      |   |       |    |   |      |   |   |         |   |   |                    |   |   |                                       |   |   |                                            |   |   |                          |   |   |      |   |   |   |   |   |   |   |   |   |
|                                                                   |                      |   |       |    |   |      |   |   |         |   |   |                    |   |   |                                       |   |   |                                            |   |   |                          |   |   |      |   |   |   |   |   |   |   |   |   |
| William A.                                                             | 2010                      |   | $          | 219,167 |   |      |   | -0-    |         |   | $      | 293,085                 |   |   |                                       | -0-    |   |                                            |   | -0-    |                          |   |   | -0-       |   |   | $ | 23,145 |   |   | $ | 535,397 |   |
| Ince                                                                   | 2009                      |   | $          | 210,000 |   |      |   | -0-    |         |   |   | -0-                     |   |   |                                       | -0-    |   |                                            |   | -0-    |                          |   |   | -0-       |   |   | $ | 23,145 |   |   | $ | 233,145 |   |
| Chief Financial and Accounting Officer, President, Secretary, Director |                      |   |       |    |   |      |   |   |         |   |   |                    |   |   |                                       |   |   |                                            |   |   |                          |   |   |      |   |   |   |   |   |   |   |   |   |

| (n1) | Reflects dollar amount expensed by the company during applicable fiscal year for financial statement reporting purposes pursuant to FAS 123R.  FAS 123R 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 FAS 123R 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) | 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 December 2005, the expiration date of these options was extended until December 31, 2007.  Then in June 2007, the expiration date of these options was extended until December 31, 2010. On April 10, 2010 the expiration date of these options was extended until July 31, 2014. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (n3) | William S. Robinson and William A. Ince each own shares of Series A Preferred Stock.  A 5% dividend on the Series A Preferred Stock is payable in cash or shares of common stock at the election of Integral.  For the year ended June 30, 2010, $10,282 was paid or accrued for Mr. Robinson and $5,145 was paid or accrued for Mr. Ince.  For the year ended June 30, 2009, $10,282 was paid or accrued for Mr. Robinson and $5,145 was paid or accrued for Mr. Ince. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 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 S. Robinson (n1) |   |                                                               | 500,000 |   |   |   |   |   |   | 0 |   |   | $ | 0.25 |   | 12/31/2014 |   |   | 0 |   |   |   | 0 |   |   |   | 0 |   |   |   | 0 |   |
|                     |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| William A. Ince (n2)     |   |                                                               | 415,000 |   |   |   | 0 |   |   |   | 0 |   |   | $ | 1.00 |   | 7/31/2014 |   |   | 0 |   |   |   | 0 |   |   |   | 0 |   |   |   | 0 |   |
|                     |   |                                                               | 500,000 |   |   |   | 0 |   |   |   | 0 |   |   | $ | 0.25 |   | 12/31/2014 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (n1) | Mr. Robinson holds the following options: On July 14, 2009 Mr. Robinson 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. 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. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

|  Name and Address of                          Beneficial Owner (n1) | Amount and Nature of Beneficial Ownership(n1) |  Percent of Class (n3) |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|-----------------------------|
|  Executive Officers and Directors:                                                                                                                                                                    |                                          |                        |
|  William S. Robinson (n4) #3 1070 West Pender St. Vancouver, B.C.  V6E 2N7                                                                                                        | 2,873,533(n2)                                 | 5.2%                        |
|  William A. Ince  (n5) 805 W. Orchard Dr., Suite #7 Bellingham, WA  98225                                                                                               | 2,556,833 (n2)                                | 4.6%                        |
|  All executive officers and directors as a group                                                                                                                                                      | 5,430,366                                     | 9.8%                        |
|                                                                                                                                                                                                       |                                          |                        |
|  Richard P. Blumberg                                                                                                                                                                                  | 6,867,501 (n6)                                | 12.2%                       |

| (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.  The table does not include the effects of conversion by Mr. Robinson and Mr. Ince of their shares of Series A Convertible Preferred Stock (“Series A”), which are convertible into shares of common stock at a conversion rate that varies with the market price of the common stock at the time of conversion.  The conversion rate is determined by dividing the number of shares of Series A being converted by the average of the high and low bid prices of Integral’s common stock reported by the OTC Bulletin Board over the ten trading days preceding the date of conversion.  Mr. Robinson owns 204,975 shares of Series A and Mr. Ince owns 103,563 shares of Series A.  As of August 6, 2010, the conversion rate was $0.78 per share, so Mr. Robinson’s 204,975 shares of Series A were convertible into 262,788 shares of common stock, and Mr. Ince’s 103,563 shares of Series A were convertible into 123,773 shares of common stock.  The actual number of shares of common stock receivable by Messrs. Robinson and Ince upon conversion of the Series A would depend on the actual conversion rate in effect at the time of conversion. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| (n3) | Based upon 54,838,921 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) | Mr. Robinson is an executive officer and director of Integral and each of its subsidiaries.  Beneficial ownership figure includes an aggregate of 150,000 shares held in the names of his spouse and his two minor children and 500,000 underlying options. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (n5) | Mr. Ince is an executive officer and director of Integral and each of its subsidiaries. Beneficial ownership figure includes 915,000 shares underlying options. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (n6) | Based on information contained in Schedule 13G filed with the SEC on June 28, 2010, 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 4,315,667 and has shared voting power over 2,551,834 shares. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  Name and Address of                        Beneficial Owner (n1) | Amount and Nature of Beneficial Ownership(n1) |  Percent of Class (n2) |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------|-----------------------------|
|  William S. Robinson (n3) #3 1070 West Pender St. Vancouver, B.C.  V6E 2N7                                                                                            |  204,975                                 |  66.4%                 |
|  William A. Ince (n4) 805 W. Orchard Dr., Suite #3 Bellingham, WA  98225                                                                                              |  103,563                                 |  33.6%                 |
|  All officers and directors of Integral as a group (2 persons)                                                                                                                       | 308,538                                       | 100%                        |

| (n1) | Unless otherwise indicated, all shares are directly beneficially owned and investing power is held by the persons named. |
|------|--------------------------------------------------------------------------------------------------------------------------|

| (n2) | Based upon 308,538 Series A Convertible Preferred shares issued and outstanding. |
|------|----------------------------------------------------------------------------------|

| (n3) | Mr. Robinson is an executive officer and director of Integral and each of its subsidiaries. |
|------|---------------------------------------------------------------------------------------------|

| (n4) | Mr. Ince is an executive officer and director of Integral and each of its subsidiaries. |
|------|-----------------------------------------------------------------------------------------|

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| Plan category                                              |   | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |   | Weighted-average exercise price of options, warrants and rights  (b) |   | Number of securities available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
|------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
| Equity compensation plans approved by security holders     |   | N/A                                                                                                  |   | N/A                                                                            |   | N/A                                                                                                                                        |
| Equity compensation plans not approved by security holders |   | 4,125,000                                                                                            |   | $0.36                                                                          |   | 2,639,500                                                                                                                                  |
| Total                                                      |   | 4,125,000                                                                                            |   | $0.36                                                                          |   | 2,639,500                                                                                                                                  |

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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ITEM 15. EXHIBITS

| 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.)                                                            |
|        |   |                                                                                                                                                                                                                                                             |
| 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.)                         |

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| 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)).                    |
|   |   |                                                                                                                                                                                                                                                   |
| 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. (Incorporated by reference to Exhibit 21.4 of Integral’s annual report on Form 10-KSB for the period ended June 30, 2004.)                                                                                                 |
|   |   |                                                                                                                                                                                                                                                   |
| 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).                                                                                                                                             |

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Table of Contents

|                                 | INTEGRAL TECHNOLOGIES, INC                                                |   |
|--------------------------------------|---------------------------------------------------------------------------|--------|
|                                 |                                                                      |   |
|                                 |                                                                      |   |
| Dated:  September 28, 2010 | /s/ William S. Robinson                                                   |   |
|                                 | William S. Robinson, Chief Executive Officer                              |   |
|                                 |                                                                      |   |
|                                 | /s/ William A. Ince                                                       |   |
|                                 | William A. Ince, Chief Financial Officer and Principal Accounting Officer |   |

| Name                    |   | Title    | Date               |
|-------------------------|--------|----------|--------------------|
|                    |   |     |               |
| /s/ William S. Robinson |   | Director | September 28, 2010 |
| William S. Robinson     |   |     |               |
|                    |   |     |               |
| /s/ William A. Ince     |   | Director | September 28, 2010 |
| William A. Ince         |   |     |               |

----

| Index                                                     | Page              |
|-----------------------------------------------------------|-------------------|
|                                                      |              |
| Report of Independent Registered Public Accounting Firm   | F-1               |
|                                                      |              |
| Consolidated Financial Statements                         |              |
|                                                      |              |
| Consolidated Balance Sheets                               | F-2               |
|                                                      |              |
| Consolidated Statements of Operations                     | F-3               |
|                                                      |              |
| Consolidated Statements of Stockholders' Equity (Deficit) | F-4 – F-9   |
|                                                      |              |
| Consolidated Statements of Cash Flows                     | F-10              |
|                                                      |              |
| Notes to Consolidated Financial Statements                | F-11 – F-29 |

----

----

|                                                                                                          |   | 2010   |        |   | 2009   |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                                                          |   |   |        |   |   |   |
| Assets                                                                                                        |   |   |        |   |   |   |
|                                                                                                          |   |   |        |   |   |   |
| Current                                                                                                       |   |   |        |   |   |   |
| Cash                                                                                                          |   | $      | 350,235     |   |   | $      | 535,231 |   |
| Prepaid expenses                                                                                              |   |   | 7,544       |   |   |   | 11,353 |   |
|                                                                                                          |   |   |        |   |   |   |   |   |
| Total Assets                                                                                                  |   | $      | 357,779     |   |   | $      | 546,584 |   |
|                                                                                                          |   |   |        |   |   |   |   |   |
| Liabilities                                                                                                   |   |   |        |   |   |   |   |   |
|                                                                                                          |   |   |        |   |   |   |   |   |
| Current                                                                                                       |   |   |        |   |   |   |   |   |
| Accounts payable and accrued liabilities                                                                      |   | $      | 707,148     |   |   | $      | 661,792 |   |
|                                                                                                          |   |   |        |   |   |   |   |   |
| Total Liabilities                                                                                             |   |   | 707,148     |   |   |   | 661,792 |   |
|                                                                                                          |   |   |        |   |   |   |   |   |
| Stockholders' Deficit (note 4)                                                                                |   |   |        |   |   |   |   |   |
|                                                                                                          |   |   |        |   |   |   |   |   |
| Preferred Stock and Paid-in Capital in Excess of $0.001 Par Value                                             |   |   |        |   |   |   |   |   |
|   20,000,000    Shares authorized                                                    |   |   |        |   |   |   |   |   |
|        308,538    Shares issued and outstanding (note 4(b)) |   |   | 308,538     |   |   |   | 308,538 |   |
| Common Stock and Paid-in Capital in Excess of $0.001 Par Value                                                |   |   |        |   |   |   |   |   |
| 150,000,000    Shares authorized                                                          |   |   |        |   |   |   |   |   |
|   54,838,921    (2009 – 50,305,769) Shares issued and outstanding (note 4(a))  |   |   | 33,224,263  |   |   |   | 30,524,475 |   |
| Promissory Notes Receivable (note 4(d))                                                                       |   |   | (29,737     | )      |   |   | (29,737 | ) |
| Subscriptions Received (note 4(e))                                                                            |   |   | 11,250      |   |   |   | 0 |   |
| Accumulated Other Comprehensive Income                                                                        |   |   | 46,267      |   |   |   | 46,267 |   |
| Deficit Accumulated During the Development Stage                                                              |   |   | (33,909,950 | )      |   |   | (30,964,751 | ) |
|                                                                                                          |   |   |        |   |   |   |   |   |
| Total Stockholders' Deficit                                                                                   |   |   | (349,369    | )      |   |   | (115,208 | ) |
|                                                                                                          |   |   |        |   |   |   |   |   |
| Total Liabilities and Stockholders' Deficit                                                                   |   | $      | 357,779     |   |   | $      | 546,584 |   |

----

|                                                 |   |                      |       |   |    |   |       |   |   |   | Period From       |   |
|------------------------------------------------------|--------|---------------------------|------------|--------|---------|--------|------------|--------|--------|--------|-------------------|--------|
|                                                 |   |                      |       |   |    |   |       |   |   |   | February 12, |   |
|                                                 |   |                      |       |   |    |   |       |   |   |   | 1996              |   |
|                                                 |   |                      |       |   |    |   |       |   |   |   | (Inception)       |   |
|                                                 |   | Years Ended June 30, |       |   | Through |   |
|                                                 |   | 2010                      |       |   | 2009    |   |       | 2008   |   |   | June 30, 2010     |   |
|                                                 |   |                      |       |   |    |   |       |   |   |   |              |   |
| Revenues                                             |   | $                         | 0          |   |    | $      | 0          |   |   | $      | 0                 |   |   | $ | 249,308 |   |
| Cost of Sales                                        |   |                      | 0          |   |    |   | 0          |   |   |   | 0                 |   |   |   | 216,016 |   |
|                                                 |   |                      |       |   |    |   |       |   |   |   |              |   |   |   |   |   |
|                                                 |   |                      | 0          |   |    |   | 0          |   |   |   | 0                 |   |   |   | 33,292 |   |
| Other Income                                         |   |                      | 2,899      |   |    |   | 8,511      |   |   |   | 57,975            |   |   |   | 868,506 |   |
|                                                 |   |                      |       |   |    |   |       |   |   |   |              |   |   |   |   |   |
|                                                 |   |                      | 2,899      |   |    |   | 8,511      |   |   |   | 57,975            |   |   |   | 901,798 |   |
|                                                 |   |                      |       |   |    |   |       |   |   |   |              |   |   |   |   |   |
| Expenses                                             |   |                      |       |   |    |   |       |   |   |   |              |   |   |   |   |   |
| Consulting (note 4(c))                               |   |                      | 1,374,060  |   |    |   | 287,204    |   |   |   | 500,850           |   |   |   | 7,925,666 |   |
| Salaries (note 4(c))                                 |   |                      | 872,027    |   |    |   | 585,197    |   |   |   | 633,725           |   |   |   | 10,559,316 |   |
| Research and development                             |   |                      | 250,826    |   |    |   | 230,060    |   |   |   | 287,109           |   |   |   | 1,721,789 |   |
| Legal and accounting                                 |   |                      | 199,263    |   |    |   | 263,964    |   |   |   | 305,452           |   |   |   | 4,603,022 |   |
| General and administrative                           |   |                      | 95,554     |   |    |   | 70,184     |   |   |   | 95,706            |   |   |   | 1,278,378 |   |
| Travel and entertainment                             |   |                      | 62,034     |   |    |   | 53,934     |   |   |   | 96,162            |   |   |   | 1,419,314 |   |
| Rent                                                 |   |                      | 46,631     |   |    |   | 43,170     |   |   |   | 46,659            |   |   |   | 534,301 |   |
| Telephone                                            |   |                      | 24,382     |   |    |   | 24,993     |   |   |   | 29,605            |   |   |   | 483,677 |   |
| Advertising                                          |   |                      | 5,866      |   |    |   | 1,591      |   |   |   | 0                 |   |   |   | 338,727 |   |
| Bank charges and interest, net                       |   |                      | 1,993      |   |    |   | 3,090      |   |   |   | 6,932             |   |   |   | 207,281 |   |
| Write-off of investments                             |   |                      | 0          |   |    |   | 0          |   |   |   | 0                 |   |   |   | 1,250,000 |   |
| Non-competition agreement                            |   |                      | 0          |   |    |   | 0          |   |   |   | 0                 |   |   |   | 711,000 |   |
| Write-down of license and operating assets           |   |                      | 0          |   |    |   | 0          |   |   |   | 0                 |   |   |   | 1,855,619 |   |
| Interest on beneficial conversion feature            |   |                      | 0          |   |    |   | 0          |   |   |   | 0                 |   |   |   | 566,455 |   |
| Settlement of lawsuit                                |   |                      | 0          |   |    |   | 0          |   |   |   | 0                 |   |   |   | 45,250 |   |
| Financing fees, net                                  |   |                      | 0          |   |    |   | 0          |   |   |   | 0                 |   |   |   | 129,043 |   |
| Bad debts (recovery)                                 |   |                      | 0          |   |    |   | 0          |   |   |   | (6,009            | )      |   |   | 46,604 |   |
| Depreciation and amortization                        |   |                      | 0          |   |    |   | 0          |   |   |   | 0                 |   |   |   | 324,386 |   |
|                                                 |   |                      |       |   |    |   |       |   |   |   |              |   |   |   |   |   |
|                                                 |   |                      | 2,932,636  |   |    |   | 1,563,387  |   |   |   | 1,996,191         |   |   |   |   |   |
|                                                 |   |                      |       |   |    |   |       |   |   |   |              |   |   |   |   |   |
| Net Comprehensive Loss for Year                      |   | $                         | (2,929,737 | )      |    | $      | (1,554,876 | )      |   | $      | (1,938,216        | )      |   | $ | (33,098,030 | ) |
|                                                 |   |                      |       |   |    |   |       |   |   |   |              |   |   |   |   |   |
| Basic and Diluted Loss Per Share (note 8)            |   | $                         | (0.06      | )      |    | $      | (0.03      | )      |   | $      | (0.04             | )      |   |   |   |   |
|                                                 |   |                      |       |   |    |   |       |   |   |   |              |   |   |   |   |   |
| Weighted Average Number of Common Shares Outstanding |   |                      | 51,520,654 |   |    |   | 47,360,459 |   |   |   | 45,617,756        |   |   |   |   |   |

----

|                                               |   | Sharesof CommonStockIssued |       |   | CommonStock andPaid-in Capitalin Excessof Par |   |      | Shares ofPreferredStockIssued |   |   | PreferredStock andPaid-in Capitalin Excessof Par |   |   | PromissoryNotesReceivable |   |   | ShareSubscriptions |   |   | AccumulatedOtherComprehensiveIncome |   |   | DeficitAccumulatedDuring theDevelopmentStage |   |   | TotalStockholders'Equity (Deficit) |   |
|----------------------------------------------------|--------|----------------------------|------------|--------|-----------------------------------------------|--------|-----------|-------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------|--------|--------|--------------------|--------|--------|-------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------|--------|
|                                               |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |   |   |               |   |   |                                |   |   |                                         |   |   |                               |   |
| Shares Issued for                                  |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |   |   |               |   |   |                                |   |   |                                         |   |   |                               |   |
| Cash                                               |   |                       | 1,000,000  |   |                                          | $      | 10,000    |                          |   |   | 0                                                |   |   | $                         | 0      |   |               | $      | 0      |                                |   | $      | 0                                            |   |   | $                                  | 0      |   |   | $ | 0 |   |   | $ | 10,000 |   |
| Property and equipment (to officers and directors) |   |                       | 1,500,000  |   |                                          |   | 15,000    |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 15,000 |   |
| Services (provided by officers and directors)      |   |                       | 2,000,000  |   |                                          |   | 20,000    |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 20,000 |   |
| Services (others)                                  |   |                       | 1,500,000  |   |                                          |   | 15,000    |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 15,000 |   |
| Foreign currency translation                       |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | (1,226 | ) |   |   | 0 |   |   |   | (1,226 | ) |
| Net loss for period                                |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (344,843 | ) |   |   | (344,843 | ) |
|                                               |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |   |   |               |   |   |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 1996                        |   |                       | 6,000,000  |   |                                          |   | 60,000    |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | (1,226 | ) |   |   | (344,843 | ) |   |   | (286,069 | ) |
| Shares Issued for                                  |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |   |   |               |   |   |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Cash                                               |   |                       | 5,086,000  |   |                                          |   | 865,514   |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 865,514 |   |
| Share issue costs                                  |   |                       | 0          |   |                                          |   | (48,920   | )                             |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | (48,920 | ) |
| Services                                           |   |                       | 564,000    |   |                                          |   | 63,036    |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 63,036 |   |
| Acquisition of subsidiary                          |   |                       | 100,000    |   |                                          |   | 275,000   |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 275,000 |   |
| Foreign currency translation                       |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 12,601 |   |   |   | 0 |   |   |   | 12,601 |   |
| Net loss for year                                  |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (822,217 | ) |   |   | (822,217 | ) |
|                                               |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |   |   |               |   |   |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 1997                        |   |                       | 11,750,000 |   |                                          |   | 1,214,630 |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 11,375 |   |   |   | (1,167,060 | ) |   |   | 58,945 |   |
| Shares Issued for                                  |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |   |   |               |   |   |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Cash                                               |   |                       | 825,396    |   |                                          |   | 650,000   |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 650,000 |   |
| Share issue costs                                  |   |                       | 0          |   |                                          |   | (78,000   | )                             |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | (78,000 | ) |
| Foreign currency translation                       |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 24,860 |   |   |   | 0 |   |   |   | 24,860 |   |
| Net loss for year                                  |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0      |   |               |   | 0      |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (937,373 | ) |   |   | (937,373 | ) |
|                                               |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |   |   |               |   |   |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 1998                        |   |                       | 12,575,396 |   |                                          | $      | 1,786,630 |                          |   |   | 0                                                |   |   | $                         | 0      |   |               | $      | 0      |                                |   | $      | 0                                            |   |   | $                                  | 36,235 |   |   | $ | (2,104,433 | ) |   | $ | (281,568 | ) |

----

|                                          |   | Shares ofCommonStockIssued |       |   | CommonStock andPaid-in Capitalin Excessof Par |   |      | Shares ofPreferredStockIssued |   |   | PreferredStock andPaid-in Capitalin Excessof Par |   |   | PromissoryNotesReceivable |    |   | ShareSubscriptions |   |     | AccumulatedOtherComprehensiveIncome |   |   | DeficitAccumulatedDuring theDevelopmentStage |   |   | TotalStockholders'Equity (Deficit) |   |
|-----------------------------------------------|--------|----------------------------|------------|--------|-----------------------------------------------|--------|-----------|-------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------|---------|--------|--------------------|--------|----------|-------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------|--------|
|                                          |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |    |   |               |   |     |                                |   |   |                                         |   |   |                               |   |
| Balance, June 30, 1998                   |   |                       | 12,575,396 |   |                                          | $      | 1,786,630 |                          |   |   | 0                                                |   |   | $                         | 0       |   |               | $      | 0        |                                |   | $      | 0                                            |   |   | $                                  | 36,235 |   |   |   | (2,104,433 | ) |   | $ | (281,568 | ) |
| Shares Issued for                             |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |    |   |               |   |     |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Cash                                          |   |                       | 200,000    |   |                                          |   | 50,000    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 50,000 |   |
| Exercise of stock options                     |   |                       | 445,000    |   |                                          |   | 80,500    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 80,500 |   |
| Promissory note                               |   |                       | 1,683,789  |   |                                          |   | 252,568   |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | (284,068 | )                                   |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | (31,500 | ) |
| Settlement of lawsuit                         |   |                       | 150,000    |   |                                          |   | 15,000    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 15,000 |   |
| Services (provided by officers and directors) |   |                       | 666,666    |   |                                          |   | 100,000   |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 100,000 |   |
| Share issue costs                             |   |                       | 0          |   |                                          |   | (100,500  | )                             |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | (100,500 | ) |
| Services                                      |   |                       | 250,000    |   |                                          |   | 50,000    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 50,000 |   |
| Conversion of convertible debentures          |   |                       | 3,869,120  |   |                                          |   | 525,813   |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 525,813 |   |
| Acquisition of subsidiary                     |   |                       | 1,800,000  |   |                                          |   | 619,200   |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 619,200 |   |
| Held in escrow                                |   |                       | 447,091    |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Stock-based compensation                      |   |                       | 0          |   |                                          |   | 70,600    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 70,600 |   |
| Beneficial conversion feature                 |   |                       | 0          |   |                                          |   | 566,456   |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 566,456 |   |
| Foreign currency translation                  |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 8,444  |   |   |   | 0 |   |   |   | 8,444 |   |
| Net loss for year                             |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (1,404,021 | ) |   |   | (1,404,021 | ) |
|                                          |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |    |   |               |   |     |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance June 30, 1999                    |   |                       | 22,087,062 |   |                                          |   | 4,016,267 |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | (284,068 | )                                   |   |   | 0                                            |   |   |                               | 44,679 |   |   |   | (3,508,454 | ) |   |   | 268,424 |   |
| Shares Issued for                             |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |    |   |               |   |     |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Cash on private placement                     |   |                       | 2,650,000  |   |                                          |   | 3,975,000 |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 3,975,000 |   |
| Exercise of options                           |   |                       | 1,245,000  |   |                                          |   | 256,700   |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 256,700 |   |
| Services                                      |   |                       | 50,000     |   |                                          |   | 13,000    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 13,000 |   |
| Settlement of debt                            |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 664,410                                          |   |   |                      | 664,410 |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 664,410 |   |
| Shares released from escrow                   |   |                       | 0          |   |                                          |   | 75,558    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 75,558 |   |
| Stock-based compensation                      |   |                       | 0          |   |                                          |   | 48,256    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 48,256 |   |
| Promissory note repayment                     |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 225,568  |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 225,568 |   |
| Foreign currency translation                  |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 1,614  |   |   |   | 0 |   |   |   | 1,614 |   |
| Net loss for year                             |   |                       | 0          |   |                                          |   | 0         |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0        |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (1,537,402 | ) |   |   | (1,537,402 | ) |
|                                          |   |                       |       |   |                                          |   |      |                          |   |   |                                             |   |   |                      |    |   |               |   |     |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2000                   |   |                       | 26,032,062 |   |                                          |   | 8,384,781 |                          |   |   | 664,410                                          |   |   | $                         | 664,410 |   |               | $      | (58,500  | )                                   |   | $      | 0                                            |   |   | $                                  | 46,293 |   |   | $ | (5,045,856 | ) |   | $ | 3,991,128 |   |

----

|                                    |   | Sharesof CommonStockIssued |       |   | CommonStock andPaid-in Capitalin Excessof Par |   |       | Shares ofPreferredStockIssued |   |   | PreferredStock andPaid-in Capitalin Excessof Par |   |   | PromissoryNotesReceivable |     |   | ShareSubscriptions |   |    | AccumulatedOtherComprehensiveIncome |   |   | DeficitAccumulatedDuring theDevelopmentStage |   |   | TotalStockholders'Equity (Deficit) |   |
|-----------------------------------------|--------|----------------------------|------------|--------|-----------------------------------------------|--------|------------|-------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------|----------|--------|--------------------|--------|---------|-------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------|--------|
|                                    |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |
| Balance, June 30, 2000             |   |                       | 26,032,062 |   |                                          | $      | 8,384,781  |                          |   |   | 664,410                                          |   |   | $                         | 664,410  |   |               | $      | (58,500 | )                                   |   | $      | 0                                            |   |   | $                                  | 46,293 |   |   | $ | (5,045,856 | ) |   | $ | 3,991,128 |   |
| Shares Issued for                       |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Cash on private placement               |   |                       | 81,885     |   |                                          |   | 112,480    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 112,480 |   |
| Exercise of options                     |   |                       | 517,000    |   |                                          |   | 91,515     |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 91,515 |   |
| Services                                |   |                       | 100,000    |   |                                          |   | 40,000     |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 40,000 |   |
| Held in escrow                          |   |                       | 218,115    |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Stock-based compensation                |   |                       | 0          |   |                                          |   | 272,207    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 272,207 |   |
| Dividends on preferred shares           |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (30,720 | ) |   |   | (30,720 | ) |
| Share subscriptions                     |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 50,000                                       |   |   |                               | 0      |   |   |   | 0 |   |   |   | 50,000 |   |
| Redeemed shares                         |   |                       | 0          |   |                                          |   | 0          |                          |   |   | (100,000                                         | )      |   |                      | (100,000 | )      |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (100,000 | ) |   |   | (200,000 | ) |
| Foreign currency translation            |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | (26    | ) |   |   | 0 |   |   |   | (26 | ) |
| Net loss for year                       |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (4,000,169 | ) |   |   | (4,000,169 | ) |
|                                    |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2001             |   |                       | 26,949,062 |   |                                          |   | 8,900,983  |                          |   |   | 564,410                                          |   |   |                      | 564,410  |   |               |   | (58,500 | )                                   |   |   | 50,000                                       |   |   |                               | 46,267 |   |   |   | (9,176,745 | ) |   |   | 326,415 |   |
| Shares Issued for                       |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Proprietary non-competition agreement   |   |                       | 450,000    |   |                                          |   | 711,000    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 711,000 |   |
| Held in escrow                          |   |                       | 700,000    |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Exercise of options                     |   |                       | 2,263,500  |   |                                          |   | 971,200    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | (15,000 | )                                   |   |   | (10,000                                      | )      |   |                               | 0      |   |   |   | 0 |   |   |   | 946,200 |   |
| Exercise of warrants                    |   |                       | 325,000    |   |                                          |   | 130,000    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 130,000 |   |
| Subscriptions                           |   |                       | 100,000    |   |                                          |   | 40,000     |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | (40,000                                      | )      |   |                               | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Stock-based compensation                |   |                       | 0          |   |                                          |   | 415,685    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 415,685 |   |
| Shares released from escrow             |   |                       | 0          |   |                                          |   | 954,582    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 954,582 |   |
| Dividends on preferred shares           |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (26,087 | ) |   |   | (26,087 | ) |
| Redeemed shares                         |   |                       | 0          |   |                                          |   | 0          |                          |   |   | (124,800                                         | )      |   |                      | (124,800 | )      |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (187,200 | ) |   |   | (312,000 | ) |
| Write-off of promissory note receivable |   |                       | 0          |   |                                          |   | (7,000     | )                             |   |   | 0                                                |   |   |                      | 0        |   |               |   | 7,000   |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Net loss for year                       |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (3,836,191 | ) |   |   | (3,836,191 | ) |
|                                    |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2002             |   |                       | 30,787,562 |   |                                          | $      | 12,116,450 |                          |   |   | 439,610                                          |   |   | $                         | 439,610  |   |               | $      | (66,500 | )                                   |   | $      | 0                                            |   |   | $                                  | 46,267 |   |   | $ | 13,226,223 | ) |   | $ | (690,396 | ) |

----

|                                         |   | Sharesof CommonStockIssued |       |   | CommonStock andPaid-in Capitalin Excessof Par |   |       | Shares ofPreferredStockIssued |   |   | PreferredStock andPaid-in Capitalin Excessof Par |   |   | PromissoryNotesReceivable |     |   | ShareSubscriptions |   |    | AccumulatedOtherComprehensiveIncome |   |   | DeficitAccumulatedDuring theDevelopmentStage |   |   | TotalStockholders'Equity (Deficit) |   |
|----------------------------------------------|--------|----------------------------|------------|--------|-----------------------------------------------|--------|------------|-------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------|----------|--------|--------------------|--------|---------|-------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------|--------|
|                                         |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |
| Balance, June 30, 2002                  |   |                       | 30,787,562 |   |                                          | $      | 12,116,450 |                          |   |   | 439,610                                          |   |   | $                         | 439,610  |   |               | $      | (66,500 | )                                   |   | $      | 0                                            |   |   | $                                  | 46,267 |   |   | $ | (13,226,223 | ) |   | $ | (690,396 | ) |
| Shares Issued for                            |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Cash on private placement                    |   |                       | 1,684,000  |   |                                          |   | 842,050    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 842,050 |   |
| Settlement of debt                           |   |                       | 144,793    |   |                                          |   | 104,542    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 104,542 |   |
| Services                                     |   |                       | 200,000    |   |                                          |   | 196,000    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 196,000 |   |
| Exercise of options                          |   |                       | 52,500     |   |                                          |   | 43,750     |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 43,750 |   |
| Exercise of warrants                         |   |                       | 55,000     |   |                                          |   | 27,500     |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 27,500 |   |
| Subscription received                        |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 176,665                                      |   |   |                               | 0      |   |   |   | 0 |   |   |   | 176,665 |   |
| Stock-based compensation                     |   |                       | 0          |   |                                          |   | 5,460      |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 5,460 |   |
| Settlement of lawsuit                        |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 35,250                                       |   |   |                               | 0      |   |   |   | 0 |   |   |   | 35,250 |   |
| Dividends on preferred shares                |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (22,060 | ) |   |   | (22,060 | ) |
| Net loss for year                            |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (1,346,833 | ) |   |   | (1,346,833 | ) |
|                                         |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2003                  |   |                       | 32,923,855 |   |                                          |   | 13,335,752 |                          |   |   | 439,610                                          |   |   |                      | 439,610  |   |               |   | (66,500 | )                                   |   |   | 211,915                                      |   |   |                               | 46,267 |   |   |   | (14,595,116 | ) |   |   | (628,072 | ) |
| Shares Issued for                            |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Cash on private placement                    |   |                       | 6,609,336  |   |                                          |   | 6,042,935  |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | (211,915                                     | )      |   |                               | 0      |   |   |   | 0 |   |   |   | 5,831,020 |   |
| Cash on exercise of options                  |   |                       | 25,000     |   |                                          |   | 25,000     |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 25,000 |   |
| Settlement of lawsuit                        |   |                       | 37,500     |   |                                          |   | 35,250     |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 35,250 |   |
| Services                                     |   |                       | 25,000     |   |                                          |   | 21,873     |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 21,873 |   |
| Redemption of preferred shares               |   |                       | 415,000    |   |                                          |   | 415,000    |                          |   |   | (118,572                                         | )      |   |                      | (118,572 | )      |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (296,428 | ) |   |   | 0 |   |
| Exercise of warrants                         |   |                       | 288,298    |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Shares returned to treasury for cancellation |   |                       | (142,140   | )      |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Stock-based compensation                     |   |                       | 0          |   |                                          |   | 321,275    |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 321,275 |   |
| Dividends on preferred shares                |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (19,016 | ) |   |   | (19,016 | ) |
| Net loss for year                            |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0        |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (2,543,848 | ) |   |   | (2,543,848 | ) |
|                                         |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |     |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2004                  |   |                       | 40,181,849 |   |                                          | $      | 20,197,085 |                          |   |   | 321,038                                          |   |   | $                         | 321,038  |   |               | $      | (66,500 | )                                   |   | $      | 0                                            |   |   | $                                  | 46,267 |   |   | $ | (17,454,408 | ) |   | $ | 3,043,482 |   |

----

|                           |   | Sharesof CommonStockIssued |       |   | CommonStock andPaid-in Capitalin Excessof Par |   |       | Shares ofPreferredStockIssued |   |   | PreferredStock andPaid-in Capitalin Excessof Par |   |   | PromissoryNotesReceivable |    |   | ShareSubscriptions |   |    | AccumulatedOtherComprehensiveIncome |   |   | DeficitAccumulatedDuring theDevelopmentStage |   |   | TotalStockholders'Equity (Deficit) |   |
|--------------------------------|--------|----------------------------|------------|--------|-----------------------------------------------|--------|------------|-------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------|---------|--------|--------------------|--------|---------|-------------------------------------|--------|--------|----------------------------------------------|--------|--------|------------------------------------|--------|
|                           |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |   |                               |   |
| Balance, June 30, 2004    |   |                       | 40,181,849 |   |                                          | $      | 20,197,085 |                          |   |   | 321,038                                          |   |   | $                         | 321,038 |   |               | $      | (66,500 | )                                   |   | $      | 0                                            |   |   | $                                  | 46,267 |   |   | $ | (17,454,408 | ) |   | $ | 3,043,482 |   |
| Shares Issued for              |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Settlement of debt             |   |                       | 44,000     |   |                                          |   | 55,000     |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 55,000 |   |
| Cashless exercise of warrants  |   |                       | 1,713,300  |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Services                       |   |                       | 500,000    |   |                                          |   | 270,000    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 270,000 |   |
| Redemption of preferred shares |   |                       | 0          |   |                                          |   | 0          |                          |   |   | (12,500                                          | )      |   |                      | (12,500 | )      |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (37,500 | ) |   |   | (50,000 | ) |
| Dividends on preferred shares  |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (15,739 | ) |   |   | (15,739 | ) |
| Net loss for year              |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (1,812,265 | ) |   |   | (1,812,265 | ) |
|                           |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2005    |   |                       | 42,439,149 |   |                                          |   | 20,522,085 |                          |   |   | 308,538                                          |   |   |                      | 308,538 |   |               |   | (66,500 | )                                   |   |   | 0                                            |   |   |                               | 46,267 |   |   |   | (19,319,912 | ) |   |   | 1,490,478 |   |
| Shares Issued for              |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Exercise of options            |   |                       | 200,000    |   |                                          |   | 134,000    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 134,000 |   |
| Cashless exercise of warrants  |   |                       | 35,115     |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Services                       |   |                       | 269,000    |   |                                          |   | 191,510    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 191,510 |   |
| Exercise of warrants           |   |                       | 1,291,168  |   |                                          |   | 1,080,669  |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 1,080,669 |   |
| Repayment of promissory note   |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 34,000  |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 34,000 |   |
| Dividends on preferred shares  |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (15,427 | ) |   |   | (15,427 | ) |
| Stock-based compensation       |   |                       | 0          |   |                                          |   | 107,219    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 107,219 |   |
| Net loss for year              |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (2,104,189 | ) |   |   | (2,104,189 | ) |
|                           |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2006    |   |                       | 44,234,432 |   |                                          |   | 22,035,483 |                          |   |   | 308,538                                          |   |   |                      | 308,538 |   |               |   | (32,500 | )                                   |   |   | 0                                            |   |   |                               | 46,267 |   |   |   | (21,439,528 | ) |   |   | 918,260 |   |
| Shares Issued for              |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Exercise of options            |   |                       | 50,000     |   |                                          |   | 35,000     |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 35,000 |   |
| Services                       |   |                       | 50,000     |   |                                          |   | 105,000    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 105,000 |   |
| Private placement              |   |                       | 1,180,537  |   |                                          |   | 2,361,641  |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 2,361,641 |   |
| Repayment of promissory note   |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 2,763   |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 2,763 |   |
| Dividends on preferred shares  |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (15,427 | ) |   |   | (15,427 | ) |
| Stock-based compensation       |   |                       | 0          |   |                                          |   | 4,225,648  |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | 0 |   |   |   | 4,225,648 |   |
| Net loss for year              |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |   |                               | 0      |   |   |   | (5,985,850 | ) |   |   | (5,985,850 | ) |
|                           |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |   |                               |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2007    |   |                       | 45,514,969 |   |                                          | $      | 28,762,772 |                          |   |   | 308,538                                          |   |   | $                         | 308,538 |   |               | $      | (29,737 | )                                   |   | $      | 0                                            |   |   | $                                  | 46,267 |   |   | $ | (27,440,805 | ) |   | $ | 1,647,035 |   |

----

|                          |   | Sharesof CommonStockIssued |       |   | CommonStock andPaid-in Capitalin Excessof Par |   |       | Shares ofPreferredStockIssued |   |   | PreferredStock andPaid-in Capitalin Excessof Par |   |   | PromissoryNotesReceivable |    |   | ShareSubscriptions |   |    | AccumulatedOtherComprehensiveIncome |   |   | DeficitAccumulatedDuring theDevelopmentStage |   | TotalStockholders'Equity (Deficit) |   |   |
|-------------------------------|--------|----------------------------|------------|--------|-----------------------------------------------|--------|------------|-------------------------------|--------|--------|--------------------------------------------------|--------|--------|---------------------------|---------|--------|--------------------|--------|---------|-------------------------------------|--------|--------|----------------------------------------------|--------|------------------------------------|--------|--------|
|                          |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |                               |   |   |
| Balance, June 30, 2007   |   |                       | 45,514,969 |   |                                          | $      | 28,762,772 |                          |   |   | 308,538                                          |   |   | $                         | 308,538 |   |               | $      | (29,737 | )                                   |   |   | 0                                            |   |                               | $      | 46,267 |   |   | $ | (27,440,805 | ) | $ | 1,647,035 |   |   |
| Shares Issued for             |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Exercise of warrants          |   |                       | 190,000    |   |                                          |   | 208,995    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | 0 |   |   | 208,995 |   |   |
| Subscriptions received        |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 276,500                                      |   |                               |   | 0      |   |   |   | 0 |   |   | 276,500 |   |   |
| Dividends on preferred shares |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | (15,427 | ) |   | (15,427 | ) |   |
| Stock-based compensation      |   |                       | 0          |   |                                          |   | 247,944    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | 0 |   |   | 247,944 |   |   |
| Net loss for year             |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | (1,938,216 | ) |   | (1,938,216 | ) |   |
|                          |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2008   |   |                       | 45,704,969 |   |                                          |   | 29,219,711 |                          |   |   | 308,538                                          |   |   |                      | 308,538 |   |               |   | (29,737 | )                                   |   |   | 276,500                                      |   |                               |   | 46,267 |   |   |   | (29,394,448 | ) |   | 426,831 |   |   |
| Shares Issued for             |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Services                      |   |                       | 100,000    |   |                                          |   | 60,500     |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | (46,500                                      | )      |                               |   | 0      |   |   |   | 0 |   |   | 14,000 |   |   |
| Subscriptions received        |   |                       | 4,500,800  |   |                                          |   | 1,125,200  |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | (230,000                                     | )      |                               |   | 0      |   |   |   | 0 |   |   | 895,200 |   |   |
| Dividends on preferred shares |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | (15,427 | ) |   | (15,427 | ) |   |
| Stock-based compensation      |   |                       | 0          |   |                                          |   | 119,064    |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | 0 |   |   | 119,064 |   |   |
| Net loss for year             |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | (1,554,876 | ) |   | (1,554,876 | ) |   |
|                          |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2009   |   |                       | 50,305,769 |   |                                          |   | 30,524,475 |                          |   |   | 308,538                                          |   |   |                      | 308,538 |   |               |   | (29,737 | )                                   |   |   | 0                                            |   |                               |   | 46,267 |   |   |   | (30,964,751 | ) |   | (115,208 | ) |
| Shares Issued for             |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Services                      |   |                       | 270,000    |   |                                          |   | 81,000     |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | 0 |   |   | 81,000 |   |
| Cash, net                     |   |                       | 4,263,152  |   |                                          |   | 1,393,637  |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | 0 |   |   | 1,393,637 |   |
| Subscriptions received        |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 11,250                                       |   |                               |   | 0      |   |   |   | 0 |   |   | 11,250 |   |
| Dividends on preferred shares |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | (15,462 | ) |   | (15,462 | ) |
| Stock-based compensation      |   |                       | 0          |   |                                          |   | 1,225,151  |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | 0 |   |   | 1,225,151 |   |
| Net loss for year             |   |                       | 0          |   |                                          |   | 0          |                          |   |   | 0                                                |   |   |                      | 0       |   |               |   | 0       |                                |   |   | 0                                            |   |                               |   | 0      |   |   |   | (2,929,737 | ) |   | (2,929,737 | ) |
|                          |   |                       |       |   |                                          |   |       |                          |   |   |                                             |   |   |                      |    |   |               |   |    |                                |   |   |                                         |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2010   |   |                       | 54,838,921 |   |                                          | $      | 3,224,263  |                          |   |   | 308,538                                          |   |   | $                         | 308,538 |   |               | $      | (29,737 | )                                   |   |   | 11,250                                       |   |                               | $      | 46,267 |   |   | $ | (33,909,950 | ) | $ | (349,369 | ) |

----

|                                                                       |   |                      |       |   |        |   |       |   |   |   | Period from            |   |
|----------------------------------------------------------------------------|--------|---------------------------|------------|--------|-------------|--------|------------|--------|--------|--------|------------------------|--------|
|                                                                       |   |                      |       |   |        |   |       |   |   |   | February 12, 1996 |   |
|                                                                       |   |                      |       |   | (Inception) |   |
|                                                                       |   | Years Ended June 30, |       |   | Through     |   |
|                                                                       |   | 2010                      |       |   | 2009        |   |       | 2008   |   |   | June 30, 2010     |   |
| Operating Activities                                                       |   |                      |       |   |        |   |       |   |   |   |                   |   |
| Net loss                                                                   |   | $                         | (2,929,737 | )      |        | $      | (1,554,876 | )      |   | $      | (1,938,216             | )      |   | $ | (33,098,030 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities |   |                      |       |   |        |   |       |   |   |   |                   |   |   |   |   |   |
| Write-down of investment                                                   |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 1,250,000 |   |
| Other income                                                               |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (658,305 | ) |
| Proprietary, non-competition agreement                                     |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 711,000 |   |
| Consulting services and financing fees                                     |   |                      | 81,000     |   |        |   | 14,000     |   |   |   | 0                      |   |   |   | 1,618,783 |   |
| Depreciation and amortization                                              |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 349,941 |   |
| Stock-based compensation                                                   |   |                      | 1,225,151  |   |        |   | 119,064    |   |   |   | 247,944                |   |   |   | 7,058,509 |   |
| Interest on beneficial conversion feature                                  |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 566,456 |   |
| Settlement of lawsuit                                                      |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 60,250 |   |
| Write-down of license and operating assets                                 |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 1,853,542 |   |
| Bad debt                                                                   |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 77,712 |   |
| Changes in non-cash working capital                                        |   |                      |       |   |        |   |       |   |   |   |                   |   |   |   |   |   |
| Due from affiliated company                                                |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (116,000 | ) |
| Notes and accounts receivable                                              |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (109,213 | ) |
| Inventory                                                                  |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (46,842 | ) |
| Prepaid expenses                                                           |   |                      | 3,809      |   |        |   | 19,223     |   |   |   | 1,867                  |   |   |   | (7,543 | ) |
| Deferred revenue and other                                                 |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (2,609 | ) |
| Accounts payable and accruals                                              |   |                      | 29,894     |   |        |   | (61,484    | )      |   |   | 66,658                 |   |   |   | 949,258 |   |
| Net Cash Used in Operating Activities                                      |   |                      | (1,589,883 | )      |        |   | (1,464,073 | )      |   |   | (1,621,747             | )      |   |   | (19,543,091 | ) |
| Investing Activities                                                       |   |                      |       |   |        |   |       |   |   |   |                   |   |   |   |   |   |
| Purchase of property, equipment and intangible assets                      |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (200,935 | ) |
| Assets acquired and liabilities assumed on purchase of subsidiary          |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (129,474 | ) |
| Investment in and advances to affiliated companies                         |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (2,000,000 | ) |
| License agreements                                                         |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (124,835 | ) |
| Net Cash Used in Investing Activities                                      |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (2,455,244 | ) |
| Financing Activities                                                       |   |                      |       |   |        |   |       |   |   |   |                   |   |   |   |   |   |
| Redemption of preferred shares                                             |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (50,000 | ) |
| Repayment of loan                                                          |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (11,000 | ) |
| Advances from stockholders                                                 |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 1,078,284 |   |
| Repayments from (to) stockholders                                          |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | (91,283 | ) |
| Subscriptions received                                                     |   |                      | 11,250     |   |        |   | 0          |   |   |   | 276,500                |   |   |   | 514,415 |   |
| Proceeds from issuance of common stock                                     |   |                      | 1,542,888  |   |        |   | 895,200    |   |   |   | 208,995                |   |   |   | 20,638,558 |   |
| Proceeds from convertible debentures                                       |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 600,000 |   |
| Share issue costs                                                          |   |                      | (149,251   | )      |        |   | 0          |   |   |   | 0                      |   |   |   | (376,671 | ) |
| Net Cash Provided by Financing Activities                                  |   |                      | 1,404,887  |   |        |   | 895,200    |   |   |   | 485,495                |   |   |   | 22,302,303 |   |
| Effect of Foreign Currency Translation on Cash                             |   |                      | 0          |   |        |   | 0          |   |   |   | 0                      |   |   |   | 46,267 |   |
| Inflow (Outflow) of Cash                                                   |   |                      | (184,996   | )      |        |   | (568,873   | )      |   |   | (1,136,252             | )      |   |   | 350,235 |   |
| Cash, Beginning of Year                                                    |   |                      | 535,231    |   |        |   | 1,104,104  |   |   |   | 2,240,356              |   |   |   | 0 |   |
| Cash, End of Year                                                          |   | $                         | 350,235    |   |        | $      | 535,231    |   |   | $      | 1,104,104              |   |   | $ | 350,235 |   |

----

----

| 1. | INCORPORATION AND NATURE OF OPERATIONS |
|----|----------------------------------------|

| 2. | GOING CONCERN |
|----|---------------|

----

----

| 3. | SIGNIFICANT ACCOUNTING POLICIES |
|----|---------------------------------|

|   | (a) | Principles of consolidation |
|--------|-----|-----------------------------|

|   | (b) | Loss per share |
|--------|-----|----------------|

|   | (c) | Stock issued in exchange for services |
|--------|-----|---------------------------------------|

|   | (d) | Revenue recognition |
|--------|-----|---------------------|

|   | (e) | Foreign currency translation |
|--------|-----|------------------------------|

|   | (f) | Research and development |
|--------|-----|--------------------------|

|   | (g) | Use of estimates |
|--------|-----|------------------|

----

----

| 3. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----|---------------------------------------------|

|   | (h) | Financial instruments |
|--------|-----|-----------------------|

|   | (i) | Income taxes |
|--------|-----|--------------|

|   | (j) | Stock-based compensation |
|--------|-----|--------------------------|

----

----

| 3. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----|---------------------------------------------|

|   | (k) | Recently adopted accounting pronouncements |
|--------|-----|--------------------------------------------|

|   | (i) | In February, 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) issued ASU No. 2010-09, Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements. The amendments remove the requirement for an SEC filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. Additionally, the Board has clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. Those amendments remove potential conflicts with the SEC's literature. All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | In August 2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair Value” (“ASU 2009-05”).  This update provides amendments to Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosure”, for the fair value measurement of liabilities when a quoted price in an active market is not available.  ASU 2009-05 is effective for reporting periods beginning after August 28, 2009. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | In June 2009, the FASB issued new guidance which is now part of ASC 105-10 (formerly Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, (“SFAS 168”)).  SFAS 168 replaces FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles”, and establishes the FASB ASU as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles.  SFAS 168 is effective for interim and annual periods ending after September 15, 2009.  The adoption of this statement did not significantly impact the Company’s disclosures. |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | In June 2008, the FASB ratified EITF Issue 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”).  Paragraph 11(a) of SFAS 133 specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to our own stock and (b) classified in stockholders’ equity in the statement of financial position would not be considered a derivative financial instrument.  EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a) scope exemption.  EITF 07-5 is effective on January 1, 2009.  The adoption of this statement did not significantly impact the Company’s disclosures. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 3. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----|---------------------------------------------|

|   | (k) | Recently adopted accounting pronouncements (continued) |
|--------|-----|--------------------------------------------------------|

|   | (v) | In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements”, which, among other things, provides guidance and establishes amended accounting and reporting standards for a parent company’s non-controlling interest in a subsidiary.  This pronouncement is effective for fiscal years beginning on or after December 15, 2008. The adoption of this statement did not significantly impact the Company’s disclosures. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (vi) | In December 2007, FASB Statement No. 141 (revised 2007), “Business Combinations” (“SFAS 141”), was issued.  SFAS 141 establishes principles and requirements for how the acquirer (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and non-controlling interest in the acquired entity; (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  The provisions of SFAS 141 are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this statement did not significantly impact the Company’s disclosures. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (l) | Recent accounting pronouncement not yet adopted |
|--------|-----|-------------------------------------------------|

|   | (i) | In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures” (“ASU 2010-06”).  This update provides amendments to ASC Topic 820, “Fair Value Measurements and Disclosure”, that requires new disclosure for transfers in and out of Levels 1 and 2 and activity in Level 3 fair value measurements.  The update also provides amendments that clarify existing disclosures surrounding levels of disaggregation and inputs and valuation techniques.  ASU 2010-06 is effective for reporting periods beginning after December 15, 2009, with the exception of Level 3 activity fair value measurements which is effective for reporting periods beginning after December 15, 2010. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | In January 2010, the FASB issued ASU update No. 2010-06 applicable to FASB ASC 820-10, “Improving Disclosures about Fair Value Measurements”. The guidance requires entities to disclose significant transfers in and out of fair value hierarchy levels and the reasons for the transfers and to present information about purchases, sales, issuances and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3). Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3). This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be effective for interim and annual periods beginning after December 15, 2010. As this guidance provides only disclosure requirements, the adoption of this standard will not impact the Company’s consolidated results of operations, cash flows or financial positions. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| 3. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----|---------------------------------------------|

|   | (l) | Recent accounting pronouncement not yet adopted (continued) |
|--------|-----|-------------------------------------------------------------|

|   | (iii) | In August 2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10, “Fair Value Measurements and Disclosures—Overall”. The update provides clarification that in circumstances, in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update. The amendments in this ASU clarify that a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability and also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in this ASU is effective for the first reporting period, including interim periods, beginning after issuance. The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | In June 2009, the FASB issued FASB Statement No. 167, "Amendments to FASB Interpretation No. ("FIN") 46(R)" ("Statement No. 167"), codified in ASC Topic 810-10.  Statement No. 167, among other things, requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity ("VIE"), amends FIN 46(R)’s consideration of related party relationships in the determination of the primary beneficiary of a VIE, amends certain guidance in FIN 46(R) for determining whether an entity is a VIE, requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE, and requires enhanced disclosures about an enterprise’s involvement with a VIE.  Statement No. 167 is effective for annual reporting periods beginning after November 15, 2009.  The adoption of the provisions of Statement No. 167 is not anticipated to impact the company's consolidated financial position, results of operations or cash flows. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 4. | STOCKHOLDERS' EQUITY(DEFICIT) |
|----|-------------------------------|

|   | (a) | Common stock |
|--------|-----|--------------|

|   | (i) | During the year ended June 30, 2008, the Company: |
|--------|-----|---------------------------------------------------|

|   | (ii) | During the year ended June 30, 2009, the Company: |
|--------|------|---------------------------------------------------|

|   | (a) | Closed a private placement for which it received $1,125,200 ($895,200 received during 2009 (2008 - $230,000)) (note 4(e)) for issuance of 4,500,800 units, each unit consisting of one share of common stock at $0.25 and one warrant at $0.001.  Each warrant entitles the holder to purchase one share of common stock on or before December 31, 2010 at an exercise price of $0.50; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Issued 100,000 shares of common stock as consideration for consulting services.  50,000 of these shares have been recorded at a value of $14,000 and 50,000 of these shares have been recorded at a value of $46,500 representing the market value of the shares on the date of issuance. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | During the year ended June 30, 2010, the Company: |
|--------|-------|---------------------------------------------------|

|   | (a) | Issued 270,000 shares of common stock as consideration for consulting services.  These shares have been recorded at a value of $81,000 representing the fair value of the shares on the date of issuance. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Closed three private placements for which it received a total of $1,542,888. The first private placement amounted to $743,190 for issuance of 2,123,400 units, each unit consisting of one share of common stock at $0.35 and one warrant at $0.001.  Each warrant entitles the holder to purchase one share of common stock on or before February 8, 2012 at an exercise price of $0.70. The second private placement amounted to $228,534 for issuance of 507,853 units, each unit consisting of one share of common stock at $0.45 and one warrant at $0.001.  Each warrant entitles the holder to purchase one share of common stock on or before May 14, 2012 at an exercise price of $0.70.  The third private placement amounted to $571,164 for issuance of 1,631,899 units, each unit consisting of one share of common stock at $0.35 and one warrant at $0.0001.  Each warrant entitles the holder to purchase one share of common stock on or before June 3, 2012 at an exercise price of $0.70. Exercise of all the investment warrants may be required in the event that the market price for the common stock exceeds $1.30 per share. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 4. | STOCKHOLDERS' EQUITY(DEFICIT) (Continued) |
|----|-------------------------------------------|

|   | (a) | Preferred stock |
|--------|-----|-----------------|

|   | (c) | Stock options and stock-based compensation |
|--------|-----|--------------------------------------------|

----

----

| 4. | STOCKHOLDERS' EQUITY(DEFICIT) (Continued) |
|----|-------------------------------------------|

|   | (c) | Stock options and stock-based compensation (Continued) |
|--------|-----|--------------------------------------------------------|

----

----

| 4. | STOCKHOLDERS' EQUITY (DEFICIT) (Continued) |
|----|--------------------------------------------|

|   | (c) | Stock options and stock-based compensation (Continued) |
|--------|-----|--------------------------------------------------------|

|                  |   | 2010   |   |   | 2009   |   |   | 2008   |   |
|-----------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                  |   |   |   |   |   |   |   |   |   |
| Expected life (years) |   |   | 2.39   |   |   |   | 1      |   |   |   | 1 |   |
| Interest rate         |   |   | 1.10   | %      |   |   | 3.87   | %      |   |   | 4.28 | % |
| Volatility            |   |   | 162.90 | %      |   |   | 84.24  | %      |   |   | 87.75 | % |
| Dividend yield        |   |   | 0.00   | %      |   |   | 0.00   | %      |   |   | 0.00 | % |
| Estimated forfeitures |   |   | 0.00   | %      |   |   | 0.00   | %      |   |   | 0.00 | % |

----

----

| 4. | STOCKHOLDERS' EQUITY (DEFICIT) (Continued) |
|----|--------------------------------------------|

|   | (c) | Stock options and stock-based compensation (Continued) |
|--------|-----|--------------------------------------------------------|

|                                |   | Number of Options |       |   | Price Per Option |   |           | Weighted Average Exercise Price |   |
|-------------------------------------|--------|-------------------|------------|--------|------------------|--------|----------------|---------------------------------|--------|
|                                |   |              |       |   |             |   |           |                            |   |
| Outstanding, June 30, 2007 and 2008 |   |              | 3,720,000  |   |             | $      | 0.50 to $ 2.75 |                            |   | $ | 1.31 |   |
| Expired                             |   |              | (350,000   | )      |             | $      | 1.00 to $ 2.75 |                            |   | $ | 2.25 |   |
|                                |   |              |       |   |             |   |           |                            |   |   |   |   |
| Outstanding, June 30, 2009          |   |              | 3,370,000  |   |             | $      | 0.50 to $ 2.25 |                            |   | $ | 1.21 |   |
| Granted                             |   |              | 3,500,000  |   |             | $      | 0.25           |                            |   | $ | 0.25 |   |
| Expired                             |   |              | (300,000   | )      |             | $      | 1.00 to $ 1.16 |                            |   | $ | 1.08 |   |
| Forfeited                           |   |              | (2,445,000 | )      |             | $      | 0.65 to $ 2.25 |                            |   | $ | 1.28 |   |
|                                |   |              |       |   |             |   |           |                            |   |   |   |   |
| Outstanding, June 30, 2010          |   |              | 4,125,000  |   |             | $      | 0.25 to $ 1.00 |                            |   | $ | 0.36 |   |
| Exercisable, June 30, 2010          |   |              | 2,925,000  |   |             | $      | 0.25 to $ 1.00 |                            |   | $ | 0.41 |   |

|              |   |   |           |   | Number of Options |   |
|-------------------|--------|--------|----------------|--------|-------------------|--------|
| Expiry Date       |   | Price  |           |   | 2010              |   |   | 2009 |   |   | 2008 |   |
|              |   |   |           |   |              |   |   |   |   |   |   |   |
| March 23, 2009    |   | $      | 1.00           |   |              |   | 0 |   |   |   | 0 |   |   |   | 100,000 |   |
| March 30, 2009    |   | $      | 2.75           |   |              |   | 0 |   |   |   | 0 |   |   |   | 250,000 |   |
| August 31, 2010   |   | $      | 1.00           |   |              |   | 110,000 | (1) |   |   | 855,000 |   |   |   | 855,000 |   |
| November 15, 2010 |   | $      | 1.00           |   |              |   | 100,000 | (2) |   |   | 100,000 |   |   |   | 100,000 |   |
| June 30, 2010     |   | $      | 0.50           |   |              |   | 0 |   |   |   | 1,000,000 |   |   |   | 1,000,000 |   |
| June 30, 2010     |   | $      | 2.25           |   |              |   | 0 |   |   |   | 1,000,000 |   |   |   | 1,000,000 |   |
| December 31, 2012 |   | $      | 0.25           |   |              |   | 2,500,000 |   |   |   | 0 |   |   |   | 0 |   |
| July 31, 2014     |   | $      | 1.00           |   |              |   | 415,000 | (3) |   |   | 415,000 |   |   |   | 415,000 |   |
| December 31, 2014 |   | $      | 0.25           |   |              |   | 1,000,000 |   |   |   | 0 |   |   |   | 0 |   |
|              |   |   |           |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total outstanding |   | $      | 0.25 to $ 1.00 |   |              |   | 4,125,000 |   |   |   | 3,370,000 |   |   |   | 3,720,000 |   |
| Total exercisable |   | $      | 0.25 to $ 1.00 |   |              |   | 2,925,000 |   |   |   | 3,370,000 |   |   |   | 3,720,000 |   |

|   | (1) | During the year ended June 30, 2010, the expiry date of 110,000 options was extended from August 31, 2009 to August 31, 2010.  Of the remaining balance 300,000 options expired unexercised and 445,000 options were forfeited. Subsequent to June 30, 2010, the expiry date of the 110,000 options was extended from August 31, 2010 to December 31, 2011. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | During the year ended June 30, 2010, the expiry date of these options was extended from November 15, 2009 to November 15, 2010. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | During the year ended June 30, 2010, the expiry date of these options was extended from December 31, 2010 to July 31, 2014. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------|

----

----

| 4. | STOCKHOLDERS' EQUITY (DEFICIT) (Continued) |
|----|--------------------------------------------|

|   | (c) | Stock options and stock-based compensation (Continued) |
|--------|-----|--------------------------------------------------------|

|                   |   | Number of Warrants |      |   | Price Per Warrant |   |   | Weighted Average Exercise Price |   |
|------------------------|--------|--------------------|-----------|--------|-------------------|--------|--------|---------------------------------|--------|
|                   |   |               |      |   |              |   |   |                            |   |
| Balance, June 30, 2007 |   |               | 590,629   |   |              | $      | 2.50   |                            |   | $ | 2.50 |   |
| Exercised              |   |               | (190,000  | )      |              | $      | 2.50   |                            |   | $ | 2.50 |   |
|                   |   |               |      |   |              |   |   |                            |   |   |   |   |
| Balance, June 30, 2008 |   |               | 400,629   |   |              | $      | 2.50   |                            |   | $ | 2.50 |   |
| Issued                 |   |               | 4,500,800 |   |              | $      | 0.50   |                            |   | $ | 0.50 |   |
| Expired                |   |               | (400,629  | )      |              | $      | 2.50   |                            |   | $ | 2.50 |   |
|                   |   |               |      |   |              |   |   |                            |   |   |   |   |
| Balance, June 30, 2009 |   |               | 4,500,800 |   |              | $      | 0.50   |                            |   | $ | 0.50 |   |
| Issued                 |   |               | 4,263,152 |   |              | $      | 0.70   |                            |   | $ | 0.70 |   |
|                   |   |               |      |   |              |   |   |                            |   |   |   |   |
| Balance, June 30, 2010 |   |               | 8,763,952 |   |              |   |   |                            |   | $ | 0.60 |   |

----

----

| 4. | STOCKHOLDERS' EQUITY (DEFICIT) (Continued) |
|----|--------------------------------------------|

|   | (c) | Stock options and stock-based compensation (Continued) |
|--------|-----|--------------------------------------------------------|

|                              |   |           |           |   | Number of Warrants |   |
|-----------------------------------|--------|----------------|----------------|--------|--------------------|--------|
| Expiry Date                       |   | Exercise Price |           |   | 2010               |   |   | 2009 |   |   | 2008 |   |
|                              |   |           |           |   |               |   |   |   |   |   |   |   |
| September 15, 2008                |   | $              | 2.50           |   |               |   | 0 |   |   |   | 0 |   |   |   | 400,269 |   |
| December 31, 2010                 |   | $              | 0.50           |   |               |   | 4,500,800 |   |   |   | 4,500,800 |   |   |   | 0 |   |
| February 8, 2012                  |   | $              | 0.70           |   |               |   | 2,123,400 |   |   |   | 0 |   |   |   | 0 |   |
| May 14, 2012                      |   | $              | 0.70           |   |               |   | 507,853 |   |   |   | 0 |   |   |   | 0 |   |
| June 3, 2012                      |   | $              | 0.70           |   |               |   | 1,631,899 |   |   |   | 0 |   |   |   | 0 |   |
|                              |   |           |           |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Total outstanding and exercisable |   | $              | 0.50 to $ 0.70 |   |               |   | 8,763,952 |   |   |   | 4,500,800 |   |   |   | 400,269 |   |

|   | (d) | Promissory notes receivable at June 30, 2010 includes: |
|--------|-----|--------------------------------------------------------|

|   | (i) | $17,500 (2009 - $17,500) due on exercise of 210,000 stock options, interest at 10% per annum, due November 1, 2002, subsequently extended to June 30, 2003; and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | $12,237 (2009 - $12,237) due on exercise of 23,000 stock options, interest at 10% per annum, due June 30, 2003. |
|--------|------|-----------------------------------------------------------------------------------------------------------------|

|   | (e) | Subscriptions received |
|--------|-----|------------------------|

|   | (i) | During the year ended June 30, 2008, $230,000 was received for subscriptions of 333,333 units consisting of common stock at $0.69 per share and warrants at $0.001 per share of common stock underlying the warrant to purchase 333,333 shares of common stock on or before two years after the closing date at an exercise price of $0.75 per share (exercise of the investment warrant may be required in the event that the market price for the common stock exceeds $1.25 per share). |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| 4. | STOCKHOLDERS' EQUITY (DEFICIT) (Continued) |
|----|--------------------------------------------|

|   | (e) | Subscriptions received (Continued) |
|--------|-----|------------------------------------|

|   | (ii) | At June 30, 2008, the Company had an obligation to issue 50,000 shares of common stock as consideration for consulting services.  These shares were recorded at a value of $46,500 representing the market value of the shares at the date the shares were to have been issued.  These shares were issued during the year ended June 30, 2009. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | During the year ended June 30, 2010, $11,250 was received for subscriptions of 15,000 units consisting of common stock at $0.75 per share and warrants at $0.001 per share of common stock underlying the warrant to purchase 15,000 shares of common stock on or before two years after the closing date at an exercise price of $1.00 per share (exercise of the investment warrant may be required in the event that the market price for the common stock exceeds $1.50 per share). These shares have not yet been issued. |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | Subsequent to the year ended June 30, 2010, $33,750 was received for subscriptions of 45,000 units consisting of common stock at $0.75 per share and warrants at $0.001 per share of common stock underlying the warrant to purchase 45,000 shares of common stock on or before two years after the closing date at an exercise price of $1.00 per share (exercise of the investment warrant may be required in the event that the market price for the common stock exceeds $1.50 per share). These shares have not yet been issued. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|----|--------------------------------------------------|

|                                             |   |   |   |                           |   |   |   |   |                                                       |   |   |   |
|--------------------------------------------------|--------|--------|--------|--------------------------------|--------|--------|--------|--------|------------------------------------------------------------|--------|--------|--------|
|                                             |   | 2010   |   |  Years Ended June 30,2009 |   | 2008   |   |   | Period fromFebruary 12,1996(Inception)ThroughJune 30, 2010 |   |
|                                             |   |   |   |                           |   |   |   |   |                                                       |   |   |   |
| Supplemental Disclosure of Non-Cash Transactions |   |   |   |                           |   |   |   |
| Shares Issued for                                |   |   |   |                           |   |   |   |   |                                                       |   |   |   |
| Redemption of preferred shares                   |   | $      | 0      |                           |   | $      | 0      |   |                                                       | $      | 0      |   |   | $ | 415,000 |   |
| Property and equipment                           |   | $      | 0      |                           |   | $      | 0      |   |                                                       | $      | 0      |   |   | $ | 23,000 |   |
| Proprietary agreement                            |   | $      | 0      |                           |   | $      | 0      |   |                                                       | $      | 0      |   |   | $ | 711,000 |   |
| Settlement of accounts payable                   |   | $      | 0      |                           |   | $      | 0      |   |                                                       | $      | 0      |   |   | $ | 228,742 |   |
| Services (provided by officers                   |   |   |   |                           |   |   |   |   |                                                       |   |   |   |   |   |   |   |
| and directors)                                   |   | $      | 0      |                           |   | $      | 0      |   |                                                       | $      | 0      |   |   | $ | 120,000 |   |
| Settlement of lawsuit                            |   | $      | 0      |                           |   | $      | 0      |   |                                                       | $      | 0      |   |   | $ | 15,000 |   |
| Services                                         |   | $      | 81,000 |                           |   | $      | 14,000 |   |                                                       | $      | 0      |   |   | $ | 896,784 |   |
| Subscriptions received                           |   | $      | 0      |                           |   | $      | 46,500 |   |                                                       | $      | 0      |   |   | $ | 46,500 |   |
| Acquisition of subsidiary                        |   | $      | 0      |                           |   | $      | 0      |   |                                                       | $      | 0      |   |   | $ | 894,200 |   |
| Supplemental Cash Flow Information               |   |   |   |                           |   |   |   |   |                                                       |   |   |   |   |
| Interest paid                                    |   | $      | 0      |                           |   | $      | 0      |   |                                                       | $      | 0      |   |   | $ | 81,111 |   |
| Income tax paid                                  |   | $      | 0      |                           |   | $      | 0      |   |                                                       | $      | 0      |   |   | $ | 0 |   |

----

----

| 6. | RISK MANAGEMENT AND FINANCIAL INSTRUMENTS |
|----|-------------------------------------------|

|   | (a) | Fair value |
|--------|-----|------------|

|   | (b) | Credit risk |
|--------|-----|-------------|

|                                           |   | 2010   |    |   | 2009   |   |
|------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                           |   |   |    |   |   |   |
| Cash (US institution) – Non-FDIC insured |   | $      | 316,674 |   |   | $      | 514,868 |   |
| Cash (US institution) – FDIC insured     |   |   | 15,034  |   |   |   | 15,510 |   |
| Cash (CDN institution)                         |   |   | 18,527  |   |   |   | 4,853 |   |
|                                           |   |   |    |   |   |   |   |   |
|                                           |   | $      | 350,235 |   |   | $      | 535,231 |   |

|   | (c) | Interest rate risk |
|--------|-----|--------------------|

|   | (d) | Currency risk |
|--------|-----|---------------|

|   | (e) | Liquidity risk |
|--------|-----|----------------|

----

----

| 7. | INCOME TAXES |
|----|--------------|

|                                       |   | 2010   |     |   | 2009   |   |     | 2008   |   |
|--------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
|                                       |   |   |     |   |   |   |     |   |   |
| Current expense                            |   | $      | 0        |   |   | $      | 0        |   |   | $ | 0 |   |
| Deferred benefit                           |   |   | 878,000  |   |   |   | (528,000 | )      |   |   | (669,000 | ) |
| (Decrease) Increase in valuation allowance |   |   | (878,000 | )      |   |   | 528,000  |   |   |   | 669,000 |   |
|                                       |   |   |     |   |   |   |     |   |   |   |   |   |
| Total provision for income tax             |   | $      | 0        |   |   | $      | 0        |   |   | $ | 0 |   |

|                                                  |   | 2010   |      |   | 2009   |   |     | 2008   |   |
|-------------------------------------------------------|--------|--------|-----------|--------|--------|--------|----------|--------|--------|
|                                                  |   |   |      |   |   |   |     |   |   |
|                                                  |   |   |      |   |   |   |     |   |   |
| Provision for income tax at the statutory rate of 34% |   | $      | (996,000  | )      |   | $      | (529,000 | )      |   | $ | (660,000 | ) |
|                                                  |   |   |      |   |   |   |     |   |   |   |   |   |
| Increase (decrease) in taxes due to                   |   |   |      |   |   |   |     |   |   |   |   |   |
| Change in valuation allowance                         |   |   | (878,000  | )      |   |   | 528,000  |   |   |   | 669,000 |   |
| Disallowed expense                                    |   |   | 1,000     |   |   |   | 1,000    |   |   |   | 1,000 |   |
| True-up of deferred tax assets                        |   |   | 0         |   |   |   | 0        |   |   |   | (10,000 | ) |
| Expiration of capital loss                            |   |   | 425,000   |   |   |   | 0        |   |   |   | 0 |   |
| Change in deferred stock-based compensation           |   |   | 1,448,000 |   |   |   | 0        |   |   |   | 0 |   |
|                                                  |   |   |      |   |   |   |     |   |   |   |   |   |
| Total provision for income tax                        |   | $      | 0         |   |   | $      | 0        |   |   | $ | 0 |   |

----

----

| 7. | INCOME TAXES (Continued) |
|----|--------------------------|

|                                      |   | 2010   |       |   | 2009   |   |        | 2008   |   |
|-------------------------------------------|--------|--------|------------|--------|--------|--------|-------------|--------|--------|
|                                      |   |   |       |   |   |   |        |   |   |
| Deferred income tax assets                |   |   |       |   |   |   |        |   |   |
| Current deferred tax assets               |   |   |       |   |   |   |        |   |   |
| Legal dispute reserve                     |   | $      | 182,000    |   |   | $      | 0           |   |   | $ | 182,000 |   |
| Accrued liabilities                       |   |   | 14,000     |   |   |   | 12,000      |   |   |   | 14,000 |   |
|                                      |   |   |       |   |   |   |        |   |   |   |   |   |
| Total current deferred tax assets         |   |   | 196,000    |   |   |   | 12,000      |   |   |   | 196,000 |   |
|                                      |   |   |       |   |   |   |        |   |   |   |   |   |
| Noncurrent deferred tax assets            |   |   |       |   |   |   |        |   |   |   |   |   |
| Net operating loss carryforwards          |   |   | 8,102,000  |   |   |   | 7,706,000   |   |   |   | 7,034,000 |   |
| Non-qualified stock options               |   |   | 762,000    |   |   |   | 1,795,000   |   |   |   | 1,754,000 |   |
| Capital loss carryforwards                |   |   | 0          |   |   |   | 425,000     |   |   |   | 425,000 |   |
| Investment reserve                        |   |   | 247,000    |   |   |   | 247,000     |   |   |   | 247,000 |   |
| Basis difference of fixed assets          |   |   | 1,000      |   |   |   | 1,000       |   |   |   | 2,000 |   |
| Valuation allowance                       |   |   | (9,308,000 | )      |   |   | (10,186,000 | )      |   |   | (9,658,000 | ) |
|                                      |   |   |       |   |   |   |        |   |   |   |   |   |
| Total noncurrent deferred tax assets      |   |   | (196,000   | )      |   |   | (12,000     | )      |   |   | (196,000 | ) |
|                                      |   |   |       |   |   |   |        |   |   |   |   |   |
| Noncurrent deferred tax liabilities       |   |   | 0          |   |   |   | 0           |   |   |   | 0 |   |
|                                      |   |   |       |   |   |   |        |   |   |   |   |   |
| Total noncurrent deferred tax liabilities |   |   | 0          |   |   |   | 0           |   |   |   | 0 |   |
|                                      |   |   |       |   |   |   |        |   |   |   |   |   |
| Net deferred tax asset (liability)        |   | $      | 0          |   |   | $      | 0           |   |   | $ | 0 |   |

----

----

| 7. | INCOME TAXES (Continued) |
|----|--------------------------|

| Year Ended    | Expires       |   | Amount |       |
|---------------|---------------|--------|--------|------------|
|          |          |   |   |       |
| June 30, 1996 | June 30, 2011 |   | $      | 346,000    |   |
| June 30, 1997 | June 30, 2012 |   |   | 1,405,000  |   |
| June 30, 1998 | June 30, 2018 |   |   | 999,000    |   |
| June 30, 1999 | June 30, 2019 |   |   | 1,361,000  |   |
| June 30, 2000 | June 30, 2020 |   |   | 1,091,000  |   |
| June 30, 2001 | June 30, 2021 |   |   | 2,002,000  |   |
| June 30, 2002 | June 30, 2022 |   |   | 2,527,000  |   |
| June 30, 2003 | June 30, 2023 |   |   | 1,364,000  |   |
| June 30, 2004 | June 30, 2024 |   |   | 2,162,000  |   |
| June 30, 2005 | June 30, 2025 |   |   | 2,208,000  |   |
| June 30, 2006 | June 30, 2026 |   |   | 2,373,000  |   |
| June 30, 2007 | June 30, 2027 |   |   | 1,177,000  |   |
| June 30, 2008 | June 30, 2028 |   |   | 1,676,000  |   |
| June 30, 2009 | June 30, 2029 |   |   | 1,439,000  |   |
| June 30, 2010 | June 30, 2030 |   |   | 1,699,000  |   |
|          |          |   |   |       |   |
| Total         |          |   | $      | 23,829,000 |   |

----

----

| 8. | LOSS PER SHARE |
|----|----------------|

|                                     |   | Income (Numerator) |       |   | Weighted Average Number of Shares (Denominator) |   |       | Loss Per Share |   |
|------------------------------------------|--------|--------------------|------------|--------|-------------------------------------------------|--------|------------|----------------|--------|
|                                     |   |               |       |   |                                            |   |       |           |   |
| 2010                                     |   |               |       |   |                                            |   |       |           |   |
| Loss for the year                        |   | $                  | (2,929,737 | )      |                                            |   |       |           |   |   |
| Preferred stock dividends                |   |               | (15,462    | )      |                                            |   |       |           |   |   |
|                                     |   |               |       |   |                                            |   |       |           |   |   |
| Loss attributable to common shareholders |   | $                  | (2,945,199 | )      |                                            |   | 51,520,654 |           |   | $ | (0.06 | ) |
|                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| 2009                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| Loss for the year                        |   | $                  | (1,554,876 | )      |                                            |   |       |           |   |   |   |   |
| Preferred stock dividends                |   |               | (15,427    | )      |                                            |   |       |           |   |   |   |   |
|                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| Loss attributable to common shareholders |   | $                  | (1,570,303 | )      |                                            |   | 47,360,459 |           |   | $ | (0.03 | ) |
|                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| 2008                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| Loss for the year                        |   | $                  | (1,938,216 | )      |                                            |   |       |           |   |   |   |   |
| Preferred stock dividends                |   |               | (15,427    | )      |                                            |   |       |           |   |   |   |   |
|                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| Loss attributable to common shareholders |   | $                  | (1,953,643 | )      |                                            |   | 45,617,756 |           |   | $ | (0.04 | ) |

----