UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-KSB





T  ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934




For the
fiscal year ended June 30, 2008




£  TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT




For the
transition period from:   ______________ to
______________




Commission
file number:     0-28353





INTEGRAL
TECHNOLOGIES, INC.





(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)





Issuer’s
telephone number:   (360)
752-1982





Securities
registered under Section 12(b) of the Exchange Act:   None





Securities
registered under Section 12(g) of the Exchange Act:   Common
Stock





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.  £





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.     Yes T    No
£





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.    £





Check
whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  Yes £     No
T





State
issuer’s revenues for its most recent fiscal year.   $-0-.





As of
September 15, 2008, the aggregate market value of the voting stock held by
non-affiliates, approximately 41,785,936 shares of Common Stock, was
approximately $30.5 million based on an average of the bid and ask prices of
approximately $0.73 per share of Common Stock on such date.





The
number of shares outstanding of the issuer’s Common Stock, $.001 par value, as
of September 15, 2008 was 45,754,969 shares.





DOCUMENTS
INCORPORATED BY REFERENCE:  None.





Transitional
Small Business Disclosure Format (check one):  Yes  £;  No  T













PART I





CAUTIONARY
STATEMENT IDENTIFYING IMPORTANT FACTORS


THAT
COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO


DIFFER
FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS





Readers
of this document and any document incorporated by reference herein, are advised
that this document and documents incorporated by reference into this document
contain both statements of historical facts and forward looking
statements.  Forward looking statements are subject to certain risks
and uncertainties, which could cause actual results to differ materially for
those indicated by the forward looking statements.  Examples of
forward looking statements include, but are not limited to (i) projections of
revenues, income or loss, earning or loss per share, capital expenditures,
dividends, capital structure and other financial items, (ii) statements of the
plans and objectives of Integral Technologies, Inc. or our management or Board
of Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements and statements about our
Company or our business.





This
document and any documents incorporated by reference herein also identify
important factors which could cause actual results to differ materially from
those indicated by forward looking statements.  These risks and
uncertainties include price competition, the decisions of customers, the actions
of competitors, the effects of government regulation, possible delays in the
introduction of new products and services, customer acceptance of products and
services, our ability to secure debt and/or equity financing on reasonable
terms, and other factors which are described herein and/or in documents
incorporated by reference herein.





The
cautionary statements made above and elsewhere should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by
us.  Forward looking statements are beyond the ability of our Company
to control and in many cases we cannot predict what factors would cause results
to differ materially from those indicated by the forward looking
statements.








DESCRIPTION
OF BUSINESS





BUSINESS
DEVELOPMENT





Integral
Technologies, Inc. ("Integral," the "Company" or the "Registrant") is a
development stage company, incorporated under the laws of the State of Nevada on
February 12, 1996.To date, we have expended resources on the research and development of
several different types of technologies.





Presently,
we are focusing substantially all of our resources on the researching,
developing and commercializing of our ElectriPlastTM technology, which is
comprised of over 100 applications.  In addition, we apply a
significant portion of our resources to the protection of our intellectual
property through patent filings.  To date, we have not realized any
revenue from our efforts.  We expect to derive future revenues from
the sale of ElectriPlastTM materials and/or fees from licensing
ElectriPlastTM technologies to third-party manufacturers.





TECHNOLOGIES





ElectriPlastTM





We have
developed an innovative, electrically-conductive resin-based material called
“ElectriPlastTM.” The ElectriPlastTM polymer is a compounded formulation of
resin-based materials, which are conductively loaded, or doped, with a
proprietary-controlled, balanced concentration of micron conductive materials,
then pelletized. The conductive loading or doping within this pellet is then
homogenized using conventional molding techniques and conventional molding
equipment. The end result is a product that can be molded into any of the
infinite shapes and sizes associated with plastics and rubbers, and is
non-corrosive, but which is as electrically conductive as if it were
metal.





1




Various
examples of applications for ElectriPlastTM are antennas, shielding, lighting
circuitry, switch actuators, resistors, medical devices, thermal management and
cable connector bodies, to name just a few. We have been working to introduce
these new applications and the ElectriPlastTM technology on a global
scale.





Patents/Trademarks on
Technologies





Our
intellectual property portfolio consists of over eleven years of accumulated
research and design knowledge and trade secrets.  We have sought
U.S. patent protection for many of our ideas related to our ElectriPlastTM
technologies.  Currently, we have filed 119 U.S. patent
applications, 39 of which have been issued, 2 of which have been allowed and are
pending issuance, and 78 of which have been filed and are pending approval.
No assurances can be given that all patent applications will be approved;
however, to the extent that patents are not granted, we will continue to attempt
to commercialize these technologies without the protection of
patents.  As patents are issued, we will have the exclusive right to
use in the U.S. the design(s) described in each issued patent for the 18-year
life of the patent.





Of the
aforementioned 78 U.S. patent applications which have been filed, 28 have been
rejected. Certain patent office applications have been rejected by the patent
office due to more stringent requirements implemented by the patent office over
18 months ago. The company has elected not to appeal those patent application
rejected as the contents of those rejected applications have been incorporated
into subsequent applications.





Recent developments in the law increase
the challenge of obtaining US patent protection.  In particular, the
Supreme Court’s decision inKSR v.
Teleflex(2007) makes it
easier for the USPTO to sustain obviousness rejections. As a result, the USPTO
is now more likely to reject applications by combining elements from the prior
art – even where no motivation to combine can be shown in the art
references.  This new approach affects all applicants, including
Integral Technologies, Inc., and has reduced the rate of patent issues.
Nevertheless, we, continues to pursue intellectual property protection through
its patent and trademark portfolio while constantly evaluating its filings to
judiciously apply resources to the most critical
technologies.








We have
also filed trademark applications with the U.S. Trademark Office for
“ElectriPlastTM” and related names such as “ElectriPonixTM” and
“ElectriOnixTM.





Product Manufacturing and
Distribution





We are
not in the manufacturing business.  Our manufacturing agreement with
Jasper Rubber Products, Inc. provides for Jasper to manufacture ElectriPlastTM
for us.





After
twenty months of refining the manufacturing and molding process of
ElectriPlastTM, the Jasper facility is now capable of producing over 50,000
pounds of ElectriPlastTM pellets per month.  We have entered into
patent license agreements with several companies, as summarized below, and we
are in the process of producing prototypes of requested applications of
ElectriPlastTM for these companies as well as other prospective
customers.





In
addition to its manufacturing capabilities, Jasper has a distribution network
throughout the US and Canada, allowing for ElectriPlastTM to be introduced to
prospective customers and delivered to customers.





We
anticipate that our technologies will not be sold directly to the general
public, but rather to businesses and manufacturers who will incorporate our
technologies as components in the design of their products.





Barriers to Entry into
Market Segment





We have
been working to introduce the ElectriPlastTM technology as an alternative to
metal for use as an electrically conductive material.  The process of
educating potential customers about ElectriPlastTM may prove time consuming
and difficult.





2




SUMMARY
OF AGREEMENTS





We are
focusing our marketing efforts on securing licensing agreements for applications
of our ElectriPlastTM technology.  Our technologies will be marketed to
manufactures of products which would benefit from the incorporation of any of
the ElectriPlastTM applications into their products.  Below is a
summary of each of our commercial agreements concerning our ElectriPlastTM
technology:





Patent License Agreement
with Heatron, Inc.





In March
2006, we entered into a Patent License Agreement with Heatron, Inc. (“Heatron”),
pursuant to which we granted to Heatron the rights to use our ElectriPlastTM
technology for specific applications in the heating and LED lighting
markets.  Heatron, founded in 1977 and based in Leavenworth, Kansas,
is an industry leader in heating element and thermal management designs and
solutions.





We
granted to Heatron a non-exclusive, non-sublicensable, non-assignable, worldwide
license; however, Heatron’s rights are exclusive for the initial two
years.  The agreement will terminate upon the expiration of the last
patent licensed under the agreement, or earlier under certain
circumstances.





Heatron
paid to us a nominal up-front license fee of $1.00.  Any revenue to be
generated by us under the agreement will be from raw materials
fees.  We have not yet derived revenues from this
agreement.





Patent License Agreement
withJasper
Rubber Products, Inc.





In August
2006, we entered into a Patent License Agreement with Jasper Rubber Products,
Inc. (“Jasper”), pursuant to which we granted to Jasper the rights to use our
ElectriPlastTM technology for specific applications within its customer
base.  Jasper, founded in 1949, and based in Jasper, Indiana, is an
industry leader in innovative rubber and plastics development. Jasper
manufactures a full range of molded, extruded, lathe-cut rubber and
thermoplastic products for major appliance, oil filter, and automotive
industries.





We
granted to Jasper a non-exclusive, non-sublicensable, non-assignable, worldwide
license.  The agreement will terminate upon the expiration of the last
patent licensed under the agreement, or earlier under certain
circumstances.





Jasper
paid to us a nominal up-front license fee of $1.00.  Any revenue to be
generated by us under the agreement will be from raw materials
fees.  We have not yet derived revenues from this
agreement.





Manufacturing Agreement withJasper Rubber
Products, Inc.





In
November 2006, we entered into a Manufacturing Agreement with Jasper Rubber
Products, Inc. (“Jasper”), pursuant to which Jasper shall manufacturer for us
resin-based conductive, moldable capsules incorporating our ElectriPlastTM
technology.  The primary term of the agreement is five years, subject
to automatic renewal or termination under certain conditions.  Jasper
agreed that during the term of the agreement and for a period of 12 months after
its expiration or termination for any reason, Jasper will not directly or
indirectly compete with us or our ElectriPlastTM technology.





In July
2007, we entered into an Amendment One to Manufacturing Agreement (“Amendment
One”) with Jasper.  The primary purposes of the Amendment One were 1)
to replace in its entirety Section 4 of the Manufacturing Agreement, concerning
“Pricing, Invoicing and Payment” and 2) to authorize Jasper to sell, on our
behalf, products incorporating our ElectriPlastTM technology.  As
revised by the Amendment One, Section 4 of the Manufacturing Agreement now
reflects more definitive information concerning definitions and calculations of
“hourly payment”, “sales royalties”, “gross margin”, “manufacturing costs” and
“payment terms”.  These revisions were mutually agreed upon following
several months of production test-runs and cost evaluations.





3




Patent License Agreement
withADAC
Plastics, Inc. d/b/a ADAC Automotive.





In
November 2006, we entered into a Patent License Agreement with ADAC Plastics,
Inc. d/b/a ADAC Automotive (“ADAC”), pursuant to which we granted to ADAC the
rights to use our ElectriPlastTM technology for use in car antennas, cup holder
heating elements, driver’s seat heating elements and light-emitting diode (LED)
packs manufactured and sold by specified customers of ADAC.  ADAC is a
full-service automotive supplier dedicated to the production of door handles and
components, cowl vent grilles, exterior trim, and marker lighting. Founded in
1975 as ADAC Plastics, Inc., the Grand Rapids, Mich.-based company operates
facilities in North America and the United Kingdom.





We
granted to ADAC a non-exclusive, non-sublicensable, non-assignable, worldwide
license.  The agreement will terminate upon the expiration of the last
patent licensed under the agreement, or earlier under certain
circumstances.





ADAC paid
to us a nominal up-front license fee of $1.00.  Any revenue to be
generated by us under the agreement will be from raw materials
fees.  We have not yet derived revenues from this
agreement.





Patent License Agreement
with Esprit Solutions Limited





In
December 2006, we entered into a Patent License Agreement with Esprit Solutions
Limited (“Esprit”), pursuant to which we granted to Esprit the rights to use our
ElectriPlastTM technology for the manufacture and sale of products to Esprit’s
customer base in the Aero/Defense Interconnection and Protective Components
Industry.  Esprit, based in the United Kingdom, specializes in high
performance protective systems within the Aerospace and Defense
markets.





We
granted to Esprit a non-exclusive, non-sublicensable, non-assignable, worldwide
license.  The agreement will terminate upon the expiration of the last
patent licensed under the agreement, or earlier under certain
circumstances.





Esprit
paid to us a nominal up-front license fee of $1.00.  Any revenue to be
generated by us under the agreement will be from raw materials
fees.  We have not yet derived revenues from this
agreement.





Patent License Agreement
with Knowles Electronics, LLC





In
January 2007, we entered into a Patent License Agreement with Knowles
Electronics, LLC (“Knowles”), pursuant to which we granted to Knowles the rights
to use our proprietary ElectriPlastTM technology for the manufacture and sale of
EMF protected molded components.  Knowles is the world's leading
provider of microphones and receivers to the hearing health industry. They are
credited with the miniaturization of the acoustic transducer, which has enabled
the design and manufacture of smaller hearing aids.





We
granted to Knowles a non-exclusive, non-sublicensable, non-assignable, worldwide
license.  The agreement will terminate upon the expiration of the last
patent licensed under the agreement, or earlier under certain
circumstances.





Knowles
paid a nominal up-front fee of $1.00 to Integral.  Any revenue to be
generated by us under the agreement will be from raw materials
fees.





CES
Innovations 2007 Design and Engineering Award





On
November 8, 2006, we issued a press release to announce that our ElectriPlastTM
technology has been selected as a recipient of a CES Innovations 2007 Design and
Engineering Award in the Enabling Technologies product
category.  Presented by the Consumer Electronics Association (CEA) and
the International Consumer Electronics Show (CES), the Innovations Awards
recognize advancements in technology and engineering. This year, an independent
panel of judges evaluated more than 1,000 entries from over 160
companies.





EMPLOYEES





We
currently employ a total of 4 people on a full-time basis.  However,
we also rely on the expertise of several technical advisors who are consulted as
needed on a part-time, contract basis.





4





SEC
REPORTS AVAILABLE ON WEBSITE





The SEC
maintains an Internet site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the SEC.  Our Annual Reports on Form 10-KSB,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and other SEC
filings are available on the SEC’s website or by visiting our company website at
www.itkg.net.





RISK
FACTORS





An
investment in our common stock involves major risks. Before you invest in our
common stock, you should be aware that there are various risks, including those
described below.  You should carefully consider these risk factors
together with all of the other information included in this annual report on
Form 10-KSB before you decide to purchase shares of our common
stock.





Purchase of our stock is a highly
speculative you could lose your entire investment.  We have
been operating at a loss since inception, and you cannot assume that our plans
will either materialize or prove successful.  In the event our plans
are unsuccessful, you may lose all or a substantial part of your
investment.  The purchase of our stock must be considered a highly
speculative investment.





We have incurred substantial losses
from inception and we have never generate substantial revenues; failure to
achieve profitability in the future would cause the market price for our common
stock to decline significantly. We have generated net losses from
inception and we have an accumulated deficit of approximately $29.4 million as
of June 30, 2008. We have never generated more than nominal
revenues.  If we don’t achieve profitability, the market price for our
common stock could decline significantly.





If we do not generate adequate
revenues in our fiscal year ending June 30, 2009, we may need to raise capital
to continue our operations.  We estimate that we will require
$1.8 million to carry out our business plan during our fiscal year ending June
30, 2009.  We had approximately $1.1 million in cash on hand at June
30, 2008.  Unless we generate adequate revenues from operations (we
have had none to date) in the near future, we may require additional financing
to carry out our business plans next year, and such financing may not be
available at that time. If we require additional financing, we may seek
additional funds through private placements that will be exempt from
registration and will not require prior shareholder approval.  If
additional funds are raised by issuing common stock, or securities that are
convertible into common stock (such as preferred stock, warrants, or convertible
debentures), further dilution to shareholders could
occur.  Additionally, investors could be granted registration rights
by us, which could result in market overhang and depress the market price of the
common stock.  If we fail to obtain sufficient additional financing,
we will not be able to implement our business plans in a complete or timely
manner.





If we are unable to compete
effectively with our competitors, we will not be successful generating revenues
or attaining profits.Our ability to generate revenues and
achieve profitability is directly related to our ability to compete with our
competitors. Most of the companies with which we compete and expect to compete
have far greater capital resources and more significant research and development
staffs, marketing and distribution programs and facilities, and many of them
have substantially greater experience in the production and marketing of
products.  In each market, we face competition from companies with
established technologies.  Currently, we believe that we will be able
to compete because of the relative performance, price and adaptability of our
unique ElectriPlastTM technology. Our beliefs are based only on our research and
development testing.  If we are unable to compete effectively, we will
not be successful in generating revenues or attaining profits.





Loss of key personnel could cause a
major disruption in our day-to-day operations and we could lose our
relationships with third-parties with whom we do business.Our
future success depends in a significant part upon the continued service of
certain key personnel.  Competition for such personnel is intense, and
to be successful we must retain our key personnel.  The loss of key
personnel or the inability to hire or retain qualified replacement personnel
could have cause a major disruption in our operations and we could lose our
relationships with third-parties with whom we do business, which could adversely
affect our financial condition and results of operations.





5





If future marketacceptance of our
ElectriPlastTMtechnology
is poor, we will not be able to generate adequate sales to achieve profitable
operations.  Our future is dependent upon the success of the
current and future generations of our ElectriPlastTM technology.  Our
ElectriPlastTM technology will be marketed to manufacturers of products which
would benefit from the incorporation of any of the ElectriPlastTM applications
into their products.  As of June 30, 2008, we have not generated any
revenue from our ElectriPlastTM technology.  If future market
acceptance of our ElectriPlastTM technology is poor, we will not be able to
generate adequate sales to achieve profitable operations.





Dependence on outside suppliers and
manufacturers could disrupt our business if they fail to meet our
expectations.  Currently, we rely on outside suppliers and
manufacturers to produce ElectriPlastTM for us.  While we have entered
into formal arrangements with outside suppliers and manufacturers for the
production of ElectriPlastTM, if any of them should become too expensive or
suffer from quality control problems or financial difficulties, we would have to
find alternative sources, which could disrupt our business.





Our patent and other intellectual
property rights may be are subject to uncertainty and may bechallenged or circumvented by
competitors.We rely on a combination of patents, patent
applications, trademarks, copyrights, trade secrets and confidentiality
procedures to protect our intellectual property rights, which we believe will
give us a competitive advantage over our competitors. We have sought U.S. patent
protection for many of our ideas related to our ElectriPlastTM
technologies.  Currently, we have filed 119 U.S. patent applications,
39 of which have been issued, 2 of which have been allowed and are pending
issuance, and 78 of which have been filed and are pending approval. No
assurances can be given that all patent applications will be approved; however,
to the extent that patents are not granted, we will continue to attempt to
commercialize these technologies without the protection of
patents.  As patents are issued, we will have the exclusive right to
use in the U.S. the design(s) described in each issued patent for the 18-year
life of the patent.





Of the
aforementioned 78 U.S. patent applications which have been filed, 19 have been
rejected. Certain patent office applications have been rejected by the patent
office due to more stringent requirements implemented by the patent office over
18 months ago. The company has elected not to appeal those patent application
rejected as the contents of those rejected applications have been incorporated
into subsequent applications.





As of
September 15, 2008, we have filed 119 U.S. patent applications relating to our
ElectriPlastTM technology, with 39 patents issued, 2 patents allowed
and pending issuance, and 78 patents pending. Additional patents may not be
issued from our pending applications, although we will continue to attempt to
commercialize these technologies without the protection of
patents.  As patents are issued, we will have the exclusive right to
use in the U.S. the design(s) described in each issued patent for the 18-year
life of the patent.  However, the issuance of a patent is not
conclusive as to its validity or enforceability and, if a patent is issued, it
is uncertain how much protection, if any, will be given to our patent if we
attempt to enforce it.  Litigation, which could be costly and time
consuming, may be necessary to enforce our current patents or any patent issued
in the future or to determine the scope and validity of the proprietary rights
of third parties. A competitor may successfully challenge the validity or
enforceability of a patent or challenge the extent of the patent’s coverage. If
the outcome of litigation is adverse to us, third parties may be able to use our
patented technology without payment to us. Even if we are successful in
defending such litigation, the cost of litigation to uphold the patent can be
substantial.





It is
possible that competitors may infringe upon our patents or successfully avoid
them through design innovation. To stop these activities we may need to file a
lawsuit. These lawsuits are expensive and would consume time and other
resources. In addition, there is a risk that a court would decide that our
patent is not valid, that we do not have the right to stop the other party from
using the inventions, or that the competitor’s activities do not infringe our
patent.





Our
competitive position is also dependent upon unpatented technology and trade
secrets, which may be difficult to protect. Others may independently develop
substantially equivalent proprietary information and techniques that would
legally circumvent our intellectual property rights.





6





The use of our technologies could
potentially conflict with the rights of others. Our competitors, or
others, may have or may acquire patent rights that they could enforce against
us. If our products conflict with patent rights of others, third parties could
bring legal actions against us or our suppliers or customers, claiming damages
and seeking to enjoin manufacturing and marketing of the affected products. If
these legal actions are successful, in addition to any potential liability for
damages, we could be required to alter our products or obtain a license in order
to continue to manufacture or market the affected products. We may not prevail
in any legal action and a required license under the patent may not be available
on acceptable terms or at all. The cost to us of any litigation or other
proceeding relating to intellectual property rights, even if resolved in our
favor, could be substantial.





Holders of preferred stock have
rights that are senior to the rights of holders of common
stock.  Our Articles of Incorporation authorize the issuance of
20,000,000 shares of preferred stock.  The preferred stock may be
divided into one or more series.  Our board of directors is authorized
to determine the rights, provisions, privileges and restrictions and number of
authorized shares of any series of preferred stock.  Additionally, the
preferred stock can have other rights, including voting and economic rights that
are senior to the common stock.  The issuance of preferred stock could
adversely affect the market value of the common stock.





As of
June 30, 2008, 1,000,000 shares of preferred stock have been designated as
Series A Convertible Preferred Stock of which 308,538 are issued and
outstanding, and held by two of our insiders.  Each share of Series A
Convertible Preferred Stock:





·
            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);





·
            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;





·
            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.





How future issuances of common stock
pursuant to our stock plans will affect you.  We have two
non-qualified stock plans in effect.  As of June 30, 2008,
approximately 1,044,500 shares are available under the plans for future issuance
either directly or pursuant to options, to our officers, directors, employees
and consultants.  Also, as of June 30, 2008, approximately 1,720,000
shares are under option under the plans, at a weighted-average exercise price of
approximately $1.31 per share.  In addition, pursuant to grants of
options that were not under either of the formal non-qualified stock plans,
1,000,000 shares are under option by an employee at an exercise price of $.50
per share, plus an additional 1,000,000 shares are under option by the same
employee at an exercise price of $2.25 per share.  Additional stock or
options to acquire our stock of can be granted at any time by our board of
directors, usually without shareholder approval.  When shares of
common stock are issued directly or upon the exercise of options under these
plans, your ownership may be diluted.





We do not expect to be able to pay
cash dividends in the foreseeable future, so you should not make an investment
in our stock if you require dividend income.The payment of cash
dividends, if any, in the future rests within the discretion of our board of
directors and will depend, among other things, upon our earnings, our capital
requirements and our financial condition, as well as other relevant factors. We
have not paid or declared any cash dividends upon our common stock since our
inception and by reason of our present financial status and our contemplated
future financial requirements we do not contemplate or anticipate making any
cash distributions upon our common stock in the foreseeable future.





7





We have a limited market for our
common stock which causes the market price to be volatile and to usually decline
when there is more selling than buying on any given day.  Our
common stock currently trades on the OTC Bulletin Board under the symbol
“ITKG.”  However, at most times in the past, our common stock has been
thinly traded and the market price usually declines when there is more selling
than buying on any given day. As a result, the market price has been volatile,
and the market price may decline immediately if you decide to place an order to
sell your shares.





The market price of our common stock
is highly volatile and several factors that are beyond our control, including
our common stock being historically thinly traded, could adversely affect its
market price.  Our common stock has been historically thinly
traded and the market price has been highly volatile.  During the year
ended June 30, 2008, the closing bid price of our common stock has been quoted
on the OTC Bulletin Board from as low as $0.63 to as high as
$2.22.  These quotations reflect interdealer prices without retail
markup, markdown, or commission and may not represent actual
transactions.  For these and other reasons, our stock price is subject
to significant volatility and will likely be adversely affected if our revenues
or earnings (or lack of revenues or earnings) in any quarter fail to meet the
investment community’s expectations. Additionally, the market price of our
common stock could be subject to significant fluctuations in response
to:





·
            announcements
      of new products or sales offered by us or our
  competitors;


·
            actual
      or anticipated variations in quarterly operating
  results;


·
            changes
      in financial estimates by securities analysts, if
  any;


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


·
            sales
      of our common stock.





Future sales of common stock into the
public market place will increase the public float and may adverselyaffect the market
price.As of June 30,
2008, approximately six million shares of common stock were available for sale
by both affiliates (officers and directors) and non-affiliates under Rule 144 of
the Securities Act of 1933, as amended.  In general, under Rule 144, a
person who has held stock for six months may, under certain circumstances, sell
within any three-month period a number of shares which is not greater than one
percent of the then outstanding shares of common stock (as of June 30, 2008,
there were 45,704,969 shares of common stock outstanding, and one percent of the
total number of shares outstanding equaled 457,049 shares).  Under
certain circumstances, the sale of shares which have been held for one year by a
person who is not affiliated with us is also permitted without limitation under
Rule 144. Future sales of common stock will increase the public float and may
have an adverse effect on the market price of the common stock, which in turn
could adversely affect our ability to obtain future funding as well as create a
potential market overhang.





“Penny Stock" regulations may
adversely affect your ability to resell your stock in market
transactions. The SEC has adopted penny stock regulations which apply to
securities traded over-the-counter.  These regulations generally
define penny stock to be any equity security that has a market price of less
than $5.00 per share or an equity security of an issuer with net tangible assets
of less than $5,000,000 as indicated in audited financial statements, if the
corporation has been in continuous operations for less than three years. Subject to certain
limited exceptions, the rules for any transaction involving a penny stock
require the delivery, prior to the transaction, of a risk disclosure document
prepared by the SEC that contains certain information describing the nature and
level of risk associated with investments in the penny stock
market.  The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities.  Monthly account statements must be
sent by the broker-dealer disclosing the estimated market value of each penny
stock held in the account or indicating that the estimated market value cannot
be determined because of the unavailability of firm quotes. In addition, the
rules impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and institutional
accredited investors (generally institutions with assets in excess of
$5,000,000).  These practices require that, prior to the purchase, the
broker-dealer determined that transactions in penny stocks were suitable for the
purchaser and obtained the purchaser's written consent to the
transaction.





Our
common stock is currently subject to the penny stock
regulations.  Compliance with the penny stock regulations by
broker-dealers will likely result in price fluctuations and the lack of a liquid
market for the common stock, and may make it difficult for you to resell your
stock in market transactions.





8




DESCRIPTION
OF PROPERTY





We do not
own any real property.  We lease office space in Bellingham,
Washington and Vancouver, B.C., Canada.








LEGAL
PROCEEDINGS





There are
no pending legal proceedings involving our Company.








SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS





No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended June 30, 2008.




9





PART
II





MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS





Market
Information





There is
a limited public market for our common stock.  Our common stock is
quoted on the OTC Bulletin Board under the symbol "ITKG."  The
following table sets forth the range of high and low bid quotations for our
common stock on the OTC Bulletin Board for each quarter of the fiscal years
ended June 30, 2008 and 2007.





Quarter
      Ended
            
            Low
      Bid
            
            
            High
      BidSeptember
      30, 2006
            
            $
            2.25
            
            
            $
            4.15December
      31, 2006
            
            $
            1.40
            
            
            $
            4.25March
      31, 2007
            
            $
            2.00
            
            
            $
            3.81June
      30, 2007
            
            $
            1.22
            
            
            $
            2.74September
      30, 2007
            
            $
            1.22
            
            
            $
            2.22December
      31, 2007
            
            $
            0.92
            
            
            $
            1.99March
      31, 2008
            
            $
            0.73
            
            
            $
            1.19June
      30, 2008
            
            $
            0.63
            
            
            $
            0.91








The
source of this information is the OTC Bulletin Board and other quotation
services.  The quotations reflect inter-dealer prices, without retail
markup, markdown or commission and may not represent actual
transactions.





Holders





As of
September 15, 2008 there were approximately 201 holders of record of our common
stock (this number does not include beneficial owners who hold shares at
broker/dealers in “street-name”).





Dividends





To date,
we have not paid any dividends on our common stock and do not expect to declare
or pay any dividends on such common stock in the foreseeable
future.  Payment of any dividends will be dependent upon future
earnings, if any, our financial condition, and other factors as deemed relevant
by our Board of Directors.





Recent
Sales of Unregistered Securities





Information
regarding the issuance and sales of securities without registration during the
fiscal year ended June 30, 2008, has previously been included in Quarterly
Reports on Forms 10-QSB and Current Reports on Form 8-K filed during the period
covered by this report.





Repurchases
of equity securities





We did
not repurchase any of its outstanding equity securities during the fourth
quarter of the year ended June 30, 2008.




10





MANAGEMENT’S
PLAN OF OPERATION





Statements
contained herein that are not historical facts are forward-looking
statements.  Although we believe that the expectations reflected in
such forward-looking statements are reasonable, the forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
from those projected.  We caution investors that any forward-looking
statements made by us are not guarantees of future performance and that actual
results may differ materially from those in the forward-looking
statements.  Such risks and uncertainties include, without limitation:
well-established competitors who have substantially greater financial resources
and longer operating histories, regulatory delays or denials, ability to compete
as a start-up company in a highly competitive market, and access to sources of
capital.





The
following discussion and analysis should be read in conjunction with our
financial statements and notes thereto included elsewhere in this Form 10-KSB.
Except for the historical information contained herein, the discussion in this
Form 10-KSB contains certain forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. The cautionary statements made in this Form 10-KSB should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-KSB. Our actual results could differ materially from those
discussed here.





To date
we have recorded nominal revenues. We are still considered a development stage
company for accounting purposes. From inception on February 12, 1996 through
June 30, 2008, we have accrued an accumulated deficit of approximately $29.4
million.





At June
30, 2008, all of our assets were current assets of $1,134,679, consisting of
cash of $1,104,104 and prepaid expenses of $30,575.  All of our
property and equipment has been fully depreciated.





At June
30, 2008, all of our liabilities were current liabilities of $707,848,
consisting of accounts payable and accruals.  Of this amount, payables
for legal fees (including associated filing fees) related to patent filings
accounting for approximately $535,000 of the total.





At June
30, 2008, total stockholder’s equity was $426,831.





Our net
loss for the year ended June 30, 2008, was $1,938,216 compared to a net loss of
$5,985,850 for the prior fiscal year, a reduction of $4,047,634.  This
substantial decrease in our net loss is attributable to the reduction of
non-cash charges incurred under the expense categories of “salaries” and
“consulting” during the year ended June 30, 2008:  salaries of
$633,725 included non-cash, stock based compensation charges (for the issuance
of common stock and/or the granting of options) of $65,232 compared to
$3,335,228 for the year ended June 30, 2007, and consulting of $500,850 included
non-cash, stock based compensation charges (for the issuance of common stock
and/or the granting of options) of $115,245 compared to $1,548,630 for the year
ended June 30, 2007. As described in the notes to the financial statements,
these values were determined using the Black-Scholes option pricing
model.





Salary
expenses during the year ended June 30, 2008, included non-cash expenses of
$65,232 for the extension of the expiration date of outstanding options held by
Thomas Aisenbrey.





Consulting
expenses during the year ended June 30, 2008, included non-cash expenses of
$46,500 for the issuance of common stock to Visionary Innovations, Inc., and
$115,245 for the extension of the expiration dates of outstanding options held
by two other long-term consultants, Michael Pound and Scott
McArthur.




11





Our net
loss for the year ended June 30, 2008, was offset slightly by “other income” of
$57,975.  The category of “other income” consists of interest income
and nominal license fees.





Legal
fees incurred during the year ended June 30, 2008, were down from prior periods,
due to a decrease in patent filings in 2008.





Research
and development costs incurred during the year ended June 30, 2008 were $287,109
an increase of $180,774 over the prior fiscal year attributable to refining the
manufacturing process by Jasper Rubber Products, Inc. of our ElectriPlastTM
material.  In 2006, the amount expenses under this category was
$-0-.





For the
year ended June 30, 2008, our cash used in operating activities was $1,621,747,
compared to $1,655,866 used in 2007 and $1,543,293 used in 2006.





For the
year ended June 30, 2008, our cash provided by financing activities was
$485,495, compared to $2,399,404 provided in 2007, and $1,248,669 used in
2006.





We
anticipate spending up to approximately $250,000 over the next twelve months on
ongoing research and development (primarily salaries and consulting fees) of the
different applications and uses of our technologies.





During
the next twelve months, we do not anticipate increasing our staff.





As of
June 30, 2008, we had $1,104,104 in cash on hand.  Accordingly,
management believes that until we generate revenues from operations (we have
none to date) additional funding will be required to carry out our business
plan.





We are
not in the manufacturing business and do not expect to make any capital
purchases of a manufacturing plant or significant equipment in the next twelve
months.





Presently,
we are focusing all of our resources on the researching, developing and
commercializing of our ElectriPlastTM technologies.  Our business
strategy focuses on leveraging our intellectual property rights and our
strengths in product design and material innovation. We are focusing our
marketing efforts on securing licensing agreements for applications of our
ElectriPlastTM technologies with manufacturers of products which would benefit
from the incorporation of any of the ElectriPlastTM applications.





ElectriPlastTM
is an innovative, electrically-conductive resin-based material. The
ElectriPlastTM polymer is a compounded formulation of resin-based materials,
which are conductively loaded, or doped, with a proprietary-controlled, balanced
concentration of micron conductive materials, then pelletized. The conductive
loading or doping within this pellet is then homogenized using conventional
molding techniques and conventional molding equipment. The end result is a
product that can be molded into any of the infinite shapes and sizes associated
with plastics and rubbers, and is non-corrosive, but which is as electrically
conductive as if it were metal.





Various
examples of applications for ElectriPlastTM are shielding, lighting circuitry,
switch actuators, resistors, medical devices, thermal management and cable
connector bodies, to name just a few. We have been working to introduce these
new applications and the ElectriPlastTM technology on a global
scale.





A
description of our manufacturing agreement with Jasper Rubber Products, Inc. and
our various patent license agreements is provided above under the heading
“Summary of Agreements” in the “Description of Business” section of this
report.





12





Status
of Material Agreements with Consultants





In
January 2006, we entered into a consulting agreement with Visionary Innovations,
Inc. (“Visionary”) for a term of one year, and compensated Visionary with
250,000 shares of restricted common stock. On February 16, 2007, we renewed
our agreement with Visionary. Visionary and its principal, Scott Shaffer,
agreed to continue to provide strategic and consulting services to us in
connection with the worldwide commercialization of our ElectriPlastTM technology
for a period of three years.  As outlined in the agreement, the scope
of services to be provided to us by Visionary may include:  research
of business channels, strategic and negotiation consultation, distributor/client
support, governmental channels and research, manufacturing expansion,
international licensees and distributors, client introductions, and exit
planning.





Pursuant
to our renewed agreement, we agreed to compensate Visionary with 50,000 shares
of our restricted common stock upon execution of the renewed agreement, another
50,000 shares on February 16, 2008, and another 50,000 shares on February 16,
2009.  We also granted to Visionary 125,000 options which vest on
February 17, 2007 at an exercise price of $2.75, and another 125,000 options
which vest on February 17, 2008 at an exercise price of
$2.75.  Visionary is also entitled to a contingent fee equal to 2% of
the Net Revenue actually paid to us by new clients or other parties directly
introduced by Visionary (“Net Revenue” is defined to mean revenue actually
received by us from third parties in respect of sales of our products and/or
services, license fees, or research grants, net of taxes payable by us with
respect to such amounts and all direct costs incurred by us in generating such
revenue).




13




FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA





The
audited financial statements and an index thereto commences on the index to the
financial statements, which is the second page following this page.








CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON


ACCOUNTING
AND FINANCIAL DISCLOSURE





None.








CONTROLS
AND PROCEDURES





Disclosure Controls and
Procedures





The term
“disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, or the Exchange Act. These rules refer
to the controls and other procedures of a company that are designed to ensure
that the information required to be disclosed by a company in the reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within required time periods. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our Exchange Act reports is accumulated
and communicated to management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure. It is management’s responsibility to establish and maintain adequate
internal control over financial reporting for the Company.





Our chief
executive officer and our chief financial officer have evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report, and they have concluded that, as of June 30,
2008, our disclosure controls and procedures were effective.





Management’s Report on Internal
Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. These rules refer to the controls and other procedures of a
company that are designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we conducted
an evaluation of the effectiveness of our internal control over financial
reporting as of the end of the period covered by this report. Our evaluation was
based on the criteria for smaller public companies set forth in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on our evaluation under those criteria, our
management concluded that, as of June 30, 2008, our internal control over
financial reporting was effective.





This
annual assessment does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management’s assessment was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.





Changes in
Internal Control Over Financial Reporting





There
have been no changes in our internal control over financial reporting that
occurred during the fourth quarter ended June 30, 2008, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.





14




Limitations
on the Effectiveness of Internal Controls





There are
inherent limitations to the effectiveness of any system of internal control over
financial reporting, such as resource constraints, judgments used in
decision-making, assumptions about the likelihood of future events, the
possibility of human error and the risk of fraud. Accordingly, even an effective
system of internal control over financial reporting can provide only reasonable
assurance with respect to the preparation and presentation of financial
statements in accordance with accounting principles generally accepted in the
United States. Moreover, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may be inadequate because
of changes in conditions, or that the degree of compliance with policies or
procedures may deteriorate over time. Our management, including our including
our chief executive officer and chief financial officer, does not expect that
our disclosure controls and procedures or our internal control over financial
reporting are or will be capable of preventing or detecting all errors or all
fraud.











OTHER
INFORMATION





None.


15
  INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)




Consolidated
Financial Statements


June
30, 2008, 2007 and 2006


(US
Dollars)














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









Pannell
      Kerr Forster
            logoInternational7th
      Floor, Marine Building355
      Burrard Street,Vancouver,
      B.C.,Canada,
      V6C 2G8Telephone:
      604.687.1231Facsimile:
      604.688.4675








REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





TO
THE DIRECTORS AND STOCKHOLDERS OF INTEGRAL TECHNOLOGIES, INC.


(A
Development Stage Company)




We have
audited the consolidated balance sheets of Integral Technologies, Inc. (A
Development Stage Company) as of June 30, 2008 and 2007 and the consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the years ended June 30, 2008, 2007 and 2006, and the cumulative totals for
the development stage of operations from February 12, 1996 (inception) through
June 30, 2008.  These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion
on these financial statements based on our audits.  The financial
statements of Integral Technologies, Inc. from February 12, 1996 (inception)
through June 30, 1996 were audited by other auditors whose report dated November
20, 1996 expressed an unqualified opinion on those statements.  Our
opinion, insofar as it relates to the cumulative totals for development stage
operations from February 12, 1996 (inception) through June 30, 1996, is based
solely on the report of the other auditors.




We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America).  Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits and the report of the other auditors provide a reasonable basis
for our opinion.




In our
opinion, based on our audits and the report of the other auditors, these
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as at June 30, 2008 and 2007 and the results
of its operations and its cash flows for each of the years ended June 30, 2008,
2007 and 2006 and the cumulative totals for the development stage of operations
from February 12, 1996 (inception) through June 30, 2008 in conformity with
accounting principles generally accepted in the United States of
America.




The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going-concern.  As discussed in note 2
to the consolidated financial statements, the Company has no revenues and
limited capital, which together raise substantial doubt about its ability to
continue as a going-concern.  Management plans in regard to these
matters are also described in note 2.  These financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.








/s/
Pannell Kerr Forster





Chartered
Accountants


(Registered
with PCAOB as “Smythe Ratcliffe”)





Vancouver,
Canada


September
19, 2008





F-1





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Balance Sheets


June
30


(US
Dollars)




2008
            
            
            2007AssetsCurrentCash
            
            $
            1,104,104
            
            
            $
            2,240,356Prepaid
      expenses
            
            
            30,575
            
            
            
            32,442Total
      Assets
            
            $
            1,134,679
            
            
            $
            2,272,798LiabilitiesCurrentAccounts
      payable and accruals
            
            $
            707,848
            
            
            $
            625,763Total
      Liabilities
            
            
            707,848
            
            
            
            625,763Stockholders' Equity(note 4)Preferred
      Stock and Paid-in Capital in Excess of $0.001 Par Value20,000,000        
      Shares authorized308,538         Shares issued and
      outstanding (note 4(b))
            
            
            308,538
            
            
            
            308,538Common
      Stock and Paid-in Capital in Excess of $0.001 Par Value150,000,000        Shares
      authorized45,704,969        (2007 – 45,514,969) Shares
      issued and outstanding (note 4(a))
            
            
            29,219,711
            
            
            
            28,762,772Promissory Notes
      Receivable (note 4(e))
            
            
            (29,737
            )
            
            
            (29,737
            )Subscriptions Received(note 4(f))
            
            
            276,500
            
            
            
            0Other
      Comprehensive Income
            
            
            46,267
            
            
            
            46,267Deficit
      Accumulated During the Development Stage
            
            
            (29,394,448
            )
            
            
            (27,440,805
            )Total
      Stockholders' Equity
            
            
            426,831
            
            
            
            1,647,035Total
      Liabilities and Stockholders' Equity
            
            $
            1,134,679
            
            
            $
            2,272,798








See notes
to consolidated financial statements.





F-2





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Operations


(US
Dollars)





Period
      FromFebruary
      12,1996(Inception)Years
      Ended June 30,
            
            
            Through2008
            
            
            2007
            
            
            2006
            
            
            June
      30, 2008Revenues
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            249,308Cost
      of Sales
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            216,0160
            
            
            
            0
            
            
            
            0
            
            
            
            33,292Other
      Income
            
            
            57,975
            
            
            
            138,720
            
            
            
            2,096
            
            
            
            857,09657,975
            
            
            
            138,720
            
            
            
            2,096
            
            
            
            890,388ExpensesSalaries
      (note 4(c))
            
            
            633,725
            
            
            
            3,335,225
            
            
            
            602,741
            
            
            
            9,102,092Consulting
      (note 4(c))
            
            
            500,850
            
            
            
            2,006,943
            
            
            
            718,025
            
            
            
            6,264,402Legal
      and accounting
            
            
            305,452
            
            
            
            324,284
            
            
            
            456,911
            
            
            
            4,139,795Research
      and development
            
            
            287,109
            
            
            
            106,335
            
            
            
            0
            
            
            
            1,240,903Travel
      and entertainment
            
            
            96,162
            
            
            
            124,930
            
            
            
            98,385
            
            
            
            1,303,346General
      and administrative
            
            
            95,706
            
            
            
            119,043
            
            
            
            113,539
            
            
            
            1,112,640Rent
            
            
            46,659
            
            
            
            40,486
            
            
            
            37,290
            
            
            
            444,500Telephone
            
            
            29,605
            
            
            
            38,442
            
            
            
            41,268
            
            
            
            434,302Bank
      charges and interest, net
            
            
            6,932
            
            
            
            17,878
            
            
            
            4,895
            
            
            
            202,198Advertising
            
            
            0
            
            
            
            11,004
            
            
            
            25,511
            
            
            
            331,270Write-off
      of investments
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,250,000Non-competition
      agreement
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            711,000Write-down
      of license and operating assets
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,855,619Interest
      on beneficial conversion feature
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            566,455Settlement
      of lawsuit
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            45,250Financing
      fees, net
            
            
            0
            
            
            
            0
            
            
            
            (499
            )
            
            
            129,043Bad
      debts (recovery)
            
            
            (6,009
            )
            
            
            0
            
            
            
            0
            
            
            
            46,604Depreciation
      and amortization
            
            
            0
            
            
            
            0
            
            
            
            8,219
            
            
            
            324,3861,996,191
            
            
            
            6,124,570
            
            
            
            2,106,285
            
            
            
            29,503,805Net
      Loss
            
            $
            (1,938,216
            )
            
            $
            (5,985,850
            )
            
            $
            (2,104,189
            )
            
            $
            (28,613,417
            )Loss Per Common Share
      (note 8)
            
            $
            (0.04
            )
            
            $
            (0.13
            )
            
            $
            (0.05
            )Weighted
      Average Number of Common Shares Outstanding
            
            
            45,617,756
            
            
            
            45,230,171
            
            
            
            42,814,988








See notes
to consolidated financial statements.




F-3





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)




Shares
      of Common Stock Issued
              
              
              Common
      Stock and Paid-in Capital in Excess of Par
              
              
              Shares
      of Preferred Stock Issued
              
              
              Preferred
      Stock and Paid-in Capital in Excess of Par
              
              
              Promissory
      Notes Receivable
              
              
              Share
      Subscriptions
              
              
              Other
      Comprehensive Income
              
              
              Deficit
      Accumulated During the Development Stage
              
              
              Total
      Stockholders' Equity (Deficit)Shares
      Issued forCash
              
              
              1,000,000
              
              
              $
              10,000
              
              
              
              0
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0
              
              
              $
              10,000Property
      and equipment (to officers and directors)
              
              
              1,500,000
              
              
              
              15,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              15,000Services
      (provided by officers and directors)
              
              
              2,000,000
              
              
              
              20,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              20,000Services
      (others)
              
              
              1,500,000
              
              
              
              15,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              15,000Foreign
      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 forCash
              
              
              5,086,000
              
              
              
              865,514
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              865,514Share
      issue costs
              
              
              0
              
              
              
              (48,920
              )
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              (48,920
              )Services
              
              
              564,000
              
              
              
              63,036
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              63,036Acquisition
      of subsidiary
              
              
              100,000
              
              
              
              275,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              275,000Foreign
      currency translation
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              12,601
              
              
              
              0
              
              
              
              12,601Net
      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
              )
              
              
              58,945Shares
      Issued forCash
              
              
              825,396
              
              
              
              650,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              650,000Share
      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
              
              
              
              24,860Net
      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
              )






See notes
to consolidated financial statements.




F-4





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)




Shares
      of Common Stock Issued
              
              
              Common
      Stock and Paid-in Capital in Excess of Par
              
              
              Shares
      of Preferred Stock Issued
              
              
              Preferred
      Stock and Paid-in Capital in Excess of Par
              
              
              Promissory
      Notes Receivable
              
              
              Share
      Subscriptions
              
              
              Other
      Comprehensive Income
              
              
              Deficit
      Accumulated During the Development Stage
              
              
              Total
      Stockholders' 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 forCash
              
              
              200,000
              
              
              
              50,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              50,000Exercise
      of stock options
              
              
              445,000
              
              
              
              80,500
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              80,500Promissory
      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
              
              
              
              15,000Services
      (provided by officers and directors)
              
              
              666,666
              
              
              
              100,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              100,000Share
      issue costs
              
              
              0
              
              
              
              (100,500
              )
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              (100,500
              )Services
              
              
              250,000
              
              
              
              50,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              50,000Conversion
      of convertible debentures
              
              
              3,869,120
              
              
              
              525,813
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              525,813Acquisition
      of subsidiary
              
              
              1,800,000
              
              
              
              619,200
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              619,200Held
      in escrow
              
              
              447,091
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0Stock
      option benefit
              
              
              0
              
              
              
              70,600
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              70,600Beneficial
      conversion feature
              
              
              0
              
              
              
              566,456
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              566,456Foreign
      currency translation
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              8,444
              
              
              
              0
              
              
              
              8,444Net
      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
              )
              
              
              268,424Shares
      Issued forCash
      on private placement
              
              
              2,650,000
              
              
              
              3,975,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              3,975,000Exercise
      of options
              
              
              1,245,000
              
              
              
              256,700
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              256,700Services
              
              
              50,000
              
              
              
              13,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              13,000Settlement
      of debt
              
              
              0
              
              
              
              0
              
              
              
              664,410
              
              
              
              664,410
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              664,410Shares
      released from escrow
              
              
              0
              
              
              
              75,558
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              75,558Stock
      option benefit
              
              
              0
              
              
              
              48,256
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              48,256Promissory
      note repayment
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              225,568
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              225,568Foreign
      currency translation
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              1,614
              
              
              
              0
              
              
              
              1,614Net
      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






See notes
to consolidated financial statements.




F-5





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)




Shares
      of Common Stock Issued
              
              
              Common
      Stock and Paid-in Capital in Excess of Par
              
              
              Shares
      of Preferred Stock Issued
              
              
              Preferred
      Stock and Paid-in Capital in Excess of Par
              
              
              Promissory
      Notes Receivable
              
              
              Share
      Subscriptions
              
              
              Other
      Comprehensive Income
              
              
              Deficit
      Accumulated During the Development Stage
              
              
              Total
      Stockholders' Equity (Deficit)Balance,
      June 30, 2000
              
              
              26,032,062
              
              
              $
              8,384,781
              
              
              
              664,410
              
              
              $
              664,410
              
              
              $
              (58,500
              )
              
              $
              0
              
              
              $
              46,293
              
              
              $
              (5,045,856
              )
              
              $
              3,991,128Shares
      Issued forCash
      on private placement
              
              
              81,885
              
              
              
              112,480
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              112,480Exercise
      of options
              
              
              517,000
              
              
              
              91,515
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              91,515Services
              
              
              100,000
              
              
              
              40,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              40,000Held
      in escrow
              
              
              218,115
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0Stock
      option benefit
              
              
              0
              
              
              
              272,207
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              272,207Dividends
      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
              
              
              
              50,000Redeemed
      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
              )
              
              
              326,415Shares
      Issued forProprietary
      non-competition agreement
              
              
              450,000
              
              
              
              711,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              711,000Held
      in escrow
              
              
              700,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0Exercise
      of options
              
              
              2,263,500
              
              
              
              971,200
              
              
              
              0
              
              
              
              0
              
              
              
              (15,000
              )
              
              
              (10,000
              )
              
              
              0
              
              
              
              0
              
              
              
              946,200Exercise
      of warrants
              
              
              325,000
              
              
              
              130,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              130,000Subscriptions
              
              
              100,000
              
              
              
              40,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              (40,000
              )
              
              
              0
              
              
              
              0
              
              
              
              0Stock
      option compensation
              
              
              0
              
              
              
              415,685
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              415,685Shares
      released from escrow
              
              
              0
              
              
              
              954,582
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              954,582Dividends
      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
              
              
              
              0Net
      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
              )


See notes
to consolidated financial statements.




F-6





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)




Shares
      of Common Stock Issued
                
                
                Common
      Stock and Paid-in Capital in Excess of Par
                
                
                Shares
      of Preferred Stock Issued
                
                
                Preferred
      Stock and Paid-in Capital in Excess of Par
                
                
                Promissory
      Notes Receivable
                
                
                Share
      Subscriptions
                
                
                Other
      Comprehensive Income
                
                
                Deficit
      Accumulated During the Development Stage
                
                
                Total
      Stockholders' 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 forCash
      on private placement
                
                
                1,684,000
                
                
                
                842,050
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                842,050Settlement
      of debt
                
                
                144,793
                
                
                
                104,542
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                104,542Services
                
                
                200,000
                
                
                
                196,000
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                196,000Exercise
      of options
                
                
                52,500
                
                
                
                43,750
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                43,750Exercise
      of warrants
                
                
                55,000
                
                
                
                27,500
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                27,500Subscription
      received
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                176,665
                
                
                
                0
                
                
                
                0
                
                
                
                176,665Stock
      option compensation
                
                
                0
                
                
                
                5,460
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                5,460Settlement
      of lawsuit
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                35,250
                
                
                
                0
                
                
                
                0
                
                
                
                35,250Dividends
      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 forCash
      on private placement
                
                
                6,609,336
                
                
                
                6,042,935
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                (211,915
                )
                
                
                0
                
                
                
                0
                
                
                
                5,831,020Cash
      on exercise of options
                
                
                25,000
                
                
                
                25,000
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                25,000Settlement
      of lawsuit
                
                
                37,500
                
                
                
                35,250
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                35,250Services
                
                
                25,000
                
                
                
                21,873
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                21,873Redemption
      of preferred shares
                
                
                415,000
                
                
                
                415,000
                
                
                
                (118,572
                )
                
                
                (118,572
                )
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                (296,428
                )
                
                
                0Exercise
      of warrants
                
                
                288,298
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0Shares
      returned to treasury for cancellation
                
                
                (142,140
                )
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0Stock
      option compensation
                
                
                0
                
                
                
                321,275
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                321,275Dividends
      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





See notes
to consolidated financial statements.




F-7





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)





Shares of Common Stock Issued
              
              
              Common Stock and Paid-in Capital in Excess of Par
              
              
              Shares of Preferred Stock Issued
              
              
              Preferred Stock and Paid-in Capital in Excess of Par
              
              
              Promissory Notes Receivable
              
              
              Share Subscriptions
              
              
              Other Comprehensive Income
              
              
              Deficit Accumulated During the Development Stage
              
              
              Total Stockholders' Equity
      (Deficit)Balance,
      June 30, 2004
              
              
              40,181,849
              
              
              $
              20,197,085
              
              
              
              321,038
              
              
              $
              321,038
              
              
              $
              (66,500
              )
              
              $
              0
              
              
              $
              46,267
              
              
              $
              (17,454,408
              )
              
              $
              3,043,482Shares
      Issued forSettlement
      of debt
              
              
              44,000
              
              
              
              55,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              55,000Cashless
      exercise of warrants
              
              
              1,713,300
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0For
      services
              
              
              500,000
              
              
              
              270,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              270,000Redemption
      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
              )
              
              
              1,490,478Shares
      Issued forExercise
      of options
              
              
              200,000
              
              
              
              134,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              134,000Cashless
      exercise of warrants
              
              
              35,115
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0For
      services
              
              
              269,000
              
              
              
              191,510
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              191,510Exercise
      of warrants
              
              
              1,291,168
              
              
              
              1,080,669
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              1,080,669Repayment
      of promissory note
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              34,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              34,000Dividends
      on preferred shares
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              (15,427
              )
              
              
              (15,427
              )Stock
      option compensation
              
              
              0
              
              
              
              107,219
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              107,219Net
      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
              )
              
              
              918,260Shares
      Issued forExercise
      of options
              
              
              50,000
              
              
              
              35,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              35,000For
      services
              
              
              50,000
              
              
              
              105,000
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              105,000Private
      placement
              
              
              1,180,537
              
              
              
              2,361,641
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              2,361,641Repayment
      of promissory note
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              2,763
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              2,763Dividends
      on preferred shares
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              (15,427
              )
              
              
              (15,427
              )Stock
      option compensation
              
              
              0
              
              
              
              4,225,648
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              4,225,648Net
      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








See notes
to consolidated financial statements.




F-8





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)





Shares of Common Stock Issued
              
              
              Common Stock and Paid-in Capital in Excess of Par
              
              
              Shares of Preferred Stock Issued
              
              
              Preferred Stock and Paid-in Capital in Excess of Par
              
              
              Promissory Notes Receivable
              
              
              Share Subscriptions
              
              
              Other Comprehensive Income
              
              
              Deficit Accumulated During the Development Stage
              
              
              Total Stockholders' Equity
      (Deficit)Balance,
      June 30, 2007
              
              
              45,514,969
              
              
              $
              28,762,772
              
              
              
              308,538
              
              
              $
              308,538
              
              
              $
              (29,737
              )
              
              $
              0
              
              
              $
              46,267
              
              
              $
              (27,440,805
              )
              
              $
              1,647,035Shares
      Issued forExercise
      of warrants
              
              
              190,000
              
              
              
              208,995
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              208,995Subscription
      received
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              276,500
              
              
              
              0
              
              
              
              0
              
              
              
              276,500Dividends
      on preferred shares
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              (15,427
              )
              
              
              (15,427
              )Stock
      option compensation
              
              
              0
              
              
              
              247,944
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              247,944Net
      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








See notes
to consolidated financial statements.




F-9





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Cash Flows


(US
Dollars)





Period
      fromFebruary
      12, 1996(Inception)Years
      Ended June 30
            
            
            Through2008
            
            
            2007
            
            
            2006
            
            
            June
      30, 2008Operating
      ActivitiesNet
      loss
            
            $
            (1,938,216
            )
            
            $
            (5,985,850
            )
            
            $
            (2,104,189
            )
            
            $
            (28,613,417
            )Adjustments to
      reconcile net loss to net
      cash used in operating activitiesWrite-down
      of investment
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,250,000Other
      income
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (658,305
            )Proprietary,
      non-competition agreement
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            711,000Consulting
      services
            
            
            0
            
            
            
            199,790
            
            
            
            359,220
            
            
            
            1,523,783Depreciation
      and amortization
            
            
            0
            
            
            
            0
            
            
            
            8,219
            
            
            
            349,941Stock
      option compensation
            
            
            247,944
            
            
            
            4,225,648
            
            
            
            107,219
            
            
            
            5,714,294Interest
      on beneficial conversion feature
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            566,456Settlement
      of lawsuit
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            60,250Write-down
      of license and operating assets
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,853,542Bad
      debt
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            77,712Changes
      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
            
            
            1,867
            
            
            
            (18,187
            )
            
            
            (4,613
            )
            
            
            (30,575
            )Deferred
      revenue and other
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (2,609
            )Accounts
      payable and accruals
            
            
            66,658
            
            
            
            (77,267
            )
            
            
            90,851
            
            
            
            980,848Net
      Cash Used in Operating Activities
            
            
            (1,621,747
            )
            
            
            (1,655,866
            )
            
            
            (1,543,293
            )
            
            
            (16,489,135
            )Investing
      ActivitiesPurchase
      of property, equipment and intangible assets
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (200,935
            )Assets
      acquired and liabilities assumedon 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
      ActivitiesRedemption
      of preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (50,000
            )Repayment
      of loan
            
            
            0
            
            
            
            0
            
            
            
            34,000
            
            
            
            (11,000
            )Advances
      from stockholders
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,078,284Repayments
      from (to) stockholders
            
            
            0
            
            
            
            2,763
            
            
            
            0
            
            
            
            (91,283
            )Subscriptions
      received
            
            
            276,500
            
            
            
            0
            
            
            
            0
            
            
            
            503,165Proceeds
      from issuance of common stock
            
            
            208,995
            
            
            
            2,396,641
            
            
            
            1,214,669
            
            
            
            18,200,470Proceeds
      from convertible debentures
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            600,000Share
      issue costs
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (227,420
            )Net
      Cash Provided by Financing Activities
            
            
            485,495
            
            
            
            2,399,404
            
            
            
            1,248,669
            
            
            
            20,002,216Effect
      of Foreign Currency Translation on Cash
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            46,267Inflow
      (Outflow) of Cash
            
            
            (1,136,252
            )
            
            
            743,538
            
            
            
            (294,624
            )
            
            
            1,104,104Cash,
      Beginning of Year
            
            
            2,240,356
            
            
            
            1,496,818
            
            
            
            1,791,442
            
            
            
            0Cash,
      End of Year
            
            $
            1,104,104
            
            
            $
            2,240,356
            
            
            $
            1,496,818
            
            
            $
            1,104,104




Supplemental
disclosure of cash flow information (note 5)








See notes
to consolidated financial statements.




F-10





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)









1.
            INCORPORATION
      AND NATURE OF OPERATIONS





Integral
Technologies, Inc. (the “Company”) was incorporated under the laws of the State
of Nevada on February 12, 1996 and has its head office in Bellingham,
Washington, USA.  The Company is in the development stage, as more
fully defined in Statement No. 7 of the Financial Accounting Standards Board
(“FASB”).  The Company is in the business of researching, developing
and commercializing new antenna technologies.





The
Company will be devoting all of its resources to the research, development and
commercialization of its ElectriPlast technology.  As a consequence,
the value for the license of all other technologies was written off in
2001.





2.
            GOING-CONCERN





These
consolidated financial statements have been prepared by management on the basis
of generally accepted accounting principles applicable to a “going-concern”,
which assumes the Company will continue in operation for the foreseeable future
and will be able to realize its assets and discharge its liabilities in the
normal course of operations.





The
Company is in the development stage, has an accumulated deficit of $29,394,448
(2007 - $27,440,805), has not yet commenced revenue-producing operations, and
has significant expenditure requirements to continue to advance its research,
developing and commercializing new antenna technologies.





These
consolidated financial statements do not reflect adjustments that would be
necessary if the going-concern assumption were not appropriate because
management believes that the actions already taken or planned will mitigate the
adverse conditions and events that raise doubts about the validity of the
going-concern assumption used in preparing these consolidated financial
statements. Management intends to raise additional capital through stock
issuances to finance operations and invest in other business
opportunities.





If the
going-concern assumption were not appropriate for these consolidated financial
statements, then adjustments could be necessary to the carrying values of the
assets and liabilities, the reported revenues and expenses, and the balance
sheet classifications used.





3.
            SIGNIFICANT
      ACCOUNTING POLICIES





(a)
            Principles
      of consolidation





These
financial statements include the accounts of the Company, its wholly-owned
subsidiaries, Integral Vision Systems, Inc. ("IVSI"), Antek Wireless Inc.
("Antek") and Plastenna, Inc. (“Plastenna”), a Delaware corporation, and its
76.625%-owned subsidiary, Emergent Technologies Corp. ("ETC"), which is
currently inactive.  All intercompany balances and transactions have
been eliminated.




F-11





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)









3.
            SIGNIFICANT ACCOUNTING
      POLICIES (Continued)





(b)
            Depreciation
      and amortization





Depreciation
and amortization are provided using the straight-line method based on the
following estimated useful lives:





Machinery,
      furniture and equipment
            -  5
      yearsComputer
      hardware and software
            -  5
      yearsMoulds
            -  5
      years





The
Company reviews long-term assets to determine if the carrying amount is
recoverable based on the estimate of future cash flow expected to result from
the use of the asset and its eventual disposition.  If in this
determination there is an apparent shortfall, the loss will be recognized as a
current charge to operations.





(c)
            Loss
      per share





Basic
loss per share computations are based on the weighted average number of common
shares outstanding during the year.  Common share equivalents
consisting of preferred stock, stock options and warrants are not considered in
the computation of diluted loss per share because their effect would be
anti-dilutive.





(d)
            Stock
      issued in exchange for services





The
valuation of the common stock issued in exchange for services is valued at an
estimated fair market value as determined by officers and directors of the
Company based upon other sales and issuances of the Company's common stock
within the same general time period.





(e)
            Revenue
      recognition





As the
Company is continuing development of its technologies, no significant revenues
have been earned to date.  The Company plans to recognize revenues at
the time of delivery of the product to the customer.





(f)
            Foreign
      currency translation





The
Company’s functional currency is the US dollar.  Transactions for the
Company’s operations whose functional currency is not the US dollar are
translated into US dollars at the exchange rates in effect at the balance sheet
dates for monetary assets and liabilities, and at historical exchange rates for
non-monetary assets and liabilities.  Revenues and expenses are
translated at average rates for the period, except for amortization and
depreciation, which are translated on the same basis as the related
assets.  Resulting translation gains or losses are reflected in the
statements of operations.





(g)
            Research
      and development





Research
and development expenditures are charged to operations as incurred.




F-12





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)







3.
            SIGNIFICANT ACCOUNTING
      POLICIES (Continued)





(h)
            Use
      of estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Significant areas requiring the use of management
estimates include valuation allowance for deferred income tax asset and the
determination of the assumptions used in calculating the fair value of
stock-based compensation.  Actual results could differ from those
estimates and could impact future results of operations and cash
flows.





(i)
            Financial
      instruments




The
Company considers all highly liquid interest-earning investments with a maturity
of three months or less at the date of purchase to be cash equivalents. The fair
value of these investments approximates their carrying value. Investments with
original maturities of greater than three months and remaining maturities of
less than one year are classified as short-term investments. Investments with
maturities beyond one year may be classified as short-term based on their highly
liquid nature and because such marketable securities represent the investment of
cash that is available for current operations. All cash equivalents and
short-term investments are classified as available-for-sale and are recorded at
market value using the specific identification method. Changes in market value
are reflected in other comprehensive income (excluding other-than-temporary
impairments).




Equity
and other investments classified as long-term include both debt and equity
instruments. Debt securities and publicly traded equity securities are
classified as available-for-sale and are recorded at market using the specific
identification method. Changes in market value are reflected in other
comprehensive income (excluding other-than-temporary impairments). All other
investments, excluding those accounted for using the equity method, are recorded
at cost.





(i)
            Interest
      rate risk





The
Company is not exposed to significant interest rate risk due to the short-term
maturity of its monetary current assets and current liabilities.





(ii)
            Credit
      risk





The
Company's financial assets that are exposed to credit risk consist primarily of
cash, which is placed with major financial institutions.





(iii)
            Currency
      risk





The
Company translates the results of non-US transactions into US currency using
rates approximating the average exchange rate for the year.  The
exchange rate may vary from time to time.  This risk is considered
nominal as the Company does not incur any significant transactions in currencies
other than US dollars.




F-13





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)







3.
            SIGNIFICANT ACCOUNTING
      POLICIES (Continued)





(j)
            Income
      taxes





The
Company uses the asset and liability approach in its method of accounting for
income taxes that requires the recognition of deferred tax liabilities and
assets for expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.  A
valuation allowance against deferred tax assets is recorded if based upon
weighted available evidence it is more likely than not that some or all of the
deferred tax assets will not be realized.





Effective
July 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement No. 109”
(“FIN 48”), which prescribes a comprehensive model for how a company should
recognize, measure, present and disclose in its financial statements uncertain
tax positions that the company has taken or expects to take on a tax return.
Though the validity of any tax position is a matter of tax law, the body of
statutory, regulatory and interpretive guidance on the application of the law is
complex and often ambiguous. Because of this, whether a tax position will
ultimately be sustained may be uncertain. Under FIN 48, the impact of an
uncertain tax position that is more likely than not of being sustained upon
audit by the relevant taxing authority must be recognized at the largest amount
that is more likely than not to be sustained. No portion of an uncertain tax
position will be recognized if the position has less than a 50% likelihood of
being sustained.





(k)
            Stock-based
      compensation




The
Company accounts for stock-based compensation expense associated with stock
options and other forms of equity compensation in accordance with
SFAS No. 123R, “Share-Based Payment”
(“SFAS 123R”), as interpreted by Securities Exchange Commission Staff
Accounting Bulletin No. 107.  SFAS 123R requires the Company
to estimate the fair value of share-based payment awards on the date of grant
using an option pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as an expense over the requisite
service periods in the Company’s statement of operations. The Company uses the
straight-line single-option method to recognize the value of stock-based
compensation expense for all share-based payment awards. Stock-based
compensation expense recognized in the statement of operations for the fiscal
years ended June 30, 2008 and 2007 has been reduced for estimated forfeitures,
as it is based on awards ultimately expected to vest. SFAS 123R requires
forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. See
note 4 for further information regarding the Company’s stock-based
compensation assumptions and expenses.





F-14





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)









3.
            SIGNIFICANT ACCOUNTING
      POLICIES (Continued)





(l)
            Comprehensive
      income





Other
comprehensive income includes revenues and expenses and unrealized gains and
losses that under accounting principles generally accepted in the United States
of America are excluded from net income (loss) and are recorded directly as an
adjustment to stockholders' equity, net of tax. When the unrealized gains and
losses are realized they are reclassified from other comprehensive income and
included in net income. The Company's other comprehensive income (loss) is
comprised of gains and losses from foreign currency translation adjustments. As
at June 30, 2008, the Company has accumulated comprehensive income of $46,267
that relates to foreign operations the Company had in the past. The Company’s
operations in the foreign jurisdiction were integrated into the main operations
of the Company, therefore, no further comprehensive gains or losses have been
incurred.





(m)
            Recently
      adopted accounting pronouncements





(i)
              In
      July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes, an interpretation of FASB Statement 109”.
      Interpretation 48 prescribes a recognition threshold and a measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken in a tax return. Benefits from tax
      positions should be recognized in the financial statements only when it is
      more likely than not that the tax position will be sustained upon
      examination by the appropriate taxing authority that would have full
      knowledge of all relevant information. A tax position that meets the
      more-likely-than-not recognition threshold is measured at the largest
      amount of benefit that is greater than 50% likely of being realized upon
      ultimate settlement. Tax positions that previously failed to meet the
      more-likely-than-not recognition threshold should be recognized in the
      first subsequent financial reporting period in which that threshold is
      met. Previously recognized tax positions that no longer meet the
      more-likely-than-not recognition threshold should be de-recognized in the
      first subsequent financial reporting period in which that threshold is no
      longer met. Interpretation 48 also provides guidance on the accounting for
      and disclosure of unrecognized tax benefits, interest and penalties. The
      adoption of Interpretation 48 on July 1, 2007 did not significantly
      impact the Company’s financial position or results of
      operations.





(ii)
            In
      May 2007 the FASB issued FSP No. 48-1, “Definition of Settlement in
      FASB Interpretation No. 48”. FSP 48-1
      provides guidance on how to determine whether a tax position is
      effectively settled for the purpose of recognizing previously unrecognized
      tax benefits. FSP 48-1 was effective retroactively to July 1,
      2007 and did not significantly impact the Company’s financial position or
      results of operations.





F-15





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)








3.
            SIGNIFICANT ACCOUNTING
      POLICIES (Continued)





(n)
            Recent
      accounting pronouncements not yet
adopted





(i)
            In
      May 2008, the FASB issued SFAS No. 163, “Accounting for Financial
      Guarantee Insurance Contracts – An interpretation of FASB Statement No.
      60”. SFAS 163 requires that an insurance enterprise recognize a
      claim liability prior to an event of default when there is evidence that
      credit deterioration has occurred in an insured financial obligation. It
      also clarifies how Statement 60 applies to financial guarantee insurance
      contracts, including the recognition and measurement to be used to account
      for premium revenue and claim liabilities, and requires expanded
      disclosures about financial guarantee insurance contracts. It is effective
      for financial statements issued for fiscal years beginning after December
      15, 2008, except for some disclosures about the insurance enterprise’s
      risk-management activities. SFAS 163 requires that disclosures about the
      risk-management activities of the insurance enterprise be effective for
      the first period beginning after issuance. Except for those disclosures,
      earlier application is not
permitted.





(ii)
            In
      May 2008, the FASB issued SFAS No. 162,“The Hierarchy of Generally
      Accepted Accounting Principles”. SFAS 162 identifies the sources of
      accounting principles and the framework for selecting the principles to be
      used in the preparation of financial statements of non-governmental
      entities that are presented in conformity with generally accepted
      accounting principles in the United States. It is effective 60 days
      following the SEC’s approval of the Public Company Accounting Oversight
      Board amendments to AU Section 411,“The Meaning of Present
      Fairly in Conformity With Generally Accepted Accounting
      Principles”.





(iii)
            In
      March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities – an amendment to FASB Statement No.
      133”. SFAS No. 161 is intended to improve financial standards for
      derivative instruments and hedging activities by requiring enhanced
      disclosures to enable investors to better understand their effects on an
      entity's financial position, financial performance and cash flows.
      Entities are required to provide enhanced disclosures about: (a) how and
      why an entity uses derivative instruments; (b) how derivative instruments
      and related hedged items are accounted for under Statement 133 and its
      related interpretations; and (c) how derivative instruments and related
      hedged items affect an entity’s financial position, financial performance
      and cash flows. It is effective for financial statements issued for fiscal
      years beginning after November 15, 2008, with early adoption
      encouraged.





(iv)
            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.





F-16





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)








3.
            SIGNIFICANT ACCOUNTING
      POLICIES (Continued)





(n)
            Recent
      accounting pronouncements not yet adopted
  (Continued)





(v)
            In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of
      FASB Statement No. 115”. This statement permits entities to choose
      to measure many financial instruments and certain other items at fair
      value. Most of the provisions of SFAS No. 159 apply only to entities that
      elect the fair value option. However, the amendment to
      SFAS No. 115, “Accounting for Certain
      Investments in Debt and Equity Securities”, applies to all entities
      with available-for-sale and trading securities. SFAS No. 159 is effective
      as of the beginning of an entity’s first fiscal year that begins after
      November 15, 2007. Early adoption is permitted as of the beginning of a
      fiscal year that begins on or before November 15, 2007, provided the
      entity also elects to apply the provisions of SFAS No. 157, “Fair Value
      Measurements”. The adoption of this statement is not expected to
      have a material effect on the Company's financial
    statements.





(vi)
            In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements”. The objective of SFAS No. 157 is to increase
      consistency and comparability in fair value measurements and to expand
      disclosures about fair value measurements. SFAS No. 157 defines fair
      value, establishes a framework for measuring fair value in generally
      accepted accounting principles and expands disclosures about fair value
      measurements. SFAS No. 157 applies under other accounting pronouncements
      that require or permit fair value measurements and does not require any
      new fair value measurements. The provisions of SFAS No. 157 are effective
      for fair value measurements made in fiscal years beginning after November
      15, 2007. The adoption of this statement is not expected to have a
      material effect on the Company's future reported financial position or
      results of operations.





F-17





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)








4.
            STOCKHOLDERS'
      EQUITY





(a)
            Common
      stock





(i)
            During
      the year ended June 30, 2007, the
Company:





(a)
            Closed
      a private placement on September 15, 2006 of 1,180,537 units consisting of
      common stock at $2.00 per share and warrants to purchase 590,269 shares of
      common stock within two years at an exercise price of $2.50 per share,
      provided that in the event that the average closing bid price of a share
      of the Company's common stock exceeds $4.50 for ten consecutive trading
      days, the Company has the right to redeem the warrants for $0.01 per share
      of common stock purchasable hereunder, upon thirty days’ written notice
      (the holder shall have the right to exercise the warrant in accordance
      with its terms prior to the expiration of the thirty-day
      period).  The purchase price attributable to the warrants was
      $0.001 per share of common stock underlying the warrants. Aggregate
      proceeds from the sale of the common stock and the warrants was $2,361,641
      ($2,361,051 for the common stock and $590 for the warrants).  At
      any time commencing 60 days after the close of the offering, the investors
      can require that the Company prepare and file a registration statement to
      register the shares of common stock (including the shares underlying the
      warrants) for resale by the investors. The Company also reserves the right
      to file such a registration statement at any time after the closing date
      on its own initiative;


(b)
            Issued
      50,000 shares in the amount of $35,000 on the exercise of options;
      and


(c)
            Issued
      50,000 shares as consideration for consulting services to be provided over
      12 months. These shares have been recorded at a value of $105,000
      representing the market value of the shares at the date of
      issuance.





(ii)
            During
      the year ended June 30, 2008, the
Company:





Issued
190,000 shares in the amount of $208,995 on the exercise of
warrants.  The Company approved a temporary adjustment to the exercise
terms of stock purchase warrants dated September 15, 2006 in consideration of
overall market conditions in October 2007.  If warrants were exercised
prior to November 15, 2007, the exercise price would be adjusted from $2.50 per
share to $1.10 per share.





(iii)
            Subsequent
      to June 30, 2008, the Company:





Issued
50,000 shares as consideration for consulting services (note
4(f)(ii)).





(b)
            Preferred
      stock





The
preferred stock may be issued in one or more series.  The
distinguishing features of each series including preference, rights and
restriction are to be determined by the Company's Board of Directors upon the
establishment of each such series.





F-18





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)









4.
            STOCKHOLDERS' EQUITY
      (Continued)





(b)
            Preferred
      stock (Continued)





During
the year ended June 30, 2000, the Company designated 1,000,000 of its authorized
20,000,000 preferred shares as Series A convertible preferred stock with a
par value of $0.001 each and a stated value and liquidation preference of $1.00
per share.  Cumulative dividends are accrued at the rate of 5%
annually, payable at the option of the Company.  The shares may be
converted to restricted shares of common stock at the average trading price ten
days prior to conversion, and are entitled to votes equal to the number of
shares of common stock into which each series of preferred stock may be
converted.  Each Series A convertible preferred share may be
redeemed by the Company for $1.50 each within one year after the date of issue,
and for $2.00, $2.50, $3.00 and $3.50 per share in each of the subsequent four
years after the date of issue. The Company may, at its discretion, redeem the
shares at a price higher than stipulated herein.





During
the year ended June 30, 2000, the Company agreed to settle $383,228 of accounts
payable and $281,182 of long-term debt, both amounts owed to officers and
directors of the Company, by issuing 664,410 shares of Series A convertible
preferred stock at a par value of $0.001 and a stated value of $1.00 per
share.





(c)
            Stock
      options and stock-based
compensation





Stock
option plans





In
January 2001, the Company adopted the "Integral Technologies, Inc. 2001 Stock
Plan" (the "2001 Plan"), a non-qualified stock option plan under which the
Company may issue up to 2,500,000 stock options and stock bonuses of common
stock of the Company to provide incentives to officers, directors, key employees
and other persons who contribute to the success of the Company. This plan was
amended December 2001 to increase the number of common share options that may be
granted from 2,500,000 to 3,500,000 stock options. As at June 30, 2008, there
are 19,500 options available under this plan.





In April
2003, the Company adopted the "Integral Technologies, Inc. 2003 Stock Plan" (the
"2003 Plan"), a non-qualified stock option plan under which the Company may
issue up to 1,500,000 stock options. As of June 30, 2008, there are 1,025,000
options available under this plan.





Pursuant
to the 2001 and 2003 plans





During
the year ended June 30, 2006, the Company granted a total of 50,000 stock
options to a consultant at an exercise price of $0.40 per common share. All
options are fully vested at the date of grant and expire December 31,
2010.





On
November 3, 2006, the Company granted an option to a consultant to acquire
100,000 common shares of the Company's common stock, exercisable at a price of
$1.00 per share, until the option expires on November 15, 2008.





F-19





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)









4.
            STOCKHOLDERS' EQUITY
      (Continued)





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





Pursuant to the 2001 and 2003
plans (Continued)





On
November 6, 2006, the Company granted an option to an officer to acquire
1,000,000 common shares of the Company's common stock, exercisable at a price of
$2.25 per share, until the option expires on June 30, 2010.





On March
23, 2007, the Company granted an option to a consultant to acquire 100,000
common shares of the Company's common stock, exercisable at a price of $1.00 per
share, until the option expires on March 23, 2008.





During
the year ended June 30, 2007, pursuant to the consulting agreement with
Visionary Innovations, Inc. (“Visionary”), the Company granted Visionary 125,000
options, which vested on March 30, 2007 at an exercise price of $2.75, and
another 125,000 options, which vested on March 30, 2008 at an exercise
price of $2.75 and expire March 30, 2009.  During the year ended
June 30, 2008, this resulted in stock-based compensation of $67,466 (2007 -
$112,442).





During
the year ended June 30, 2007, the Company extended the expiry date of
1,295,000 options, which resulted in additional stock-based compensation of
$2,696,776 included in the $4,225,648 discussed below.





During
the year ended June 30, 2008, the Company extended the expiry date of
1,295,000 options, which resulted in additional stock-based compensation of
$180,478.





Stock-based
compensation





During
the year ended June 30, 2008, the Company recorded total stock-based
compensation expense of $247,944 (2007 - $4,225,648; 2006 - $107,219); of this
amount, $182,711 is included as part of consulting fees and $65,233 is included
in salaries.




F-20





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)







4.
            STOCKHOLDERS' EQUITY
      (Continued)





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





Key
assumptions





The fair
value of the Company’s stock options was estimated on the date of grant using
the Black-Scholes option pricing model with the following
assumptions:





2008
            
            
            2007
            
            
            2006Expected
      life (years)
            
            
            1
            
            
            
            1
            
            
            
            2Interest
      rate
            
            
            4.28
            %
            
            
            5.00
            %
            
            
            3.00
            %Volatility
            
            
            87.75
            %
            
            
            106.90
            %
            
            
            59.09
            %Dividend
      yield
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %Estimated
      forfeitures
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %





Expected
life: The Company’s expected term represents the period that the Company’s
stock-based awards are expected to be outstanding and was determined based on
historical experience and vesting schedules of similar awards.





Risk-free
interest rate: The Company bases the risk-free interest rate used in the
Black-Scholes valuation method on the implied yield currently available on
US Treasury zero-coupon issues with an equivalent remaining
term.





Expected
volatility: The Company’s expected volatility represents the weighted
average historical volatility of the Company’s common stock for a period equal
to the expected life of the options.





Expected
dividend: The Black-Scholes valuation model calls for a single expected dividend
yield as an input. The dividend yield is determined by dividing the expected per
share dividend during the coming year by the grant date stock price. The
expected dividend assumption is based on the Company’s current expectations
about its anticipated dividend policy.





Estimated
forfeitures: Estimated forfeitures represent the Company’s historical
forfeitures for the most recent two-year period and considers termination
behavior as well as analysis of actual option forfeitures.





F-21





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)







4.
            STOCKHOLDERS' EQUITY
      (Continued)





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





Stock
option activity





The
following table summarizes the Company's stock option activity for the years
ended June 30, 2008, 2007 and 2006:





WeightedAverageNumber
            
            
            Price
            
            
            Exerciseof
      Shares
            
            
            Per
      Share
            
            
            PriceBalance,
      June 30, 2005
            
            
            2,445,000
            
            
            $
            0.50
      to $ 1.16
            
            
            $
            0.76Granted
      during the year
            
            
            50,000
            
            
            $
            0.40
            
            
            $
            0.40Cancelled
            
            
            0
            
            
            $
            0.00
            
            
            $
            0.00Exercised
            
            
            (200,000
            )
            
            $
            0.40
      to $ 1.00
            
            
            $
            0.67Balance,
      June 30, 2006
            
            
            2,295,000
            
            
            $
            0.40
      to $ 1.16
            
            
            $
            0.76Granted
      during the year
            
            
            1,450,000
            
            
            $
            1.00
      to $ 2.75
            
            
            $
            2.16Cancelled
            
            
            0
            
            
            $
            0.00
            
            
            $
            0.00Exercised
            
            
            (25,000
            )
            
            $
            1.00
            
            
            $
            1.00Balance,
      June 30, 2007 and 2008
            
            
            3,720,000
            
            
            $
            0.50
      to $ 2.75
            
            
            $
            1.31





The
following summarizes the options outstanding and exercisable at June 30, 2008,
2007 and 2006, which were fully vested at these dates:





Exercise
            
            
            Number
      of SharesExpiry
      Date
            
            Price
            
            
            2008
            
            
            2007
            
            
            2006August
      31, 2008
            
            $
            0.65
      to $ 1.16
            
            
            
            855,000
            *
            
            
            855,000
            
            
            
            880,000November
      15, 2008
            
            $
            1.00
            
            
            
            100,000
            
            
            
            100,000
            
            
            
            0March
      23, 2009
            
            $
            1.00
            
            
            
            100,000
            
            
            
            100,000
            
            
            
            0March
      30, 2009
            
            $
            2.75
            
            
            
            250,000
            
            
            
            250,000
            
            
            
            0June
      30, 2010
            
            $
            0.50
            
            
            
            1,000,000
            
            
            
            1,000,000
            
            
            
            1,000,000June
      30, 2010
            
            $
            2.25
            
            
            
            1,000,000
            
            
            
            1,000,000
            
            
            
            0December
      31, 2010
            
            $
            1.00
            
            
            
            415,000
            
            
            
            415,000
            
            
            
            415,000Total
      outstanding
            
            $
            0.50
      to $ 2.75
            
            
            
            3,720,000
            
            
            
            3,720,000
            
            
            
            2,295,000Total
      exercisable
            
            $
            0.50
      to $ 2.75
            
            
            
            3,626,250
            
            
            
            3,626,250
            
            
            
            2,295,000





*
            Subsequent
      to the year-end, the expiry date of these options was extended from August
      31, 2008 to August 31, 2009.





F-22





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)







4.
            STOCKHOLDERS' EQUITY
      (Continued)





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





Stock option activity
(Continued)





The
weighted average grant date fair value of options granted during the year ended
June 30, 2008 was $1.35 per share (2007 - $1.35; 2006 - $0.69). The
weighted average intrinsic value of options exercised during the year ended June
30, 2008 was $Nil per share (2007 - $Nil; 2006 - $0.02). The weighted
average intrinsic value of options outstanding as of June 30, 2008 was
$0.15 per share (2007 - $0.15; 2006 - $0.13).





(d)
            Stock
      purchase warrants





The
following table summarizes the Company's stock purchase warrant activity for the
years ended June 30, 2008, 2007 and 2006:





WeightedAverageNumber
            
            
            Price
            
            
            Exerciseof
      Shares
            
            
            Per
      Share
            
            
            PriceBalance,
      June 30, 2005 and 2006
            
            
            0
            
            
            $
            0.00
            
            
            $
            0.00Issued
            
            
            590,629
            
            
            $
            2.50
            
            
            $
            2.50Balance,
      June 30, 2007
            
            
            590,629
            
            
            $
            2.50
            
            
            $
            2.50Exercised
            
            
            (190,000
            )
            
            $
            2.50
            
            
            $
            2.50Balance,
      June 30, 2008
            
            
            400,269
            
            
            $
            2.50
            
            
            $
            2.50





At June
30, 2008, 2007 and 2006, the following stock purchase warrants were
outstanding:





Exercise
            
            
            Number
      of SharesExpiry
      Date
            
            Price
            
            
            2008
            
            
            2007
            
            
            2006September
      15, 2008
            
            $
            2.50
            
            
            
            400,269
            
            
            
            590,269
            
            
            
            0




F-23





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)










4.
            STOCKHOLDERS' EQUITY
      (Continued)





(e)
            Promissory
      notes receivable at June 30, 2008
includes:





(i)
            $17,500
      (2007 - $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
      (2007 - $12,237) due on exercise of 23,000 stock options, interest at 10%
      per annum, due June 30, 2003.





As at
June 30, 2008, $2,763 of these notes had been collected.  Shares
issued on exercise of options are restricted for trading.  The
restrictions will not be removed until the respective notes are paid to the
Company.





(f)
            Subscriptions
      received





(i)
            During
      the year ended June 30, 2008, a total of $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). To date, these shares
      have not yet been issued.





(ii)
            During
      the year ended June 30, 2008, the Company had an obligation to issue
      50,000 shares of common stock as consideration for consulting services.
      These shares have been recorded at a value of $46,500 representing the
      market value of the shares at the date the shares were to have been
      issued.  To date, these shares have not yet been
      issued.





The
Company has an obligation during the year ended June 30, 2009 to issue a further
50,000 shares of common stock as consideration for consulting
services.





F-24





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)







5.
            SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION





Years
      Ended June 30,
                
                
                Period
      from February 12, 1996 (Inception) Through2008
                
                
                2007
                
                
                2006
                
                
                June
      30, 2008Supplemental
      Disclosure of Non-Cash TransactionsShares
      Issued forRedemption
      of preferred shares
                
                $
                0
                
                
                $
                0
                
                
                $
                0
                
                
                $
                415,000Property
      and equipment
                
                $
                0
                
                
                $
                0
                
                
                $
                0
                
                
                $
                23,000Proprietary
      agreement
                
                $
                0
                
                
                $
                0
                
                
                $
                0
                
                
                $
                711,000Settlement
      of accounts payable
                
                $
                0
                
                
                $
                0
                
                
                $
                0
                
                
                $
                228,742Services
      (provided by officers and directors)
                
                $
                0
                
                
                $
                0
                
                
                $
                0
                
                
                $
                120,000Settlement
      of lawsuit
                
                $
                0
                
                
                $
                0
                
                
                $
                0
                
                
                $
                15,000Services
                
                $
                0
                
                
                $
                105,000
                
                
                $
                191,510
                
                
                $
                801,784Acquisition
      of subsidiary
                
                $
                0
                
                
                $
                0
                
                
                $
                0
                
                
                $
                894,200Supplemental
      Cash Flow InformationInterest
      paid
                
                $
                0
                
                
                $
                0
                
                
                $
                0
                
                
                $
                81,111Income
      tax paid
                
                $
                0
                
                
                $
                0
                
                
                $
                0
                
                
                $
                0





6.
            RELATED
      PARTY TRANSACTIONS





(a)
            Accounts
      payable at June 30, 2008 includes $3,685 (2007 - $7,730) due to two
      directors and officers of the
Company.





(b)
            The
      Company recorded an expense of $420,000 (2007 - $505,000; 2006 -
      $360,000) for salaries paid to two directors and officers of the
      Company.





(c)
            Promissory
      notes receivable at June 30, 2008 includes $29,737 (2007 - $29,737)
      for advances made by the Company to an officer of the
    Company.





F-25





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)










7.
            INCOME
      TAXES





The
provision for income taxes consists of the following at June 30:





2008
            
            
            2007
            
            
            2006Current
      expense
            
            $
            0
            
            
            $
            0
            
            
            $
            0Deferred
      benefit
            
            
            (669,000
            )
            
            
            (2,994,000
            )
            
            
            0Increase
      in valuation allowance
            
            
            669,000
            
            
            
            2,994,000
            
            
            
            0Total
      provision for income tax
            
            $
            0
            
            
            $
            0
            
            
            $
            0





The total
provision differs from the amount computed by applying federal statutory rates
to loss before income taxes due to the following at June 30:





2008
            
            
            2007
            
            
            2006Provision
      for income tax at the statutory rate of 34%
            
            $
            (660,000
            )
            
            $
            (2,024,000
            )
            
            $
            (715,000
            )Increase
      (decrease) in taxes due toChange
      in valuation allowance
            
            
            669,000
            
            
            
            2,994,000
            
            
            
            0Disallowed
      expense
            
            
            1,000
            
            
            
            1,000
            
            
            
            1,000True-up
      of deferred tax assets
            
            
            (10,000
            )
            
            
            (971,000
            )
            
            
            714,000Total
      provision for income tax
            
            $
            0
            
            
            $
            0
            
            
            $
            0





The
Company has used a federal statutory rate of 34%.  All of the
Company's operations are in Washington state, which has no corporation income
tax, therefore, no provision for state income tax is required.





F-26





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)









7.
            INCOME TAXES
      (Continued)





Deferred
tax assets and liabilities reflect the tax effects of the temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes.  The Company has net
deferred income tax assets, which have been reduced to zero through a valuation
allowance because of uncertainties relating to utilization of future tax
benefits.  The components of the net deferred income tax assets,
calculated at an effective rate of 34%, are as follows at June 30:





2008
            
            
            2007
            
            
            2006Deferred
      income tax assetsCurrent
      deferred tax assetsLegal
      dispute reserve
            
            $
            182,000
            
            
            $
            182,000
            
            
            $
            0Accrued
      liabilities
            
            
            14,000
            
            
            
            7,000
            
            
            
            5,000Total
      current deferred tax assets
            
            
            196,000
            
            
            
            189,000
            
            
            
            5,000Non-current
      deferred tax assetsNet
      operating loss carry-forwards
            
            
            7,034,000
            
            
            
            6,454,000
            
            
            
            5,738,000Non-qualified
      stock options
            
            
            1,754,000
            
            
            
            1,670,000
            
            
            
            0Capital
      loss carry-forwards
            
            
            425,000
            
            
            
            425,000
            
            
            
            0Investment
      reserve
            
            
            247,000
            
            
            
            247,000
            
            
            
            254,000Basis
      difference of fixed assets
            
            
            2,000
            
            
            
            4,000
            
            
            
            0Valuation
      allowance
            
            
            (9,658,000
            )
            
            
            (8,989,000
            )
            
            
            (5,994,000
            )Total
      non-current deferred tax assets
            
            
            (196,000
            )
            
            
            (189,000
            )
            
            
            (2,000
            )Non-current
      deferred tax liabilities Basis difference of fixed assets
            
            
            0
            
            
            
            0
            
            
            
            3,000Total
      non-current deferred tax liabilities
            
            
            0
            
            
            
            0
            
            
            
            (3,000
            )Net
      deferred tax asset (liability)
            
            $
            0
            
            
            $
            0
            
            
            $
            0




F-27





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)







7.
            INCOME TAXES
      (Continued)





For tax
purposes, the Company has unused net operating losses available for
carry-forward to future tax years.  At June 30, 2008, the amounts and
expiration dates of the Company's net operating loss carry-forwards are as
follows.






Year
      Ended
            Expiry
            
            AmountJune
      30, 1996
            June
      30, 2011
            
            $
            346,000June
      30, 1997
            June
      30, 2012
            
            
            1,405,000June
      30, 1998
            June
      30, 2018
            
            
            999,000June
      30, 1999
            June
      30, 2019
            
            
            1,361,000June
      30, 2000
            June
      30, 2020
            
            
            1,091,000June
      30, 2001
            June
      30, 2021
            
            
            2,002,000June
      30, 2002
            June
      30, 2022
            
            
            2,526,000June
      30, 2003
            June
      30, 2023
            
            
            1,364,000June
      30, 2004
            June
      30, 2024
            
            
            2,162,000June
      30, 2005
            June
      30, 2025
            
            
            2,208,000June
      30, 2006
            June
      30, 2026
            
            
            2,373,000June
      30, 2007
            June
      30, 2027
            
            
            1,177,000June
      30, 2008
            June
      30, 2028
            
            
            1,676,000Total
            
            
            $
            20,690,000




Current
federal tax laws include substantial restrictions on the utilization of net
operating losses and tax credits in the event of an ownership change of a
corporation. Accordingly, the Company's ability to utilize net operating loss
and tax credit carry-forwards may be limited as a result of such ownership
changes. Such a limitation could result in the expiration of carry-forwards
before they are utilized.





For tax
purposes, the Company has unused capital losses available for carry-forward to
future tax years.  At June 30, 2008, the amounts and expiration dates
of the Company's capital loss carry-forwards are as follows.





Year
      Ended
            Expiry
            
            AmountJune
      30, 2005
            June
      30, 2010
            
            $
            1,250,000





In July
2006, the FASB released the Final Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). FIN 48 prescribes the minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. FIN 48 also requires additional disclosure of the
beginning and ending unrecognized tax benefits and details regarding the
uncertainties that may cause the unrecognized benefits to increase or decrease
within a twelve-month period.




F-28





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2008, 2007 and 2006


(US
Dollars)







7.
            INCOME TAXES
      (Continued)





The
Company adopted the provisions of FIN 48 on July 1, 2007. There was no impact on
the Company’s consolidated financial position, results of operations and cash
flows as a result of adoption. The Company has no unrecognized tax benefit as of
June 30, 2008, including no accrued amounts for interest and
penalties.





The
Company’s policy will be to recognize interest and penalties related to income
taxes as a component of income tax expense. The Company is subject to income tax
examinations for US incomes taxes from the year ended June 30, 1996 forward. The
Company does not anticipate that total unrecognized tax benefits will
significantly change prior to June 30, 2009.





8.
            LOSS
      PER SHARE





Income
              (Numerator)
            
            
            Shares
              (Denominator)
            
            
            Per
      Share
              Amount2008Loss
      for the year
            
            $
            (1,938,216
            )Preferred
      stock dividends
            
            
            (15,427
            )Loss
      attributable to common shareholders
            
            $
            (1,953,643
            )
            
            
            45,617,756
            
            
            $
            (0.04
            )2007Loss
      for the year
            
            $
            (5,985,850
            )Preferred
      stock dividends
            
            
            (15,427
            )Loss
      attributable to common shareholders
            
            $
            (6,001,277
            )
            
            
            45,230,171
            
            
            $
            (0.13
            )2006Loss
      for the year
            
            $
            (2,104,189
            )Preferred
      stock dividends
            
            
            (15,427
            )Loss
      attributable to common shareholders
            
            $
            (2,119,616
            )
            
            
            42,814,988
            
            
            $
            (0.05
            )





Common
share equivalents consisting of 3,626,251 (2007 – 3,626,251) stock options and
400,269 (2007 - 590,269) share purchase warrants are not considered in the
computation of diluted loss per share because their effect would be
anti-dilutive.




F-29




PART
III





DIRECTORS
AND EXECUTIVE OFFICERS





Our
Company has a Board of Directors which is currently comprised of two
members.  Each director holds office until the next annual meeting of
shareholders or until a successor is elected or appointed.  The
members of the Board and the executive officers of our Company and their
respective age and position are as follows:





Name
            Age
            Position
      with Company
            Director
      of
              Company
      SinceWilliam
      S. Robinson
            51
            Director,
      Chairman, CEO and Treasurer
            February
      1996William
      A. Ince
            57
            Director,
      President, Secretary and Chief Financial Officer
            February
      1996








William
Robinson


(Chairman,
CEO and Treasurer)





As a
co-founder of our Company (since 1996), Mr. Robinson has been responsible since
the inception of Integral for securing funding in order to ensure the ongoing
operations of Integral and its subsidiaries.  Together with Mr. Ince,
he has been responsible for the development and implementation of corporate
strategies.





Mr.
Robinson brings many years of management experience in finance, banking and
corporate development.  Previously, he acted as a director of a number
of companies involved in natural resources, sales and marketing, and computer
technologies.





William
A. Ince


(Director,
President, Secretary and Chief Financial Officer)





Mr. Ince,
a co-founder of our Company (since 1996), is responsible, along with
Mr. Robinson, for the development and implementation of corporate
strategies.  He is also responsible for the accounting and financial
systems and record-keeping of Integral and its subsidiaries.





Mr. Ince
brings with him a background as a professional accountant and experience from
management positions in finance and operations in several private
companies.  He has consulted to both private and public companies in
the areas of marketing and finance, as well as turn-around
situations.  Mr. Ince has been responsible for “team building” efforts
to ensure that each project is brought to fruition on a timely
basis.





Non-Executive
Officer / Significant Employee





Tom
Aisenbrey


Chief
Technology Officer





Mr.
Aisenbrey has been with our Company since February 2001.  Mr.
Aisenbrey is an executive program manager with over 28 years of experience in a
variety of electronic industries, including design & development of multiple
computer oriented products, specializing in wireless products.




16





Audit
Committee and Audit Committee Financial Expert Disclosure





Our
Company does not have a separately-designated standing audit committee at this
time because it is not required to do so.  Accordingly, we do not have
an audit committee financial expert.





Code
of Ethics





On
September 20, 2004, the Board of Directors established a written code of ethics
that applies to our senior executive and financial officers.  A copy
of the code of ethics is incorporated by reference as an exhibit to this annual
report.  In addition, a copy of the code of ethics is posted on our
Company’s website at www.itkg.net.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934 requires our Company's officers and
directors, and persons who own more than 10% of a registered class of our
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission
(“SEC”).  Officers, directors, and greater than 10% shareholders are
required by SEC regulation to furnish us with copies of all Section 16(a) forms
they file.  Based solely on our review of copies of such reports
received or written representations from certain reporting persons, we believe
that, during the year ended June 30, 2007, all Section 16(a) filing requirements
applicable to our officers, directors and ten percent shareholders were complied
with by such persons.




17





EXECUTIVE
COMPENSATION





The
following information discloses all plan and non-plan compensation awarded to,
earned by, or paid to our executive officers, and other individuals for whom
disclosure is required, for all services rendered in all capacities to Integral
and our subsidiaries.





Summary
Compensation Table




The
following table sets forth all compensation, including bonuses, stock option
awards and other payments, paid or accrued by Integral and/or its subsidiaries,
to or for Integral’s principal executive officer and each of the other executive
officers (one person) and one non-executive officer, during the fiscal years
ended June 30, 2008 and 2007.






Name and
      Principal Position
              Fiscal
      Year Ended June 30
              
              Salary ($)
              
              
              Bonus
      ($)
              
              
              Stock
      Awards
              
              
              Options
      Awards ($) (n1)
              
              
              Non-Equity
      Incentive Plan Compensation ($)
              
              
              Nonqualified
      Deferred Compensation Earnings ($)
              
              
              All Other Compensation ($) (n2)
              
              
              Total ($)William
      S.
              2008
              
              $
              210,000
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              28,282
              
              
              $
              238,282Robinson
              2007
              
              $
              202,500
              
              
              
              50,000
              
              
              
              -0-
              
              
              $
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              26,782
              
              
              $
              279,282Chief
      Executive Officer, Treasurer, Chairman, DirectorWilliam
      A.
              2008
              
              $
              210,000
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              23,145
              
              
              $
              233,145Ince
              2007
              
              $
              202,500
              
              
              $
              50,000
              
              
              
              -0-
              
              
              $
              177,706
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              21,645
              
              
              $
              451,851Chief
      Financial and Accounting Officer, President, Secretary,
      DirectorThomas
              2008
              
              $
              144,000
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              65,232
              
              
              
              -0-
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              209,232Aisenbrey
              2007
              
              $
              144,000
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              2,414,710
              
              
              
              -0-
              
              
              
              -0-
              
              
              $
              29,815
              
              
              $
              2,588,525Chief
      Technology Officer (non-executive officer)




___________





(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.





18




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
November 6, 2006, Mr. Aisenbrey was granted an option to acquire 1,000,000
shares of common stock at an exercise price of $2.25 per share, exercisable in
whole or in part at any time until June 30, 2010.  The exercise price
per share shall automatically be adjusted down to $.001 per share in the event
of a ”triggering event,” which is defined as the termination of employment of
Mr. Aisenbrey or a change in control of Integral. A change in control of
Integral shall be deemed to have occurred if there is any sale, exchange or
transfer of all or substantially all of the assets of Integral, or if there is
any merger or share exchange involving Integral, which has the result of
effecting a change in control of the business through a change in management
and/or officers and directors of Integral.





Mr.
Aisenbrey holds options to acquire an aggregate of 200,000 shares of common
stock at an exercise price of $0.65 per share that were granted in 2001, and he
also holds options to acquire an aggregate of 245,000 shares of common stock at
an exercise price of $1.00 per share that were granted in 2002 and
2003.  In August 2007, the expiration dates of these options were
extended until August 31, 2008.  [Subsequent to year-end, in August
2008, the expiration dates of these options were extended until August 31,
2009.]





(n2)
            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, 2008, $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, 2007, $10,282 was paid or
      accrued for Mr. Robinson and $5,145 was paid or accrued for Mr.
      Ince.





William
S. Robinson and William A. Ince each received an automobile expense allowance of
$18,000 in 2008 and $16,500 in 2007.





Integral
pays for living accommodations in Bellingham, Washington for Thomas
Aisenbrey.  The total amount paid for these accommodations was $nil in
2008 and $29,815 in 2007.





Except as
set forth above, no outstanding common stock purchase option or other
equity-based award granted to or held by any named executive officer were
repriced or otherwise materially modified, including extension of exercise
periods, the change of vesting or forfeiture conditions, the change or
elimination of applicable performance criteria, or the change of the bases upon
which returns are determined, nor was there any waiver or modification of any
specified performance target, goal or condition to payout.




19





Executive
Officer Outstanding Equity Awards At Fiscal Year-End




The
following table provides certain information concerning any common stock
purchase options, stock awards or equity incentive plan awards held by each of
our named executive officers that were outstanding as of June 30,
2008.









Option
      Awards
            
            
            Stock
      AwardsEquity
      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 VestedWilliam
      S. Robinson
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            n/a
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0William
      A. Ince (n1)
            
            
            415,000
            
            
            
            0
            
            
            
            0
            
            
            $
            1.00
            
            
            12/31/2010
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Thomas
      Aisenbrey (n2)
            
            
            1,000,000
            
            
            
            0
            
            
            
            0
            
            
            $
            0.50
            
            
            6/30/2010
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            01,000,000
            
            
            
            0
            
            
            
            0
            
            
            $
            2.25
            
            
            6/30/2010
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0125,000
            
            
            
            0
            
            
            
            0
            
            
            $
            0.65
            
            
            8/31/2008
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            075,000
            
            
            
            0
            
            
            
            0
            
            
            $
            0.65
            
            
            8/31/2008
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            045,000
            
            
            
            0
            
            
            
            0
            
            
            $
            1.00
            
            
            8/31/2008
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0200,000
            
            
            
            0
            
            
            
            0
            
            
            $
            1.00
            
            
            8/31/2008
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0





(n1)
            Mr.
      Ince holds the following options:  On July 1, 2002, Mr. Ince was
      granted an option to acquire 415,000 shares of common stock at an exercise
      price of $1.00 per share.  In June 2007, the expiration date of
      these options was extended until December 31,
  2010.





(n2)
            Mr.
      Aisenbrey holds the following
options:





·
            On
      August 16, 2001, Mr. Aisenbrey was granted an option to acquire 125,000
      shares of common stock at an exercise price of $.65 per
      share.  In August 2008, the expiration date of these options was
      extended until August 31, 2009.





·
            On
      November 1, 2001, Mr. Aisenbrey was granted an option to acquire 75,000
      shares of common stock at an exercise price of $.65 per share. In August
      2008, the expiration date of these options was extended until August 31,
      2009.





20




·
            On
      July 1, 2002, Mr. Aisenbrey was granted an option to acquire 45,000 shares
      of common stock at an exercise price of $1.00 per share. In August 2008,
      the expiration date of these options was extended until August 31,
      2009.





·
            On
      January 2, 2003, Mr. Aisenbrey was granted an option to acquire 200,000
      shares of common stock at an exercise price of $1.00 per share. In August
      2008, the expiration date of these options was extended until August 31,
      2009.





·
            On
      June 17, 2005, Mr. Aisenbrey was granted an option to acquire 1,000,000
      share of common stock at an exercise price of $.50 per share, exercisable
      in whole or in part at any time until June 30,
  2010.





·
            On
      November 6, 2006, Mr. Aisenbrey was granted an option to acquire 1,000,000
      shares of common stock at an exercise price of $2.25 per share,
      exercisable in whole or in part at any time until June 30,
      2010.





With
respect to the option granted on June 17, 2005 and the option granted on
November 6, 2006, the exercise price per share shall automatically be adjusted
down to $.001 per share in the event of a ”triggering event,” which is defined
as the termination of employment of Mr. Aisenbrey or a change in control of
Integral. A change in control of Integral shall be deemed to have occurred if
there is any sale, exchange or transfer of all or substantially all of the
assets of Integral, or if there is any merger or share exchange involving
Integral, which has the result of effecting a change in control of the business
through a change in management and/or officers and directors of
Integral.








Compensation
of Directors





No
compensation was paid by Integral to its Directors for any service provided as a
Director during the fiscal year ended June 30, 2008.  There are no
other formal or informal understandings or arrangements relating to
compensation; however, Directors may be reimbursed for all reasonable expenses
incurred by them in conducting Integral’s business.  These expenses
would include out-of-pocket expenses for such items as travel, telephone, and
postage.





Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements





As of the
date of filing of this report, the current executive officers do not have
written employment contracts.





Integral’s
Board of Directors has complete discretion as to the appropriateness of (a)
key-man life insurance, (b) obtaining officer and director liability
insurance, (c) employment contracts with and compensation of executive officers
and directors, (d) indemnification contracts, and (e) incentive plan to award
executive officers and key employees.





Integral’s
Board of Directors is responsible for reviewing and determining the annual
salary and other compensation of the executive officers and key employees of
Integral.  The goals of Integral are to align compensation with
business objectives and performance and to enable Integral to attract, retain
and reward executive officers and other key employees who contribute to the
long-term success of Integral.  Integral intends to provide base
salaries to its executive officers and key employees sufficient to provide
motivation to achieve certain operating goals.  Although salaries are
not specifically tied into performance, incentive bonuses may be available to
certain executive officers and key employees.  In the future,
executive compensation may include without limitation cash bonuses, stock option
grants and stock reward grants.





21




Employee
Benefit and Consulting Services Compensation Plans





As of
June 30, 2008, Integral had two Employee Benefit and Consulting Services
Compensation Plans in effect.





On
January 2, 2001, Integral adopted an employee benefit and consulting services
compensation plan entitled the Integral Technologies, Inc. 2001 Stock Plan (the
“2001 Plan”), which was amended on December 17, 2001.  As amended, the
2001 Plan covers up to 3,500,000 shares of common stock.  The 2001
Plan has not previously been approved by security holders.





On April
4, 2003, Integral adopted an employee benefit and consulting services
compensation plan entitled the Integral Technologies, Inc. 2003 Stock Plan (the
“2003 Plan”).  The 2003 Plan covers up to 1,500,000 shares of common
stock. The 2003 Plan has not previously been approved by security
holders.





Under
both Plans, Integral may issue common stock and/or options to purchase common
stock to certain officers, directors and employees and consultants of Integral
and its subsidiaries.  The purpose of the Plans is to promote the best
interests of Integral and its shareholders by providing a means of non-cash
remuneration to eligible participants who contribute to operating progress and
earning power of Integral.  The Plans are administered by Integral's
Board of Directors or a committee thereof which has the discretion to determine
from time to time the eligible participants to receive an award; the number of
shares of stock issuable directly or to be granted pursuant to option; the price
at which the option may be exercised or the price per share in cash or
cancellation of fees or other payment which Integral or its subsidiaries is
liable if a direct issue of stock and all other terms on which each option shall
be granted.




22





SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS





Common
Stock





The
following table sets forth, as of September 14, 2008 the stock ownership of each
person known by Integral to be the beneficial owner of five percent or more of
Integral’s common stock, each director and executive officer individually and
all directors and executive officers of Integral as a group.  Each
person is believed to have sole voting and investment power over the shares
except as noted.





Name
      and Address of Beneficial Owner (n1)
              Amount
      and Nature of Beneficial Ownership(n1)(n2)
              Percent
      of Class (n3)Executive
      Officers and Directors:William
      S. Robinson (n4)
                #3
      1070 West Pender St.
                Vancouver,
      B.C.  V6E 2N7
              2,323,533
              4.8%William
      A. Ince  (n5)
                805
      W. Orchard Dr., Suite #7
                Bellingham,
      WA 98225
              2,118,833
              4.3%Thomas
      Aisenbrey (n6)
                805
      W. Orchard Dr., Suite #7
                Bellingham,
      WA 98225
              2,670,000
              5.5%All
      executive officers and directors as a group (n6)
              7,112,366
              14.6%5%
      Beneficial Owners:Wellington
      Management Company, LLP (n7)
                75
      State Street, Boston, MA 02109
              3,044,900
              6.2%




(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 September 15, 2008, the conversion rate
      was $0.73 per share, so Mr. Robinson’s 204,975 shares of Series A
      were convertible into 280,787 shares of common stock, and Mr. Ince’s
      103,563 shares of Series A were convertible into 141,867 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 45,754,969 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.





23




(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.





(n5)
            Mr.
      Ince is an executive officer and director of Integral and each of its
      subsidiaries. Beneficial ownership figure includes 415,000 shares
      underlying options.





(n6)
            Mr.
      Aisenbrey is a non-executive officer of Integral, but is included in the
      table for informational purposes.  Beneficial ownership figure
      includes 2,445,000 shares underlying
options.





(n7)
            Wellington
      Management Company, LLP, has included the following information in its
      Schedule 13G Amendment No. 7 filing with the Securities and Exchange
      Commission (as of December 31, 2007):  (a) Wellington, in
      its capacity as investment adviser, may be deemed to beneficially own
      3,044,900 shares of the Company which are held of record by clients of
      Wellington; (b) those clients have the right to receive, or the power to
      direct the receipt of, dividends from, or the proceeds from the sale of,
      such securities; and (c) no such client is known to have such right or
      power with respect to more than five percent of this class of
      securities.








Series
A Convertible Preferred Stock





The
following table sets forth, as of September 14, 2008, the stock ownership of
each person known by Integral to be the beneficial owner of five percent or more
of Integral’s Series A Convertible Preferred Stock, each Officer and Director
individually and all Directors and Officers of Integral as a group. Each person
is believed to have sole voting and investment power over the shares except as
noted.





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.




24





Equity
Compensation Plan Information





The
following information concerning the Company’s equity compensation plans is as
of the end of the fiscal year ended June 30, 2008:





Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of options, warrants and rights
            Number
      of securities available for future issuance under equity compensation
      plans (excluding securities reflected in column (a))Plan
      category
            (a)
            (b)
            (c)Equity
      compensation plans approved by security holders
            N/A
            N/A
            N/AEquity
      compensation plans not approved by security holders
            3,720,000
            $1.13
            1,044,500Total
            3,720,000
            $1.13
            1,044,500





As of
June 30, 2008, Integral had two Employee Benefit and Consulting Services
Compensation Plans in effect.





On
January 2, 2001, Integral adopted an employee benefit and consulting services
compensation plan entitled the Integral Technologies, Inc. 2001 Stock Plan (the
“2001 Plan”), which was amended on December 17, 2001.  As amended, the
2001 Plan covers up to 3,500,000 shares of common stock.  The 2001
Plan has not previously been approved by security holders.





On April
4, 2003, Integral adopted an employee benefit and consulting services
compensation plan entitled the Integral Technologies, Inc. 2003 Stock Plan (the
“2003 Plan”).  The 2003 Plan covers up to 1,500,000 shares of common
stock.  The 2003 Plan has not previously been approved by security
holders.





Under
both Plans, Integral may issue common stock and/or options to purchase common
stock to certain officers, directors and employees and consultants of Integral
and its subsidiaries.  The purpose of the Plans is to promote the best
interests of Integral and its shareholders by providing a means of non-cash
remuneration to eligible participants who contribute to operating progress and
earning power of Integral.  The Plans are administered by Integral's
Board of Directors or a committee thereof which has the discretion to determine
from time to time the eligible participants to receive an award; the number of
shares of stock issuable directly or to be granted pursuant to option; the price
at which the option may be exercised or the price per share in cash or
cancellation of fees or other payment which Integral or its subsidiaries is
liable if a direct issue of stock and all other terms on which each option shall
be granted.





In
addition, included in the chart are two grant of options that were outside of
the 2001 Plan and the 2003 Plan, made to Thomas Aisenbrey, Integral’s Chief
Technology Officer:





·
            On
      June 17, 2005, Integral provided a Grant of Option to Thomas Aisenbrey.
      Pursuant to the Grant of Option, Mr. Aisenbrey was granted an option to
      acquire 1,000,000 share of common stock at an exercise price of $.50 per
      share, exercisable in whole or in part at any time until June 30,
      2010.





·
            On
      November 6, 2006, Integral provided a Grant of Option to Thomas Aisenbrey.
      Pursuant to the Grant of Option, Mr. Aisenbrey was granted an option to
      acquire 1,000,000 share of common stock at an exercise price of $2.25 per
      share, exercisable in whole or in part at any time until June 30,
      2010.





25




With
respect to each option granted to Mr. Aisenbrey, the exercise price per share
shall automatically be adjusted down to $.001 per share in the event of a
”triggering event,” which is defined as the termination of employment of
Mr. Aisenbrey or a change in control of Integral. A change in control of
Integral shall be deemed to have occurred if there is any sale, exchange or
transfer of all or substantially all of the assets of Integral, or if there is
any merger or share exchange involving Integral, which has the result of
effecting a change in control of the business through a change in management
and/or officers and directors of Integral.  The option and the
underlying shares of common stock are subject to restrictions on transfer, as
required by applicable federal and state securities laws.








CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS





Since the
beginning of the last fiscal year, we entered into the following transactions in
which our officers and directors have a material interest:





(a)           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, 2008, $10,282 was paid or accrued for Mr. Robinson and
$5,145 was paid or accrued for Mr. Ince.





(b)           On
November 6, 2006, we provided a Grant of Option to Thomas Aisenbrey, our General
Manager, Vice President of Product Development and Chief Technology Officer.
Pursuant to the Grant of Option, which was not under either of our formal
Employee Benefit and Consulting Services Compensation Plans, Mr. Aisebrey was
granted an option to acquire 1,000,000 share of common stock at an exercise
price of $2.25 per share, exercisable in whole or in part at any time until June
30, 2010.  The exercise price per share shall automatically be
adjusted down to $.001 per share in the event of a ”triggering event,” which is
defined as the termination of employment of Mr. Aisenbrey or a change in control
of Integral. A change in control of Integral shall be deemed to have occurred if
there is any sale, exchange or transfer of all or substantially all of the
assets of Integral, or if there is any merger or share exchange involving
Integral, which has the result of effecting a change in control of the business
through a change in management and/or officers and directors of
Integral.  The option and the underlying shares of common stock are
subject to restrictions on transfer, as required by applicable federal and state
securities laws.








DIRECTOR
INDEPENDENCE





Our Board
of Directors is comprised of two members, William S. Robinson and William A.
Ince, both of whom are also executive officers.  We do not have any
independent directors.




26





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.)





27





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).)





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).




28





PRINCIPAL
ACCOUNTANT FEES AND SERVICES





Our
Company’s board of directors reviews and approves audit and permissible
non-audit services performed by Pannell Kerr Forster, Vancouver, Canada (“PKF”),
as well as the fees charged by PKF for such services.  In its review
of non-audit service fees and its appointment of PKF as our Company’s
independent accountants, the board of directors considered whether the provision
of such services is compatible with maintaining PKF’s
independence.  All of the services provided and fees charged by PKF in
the fiscal year ended June 30, 2007 were pre-approved by the board of
directors.





Audit
Fees





The
aggregate fees billed for professional services rendered by PKF for the audit of
our annual financial statements and the reviews of the financial statements
included in our quarterly reports on Form 10-QSB for fiscal years ended
June 30, 2008 and 2007 were $47,530 and $35,250, respectively.





Audit-Related
Fees





There
were no other fees billed by PKF during the last two fiscal years for assurance
and related services that were reasonably related to the performance of the
audit or review of our Company’s financial statements and not reported under
“Audit Fees” above.





Tax
Fees





The were
no fees billed for professional services rendered by PKF for tax compliance
services in fiscal years ended June 30, 2008 and 2007.





All
Other Fees





There
were no other fees billed by PKF during the last two fiscal years for products
and services provided by PKF.




29




SIGNATURES





In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.





INTEGRAL
      TECHNOLOGIES, INCDated:  September
      29, 2008
            /s/ William S. RobinsonWilliam
      S. Robinson, Chief Executive Officer/s/ William A. InceWilliam
      A. Ince, Chief Financial Officer and Principal Accounting
      Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.





Name
            
            Title
            Date/s/ William S. Robinson
            
            Director
            September
      29, 2008William
      S. Robinson/s/ William A. Ince
            
            Director
            September
      29, 2008William
      A. Ince




30





EXHIBIT
INDEX








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.)





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.)




31




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).)





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).






32