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|   | For the fiscal year ended June 30, 2011 |
|--------|-----------------------------------------|

|   | 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) |

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|          |                                                                                            | Page   |
|---------------|-------------------------------------------------------------------------------------------------|--------|
| PART I        |
| Item 1.  | Business                                                                                        | 2      |
| Item 1A. | Risk Factors                                                                                    | 6      |
| Item 1B. | Unresolved Staff Comments                                                                       | 10     |
| Item 2.  | Properties                                                                                      | 10     |
| Item 3.  | Legal Proceedings                                                                               | 10     |
| Item 4.  | Reserved                                                                                        | 10     |
|          |                                                                                            |   |
| PART II       |
| Item 5.  | Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 11     |
| Item 6.  | Selected Financial Data                                                                         | 12     |
| Item 7.  | Management's Discussion and Analysis of Financial Condition and Results of Operations.          | 12     |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk                                      | 14     |
| Item 8.  | Financial Statements and Supplementary Data                                                     | 14     |
| Item 9.  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure            | 14     |
| Item 9A. | Controls and Procedures                                                                         | 14     |
| Item 9B. | Other Information                                                                               | 16     |
|          |                                                                                            |   |
| PART III      |
| Item 10. | Directors, Executive Officers, and Corporate Governance                                         | 18     |
| Item 11. | Executive Compensation                                                                          | 20     |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  | 24     |
| Item 13. | Certain Relationship and Related Transactions, and Director Independence                        | 26     |
| Item 14. | Principal Accountant Fees and Services                                                          | 28     |
| Item 15. | Exhibits                                                                                        | 29     |
|          |                                                                                            |
| SIGNATURES    |                                                                                            |

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 1. BUSINESS

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 1A. 

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

|   | · | has a 5% annual dividend, payable in cash or shares of common stock at the discretion of the Board of Directors; |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | · | 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 issuance at $1.50, after one year but less than two years at $2.00, after two years but less than three years at $2.50, after three years but less than four years at $3.00, and after four years but less than five years at $3.50; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

|   | · | actual or anticipated variations in quarterly operating results; |
|--------|--------|------------------------------------------------------------------|

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

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

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

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 1B. 

 2. 

 3. LEGAL 

 4. 

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ITEM 5. 

| Quarter Ended           | Low Bid | High Bid |
|------------------------------|---------|----------|
|                         |    |     |
| September 30, 2009 | $0.28   | $0.52    |
| December 31, 2009  | $0.30   | $0.79    |
| March 31, 2010     | $0.66   | $1.30    |
| June 30, 2010      | $0.70   | $1.07    |
|                         |    |     |
| September 30, 2010 | $0.70   | $0.95    |
| December 31, 2010  | $0.70   | $0.95    |
| March 31, 2011     | $0.45   | $0.80    |
| June 30, 2011      | $0.45   | $0.78    |

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ITEM 6. 

 7. 

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7A. 

8. 

FINANCIAL 

 9. 

 9A. 

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

|   | · | Ineffective controls over periodic financial disclosures and reporting processes. |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | We have engaged an outside public accounting firm to perform a qualified, independent review over all significant transactions included in our financial reports as well as our period end financial disclosures included in our periodic filings. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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9B. 

|   | 1) | The Company entered into a Consulting and Confidentiality Agreement with James Eagan, dated December 1, 2010, engaging Mr. Eagan to provide certain consulting services to the Company. The term of the agreement expires on November 30, 2013. Mr. Eagan shall receive a monthly consulting fee of $14,000. Mr. Eagan was issued 150,000 shares of common stock in the Company upon the execution of this agreement (not yet issued), and will receive an additional 100,000 shares of common stock in the Company upon the 6-month anniversary of the execution date of the agreement. Mr. Eagan was granted 600,000 stock options, which vest pursuant to the terms therein, and rights to receive an additional 1,250,000 stock options on the first anniversary of the execution date of the agreement. In the event Mr. Eagan is terminated without cause, he will receive the full amount of compensation due through the expiration of this agreement. The agreement also contains customary provisions regarding confidentiality of the Company’s proprietary information, indemnification and non-competition; |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | The Company entered into a Consulting and Confidentiality Agreement with Herbert C. Reedman, Jr., dated April 15, 2011, engaging Mr. Reedman to provide certain consulting services to the Company. The term of the agreement expires on April 15, 2014. Mr. Reedman shall receive a monthly consulting fee of $14,000. Mr. Reedman was issued 150,000 shares of common stock in the Company upon the execution of this agreement (not yet issued), and will receive an additional 100,000 shares of common stock in the Company upon the 6-month anniversary of the execution date of the agreement. Mr. Reedman was granted 600,000 stock options, which vest pursuant to the terms therein, and rights to receive an additional 1,250,000 stock options on the first anniversary of the execution date of the agreement. In the event Mr. Reedman is terminated without cause, he will receive the full amount of compensation due through the expiration of this agreement. The agreement also contains customary provisions regarding confidentiality of the Company’s proprietary information, indemnification and non-competition; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | The Company entered into a Consulting and Confidentiality Agreement with Stephen Neu, dated June 1, 2011, engaging Mr. Neu to provide certain consulting services to the Company. The term of the agreement expires on June 1, 2014. Mr. Neu shall receive a monthly consulting fee of $14,000. Mr. Neu was issued 150,000 shares of common stock in the Company upon the execution of this agreement (not yet issued), and will receive an additional 100,000 shares of common stock in the Company upon the 6-month anniversary of the execution date of the agreement. Mr. Neu was granted 600,000 stock options, which vest pursuant to the terms therein, and rights to receive an additional 1,250,000 stock options on the first anniversary of the execution date of the agreement. In the event Mr. Neu is terminated without cause, he will receive the full amount of compensation due through the expiration of this agreement. The agreement also contains customary provisions regarding confidentiality of the Company’s proprietary information, indemnification and non-competition; and |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 4) | The Company entered into a Consulting and Confidentiality Agreement with Paul MacKenzie, dated June 1, 2011, engaging Mr. MacKenzie to provide certain consulting services to the Company. The term of the agreement expires on June 1, 2014. Mr. MacKenzie shall receive a monthly consulting fee of $12,000. Mr. MacKenzie was issued 112,500 shares of common stock in the Company upon the execution of this agreement, and will receive an additional 75,000 shares of common stock in the Company upon the 6-month anniversary of the execution date of the agreement. Mr. MacKenzie was granted 450,000 stock options, which vest pursuant to the terms therein, and rights to receive an additional 1,000,000 stock options on the first anniversary of the execution date of the agreement. In the event Mr. MacKenzie is terminated without cause, he will receive the full amount of compensation due through the expiration of this agreement. The agreement also contains customary provisions regarding confidentiality of the Company’s proprietary information, indemnification and non-competition. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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10

| Name                          |   | Age    |   | Position with Company                                      |   | Director of Company Since |
|-------------------------------|--------|--------|--------|------------------------------------------------------------|--------|---------------------------|
|                          |   |   |   |                                                       |   |                      |
| William S. Robinson |   | 54     |   | Director, Chairman, CEO and Treasurer                      |   | February 1996             |
|                          |   |   |   |                                                       |   |                      |
| William A. Ince     |   | 60     |   | Director, President, Secretary and Chief Financial Officer |   | February 1996             |
|                          |   |   |   |                                                       |   |                      |
| James Eagan              |   | 48     |   | Director                                                   |   | January 2011              |
|                          |   |   |   |                                                       |   |                      |
| Herbert C. Reedman  |   | 59     |   | Director                                                   |   | May 2011                  |

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11. 

| Name and Principal Position                                            |   | Fiscal Year Ended June 30 |   | Salary ($) |    |   | Bonus ($) |   |   | Stock Awards |   |   | Options Awards ($) (n2) |   |   | Non-Equity Incentive Plan Compensation ($) |   |   | Nonqualified Deferred Compensation Earnings ($) |   |   | All Other Compensation ($) (n3) |   |   | Total ($) |   |
|------------------------------------------------------------------------|--------|--------------------------------|--------|------------|---------|--------|-----------|--------|--------|--------------|--------|--------|-------------------------|--------|--------|--------------------------------------------|--------|--------|-------------------------------------------------|--------|--------|---------------------------------|--------|--------|-----------|--------|
|                                                                   |   |                           |   |       |    |   |      |   |   | (n1)         |   |   |                    |   |   |                                       |   |   |                                            |   |   |                            |   |   |      |   |
| William S.                                                        |   | 2011                           |   | $          | 220,000 |   |      |   | -0-    |         |   | $      | -0-                     |   |   | $                                          | -0-    |   |                                            |   | -0-    |                            |   |   | -0-       |   |   | $ | 28,282 |   |   | $ | 248,282 |   |
| Robinson                                                               |   | 2010                           |   | $          | 219,167 |   |      |   | -0-    |         |   | $      | 135,085                 |   |   | $                                          | -0-    |   |                                            |   | -0-    |                            |   |   | -0-       |   |   | $ | 28,282 |   |   | $ | 382,534 |   |
| Chief Executive Officer, Treasurer, Chairman, Director                 |   |                           |   |       |    |   |      |   |   |         |   |   |                    |   |   |                                       |   |   |                                            |   |   |                            |   |   |      |   |   |   |   |   |   |   |   |   |
|                                                                   |   |                           |   |       |    |   |      |   |   |         |   |   |                    |   |   |                                       |   |   |                                            |   |   |                            |   |   |      |   |   |   |   |   |   |   |   |   |
| William A.                                                        |   | 2011                           |   | $          | 220,000 |   |      |   | -0-    |         |   | $      | -0-                     |   |   |                                       | -0-    |   |                                            |   | -0-    |                            |   |   | -0-       |   |   | $ | 23,145 |   |   | $ | 243,145 |   |
| Ince                                                                   |   | 2010                           |   | $          | 219,167 |   |      |   | -0-    |         |   | $      | 293,085                 |   |   |                                       | -0-    |   |                                            |   | -0-    |                            |   |   | -0-       |   |   | $ | 23,145 |   |   | $ | 535,397 |   |
| Chief Financial and Accounting Officer, President, Secretary, Director |   |                           |   |       |    |   |      |   |   |         |   |   |                    |   |   |                                       |   |   |                                            |   |   |                            |   |   |      |   |   |   |   |   |   |   |   |   |

| (n1) | Reflects dollar amount expensed by the company during applicable fiscal year for financial statement reporting purposes pursuant to ASC 718. ASC 718 requires the company to determine the overall value of the options as of the date of grant based upon the Black-Scholes method of valuation, and to then expense that value over the service period over which the options become exercisable (vest). As a general rule, for time-in-service-based options, the company will immediately expense any option or portion thereof which is vested upon grant, while expensing the balance on a pro rata basis over the remaining vesting term of the option. For a description ASC 718 and the assumptions used in determining the value of the options under the Black-Scholes model of valuation, see the notes to the consolidated financial statements included with this report. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (n2) | On July 1, 2002, Mr. Ince was granted an option to acquire 415,000 shares of common stock at an exercise price of $1.00 per share. In December 2005, the expiration date of these options was extended until December 31, 2007. Then in June 2007, the expiration date of these options was extended until December 31, 2010. On April 10, 2010 the expiration date of these options was extended until July 31, 2014. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| (n3) | William S. Robinson and William A. Ince each own shares of Series A Preferred Stock. A 5% dividend on the Series A Preferred Stock is payable in cash or shares of common stock at the election of Integral. For the year ended June 30, 2011, $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, 2010, $10,282 was paid or accrued for Mr. Robinson and $5,145 was paid or accrued for Mr. Ince. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Option Awards            |   | Stock Awards                                                       |    |
|--------------------------|--------|--------------------------------------------------------------------|---------|
|                     |   |                                                               |    |   |   |   |   | Equity Incentive Plan Awards: |   |   |   |   |   |   |   |   |   |   |   |   | Equity Incentive Plan Awards: |   |   | Equity Incentive Plan Awards: |   |
|                     |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Name                     |   | Number of Securities Underlying Unexercised Options(#) Exercisable |    |   | Number of Securities Underlying Unexercised Options(#) Unexercisable |   |   | Number of Securities Underlying Unexercised Unearned Options (#) |   |   | Option Exercise Price ($) |   | Option Expiration Date |   | Number of Shares or Units of Stock That Have Not Vested (#) |   |   | Market Value of Shares or Units of Stock That Have Not Vested |   |   | Number of Unearned Shares, Units or Other Rights That Have Not Vested |   |   | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |   |
|                     |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| William S. Robinson (n1) |   |                                                               | 500,000 |   |   |   | 0 |   |   |   | 0 |   |   | $ | 0.25 |   | 12/31/2014 |   |   | 0 |   |   |   | 0 |   |   |   | 0 |   |   |   | 0 |   |
|                     |   |                                                               |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| William A. Ince (n2)     |   |                                                               | 415,000 |   |   |   | 0 |   |   |   | 0 |   |   | $ | 1.00 |   | 7/31/2014 |   |   | 0 |   |   |   | 0 |   |   |   | 0 |   |   |   | 0 |   |
|                     |   |                                                               | 500,000 |   |   |   | 0 |   |   |   | 0 |   |   | $ | 0.25 |   | 12/31/2014 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (n1) | Mr. Robinson holds the following options: On July 14, 2009 Mr. Robinson was granted an option to acquire 500,000 shares of common stock at an exercise price of $0.25 per share. These options are exercisable after January 1, 2010 and expire on December 31, 2014. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (n2) | Mr. Ince holds the following options: On July 1, 2002, Mr. Ince was granted an option to acquire 415,000 shares of common stock at an exercise price of $1.00 per share. In June 2007, the expiration date of these options was extended until December 31, 2010 and on April 10, 2010 the expiration date of these options was extended to July 31, 2014. On July 14, 2009 Mr. Ince was granted an option to acquire 500,000 shares of common stock at an exercise price of $0.25 per share. These options are exercisable after January 1, 2010 and expire on December 31, 2014. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Name               |   | Fees Earned or Paid in Cash ($) |   |   | Stock Awards ($) |   |   | Options Awards ($) |   |   | Non-Equity Incentive Plan Compensation ($) |   |   | Nonqualified Deferred Compensation Earnings ($) |   |   | All Other Compensation ($) |   |   | Total ($) |   |
|--------------------|--------|---------------------------------|--------|--------|------------------|--------|--------|--------------------|--------|--------|--------------------------------------------|--------|--------|-------------------------------------------------|--------|--------|----------------------------|--------|--------|-----------|--------|
|               |   |                            |   |   |             |   |   |               |   |   |                                       |   |   |                                            |   |   |                       |   |   |      |   |
| James Eagan        |   |                            | 84,000 |   |             |   |   |               |   |   |                                       |   |   |                                            |   |   |                       |   |   |      |   |   |   |   |   |   | 84,000 |   |
|               |   |                            |   |   |             |   |   |               |   |   |                                       |   |   |                                            |   |   |                       |   |   |      |   |   |   |   |   |   |   |   |
| Herbert C. Reedman |   |                            | 0      |   |             |   |   |               |   |   |                                       |   |   |                                            |   |   |                       |   |   |      |   |   |   |   |   |   | 0 |   |

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 12.

| Name and Address of Beneficial Owner (n1)                               |   | Amount and Nature of Beneficial Ownership(n1) |      |   | Percent of Class (n3) |   |
|-------------------------------------------------------------------------|--------|-----------------------------------------------|-----------|--------|-----------------------|--------|
| Executive Officers and Directors:                                       |   |                                          |      |   |                  |   |
| William S. Robinson (n4)#3 1070 West Pender St. Vancouver, B.C. V6E 2N7 |   |                                          | 3,020,695 | (n2)   |                  |   | 5.1 | % |
| William A. Ince (n5)805 W. Orchard Dr., Suite #7 Bellingham, WA 98225   |   |                                          | 2,640,186 | (n2)   |                  |   | 4.5 | % |
| All executive officers and directors as a group                         |   |                                          | 5,660,881 |   |                  |   | 9.8 | % |

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

| (n2) | Includes vested options beneficially owned but not yet exercised and outstanding, if any. The table does not include the effects of conversion by Mr. Robinson and Mr. Ince of their shares of Series A Convertible Preferred Stock (“Series A”), which are convertible into shares of common stock at a conversion rate that varies with the market price of the common stock at the time of conversion. The conversion rate is determined by dividing the number of shares of Series A being converted by the average of the high and low bid prices of Integral’s common stock reported by the OTC Bulletin Board over the ten trading days preceding the date of conversion. Mr. Robinson owns 204,975 shares of Series A and Mr. Ince owns 103,563 shares of Series A. As of August 26, 2011, the conversion rate was $0.50 per share, so Mr. Robinson’s 204,975 shares of Series A were convertible into 409,950 shares of common stock, and Mr. Ince’s 103,563 shares of Series A were convertible into 207,126 shares of common stock. The actual number of shares of common stock receivable by Messrs. Robinson and Ince upon conversion of the Series A would depend on the actual conversion rate in effect at the time of conversion. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (n3) | Based upon 54,838,921 shares issued and outstanding, plus the amount of shares each person or group has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights. |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (n4) | Mr. Robinson is an executive officer and director of Integral and each of its subsidiaries. Beneficial ownership figure includes an aggregate of 150,000 shares held in the names of his spouse and his two minor children and 500,000 underlying options. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

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

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

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

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| Plan category                                              |   | Number of securities to be issued upon exercise of outstanding options, warrants and rights |      |   | Weighted-average exercise price of options, warrants and rights |   |   | Number of securities available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |   |
|------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|-----------|--------|-----------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                       |   |                                                                                        |      |   |                                                            |   |   |                                                                                                                              |   |
|                                                       |   | (a)                                                                                         |      |   | (b)                                                             |   |   | (c)                                                                                                                               |   |
| Equity compensation plans approved by security holders     |   |                                                                                        | N/A       |   |                                                            |   | N/A    |                                                                                                                              |   |   | N/A |   |
| Equity compensation plans not approved by security holders |   |                                                                                        | 4,125,000 |   |                                                            | $      | 0.38   |                                                                                                                              |   |   | 2,500,000 |   |
| Total                                                      |   |                                                                                        | 4,125,000 |   |                                                            | $      | 0.38   |                                                                                                                              |   |   | 2,500,500 |   |

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 15.

| 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.) |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Table of Contents

| 10.27 | Agreement between Integral and Visionary Innovations, Inc., dated February 16, 2007. (Incorporated by reference to Exhibit 10.27 of Integral’s Quarterly Report on Form 10-QSB for the period ended March 31, 2007.) |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.28 | Amendment One to Manufacturing Agreement between Integral and Jasper Rubber Products, Inc. dated July 19, 2007. (Incorporated by reference to Exhibit 10.28 of Integral’s Current Report on Form 8-K dated July 19, 2007 (filed July 30, 2007).) |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.29 | Integral Technologies, Inc. 2009 Stock Option Plan dated July 14, 2009. (Incorporated by reference to Exhibit 10.29 of Integral’s Current Report on Form 10-KSB dated September 29, 2009 (filed September 29, 2009)) . |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.30 | Employment Agreement between Integral and William Robinson dated July 14, 2009. (Incorporated by reference to Exhibit 10.30 of Integral’s Current Report on Form 10-KSB dated September 29, 2009 (filed September 29, 2009)). |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.31 | Employment Agreement between Integral and William Ince dated July 14, 2009. (Incorporated by reference to Exhibit 10.31 of Integral’s Current Report on Form 10-KSB dated September 29, 2009 (filed September 29, 2009)). |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.32 | Consulting Agreement between Integral and Mohamed Zeidan dated August 10, 2009. (Incorporated by reference to Exhibit 10.32 of Integral’s Current Report on Form 10-KSB dated September 29, 2009 (filed September 29, 2009)). |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.33 | Consulting Agreement between Integral and James Eagan dated December 1, 2010. (Filed herewith). |
|-------|-------------------------------------------------------------------------------------------------|

| 10.34 | Consulting Agreement between Integral and Herbert C. Reedman dated April 15, 2011. (Filed herewith). |
|-------|------------------------------------------------------------------------------------------------------|

| 10.35 | Consulting Agreement between Integral and Stephen Neu dated June 1, 2011. (Filed herewith). |
|-------|---------------------------------------------------------------------------------------------|

| 10.36 | Consulting Agreement between Integral and Paul MacKenzie dated June 1, 2011. (Filed herewith). |
|-------|------------------------------------------------------------------------------------------------|

| 14.1 | Code of Ethics adopted September 20, 2004. (Incorporated by reference to Exhibit 14.1 of Integral’s annual report on Form 10-KSB for the period ended June 30, 2004.) |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| 31.1 | Section 302 Certification by the Corporation’s Chief Executive Officer. (Filed herewith). |
|------|-------------------------------------------------------------------------------------------------|

| 31.2 | Section 302 Certification by the Corporation’s Chief Financial Officer. (Filed herewith). |
|------|-------------------------------------------------------------------------------------------------|

| 32.1 | Section 906 Certification by the Corporation’s Chief Executive Officer. (Filed herewith). |
|------|-------------------------------------------------------------------------------------------------|

| 32.2 | Section 906 Certification by the Corporation’s Chief Financial Officer. (Filed herewith). |
|------|-------------------------------------------------------------------------------------------------|

----

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SIGN

|                      | INTEGRAL TECHNOLOGIES, INC                                                |
|---------------------------|---------------------------------------------------------------------------|
|                      |                                                                      |   |
| Dated: September 28, 2011 | /s/ William S. Robinson                                                   |   |
|                      | William S. Robinson, Chief Executive Officer                              |
|                      |                                                                      |   |
|                      | /s/ William A. Ince                                                       |   |
|                      | William A. Ince, Chief Financial Officer and Principal Accounting Officer |

| Name                    |   | Title    | Date               |
|-------------------------|--------|----------|--------------------|
|                    |   |     |               |
| /s/ William S. Robinson |   | Director | September 28, 2011 |
| William S. Robinson     |   |     |               |
|                    |   |     |               |
| /s/ William A. Ince     |   | Director | September 28, 2011 |
| William A. Ince         |   |     |               |

----

Table of Contents

| Index                                                     | Page              |
|-----------------------------------------------------------|-------------------|
|                                                      |              |
| Report of Independent Registered Public Accounting Firm   | F-1               |
|                                                      |              |
| Consolidated Financial Statements                         |              |
|                                                      |              |
| Consolidated Balance Sheets                               | F-2               |
|                                                      |              |
| Consolidated Statements of Operations                     | F-3               |
|                                                      |              |
| Consolidated Statements of Stockholders' Equity (Deficit) | F-4 – F-10  |
|                                                      |              |
| Consolidated Statements of Cash Flows                     | F-11              |
|                                                      |              |
| Notes to Consolidated Financial Statements                | F-12 – F-34 |

----

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----

Table of Contents

|                                                                                                                                 |   | 2011   |        |   | 2010   |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|--------|
|                                                                                                                                 |   |   |        |   |   |   |
| Assets                                                                                                                               |   |   |        |   |   |   |
|                                                                                                                                 |   |   |        |   |   |   |
| Current                                                                                                                              |   |   |        |   |   |   |
| Cash                                                                                                                                 |   | $      | 61,365      |   |   | $      | 350,235 |   |
| Prepaid expenses                                                                                                                     |   |   | 0           |   |   |   | 7,544 |   |
|                                                                                                                                 |   |   |        |   |   |   |   |   |
| Total Assets                                                                                                                         |   | $      | 61,365      |   |   | $      | 357,779 |   |
|                                                                                                                                 |   |   |        |   |   |   |   |   |
| Liabilities                                                                                                                          |   |   |        |   |   |   |   |   |
|                                                                                                                                 |   |   |        |   |   |   |   |   |
| Current                                                                                                                              |   |   |        |   |   |   |   |   |
| Accounts payable and accrued liabilities                                                                                             |   | $      | 775,747     |   |   | $      | 707,148 |   |
|                                                                                                                                 |   |   |        |   |   |   |   |   |
| Total Liabilities                                                                                                                    |   |   | 775,747     |   |   |   | 707,148 |   |
|                                                                                                                                 |   |   |        |   |   |   |   |   |
| Stockholders' Deficit (note 4)                                                                                                       |   |   |        |   |   |   |   |   |
|                                                                                                                                 |   |   |        |   |   |   |   |   |
| Preferred Stock and Paid-in Capital in Excess of $0.001 Par Value                                                                    |   |   |        |   |   |   |   |   |
|   20,000,000    Shares authorized                                                                                |   |   |        |   |   |   |   |   |
|        308,538    (2010 – 308,538) Shares issued and outstanding (note 4(b)) |   |   | 308,538     |   |   |   | 308,538 |   |
| Common Stock and Paid-in Capital in Excess of $0.001 Par Value                                                                       |   |   |        |   |   |   |   |   |
| 150,000,000    Shares authorized                                                                                 |   |   |        |   |   |   |   |   |
|   58,296,760    (2010 – 54,838,921) Shares issued and outstanding (note 4(a))                         |   |   | 33,858,822  |   |   |   | 33,224,263 |   |
| Promissory Notes Receivable (note 4(e))                                                                                              |   |   | (29,737     | )      |   |   | (29,737 | ) |
| Subscriptions Received (note 4(f))                                                                                                   |   |   | 0           |   |   |   | 11,250 |   |
| Accumulated Other Comprehensive Income                                                                                               |   |   | 46,267      |   |   |   | 46,267 |   |
| Deficit Accumulated During the Development Stage                                                                                     |   |   | (36,898,272 | )      |   |   | (30,909,950 | ) |
|                                                                                                                                 |   |   |        |   |   |   |   |   |
| Total Stockholders' Deficit                                                                                                          |   |   | (714,382    | )      |   |   | (349,369 | ) |
|                                                                                                                                 |   |   |        |   |   |   |   |   |
| Total Liabilities and Stockholders' Deficit                                                                                          |   | $      | 61,.365     |   |   | $      | 357,779 |   |

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Table of Contents

|                                                 |   | Years Ended June 30, |       |   | Period FromFebruary 12,1996(Inception)Through |   |
|------------------------------------------------------|--------|----------------------|------------|--------|-----------------------------------------------|--------|
|                                                 |   | 2011                 |       |   | 2010                                          |   |   | 2009 |   |   | June 30, 2011 |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |
| Revenues                                             |   | $                    | 0          |   |                                          | $      | 0 |   |   | $ | 0 |   |   | $ | 249,308 |   |
| Cost of Sales                                        |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 216,016 |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
|                                                 |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 33,292 |   |
| Other Income                                         |   |                 | 797        |   |                                          |   | 2,899 |   |   |   | 8,511 |   |   |   | 869,303 |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
|                                                 |   |                 | 797        |   |                                          |   | 2,899 |   |   |   | 8,511 |   |   |   | 902,595 |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Expenses                                             |   |                 |       |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Consulting (note 4(c))                               |   |                 | 1,682,959  |   |                                          |   | 1,374,060 |   |   |   | 287,204 |   |   |   | 9,608,625 |   |
| Salaries (note 4(c))                                 |   |                 | 440,000    |   |                                          |   | 872,027 |   |   |   | 585,197 |   |   |   | 10,999,316 |   |
| Research and development                             |   |                 | 245,593    |   |                                          |   | 250,826 |   |   |   | 230,060 |   |   |   | 1,967,382 |   |
| Legal and accounting                                 |   |                 | 192,295    |   |                                          |   | 199,263 |   |   |   | 263,964 |   |   |   | 4,795,317 |   |
| Travel and entertainment                             |   |                 | 105,546    |   |                                          |   | 62,034 |   |   |   | 53,934 |   |   |   | 1,524,860 |   |
| General and administrative                           |   |                 | 89,805     |   |                                          |   | 95,554 |   |   |   | 70,184 |   |   |   | 1,368,183 |   |
| Rent                                                 |   |                 | 50,454     |   |                                          |   | 46,631 |   |   |   | 43,170 |   |   |   | 584,755 |   |
| Telephone                                            |   |                 | 27,908     |   |                                          |   | 24,382 |   |   |   | 24,993 |   |   |   | 511,585 |   |
| Advertising                                          |   |                 | 6,612      |   |                                          |   | 5,866 |   |   |   | 1,591 |   |   |   | 345,339 |   |
| Bank charges and interest, net                       |   |                 | 910        |   |                                          |   | 1,993 |   |   |   | 3,090 |   |   |   | 208,191 |   |
| Write-off of investments                             |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 1,250,000 |   |
| Non-competition agreement                            |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 711,000 |   |
| Write-down of license and operating assets           |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 1,855,619 |   |
| Interest on beneficial conversion feature            |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 566,455 |   |
| Settlement of lawsuit                                |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 45,250 |   |
| Financing fees, net                                  |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 129,043 |   |
| Bad debts                                            |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 46,604 |   |
| Depreciation and amortization                        |   |                 | 0          |   |                                          |   | 0 |   |   |   | 0 |   |   |   | 324,386 |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
|                                                 |   |                 | 2,842,082  |   |                                          |   | 2,932,636 |   |   |   | 1,563,387 |   |   |   | 36,841,910 |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Net and Comprehensive Loss for Period                |   | $                    | (2,841,285 | )      |                                          | $      | (2,929,737 | ) |   | $ | (1,554,876 | ) |   | $ | (35,939,315 | ) |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Basic and Diluted Loss Per Share (note 8)            |   | $                    | (0.05      | )      |                                          | $      | (0.06 | ) |   | $ | (0.03 | ) |   |   |   |   |
|                                                 |   |                 |       |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Weighted Average Number of Common Shares Outstanding |   |                 | 56,487,578 |   |                                          |   | 51,520,654 |   |   |   | 47,360,459 |   |   |   |   |   |

----

Table of Contents

|                                               |   |      |       |   | Common          |   |      |      |   |   | Preferred       |   |   |       |   |   |          |   |   |          |   |   | Deficit     |   |   |             |   |
|----------------------------------------------------|--------|-----------|------------|--------|-----------------|--------|-----------|-----------|--------|--------|-----------------|--------|--------|------------|--------|--------|---------------|--------|--------|---------------|--------|--------|-------------|--------|--------|------------------|--------|
|                                               |   | Shares    |       |   | Stock and       |   |      | Shares of |   |   | Stock and       |   |   |       |   |   |          |   |   | Accumulated   |   |   | Accumulated |   |   |             |   |
|                                               |   | of Common |       |   | Paid-in Capital |   |      | Preferred |   |   | Paid-in Capital |   |   | Promissory |   |   |          |   |   | Other         |   |   | During the  |   |   | Total            |   |
|                                               |   | Stock     |       |   | in Excess       |   |      | Stock     |   |   | in Excess       |   |   | Notes      |   |   | Share         |   |   | Comprehensive |   |   | Development |   |   | Stockholders'    |   |
|                                               |   | Issued    |       |   | of Par          |   |      | Issued    |   |   | of Par          |   |   | Receivable |   |   | Subscriptions |   |   | Income        |   |   | Stage       |   |   | Equity (Deficit) |   |
|                                               |   |      |       |   |            |   |      |      |   |   |            |   |   |       |   |   |          |   |   |          |   |   |        |   |   |             |   |
| Shares Issued for                                  |   |      |       |   |            |   |      |      |   |   |            |   |   |       |   |   |          |   |   |          |   |   |        |   |   |             |   |
| Cash                                               |   |      | 1,000,000  |   |            | $      | 10,000    |      |   |   | 0               |   |   | $          | 0      |   |          | $      | 0      |          |   | $      | 0           |   |   | $                | 0      |   |   | $ | 0 |   |   | $ | 10,000 |   |
| Property and equipment (to officers and directors) |   |      | 1,500,000  |   |            |   | 15,000    |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 15,000 |   |
| Services (provided by officers and directors)      |   |      | 2,000,000  |   |            |   | 20,000    |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 20,000 |   |
| Services (other)                                   |   |      | 1,500,000  |   |            |   | 15,000    |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 15,000 |   |
| Foreign currency translation                       |   |      | 0          |   |            |   | 0         |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | (1,226 | ) |   |   | 0 |   |   |   | (1,226 | ) |
| Net loss for period                                |   |      | 0          |   |            |   | 0         |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | (344,843 | ) |   |   | (344,843 | ) |
|                                               |   |      |       |   |            |   |      |      |   |   |            |   |   |       |   |   |          |   |   |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 1996                             |   |      | 6,000,000  |   |            |   | 60,000    |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | (1,226 | ) |   |   | (344,843 | ) |   |   | (286,069 | ) |
| Shares Issued for                                  |   |      |       |   |            |   |      |      |   |   |            |   |   |       |   |   |          |   |   |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Cash                                               |   |      | 5,086,000  |   |            |   | 865,514   |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 865,514 |   |
| Share issue costs                                  |   |      | 0          |   |            |   | (48,920   | )         |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | (48,920 | ) |
| Services                                           |   |      | 564,000    |   |            |   | 63,036    |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 63,036 |   |
| Acquisition of subsidiary                          |   |      | 100,000    |   |            |   | 275,000   |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 275,000 |   |
| Foreign currency translation                       |   |      | 0          |   |            |   | 0         |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 12,601 |   |   |   | 0 |   |   |   | 12,601 |   |
| Net loss for year                                  |   |      | 0          |   |            |   | 0         |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | (822,217 | ) |   |   | (822,217 | ) |
|                                               |   |      |       |   |            |   |      |      |   |   |            |   |   |       |   |   |          |   |   |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 1997                             |   |      | 11,750,000 |   |            |   | 1,214,630 |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 11,375 |   |   |   | (1,167,060 | ) |   |   | 58,945 |   |
| Shares Issued for                                  |   |      |       |   |            |   |      |      |   |   |            |   |   |       |   |   |          |   |   |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Cash                                               |   |      | 825,396    |   |            |   | 650,000   |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 650,000 |   |
| Share issue costs                                  |   |      | 0          |   |            |   | (78,000   | )         |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | (78,000 | ) |
| Foreign currency translation                       |   |      | 0          |   |            |   | 0         |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 24,860 |   |   |   | 0 |   |   |   | 24,860 |   |
| Net loss for year                                  |   |      | 0          |   |            |   | 0         |      |   |   | 0               |   |   |       | 0      |   |          |   | 0      |          |   |   | 0           |   |   |             | 0      |   |   |   | (937,373 | ) |   |   | (937,373 | ) |
|                                               |   |      |       |   |            |   |      |      |   |   |            |   |   |       |   |   |          |   |   |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 1998                             |   |      | 12,575,396 |   |            | $      | 1,786,630 |      |   |   | 0               |   |   | $          | 0      |   |          | $      | 0      |          |   | $      | 0           |   |   | $                | 36,235 |   |   | $ | (2,104,433 | ) |   | $ | (281,568 | ) |

----

Table of Contents

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

----

Table of Contents

|                                    |   |      |       |   | Common          |   |       |      |   |   | Preferred       |   |   |       |     |   |          |   |    |          |   |   | Deficit     |   |   |             |   |
|-----------------------------------------|--------|-----------|------------|--------|-----------------|--------|------------|-----------|--------|--------|-----------------|--------|--------|------------|----------|--------|---------------|--------|---------|---------------|--------|--------|-------------|--------|--------|------------------|--------|
|                                    |   | Shares    |       |   | Stock and       |   |       | Shares of |   |   | Stock and       |   |   |       |     |   |          |   |    | Accumulated   |   |   | Accumulated |   |   |             |   |
|                                    |   | of Common |       |   | Paid-in Capital |   |       | Preferred |   |   | Paid-in Capital |   |   | Promissory |     |   |          |   |    | Other         |   |   | During the  |   |   | Total            |   |
|                                    |   | Stock     |       |   | in Excess       |   |       | Stock     |   |   | in Excess       |   |   | Notes      |     |   | Share         |   |    | Comprehensive |   |   | Development |   |   | Stockholders'    |   |
|                                    |   | Issued    |       |   | of Par          |   |       | Issued    |   |   | of Par          |   |   | Receivable |     |   | Subscriptions |   |    | Income        |   |   | Stage       |   |   | Equity (Deficit) |   |
|                                    |   |      |       |   |            |   |       |      |   |   |            |   |   |       |     |   |          |   |    |          |   |   |        |   |   |             |   |
| Balance, June 30, 2000                  |   |      | 26,032,062 |   |            | $      | 8,384,781  |      |   |   | 664,410         |   |   | $          | 664,410  |   |          | $      | (58,500 | )             |   | $      | 0           |   |   | $                | 46,293 |   |   | $ | (5,045,856 | ) |   | $ | 3,991,128 |   |
| Shares Issued for                       |   |      |       |   |            |   |       |      |   |   |            |   |   |       |     |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Cash on private placement               |   |      | 81,885     |   |            |   | 112,480    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 112,480 |   |
| Exercise of options                     |   |      | 517,000    |   |            |   | 91,515     |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 91,515 |   |
| Services                                |   |      | 100,000    |   |            |   | 40,000     |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 40,000 |   |
| Held in escrow                          |   |      | 218,115    |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Stock-based compensation                |   |      | 0          |   |            |   | 272,207    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 272,207 |   |
| Dividends on preferred stock            |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (30,720 | ) |   |   | (30,720 | ) |
| Share subscriptions                     |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 50,000      |   |   |             | 0      |   |   |   | 0 |   |   |   | 50,000 |   |
| Redemption of preferred stock           |   |      | 0          |   |            |   | 0          |      |   |   | (100,000        | )      |   |       | (100,000 | )      |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (100,000 | ) |   |   | (200,000 | ) |
| Foreign currency translation            |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | (26    | ) |   |   | 0 |   |   |   | (26 | ) |
| Net loss for year                       |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (4,000,169 | ) |   |   | (4,000,169 | ) |
|                                    |   |      |       |   |            |   |       |      |   |   |            |   |   |       |     |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2001                  |   |      | 26,949,062 |   |            |   | 8,900,983  |      |   |   | 564,410         |   |   |       | 564,410  |   |          |   | (58,500 | )             |   |   | 50,000      |   |   |             | 46,267 |   |   |   | (9,176,745 | ) |   |   | 326,415 |   |
| Shares Issued for                       |   |      |       |   |            |   |       |      |   |   |            |   |   |       |     |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Proprietary non-competition agreement   |   |      | 450,000    |   |            |   | 711,000    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 711,000 |   |
| Held in escrow                          |   |      | 700,000    |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Exercise of options                     |   |      | 2,263,500  |   |            |   | 971,200    |      |   |   | 0               |   |   |       | 0        |   |          |   | (15,000 | )             |   |   | (10,000     | )      |   |             | 0      |   |   |   | 0 |   |   |   | 946,200 |   |
| Exercise of warrants                    |   |      | 325,000    |   |            |   | 130,000    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 130,000 |   |
| Subscriptions                           |   |      | 100,000    |   |            |   | 40,000     |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | (40,000     | )      |   |             | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Stock-based compensation                |   |      | 0          |   |            |   | 415,685    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 415,685 |   |
| Shares released from escrow             |   |      | 0          |   |            |   | 954,582    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 954,582 |   |
| Dividends on preferred stock            |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (26,087 | ) |   |   | (26,087 | ) |
| Redemption of preferred stock           |   |      | 0          |   |            |   | 0          |      |   |   | (124,800        | )      |   |       | (124,800 | )      |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (187,200 | ) |   |   | (312,000 | ) |
| Write-off of promissory note receivable |   |      | 0          |   |            |   | (7,000     | )         |   |   | 0               |   |   |       | 0        |   |          |   | 7,000   |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Net loss for year                       |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (3,836,191 | ) |   |   | (3,836,191 | ) |
|                                    |   |      |       |   |            |   |       |      |   |   |            |   |   |       |     |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2002                  |   |      | 30,787,562 |   |            | $      | 12,116,450 |      |   |   | 439,610         |   |   | $          | 439,610  |   |          | $      | (66,500 | )             |   | $      | 0           |   |   | $                | 46,267 |   |   | $ | (13,226,223 | ) |   | $ | (690,396 | ) |

----

Table of Contents

|                                         |   |      |       |   | Common          |   |       |      |   |   | Preferred       |   |   |       |     |   |          |   |    |          |   |   | Deficit     |   |   |             |   |
|----------------------------------------------|--------|-----------|------------|--------|-----------------|--------|------------|-----------|--------|--------|-----------------|--------|--------|------------|----------|--------|---------------|--------|---------|---------------|--------|--------|-------------|--------|--------|------------------|--------|
|                                         |   | Shares    |       |   | Stock and       |   |       | Shares of |   |   | Stock and       |   |   |       |     |   |          |   |    | Accumulated   |   |   | Accumulated |   |   |             |   |
|                                         |   | of Common |       |   | Paid-in Capital |   |       | Preferred |   |   | Paid-in Capital |   |   | Promissory |     |   |          |   |    | Other         |   |   | During the  |   |   | Total            |   |
|                                         |   | Stock     |       |   | in Excess       |   |       | Stock     |   |   | in Excess       |   |   | Notes      |     |   | Share         |   |    | Comprehensive |   |   | Development |   |   | Stockholders'    |   |
|                                         |   | Issued    |       |   | of Par          |   |       | Issued    |   |   | of Par          |   |   | Receivable |     |   | Subscriptions |   |    | Income        |   |   | Stage       |   |   | Equity (Deficit) |   |
|                                         |   |      |       |   |            |   |       |      |   |   |            |   |   |       |     |   |          |   |    |          |   |   |        |   |   |             |   |
| Balance, June 30, 2002                       |   |      | 30,787,562 |   |            | $      | 12,116,450 |      |   |   | 439,610         |   |   | $          | 439,610  |   |          | $      | (66,500 | )             |   | $      | 0           |   |   | $                | 46,267 |   |   | $ | (13,226,223 | ) |   | $ | (690,396 | ) |
| Shares Issued for                            |   |      |       |   |            |   |       |      |   |   |            |   |   |       |     |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Cash on private placement                    |   |      | 1,684,000  |   |            |   | 842,050    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 842,050 |   |
| Settlement of debt                           |   |      | 144,793    |   |            |   | 104,542    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 104,542 |   |
| Services                                     |   |      | 200,000    |   |            |   | 196,000    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 196,000 |   |
| Exercise of options                          |   |      | 52,500     |   |            |   | 43,750     |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 43,750 |   |
| Exercise of warrants                         |   |      | 55,000     |   |            |   | 27,500     |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 27,500 |   |
| Subscription received                        |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 176,665     |   |   |             | 0      |   |   |   | 0 |   |   |   | 176,665 |   |
| Stock-based compensation                     |   |      | 0          |   |            |   | 5,460      |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 5,460 |   |
| Settlement of lawsuit                        |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 35,250      |   |   |             | 0      |   |   |   | 0 |   |   |   | 35,250 |   |
| Dividends on preferred stock                 |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (22,060 | ) |   |   | (22,060 | ) |
| Net loss for year                            |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (1,346,833 | ) |   |   | (1,346,833 | ) |
|                                         |   |      |       |   |            |   |       |      |   |   |            |   |   |       |     |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2003                       |   |      | 32,923,855 |   |            |   | 13,335,752 |      |   |   | 439,610         |   |   |       | 439,610  |   |          |   | (66,500 | )             |   |   | 211,915     |   |   |             | 46,267 |   |   |   | (14,595,116 | ) |   |   | (628,072 | ) |
| Shares Issued for                            |   |      |       |   |            |   |       |      |   |   |            |   |   |       |     |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Cash on private placement                    |   |      | 6,609,336  |   |            |   | 6,042,935  |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | (211,915    | )      |   |             | 0      |   |   |   | 0 |   |   |   | 5,831,020 |   |
| Cash on exercise of options                  |   |      | 25,000     |   |            |   | 25,000     |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 25,000 |   |
| Settlement of lawsuit                        |   |      | 37,500     |   |            |   | 35,250     |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 35,250 |   |
| Services                                     |   |      | 25,000     |   |            |   | 21,873     |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 21,873 |   |
| Redemption of preferred stock                |   |      | 415,000    |   |            |   | 415,000    |      |   |   | (118,572        | )      |   |       | (118,572 | )      |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (296,428 | ) |   |   | 0 |   |
| Exercise of warrants                         |   |      | 288,298    |   |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Shares returned to treasury for cancellation |   |      | (142,140   | )      |            |   | 0          |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Stock-based compensation                     |   |      | 0          |   |            |   | 321,275    |      |   |   | 0               |   |   |       | 0        |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 321,275 |   |
| Dividends on preferred stock                 |   |      | 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 |   |

----

Table of Contents

|                          |   |      |       |   | Common          |   |       |      |   |   | Preferred       |   |   |       |    |   |          |   |    |          |   |   | Deficit     |   |   |             |   |
|-------------------------------|--------|-----------|------------|--------|-----------------|--------|------------|-----------|--------|--------|-----------------|--------|--------|------------|---------|--------|---------------|--------|---------|---------------|--------|--------|-------------|--------|--------|------------------|--------|
|                          |   | Shares    |       |   | Stock and       |   |       | Shares of |   |   | Stock and       |   |   |       |    |   |          |   |    | Accumulated   |   |   | Accumulated |   |   |             |   |
|                          |   | of Common |       |   | Paid-in Capital |   |       | Preferred |   |   | Paid-in Capital |   |   | Promissory |    |   |          |   |    | Other         |   |   | During the  |   |   | Total            |   |
|                          |   | Stock     |       |   | in Excess       |   |       | Stock     |   |   | in Excess       |   |   | Notes      |    |   | Share         |   |    | Comprehensive |   |   | Development |   |   | Stockholders'    |   |
|                          |   | Issued    |       |   | of Par          |   |       | Issued    |   |   | of Par          |   |   | Receivable |    |   | Subscriptions |   |    | Income        |   |   | Stage       |   |   | Equity (Deficit) |   |
|                          |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |
| Balance, June 30, 2004        |   |      | 40,181,849 |   |            | $      | 20,197,085 |      |   |   | 321,038         |   |   | $          | 321,038 |   |          | $      | (66,500 | )             |   | $      | 0           |   |   | $                | 46,267 |   |   | $ | (17,454,408 | ) |   | $ | 3,043,482 |   |
| Shares Issued for             |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Settlement of debt            |   |      | 44,000     |   |            |   | 55,000     |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 55,000 |   |
| Cashless exercise of warrants |   |      | 1,713,300  |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Services                      |   |      | 500,000    |   |            |   | 270,000    |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 270,000 |   |
| Redemption of preferred stock |   |      | 0          |   |            |   | 0          |      |   |   | (12,500         | )      |   |       | (12,500 | )      |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (37,500 | ) |   |   | (50,000 | ) |
| Dividends on preferred stock  |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (15,739 | ) |   |   | (15,739 | ) |
| Net loss for year             |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (1,812,265 | ) |   |   | (1,812,265 | ) |
|                          |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2005        |   |      | 42,439,149 |   |            |   | 20,522,085 |      |   |   | 308,538         |   |   |       | 308,538 |   |          |   | (66,500 | )             |   |   | 0           |   |   |             | 46,267 |   |   |   | (19,319,912 | ) |   |   | 1,490,478 |   |
| Shares Issued for             |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Exercise of options           |   |      | 200,000    |   |            |   | 134,000    |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 134,000 |   |
| Cashless exercise of warrants |   |      | 35,115     |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 0 |   |
| Services                      |   |      | 269,000    |   |            |   | 191,510    |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 191,510 |   |
| Exercise of warrants          |   |      | 1,291,168  |   |            |   | 1,080,669  |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 1,080,669 |   |
| Repayment of promissory note  |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 34,000  |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 34,000 |   |
| Dividends on preferred stock  |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (15,427 | ) |   |   | (15,427 | ) |
| Stock-based compensation      |   |      | 0          |   |            |   | 107,219    |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 107,219 |   |
| Net loss for year             |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (2,104,189 | ) |   |   | (2,104,189 | ) |
|                          |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2006        |   |      | 44,234,432 |   |            |   | 22,035,483 |      |   |   | 308,538         |   |   |       | 308,538 |   |          |   | (32,500 | )             |   |   | 0           |   |   |             | 46,267 |   |   |   | (21,439,528 | ) |   |   | 918,260 |   |
| Shares Issued for             |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Exercise of options           |   |      | 50,000     |   |            |   | 35,000     |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 35,000 |   |
| Services                      |   |      | 50,000     |   |            |   | 105,000    |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 105,000 |   |
| Private placement             |   |      | 1,180,537  |   |            |   | 2,361,641  |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 2,361,641 |   |
| Repayment of promissory note  |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 2,763   |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 2,763 |   |
| Dividends on preferred stock  |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (15,427 | ) |   |   | (15,427 | ) |
| Stock-based compensation      |   |      | 0          |   |            |   | 4,225,648  |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 4,225,648 |   |
| Net loss for year             |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (5,985,850 | ) |   |   | (5,985,850 | ) |
|                          |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2007        |   |      | 45,514,969 |   |            | $      | 28,762,772 |      |   |   | 308,538         |   |   | $          | 308,538 |   |          | $      | (29,737 | )             |   | $      | 0           |   |   | $                | 46,267 |   |   | $ | (27,440,805 | ) |   | $ | 1,647,035 |   |

----

Table of Contents

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

----

Table of Contents

|                         |   |      |       |   | Common          |   |       |      |   |   | Preferred       |   |   |       |    |   |          |   |    |          |   |   | Deficit     |   |   |             |   |
|------------------------------|--------|-----------|------------|--------|-----------------|--------|------------|-----------|--------|--------|-----------------|--------|--------|------------|---------|--------|---------------|--------|---------|---------------|--------|--------|-------------|--------|--------|------------------|--------|
|                         |   | Shares    |       |   | Stock and       |   |       | Shares of |   |   | Stock and       |   |   |       |    |   |          |   |    | Accumulated   |   |   | Accumulated |   |   |             |   |
|                         |   | of Common |       |   | Paid-in Capital |   |       | Preferred |   |   | Paid-in Capital |   |   | Promissory |    |   |          |   |    | Other         |   |   | During the  |   |   | Total            |   |
|                         |   | Stock     |       |   | in Excess       |   |       | Stock     |   |   | in Excess       |   |   | Notes      |    |   | Share         |   |    | Comprehensive |   |   | Development |   |   | Stockholders'    |   |
|                         |   | Issued    |       |   | of Par          |   |       | Issued    |   |   | of Par          |   |   | Receivable |    |   | Subscriptions |   |    | Income        |   |   | Stage       |   |   | Equity (Deficit) |   |
|                         |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |
| Balance, June 30, 2010       |   |      | 54,838,921 |   |            | $      | 33,224,263 |      |   |   | 308,538         |   |   | $          | 308,538 |   |          | $      | (29,737 | )             |   | $      | 11,250      |   |   | $                | 46,267 |   |   | $ | (33,909,950 | ) |   | $ | (349,369 | ) |
|                         |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Shares Issued for            |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Services                     |   |      | 446,118    |   |            |   | 619,284    |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 619,284 |   |
| Cash                         |   |      | 1,820,042  |   |            |   | 1,101,720  |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | (11,250     | )      |   |             | 0      |   |   |   | 0 |   |   |   | 1,090,470 |   |
| Share issue costs            |   |      | 330,879    |   |            |   | (122,497   | )         |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | (122,497 | ) |
| Warrants exercised           |   |      | 860,800    |   |            |   | 430,400    |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 430,400 |   |
| Dividends on preferred stock |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (15,460 | ) |   |   | (15,460 | ) |
| Warrant extension            |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Deemed dividend (note 4(d))  |   |      | 0          |   |            |   | 131,577    |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 131,577 |   |
| Deemed dividend (note 4(d))  |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (131,577 | ) |   |   | (131,577 | ) |
| Stock-based compensation     |   |      | 0          |   |            |   | 474,075    |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | 0 |   |   |   | 474,075 |   |
| Net loss for period          |   |      | 0          |   |            |   | 0          |      |   |   | 0               |   |   |       | 0       |   |          |   | 0       |          |   |   | 0           |   |   |             | 0      |   |   |   | (2,841,285 | ) |   |   | (2,841,285 | ) |
|                         |   |      |       |   |            |   |       |      |   |   |            |   |   |       |    |   |          |   |    |          |   |   |        |   |   |             |   |   |   |   |   |   |   |   |   |   |
| Balance, June 30, 2011       |   |      | 58,296,760 |   |            | $      | 35,858,822 |      |   |   | 308,538         |   |   | $          | 308,538 |   |          | $      | (29,737 | )             |   | $      | 0           |   |   | $                | 46,267 |   |   | $ | (36,898,272 | ) |   | $ | (714,382 | ) |

----

Table of Contents

|                                                                       |   |                 |       |   |        |   |       |   |   |   | Period from       |   |
|----------------------------------------------------------------------------|--------|----------------------|------------|--------|-------------|--------|------------|--------|--------|--------|-------------------|--------|
|                                                                       |   |                 |       |   |        |   |       |   |   |   | February 12, 1996 |   |
|                                                                       |   |                 |       |   | (Inception) |   |
|                                                                       |   | Years Ended June 30, |       |   | Through     |   |
|                                                                       |   | 2011                 |       |   | 2010        |   |       | 2009   |   |   | June 30, 2011     |   |
| Operating Activities                                                       |   |                 |       |   |        |   |       |   |   |   |              |   |
| Net loss                                                                   |   | $                    | (2,841,285 | )      |        | $      | (2,929,737 | )      |   | $      | (1,554,876        | )      |   | $ | (35,939,315 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities |   |                 |       |   |        |   |       |   |   |   |              |   |   |   |   |   |
| Write-down of investment                                                   |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 1,250,000 |   |
| Other income                                                               |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (658,305 | ) |
| Proprietary, non-competition agreement                                     |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 711,000 |   |
| Consulting services and financing fees                                     |   |                 | 481,803    |   |        |   | 81,000     |   |   |   | 14,000            |   |   |   | 2,100,586 |   |
| Depreciation and amortization                                              |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 349,941 |   |
| Stock-based compensation                                                   |   |                 | 474,075    |   |        |   | 1,225,151  |   |   |   | 119,064           |   |   |   | 7,532,584 |   |
| Interest on beneficial conversion feature                                  |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 566,456 |   |
| Settlement of lawsuit                                                      |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 60,250 |   |
| Write-down of license and operating assets                                 |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 1,853,542 |   |
| Bad debt                                                                   |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 77,712 |   |
| Changes in non-cash working capital                                        |   |                 |       |   |        |   |       |   |   |   |              |   |   |   |   |   |
| Due from affiliated company                                                |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (116,000 | ) |
| Notes and accounts receivable                                              |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (109,213 | ) |
| Inventory                                                                  |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (46,842 | ) |
| Prepaid expenses                                                           |   |                 | 7,544      |   |        |   | 3,809      |   |   |   | 19,223            |   |   |   | 1 |   |
| Deferred revenue and other                                                 |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (2,609 | ) |
| Accounts payable and accruals                                              |   |                 | 105,858    |   |        |   | 29,894     |   |   |   | (61,484           | )      |   |   | 1,055,116 |   |
| Net Cash Used in Operating Activities                                      |   |                 | (1,772,005 | )      |        |   | (1,589,883 | )      |   |   | (1,464,073        | )      |   |   | (21,315,096 | ) |
| Investing Activities                                                       |   |                 |       |   |        |   |       |   |   |   |              |   |   |   |   |   |
| Purchase of property, equipment and intangible assets                      |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (200,935 | ) |
| Assets acquired and liabilities assumed on purchase of subsidiary          |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (129,474 | ) |
| Investment in and advances to affiliated companies                         |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (2,000,000 | ) |
| License agreements                                                         |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (124,835 | ) |
| Net Cash Used in Investing Activities                                      |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (2,455,244 | ) |
| Financing Activities                                                       |   |                 |       |   |        |   |       |   |   |   |              |   |   |   |   |   |
| Redemption of preferred stock                                              |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (50,000 | ) |
| Repayment of loan                                                          |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (11,000 | ) |
| Advances from stockholders                                                 |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 1,078,284 |   |
| Repayments from (to) stockholders                                          |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | (91,283 | ) |
| Subscriptions received                                                     |   |                 | 0          |   |        |   | 11,250     |   |   |   | 0                 |   |   |   | 514,415 |   |
| Proceeds from issuance of common stock                                     |   |                 | 1,520,870  |   |        |   | 1,542,888  |   |   |   | 895,200           |   |   |   | 22,159,428 |   |
| Proceeds from convertible debentures                                       |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 600,000 |   |
| Share issue costs                                                          |   |                 | (37,735    | )      |        |   | (149,251   | )      |   |   | 0                 |   |   |   | (414,406 | ) |
| Net Cash Provided by Financing Activities                                  |   |                 | 1,483,135  |   |        |   | 1,404,887  |   |   |   | 895,200           |   |   |   | 23,785,438 |   |
| Effect of Foreign Currency Translation on Cash                             |   |                 | 0          |   |        |   | 0          |   |   |   | 0                 |   |   |   | 46,267 |   |
| Inflow (Outflow) of Cash                                                   |   |                 | (288,870   | )      |        |   | (184,996   | )      |   |   | (568,873          | )      |   |   | 61,365 |   |
| Cash, Beginning of Period                                                  |   |                 | 350,235    |   |        |   | 535,231    |   |   |   | 1,104,104         |   |   |   | 0 |   |
| Cash, End of Period                                                        |   | $                    | 61,365     |   |        | $      | 350,235    |   |   | $      | 535,231           |   |   | $ | 61,365 |   |

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Table of Contents

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

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

----

Table of Contents

----

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

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

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

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

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

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

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

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----

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

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

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

|   | (i) | Fair value measurements |
|--------|-----|-------------------------|

|   | · | Level 1 – Quoted prices in active markets for identical securities; |
|--------|--------|---------------------------------------------------------------------------|

|   | · | Level 2 – Other significant observable inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities); and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Level 3 – Significant unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

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

|   | (i) | Fair value measurements (Continued) |
|--------|-----|-------------------------------------|

|   | (j) | Income taxes |
|--------|-----|--------------|

|   | (k) | Stock-based compensation |
|--------|-----|--------------------------|

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

|   | (i) | The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require: |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances and settlements. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

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

|   | (l)  | Recently adopted accounting pronouncements (Continued) |
|--------|-----------|--------------------------------------------------------|

|   | · | For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | The FASB has issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of US GAAP. |
|--------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (m) | Recent accounting pronouncements not yet adopted |
|--------|-----|--------------------------------------------------|

|   | (i) | The FASB has issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU reflects the decision reached in EITF Issue No. 10-G. The amendments in this ASU affect any public entity as defined by Topic 805, Business Combinations, that enters into business combinations that are material on an individual or aggregate basis. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

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

|   | (ii) | The FASB has issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU represents the converged guidance of the FASB and the IASB (the Boards) on fair value measurement. The collective efforts of the Boards and their staff, reflected in ASU 2011-04, have resulted in common requirements for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning of the term “fair value.” The Boards have concluded the common requirements will result in greater comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with US GAAP and IFRSs. |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | STOCKHOLDERS' DEFICIT |
|----|-----------------------|

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

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

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

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

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----

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

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

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

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

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

|   | (iii) | During the year ended June 30, 2011, the Company: |
|--------|-------|---------------------------------------------------|

|   | (a) | Closed a private placement of 1,006,979 units, each unit consisting of one share of common stock at $0.65 and one-half warrant at $0.001. Each whole warrant entitles the holder to purchase one share of common stock on or before December 31, 2012 at an exercise price of $1.00. Exercise of all the investment warrants may be required in the event that the market price for the common stock exceeds $1.50 per share. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Closed a private placement of 813,063 units, each unit consisting of one share of common stock at $0.55 and one warrant at $0.001. Each warrant entitles the holder to purchase one share of common stock on or before February 28, 2013, at an exercise price of $1.00. Exercise of all the investment warrants may be required in the event that the market price for the common stock exceeds $1.50 per share. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

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

|   | (c) | Issued 330,879 shares of restricted common stock and paid cash of $37,735, as consideration for private placement share issue costs payable. The shares have been recorded at an aggregate fair value of $137,481. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Issued 860,800 shares of common stock upon exercise of 860,800 share purchase warrants at $0.50 per warrant, recording gross proceeds of $430,400. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iv) | During the year ended June 30, 2011, the Company entered into contracts for consulting services, which call for stock and option awards over the terms of the contracts (note 11). |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | The Company issued 50,000 shares of restricted common stock on execution of the agreement dated November 19, 2010, 75,000 shares of restricted common stock thirty days from the execution date and 125,000 shares of restricted common stock ninety days from the execution date. On the six- and nine-month anniversaries, 125,000 shares of restricted common stock are to be issued for a total of 500,000 shares of restricted common stock. Restrictions will be removed upon contract completion. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | The Company issued 150,000 shares of common stock on execution of the agreement dated December 1, 2010. On the six-month anniversary, 100,000 shares of common stock are to be issued. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Table of Contents

----

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

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

|   | (iv) | (Continued) |
|--------|------|-------------|

|   | (c) | During the year ended June 30, 2011, the Company issued 46,118 common stock and a fair value of $82,500 has been recorded and included as consulting fees. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Preferred stock |
|--------|-----|-----------------|

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

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Table of Contents

----

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

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

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Table of Contents

----

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

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

|                  |   | 2011   |   |   | 2010   |   |   | 2009   |   |
|-----------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                  |   |   |   |   |   |   |   |   |   |
| Expected life (years) |   |   | 4.33   |   |   |   | 2.39   |   |   |   | 1.00 |   |
| Interest rate         |   |   | 1.27   | %      |   |   | 1.10   | %      |   |   | 3.87 | % |
| Volatility            |   |   | 96.27  | %      |   |   | 162.90 | %      |   |   | 84.24 | % |
| Dividend yield        |   |   | 0.00   | %      |   |   | 0.00   | %      |   |   | 0.00 | % |
| Estimated forfeitures |   |   | 0.00   | %      |   |   | 0.00   | %      |   |   | 0.00 | % |

----

Table of Contents

----

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

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

|                                |   | Number of Options |       |   | Price Per Option |   |           | Weighted Average Exercise Price |   |
|-------------------------------------|--------|-------------------|------------|--------|------------------|--------|----------------|---------------------------------|--------|
|                                |   |              |       |   |             |   |           |                            |   |
| Outstanding, June 30, 2007 and 2008 |   |              | 3,720,000  |   |             | $      | 0.50 to $ 2.75 |                            |   | $ | 1.31 |   |
| Expired                             |   |              | (350,000   | )      |             | $      | 1.00 to $ 2.75 |                            |   | $ | 2.25 |   |
| Outstanding, June 30, 2009          |   |              | 3,370,000  |   |             | $      | 0.50 to $ 2.25 |                            |   | $ | 1.21 |   |
| Granted                             |   |              | 3,500,000  |   |             | $      | 0.25           |                            |   | $ | 0.25 |   |
| Expired                             |   |              | (300,000   | )      |             | $      | 1.00 to $ 1.16 |                            |   | $ | 1.08 |   |
| Forfeited                           |   |              | (2,445,000 | )      |             | $      | 0.65 to $ 2.25 |                            |   | $ | 1.28 |   |
|                                |   |              |       |   |             |   |           |                            |   |   |   |   |
| Outstanding, June 30, 2010          |   |              | 4,125,000  |   |             | $      | 0.25 to $ 1.00 |                            |   | $ | 0.36 |   |
| Granted                             |   |              | 2,375,000  |   |             | $      | 0.25 to $ 0.85 |                            |   | $ | 0.58 |   |
|                                |   |              |       |   |             |   |           |                            |   |   |   |   |
| Outstanding, June 30, 2011          |   |              | 6,500,000  |   |             | $      | 0.25 to $ 1.00 |                            |   | $ | 0.44 |   |
| Exercisable, June 30, 2011          |   |              | 3,950,000  |   |             | $      | 0.25 to $ 1.00 |                            |   | $ | 0.38 |   |

----

Table of Contents

----

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

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

|                 |   | Exercise |   |   | Number of Options |   |
|----------------------|--------|----------|--------|--------|-------------------|--------|
| Expiry Date          |   | Price    |   |   | 2011              |   |   | 2010 |   |   | 2009 |   |
|                 |   |     |   |   |              |   |   |   |   |   |   |   |
| June 30, 2010        |   | $        | 0.50   |   |              |   | 0 |   |   |   | 0 |   |   |   | 1,000,000 |   |
| June 30, 2010        |   | $        | 2.25   |   |              |   | 0 |   |   |   | 0 |   |   |   | 1,000,000 |   |
| December 31, 2011(1) |   | $        | 1.00   |   |              |   | 110,000 |   |   |   | 110,000 |   |   |   | 855,000 |   |
| December 31, 2012    |   | $        | 0.25   |   |              |   | 2,500,000 |   |   |   | 2,500,000 |   |   |   | 0 |   |
| November 15, 2013(2) |   | $        | 1.00   |   |              |   | 100,000 |   |   |   | 100,000 |   |   |   | 100,000 |   |
| March 9, 2014        |   | $        | 0.25   |   |              |   | 125,000 |   |   |   | 0 |   |   |   | 0 |   |
| June 1, 2014         |   | $        | 0.85   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| October 15, 2014     |   | $        | 0.50   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| July 31, 2014(3)     |   | $        | 1.00   |   |              |   | 415,000 |   |   |   | 415,000 |   |   |   | 415,000 |   |
| December 1, 2014     |   | $        | 0.50   |   |              |   | 175,000 |   |   |   | 0 |   |   |   | 0 |   |
| December 1, 2014     |   | $        | 0.85   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| December 31, 2014    |   | $        | 0.25   |   |              |   | 1,000,000 |   |   |   | 1,000,000 |   |   |   | 0 |   |
| April 15, 2015       |   | $        | 0.50   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| June 1, 2015         |   | $        | 0.50   |   |              |   | 175,000 |   |   |   | 0 |   |   |   | 0 |   |
| June 1, 2015         |   | $        | 0.85   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| October 15, 2015     |   | $        | 0.50   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| December 1, 2015     |   | $        | 0.50   |   |              |   | 175,000 |   |   |   | 0 |   |   |   | 0 |   |
| December 1, 2015     |   | $        | 0.85   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| April 15, 2016       |   | $        | 0.50   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| June 1, 2016         |   | $        | 0.50   |   |              |   | 175,000 |   |   |   | 0 |   |   |   | 0 |   |
| June 1, 2016         |   | $        | 0.85   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| October 15, 2016     |   | $        | 0.50   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| December 1, 2016     |   | $        | 0.50   |   |              |   | 175,000 |   |   |   | 0 |   |   |   | 0 |   |
| December 1, 2016     |   | $        | 0.85   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| April 15, 2017       |   | $        | 0.50   |   |              |   | 100,000 |   |   |   | 0 |   |   |   | 0 |   |
| June 1, 2017         |   | $        | 0.50   |   |              |   | 175,000 |   |   |   | 0 |   |   |   | 0 |   |
|                 |   |     |   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Total outstanding    |   |     |   |   |              |   | 6,500,000 |   |   |   | 4,125,000 |   |   |   | 3,370,000 |   |
| Total exercisable    |   |     |   |   |              |   | 3,950,000 |   |   |   | 2,925,000 |   |   |   | 3,370,000 |   |

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----

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

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

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

|   | (2) | During the year ended June 30, 2010, the expiry date of these options was extended from November 15, 2009 to November 15, 2010. During the year ended June 30, 2011, the expiry date of these options was extended from November 15, 2010 to November 15, 2013. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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----

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

|                   |   | Number of Warrants |       |   | Exercise Price Per Warrant |   |   | Weighted Average Exercise Price |   |
|------------------------|--------|--------------------|------------|--------|----------------------------|--------|--------|---------------------------------|--------|
|                   |   |               |       |   |                       |   |   |                            |   |
| Balance, June 30, 2008 |   |               | 400,629    |   |                       |   |   |                            | $      | 2.50 |   |
| Issued                 |   |               | 4,500,800  |   |                       | $      | 0.50   |                            |   | $ | 0.50 |   |
| Expired                |   |               | (400,629   | )      |                       | $      | 2.50   |                            |   | $ | 2.50 |   |
|                   |   |               |       |   |                       |   |   |                            |   |   |   |   |
| Balance, June 30, 2009 |   |               | 4,500,800  |   |                       |   |   |                            |   | $ | 0.50 |   |
| Issued                 |   |               | 4,263,152  |   |                       | $      | 0.70   |                            |   | $ | 0.70 |   |
|                   |   |               |       |   |                       |   |   |                            |   |   |   |   |
| Balance, June 30, 2010 |   |               | 8,763,952  |   |                       |   |   |                            |   | $ | 0.60 |   |
| Issued                 |   |               | 1,316,553  |   |                       | $      | 1.00   |                            |   | $ | 1.00 |   |
| Exercised              |   |               | (860,800   | )      |                       | $      | 0.50   |                            |   | $ | 0.50 |   |
| Expired                |   |               | (2,970,000 | )      |                       | $      | 0.50   |                            |   | $ | 0.50 |   |
|                   |   |               |       |   |                       |   |   |                            |   |   |   |   |
| Balance, June 30, 2011 |   |               | 6,249,705  |   |                       |   |   |                            |   | $ | 0.74 |   |

|                              |   |           |           |   | Number of Warrants |   |
|-----------------------------------|--------|----------------|----------------|--------|--------------------|--------|
| Expiry Date                       |   | Exercise Price |           |   | 2011               |   |   | 2010 |   |   | 2009 |   |
|                              |   |           |           |   |               |   |   |   |   |   |   |   |
| December 31, 2010                 |   | $              | 0.50           |   |               |   | 0 |   |   |   | 4,500,800 |   |   |   | 4,500,800 |   |
| December 31, 2011                 |   | $              | 0.50           |   |               |   | 670,000 |   |   |   | 0 |   |   |   | 0 |   |
| February 8, 2012                  |   | $              | 0.70           |   |               |   | 2,123,400 |   |   |   | 2,123,400 |   |   |   | 0 |   |
| May 14, 2012                      |   | $              | 0.70           |   |               |   | 507,853 |   |   |   | 507,853 |   |   |   | 0 |   |
| June 3, 2012                      |   | $              | 0.70           |   |               |   | 1,631,899 |   |   |   | 1,631,899 |   |   |   | 0 |   |
| December 31, 2012                 |   | $              | 1.00           |   |               |   | 503,490 |   |   |   | 0 |   |   |   | 0 |   |
| February 28, 2013                 |   | $              | 1.00           |   |               |   | 813,063 |   |   |   | 0 |   |   |   | 0 |   |
|                              |   |           |           |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Total outstanding and exercisable |   | $              | 0.50 to $ 0.70 |   |               |   | 6,249,705 |   |   |   | 8,763,952 |   |   |   | 4,500,800 |   |

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----

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

|   | (d) | Stock purchase warrants (Continued) |
|--------|-----|-------------------------------------|

|                    |   | Before |   |   | After  |   |
|-------------------------|--------|--------|--------|--------|--------|--------|
|                    |   |   |   |   |   |   |
| Risk-free interest rate |   |   | 0.16   | %      |   |   | 0.25 | % |
| Dividend yield          |   |   | 0.00   | %      |   |   | 0.00 | % |
| Volatility factor       |   |   | 55.58  | %      |   |   | 119.04 | % |
| Remaining term (years)  |   |   | 0.35   |   |   |   | 1.35 |   |

|   | (e) | Promissory notes receivable at June 30, 2011 includes: |
|--------|-----|--------------------------------------------------------|

|   | (i) | $17,500 (2010 - $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 (2010 - $12,237) due on exercise of 23,000 stock options, interest at 10% per annum, due June 30, 2003. |
|--------|------|----------------------------------------------------------------------------------------------------------------------|

|   | (f) | Subscriptions received |
|--------|-----|------------------------|

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

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----

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

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

|   | (iii) | During the year ended June 30, 2010, $11,250 was received for subscriptions of 15,000 units consisting of common stock at $0.75 per share and warrants at $0.001 per share of common stock underlying the warrant to purchase 15,000 shares of common stock on or before two years after the closing date at an exercise price of $1.00 per share (exercise of the investment warrant may be required in the event that the market price for the common stock exceeds $1.50 per share). These shares were issued during the year ended June 30, 2011. |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|                                             |   |                 |    |   |    |   |   |   |   |   | Period from   |   |
|--------------------------------------------------|--------|----------------------|---------|--------|---------|--------|--------|--------|--------|--------|---------------|--------|
|                                             |   |                 |    |   |    |   |   |   |   |   | February 12,  |   |
|                                             |   |                 |    |   |    |   |   |   |   |   | 1996          |   |
|                                             |   |                 |    |   |    |   |   |   |   |   | (Inception)   |   |
|                                             |   | Years Ended June 30, |    |   | Through |   |
|                                             |   | 2011                 |    |   | 2010    |   |   | 2009   |   |   | June 30, 2011 |   |
|                                             |   |                 |    |   |    |   |   |   |   |   |          |   |
| Supplemental Disclosure of Non-Cash Transactions |   |                 |    |   |    |   |   |   |   |   |          |   |
| Shares Issued for                                |   |                 |    |   |    |   |   |   |   |   |          |   |
| Redemption of preferred shares                   |   | $                    | 0       |   |    | $      | 0      |   |   | $      | 0             |   |   | $ | 415,000 |   |
| Property and equipment                           |   | $                    | 00      |   |    | $      | 0      |   |   | $      | 0             |   |   | $ | 23,000 |   |
| Proprietary agreement                            |   | $                    | 0       |   |    | $      | 0      |   |   | $      | 0             |   |   | $ | 711,000 |   |
| Settlement of accounts payable                   |   | $                    | 0       |   |    | $      | 0      |   |   | $      | 0             |   |   | $ | 228,742 |   |
| Services (provided by officers and directors)    |   | $                    | 0       |   |    | $      | 0      |   |   | $      | 0             |   |   | $ | 120,000 |   |
| Settlement of lawsuit                            |   | $                    | 0       |   |    | $      | 0      |   |   | $      | 0             |   |   | $ | 15,000 |   |
| Services                                         |   | $                    | 619,284 |   |    | $      | 81,000 |   |   | $      | 14,000        |   |   | $ | 1,516,068 |   |
| Subscriptions received                           |   | $                    | 11,250  |   |    | $      | 0      |   |   | $      | 46,500        |   |   | $ | 57,750 |   |
| Acquisition of subsidiary                        |   | $                    | 0       |   |    | $      | 0      |   |   | $      | 0             |   |   | $ | 894,200 |   |
| Supplemental Cash Flow Information               |   |                 |    |   |    |   |   |   |   |   |          |   |   |   |   |   |
| Interest paid                                    |   | $                    | 00      |   |    | $      | 0      |   |   | $      | 0             |   |   | $ | 81,111 |   |
| Income tax paid                                  |   | $                    | 00      |   |    | $      | 0      |   |   | $      | 0             |   |   | $ | 0 |   |

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

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

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

----

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| 6. | RISK MANAGMENT AND FINANCIAL INSTRUMENTS (Continued) |
|----|------------------------------------------------------|

|                                           |   | 2011   |   |   | 2010   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                           |   |   |   |   |   |   |
| Cash (US institution) – Non-FDIC insured |   | $      | 49,624 |   |   | $      | 316,674 |   |
| Cash (US institution) – FDIC insured     |   |   | 0      |   |   |   | 15,034 |   |
| Cash (CDN institution)                         |   |   | 11,741 |   |   |   | 18,527 |   |
|                                           |   |   |   |   |   |   |   |   |
|                                           |   | $      | 61,365 |   |   | $      | 350,235 |   |

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

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

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

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----

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

|                                       |   | 2011   |     |   | 2010   |   |     | 2009   |   |
|--------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
|                                       |   |   |     |   |   |   |     |   |   |
| Current expense                            |   | $      | 0        |   |   | $      | 878,000  |   |   | $ | 0 |   |
| Deferred benefit                           |   |   | (846,000 | )      |   |   | 0        |   |   |   | (528,000 | ) |
| Increase (decrease) in valuation allowance |   |   | 846,000  |   |   |   | (878,000 | )      |   |   | 528,000 |   |
|                                       |   |   |     |   |   |   |     |   |   |   |   |   |
| Total provision for income tax             |   | $      | 0        |   |   | $      | 0        |   |   | $ | 0 |   |

|                                                  |   | 2011   |     |   | 2010   |   |      | 2009   |   |
|-------------------------------------------------------|--------|--------|----------|--------|--------|--------|-----------|--------|--------|
|                                                  |   |   |     |   |   |   |      |   |   |
| Provision for income tax at the statutory rate of 34% |   | $      | (966,000 | )      |   | $      | (996,000  | )      |   | $ | (529,000 | ) |
|                                                  |   |   |     |   |   |   |      |   |   |   |   |   |
| Increase (decrease) in taxes due to                   |   |   |     |   |   |   |      |   |   |   |   |   |
| Change in valuation allowance                         |   |   | 964,000  |   |   |   | (878,000  | )      |   |   | 528,000 |   |
| Disallowed expense                                    |   |   | 2,000    |   |   |   | 1,000     |   |   |   | 1,000 |   |
| Expiration of capital loss                            |   |   | 0        |   |   |   | 425,000   |   |   |   | 0 |   |
| Change in deferred stock-based compensation           |   |   | 0        |   |   |   | 1,448,000 |   |   |   | 0 |   |
|                                                  |   |   |     |   |   |   |      |   |   |   |   |   |
| Total provision for income tax                        |   | $      | 0        |   |   | $      | 0         |   |   | $ | 0 |   |

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----

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

|                                       |   | 2011   |        |   | 2010   |   |       | 2009   |   |
|--------------------------------------------|--------|--------|-------------|--------|--------|--------|------------|--------|--------|
|                                       |   |   |        |   |   |   |       |   |   |
| Deferred income tax assets                 |   |   |        |   |   |   |       |   |   |
| Current deferred tax assets                |   |   |        |   |   |   |       |   |   |
| Legal dispute reserve                      |   | $      | 182,000     |   |   | $      | 182,000    |   |   | $ | 0 |   |
| Accrued liabilities                        |   |   | 0           |   |   |   | 14,000     |   |   |   | 12,000 |   |
|                                       |   |   |        |   |   |   |       |   |   |   |   |   |
| Total current deferred tax assets          |   |   | 182,000     |   |   |   | 196,000    |   |   |   | 12,000 |   |
|                                       |   |   |        |   |   |   |       |   |   |   |   |   |
| Noncurrent deferred tax assets             |   |   |        |   |   |   |       |   |   |   |   |   |
| Net operating loss carry-forwards          |   |   | 9,048,000   |   |   |   | 8,102,000  |   |   |   | 7,706,000 |   |
| Non-qualified stock options                |   |   | 923,000     |   |   |   | 762,000    |   |   |   | 1,795,000 |   |
| Capital loss carry-forwards                |   |   | 0           |   |   |   | 0          |   |   |   | 425,000 |   |
| Investment reserve                         |   |   | 0           |   |   |   | 247,000    |   |   |   | 247,000 |   |
| Basis difference of fixed assets           |   |   | 1,000       |   |   |   | 1,000      |   |   |   | 1,000 |   |
| Valuation allowance                        |   |   | (10,154,000 | )      |   |   | (9,308,000 | )      |   |   | (10,186,000 | ) |
|                                       |   |   |        |   |   |   |       |   |   |   |   |   |
| Total non-current deferred tax assets      |   |   | (182,000    | )      |   |   | (196,000   | )      |   |   | (12,000 | ) |
|                                       |   |   |        |   |   |   |       |   |   |   |   |   |
| Non-current deferred tax liabilities       |   |   | 0           |   |   |   | 0          |   |   |   | 0 |   |
|                                       |   |   |        |   |   |   |       |   |   |   |   |   |
| Total non-current deferred tax liabilities |   |   | 0           |   |   |   | 0          |   |   |   | 0 |   |
|                                       |   |   |        |   |   |   |       |   |   |   |   |   |
| Net deferred tax asset (liability)         |   | $      | 0           |   |   | $      | 0          |   |   | $ | 0 |   |

----

Table of Contents

----

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

| Year Ended    | Expires       |   | Amount |       |
|---------------|---------------|--------|--------|------------|
|          |          |   |   |       |
| June 30, 1997 | June 30, 2012 |   | $      | 1,405,000  |   |
| June 30, 1998 | June 30, 2018 |   |   | 999,000    |   |
| June 30, 1999 | June 30, 2019 |   |   | 1,361,000  |   |
| June 30, 2000 | June 30, 2020 |   |   | 1,091,000  |   |
| June 30, 2001 | June 30, 2021 |   |   | 2,002,000  |   |
| June 30, 2002 | June 30, 2022 |   |   | 2,527,000  |   |
| June 30, 2003 | June 30, 2023 |   |   | 1,364,000  |   |
| June 30, 2004 | June 30, 2024 |   |   | 2,162,000  |   |
| June 30, 2005 | June 30, 2025 |   |   | 2,208,000  |   |
| June 30, 2006 | June 30, 2026 |   |   | 2,373,000  |   |
| June 30, 2007 | June 30, 2027 |   |   | 1,177,000  |   |
| June 30, 2008 | June 30, 2028 |   |   | 1,676,000  |   |
| June 30, 2009 | June 30, 2029 |   |   | 1,439,000  |   |
| June 30, 2010 | June 30, 2030 |   |   | 1,699,000  |   |
| June 30, 2011 | June 30, 2031 |   |   | 3,129,000  |   |
|          |          |   |   |       |   |
| Total         |          |   | $      | 26,612,000 |   |

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----

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

|                                     |   | Income (Numerator) |       |   | Weighted Average Number of Shares (Denominator) |   |       | Loss Per Share |   |
|------------------------------------------|--------|--------------------|------------|--------|-------------------------------------------------|--------|------------|----------------|--------|
|                                     |   |               |       |   |                                            |   |       |           |   |
| 2011                                     |   |               |       |   |                                            |   |       |           |   |
| Loss for the year                        |   | $                  | (2,841,285 | )      |                                            |   |       |           |   |   |
| Preferred stock dividends                |   |               | (15,460    | )      |                                            |   |       |           |   |   |
|                                     |   |               |       |   |                                            |   |       |           |   |   |
| Loss attributable to common shareholders |   | $                  | (2,856,745 | )      |                                            |   | 56,487,578 |           |   | $ | (0.05 | ) |
|                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| 2010                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| Loss for the year                        |   | $                  | (2,929,737 | )      |                                            |   |       |           |   |   |   |   |
| Preferred stock dividends                |   |               | (15,462    | )      |                                            |   |       |           |   |   |   |   |
|                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| Loss attributable to common shareholders |   | $                  | (2,945,199 | )      |                                            |   | 51,520,654 |           |   | $ | (0.06 | ) |
|                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| 2009                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| Loss for the year                        |   | $                  | (1,554,876 | )      |                                            |   |       |           |   |   |   |   |
| Preferred stock dividends                |   |               | (15,427    | )      |                                            |   |       |           |   |   |   |   |
|                                     |   |               |       |   |                                            |   |       |           |   |   |   |   |
| Loss attributable to common shareholders |   | $                  | (1,570,303 | )      |                                            |   | 47,360,459 |           |   | $ | (0.03 | ) |

| 9. | RELATED PARTY TRANSACTIONS |
|----|----------------------------|

| 10. | SEGMENTED INFORMATION |
|-----|-----------------------|

| 11. | COMMITMENTS |
|-----|-------------|

|   | (a) | A Consulting and Confidentiality Agreement with a director, dated December 1, 2010, engaging the individual to provide certain consulting services to the Company. The term of the agreement expires on November 30, 2013 and the Company shall pay monthly consulting fees of $14,000 and issue 150,000 shares of common stock upon the execution of the agreement and an additional 100,000 shares of common stock upon the six-month anniversary of the execution date (not yet issued). The Company granted 600,000 stock options (note 4(c)) and an additional 1,250,000 stock options will be granted on the first anniversary of the execution date of the agreement. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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----

| 11. | COMMITMENTS (Continued) |
|-----|-------------------------|

|   | (b) | A Consulting and Confidentiality Agreement with a consultant, dated April 15, 2011, engaging the individual to provide certain consulting services to the Company. The term of the agreement expires on April 15, 2014 and the Company shall pay monthly consulting fees of $14,000 and issue 150,000 shares of common stock upon the execution of the agreement (not yet issued) and an additional 100,000 shares of common stock upon the six-month anniversary of the execution date. The Company granted 600,000 stock options (note 4(c)) and an additional 1,250,000 stock options will be granted on the first anniversary of the execution date of the agreement. |
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|   | (c) | A Consulting and Confidentiality Agreement with a consultant, dated June 1, 2011, engaging the individual to provide certain consulting services to the Company. The term of the agreement expires on June 1, 2014 and the Company shall pay monthly consulting fees of $14,000 and issue 150,000 shares of common stock upon the execution of the agreement (not yet issued) and an additional 100,000 shares of common stock upon the six-month anniversary of the execution date. The Company granted 600,000 stock options (note 4(c)) and an additional 1,250,000 stock options will be granted on the first anniversary of the execution date of the agreement. |
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|   | (d) | A Consulting and Confidentiality Agreement with a consultant, dated June 1, 2011, engaging the individual to provide certain consulting services to the Company. The term of the agreement expires on June 1, 2014 and the Company shall pay monthly consulting fees of $12,000 and issue 112,500 shares of common stock upon the execution of the agreement (not yet issued) and an additional 75,000 shares of common stock upon the six-month anniversary of the execution date. The Company granted 450,000 stock options (note 4(c)) and an additional 1,000,000 stock options will be granted on the first anniversary of the execution date of the agreement. |
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| 12. | SUBSEQUENT EVENTS |
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|   | (a) | issued 51,819 units, each unit consisting of one share of common stock at $0.78 and one warrant at $0.001. Each warrant entitles the holder to purchase one share of common stock on or before two years after the closing date at an exercise price of $1.00. Exercise of all the investment warrants may be required in the event that the market price for the common stock exceeds $1.50 per share. |
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|   | (b) | announced the formation of ElectriPlast Inc., a wholly owned subsidiary of the Company, which will function as the sales and marketing entity for ElectriPlastTM. |
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