UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





x  ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For
      the fiscal year ended June 30, 2009
 
 o  TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
  For
      the transition period from:   ______________ to
      ______________Commission
      file number:     0-28353


INTEGRAL
TECHNOLOGIES, INC.


(Name of
small business issuer as specified in its charter)





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








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





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





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





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





Indicate
by check mark is the issuer is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. o





Indicate
by check mark if the issuer is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act.  o





Indicate
by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.     Yes x    No
o





Indicate
by check mark whether the issuer has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files)..     Yes
o    No
o





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





Indicate
by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of
the Exchange Act).  Yes o   No
x





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





As of
September 14, 2009, the aggregate market value of the voting stock held by
non-affiliates, approximately 46,290,056 shares of Common Stock, was
approximately $21.7 million based on an average of the bid and ask prices of
approximately $0.47 per share of Common Stock on such date.





The
number of shares outstanding of the issuer’s Common Stock, $.001 par value, as
of September 14, 2009 was 50,305,769shares.





DOCUMENTS
INCORPORATED BY REFERENCE:  None.










TABLE OFCONTENTS





PagePART
      IItem
      1.
            Business
            2Item
      1A.
            Risk Factors
            6Item
      1B.
            Unresolved Staff Comments
            10Item
      2.
            Properties
            10Item
      3.
            Legal Proceedings
            10Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            10PART
      IIItem
      5.
            Market for Common Equity, Related Stockholder Matters and
      Issuer Purchases of Equity Securities
            11Item
      6.
            Selected Financial Data
            12Item
      7.
            Management's Discussion and Analysis of Financial Condition and
      Results of Operations.
            12Item
      7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            14Item
      8.
            Financial Statements and Supplementary Data
            15Item
      9.
            Changes In and Disagreements with Accountants on Accounting and
      Financial Disclosure
            15Item
      9A.
            Controls and Procedures
            15Item
      9B.
            Other Information
            16PART
      IIIItem
      10.
            Directors, Executive Officers, and Corporate
      Governance
            17Item
      11.
            Executive Compensation
            19Item
      12.
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            24Item
      13.
            Certain Relationship and Related Transactions, and Director
      Independence
            27Item
      14.
            Principal Accountant Fees and Services
            28Item
      15.
            Exhibits
            29SIGNATURES


1
 Table of Contents


PART I





CAUTIONARY
STATEMENT IDENTIFYING IMPORTANT FACTORS


THAT
COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO


DIFFER
FROM THOSE PROJECTED IN FORWARD LOOKING STATEMENTS





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





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





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





ITEM
1. BUSINESS.





BUSINESS
DEVELOPMENT





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





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





TECHNOLOGIES





ElectriPlastTM





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


2
 Table of Contents


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





Patents/Trademarks on
Technologies





Our
intellectual property portfolio consists of over eleven years of accumulated
research and design knowledge and trade secrets.  We have sought U.S.
patent protection for many of our ideas related to our ElectriPlastTM
technologies.  Currently, we have filed 118 U.S. patent applications,
42 of which have been issued and 76 of which have been filed and are pending
approval. No assurances can be given that all patent applications will be
approved; however, to the extent that patents are not granted, we will continue
to attempt to commercialize these technologies without the protection of
patents.  As patents are issued, we will have the exclusive right to
use in the U.S. the design(s) described in each issued patent for the 18-year
life of the patent.





Of the
aforementioned 76 U.S. patent applications which have been filed, 52 have been
rejected and 24 have received a non final rejection. Certain patent office
applications have been rejected by the patent office due to more stringent
requirements implemented by the patent office over 18 months ago. The company
has elected not to appeal those patent application rejected as the contents of
those rejected applications have been incorporated into subsequent applications. While the
number of rejections has been significant for reasons mentioned in the previous
paragraph, we maintain patents on the core technology and over 40 applications
thereon.





Since the
Supreme Court decision in KSR
v. Teleflex (2007), applicants for to the US Patent and Trademark Office
have encountered increased difficulty in obtaining US patents. KSRgave the USPTO greater
power to declare inventions obvious by combining prior art references. Prior to
KSR, the USPTO could
only combine references if a teaching, suggestion, or motivation to combine was
recited in those references. After KSR, the USPTO may combine
references without citing such teaching, suggest, or motivation. This change
clearly tips the balance of power away from inventors and has reduced patent
issue rates across the board as has been noted by patent practitioners,
generally.
 
 With
respect to Integral’s patent portfolio, the effect of KSR has been significant for
two reasons.
 
 First,
many of Integral’s patent applications are directed to specific uses of the
ElectriPlastTM composition where the material serves as a replacement for
traditional materials such as metal.  In these cases, the USPTO has
been finding an example of another patent where a conductive plastic – even one
of very different composition - has been used to replace the traditional
material. This patent is then combined with any of several “resin plus fiber”
compositional patents that are known to the USPTO but that predate Integral’s
entry into the field.  Once this combination is made, the task of
finding allowable subject matter is difficult.
 
 In some
cases, Integral can successfully argue to remove some of the cited art based on
distinctions made in Integral’s patent application or based on specific
teachings in the cited art – such as where the cited art somehow teaches against
some critical aspect of the invention.  In other cases, the claims may
be amended to narrow the claims to specific material selections, specific sizes
and dimensions of conductive fiber, and so forth.  The process of
argument and claim amendment is frequently successful in eliminating particular
reasons for rejection.  However, post-KSR rules give the USPTO
greater leeway in finding new combinations of art to counter the arguments and
amendments.
 
 Second,
these “specific use” patents often lack novel features apart from the material
composition. For example, an application directed toward an aerospace component
essentially describes a well-known component that is now manufactured using
ElectriPlastTM.  In such a case, the invention entirely rests on
whether the ElectriPlastTM is a sufficiently non-obvious substitute material to
warrant a patent. Integral cannot rely on any other unique features of the
component to obtain patent allowance.  Again, post-KSR, this has simply become
more difficult.
 
 Irrespective
of these difficulties, Integral continuously reviews its pending applications to
determine how best to protect its intellectual property interests. As warranted
by the specific facts of each application, Integral vigorously pursues continued
examinations and appeals through the USPTO process. While patent issuance has
become more difficult to obtain, it has not stopped altogether.  And,
Integral expects that a portion of the remaining, pending applications, will
eventually issue.





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





Product Manufacturing and
Distribution





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





After
eight months of refining the manufacturing and molding process of ElectriPlastTM,
the Jasper facility is now capable of producing over 50,000 pounds of
ElectriPlastTM pellets per month.  We have entered into patent license
agreements with several companies, as summarized below, and we are in the
process of producing prototypes of requested applications of ElectriPlastTM for
these companies as well as other prospective customers. In addition to its
manufacturing capabilities, Jasper has a distribution network throughout the US
and Canada, allowing for ElectriPlastTM to be introduced to prospective customers
and delivered to customers.





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





Barriers to Entry into
Market Segment





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


3
 Table of Contents


SUMMARY
OF AGREEMENTS





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





Patent License Agreement
with Heatron, Inc.





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





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





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





Patent License Agreement
withJasper
Rubber Products, Inc.





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





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





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





Manufacturing Agreement withJasper
Rubber Products, Inc.





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





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


4
 Table of Contents


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





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





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





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





Patent License Agreement
with Esprit Solutions Limited





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





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





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





Patent License Agreement
with Knowles Electronics, LLC





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





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





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





CES
Innovations 2007 Design and Engineering Award





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


5
 Table of Contents


EMPLOYEES





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





SEC
REPORTS AVAILABLE ON WEBSITE





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





ITEM
1A. RISK FACTORS





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





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





We have incurred substantial losses
from inception and we have never generate substantial revenues; failure to
achieve profitability in the future would cause the market price for our common
stock to decline significantly.  We have generated net losses
from inception and we have an accumulated deficit of approximately $30.9 million
as of June 30, 2009. We have never generated more than nominal
revenues.  If we don’t achieve profitability, the market price for our
common stock could decline significantly.





If we do not generate adequate
revenues in our fiscal year ending June 30, 2010, we may need to raise capital
to continue our operations.  We estimate that we will require
$1.8 million to carry out our business plan during our fiscal year ending June
30, 2010.  We had approximately $0.5 million in cash on hand at June
30, 2009.  Unless we generate adequate revenues from operations (we
have had none to date) in the near future, we may require additional financing
to carry out our business plans next year, and such financing may not be
available at that time. If we require additional financing, we may seek
additional funds through private placements that will be exempt from
registration and will not require prior shareholder approval.  If
additional funds are raised by issuing common stock, or securities that are
convertible into common stock (such as preferred stock, warrants, or convertible
debentures), further dilution to shareholders could
occur.  Additionally, investors could be granted registration rights
by us, which could result in market overhang and depress the market price of the
common stock.  If we fail to obtain sufficient additional financing,
we will not be able to implement our business plans in a complete or timely
manner.





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





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


6
 Table of Contents


If future market acceptance of our
ElectriPlastTM technology is poor, we will not be able to generate adequate sales
to achieve profitable operations.  Our future is dependent upon
the success of the current and future generations of our ElectriPlastTM
technology.  Our ElectriPlastTM technology will be marketed to
manufacturers of products which would benefit from the incorporation of any of
the ElectriPlastTM applications into their products.  As of June 30,
2009, we have not generated any revenue from our ElectriPlastTM
technology.  If future market acceptance of our ElectriPlastTM
technology is poor, we will not be able to generate adequate sales to achieve
profitable operations.





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





Our patent and other intellectual
property rights may be subject to uncertainty and may be challenged or
circumvented by competitors.We rely on a combination of
patents, patent applications, trademarks, copyrights, trade secrets and
confidentiality procedures to protect our intellectual property rights, which we
believe will give us a competitive advantage over our competitors. We have
sought U.S. patent protection for many of our ideas related to our ElectriPlastTM
technologies.  Currently, we have filed 118 U.S. patent applications,
42 of which have been issued, and 76 of which have been filed and are pending
approval. No assurances can be given that all patent applications will be
approved; however, to the extent that patents are not granted, we will continue
to attempt to commercialize these technologies without the protection of
patents.  As patents are issued, we will have the exclusive right to
use in the U.S. the design(s) described in each issued patent for the 18-year
life of the patent.





Of the
aforementioned 76 U.S. patent applications which have been filed, 52 have been
rejected and 24 have received a non final rejection. Certain patent office
applications have been rejected by the patent office due to more stringent
requirements implemented by the patent office over 18 months ago. The company
has elected not to appeal those patent application rejected as the contents of
those rejected applications have been incorporated into subsequent
applications.





As of
September 14, 2009, we have filed 118 U.S. patent applications relating to our
ElectriPlastTM technology, with 42 patents issued and 76 patents pending.
Additional patents may not be issued from our pending applications, although we
will continue to attempt to commercialize these technologies without the
protection of patents.  As patents are issued, we will have the
exclusive right to use in the U.S. the design(s) described in each issued patent
for the 18-year life of the patent.  However, the issuance of a patent
is not conclusive as to its validity or enforceability and, if a patent is
issued, it is uncertain how much protection, if any, will be given to our patent
if we attempt to enforce it.  Litigation, which could be costly and
time consuming, may be necessary to enforce our current patents or any patent
issued in the future or to determine the scope and validity of the proprietary
rights of third parties. A competitor may successfully challenge the validity or
enforceability of a patent or challenge the extent of the patent’s coverage. If
the outcome of litigation is adverse to us, third parties may be able to use our
patented technology without payment to us. Even if we are successful in
defending such litigation, the cost of litigation to uphold the patent can be
substantial.





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





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


7
 Table of Contents


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





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





As of
June 30, 2009, 1,000,000 shares of preferred stock have been designated as
Series A Convertible Preferred Stock of which 308,538 are issued and
outstanding, and held by two of our insiders.  Each share of Series A
Convertible Preferred Stock:





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





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





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





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





·
            subsequent
      to June 30, 2009, an amendment was made to the Series A convertible
      preferred shares in which they may be redeemed after five years but less
      than six years after the date of issue at a redemption price of $4.00 and
      increasing $0.50 per year for each share of Series A Convertible Preferred
      Stock so redeemed.





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





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





How future issuances of common stock
pursuant to our stock plans will affect you.  We have three
non-qualified stock plans in effect.  As of June 30, 2009,
approximately 1,839,500 (2001-464,500 and 2003-1,375,000) shares are available
under the plans for future issuance either directly or pursuant to options, to
our officers, directors, employees and consultants.  Also, as of June
30, 2009, approximately 1,370,000 shares are under option under the plans, at a
weighted-average exercise price of approximately $1.21 per share.  In
addition, pursuant to grants of options that were not under either of the formal
non-qualified stock plans, 1,000,000 shares are under option by an employee at
an exercise price of $.50 per share, plus an additional 1,000,000 shares are
under option by the same employee at an exercise price of $2.25 per
share.  Additional stock or options to acquire our stock of can be
granted at any time by our board of directors, usually without shareholder
approval.  When shares of common stock are issued directly or upon the
exercise of options under these plans, your ownership may be
diluted.


8
 Table of Contents


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





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





The market price of our common stock
is highly volatile and several factors that are beyond our control, including
our common stock being historically thinly traded, could adversely affect its
market price.  Our common stock has been historically thinly
traded and the market price has been highly volatile.  During the year
ended June 30, 2009, the closing bid price of our common stock has been quoted
on the OTC Bulletin Board from as low as $0.18 to as high as
$0.84.  These quotations reflect interdealer prices without retail
markup, markdown, or commission and may not represent actual
transactions.  For these and other reasons, our stock price is subject
to significant volatility and will likely be adversely affected if our revenues
or earnings (or lack of revenues or earnings) in any quarter fail to meet the
investment community’s expectations. Additionally, the market price of our
common stock could be subject to significant fluctuations in response
to:





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


·
            actual
      or anticipated variations in quarterly operating
  results;


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


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


·
            sales
      of our common stock.





Future sales of common stock into the
public market place will increase the public float and may adversely affect the
market price.As of June 30, 2009, approximately six million
shares of common stock were available for sale by both affiliates (officers and
directors) and non-affiliates under Rule 144 of the Securities Act of 1933, as
amended.  In general, under Rule 144, a person who has held stock for
six months may, under certain circumstances, sell within any three-month period
a number of shares which is not greater than one percent of the then outstanding
shares of common stock (as of June 30, 2009, there were 50,305,769 shares of
common stock outstanding, and one percent of the total number of shares
outstanding equaled 457,049 shares).  Under certain circumstances, the
sale of shares which have been held for one year by a person who is not
affiliated with us is also permitted without limitation under Rule 144. Future
sales of common stock will increase the public float and may have an adverse
effect on the market price of the common stock, which in turn could adversely
affect our ability to obtain future funding as well as create a potential market
overhang.





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


9
 Table of Contents


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





ITEM
1B. UNRESOLVED STAFF COMMENTS





None.





ITEM
2. PROPERTIES





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




ITEM
3. LEGAL PROCEEDINGS





There are
no pending legal proceedings involving our Company.




ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended June 30, 2009.


10
 Table of Contents


PART
II





ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS





Market
Information





There is
a limited public market for our common stock.  Our common stock is
quoted on the OTC Bulletin Board under the symbol "ITKG."  The
following table sets forth the range of high and low bid quotations for our
common stock on the OTC Bulletin Board for each quarter of the fiscal years
ended June 30, 2009 and 2008.





Quarter Ended
            
            Low Bid
            
            
            High BidSeptember
      30, 2007
            
            $
            1.22
            
            
            $
            2.22December
      31, 2007
            
            $
            0.92
            
            
            $
            1.99March
      31, 2008
            
            $
            0.73
            
            
            $
            1.19June
      30, 2008
            
            $
            0.63
            
            
            $
            0.91September
      30, 2008
            
            $
            0.50
            
            
            $
            0.84December
      31, 2008
            
            $
            0.18
            
            
            $
            0.64March
      31, 2009
            
            $
            0.21
            
            
            $
            0.50June
      30, 2009
            
            $
            0.35
            
            
            $
            0.21








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





Holders





As of
September 14, 2009 there were approximately 212 holders of record of our common
stock (this number does not include beneficial owners who hold shares at
broker/dealers in “street-name”).





Dividends





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





Recent
Sales of Unregistered Securities





Information
regarding the issuance and sales of securities without registration during the
fiscal year ended June 30, 2009, has previously been included in Quarterly
Reports on Forms 10-Q and Current Reports on Form 8-K filed during the period
covered by this report.





Repurchases
of equity securities





We did
not repurchase any of its outstanding equity securities during the forth quarter
ended June 30, 2009.


11
 Table of Contents


ITEM 6. SELECTEDFINANCIALDATA





N/A





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





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





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





To date
we have recorded nominal revenues. We are still considered a development stage
company for accounting purposes. From inception on February 12, 1996 through
June 30, 2009, we have accrued an accumulated deficit of approximately $30.9
million.





At June
30, 2009, all of our assets were current assets of $546,584, consisting of cash
of $535,231 and prepaid expenses of $11,353.  All of our property and
equipment has been fully depreciated.





At June
30, 2009, all of our liabilities were current liabilities of $661,792,
consisting of accounts payable and accruals.  Of this amount, payables
for legal fees (including associated filing fees) related to patent filings
accounting for approximately $535,000 of the total.





At June
30, 2009, total stockholder’s deficit was $115,208.





Our net
loss for the year ended June 30, 2009, was $1,554,876 compared to a net loss of
$1,938,216 for the prior fiscal year, a reduction of $383,340.  This
decrease in our net loss is attributable to the reduction salary and consulting
expenses and of non-cash charges incurred under the expense categories of
“salaries” and “consulting” during the year ended June 30,
2009:  salaries of $585,197 included non-cash, stock based
compensation charges (for the issuance of common stock and/or the granting of
options) of $62,125 compared to salary expense of $633,725 for the year ended
June 30, 2008 which included non-cash, stock based compensation charges (for the
issuance of common stock and/or the granting of options) of $65,233, and
consulting fees of $287,204 which included non-cash, stock based compensation
charges (for the issuance of common stock and/or the granting of options) of
$56939 compared to $500,850 for the year ended June 30, 2008 which included
non-cash, stock based compensation charges (for the issuance of common stock
and/or the granting of options) of $182,711. As described in the notes to the
financial statements, these values were determined using the Black-Scholes
option pricing model.





Salary
expenses during the year ended June 30, 2009, included non-cash expenses of
$62,125 for the extension of the expiration date of outstanding options held by
former Thomas Aisenbrey.





Consulting
expenses during the year ended June 30, 2009, included non-cash expenses of
$60,500 for the issuance of common stock to Visionary Innovations, Inc., and
$51,778 for the extension of the expiration dates of outstanding options held by
two other long-term consultants, Michael Pound and Scott
McArthur.


12
 Table of Contents


Our net
loss for the year ended June 30, 2009, was offset minimally by “other income” of
$8,511.  The category of “other income” consists of interest income
and nominal license fees.





Legal
fees incurred during the year ended June 30, 2008, were down from prior periods,
due to a decrease in patent filings in 2009.





Research
and development costs incurred during the year ended June 30, 2009 were $230,060
a decrease of $57,049 over the prior fiscal year attributable to refining the
manufacturing process by Jasper Rubber Products, Inc. of our ElectriPlastTM
material.





For the
year ended June 30, 2009, our cash used in operating activities was $1,464,073,
compared to $1,621,747 used in 2008 and $1,655,866 used in 2007.





For the
year ended June 30, 2009, our cash provided by financing activities was
$895,200, compared to $485,495 provided in 2008, and $2,399,404 used in
2007.





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





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





As of
June 30, 2009, we had $535,231 in cash on hand.  Accordingly,
management believes that until we generate revenues from operations (we have
none to date) additional funding will be required to carry out our business
plan.





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





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





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





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





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





Status
of Material Agreements with Consultants





Subsequent
to the year end on August 10, 2009, our Company retained the services of Mr.
Zeidan. Mr. Zeidan has over 25 years of experience in automotive engineering and
engineering management. At Lear Corp. he was the Chief Technology Officer and
Director of Hybrid Engineering, creating the Hybrid Engineering Department that
developed innovative technologies resulting in major business growth. Prior to
Lear, he worked at United Technologies Automotive “UTA” for about 14 years in
Advanced Engineering for many Global OEM programs from Advance Phase through
Production Launch being the complete life cycle of the
technology.


13
 Table of Contents


Mr.
Zeidan and his team willidentify partners for
joint development of our customers’ products utilizing ElectriPlastTM, and take
it through product implementation, including prototype testing to secure
technology approval and validation, and secure awarding of
contracts.





The term
of the agreement is from August 10, 2009 and expires on July 31, 2011. The
agreement calls for a monthly fee for Mr, Zeidan and his team of engineers of
$25,000. In addition, Mr. Zeidan has been granted by Integral, options to
acquire 2,000,000 shares of Integral’s common stock at an exercise price of
$0.25 per share. These options shall be fully vested pursuant to the schedule
attached in Exhibit 10.32. Either party may terminate the agreement at “six
month” intervals with 30 days notice as more fully explained in Exhibit 10.
32.





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





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





ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





N/A


14
 Table of Contents


ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





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





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





None.




ITEM
9A. CONTROLS AND PROCEDURES





Disclosure Controls and
Procedures


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





Our chief
executive officer and our chief financial officer have evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report, and they have concluded that, as of June 30,
2009, our disclosure controls and procedures were effective.


Management’s Report on Internal
Control Over Financial Reporting


Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. These rules refer to the controls and other procedures of a
company that are designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Internal control over financial reporting includes these policies
and procedures that (1) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and dispositions of our
assets; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and
directors; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of our assets that
could have a material effect on the financial statements. Under the supervision
and with the participation of our management, including our chief executive
officer and chief financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of the end of
the period covered by this report. Our evaluation was based on the criteria for
smaller public companies set forth in Internal Control—Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on our evaluation under those criteria, our
management concluded that, as of June 30, 2009, our internal control over
financial reporting was effective.





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


15
 Table of Contents


Changes in
Internal Control Over Financial Reporting
 
 There
have been no changes in our internal control over financial reporting that
occurred during the fourth quarter ended June 30, 2009, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.





Limitations
on the Effectiveness of Internal Controls





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





ITEM
9B. OTHER INFORMATION





None.


16
 Table of Contents




INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)





Consolidated
Financial Statements


June
30, 2009, 2008 and 2007


(US
Dollars)








Index
            PageReport
      of Independent Registered Public Accounting Firm
            F-1Consolidated
      Financial StatementsConsolidated
      Balance Sheets
            F-2Consolidated
      Statements of Operations
            F-3Consolidated
      Statements of Stockholders' Equity (Deficit)
            F-4
      – F-9Consolidated
      Statements of Cash Flows
            F-10Notes
      to Consolidated Financial Statements
            F-11
      – F-30





Table of Contents




Pannell Kerr
      Forster
            PKF




International




7th
Floor, Marine Building


355
Burrard Street.,


Vancouver,
B.C.,


Canada,
V6C 2G8


Telephone:
604.687.1231


Facsimile:
604.688.4675











REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





TO
THE DIRECTORS AND STOCKHOLDERS OF INTEGRAL TECHNOLOGIES, INC.


(A
Development Stage Company)





We have
audited the consolidated balance sheets of Integral Technologies, Inc. (A
Development Stage Company) as of June 30, 2009 and 2008 and the consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the years ended June 30, 2009, 2008 and 2007, and the cumulative totals for
the development stage of operations from February 12, 1996 (inception) through
June 30, 2009.  These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion
on these financial statements based on our audits.  The financial
statements of Integral Technologies, Inc. from February 12, 1996 (inception)
through June 30, 1996 were audited by other auditors whose report dated November
20, 1996 expressed an unqualified opinion on those statements.  Our
opinion, insofar as it relates to the cumulative totals for development stage
operations from February 12, 1996 (inception) through June 30, 1996, is based
solely on the report of the other auditors.





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





In our
opinion, based on our audits and the report of the other auditors, these
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as at June 30, 2009 and 2008 and the results
of its operations and its cash flows for each of the years ended June 30, 2009,
2008 and 2007, and the cumulative totals for the development stage of operations
from February 12, 1996 (inception) through June 30, 2009 in conformity with
accounting principles generally accepted in the United States of
America.





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





/s/
Pannell Kerr Forster





Chartered
Accountants


(Registered
with the PCAOB as “Smythe Ratcliffe”)





Vancouver,
Canada


September
28, 2009





F-1
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Balance Sheets


June
30


(US
Dollars)





2009
            
            
            2008AssetsCurrentCash
            
            $
            535,231
            
            
            $
            1,104,104Prepaid
      expenses
            
            
            11,353
            
            
            
            30,575Total
      Assets
            
            $
            546,584
            
            
            $
            1,134,679LiabilitiesCurrentAccounts
      payable and accruals
            
            $
            661,792
            
            
            $
            707,848Total
      Liabilities
            
            
            661,792
            
            
            
            707,848Stockholders'
      Equity (Deficit)(note 4)Preferred
      Stock and Paid-in Capital in Excess of $0.001 Par Value20,000,000     Shares
      authorized308,538      Shares issued and outstanding
      (note 4(b))
            
            
            308,538
            
            
            
            308,538Common
      Stock and Paid-in Capital in Excess of $0.001 Par Value150,000,000     Shares
      authorized50,305,769     (2008 – 45,704,969) Shares issued
      andoutstanding (note
      4(a))
            
            
            30,524,475
            
            
            
            29,219,711Promissory Notes
      Receivable (note 4(e))
            
            
            (29,737
            )
            
            
            (29,737
            )Subscriptions Received(note 4(f))
            
            
            0
            
            
            
            276,500Other
      Comprehensive Income
            
            
            46,267
            
            
            
            46,267Deficit
      Accumulated During the Development Stage
            
            
            (30,964,751
            )
            
            
            (29,394,448
            )Total
      Stockholders' Equity (Deficit)
            
            
            (115,208
            )
            
            
            426,831Total
      Liabilities and Stockholders' Equity (Deficit)
            
            $
            546,584
            
            
            $
            1,134,679




See notes
to consolidated financial statements


F-2
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Operations


(US
Dollars)





Period
      FromFebruary
      12,1996(Inception)Years
      Ended June 30,
            
            
            Through2009
            
            
            2008
            
            
            2007
            
            
            June
      30, 2009Revenues
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            249,308Cost
      of Sales
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            216,0160
            
            
            
            0
            
            
            
            0
            
            
            
            33,292Other
      Income
            
            
            8,511
            
            
            
            57,975
            
            
            
            138,720
            
            
            
            865,6078,511
            
            
            
            57,975
            
            
            
            138,720
            
            
            
            898,899ExpensesSalaries
      (note 4(c))
            
            
            585,197
            
            
            
            633,725
            
            
            
            3,335,225
            
            
            
            9,687,289Consulting
      (note 4(c))
            
            
            287,204
            
            
            
            500,850
            
            
            
            2,006,943
            
            
            
            6,551,606Legal
      and accounting
            
            
            263,964
            
            
            
            305,452
            
            
            
            324,284
            
            
            
            4,403,759Research
      and development
            
            
            230,060
            
            
            
            287,109
            
            
            
            106,335
            
            
            
            1,470,963General
      and administrative
            
            
            70,184
            
            
            
            95,706
            
            
            
            119,043
            
            
            
            1,182,824Travel
      and entertainment
            
            
            53,934
            
            
            
            96,162
            
            
            
            124,930
            
            
            
            1,357,280Rent
            
            
            43,170
            
            
            
            46,659
            
            
            
            40,486
            
            
            
            487,670Telephone
            
            
            24,993
            
            
            
            29,605
            
            
            
            38,442
            
            
            
            459,295Bank
      charges and interest, net
            
            
            3,090
            
            
            
            6,932
            
            
            
            17,878
            
            
            
            205,288Advertising
            
            
            1,591
            
            
            
            0
            
            
            
            11,004
            
            
            
            332,861Write-off
      of investments
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,250,000Non-competition
      agreement
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            711,000Write-down
      of license and operating assets
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,855,619Interest
      on beneficial conversion feature
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            566,455Settlement
      of lawsuit
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            45,250Financing
      fees, net
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            129,043Bad
      debts (recovery)
            
            
            0
            
            
            
            (6,009
            )
            
            
            0
            
            
            
            46,604Depreciation
      and amortization
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            324,3861,563,387
            
            
            
            1,996,191
            
            
            
            6,124,570
            
            
            
            31,067,192Net
      Loss
            
            $
            (1,554,876
            )
            
            $
            (1,938,216
            )
            
            $
            (5,985,850
            )
            
            $
            (30,168,293
            )Loss Per Share (note
      8)
            
            $
            (0.03
            )
            
            $
            (0.04
            )
            
            $
            (0.13
            )Weighted
      Average Number ofCommon Shares
      Outstanding
            
            
            47,360,459
            
            
            
            45,617,756
            
            
            
            45,230,171




See notes
to consolidated financial statements


F-3
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)





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




See notes
to consolidated financial statements


F-4
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)





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




See notes
to consolidated financial statements


F-5
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)





Common
            
            
            
            
            
            Preferred
            
            
            
            
            
            
            
            
            
            
            
            DeficitShares
            
            
            Stock
      and
            
            
            Shares
      of
            
            
            Stock
      and
            
            
            
            
            
            
            
            
            
            
            
            Accumulatedof
      Common
            
            
            Paid-in
      Capital
            
            
            Preferred
            
            
            Paid-in
      Capital
            
            
            Promissory
            
            
            
            
            
            Other
            
            
            During
      the
            
            
            TotalStock
            
            
            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
            )
            
            $
            3,991,128Shares
      Issued forCash
      on private placement
            
            
            81,885
            
            
            
            112,480
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            112,480Exercise
      of options
            
            
            517,000
            
            
            
            91,515
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            91,515Services
            
            
            100,000
            
            
            
            40,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            40,000Held
      in escrow
            
            
            218,115
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Stock-based
      compensation
            
            
            0
            
            
            
            272,207
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            272,207Dividends
      on preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (30,720
            )
            
            
            (30,720
            )Share
      subscriptions
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            50,000
            
            
            
            0
            
            
            
            0
            
            
            
            50,000Redeemed
      shares
            
            
            0
            
            
            
            0
            
            
            
            (100,000
            )
            
            
            (100,000
            )
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (100,000
            )
            
            
            (200,000
            )Foreign
      currency translation
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (26
            )
            
            
            0
            
            
            
            (26
            )Net
      loss for year
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (4,000,169
            )
            
            
            (4,000,169
            )Balance,
      June 30, 2001
            
            
            26,949,062
            
            
            
            8,900,983
            
            
            
            564,410
            
            
            
            564,410
            
            
            
            (58,500
            )
            
            
            50,000
            
            
            
            46,267
            
            
            
            (9,176,745
            )
            
            
            326,415Shares
      Issued forProprietary
      non-competition agreement
            
            
            450,000
            
            
            
            711,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            711,000Held
      in escrow
            
            
            700,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Exercise
      of options
            
            
            2,263,500
            
            
            
            971,200
            
            
            
            0
            
            
            
            0
            
            
            
            (15,000
            )
            
            
            (10,000
            )
            
            
            0
            
            
            
            0
            
            
            
            946,200Exercise
      of warrants
            
            
            325,000
            
            
            
            130,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            130,000Subscriptions
            
            
            100,000
            
            
            
            40,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (40,000
            )
            
            
            0
            
            
            
            0
            
            
            
            0Stock-based
      compensation
            
            
            0
            
            
            
            415,685
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            415,685Shares
      released from escrow
            
            
            0
            
            
            
            954,582
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            954,582Dividends
      on preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (26,087
            )
            
            
            (26,087
            )Redeemed
      shares
            
            
            0
            
            
            
            0
            
            
            
            (124,800
            )
            
            
            (124,800
            )
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (187,200
            )
            
            
            (312,000
            )Write-off
      of promissory note receivable
            
            
            0
            
            
            
            (7,000
            )
            
            
            0
            
            
            
            0
            
            
            
            7,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Net
      loss for year
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (3,836,191
            )
            
            
            (3,836,191
            )Balance,
      June 30, 2002
            
            
            30,787,562
            
            
            $
            12,116,450
            
            
            
            439,610
            
            
            $
            439,610
            
            
            $
            (66,500
            )
            
            $
            0
            
            
            $
            46,267
            
            
            $
            (13,226,223
            )
            
            $
            (690,396
            )




See notes
to consolidated financial statements


F-6
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)





Common
            
            
            
            
            
            Preferred
            
            
            
            
            
            
            
            
            
            
            
            DeficitShares
            
            
            Stock
      and
            
            
            Shares
      of
            
            
            Stock
      and
            
            
            
            
            
            
            
            
            
            
            
            Accumulatedof
      Common
            
            
            Paid-in
      Capital
            
            
            Preferred
            
            
            Paid-in
      Capital
            
            
            Promissory
            
            
            
            
            
            Other
            
            
            During
      the
            
            
            TotalStock
            
            
            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 forCash
      on private placement
            
            
            1,684,000
            
            
            
            842,050
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            842,050Settlement
      of debt
            
            
            144,793
            
            
            
            104,542
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            104,542Services
            
            
            200,000
            
            
            
            196,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            196,000Exercise
      of options
            
            
            52,500
            
            
            
            43,750
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            43,750Exercise
      of warrants
            
            
            55,000
            
            
            
            27,500
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            27,500Subscription
      received
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            176,665
            
            
            
            0
            
            
            
            0
            
            
            
            176,665Stock-based
      compensation
            
            
            0
            
            
            
            5,460
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            5,460Settlement
      of lawsuit
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            35,250
            
            
            
            0
            
            
            
            0
            
            
            
            35,250Dividends
      on preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (22,060
            )
            
            
            (22,060
            )Net
      loss for year
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (1,346,833
            )
            
            
            (1,346,833
            )Balance,
      June 30, 2003
            
            
            32,923,855
            
            
            
            13,335,752
            
            
            
            439,610
            
            
            
            439,610
            
            
            
            (66,500
            )
            
            
            211,915
            
            
            
            46,267
            
            
            
            (14,595,116
            )
            
            
            (628,072
            )Shares
      Issued forCash
      on private placement
            
            
            6,609,336
            
            
            
            6,042,935
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (211,915
            )
            
            
            0
            
            
            
            0
            
            
            
            5,831,020Cash
      on exercise of options
            
            
            25,000
            
            
            
            25,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            25,000Settlement
      of lawsuit
            
            
            37,500
            
            
            
            35,250
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            35,250Services
            
            
            25,000
            
            
            
            21,873
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            21,873Redemption
      of preferred shares
            
            
            415,000
            
            
            
            415,000
            
            
            
            (118,572
            )
            
            
            (118,572
            )
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (296,428
            )
            
            
            0Exercise
      of warrants
            
            
            288,298
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Shares
      returned to treasury for cancellation
            
            
            (142,140
            )
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Stock-based
      compensation
            
            
            0
            
            
            
            321,275
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            321,275Dividends
      on preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (19,016
            )
            
            
            (19,016
            )Net
      loss for year
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (2,543,848
            )
            
            
            (2,543,848
            )Balance,
      June 30, 2004
            
            
            40,181,849
            
            
            $
            20,197,085
            
            
            
            321,038
            
            
            $
            321,038
            
            
            $
            (66,500
            )
            
            $
            0
            
            
            $
            46,267
            
            
            $
            (17,454,408
            )
            
            $
            3,043,482




See notes
to consolidated financial statements


F-7
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)





Common
            
            
            
            
            
            Preferred
            
            
            
            
            
            
            
            
            
            
            
            DeficitShares
            
            
            Stock
      and
            
            
            Shares
      of
            
            
            Stock
      and
            
            
            
            
            
            
            
            
            
            
            
            Accumulatedof
      Common
            
            
            Paid-in
      Capital
            
            
            Preferred
            
            
            Paid-in
      Capital
            
            
            Promissory
            
            
            
            
            
            Other
            
            
            During
      the
            
            
            TotalStock
            
            
            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
            )
            
            $
            3,043,482Shares
      Issued forSettlement
      of debt
            
            
            44,000
            
            
            
            55,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            55,000Cashless
      exercise of warrants
            
            
            1,713,300
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Services
            
            
            500,000
            
            
            
            270,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            270,000Redemption
      of preferred shares
            
            
            0
            
            
            
            0
            
            
            
            (12,500
            )
            
            
            (12,500
            )
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (37,500
            )
            
            
            (50,000
            )Dividends
      on preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (15,739
            )
            
            
            (15,739
            )Net
      loss for year
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (1,812,265
            )
            
            
            (1,812,265
            )Balance,
      June 30, 2005
            
            
            42,439,149
            
            
            
            20,522,085
            
            
            
            308,538
            
            
            
            308,538
            
            
            
            (66,500
            )
            
            
            0
            
            
            
            46,267
            
            
            
            (19,319,912
            )
            
            
            1,490,478Shares
      Issued forExercise
      of options
            
            
            200,000
            
            
            
            134,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            134,000Cashless
      exercise of warrants
            
            
            35,115
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0Services
            
            
            269,000
            
            
            
            191,510
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            191,510Exercise
      of warrants
            
            
            1,291,168
            
            
            
            1,080,669
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,080,669Repayment
      of promissory note
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            34,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            34,000Dividends
      on preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (15,427
            )
            
            
            (15,427
            )Stock-based
      compensation
            
            
            0
            
            
            
            107,219
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            107,219Net
      loss for year
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (2,104,189
            )
            
            
            (2,104,189
            )Balance,
      June 30, 2006
            
            
            44,234,432
            
            
            
            22,035,483
            
            
            
            308,538
            
            
            
            308,538
            
            
            
            (32,500
            )
            
            
            0
            
            
            
            46,267
            
            
            
            (21,439,528
            )
            
            
            918,260Shares
      Issued forExercise
      of options
            
            
            50,000
            
            
            
            35,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            35,000Services
            
            
            50,000
            
            
            
            105,000
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            105,000Private
      placement
            
            
            1,180,537
            
            
            
            2,361,641
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            2,361,641Repayment
      of promissory note
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            2,763
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            2,763Dividends
      on preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (15,427
            )
            
            
            (15,427
            )Stock-based
      compensation
            
            
            0
            
            
            
            4,225,648
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            4,225,648Net
      loss for year
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (5,985,850
            )
            
            
            (5,985,850
            )Balance,
      June 30, 2007
            
            
            45,514,969
            
            
            $
            28,762,772
            
            
            
            308,538
            
            
            $
            308,538
            
            
            $
            (29,737
            )
            
            $
            0
            
            
            $
            46,267
            
            
            $
            (27,440,805
            )
            
            $
            1,647,035




See notes
to consolidated financial statements


F-8
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Stockholders' Equity (Deficit)


(US
Dollars)





Common
            
            
            
            
            
            Preferred
            
            
            
            
            
            
            
            
            
            
            
            DeficitShares
            
            
            Stock
      and
            
            
            Shares
      of
            
            
            Stock
      and
            
            
            
            
            
            
            
            
            
            
            
            Accumulatedof
      Common
            
            
            Paid-in
      Capital
            
            
            Preferred
            
            
            Paid-in
      Capital
            
            
            Promissory
            
            
            
            
            
            Other
            
            
            During
      the
            
            
            TotalStock
            
            
            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, 2007
            
            
            45,514,969
            
            
            $
            28,762,772
            
            
            
            308,538
            
            
            $
            308,538
            
            
            $
            (29,737
            )
            
            $
            0
            
            
            $
            46,267
            
            
            $
            (27,440,805
            )
            
            $
            1,647,035Shares
      Issued forExercise
      of warrants
            
            
            190,000
            
            
            
            208,995
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            208,995Subscriptions
      received
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            276,500
            
            
            
            0
            
            
            
            0
            
            
            
            276,500Dividends
      on preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (15,427
            )
            
            
            (15,427
            )Stock-based
      compensation
            
            
            0
            
            
            
            247,944
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            247,944Net
      loss for year
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (1,938,216
            )
            
            
            (1,938,216
            )Balance,
      June 30, 2008
            
            
            45,704,969
            
            
            
            29,219,711
            
            
            
            308,538
            
            
            
            308,538
            
            
            
            (29,737
            )
            
            
            276,500
            
            
            
            46,267
            
            
            
            (29,394,448
            )
            
            
            426,831Shares
      Issued forServices
            
            
            100,000
            
            
            
            60,500
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (46,500
            )
            
            
            0
            
            
            
            0
            
            
            
            14,000Subscriptions
      received
            
            
            4,500,800
            
            
            
            1,125,200
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (230,000
            )
            
            
            0
            
            
            
            0
            
            
            
            895,200Dividends
      on preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (15,427
            )
            
            
            (15,427
            )Stock-based
      compensation
            
            
            0
            
            
            
            119,064
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            119,064Net
      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




See notes
to consolidated financial statements


F-9
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Consolidated
Statements of Cash Flows


(US
Dollars)





Period
      fromFebruary
      12, 1996(Inception)Years
      Ended June 30
            
            
            Through2009
            
            
            2008
            
            
            2007
            
            
            June
      30, 2009Operating
      ActivitiesNet
      loss
            
            $
            (1,554,876
            )
            
            $
            (1,938,216
            )
            
            $
            (5,985,850
            )
            
            $
            (30,168,293
            )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesWrite-down
      of investment
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,250,000Other
      income
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (658,305
            )Proprietary,
      non-competition agreement
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            711,000Consulting
      services
            
            
            14,000
            
            
            
            0
            
            
            
            199,790
            
            
            
            1,537,783Depreciation
      and amortization
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            349,941Stock-based
      compensation
            
            
            119,064
            
            
            
            247,944
            
            
            
            4,225,648
            
            
            
            5,833,358Interest
      on beneficial conversion feature
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            566,456Settlement
      of lawsuit
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            60,250Write-down
      of license and operating assets
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,853,542Bad
      debt
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            77,712Changes
      in non-cash working capitalDue
      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
            
            
            19,223
            
            
            
            1,867
            
            
            
            (18,187
            )
            
            
            (11,352
            )Deferred
      revenue and other
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (2,609
            )Accounts
      payable and accruals
            
            
            (61,484
            )
            
            
            66,658
            
            
            
            (77,267
            )
            
            
            919,364Net
      Cash Used in Operating Activities
            
            
            (1,464,073
            )
            
            
            (1,621,747
            )
            
            
            (1,655,866
            )
            
            
            (17,953,208
            )Investing
      ActivitiesPurchase
      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
      ActivitiesRedemption
      of preferred shares
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (50,000
            )Repayment
      of loan
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (11,000
            )Advances
      from stockholders
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            1,078,284Repayments
      from (to) stockholders
            
            
            0
            
            
            
            0
            
            
            
            2,763
            
            
            
            (91,283
            )Subscriptions
      received
            
            
            0
            
            
            
            276,500
            
            
            
            0
            
            
            
            503,165Proceeds
      from issuance of common stock
            
            
            895,200
            
            
            
            208,995
            
            
            
            2,396,641
            
            
            
            19,095,670Proceeds
      from convertible debentures
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            600,000Share
      issue costs
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            (227,420
            )Net
      Cash Provided by Financing Activities
            
            
            895,200
            
            
            
            485,495
            
            
            
            2,399,404
            
            
            
            20,897,416Effect
      of Foreign Currency Translation on Cash
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            46,267Inflow
      (Outflow) of Cash
            
            
            (568,873
            )
            
            
            (1,136,252
            )
            
            
            743,538
            
            
            
            535,231Cash,
      Beginning of Year
            
            
            1,104,104
            
            
            
            2,240,356
            
            
            
            1,496,818
            
            
            
            0Cash,
      End of Year
            
            $
            535,231
            
            
            $
            1,104,104
            
            
            $
            2,240,356
            
            
            $
            535,231




Supplemental
disclosure of cash flow information (note 5)




See notes
to consolidated financial statements


F-10
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





1.
            INCORPORATION
      AND NATURE OF OPERATIONS





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





The
Company will be devoting all of its resources to the research, development and
commercialization of its ElectriPlast technology.





2.
            GOING
      CONCERN





These
consolidated financial statements have been prepared on the going concern basis
and which assumes the Company will continue in operation for the foreseeable
future and will be able to realize its assets and discharge its liabilities in
the ordinary course of business.  The Company’s operations have
resulted in a net loss of $1,554,876 (2008 - $1,938,216; 2007 - $5,985,850), an
accumulated deficit of $30,964,751 at June 30, 2009 (2008 - $29,394,448) and a
working capital deficiency of $115,208 at June 30, 2009 (2008 – working capital
of $426,831).  The Company has not yet commenced revenue-producing
operations and has significant expenditure requirements to continue to advance
its research, developing and commercializing new antenna
technologies.  The Company estimates that without further funding, it
will deplete its cash resources in approximately four months.  These
factors raise substantial doubt about the Company’s ability to continue as a
going concern.





The
Company’s future operations and its continuation as a going concern are
dependent upon its ability to raise additional capital and to sell its products
and services to new customers, generate positive cash flows from operations and
ultimately attain profitability.





Financing
transactions may include the issuance of equity securities, obtaining additional
credit facilities or other financing mechanisms.  However, the trading
price of the Company’s common stock and the downturn in the United States of
America stock markets could make it more difficult to obtain financing through
the issuance of equity securities.





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





If none
of these events occur, there is a risk that the business will
fail.  The consolidated financial statements do not include any
adjustments relating to the recoverability of assets and classification of
assets and liabilities that might be necessary should the Company be unable to
continue as a going concern.




F-11
 Table of Contents


INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





3.
            SIGNIFICANT
      ACCOUNTING POLICIES





(a)
            Principles
      of consolidation





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





(b)
            Loss
      per share





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





(c)
            Stock
      issued in exchange for services





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





(d)
            Revenue
      recognition





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





(e)
            Foreign
      currency translation





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





(f)
            Research
      and development





Research
and development expenditures are charged to operations as incurred.





F-12
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





3.
            SIGNIFICANT ACCOUNTING
      POLICIES (Continued)





(g)
            Use
      of estimates





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





(h)
            Financial
      instruments




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





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





(i)
            Interest
      rate risk





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





(ii)
            Credit
      risk





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





(iii)
            Currency
      risk





The
Company translates the results of non-US transactions into US currency using
rates of exchange on the date of the transaction.  The exchange rate
varies from time to time.  This risk is considered nominal as the
Company does not incur any significant transactions in currencies other than US
dollars.








F-13
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)




3.           SIGNIFICANT ACCOUNTING
POLICIES (Continued)





(i)
            Income
      taxes





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





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





(j)
            Stock-based
      compensation





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





F-14
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





3.           SIGNIFICANT ACCOUNTING
POLICIES (Continued)





(k)
            Recently
      adopted accounting pronouncements





(i)
            In
      May 2009, FASB issued Statement No. 165, Subsequent Events(“SFAS 165”). SFAS 165 establishes
      general standards of accounting for and disclosures of events that occur
      after the balance sheet date but before financial statements are issued or
      are available to be issued.  It requires the disclosure of the date
      through which an entity has evaluated subsequent events and the basis for
      that date.  The Company has evaluated subsequent events though
      September 28, 2009, the date the financial statements were
      issued.  The adoption of this statement did not significantly
      impact the Company’s disclosures.  Events occurring after this
      date have not been evaluated.





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





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





(l)
            Recent
      accounting pronouncements not yet
adopted





(i)
            In
      June 2009, the FASB issued SFAS No. 168, “The Hierarchy of Generally
      Accepted Accounting Principles”.  The new standard replaces SFAS
      162 and establishes the “FASB Accounting Standards Codification” as the
      source of authoritative accounting principles recognized by the FASB to be
      applied by non-governmental entities in the preparation of financial
      statements in conformity with US generally accepted accounting
      principles.  The Statement shall be effective for financial
      statements issued for interim and annual periods ending after September
      15, 2009.





F-15
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





3.           SIGNIFICANT ACCOUNTING
POLICIES (Continued)





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





(ii)
            In
      June 2009, the FASB issued SFAS No. 167, “Amendments to FASB
      Interpretation No. 46(R)”.  The new standard is to improve
      financial reporting by enterprises involved with variable interest
      entities.  SFAS 167 addresses the effects on certain provisions
      of FASB Interpretation No. 46, “Consolidation of Variable Interest
      Entities” (“Interpretation 46(R)”), as a result of the elimination of the
      qualifying special-purpose entity concept in FASB Statement No. 166,
      “Accounting for Transfers of Financial Assets”, and constituent concerns
      about the application of certain key provisions of Interpretation 46(R),
      including those in which the accounting and disclosures under the
      Interpretation do not always provide timely and useful information about
      an enterprise’s involvement in a variable interest entity.  The
      Statement shall be effective as of the beginning of each reporting
      entity’s first annual reporting period that begin after November 15, 2009,
      for interim periods within that first annual reporting period and for
      interim and annual reporting periods
thereafter.





(iii)
            In
      June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
      Financial Assets”.  The new standard is intended to improve the
      relevance, representational faithfulness and comparability of the
      information that a reporting entity provides in its financial statements
      about a transfer of financial assets; the effects of a transfer on its
      financial position, financial performance and cash flows; and a
      transferor’s continuing involvement, if any, in transferred financial
      assets.  This standard addresses the practices that developed
      since the issuance of FASB Statement No. 140, “Accounting for Transfers
      and Servicing of Financial Assets and Extinguishments of Liabilities”,
      that are not consistent with the original intent and key requirements of
      that Statement and the concerns of financial statement users that many of
      the financial assets (and related obligations) that have been
      de-recognized should continue to be reported in the financial statements
      of transferors.  The Statement must be applied as of the
      beginning of each reporting entity’s first annual reporting period that
      begins after November 15, 2009 for interim periods within that first
      annual reporting period and for interim and annual reporting periods
      thereafter.





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





F-16
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





3.           SIGNIFICANT ACCOUNTING
POLICIES (Continued)





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





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





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





(vii)
            In
      December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
      Consolidated Financial Statements”, which, among other things,
      provides guidance and establishes amended accounting and reporting
      standards for a parent company’s non-controlling interest in a
      subsidiary.  This pronouncement is effective for fiscal years
      beginning on or after December 15,
2008.





(viii)
            In
      December 2007, FASB Statement No. 141 (revised 2007), Business Combinations
      (“SFAS 141”), was issued.  SFAS 141 establishes principles and
      requirements for how the acquirer (a) recognizes and measures in its
      financial statements the identifiable assets acquired, the liabilities
      assumed, and non-controlling interest in the acquired entity; (b)
      recognizes and measures the goodwill acquired in the business combination
      or a gain from a bargain purchase; and (c) determines what information to
      disclose to enable users of the financial statements to evaluate the
      nature and financial effects of the business combination.  The
      provisions of SFAS 141 are effective for business combinations for which
      the acquisition date is on or after the beginning of the first annual
      reporting period beginning on or after December 15,
  2008.





F-17
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





4.
            STOCKHOLDERS' EQUITY
      (DEFICIT)





(a)
            Common
      stock





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





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


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


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





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





(a)
            Issued
      190,000 shares of common stock for $208,995 on the exercise of
      warrants.  The Company approved a temporary adjustment to the
      exercise price of stock purchase warrants dated September 15, 2006 by
      reducing their exercise price from $2.50 per share to $1.10 per share in
      consideration of overall market conditions in October 2007 as long as the
      warrants were exercised prior to November 15,
  2007.





F-18
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





4.           STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)





(a)
            Common
      stock (Continued)





(iii)
            During
      the year ended June 30, 2009, the
Company:





(a)
            Closed
      a private placement for which it received $1,125,200 ($848,700 received
      during 2009 (2008 - $276,500) (note 4(f)) for issuance of 4,500,800 units,
      each unit consisting of one share of common stock at $0.25 per share and
      one warrant at $0.001 per share.  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 per
share;


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


(c)
            Issued
      50,000 shares of common stock as consideration for consulting
      services.  These shares have been recorded at a value of $46,500
      representing the market value of the shares on the date of
      issuance.





(b)
            Preferred
      stock





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





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





Subsequent
to June 30, 2009, an amendment was made to the Series A convertible preferred
stock in that they may be redeemed by the Company for $4.00, with the redemption
price increasing by $0.50 each year thereafter for the following five
years.





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





F-19
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





4.           STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)





(c)
            Stock
      options and stock-based
compensation





Stock
option plans





In
January 2001, the Company adopted the "Integral Technologies, Inc. 2001 Stock
Plan" (the "2001 Plan"), a non-qualified stock option plan under which the
Company may issue up to 2,500,000 stock options and stock bonuses of common
stock of the Company to provide incentives to officers, directors, key employees
and other persons who contribute to the success of the Company.  This
plan was amended during December 2001 to increase the number of common stock
options that may be granted from 2,500,000 to 3,500,000 stock
options.  As at June 30, 2008, there were 464,500 common stock options
available under this plan.





In April
2003, the Company adopted the "Integral Technologies, Inc. 2003 Stock Plan" (the
"2003 Plan"), a non-qualified stock option plan under which the Company may
issue up to 1,500,000 stock options.  As of June 30, 2009, there were
1,375,000 common stock options available under this plan.





Subsequent
to June 30, 2009, the Company adopted the "Integral Technologies, Inc. 2009
Stock Plan" (the "2009 Plan"), a non-qualified stock option plan under which the
Company may issue up to 5,000,000 common stock options.





Pursuant
to the 2001, 2003 and 2009 plans





On
November 3, 2006, the Company granted an option to a consultant to acquire
100,000 shares of common stock, exercisable at $1.00 per share to November 15,
2009.





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





On March
23, 2007, the Company granted an option to a consultant to acquire 100,000
shares of common stock, exercisable at $1.00 per share to March 23,
2009.  These options expired unexercised.





During
the year ended June 30, 2007, pursuant to a consulting agreement with
Visionary Innovations, Inc. (“Visionary”), the Company granted Visionary 125,000
common stock options which vested on March 30, 2007 at an exercise price of
$2.75, and another 125,000 common stock options which vested on March 30,
2008 at an exercise price of $2.75, all exercisable to March 30,
2009.  These options expired unexercised.





F-20
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





4.           STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)





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





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





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





During
the year ended June 30, 2009, the Company extended the expiry date of
955,000 common stock options, which resulted in additional stock-based
compensation of $119,064.





Subsequent
to June 30, 2009, the Company granted an option to two directors to acquire
500,000 shares of common stock, exercisable at $0.25 per share.  These
options will fully vest on grant date and may be exercised in whole or in part
at any time after January 1, 2010.  All options will expire the
earlier of December 31, 2014 or one year after termination of employment with
the Company.





Subsequent
to June 30, 2009, the Company signed a consulting agreement that will expire on
July 31, 2011.  The contact can be terminated by either party on
January 31, 2010, July 31, 2010 or January 31, 2011 with 30 days
notice.  The Company granted an option to acquire a total of 2,000,000
shares of common stock, exercisable at $0.25 per share.  Every three
months, 200,000 options will vest beginning July 10, 2009 to April 10, 2011, and
the remaining 400,000 options will vest on July 10, 2011.





Stock-based
compensation





During
the year ended June 30, 2009, the Company recorded stock-based compensation
expense of $119,064 (2008 - $247,944; 2007 - $4,225,648); of this amount,
$56,939 (2008 - $182,711; 2007 - $1,548,630) is included in consulting fees and
$62,125 (2008 - $65,233; 2007 - $2,677,018) is included in
salaries.





F-21
 Table of Contents








INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)




4.           STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)





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





Key
assumptions





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





2009
            
            
            2008
            
            
            2007Expected
      life (years)
            
            
            1
            
            
            
            1
            
            
            
            1Interest
      rate
            
            
            3.87
            %
            
            
            4.28
            %
            
            
            5.00
            %Volatility
            
            
            84.24
            %
            
            
            87.75
            %
            
            
            106.90
            %Dividend
      yield
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %Estimated
      forfeitures
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %





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





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





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





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





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





F-22
 Table of Contents




INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)




4.             STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)





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





Stock
option activity





The
following table summarizes the Company's stock option activity for the years
ended June 30, 2009, 2008 and 2007:





WeightedAverageNumber
            
            
            Price
            
            
            Exerciseof
      Shares
            
            
            Per
      Share
            
            
            PriceBalance,
      June 30, 2006
            
            
            2,295,000
            
            
            $
            0.40
      to $ 1.16
            
            
            $
            0.76Granted
            
            
            1,475,000
            
            
            $
            0.40
      to $ 2.75
            
            
            $
            2.14Exercised
            
            
            (50,000
            )
            
            $
            0.40
      to $ 1.00
            
            
            $
            0.82Balance,
      June 30, 2007 and 2008
            
            
            3,720,000
            
            
            $
            0.50
      to $ 2.75
            
            
            $
            1.31Expired
            
            
            350,000
            
            
            $
            1.00
      to $ 2.75
            
            
            $
            2.25Balance,
      June 30, 2009
            
            
            3,370,000
            
            
            $
            0.50
      to $ 2.25
            
            
            $
            1.21





The
following summarizes the options outstanding and exercisable at June 30, 2009,
2008 and 2007, which were fully vested at these dates:





Exercise
            
            
            Number
      of SharesExpiry
      Date
            
            Price
            
            
            2009
            
            
            2008
            
            
            2007March
      23, 2009
            
            $
            1.00
            
            
            
            0
            
            
            
            100,000
            
            
            
            100,000March
      30, 2009
            
            $
            2.75
            
            
            
            0
            
            
            
            250,000
            
            
            
            250,000August
      31, 2009
            
            $
            0.65
      to $ 1.16
            
            
            
            855,000
            *
            
            
            855,000
            
            
            
            855,000November
      15, 2009
            
            $
            1.00
            
            
            
            100,000
            
            
            
            100,000
            
            
            
            100,000June
      30, 2010
            
            $
            0.50
            
            
            
            1,000,000
            
            
            
            1,000,000
            
            
            
            1,000,000June
      30, 2010
            
            $
            2.25
            
            
            
            1,000,000
            
            
            
            1,000,000
            
            
            
            1,000,000December
      31, 2010
            
            $
            1.00
            
            
            
            415,000
            
            
            
            415,000
            
            
            
            415,000Total
      outstanding
            
            $
            0.50
      to $ 2.25
            
            
            
            3,370,000
            
            
            
            3,720,000
            
            
            
            3,720,000Total
      exercisable
            
            $
            0.50
      to $ 2.75
            
            
            
            3,370,000
            
            
            
            3,720,000
            
            
            
            3,626,250





*
            Subsequent
      to June 30, 2009, the expiry date of 110,000 options was extended from
      August 31, 2009 to August 31, 2010.  The remaining 755,000
      options expired unexercised.





F-23
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)




4.           STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)





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





Stock option activity
(Continued)





The
weighted average remaining contractual life at June 30, 2009 was 0.83 years
(2008 – 1.63 years; 2007 – 1.38 years).





The
weighted average grant date fair value of options granted or extended during the
year ended June 30, 2009 was $1.27 per share (2008 - $1.35; 2007 -
$1.35).  The weighted average intrinsic value of options exercised
during the year ended June 30, 2009 was $Nil per share (2008 - $Nil; 2007 -
$Nil).  The weighted average intrinsic value of options outstanding as
at June 30, 2009 was $0.13 per share (2008 - $0.15; 2007 -
$0.15).





(d)
            Stock
      purchase warrants





The
following table summarizes the Company's stock purchase warrant activity for the
years ended June 30, 2009, 2008 and 2007:





WeightedAverageNumber
            
            
            Price
            
            
            Exerciseof
      Shares
            
            
            Per
      Share
            
            
            PriceBalance,
      June 30, 2006
            
            
            0
            
            
            $
            0.00
            
            
            $
            0.00Issued
            
            
            590,629
            
            
            $
            2.50
            
            
            $
            2.50Balance,
      June 30, 2007
            
            
            590,629
            
            
            $
            2.50
            
            
            $
            2.50Exercised
            
            
            (190,000
            )
            
            $
            2.50
            
            
            $
            2.50Balance,
      June 30, 2008
            
            
            400,269
            
            
            $
            2.50
            
            
            $
            2.50Issued
            
            
            4,500,800
            
            
            $
            0.50
            
            
            $
            0.50Expired
            
            
            (400,269
            )
            
            $
            2.50
            
            
            $
            2.50Balance,
      June 30, 2009
            
            
            4,500,800
            
            
            $
            0.50
            
            
            $
            0.50





At June
30, 2009, 2008 and 2007, the following stock purchase warrants were
outstanding:





Exercise
            
            
            Number
      of SharesExpiry
      Date
            
            Price
            
            
            2009
            
            
            2008
            
            
            2007September
      15, 2008
            
            $
            2.50
            
            
            
            0
            
            
            
            400,269
            
            
            
            590,269December
      31, 2010
            
            $
            0.50
            
            
            
            4,500,800
            
            
            
            0
            
            
            
            0Total
      outstanding
            
            $
            0.50
      to 2.50
            
            
            
            4,500,800
            
            
            
            400,269
            
            
            
            590,269




F-24
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





4.           STOCKHOLDERS' EQUITY (DEFICIT)
(Continued)





(e)
            Promissory
      notes receivable at June 30, 2009
includes:





(i)
            $17,500
      (2008 - $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
      (2008 - $12,237) due on exercise of 23,000 stock options, interest at 10%
      per annum, due June 30, 2003.





Shares
issued on exercise of options are restricted from trading.  The
restrictions will not be removed until the respective notes are paid to the
Company.





(f)
            Subscriptions
      received





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





In
consideration of overall market conditions during the year ended June 30, 2009,
the terms of the above subscriptions received during 2008 was
reduced.  A total of $230,000 was received and the revised
subscription was for 920,000 units consisting of common stock at $0.25 per share
at $0.001 per share of common stock underlying the warrant to purchase 920,000
shares of common stock on or before two years after the closing date at an
exercise price of $0.50 per share, included in the private placement of
4,500,800 units (note 4a(iii)(a)).  During the year ended June 30,
2009, these shares have been issued.





(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.  During the year ended June 30, 2009, these shares have
      been issued.




F-25
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





5.
            SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION





Period
      fromFebruary
      12,1996(Inception)Years
      Ended June 30,
            
            
            Through2009
            
            
            2008
            
            
            2007
            
            
            June
      30, 2009Supplemental
      Disclosure of Non-Cash TransactionsShares
      Issued forRedemption
      of preferred shares
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            415,000Property
      and equipment
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            23,000Proprietary
      agreement
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            711,000Settlement
      of accounts payable
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            228,742Services
      (provided by officers and directors)
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            120,000Settlement
      of lawsuit
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            15,000Services
            
            $
            14,000
            
            
            $
            0
            
            
            $
            105,000
            
            
            $
            815,784Subscriptions
      received
            
            $
            46,500
            
            
            $
            0
            
            
            $
            0
            
            
            $
            46,500Acquisition
      of subsidiary
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            894,200Supplemental
      Cash Flow InformationInterest
      paid
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            81,111Income
      tax paid
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0





6.
            RELATED
      PARTY TRANSACTIONS





(a)
            Accounts
      payable at June 30, 2009 includes $3,685 (2008 - $3,685) due to two
      directors and officers of the
Company.





(b)
            The
      Company recorded an expense of $420,000 (2008 - $420,000; 2007 -
      $505,000) for wages paid to two directors and officers of the
      Company.





(c)
            Promissory
      notes receivable at June 30, 2009 includes $29,737 (2008 - $29,737)
      for advances made by the Company to an officer of the
    Company.





F-26
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)





7.
            INCOME
      TAXES




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





2009
            
            
            2008
            
            
            2007Current
      Expense
            
            $
            0
            
            
            $
            0
            
            
            $
            0Deferred
      Benefit
            
            
            (528,000
            )
            
            
            (669,000
            )
            
            
            (2,994,000
            )Increase
      in valuation allowance
            
            
            528,000
            
            
            
            669,000
            
            
            
            2,994,000Total
      provision for income tax
            
            $
            0
            
            
            $
            0
            
            
            $
            0








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








2009
            
            
            2008
            
            
            2007Provision
      for income tax at the statutory rate of 34%
            
            $
            (529,000
            )
            
            $
            (660,000
            )
            
            $
            (2,024,000
            )Increase(Decrease)
      in taxes due toChange
      in valuation allowance
            
            
            528,000
            
            
            
            669,000
            
            
            
            2,994,000Disallowed
      expense
            
            
            1,000
            
            
            
            1,000
            
            
            
            1,000True-up
      of deferred tax assets
            
            
            0
            
            
            
            (10,000
            )
            
            
            (971,000
            )Total
      provision for income tax
            
            $
            0
            
            
            $
            0
            
            
            $
            0





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





F-27
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)




7.
            INCOME TAXES
      (Continued)





Deferred
tax assets and liabilities reflect the tax effects of the temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes.  The Company has net
deferred income tax assets which have been reduced to zero through a valuation
allowance because of uncertainties relating to utilization o future tax
benefits.  The increase in the valuation allowance for the years ended
June 30, 2009, June 30, 2008, and June 30, 2007 are respectively $528,000,
$669,000, and $2,995,000.  The components of the net deferred income
tax assets, calculated at an effective rate of 34%, are as follows at June
30:





2009
            
            
            2008
            
            
            2007Deferred
      income tax assetsCurrent
      deferred tax assetsLegal
      dispute reserve
            
            $
            0
            
            
            $
            182,000
            
            
            $
            182,000Accrued
      Liabilities
            
            
            12,000
            
            
            
            14,000
            
            
            
            7,000Total
      current deferred tax assets
            
            
            12,000
            
            
            
            196,000
            
            
            
            189,000Noncurrent
      deferred tax assetsNet
      operating loss carryforwards
            
            
            7,706,000
            
            
            
            7,034,000
            
            
            
            6,454,000Nonqualified
      stock options
            
            
            1,795,000
            
            
            
            1,754,000
            
            
            
            1,670,000Capital
      loss carryforwards
            
            
            425,000
            
            
            
            425,000
            
            
            
            425,000Investment
      reserve
            
            
            247,000
            
            
            
            247,000
            
            
            
            247,000Basis
      difference of fixed assets
            
            
            1,000
            
            
            
            2,000
            
            
            
            4,000Valuation
      allowance
            
            
            (10,186,000
            )
            
            
            (9,658,000
            )
            
            
            (8,989,000
            )Total
      noncurrent deferred tax assets
            
            
            (12,000
            )
            
            
            (196,000
            )
            
            
            (189,000
            )Noncurrent
      deferred tax liabilities
            
            
            0
            
            
            
            0
            
            
            
            0Total
      noncurrent deferred tax liabilities
            
            
            0
            
            
            
            0
            
            
            
            0Net
      deferred tax asset/(liability)
            
            $
            0
            
            
            $
            0
            
            
            $
            0




F-28
 Table of Contents





INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)


7.
              INCOME TAXES
      (Continued)
 
 For tax
purposes, the Company has unused net operating losses available to carryforward
to future tax years.  At June 30, 2009, the amounts and expiration
dates of the Company's net operating loss carryforwards are as
follows.
 
 Year
      Ended
              Expires
              
              AmountJune
      30, 1996
              June
      30, 2011
              
              $
              346,000June
      30, 1997
              June
      30, 2012
              
              
              1,405,000June
      30, 1998
              June
      30, 2018
              
              
              999,000June
      30, 1999
              June
      30, 2019
              
              
              1,361,000June
      30, 2000
              June
      30, 2020
              
              
              1,091,000June
      30, 2001
              June
      30, 2021
              
              
              2,002,000June
      30, 2002
              June
      30, 2022
              
              
              2,527,000June
      30, 2003
              June
      30, 2023
              
              
              1,364,000June
      30, 2004
              June
      30, 2024
              
              
              2,162,000June
      30, 2005
              June
      30, 2025
              
              
              2,208,000June
      30, 2006
              June
      30, 2026
              
              
              2,373,000June
      30, 2007
              June
      30, 2027
              
              
              1,177,000June
      30, 2008
              June
      30, 2028
              
              
              1,676,000June
      30, 2009
              June
      30, 2029
              
              
              1,974,000Total
              
              
              $
              22,665,000
 
 Current
federal tax laws include substantial restrictions on the utilization of net
operating losses and tax credits in the event of an ownership change of a
corporation.  Accordingly, the Company's ability to utilize net
operating loss and tax credit carryforwards may be limited as a result of such
ownership changes.  Such a limitation could result in the expiration
of loss carryforwards before they are utilized.
 
 For tax
purposes, the Company has unused capital losses available to carryforward to
future tax years.  At June 30, 2009, the amounts and expiration dates
of the Company's capital loss carryforwards are as follows.
 
 Year
      Ended
              Expires
              
              AmountJune
      30, 2005
              June
      30, 2010
              
              $
              1,250,000Total
              
              
              $
              1,250,000




F-29
 Table of Contents


INTEGRAL
TECHNOLOGIES, INC.


(A
Development Stage Company)


Notes
to Consolidated Financial Statements


Years
Ended June 30, 2009, 2008 and 2007


(US
Dollars)




7.
            INCOME TAXES
      (Continued)





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





We
adopted the provisions of FIN 48 on July 1, 2007.  There was no impact
on our consolidated financial position, results of operations and cash flows as
a result of adoption.  We have an unrecognized tax benefit of $336,000
as of June 30, 2009, including no accrued amounts for interest and
penalties.





Our
policy will be to recognize interest and penalties related to income taxes as a
component of income tax expense.  We are subject to income tax
examinations for U.S. incomes taxes from the year ended June 30, 1996
forward.  We do not anticipate that total unrecognized tax benefits
will significantly change prior to June 30, 2010.





8.
            LOSS
      PER SHARE





Income
      (Numerator)
            
            
            Weighted
      Average Number of Shares (Denominator)
            
            
            Loss
      Per Share2009Loss
      for the year
            
            $
            (1,554,876
            )Preferred
      stock dividends
            
            
            (15,427
            )Loss
      attributable to common shareholders
            
            $
            (1,570,303
            )
            
            
            47,360,459
            
            
            $
            (0.03
            )2008Loss
      for the year
            
            $
            (1,938,216
            )Preferred
      stock dividends
            
            
            (15,427
            )Loss
      attributable to common shareholders
            
            $
            (1,953,643
            )
            
            
            45,617,756
            
            
            $
            (0.04
            )2007Loss
      for the year
            
            $
            (5,985,850
            )Preferred
      stock dividends
            
            
            (15,427
            )Loss
      attributable to common shareholders
            
            $
            (6,001,277
            )
            
            
            45,230,171
            
            
            $
            (0.13
            )





Common
share equivalents consisting of stock options and warrants are not considered in
the computation of diluted loss per share because their effect would be
anti-dilutive.





F-30
 Table of Contents




PART
III





ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS





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





Name
            Age
            Position
      with Company
            Director
      of
              Company
      SinceWilliam
      S. Robinson
            52
            Director,
      Chairman, CEO and Treasurer
            February
      1996William
      A. Ince
            58
            Director,
      President, Secretary and ChiefFinancial
      Officer
            February
      1996





William
Robinson


(Chairman,
CEO and Treasurer)





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





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





William
A. Ince


(Director,
President, Secretary and Chief Financial Officer)





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





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





Non-Executive
Officer / Significant Consultant





Mohamed
Zeidan


(Consultant)




Subsequent
to the year end on August 10, 2009 our Company retained the services of Mr.
Zeidan. Mr. Zeidan has over 25 years of experience in automotive engineering and
engineering management. At Lear Corp. he was the Chief Technology Officer and
Director of Hybrid Engineering, creating the Hybrid Engineering Department that
developed innovative technologies resulting in major business growth. Prior to
Lear, he worked at United Technologies Automotive “UTA” for about 14 years in
Advanced Engineering for many Global OEM programs from Advance Phase through
Production Launch being the complete life cycle of the technology.





Mr.
Zeidan and his team willidentify partners for
joint development of our customers’ products utilizing ElectriPlastTM, and take
it through product implementation, including prototype testing to secure
technology approval and validation, and secure awarding of
contracts.


17
 Table of Contents


The term
of the agreement is from August 10, 2009 and expiry on July 31, 2011. The
agreement calls for a monthly fee for Mr, Zeidan and his team of engineers of
$25,000. In addition, Mr. Zeidan has been granted by Integral, options to
acquire 2,000,000 shares of Integral’s common stock at an exercise price of
$0.25 per share. These options shall be fully vested pursuant to the schedule
attached in Exhibit 10.32. Either party may terminate the agreement at “six
month” intervals with 30 days notice as more fully explained in Exhibit 10.
32.




Audit
Committee and Audit Committee Financial Expert Disclosure





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





Code
of Ethics





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





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Exchange Act of 1934 requires our Company's officers and
directors, and persons who own more than 10% of a registered class of our
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission
(“SEC”).  Officers, directors, and greater than 10% shareholders are
required by SEC regulation to furnish us with copies of all Section 16(a) forms
they file.  Based solely on our review of copies of such reports
received or written representations from certain reporting persons, we believe
that, during the year ended June 30, 2009, all Section 16(a) filing requirements
applicable to our officers, directors and ten percent shareholders were complied
with by such persons.


18
 Table of Contents


ITEM
11. EXECUTIVECOMPENSATION





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





Summary
Compensation Table


The following table


The
following table sets forth all compensation, including bonuses, stock option
awards and other payments, paid or accrued by Integral and/or its subsidiaries,
to or for Integral’s principal executive officer and each of the other executive
officers (one person) and one non-executive officer, during the fiscal years
ended June 30, 2009 and 2008.







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 ($)William
      S.
            2009
            
            $
            210,000
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            28,282
            
            
            $
            238,282Robinson
            2008
            
            $
            210,000
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            28,282
            
            
            $
            238,282Chief
      Executive Officer, Treasurer, Chairman, DirectorWilliam
      A.
            2009
            
            $
            210,000
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            23,145
            
            
            $
            233,145Ince
            2008
            
            $
            210,000
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            
            -0-
            
            
            $
            23,145
            
            
            $
            233,145Chief
      Financial and Accounting Officer, President, Secretary,
      Director





(n1)
            Reflects
      dollar amount expensed by the company during applicable fiscal year for
      financial statement reporting purposes pursuant to FAS 123R.  FAS
      123R requires the company to determine the overall value of the options as
      of the date of grant based upon the Black-Scholes method of valuation, and
      to then expense that value over the service period over which the options
      become exercisable (vest).  As a general rule, for
      time-in-service-based options, the company will immediately expense any
      option or portion thereof which is vested upon grant, while expensing the
      balance on a pro rata basis over the remaining vesting term of the
      option.  For a description FAS 123R and the assumptions used in
      determining the value of the options under the Black-Scholes model of
      valuation, see the notes to the consolidated financial statements included
      with this report.





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


19
 Table of Contents


Subsequent
to June 30, 2009, Mr. Robinson and Mr. Ince were each 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.





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





(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, 2009, $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, 2008, $10,282 was paid or
      accrued for Mr. Robinson and $5,145 was paid or accrued for Mr.
      Ince.





William
      S. Robinson and William A. Ince each received an automobile expense
      allowance of $18,000 in 2009 and $18,000 in
  2008.








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


20
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Executive
Officer Outstanding Equity Awards At Fiscal Year-End




The
following table provides certain information concerning any common stock
purchase options, stock awards or equity incentive plan awards held by each of
our named executive officers that were outstanding as of June 30,
2009.




Option
      Awards
            
            Stock
      AwardsEquity
      Incentive Plan Awards:
            
            
            
            
            
            
            
            
            
            
            
            
            Equity
      Incentive Plan Awards:
            
            
            Equity
      Incentive Plan Awards:Name
            
            Number of
      Securities Underlying Unexercised Options(#) Exercisable
            
            
            Number of
      Securities Underlying Unexercised Options(#) Unexercisable
            
            
            Number of
      Securities Underlying Unexercised Unearned
Options (#)
            
            
            Option
      Exercise Price ($)
            
            Option
      Expiration Date
            
            Number of
      Shares or Units of Stock That Have Not
      Vested (#)
            
            
            Market
      Value of Shares or Units of Stock That Have Not
      Vested
            
            
            Number
      of Unearned Shares, Units or Other Rights That Have Not
      Vested
            
            
            Market or
      Payout Value of Unearned Shares, Units or Other Rights
      That Have Not VestedWilliam
      S. Robinson (n1)
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            
            
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0William
      A. Ince (n2)
            
            
            415,000
            
            
            
            0
            
            
            
            0
            
            
            $
            1.00
            
            12/31/2010
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            0





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





(n2)
            Mr.
      Aisenbrey, Integral’s former Chief Technology Officer holds the following
      options:





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





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





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


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Compensation
of Directors





No
compensation was paid by Integral to its Directors for any service provided as a
Director during the fiscal year ended June 30, 2009.  There are no
other formal or informal understandings or arrangements relating to
compensation; however, Directors may be reimbursed for all reasonable expenses
incurred by them in conducting Integral’s business.  These expenses
would include out-of-pocket expenses for such items as travel, telephone, and
postage.





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





Subsequent
to the year end on August 1, 2009 the Board of Directors deemed it in the best
interest of the Company to enter into employment agreements with William S.
Robinson, its Chief Executive Officer and Treasurer and William A. Ince its
President and Accounting Officer.





Mr.
Robinson’s agreement calls for the following terms and conditions. The term of
the agreement is from August 1, 2009 through to July 31, 2014. The agreement
calls for a compensation package of $220,000 annually for services and $1,500
per month for automobile allowance. In addition, Integral has granted Mr.
Robinson options to acquire 500,000 shares of Integral’s common stock at an
exercise price of $0.25 per share. These options shall be fully vested on August
1, 2009 and may be exercised in whole or in part any time after January 1, 2010.
All options shall expire on December 31, 2014.





Mr.
Ince’s agreement calls for the following terms and conditions. The term of the
agreement is from August 1, 2009 through to July 31, 2014. The agreement calls
for a compensation package of $220,000 annually for services and $1,500 per
month for automobile allowance. In addition, Integral has granted Mr. Ince
options to acquire 500,000 shares of Integral’s common stock at an exercise
price of $0.25 per share. These options shall be fully vested on August 1, 2009
and may be exercised in whole or in part any time after January 1, 2010. All
options shall expire on December 31, 2014.





In the
event of termination without cause, Mr. Robinson or Mr. Ince are entitled to one
years compensation.





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





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





Employee
Benefit and Consulting Services Compensation Plans





As of
June 30, 2009, Integral had two Employee Benefit and Consulting Services
Compensation Plans in effect.





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


22
 Table of Contents


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





Subsequent
to the year end on July 14, 2009, Integral adopted an employee benefit and
consulting services compensation plan entitled the Integral Technologies, Inc.
2009 Stock Plan (the “2009 Plan”).  The 2009 Plan covers up to
5,000,000 shares of common stock. The 2009 Plan has not previously been approved
by security holders.





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


23
 Table of Contents


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





Common
Stock





The
following table sets forth, as of September 14, 2009 the stock ownership of each
person known by Integral to be the beneficial owner of five percent or more of
Integral’s common stock, each director and executive officer individually and
all directors and executive officers of Integral as a group.  Each
person is believed to have sole voting and investment power over the shares
except as noted.





Name
      and Address of
              Beneficial
      Owner (n1)
            Amount
      and Nature of Beneficial Ownership(n1)(n2)
            Percent
      of Class (n3)Executive
      Officers and Directors:William
      S. Robinson (n4)
              #3
      1070 West Pender St.
              Vancouver,
      B.C.  V6E 2N7
            3,030,781
            5.8%William
      A. Ince  (n5)
              805
      W. Orchard Dr., Suite #7
              Bellingham,
      WA  98225
            2,723,544
            5.3%All
      executive officers and directors as a group
            5,754,325
            11.1%







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





(n2)
            Includes
      vested options beneficially owned but not yet exercised and outstanding,
      if any.  The table does not include the effects of conversion by
      Mr. Robinson and Mr. Ince of their shares of Series A Convertible
      Preferred Stock (“Series A”), which are convertible into shares of common
      stock at a conversion rate that varies with the market price of the common
      stock at the time of conversion.  The conversion rate is
      determined by dividing the number of shares of Series A being
      converted by the average of the high and low bid prices of Integral’s
      common stock reported by the OTC Bulletin Board over the ten trading days
      preceding the date of conversion.  Mr. Robinson owns 204,975
      shares of Series A and Mr. Ince owns 103,563 shares of
      Series A.  As of September 14, 2009, the conversion rate
      was $0.42 per share, so Mr. Robinson’s 204,975 shares of Series A
      were convertible into 488,035 shares of common stock, and Mr. Ince’s
      103,563 shares of Series A were convertible into 246,578 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 50,305,769 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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 Table of Contents


Series
A Convertible Preferred Stock





The
following table sets forth, as of September 14, 2009, the stock ownership of
each person known by Integral to be the beneficial owner of five percent or more
of Integral’s Series A Convertible Preferred Stock, each Officer and Director
individually and all Directors and Officers of Integral as a group. Each person
is believed to have sole voting and investment power over the shares except as
noted.





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







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





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





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





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


25
 Table of Contents


Equity
Compensation Plan Information





The
following information concerning the Company’s equity compensation plans is as
of the end of the fiscal year ended June 30, 2009:





Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of options, warrants and rights
            Number
      of securities available for future issuance under equity compensation
      plans (excluding securities reflected in column (a))Plan
      category
            (a)
            (b)
            (c)Equity
      compensation plans approved by security holders
            N/A
            N/A
            N/AEquity
      compensation plans not approved by security holders
            3,370,000
            $1.21
            1,839,500Total
            3,370,000
            $1.21
            1,839,500





As of
June 30, 2009, Integral had two Employee Benefit and Consulting Services
Compensation Plans in effect.





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





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





Subsequent
to the year end on July 14, 2009, Integral adopted an employee benefit and
consulting services compensation plan entitled the Integral Technologies, Inc.
2009 Stock Plan (the “2009 Plan”).  The 2009 Plan covers up to
5,000,000 shares of common stock.  The 2009 Plan has not previously
been approved by security holders.





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





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





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


26
 Table of Contents


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





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




ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





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





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





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








DIRECTOR
INDEPENDENCE





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


27
 Table of Contents


ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Our
Company’s board of directors reviews and approves audit and permissible
non-audit services performed by Pannell Kerr Forster, Vancouver, Canada (“PKF”),
as well as the fees charged by PKF for such services.  In its review
of non-audit service fees and its appointment of PKF as our Company’s
independent accountants, the board of directors considered whether the provision
of such services is compatible with maintaining PKF’s
independence.  All of the services provided and fees charged by PKF in
the fiscal year ended June 30, 2009 were pre-approved by the board of
directors.




Audit
Fees





The
aggregate fees billed for professional services rendered by PKF for the audit of
our annual financial statements and the reviews of the financial statements
included in our quarterly reports on Form 10-Q for fiscal years ended June
30, 2009 and 2008 were $41,160 and $47,530, respectively.





Audit-Related
Fees





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





Tax
Fees





The were
no fees billed for professional services rendered by PKF for tax compliance
services in fiscal years ended June 30, 2009 and 2008.





All
Other Fees





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


28
 Table of Contents


ITEM
15. EXHIBITS








Exhibit No.
            
            Description3.03
            
            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.)3.05
            
            Amendment
      to Series A Preferred Stock-July 14, 200910.12
            
            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.)




29
 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,
    200910.30
            
            Employment
      Agreement between Integral and William Robinson dated July 14,
      2009.10.31
            
            Employment
      Agreement between Integral and William Ince dated July 14,
      2009.10.32
            
            Consulting
      Agreement between Integral and Mohamed Zeidan dated August 10,
      2009.14.1
            
            Code
      of Ethics adopted September 20, 2004. (Incorporated by reference to
      Exhibit 14.1 of Integral’s annual report on Form 10-KSB for the period
      ended June 30, 2004.)21.4
            
            List
      of Subsidiaries. (Incorporated by reference to Exhibit 21.4 of Integral’s
      annual report on Form 10-KSB for the period ended June 30,
      2004.)31.1
            
            Section
      302 Certification by the Corporation’s Chief Executive
      Officer.  (Filed herewith).31.2
            
            Section
      302 Certification by the Corporation’s Chief Financial
      Officer.  (Filed herewith).32.1
            
            Section
      906 Certification by the Corporation’s Chief Executive
      Officer.  (Filed herewith).32.2
            
            Section
      906 Certification by the Corporation’s Chief Financial
      Officer.  (Filed
herewith).




30
 Table of Contents





SIGNATURES





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





INTEGRAL
      TECHNOLOGIES, INCDated:  September
      28, 2009
            /s/ William S.
      RobinsonWilliam
      S. Robinson, Chief Executive Officer/s/ William A.
    InceWilliam
      A. Ince, Chief Financial Officer and Principal Accounting
      Officer








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





Name
            
            Title
            
            Date/s/ William S. Robinson
            
            Director
            
            September
      28, 2009William
      S. Robinson/s/ William A. Ince
            
            Director
            
            September
      28, 2009William
      A. Ince




31