NOTE 5 - STOCKHOLDERS’ DEFICIT

Common stock

During the year ended June 30, 2016, the Company completed the following private placement:

(i)

Completed a private placement amounting to $28,000 for the issuance of 56,000 shares of common stock at $0.50 per share.

During the year ended June 30, 2016, the Company issued shares of common stock to settle the following debt:

(i)

Pursuant to a promissory note agreement, the Company issued 13,000 shares of common stock measured at a fair value of $0.48 per share resulting in a total value of $6,220 which was recorded in common stock and paid in capital in excess of par.

(ii)

The Company issued 15,463,881 shares of common stock to settle $2,059,738 of convertible debentures and derivative liabilities (note 9).

During the year ended June 30, 2015, the Company completed the following private placements:

(i)

Completed a private placement amounting to $108,620 for the issuance of 638,940 units. Each unit consisted of one common share at $0.17 per share and one share purchase warrant at $0.001 per warrant to purchase 638,940 common shares on or before February 16, 2016 at an exercise price of $0.30 per share.

(ii)

Completed a private placement amounting to $305,478 for the issuance of 1,796,927 units. Each unit consisted of one common share at $0.17 per share and one share purchase warrant issued at $0.001 per warrant to purchase 1,796,927 common shares on or before February 16, 2016 at an exercise price of $0.30 per share.

(iii)

Completed a private placement amounting to $160,622 for the issuance of 642,087 shares consisting of common stock at $0.25 per share.

(iv)

Completed a private placement amounting to $247,875 for the issuance of 701,447 shares consisting of common stock at $0.35 per share.

(v)

Completed a private placement amounting to $263,720 for the issuance of 694,377 shares consisting of common stock at $0.38 per share.

(vi)

Completed a private placement amounting to $25,000 for the issuance of 100,000 shares consisting of common stock at $0.25 per share.

(vii)

Completed a private placement amounting to $48,500 for the issuance of 127,631 shares consisting of common stock at $0.38 per share.

(viii)

Completed a private placement amounting to $35,000 for the issuance of 100,000 shares consisting of common stock at $0.35 per share.

(ix)

Completed a private placement amounting to $239,000 for the issuance of 796,667 shares consisting of common stock at $0.30 per share.

(x)

Completed a private placement amounting to $1,002,190 for the issuance of 3,340,633 shares consisting of common stock at $0.30 per share.

(xi)

Completed a private placement amounting to $70,000 for the issuance of 230,000 shares consisting of common stock at $0.30 per share.

(xii)

Completed a private placement amounting to $400,000 for the issuance of 800,000 common shares issued at $0.50 per share.

The Company determined that warrants issued did not contain any provisions that would preclude equity treatment.

During the year ended June 30, 2015, the Company issued shares of common stock pursuant to consulting agreements as follows:

(i)

50,000 shares measured at a fair value of $0.31 per share resulting in a total value of $15,250 which was previously recorded as selling, general, and administrative expenses during the year ended June 30, 2014.

(ii)

850,000 shares measured at a fair value of $0.33 per share resulting in a total value of $280,500 which was recorded as selling, general, and administrative expenses.

(iii)

150,000 shares measured at a fair value of $0.48 per share resulting in a total value of $72,250 which was recorded as selling, general, and administrative expenses.

(iv)

15,000 shares measured at a fair value of $0.45 per share resulting in a total value of $6,750 which was recorded as selling, general, and administrative expenses.

(v)

50,000 shares measured at a fair value of $0.68 per share resulting in a total value of $33,750 which was recorded as selling, general, and administrative expenses.

(vi)

400,000 shares measured at a fair value of $0.52 per share resulting in a total value of $206,000 which was recorded as selling, general, and administrative expenses.

During the fiscal year ended June 30, 2016, the Company issued 337,500 (2015 - 675,000) shares of common stock pursuant to agreements with employees. The shares issued were measured at a weighted average fair value of $0.38 per share (2015 - $0.38).

Preferred stock

As of June 30, 2016 and 2015 there are no outstanding preferred shares of stock.

Stock-based compensation

During the fiscal year ended June 30, 2016, the Company recorded stock-based compensation expense with respect to vesting stock options, restricted stock and warrants and modified stock options of $179,584 (2015- $184,622) included in selling, general, and administrative expenses.

Stock-based compensation not yet recognized at June 30, 2016 relating to non-vested stock options was $196,576 (June 30, 2015 - $376,159), which will be recognized over a period of 1 years (2015 – 2 years).

Stock options and restricted shares

The Company is reviewing several alternatives to replace its 2001, 2003, and 2009 Stock Option Plans with a new omnibus stock option plan (the “New Plan”). In certain cases, we have made contractual commitments to provide shares or stock option grants in anticipation of putting in place the New Plan. The New Plan will allow us to attract and retain key employees or service providers as we continue to develop our business. We will obtain the necessary approvals based on the attributes of the plan. We anticipate that this New Plan will be implemented prior to June 30, 2017.

In January 2001, the Company adopted the Integral Technologies, Inc. 2001 Stock Plan (the "2001 Plan"), a non-qualified stock option plan under which the Company may issue up to 2,500,000 stock options and bonuses of common stock of the Company to provide incentives to officers, directors, key employees and other persons who contribute to the success of the Company. This plan was amended during December 2001 to increase the number of common stock options that may be granted from 2,500,000 to 3,500,000 stock options. As of June 30, 2016, there were no (June 30, 2015 - nil) common stock options available under this plan.

In April 2003, the Company adopted the Integral Technologies, Inc. 2003 Stock Plan (the "2003 Plan"), a non-qualified stock option plan under which the Company may issue up to 1,500,000 stock options. As of June 30, 2016, there were no (June 30, 2015 - nil) common stock options available under this plan.

During the fiscal year ended June 30, 2010, the Company adopted the Integral Technologies, Inc. 2009 Stock Plan (the "2009 Plan"), a non-qualified stock option plan under which the Company may issue up to 4,000,000 common stock options. As of June 30, 2016, there were no (June 30, 2015 - nil) common stock options available under this plan.

Stock option activity

The following summarizes information about the Company’s options outstanding:

	Number of Options			Price Per Option		Weighted Average Exercise Price
Outstanding, June 30, 2015		3,500,000		$	0.25 to $ 0.85	$	0.34
Granted		-			-		-
Cancelled		-			-		-
Expired		(2,350,000	)	$	0.25 to $ 0.85	$	0.32
		-
Outstanding, June 30, 2016		1,150,000		$	0.25 to $ 0.85	$	0.37
Exercisable, June 30, 2016		1,100,000		$	0.25 to $ 0.85	$	0.38

A summary of the status of non-vested options as of June 30, 2016 is as follows;

	Number of Options			Weighted Average Grant Date Fair Value

Non-vested at June 30, 2015		100,000		$	0.25
Options granted		-			-
Options forfeited		-			-
Options vested		(50,000	)		0.25
Non-vested at June 30, 2016		50,000		$	0.25

The weighted average remaining contractual lives for options outstanding and exercisable at June 30, 2016 are 1.13 years and 0.93 years (June 30, 2015 - 1.34 and 1.20 years), respectively.

The following summarizes the options outstanding and exercisable:

			Number of Options
Expiry Date	Exercise Price		June 30, 2016		June 30, 2015
December 1, 2015	$	0.50		-		150,000
December 1, 2015	$	0.85		-		100,000
June 1, 2016	$	0.50		-		75,000
June 1, 2016	$	0.85		-		100,000
June 30, 2016	$	0.25		-		2,000,000
December 1, 2016	$	0.85		100,000		100,000
December 1, 2016	$	0.50		75,000		75,000
February 19, 2017	$	0.31		750,000		750,000
June 1, 2017	$	0.50		75,000		75,000
January 13, 2019	$	0.25		50,000		50,000
January 13, 2020	$	0.25		50,000		50,000
January 13, 2021	$	0.25		50,000		50,000
Total outstanding				1,150,000		3,500,000
Total exercisable				1,100,000		3,400,000

The aggregate intrinsic value of options outstanding and exercisable as of June 30, 2016 was $nil and $nil (June 30, 2015 - $1,128,000 and $1,089,000), respectively. The aggregate intrinsic values exclude options having a negative aggregate intrinsic value due to awards with exercise prices greater than market value. The intrinsic value is the difference between the market value of the shares and the exercise price of the award.

During the year ended June 30, 2014, the Company entered into employment agreements, whereby the employees would be granted restricted shares. The holder of a restricted share award is generally entitled at all times on and after the date of the agreement to exercise the rights of a shareholder of the Company, including the right to vote and the right to receive dividends on the shares. These shareholders do not have the ability to sell, transfer or otherwise encumber the restricted shares awards until they fully vest. The restricted shares granted vest over three or four-year periods and the grant date fair value of the awards is recognized as expense over the vesting period. During the year ended June 30, 2016, total compensation expense of $179,584 (June 30, 2015 - $184,622) was recognized as stock-based compensation and included in selling, general and administration expense.

During the year ended June 30, 2016, the Company issued 377,500 shares (2015 - 675,000) and is obligated to issue an additional 600,000 shares pursuant to the employment agreements.

A summary of the status of non-vested restricted shares as of June 30, 2016 is as follows:

	Number of Restricted Stock Awards			Weighted Average Grant Date Fair Value

Non-vested at June 30, 2015		875,000		$	0.35
Awards granted		-			-
Awards forfeited		-			-
Awards vested		(537,500	)	$	0.33
Non-vested at June 30, 2016		337,500		$	0.38

Stock purchase warrants

The following summarizes information about the Company’s stock purchase warrants outstanding:

	Number of Warrants			Price Per Share		Weighted Average Exercise Price

Balance, June 30, 2015		25,554,938		$	0.25 - $0.60	$	0.33
Issued		1,250,000		$	0.08	$	0.08
Expired		(11,033,060	)	$	0.25 - $0.60	$	0.33
Exercised		(3,265,569	)	$	0.30 - $0.50	$	0.31
Balance, June 30, 2016		12,506,309		$	0.08 - $0.50	$	0.32

			Number of Warrants
Expiry Date	Exercise Price		June 30, 2016		June 30, 2015

January 31, 2015	$	0.50		-		150,000
February 28, 2015	$	0.50		-		200,000
June 30, 2015	$	0.30		-		125,000
July 31, 2015	$	0.50		-		88,000
September 13, 2015	$	0.60		-		44,757
October 1, 2015	$	0.30		-		13,191,405
October 1, 2015	$	0.50		-		450,000
December 1, 2015	$	0.30		-		936,405
December 1, 2015	$	0.50		-		1,000,000
December 31, 2015	$	0.30		-		157,000
January 1, 2016	$	0.30		-		249,235
February 16, 2016	$	0.25		-		302,117
February 16, 2016	$	0.30		-		1,737,804
November 25, 2016	$	0.30		8,501,786		4,168,692
November 25, 2016	$	0.50		2,754,523		2,754,523
May 5, 2020	$	0.08		1,250,000		-
Total outstanding and exercisable				12,506,309		25,554,938

The following summarizes changes to share purchase warrants outstanding during the year ended June 30, 2016:

955,646 investor warrants expiring October 1, 2015 and exercisable at $0.30 were extended to November 25, 2016;

588,236 investor warrants expiring December 1, 2015 and exercisable at $0.30 were extended to November 25, 2016;

157,000 investor warrants expiring December 31, 2015 and exercisable at $0.30 were extended to November 25, 2016;

466,629 investor warrants expiring February 16, 2016 and exercisable at $0.30 were extended to November 25, 2016;

The modifications of warrants resulted in no additional expense.

Share obligations

Pursuant to a consulting agreement with the CFO dated August 19, 2013, the Company is obligated to pay $5,000 to $12,500 per month based on the number of hours worked and to issue 6,000 shares of common stock per month beginning September 1, 2013.

As of June 30, 2016, no shares have been issued. As such, a total of 204,000 shares of common stock are issuable. The obligation to issue shares of common stock was measured at a weighted average fair value of $0.43 per share on the date each series of shares became issuable. During the year ended June 30, 2016, $26,460 (2015 - $23,340) was recorded as an obligation to issue shares. As of June 30, 2016, a total balance of $86,940 remains as an obligation to issue the shares within equity, as this obligation can only be satisfied in shares of common stock.

During the year ended June 30, 2016, the Company received conversion notices to issue 950,000 shares of common stock to settle $280,282 of convertible debentures and derivative liabilities (note 9) recorded as an obligation to issue shares within equity. These shares were issued in April 2016.

Pursuant to a director’s agreement dated July 1, 2015, the Company is obligated to issue 250,000 shares of common stock. As at June 30, 2016, these shares have not been issued and as such, the grant date fair value of $29,250 has been recognized in obligation to issue shares within equity.

Subscriptions

During the year ended June 30, 2016, 331,667 shares were issued pursuant to warrants exercised for proceeds received during the year ended June 30, 2015 of $107,500.