NOTE

STOCKHOLDERS’ DEFICIT

Common stock

During the

six

months ended

December 31, 2017,

the Company completed the following common share transactions:

(i)

July 13, 2017,

the Company issued

1,000,000

common shares as retainer fees pursuant to ongoing professional services agreement. The shares were measured at the grant date fair value of

$30,000

and recognized within selling, general and administrative expense.

(ii)

September 29, 2017,

the Company issued

600,000

shares pursuant to employee compensation agreements. The fair value of shares was recognized within share capital on the vesting date during the year ended

June 30, 2017.

During the

six

months ended

December 31, 2017,

the Company issued shares of common stock pursuant to debt agreements:

(i)

During the

six

months ended

December 31, 2017,

the Company issued

20,400,249

shares to settle

$732,726

in convertible debt (note

), net of gains on extinguishment of convertible debt of

$145,540.

(iii)

July 20, 2017,

the Company issued

925,000

shares to settle

$16,800

in debt. The shares were measured at the issue date fair value of

$27,750

with a gain on extinguishment of

$10,950

recognized within selling, general and administrative expense.

Preferred stock

As of

December 31, 2017

and

June 30, 2017,

there are

outstanding preferred shares.

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, the Company has made contractual commitments to provide shares or stock option grants in anticipation of putting in place the New Plan. The Company intends on obtaining the necessary approvals based on the attributes of the plan, and anticipates that this New Plan will be implemented prior to

June 30, 2019.

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

3,500,000

stock options. As of

December 31, 2017,

there were

nil

(

June 30, 2017 -

nil

) common stock options available under this plan.

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

December 31, 2017,

there were

nil

(

June 30, 2017 -

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

December 31, 2017,

there were

nil

(

June 30, 2016 -

nil

) common stock options available under this plan.

Stock option activity

The following summarizes the options outstanding and exercisable:

		Number of Options
Expiry Date	Exercise Price	December 31, 2017	June 30, 2017
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		150,000	150,000
Total exercisable		150,000	150,000

The aggregate intrinsic value of options outstanding and exercisable as of

December 31, 2017

was

$nil

(

June 30, 2017 -

$nil

), 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.

The weighted average remaining contractual lives for options outstanding and exercisable at

December 31, 2017

and

June 30, 2017

are

3.04

years and

3.54

years, respectively.

During

September 2017,

the Company entered into debt forgiveness agreements to settle

$561,737

in debt with related parties and consultants. In exchange the company agreed to issue

5,721,641

options at an exercise price of

$0.05

for periods expiring between

and

years and will vest when the Company increases its authorized shares issuable. The fair value of the options was measured at

$153,728

using the black-sholes option pricing model. The total amount of the debt less the fair value of the options has been recognized as a gain on settlement of liabilities.

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, 2017		4,044,465	$0.20	-	$0.30		$0.28
Granted		4,000,000		$0.05			$0.05
Expired		(4,044,465)	$0.20	-	$0.30		$0.28

Balance, December 31, 2017		4,000,000		$0.05			$0.05

		Number of Warrants
Expiry Date	Exercise Price	December 31, 2017	June 30, 2017

October 1, 2017	$0.30	-	3,209,465
October 1, 2017	$0.20	-	835,000
November 16, 2022	$0.05	4,000,000	-
Total outstanding and exercisable		4,000,000	4,044,465

Share obligations

(a)

Pursuant to a separation agreement with the previous CFO, the Company will issue

36,000

shares of common stock with a fair value of

$3,600

and settle all unpaid fees from

July 1, 2016

February 10, 2017 (

effective date of resignation).

(b)

Pursuant to director’s agreements, the Company is obligated to issue

65,000

shares of common stock. As at

December 31, 2017,

these shares have

not

been issued and as such, the grant date fair value of

$37,650

has been recognized in obligation to issue shares within equity.