Novint Technologies, Inc.
statements
NOTESNOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
MARCH 31, 2020
(Unaudited)
NOTE 1 —BASIS– DESCRIPTION OF PRESENTATION AND NATURE OF BUSINESS
Basis of Presentation
The unaudited financial statements have been prepared by Novint Technologies, Inc. (the “Company"“Company” or “Novint”), in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the period ended December 31, 2008. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. The results of the three and six months ended June 30, 2009 are not necessarily indicative of the results to be expected for the full year ending December 31, 2009.
Reclassifications
Certain prior year amounts were reclassified to conform to the June 30, 2009 presentation.
Nature of Business
Novint was originally incorporated in the State of New Mexico in April 1999. On February 26, 2002, the Company changed its state of incorporation to Delaware by merging with Novint Technologies, Inc., a Delaware corporation. This merger was accounted for as a reorganization of the Company.
Nature of Business
The Company currently is engaged in the development and sale of 3D haptics products and equipment. Haptics refers to one’s sense of touch. The Company’s focus is in the consumer interactive computer gaming market, but the Company also does project work in other areas. The Company’s operations are based in New Mexico with sales of its haptics products primarily to consumers through the Company’s website at www.novint.com and retail outlets.
Going Concern and Management’s Plans
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring losses and at June 30, 2009,March 31, 2020, had an accumulated deficit of $33,154,758.$41,336,529. For the three and six monthsperiod ended June 30, 2009,March 31, 2020, the Company sustained a net loss of $1,177,293 and $2,762,844, respectively.$50,394. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time.the next twelve months from the date the financial statements were issued. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. The Company'sCompany’s continuation as a going concern is contingent upon its ability to obtain additional financing, and to generate revenue and cash flow to meet its obligations on a timely basis.
Management intends to source new inventory and generate revenue. The Company believes there are several factors in continuing as a going concern. The Company has dramatically reduced operating expenses and staff in the first quarter of 2009 and will continue do so in areas deemed non-essential during 2009 while maintaining the resources to continue to sell its hardwareseek and software products. Additionally, in the immediate timeframe, the Company has put more emphasis on haptics development projects. These projects have historically generated revenues and expanded the intellectual property portfolio. Next, the Company is anticipating the release of new top tier games in the second half of 2009, which should generate additional product sales. Lastly, the Company will seek to raise additional funding through debt or equity financing during the next twelve months.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
NOTE 2 —– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In preparing and AssumptionsThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management makesto make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosuresdisclosure of contingent assets and liabilities at the date of the financial statements as well asand the reported amounts of revenues and expenses during the reporting period. The most significant estimates and assumptions made in the preparation of the financial statements relate to accrued royalties and contingent consideration. Actual results could differ from those estimates. Significant estimates
Basis of Presentation
The accompanying unaudited condensed financial statements were prepared using generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited condensed financial statements do not include the fair value ofall information or notes required by generally accepted accounting principles for annual financial statements and should be read in conjunction with the Company’s common stockannual financial statements included within the Company’s Special Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on May 5, 2020.
In the opinion of management, the unaudited condensed financial statements included herein contain all adjustments necessary to present fairly the Company’s financial position and the fair valueresults of optionsits operations and warrants to purchase common stock, allowancescash flows for doubtful accounts, inventory valuation, returnthe interim periods presented. Such adjustments are of a normal recurring nature. The results of operations for the three months ended March 31, 2020 may not be indicative of results for the full year.
Cash and warranty reserves, accounting for income taxes and uncertainty in income taxes and depreciation and amortization.
Software Development Costs
Cash EquivalentsThe Company accounts for its software development costsconsiders all highly liquid investments purchased with maturities of three months or less to be cash equivalents. The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in accordance with Statement ofsuch accounts.
Revenue and Cost Recognition
In May 2014, the Financial Accounting Standards (SFAS) Number 86,Board (“FASB”) issued Accounting forStandards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and has since issued amendments thereto (collectively referred to as “ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the Coststransfer of Computer Softwarepromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be Sold, Leased,entitled in exchange for those goods or Otherwise Marketed. This statement requires that, once technological feasibility ofservices, and the guidance defines a developing product has been established, all subsequent costs incurredfive-step process to achieve this core principle. The five-step process to achieve this principle is as follows: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in developing that product to a commercially acceptable level be capitalized and amortized ratably over the estimated life ofcontract(s), (iii) determine the product, which is generally 5 years. The Company has capitalized software development costs in connection with its haptics technology beginning in 2000. Amortization is computed ontransaction price, (iv) allocate the straight-line basis over the estimated life (5 years) of the haptics technology. As of June 30, 2009, the Company’s capitalized software development costs totaled $514,102 (net of $435,983 of accumulated amortization) The estimated annual amortization expense relatedtransaction price to the capitalized software development cost is approximately $155,000 per year. Amortization expense related to software development costs for the three and six months ended June 30, 2009 and 2008 totaled $43,418 and $86,189, and $39,225 and $76,983, respectively.
The Company follows Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which requires capitalization of certain costs incurred during the development of internal use software. Through June 30, 2009, capitalizable costs incurred have not been significant for any development projects. Accordingly, the Company has charged all related costs to research and development expenseperformance obligations in the periods incurred.
Propertycontract(s), and Equipment
Property(v) recognize revenue when, or as, the entity satisfies a performance obligation. ASC 606 also mandates additional disclosure about the nature, amount, timing and equipment is stated at cost. Depreciation on propertyuncertainty of revenues and equipment is calculated on a straight-line depreciation method over the estimated useful lives of the assets, which range from 3 to 5 years for software and computer equipment, and 5 years for office equipment. Repairs and maintenance costs are expensed as incurred. Depreciation expense was $13,064 and $31,608, and $26,849 and $ 51,019 for the three and six months ended June 30, 2009 and 2008, respectively.
Intangible Assets
Intangible assets consist of licensing agreements of $1,245,543 and patents of $50,917, and are carried at cost less accumulated amortization of $790,773 at June 30, 2009. Amortization is computed using the straight-line method over the economic life of the assets, which range between 3 and 20 years. For the three and six months ended June 30, 2009 and 2008, the Company recognized amortization expense of approximately $92,445 and $184,891, and $52,968 and $90,188, respectively, related to intangible assets.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
Annual amortization of intangible assets remaining at June 30, 2009, is as follows:
| For the twelve months ending June 30, | | | |
| 2010 | | $ | 348,153 | |
| 2011 | | | 113,553 | |
| 2012 | | | 5,191 | |
| 2013 | | | 2,441 | |
| 2014 and thereafter | | | 36,349 | |
| Total | | $ | 505,687 | |
In August 2008, the Company entered into a licensing agreement for several games, with a guaranteed minimum royalty of $100,000. In March 2009, the Company signed an amendment to reduce the minimum royalty to $15,000 for a total of two games. The Company has accrued for the $15,000 as of December 31, 2008. This amount was paid in March 2009.
The Company follows the provisions of SFAS 142, Goodwill and Other Intangible Assets. SFAS 142 requires intangible assets to be tested for impairment in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which has been superseded by SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Company performs a periodic review of its identified intangible assets to determine if facts and circumstances exist which indicate that the useful life is shorter than originally estimated or that the carrying amount of assets may not be recoverable. If such facts and circumstances exist, the Company assesses the recoverability of identified intangible assets by comparing the projected undiscounted net cash flows associated with the related asset or group ofarising from customer contracts, including significant judgments and changes in judgments and assets over the remaining lives against the respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. After an impairment loss is recognized, the adjusted carrying amount shall be its new accounting basis. No impairment loss was recorded during the three and six months ended June 30, 2009 or 2008.
Revenue and Cost Recognition
The Company recognizes revenue from the sale of software products under the provisions of SOP 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9. SOP 97-2 generally requires that revenue recognized from software arrangements be allocated to each element of the arrangement based on the relative vendor specific objective evidence of fair values of the elements, such as software products, upgrades, enhancements, post contract customer support, installation or training. Under SOP 97-2, if the determination of vendor specific objective evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence does exist or until all elements of the arrangement are delivered.
SOP 97-2 was amended in December 1998 by SOP 98-9, Modification of SOP 97-2 Software Revenue Recognition with Respect to Certain Transactions. SOP 98-9 clarified what constitutes vendor specific objective evidence of fair value and introduced the concept of the “residual method” for allocating revenue to elements in a multiple element arrangement.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
The Company’s revenue recognition policy is as follows:
Project revenue consists of programming services provided to unrelated parties under fixed-price contracts. Revenues from fixed price programming contracts are recognized in accordance with SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, and Accounting Research Bulletin (ARB) 45, Long-Term Construction-Type Contracts, using the percentage-of-completion method, measured by the percentage of costs incurred to
date compared with the total estimated costs for eachobtain or fulfill a contract.
The Company accounts for these measurements in the accompanying balance sheets under costs and estimated earnings in excess of billings on contracts, and billings in excess of costs and estimated earnings on contracts. Provisions for estimated losses on uncompleted contracts are made and recorded in the period in which the loss is identified. As of June 30, 2009 and December 31, 2008 the Company did not have any costs and estimated earnings in excess of billings on contracts or any billings in excess of costs and estimated earnings on contracts.
For project revenue that is not under fixed price programming contracts, the Company recognizes revenues as the services are completed.
Revenue from product sales relates to the sale of the Falcon haptics interface,3D Touch Haptic Controller (the “Falcon”), which is a human-computer user interface (the “Falcon”) and related accessories. The Falcon allows the user to experience the sense of touch when using a computer, while holding its interchangeable handle. The Falcons are manufactured by an unrelated party. Revenue from product sales isare recognized when the products are shipped to the customer and the Company has earned the right to receive and retain reasonable assured payments for the products sold and delivered. Consequently, if all these revenue from product salesrecognition requirements are not met, such sales will be recorded as deferred revenue until such time as all revenue recognition requirements are met.
AsAccounts Receivable
Accounts receivable are stated at the amounts management expects to collect. An allowance for doubtful accounts is recorded based on a combination of June 30, 2009historical experience, aging analysis and information on specific accounts. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Management has determined that $0 allowance is required at March 31, 2020 and December 31, 2008,2019.
Income Taxes
The Company accounts for its income taxes under the Company had recorded $29,603provisions of ASC Topic 740, “Income Taxes”. The method of accounting for income taxes under ASC 740 is an asset and 29,662, respectively,liability method which requires recognition of deferred revenue, which represents fees receivedtax assets and liabilities for product and project revenuesthe expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not met all revenue recognition requirements.
that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.Fair Value of Financial Instruments
The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for disclosures about fair value of its financial instruments and to measure the fair value of its financial instruments. The FASB ASC establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy are described below:
Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
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Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
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Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts of the Company’s financial assets and liabilities, including cash, inventory, prepaid expenses, accounts payable, accrued expenses, payroll and related liabilities, and advances approximate their fair values because of the short maturity of these instruments.
Recently Issued Accounting Pronouncements
The Company has reviewed the recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs, require amounts billed to a customer in a sales transaction related to shipping and handling, if any, to be classified and accounted for as revenues earned for the goods provided whereas shipping and handling costs incurred by a company are required to be classified as costAmerican Institute of sales. The Company’s costs associated with shipping product items to the Company’s customers are included in the Company’s Cost of Goods Sold, which for the three and six months ended June 30, 2009 and 2008 approximated $23,219 and $29,728, and $16,800 and $24,900, respectively.
Arrangements made with certain customers, including slotting fees and co-operative advertising, are accounted for in accordance with EITF No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products). These incentives are recognized as a reduction in revenue or as a selling, general, and administrative expense, respectively, when payment is made to a customer (or at the time the Company has incurred the obligation, if earlier) unless the Company receives a benefit over a period of timeCertified Public Accountants, and the Company meets certain other criteria, such as retailer performance, recoverabilitySEC and enforceability, in which case the incentive is recorded as an asset and is amortized as a reduction of revenue over the term of the arrangement.
EITF 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred, requires reimbursements received for out-of-pocket expenses incurred while providing services to be characterized in the statements of operations as revenue. The Company’s out-of-pocket expenses incurred in connection with their project revenuesthey did not or are recognized in revenues based on a computed overhead rate that is included in their project labor costs to derive a project price.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
In accordance with EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, the Company recognizes its product sales on a gross basis. The Company is responsible for fulfillment, including the acceptability of the product ordered. The Company has risks and rewards of ownership such as the risk of loss for collection, delivery or returns. Title passes to the customer upon receipt of the productnot believed by the customer. In accordance with the Company’s agreement with its customer, further obligation is limited to the terms defined in its warranty.
The Company’s customers are provided a one (1) year limited warranty on the Falcon. This warranty guarantees that the products shall be free from defects in material and workmanship. Additionally, the Company offers its customers of the Falcon a 30 day money back guarantee. The Company continually evaluates its reserve accounts for both the limited warranty and 30 day money back guarantee based on its historical activities. As of June 30, 2009 and December 31, 2008, the Company has accrued $15,000 and $17,000, respectively, as warranty reserve.
Loss per Common Share
Statement of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS 128) provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. All potentially dilutive securities have been excluded from the computations since they would be antidilutive. However, these dilutive securities could potentially dilute earnings per share in the future. As of June 30, 2009 and December 31, 2008, the Company had a total of 16,197,109 and 10,783,473 in potentially dilutive securities, respectively.
Stock-Based Compensation
The Company adopted SFAS No. 123 (Revised 2004), Share Based Payment (“SFAS No. 123R”), under the modified-prospective transition method on January 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. Share-based compensation recognized under the modified-prospective transition method of SFAS No. 123R includes share-based compensation based on the grant-date fair value determined in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for all share-based payments granted prior to and not yet vested as of January 1, 2006 and share-based compensation based on the grant-date fair-value determined in accordance with SFAS No. 123R for all share-based payments granted after January 1, 2006.
The Company recognized $22,212 and $142,678, and $114,967 and $237,106 in employee share-based compensation expense for the three and six months ended June 30, 2009 and 2008, respectively. The fair value of the stock options was estimated using the Black-Scholes option pricing model. In calculating the fair value of options for stock based compensation for the three and six months ended June 30, 2009, the following assumptions were used: closing price of the common stock at the date of grant, risk-free rates ranging from 4.00% to 5.25%, volatility of the options ranging from 73% to 157%, estimated lives of 3 to 10 years and exercise prices ranging from $0.66 to $1.06 per share. In calculating the fair value of options for stock based compensation for the three and six months ended June 30, 2008, the following assumptions were used: closing price of the common stock at the date of grant, risk-free rates ranging from 4.00% to 5.25%, volatility of the options ranging from 73% to 157%, estimated lives of 3 to 10 years and exercise prices ranging from $0.66 to $1.20 per share.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with SFAS 123 and Emerging Issues Task Force No. 96-18, Accounting for Equity Investments That are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services, including related amendments and interpretations. The related expense is recognized over the period the services are provided. For the three and six months ended June 30, 2009 and 2008, stock options and warrants issued to consultants and other non-employees as compensation for services that vested during those periods totaled $47,322 and $6,521, and $147,429 and $282,000, respectively.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
Research and Development
Research and development costs are expensed as incurred and amounted to $56,835 and $129,673, and $281,405 and $594,931 for the three and six months ended June 30, 2009 and 2008, respectively.
Recently Issued Accounting Pronouncements
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipatedmanagement to have a material
impact on the Company’s present or future consolidated financial statement presentation or disclosures.
NOTE 3 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are as follows:
| | March 31, | | | December 31, | |
| | 2020 | | | 2019 | |
Trade payables | | $ | 106,338 | | | $ | 99,486 | |
Accrued expenses | | | 8,113 | | | | 7,756 | |
Accrued royalties | | | 545,632 | | | | 533,132 | |
Total accounts payable and accrued expenses | | $ | 660,083 | | | $ | 640,374 | |
NOTE 4 – COMMITMENTS AND CONTINGENCIES
From time to time, in the normal course of business, the Company is subject to routine litigation incidental to its business. Although there can be no assurances as to the ultimate disposition of any such matters, it is the opinion of management, based upon the information available at this time, that there are no matters, individually or in the aggregate, that will have a material adverse effect on the financial position or results of operations and financial condition of the Company.
The Company has licensing agreements with various parties providing gaming software. These licensing agreements have royalty fees ranging from 5% to 50% of either gross or net revenue, and a flat per user end fee of $0.50. Under one or more of these agreements, there was an annual aggregate minimum payment due of $50,000 which has been recorded as accrued royalties but remains unpaid. Accrued royalty fees as of March 31, 2020 and December 31, 2019, was $545,632 and $533,132, respectively. If contested, the Company may be found to be in breach of obligations to pay these amounts (although the Company believes this obligation is no longer ongoing), thus the remaining obligation under this agreement will remain as a liability.
NOTE 35 – PREPAID ASSETS
INCOME TAXESThe Company files corporate income tax returns in the United States (Federal), in New Mexico and in New York. The Company is subject to federal, state and local income tax examinations by tax authorities for the tax years 2015 through 2018.
As of June 30, 2009, prepaid expenses totaling $1,658,407 principally consistDecember 31, 2019, the Company had federal and state net operating loss carry forwards of prepayments towards marketing costs, insurance premiums, rents$33.8 million and royalties. Prepayments on royalties comprise$0.5 million, respectively. Federal net operating losses generated prior to January 1, 2018, amounting to $33.7 million, and may be offset against future taxable income, subject to limitation under IRC Section 382, which begin to expire in 2022 if not utilized prior to that date, and fully expire during various years through 2037 for federal purposes. Net operating losses generated after January 1, 2018, amounting to $0.3 million, are limited to 80% utilization of current year income and no longer have an expiration. State net operating loss carryforwards will begin to expire in 2034 through 2039.
Other than minimum taxes, the company does not incur a significant portion ofprovision for income taxes because the prepaid expenses at June 30, 2009 totaling $1,580,513 of which $1,214,430 is considered long-term portionCompany has historically incurred operating losses and maintains a full valuation allowance against its net deferred tax assets due to the lengthuncertainty surrounding the realizability of the related licensebenefit, based on a more likely than not criteria and royalty agreementsin consideration of available positive and negative evidence.
On December 22, 2017, the Tax Cuts and Jobs Act (“The Act”), was signed into law by President Trump. The Act includes a number of provisions, including the lowering of the U.S. corporate tax rate from 34 percent to 21 percent, effective January 1, 2018 and the expected realization.
NOTE 4 — INTANGIBLE ASSETS
Intangible assets consistedestablishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations. In December 2017, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the following at June 30, 2009:
| | | | |
| Licensing agreements | | $ | 1,245,543 | |
| Patent | | | 50,917 | |
| Less accumulated amortization | | | (790,773 | ) |
| | | $ | 505,687 | |
NOTE 5 – NOTES PAYABLE
In December 2008, the Company issued two promissory notes totaling $300,000 secured by allAct (“SAB118”), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the Company’s intellectual property, annual interest rate of eight percent (8%), principalenactment. The Company remeasured its deferred tax assets and interest due at maturity, and maturity dateliabilities as of December 4, 2009. If31, 2017, applying the notes are not paid back byreduced corporate income tax rate and recorded a provisional decrease to the maturity date, then Novint will have the right but not the obligation to refinance the notes with new notes equaling the interest and principal from the first note,deferred tax assets of $4,504,000, with a new maturity datecorresponding adjustment to the valuation allowance. In the fourth quarter of 2018, we completed our analysis to determine the effect of the Tax Act and there were no material adjustments as of December 4, 2010 and an annual interest rate of eight percent (8%). The new notes are convertible into common stock at a rate of $0.50/share. Additionally, the Company issued each note holder a detachable warrant for 150,000 shares of the Company’s common stock for a total of 300,000 shares. The Company has accounted for the warrants to purchase 300,000 shares under Accounting Principles Board Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” as additional consideration to the promissory notes payable with an estimated fair value of $100,962 valued using the Black-Scholes option pricing model under the following assumptions: stock price volatility of 119%; risk free interest rate of 2.24%; dividend yield of 0% and 5 year term. The face amount of the promissory notes of $300,000 was proportionately allocated to debt and the estimated fair value of the warrants in the amounts of $224,460 and $75,540, respectively. The allocable estimated fair value of the warrants totaling $75,540 has been accounted for as a debt discount that is being amortized and treated as interest expense over the term of the promissory notes. For the three and six months ended June 30, 2009, the Company’s debt discount amortization expense totaled $18,833 and $37,459, respectively. The remaining unamortized debt discount at June 30, 2009 totaled $32,493.
Novint Technologies, Inc.
31, 2018.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
In January 2009, the Company issued a promissory note totaling $100,000 secured by all of the Company’s intellectual property, annual interest rate of eight percent (8%), principal and interest due at maturity, and maturity date of December 4, 2009. If the note is not paid back by the maturity date, then Novint will have the right but not the obligation to refinance the note with a new note equaling the interest and principal from the first note, with a new maturity date of December 4, 2010 and an annual interest rate of eight percent (8%). The new note would be convertible into common stock at a rate of $0.50/share. Additionally, the Company issued the note holder a detachable warrant for 100,000 shares of the Company’s common stock. The Company has accounted for the warrant to purchase 100,000 shares under Accounting Principles Board Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” as additional consideration to the promissory note payable with an estimated fair value of $37,479 valued using the Black-Scholes option pricing model under the following assumptions: stock price volatility of 117%; risk free interest rate of 2.24%; dividend yield of 0% and 5 year term. The face amount of the promissory notes of $100,000 was proportionately allocated to debt and the estimated fair value of the warrants in the amounts of $72,738 and $27,262, respectively. The allocable estimated fair value of the warrants totaling $27,262 has been accounted for as a debt discount that is being amortized and treated as interest expense over the term of the promissory notes. For the three and six months ended June 30, 2009, the Company’s debt discount amortization expense totaled $7,657 and $14,052, respectively. The remaining unamortized debt discount at June 30, 2009 totaled $13,210.
In June 2009, the Company issued a promissory note totaling $200,000 secured by all of the Company’s intellectual property, annual interest rate of eight percent (8%), principal and interest due at maturity, and maturity date of June 18, 2010. If the note is not paid back by the maturity date, then Novint will have the right but not the obligation to refinance the note with a new note equaling the interest and principal from the first note, with a new maturity date of December 4, 2010 and an annual interest rate of ten percent (10%). The new note would be convertible into common stock at a rate of $0.50/share and for every two shares issued on conversion of the convertible note, the holder would receive a warrant to purchase one share of common stock at an exercise price of $0.50 per share. Additionally, the Company issued the note holder a detachable warrant for 300,000 shares of the Company’s common stock. The Company has accounted for the warrant to purchase 300,000 shares under Accounting Principles Board Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” as additional consideration to the promissory note payable with an estimated fair value of $30,299 valued using the Black-Scholes option pricing model under the following assumptions: stock price volatility of 148%; risk free interest rate of 2.24%; dividend yield of 0% and 5 year term. The face amount of the promissory notes of $300,000 was proportionately allocated to debt and the estimated fair value of the warrants in the amounts of $173,687 and $26,313, respectively. The allocable estimated fair value of the warrants totaling $26,313 has been accounted for as a debt discount that is being amortized and treated as interest expense over the term of the promissory notes. For the three and six months ended June 30, 2009, the Company’s debt discount amortization expense totaled $1,149 and $1,149, respectively. The remaining unamortized debt discount at June 30, 2009 totaled $25,164.
NOTE 6 – ORIGINAL ISSUE DISCOUNT NOTES PAYABLE
During February and March 2009, the Company received $220,000 for three promissory notes totaling $275,000 with 150% warrant coverage. The notes are secured by all of the Company’s assets and intellectual property, no stated interest rate, principal due February 2010. These notes are considered original issue discount notes whereby the discount (difference between the face value of the notes of $275,000 and amounts actually received of $220,000) will be amortized over the lives of the notes. For the three and six months ended June 30, 2009, the Company amortized interest expense totaled $16,972 and $13,750, respectively. The remaining unamortized original issue discount at June 30, 2009 totaled $38,028. If the notes are prepaid, the exercise price of the warrants will adjust to the fair market value of the Company’s stock at the time of prepayment, subject to a floor of $0.02 and a ceiling of $1.00. If an investor sells any shares of our common stock during 120 days prior to the maturity date of the note, the strike price will automatically reset to $2.00. If the notes are not paid back by the maturity date, then the Company will have the right but not the obligation to refinance the notes with new notes equaling the principal and accrued interest from the first note, with a new maturity date one year later and an annual interest rate of five percent (5%). The new note would be convertible into common stock at a rate of $0.0625/share on the principal balance only. The conversion rate is subject to change based upon the provision in the note. The Company has accounted for the 150% warrants coverage to purchase 330,000 shares under Accounting Principles Board Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” as additional consideration to the promissory notes payable with an estimated fair value of $44,677 valued using the Black-Scholes option pricing model under the following assumptions: stock price volatility ranging from 122% to 142%; risk free interest rate of 2.24%; dividend yield of 0% and 5 year term. The face amount of the promissory notes of $275,000 was proportionately allocated to debt and the estimated fair value of the warrants in the amounts of $236,597 and $38,403, respectively. The allocable estimated fair value of the warrants totaling $38,403 has been accounted for as a debt discount that is being amortized and treated as interest expense over the term of the promissory notes. For the three and six months ended June 30, 2009, the Company’s debt discount amortization expense totaled $9,586 and $12,208, respectively. The remaining unamortized debt discount at June 30, 2009 totaled $26,195.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
In April 2009, the Company received $50,000 for a promissory note totaling $62,500 with 150% warrant coverage. The note is secured by all of the Company’s assets and intellectual property, no stated interest rate, principal due April 2010. The note is considered original issue discount note whereby the discount (difference between the face value of the note of $62,500 and amount actually received of $50,000) will be amortized over the life of the note. For the three and six months ended June 30, 2009, the Company amortized interest expense totaled $2,604 and $2,604, respectively. The remaining unamortized original issue discount at June 30, 2009 totaled $9,896. If the note is prepaid, the exercise price of the warrants will adjust to the fair market value of the Company’s stock at the time of prepayment, subject to a floor of $0.02 and a ceiling of $1.00. If the investor sells any shares of our common stock during 120 days prior to the maturity date of the note, the strike price will automatically reset to $2.00. If the note is not paid back by the maturity date, then the Company will have the right but not the obligation to refinance the notes with new a note equaling the principal and accrued interest from the first note, with a new maturity date one year later and an annual interest rate of five percent (5%). The new note would be convertible into common stock at a rate of $0.0625/share on the principal balance only.
The conversion rate is subject to change based upon the provision in the note. The Company has accounted for the 150% warrant coverage to purchase 75,000 shares under Accounting Principles Board Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” as additional consideration to the promissory notes payable with an estimated fair value of $6,889 valued using the Black-Scholes option pricing model under the following assumptions: stock price volatility of 148%; risk free interest rate of 2.24%; dividend yield of 0% and 5 year term. The face amount of the promissory notes of $62,500 was proportionately allocated to debt and the estimated fair value of the warrants in the amounts of $56,295 and $6,205, respectively. The allocable estimated fair value of the warrants totaling $6,205 has been accounted for as a debt discount that is being amortized and treated as interest expense over the term of the promissory notes. For the three and six months ended June 30, 2009, the Company’s debt discount amortization expense totaled $2,060 and $2,060, respectively. The remaining unamortized debt discount at June 30, 2009 totaled $4,145.
In June 2009, the Company issued three promissory notes totaling $184,375 for services received with values totaling $147,500, no stated interest rate, principal due at maturity, and maturity date of June 2010. These notes are considered original issue discount notes whereby the discounts (difference between the face value of the note of $184,375 and amount actually received of $147,500) will be amortized over the lives of these notes. For the three and six months ended June 30, 2009, the Company amortized interest expense totaled $1,024 and $1,024, respectively. The remaining unamortized original issue discount at June 30, 2009 totaled $35,851. Additionally, the Company issued the note holders detachable warrants totaling 221,250 shares of the Company’s common stock. The Company has accounted for the warrants to purchase 221,250 shares under Accounting Principles Board Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” as additional consideration to the promissory note payable with an estimated fair value of $22,330 valued using the Black-Scholes option pricing model under the following assumptions: stock price volatility of 149%; risk free interest rate of 2.24%; dividend yield of 0%; and 5 year term. The face amount of the promissory notes of $184,375 was proportionately allocated to debt and the estimated fair value of the warrants in the amounts of $164,457 and $19,918, respectively. The allocable estimated fair value of the warrants totaling $19,918 has been accounted for as a debt discount that is being amortized and treated as interest expense over the term of the promissory notes. For the three and six months ended June 30, 2009, the Company’s debt discount amortization expense totaled $546 and $546, respectively The remaining unamortized debt discount at June 30, 2009 totaled $19,372.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
NOTE 7 – CONVERTIBLE NOTES PAYABLE
In March 2008, the Company closed on a $2,025,000 private placement of debt securities under Regulation D promulgated under the Securities Act of 1933 pursuant to the terms of a subscription agreement among the Company and the subscribers’ signatory thereto (the "Subscription Agreement"). From April 2008 through June 2008, the Company closed an additional $3,210,097 for an aggregate Subscription Agreement amount of $5,235,097. Each Subscriber acquired an unsecured convertible note in the principal amount invested and a warrant to purchase shares of the Company’s common stock with an exercise price of $1.00 per share. In each case, the number of shares of common stock underlying the warrant equals the principal amount of the unsecured convertible note. Each warrant is exercisable for a term of five (5) years. The unsecured convertible notes have a three (3) year maturity, require payment of principal and interest in full on the maturity date, and accrue interest at a rate of seven percent (7%) beginning on the first anniversary of their respective dates of issuance. At the option of the holder, principal outstanding under a note may be converted into common stock at the conversion rate then in effect, initially $1.00 per share. Upon conversion, the holder will receive common stock at the conversion price of $1.00 per share and additional warrants to purchase shares of common stock at an exercise price of $1.50 per share. The number of shares of common stock underlying the additional warrants shall equal one-half (1/2) the principal and interest amounts converted. The additional warrants shall be exercisable for a term of five (5) years. Certain existing shareholders of the Company are entitled to purchase notes and warrants under the terms of the Subscription Agreement and the Company was required to create a second offering of these notes and warrants. The Company has recorded $459,073 as deferred financing costs associated with the closing that occurred on June 9, 2008. This amount represents $197,049 for legal expenses associated with the private placement, $149,403 paid to an investment banking company and $112,621 for the value of warrants to purchase 143,403 shares of the Company’s common stock at $1.00 per share for 5 years owed to the same investment banking company. These amounts are being amortized to interest expense over the term of the notes.
The Company has determined the convertible debenture contains a beneficial conversion feature and qualifies for treatment under Emerging Issues Task Force No. 00-27 and 00-19. The estimated fair value of the detachable warrants of $4,462,663 has been determined using Black-Scholes option pricing model using the following assumptions: stock price volatility of 124% to 125%, risk free interest rate of 3.77%; dividend yield of 0% and 3 year term. The face amount of the convertible debenture of $5,235,097 was proportionately allocated to the debenture and the warrants in the amount of $2,849,425 and $2,385,672, respectively. The convertible debentures’ proportionate allocated value of $2,849,425 was then further allocated between the debenture and the beneficial conversion feature, and the entire remaining value of $2,849,425 was allocated to the beneficial conversion feature. The beneficial conversion feature of $2,849,425 was allocated to the stock due upon conversion of $2,058,623 and the warrants due upon conversion of $790,802. In accordance with EITF 00-27, the beneficial conversion feature attributed to the warrants due upon conversion of $790,802 is recorded as a debt discount and will not be amortized until the notes are converted at which time the entire discount will be expensed. The combined total value of the initial warrant and beneficial conversion feature attributed to the stock of $4,444,295 has been accounted for as a debt discount that is being amortized and treated as interest expense over the term of the convertible debenture under the effective interest method. For the three and six months ended June 30, 2009 and 2008, the Company’s debt discount amortization expense totaled $360,681 and $721,771, and $-0-, and $435,823, respectively. The remaining unamortized debt discount at June 30, 2009 totaled $3,419,325.
As the notes are non-interest bearing for the first year, the Company has imputed interest for the first year. The Company recorded interest expense of $60,226 and $120,465, for the three and six months ended June 30, 2009. As of June 30, 2009 and December 31, 2008 the Company accrued interest of $293,052 and $174,904, respectively.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
NOTE 86 – STOCKHOLDERS’ EQUITY
In February 2009, thePreferred Stock
The Company is currently authorized to issue up to 12,500,000 shares of $0.0001 par value preferred stock. No shares of preferred stock are currently outstanding. The Board of Directors granted employeesmay designate the authorized but unissued shares of the Preferred Stock with such rights and privileges as the board of directors 6,850,000 optionsmay determine. As such, the board of directors may issue preferred shares and designate the conversion, voting and other rights and preferences without notice to purchasethe shareholders and without shareholder approval.
Common Stock
The Company is currently authorized to issue up to 500,000,000 shares of $0.0001 par value common stock. All issued shares of common stock are entitled to vote on a 1 share/1 vote basis.
The Company had 202,308,728 shares of common stock issued and outstanding as of March 31, 2020 and December 31, 2019.
NOTE 7 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date these financial statements were issued.
We may be at an exercise pricerisk as a result of $.10 per share as compensation for prior services. The options vest upon grant,the current COVID-19 pandemic. Risks that could affect our business include the duration and scope of the COVID-19 pandemic and the impact on the demand for our products; actions by governments, businesses and individuals taken in response to the pandemic; the length of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required to develop effective treatments and a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions taken in response to the pandemic on global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the audited Financial Statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K as of and for the fiscal year ended December31, 2019. Unless otherwise noted, all the financial information in this Report is financial information for the Company.
General
The Company currently is engaged in the development and sale of 3D haptics products and equipment. Haptics refers to one’s sense of touch. The Company’s focus is in the consumer interactive computer gaming market, but the Company also does project work in other areas. The Company’s operations are based in New Mexico with sales of its haptics products primarily to consumers through retail outlets.
Results of Operations for the Three Months Ended March 31, 2020 and 2019
Revenues
| | Three months ended March 31, | |
| | 2020 | | | 2019 | | | Change | |
Revenue | | $ | 1,000 | | | $ | — | | | $ | 1,000 | |
The Company recorded $1,000 of revenue for the three-month period ended March 31, 2020 and no revenue during the three-month period ended March 31, 2019. The Company expects to continue to incur significant expenses and operating losses for the foreseeable future. The Company’s net losses may fluctuate significantly from quarter to quarter and year to year.
Operating Expenses
| | Three months ended March 31, | |
| | 2020 | | | 2019 | | | Change | |
Revenue | | $ | 51,288 | | | $ | 40,387 | | | $ | 10,901 | |
Operating expenses increased by $10,901 or 27% due to an increase in professional fees of $11,307 and a decrease in general and administrative expenses of $406. The increase in professional fees is primarily due to additional costs of being a current reporting company.
Other Expense
| | Three months ended March 31, | |
| | 2020 | | | 2019 | | | Change | |
Revenue | | $ | 106 | | | $ | 82 | | | $ | 24 | |
Other expense was $106 during the three months ended March 31, 2020 compared with $82 during the three months ended March 31, 2019. Other expense for the three months ended March 31, 2020 consisted of interest expense of related to finance charges on credit cards.
Liquidity and Capital Resources
The following table summarizes select balance sheet and working capital amounts as at March 31, 2020 and December 31, 2019:
| | As of | | | As of | | | | |
| | March 31, | | | December 31, | | | | |
| | 2020 | | | 2019 | | | Change | |
Cash | | $ | 398,075 | | | $ | 431,715 | | | $ | (33,640 | ) |
Working capital deficit | | $ | (257,005 | ) | | $ | (206,611 | ) | | $ | (50,394 | ) |
At March 31, 2020, the Company had working capital deficit of approximately $257,005. Accumulated deficit amounted to $41,336,529 and $41,286,135 at March 31, 2020 and December 31, 2019, respectively. Net loss for the three months ended March 31, 2020 and 2019 was $50,394 and $40,469, respectively. Net cash used in operating activities was $33,640 and $26,989 for the three months ended March 31, 2020 and 2019, respectively. Operations since inception have been funded primarily with the proceeds from equity and debt offerings. As of March 31, 2020, the Company had cash of $398,075.
The Company’s management has evaluated whether there is substantial doubt about the Company’s ability to continue as a going concern and has determined that substantial doubt existed as of the date of this filing. This determination was based on the following factors: (i) the Company’s available cash as of the date of this filing will not be sufficient to fund its anticipated level of operations for the next 12 months; (ii) the Company has incurred recurring losses and at March 31, 2020, had an accumulated deficit of $41,336,529; (iii) the Company sustained an operating loss of $50,394 for the period ended March 31, 2020,.; and (iv) if the Company fails to obtain the needed capital, it will be forced to delay, scale back, or eliminate some or all of its programs or perhaps cease operations. In the opinion of management, these options, totaling $582,102, was recordedfactors, among others, raise substantial doubt about the ability of the Company to continue as a going concern.
There is no assurance that the Company will be successful in any capital-raising efforts that it may undertake to fund operations during 2020. The Company anticipates that it will continue to issue equity and/or debt securities as a source of liquidity, until it begins to generate positive cash flow to support its operations. Any future sales of securities to finance operations will dilute existing stockholders’ ownership. The Company cannot guarantee when or if it will generate positive cash flow.
The audit report prepared by our independent registered public accounting firm relating to the Company’s consolidated financial statements for the year ended December 31, 2008. 2019 included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.
Cash Flow Activities
The Board of Directors also granted consultants 700,000 options to purchase shares of common stock at an exercise price of $.10 per share as compensationfollowing table summarizes the Company’s cash flows for future services. These options vest equally every six monthsthe periods set forth below:
| | Three months ended March 31, | |
| | 2020 | | | 2019 | | | Change | |
Net cash used in operating activities | | $ | (33,640 | ) | | $ | (26,989 | ) | | $ | 6,651 | |
Net cash used in operating activities for two years following the grant.
Also in February 2009, the Board of Directors granted 100,000 options to purchase shares of common stock at an exercise price of $1.00 per share to a consultant for past services, of which $4,389 of the total value of $6,089 was for services performed during 2008. The remaining $1,700 was recorded as expense during the sixthree months ended June 30, 2009. The BoardMarch 31, 2020 was $33,640 compared with net cash used in operating activities of Directors also approved and the Company issued 250,000 restricted shares of common stock to a consultant for consulting services and recorded an expense$26,989 for the six monththree months ended June 30, 2009 with a value totaling $25,000. The shares were issued in May 2009.
In May 2009, the Company issued 31,266 shares of common stock to a consultant for compensation relating to accounting services with a total value of $7,890. 8,578 of these shares valued at $4,260 were for services rendered and recorded in 2008. 22,688 of these shares valued at $3,630 were for services rendered in the first quarter of 2009.
In May 2009, the Company issued 25,000 shares of common stock to a consultant for services previously performed with a total value of $12,500. This amount was accrued for as of December 31, 2008.
In May 2009, the Company issued 400,000 shares of common stock as part of the lease settlement for the New Mexico office with a total value of $60,000.
NOTE 9 — COMMITMENTS AND CONTINGENCIES
From time to time, in the normal course of business, the Company is subject to routine litigation incidental to its business. Although there can be no assurances as to the ultimate disposition of any such matters, it is the opinion of management, based upon the information available at this time, that there are no matters, individually or in the aggregate, that will have a material adverse effect on the results of operations and financial condition of the Company.
In February 2009, the Company received a notice of breach of one of their licensing agreements. The Company does not plan to cure this breach. The remaining obligation under this agreement of $200,000 related to the breach will remain as a liability, and all of the prepaid royalties were expensed in 2008.
On March 1, 2009, the Company signed a lease termination agreement for the headquarter office. The Company paid $30,000, forfeited the security deposit of approximately $11,000, transferred title to assets (office furniture, leasehold improvements and a vehicle) with a net book value of $43,894, and issued 400,000 shares of common stock with a fair value of $60,000 in exchange for termination of the original lease obligation and use of one small office and 1500 square feet of storage rent free for at least six months. The shares issued have a provision limiting sales to a percentage of volume.
In February 2009, the Company terminated many of its employees in order to reduce expenses and have retained the personnel necessary to continue key operations to maintain sales. The Company does not anticipate or expect any additional expenses related to the termination other than amounts earned up through the date of termination. Included in accrued payroll related liabilities on the accompanying balance sheet as of June 30, 2009 is $77,680 related to potential severance liabilities owed to these terminated employees. As part of the terminations, the Company allowed the terminated employees to keep their computer equipment with a net book value of $15,579 and accelerated the vesting of certain options.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
NOTE 10 — RELATED PARTIES
On February 18, 2004, the Company granted to a significant shareholder, for future services, 125,000 options to purchase common stock at an exercise price of $0.66 per share. The options have a 5-year annual vesting provision. Options granted to consultants are valued each reporting period to determine the amount to be recorded as consultant expense in the respective period. As the options vest, they will be valued one last time on the vesting date and an adjustment will be recorded for the difference between the value already recorded and the current value on date of vesting. The remaining options were fully vested on February 18, 2009 and the Company calculated the value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 2.24%, volatility of 120%, estimated life of 10 years and a fair market value of $0.20 per share. At March 31, 2004, the Company calculated the initial value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.05%, volatility of 91%, estimated life of 10 years and a fair market value of $1.00 per share.2019. The vesting schedule is prorated over the reporting period, and $0 and $(1,651), and $6,027 and $10,917, respectively, was recorded as consultant expense during the three and six months ended June 30, 2009 and 2008. The options were fully vested on February 18, 2009.
In March 2004, Normandie New Mexico Corporation, which is owned by the former Chief Executive Officer (CEO) of Manhattan Scientific (a significant shareholder) who is also a member of the Company’s Board of Directors, entered into an agreement with the Company to provide consulting servicesnet cash used in
relation to business development and marketing support. Fees per the agreement are $6,250 per month. For the three and six months ended June 30, 2009 and 2008, the Company had paid $0 and $0, and $12,500 and $37,500, respectively for these services. All remaining amounts totaling $62,500 owed were settledoperating activities during the three months ended
June 30, 2009March 31, 2020, was primarily due to a net loss of $50,394 partial offset by
increase of $19,709 in accounts payable and accrued expenses.Net cash used in operating activities for the issuance of an original issue discount note payablethree months ended March 31, 2019 was $26,989. The net cash used in the amount of $78,125 and the issuance of five year warrants to purchase 93,750 shares of common stock at an exercise price of $1.00. See Note 5.
On June 10, 2004, the Company granted 250,000 options to purchase common stock to one of the members of the Company’s Board of Directors for future consulting services at an exercise price of $0.66 per share. The options have a 5-year annual vesting provision. At June 30, 2004, the Company calculated the initial value of these options using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.81%, volatility of 100%, estimated life of 10 years and a fair market value of $1.00 per share. The remaining options were fully vested on June 10, 2009 and the Company calculated the value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 2.24%, volatility of 151%, estimated life of 10 years and a fair market value of $0.10 per share. The vesting schedule is prorated over the reporting period, and approximately $1,078 and $(7,832), and $12,000 and $26,000, respectively, was recorded as consulting expenseoperating activities during the three and six months ended June 30, 2009March 31, 2019, was primarily due to a net loss of $40,469 partial offset by increase of $13,150 in accounts payable and 2008.
On March 9, 2006accrued expenses.Effects of Inflation
We do not believe that inflation has had a material impact on our business, sales, or operating results during the Company granted 250,000 optionsperiods presented.
Off-Balance Sheet Arrangements
We currently do not have any off-balance sheet arrangements or financing activities with special-purpose entities.
Critical Accounting Policies
Critical accounting policies are those policies which are both important to purchase common stock to an employee, who is the brotherpresentation of a company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the Company’s Chief Executive Officer, at an exercise priceneed to make estimates about the effect of $1.00 per share. The optionsmatters that are inherently uncertain. There have a ten year term and a vesting schedule of 50,000 shares per year beginning March 9, 2007. At March 9, 2006, the Company calculated the initial value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.86%, volatility of 36%, estimated life of 10 years and a fair market value of $1.00 per share. The vesting schedule is prorated over the reporting period, and approximately $7,135 and $14,270, and $7,135 and $14,270, respectively, was recorded as consulting expensebeen no recent significant changes to our accounting policies during the three and six months ended June 30, 2009March 31, 2020. For a further discussion of our critical accounting policies, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2019
Certain Factors That May Affect Future Results of Operations
The Securities and 2008.
In November 2006,Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains such “forward-looking statements” within the Company granted 1,500,000 options to purchase common stock to onemeaning of the membersPrivate Securities Litigation Reform Act of 1995.All statements in this report, other than statements of historical fact, are forward-looking statements for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the Company’s Boardplans and objectives of Directorsmanagement for future consultingoperations, any statements concerning proposed new products or services, at an exercise priceany statements regarding future economic conditions or performance, and any statements of $0.90 per share. The options have a 2-year annual vesting provision which 750,000 these options vested immediately. At December 31, 2006, the Company calculated the initial value of these options using the Black-Scholes model based on the following assumptions: a risk-free rate of 5.15%, volatility of 146%, estimated life of 10 years and a fair market value of $1.05 per share. The vesting schedule is prorated over the reporting period, and approximately $0 (fully vested as of December 31, 2008) and $61,496 and $122,292, respectively, was recorded as consultant expense during the three and six months ended June 30, 2009 and 2008.
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009 AND 2008
(Unaudited)
On July 23, 2007, the Company entered into a perpetual employment agreement with an individual who is related with the Chief Executive Officer through family marriage. Under the agreement, the employee is entitled to an annual base salary of $68,000 per year and cash bonus to be determined by the Company, is subject to confidentiality provisions and is entitled to a severance equal to this employee’s base salary for a two week period if this employee is terminated by the Company without cause. Additionally, the employment agreement granted this employee an option for 25,000 shares of common stock with an exercise price of $0.95 per share which vests over a five-year period. In October 2008, this employee was terminated, and 15,000assumptions underlying any of the options were cancelled. As of June 30, 2009, there is an accrual of $2,672 for the severance pay that has not yet been issued.
One of the members of the Company’s Board of Directors provides legal services to Company. Total legal expense incurred by the Company for such legal services by this director totaled $21,085 and $33,141, and $68,106 and $100,935 for the three and six months ended June 30, 2009 and 2008, respectively. At the beginning of 2008, the Company granted this board member options to purchase 100,000 shares of common stock with an exercise price of $.89 per share for service performed and to be performed in relation to the Company’s patents. As of June 30, 2009, 10,709 options had vested and the Company has recorded $5,344 in expense related to these vested options. In June 2009, in satisfaction of $50,000 owed for legal services previously accrued, the Company issued an original issue discount note payable in the amount of $62,500 and the issuance of five year warrants to purchase 75,000 shares of common stock at an exercise price of $1.00. See Note 5.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Statementsforegoing. All forward-looking statements included in this management’s discussionreport are made as of the date hereof and analysisare based on information available to us as of such date. We assume no obligation to update any forward-looking statement. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are based upon reasonable assumptions at the time made, there can be no assurance that any such expectations or any forward-looking statement will prove to be correct. Our actual results will vary, and may vary materially, from those projected or assumed in the forward-looking statements. Future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, many of which we cannot predict with accuracy and some of which we might not anticipate, including, without limitation, product recalls and product liability claims; infringement of our technology or assertion that our technology infringes the rights of other parties; termination of supplier relationships, or failure of suppliers to perform; inability to successfully manage growth; delays in future filings byobtaining regulatory approvals or the Companyfailure to maintain such approvals; concentration of our revenue among a few customers, products or procedures; development of new products and technology that could render our products obsolete; market acceptance of new products; introduction of products in a timely fashion; price and product competition, availability of labor and materials, cost increases, and fluctuations in and obsolescence of inventory; volatility of the market price of our common stock; foreign currency fluctuations; changes in key personnel; work stoppage or transportation risks; integration of business acquisitions; and other factors referred to in our reports filed with the SEC, including our Registration Statement on Form 10. All subsequent forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in the Company’s press releases andtheir entirety by these cautionary statements. Additional factors that may have a direct bearing on our operating results are discussed in oral statements made with the approvalItem 1A “Risk Factors” in our Registration Statement on Form 10. In light of an authorized executive officer that are not historical or current facts are “forward-looking statements” and are subject to certainthese assumptions, risks and uncertainties, that could cause actualthe results to differ materially from historical earnings and those presently anticipatedevents discussed in the forward-looking statements contained in this Quarterly Report or projected. Youin any document incorporated by reference might not occur. Stockholders are cautioned not to place undue reliance on any suchthe forward-looking statements, which speak only as of the date made. The following important factors, among others, in some cases have affected and in the future could affect the Company’s actual results and could cause the Company’s actual financial performance to differ materially from that expressed in any forward-looking statement: (i) the extremely competitive conditions that currently exist in the market for companies similar to the Company and (ii) lack of resources to maintain the Company’s good standing status and requisite filings with the SEC. The foregoing list shouldthis Quarterly Report. We are not be construed as exhaustive, and the Company disclaimsunder any obligation, subsequentlyand we expressly disclaim any obligation, to reviseupdate or alter any forward-looking statements, to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The following discussion should be read in conjunction with our financial statements and their explanatory notes included as part of this report.
OVERVIEW
We were initially incorporated in the State of New Mexico as Novint Technologies, Inc. in April 1999. On February 26, 2002, we changed our state of incorporation to Delaware by merging into Novint Technologies, Inc., a Delaware corporation. We have no subsidiaries and operate our business under Novint Technologies, Inc. We are a haptics technology company (haptics refers to your sense of touch). We develop, market, and sell applications and technologies that allow people to use their sense of touch to interact with computers.
We have derived revenues from 3D touch hardware sales, 3D touch software sales, and the development of professional applications for our customers. We launched our Falcon product in June 2007, and are selling it primarily on our on-line store. We launched an on-line game store in November 2007. We also have completed a number of professional application contracts with customers who desire custom developed software.
Novint focuses many of its efforts to exploit opportunities in the consumer console and PC interactive games market, and is also looking to expand its efforts in other areas of computer touch in funded projects. Using our haptics technology, games and applications will have the crucial missing “third sense”, touch, to human computer interaction. Users will be able to directly and intuitively feel the shape, texture, and physical properties of virtual objects using our computer touch software. Our haptic technology and related hardware for consumers is the primary focus of our operations, but we will continue to develop our professional applications. We will devote much of our resources to further developing the video game market and seeking new business relationships with video game developers and publishers and hardware manufacturers. We began selling our haptic product, the Novint Falcon, in June 2007 through our website at www.novint.com. We currently are selling one haptic hardware product, which is a haptic game controller device called the Novint Falcon marketed in a bundled package that includes several games. In late 2007, we launched an on-line game store where consumers can purchase and download a variety of game titles. In 2008, we launched a pistol grip attachment for the Falcon. Although our sales of the Novint Falcon and games since product launch have been limited, sales of the Novint Falcon, the pistol grip, and games have begun to increase resulting from the release of new software and games in 2009. One of the most significant drivers of revenue for Novint will be games and content. This is true not only in the revenue we receive from the games themselves, but largely because this is a criterion we see many of our customers desiring in order to justify the Falcon hardware purchase. For example, if the Novint Falcon has many games available to play on it, a customer can purchase a single piece of hardware and then over time purchase multiple games that give a unique gaming experience, making the initial hardware purchase valuable over a larger amount of time and across a larger number of games. In 2008, we entered into licensing agreements with Valve Software and Electronic Arts among others, and therefore several new AAA level games will soon be supported by the Falcon.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
High-quality financial statements require rigorous application of accounting policies. Our policies are discussed in our financial statements for the quarter ended June 30, 2009 and are considered by management to be critical for an understanding of our financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. We review the accounting policies we use in reporting our financial results on a regular basis. As part of such review, we assess how changes in our business processes and products may affect how we account for transactions. We have not changed our critical accounting policies or practices during 2009. New accounting policies and practices were implemented in 2008 and in 2009 as necessary based on the launch of our haptics product sales in June 2007.
REVENUE AND COST RECOGNITION — We recognize revenue from the sale of software products under the provisions of Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9. SOP 97-2 generally requires that revenue recognized from software arrangements be allocated to each element of the arrangement based on the relative vendor specific objective evidence of fair values of the elements, such as software products, upgrades, enhancements, post contract customer support, installation, or training. Under SOP 97-2, if the determination of vendor specific objective evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence does exist or until all elements of the arrangement are delivered.
SOP 97-2 was amended in December 1998 by SOP 98-9, Modification of SOP 97-2 Software Revenue Recognition with Respect to Certain Transactions. SOP 98-9 clarified what constitutes vendor specific objective evidence of fair value and introduced the concept of the “residual method” for allocating revenue to elements in a multiple element arrangement.
Our revenue recognition policy is as follows:
Project revenue consists of programming services provided to unrelated parties under fixed-price contracts. Revenues from fixed price programming contracts are recognized in accordance with SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, and Accounting Research Bulletin 45, Long-Term Construction-Type Contracts, using the percentage-of-completion method, measured by the percentage of costs incurred to date compared with the total estimated costs for each contract. The Company accounts for these measurements in the accompanying balance sheets under costs and estimated earnings in excess of billings on contracts, and billings in excess of costs and estimated earnings on contracts. Provisions for estimated losses on uncompleted contracts are made and recorded in the period in which the loss is identified.
For project revenue that is not under fixed price programming contracts, the Company recognizes revenues as the services are completed.
Revenue from product sales relates to the sale of the Falcon haptics interface, which is a human-computer user interface (the “Falcon”) and related accessories. The Falcon allows the user to experience the sense of touch when using a computer while holding its interchangeable handle. The Falcons are manufactured by an unrelated party. Revenue from the product sales is recognized when the products are shipped to the customer and the Company has earned the right to receive and retain reasonable assured payments for the products sold and delivered. Consequently, if all these revenue from product sales requirements are not met, such sales will be recorded as deferred revenue until such time as all revenue recognition requirements are met.
Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs, require amounts billed to a customer in a sales transaction related to shipping and handling, if any, to be classified and accounted for as revenues earned for the goods provided whereas shipping and handling costs incurred by a company are required to be classified as cost of sales.
Arrangements made with certain customers, including slotting fees and co-operative advertising, are accounted for in accordance with EITF No. 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products). These incentives are recognized as a reduction in revenue or as a selling, general, and administrative expense, respectively, when payment is made to a customer (or at the time the Company has incurred the obligation, if earlier) unless the Company receives a benefit over a period of time and the Company meets certain other criteria, such as retailer performance, recoverability, and enforceability, in which case the incentive is recorded as an asset and is amortized as a reduction of revenue over the term of the arrangement.
EITF 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred, requires reimbursements received for out-of-pocket expenses incurred while providing services to be characterized in the statements of operations as revenue. The Company’s out-of-pocket expenses incurred in connection with their project revenues are recognized in revenues based on a computed overhead rate that is included in their project labor costs to derive a project price.
In accordance with EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, the Company recognizes its product sales on a gross basis. The Company is responsible for fulfillment, including the acceptability of the product ordered. The Company has risks and rewards of ownership such as the risk of loss for collection, delivery, or returns. Title passes to the customer upon receipt of the product by the customer. In accordance with the Company’s agreement with its customer, further obligation is limited to the terms defined in its warranty.
The Company’s customers are provided a one (1) year limited warranty on the Falcon. This warranty guarantees that the products shall be free from defects in material and workmanship. Additionally, the Company offers its customers of the Falcon a 30 day money back guarantee. The Company continually evaluates its reserve accounts for both the limited warranty and 30 day money back guarantee based on its historical activities.
IMPAIRMENT — In accordance with Statement of Financial Accounting (“SFAS”) 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
SOFTWARE DEVELOPMENT COSTS — We account for our software development costs in accordance with SFAS 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. This statement requires that, once technological feasibility of a developing product has been established, all subsequent costs incurred in developing that product to a commercially acceptable level be capitalized and amortized ratably over the estimated life of the product, which is 5 years. We have capitalized software development costs in connection with our haptic software beginning in 2000. Amortization is computed on the straight-line basis over the estimated life (5 years) of the haptics technology.
The Company follows Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, which requires capitalization of certain costs incurred during the development of internal use software.
STOCK BASED COMPENSATION – We account for stock based compensation in accordance with SFAS 123(R), Share-Based Payment, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases, related to a Employee Stock Purchase Plan based on the estimated fair values. We have used stock option awards in the past and continue to use them as a means of rewarding our employees and directors for their continued commitment and efforts in helping us execute our overall business plans.
Stock options and warrants issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option or warrant, whichever is more reliably measurable in accordance with SFAS 123 and Emerging Issues Task Force No. 96-18, Accounting for Equity Investments That are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services, including related amendments and interpretations. The related expense is recognized over the period the services are provided.
RECENT ACCOUNTING PRONOUNCEMENTS - The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective is not anticipated to have a material effect on the financial position or results of operations of the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2008.
REVENUES. During the three months ended June 30, 2009, we had revenues of $213,951 as compared to revenues of $84,099 during the three months ended June 30, 2008, an increase of approximately 154%. During the three months ended June 30, 2009, our revenues were derived from the development of professional applications for customers totaling $128,551 and the sale of our haptics technology products totaling $85,400. Our sales of our haptics technology products increased 29% from 2008, while our revenues from the development of professional applications increased 608% as we continued to place emphasis on our professional applications during the quarter. We will continue to provide development of professional applications and in 2009 we expect to grow this part of our business similarly to how we have in the past. Much of our focus will remain on the video game business, but we expect to place more emphasis on professional applications in our Advanced Products Group than we had from 2006 to 2008.
COST OF GOODS SOLD AND GROSS PROFIT (LOSS). Cost of goods sold, which consists of the cost of the haptics technology products sold, materials purchased for resale to customers, the direct labor incurred for delivering on projects, warehousing and freight costs, and inventory write-downs were $213,770 for the three months ended June 30, 2009, compared to $104,049 for the three months ended June 30, 2008. Our overall gross profit percentage was approximately (0)% for the three months ended June 30, 2009, compared to a gross loss percentage of (24)% for the three months ended June 30, 2008. For the three months ended June 30, 2009, our gross profit from our development of professional applications approximated 20%, a decrease from a gross profit of 29% for the second quarter of 2008, due to the use of contract labor to complete the projects. Our gross loss experienced from the sale of our haptics technology product in the second quarter of 2009 was (30)%, an improvement from 2008 when the gross loss percentage was (38)%. Our gross loss experienced from the sales of our haptics technology product continues to be impacted by our high warehousing, and in this quarter we had some special promotional pricing on the products. Last quarter, we reevaluated our distribution channels to find a more cost-effective solution. Warehousing costs for the three months ended June 30, 2009 and 2008 were $18,461 and $20,839, respectively.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development totaled $56,835 for the three months ended June 30, 2009 compared to $281,405 for the three months ended June 30, 2008, a decrease of $224,570 or 80%. During the first half of 2008, we focused on the development of games for use with the Falcon. In the first half of 2009, we have decreased the rate of development of new software associated with the haptics technology product to match the release schedule of our games.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $411,081 for the three months ended June 30, 2009, compared to $1,256,532 for the three months ended June 30, 2008, a decrease of $845,451 or 67%. In 2009, we are reorganizing our infrastructure to significantly reduce our costs, while still continuing to market the product. The decrease in general and administrative expenses compared to the prior year was primarily related to this reorganization. Business and professional fees decreased approximately $251,000, insurance expense decreased $49,000, royalty expense decreased approximately $11,000, rent decreased $28,000, and payroll and other overhead expenses decreased approximately $507,000 largely due to a reduction in the number of employees.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense totaled $148,927 for the three months ended June 30, 2009 compared to $119,042 for the three months ended June 30, 2008, an increase of $29,885 or 25%. This expense increased between the two periodswhether as a result of an increase in our investment in intangibles and capitalized software and hardware.
SALES AND MARKETING EXPENSE. Sales and marketing expense totaled $14,175 for the three months ended June 30, 2009 comparednew information, future events or otherwise. All subsequent forward-looking statements attributable to $114,166 for the three months ended June 30, 2008, a decrease of $99,991us or 88%. In 2009, we had fewer co-op marketing programs with retailers as we refocused our distribution channels, and there was a general reduction in marketing efforts, as we restructured our infrastructure.
LOSS FROM OPERATIONS. We had a loss from operations of $630,837 for the three months ended June 30, 2009, compared to a loss from operations of $1,791,095 for the three months ended June 30, 2008. Our operating losses have decreased $1,160,258 primarily as a result of the decrease in our operating expenses as described above.
NET LOSS. We had a net loss of $1,177,293, or $0.04 per share, for the three months ended June 30, 2009, compared to $2,255,827, or $0.07 per share, for the three months ended June 30, 2008. There was a decrease in the net loss of $1,078,534, which is a result of a decrease in the loss from operations of approximately $1,160,000, a decrease in interest income of approximately $1,500, and a net increase in interest expense and debt discount related to convertible debt of approximately $80,000.
SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2008.
REVENUES. During the six months ended June 30, 2009, we had revenues of $345,673 as compared to revenues of $155,928 during the six months ended June 30, 2008, an increase of approximately 122%. During the six months ended June 30, 2009, our revenues were derived from the development of professional applications for customers totaling $235,425 and the sale of our haptics technology products totaling $110,248. Our sales of our haptics technology products remained consistent with 2008, while our revenues from the development of professional applications increased 415% as we placed emphasisany person acting on our professional applications duringbehalf are expressly qualified in their entirety by the first half of 2009 while we were restructuring our distribution channels for the haptics product. We will continuecautionary statements contained or referred to provide development of professional applications and in 2009 we expect to grow this part of our business similarly to how we have in the past. Much of our focus will remain on the video game business, but we expect to place more emphasis on professional applications in our Advanced Products Group than we had from 2006 to 2008.
COST OF GOODS SOLDsection.Item 3. QUANTITATIVE AND GROSS PROFIT (LOSS). Cost of goods sold, which consists of the cost of the haptics technology products sold, materials purchased for resale to customers, the direct labor incurred for delivering on projects, warehousing and freight costs, and inventory write-downs were $348,000 for the six months ended June 30, 2009, compared to $228,020 for the six months ended June 30, 2008. Our overall gross loss percentage was approximately (1)% for the six months ended June 30, 2009, compared to a gross loss percentage of (46)% for the six months ended June 30, 2008. For the six months ended June 30, 2009, our gross profit from our development of professional applications approximated 19%, a decrease from a gross profit of 25% for the first half of 2008, due to the use of contract labor to complete the projects. Our gross loss experienced from the sale of our haptics technology product in the first half of 2009 was (42)%, an improvement from 2008 when the gross loss percentage was (76)%. Our gross loss experienced from the sales of our haptics technology product continues to be impacted by our high warehousing. Last quarter, we reevaluated our distribution channels to find a more cost-effective solution. Warehousing costs for the six months ended June 30, 2009 and 2008 were $41,743 and $64,740, respectively.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development totaled $129,673 for the six months ended June 30, 2009 compared to $594,931 for the six months ended June 30, 2008, a decrease of $465,258 or 78%. During the first half of 2008, we focused on the development of games for use with the Falcon. In the first half of 2009, we have decreased the rate of development of new software associated with the haptics technology product to match the release schedule of our games.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $1,188,980 for the six months ended June 30, 2009, compared to $2,540,831 for the six months ended June 30, 2008, a decrease of $1,351,851 or 53%. In 2009, we are reorganizing our infrastructure to significantly reduce our costs, while still continuing to market the product. The decrease in general and administrative expenses compared to the prior year was primarily related to this reorganization. Business and professional fees decreased approximately $606,000, insurance expense decreased $58,000, royalty expense decreased approximately $32,000, rent increased approximately $108,000 as we reached an agreement for an early termination of an office lease in the first quarter of 2009, and payroll and other overhead expenses decreased approximately $764,000 largely due to a reduction in the number of employees.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense totaled $302,688 for the six months ended June 30, 2009 compared to $218,190 for the six months ended June 30, 2008, an increase of $84,498 or 39%. This expense increased between the two periods as a result of an increase in our investment in intangibles and capitalized software and hardware.
SALES AND MARKETING EXPENSE. Sales and marketing expense totaled $84,311 for the six months ended June 30, 2009 compared to $246,015 for the six months ended June 30, 2008, a decrease of $161,704 or 66%. In 2009, we had fewer co-op marketing programs with retailers as we refocused our distribution channels, and there was a general reduction in marketing efforts, as we restructured our infrastructure.
LOSS FROM OPERATIONS. We had a loss from operations of $1,707,979 for the six months ended June 30, 2009, compared to a loss from operations of $3,672,059 for the six months ended June 30, 2008. Our net losses have decreased $1,964,080 primarily as a result of the decrease in our operating expenses as described above.
NET LOSS. We had a net loss of $2,762,844, or $0.09 per share, for the six months ended June 30, 2009, compared to $4,123,036, or $0.13 per share, for the six months ended June 30, 2008. There was a decrease in the net loss of $1,360,192, which is a result of a decrease in the loss from operations of approximately $1,964,000, a decrease in interest income of approximately $14,000, a net increase in interest expense and debt discount related to convertible debt of approximately $577,000, and an increase in other expenses of $13,000.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2009, we had a total cash balance of $171,397. Our cash flow from operating activities for the six months ended June 30, 2009 resulted in a deficit of $400,004 compared with a deficit of $5,037,148 in the same period of the prior year. This decrease in the deficit from operating activities of approximately $4,637,144 was a result of a reduction in operating losses, fewer investments in prepaid expenses and inventory, increase in non-cash adjustments to reconcile net loss to net cash and an increase in our accounts payable and accrued expenses. Our cash flow from investing activities for the six months ended June 30, 2009 resulted in a deficit of $24,820 compared with a deficit of $185,411 in the same period of the prior year, representing less investment in fixed assets and investments in games through both licensing and internal development. Our cash flow from financing activities for the six months ended June 30, 2009 resulted in a surplus of $540,906 from the issuance of notes payable compared to a surplus of $4,919,596 in the same period of the prior year from the net proceeds from convertible notes payable. Overall, our cash increased by $116,082 during the six months ended June 30, 2009.
The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring losses and at June 30, 2009, had an accumulated deficit of $33,154,758. For the three and six months ended June 30, 2009, the Company sustained a net loss of $1,177,293 and $2,762,844, respectively. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is contingent upon its ability to obtain additional financing, and to generate revenue and cash flow to meet its obligations on a timely basis.
The Company believes there are several factors in continuing as a going concern. The Company has dramatically reduced operating expenses and staff in the first quarter of 2009 and will continue do so in areas deemed non-essential during 2009, while maintaining the resources to continue to sell its hardware and software products. Additionally, in the immediate timeframe, the Company has put more emphasis on haptics development projects. These projects have historically generated revenues and expanded the intellectual property portfolio. Next, the Company is anticipating on releasing new top tier games in the second half of 2009, which should generate additional product sales. Lastly, the Company will seek to raise additional funding through debt or equity financing during the next twelve months.
Contractual Obligations
We had an operating lease for our office located in San Diego, California that expired on July 31, 2009. The monthly rent for this location was $4,040. The lease was not renewed.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to our investors.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot applicable.
ITEM 4. | CONTROLS AND PROCEDURES |
Item 4. CONTROLS AND PROCEDURES
1. Disclosure Controls and Procedures
We maintain disclosure controls and procedures (Disclosure Controls) within the meaning of Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our Disclosure Controls are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our Disclosure Controls, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily applied its judgment in evaluating and implementing possible controls and procedures. As of the end of the period covered by this report,Quarterly Report on Form 10-Q, we carried out an evaluation,evaluated the effectiveness of the design and operation of our Disclosure Controls, which was done under the supervision and with the participation of our management, including our Chief Executive Officer and ChiefPrincipal Financial Officer, ofOfficer. Based on the effectiveness of the design and operationevaluation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation,Disclosure Controls, our Chief Executive Officer and ChiefPrincipal Financial Officer has concluded that, as of March 31,2020, our Disclosure Controls were not effective due to a material weakness in the Company’s internal control over financial reporting as disclosed below.
2. Internal Control Over Financial Reporting
Based on our assessment as of March 31,2020, management concluded that our disclosureinternal control over financial reporting was not effective due to a material weakness related to the following: (1) we lack a sufficient number of employees to properly segregate duties and provide adequate review of the preparation of the financial statements and (2) we lack sufficient independent directors on our Board of Directors to maintain Audit and other committees consistent with proper corporate governance standards. We have limited financial resources and only one employee. The lack of personnel is a weakness because it could lead to improper classification of items and other failures to make the entries and adjustments necessary to comply with U.S. GAAP. Accordingly, management’s assessment is that the Company’s internal controls and proceduresover financial reporting were not effective as of the endMarch 31, 2020. A “material weakness” is a deficiency, or a combination of the applicable period to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Changesdeficiencies, in Internal Control over Financial Reporting
There was ("ICFR"), such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Such material weakness has not yet been remediated as of March 31, 2020.3.Change in Internal Control over Financial Reporting
Except as described above, there were no changechanges in our internal control over financial reporting that occurred during our most recent fiscal quarterthe three months ended March 31, 2020 that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 1A. RISK FACTORS
Not required to be provided by smaller reporting companies.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
EXHIBIT INDEX
ITEM 1.Number | LEGAL PROCEEDINGS |
There have been no material developments during the quarter ended June 30, 2009 in any material pending legal proceedings to which the Company is a party or of which any of our property is the subject.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
In May 2009, we issued 250,000 restricted shares of common stock to Leonard Friedman for consulting services with a value totaling $25,000. We relied on Section 4(2) of the Securities Act of 1933, as amended, as providing an exemption from registration under the Act.
In May 2009, we issued 31,266 shares of common stock to Ralph Anderson for compensation relating to accounting services with a total value of $7,890. We relied on Section 4(2) of the Securities Act of 1933, as amended, as providing an exemption from registration under the Act.
In May 2009, we issued 25,000 shares of common stock to CFSG for services previously performed with a total value of $12,500. We relied on Section 4(2) of the Securities Act of 1933, as amended, as providing an exemption from registration under the Act.
In May 2009, we issued 400,000 shares of common stock to The Shops at Westpark, LLC as part of a lease settlement for our New Mexico office with a total value of $60,000. We relied on Section 4(2) of the Securities Act of 1933, as amended, as providing an exemption from registration under the Act.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.Description
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
(b) | There were no changes to the procedures by which security holders may recommend nominees to our board of directors. |
Exhibit
Number
| | Description |
| | | |
3.131.1 | | AmendedCertification of the President and Restated CertificateChief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to section 302 of Incorporation, as currently in effect (3)the Sarbanes- Oxley Act of 2002 (filed herewith). |
| | | |
3.232.1 | | Amended and Restated Bylaws,Certification pursuant to 18 U.S.C. Section 1350, as currently in effect (2)adopted pursuant to section 906 of the Sarbanes- Oxley Act of 2002 (filed herewith). |
| | | |
3.3101. INS | | Articles of Merger (1) |
| | |
3.4 | | Certificate of Merger (1)XBRL Instance Document (submitted electronically herewith). |
| | | |
31.1101. SCH | | Section 302 Certification by the Corporation’s Chief Executive OfficerXBRL Taxonomy Extension Schema Document (submitted electronically herewith). |
| | |
| 101. CAL | | XBRL Taxonomy Extension Calculation Linkbase Document (submitted electronically herewith). |
| | |
| 101. LAB | | XBRL Taxonomy Extension Label Linkbase Document (submitted electronically herewith). |
| | |
| 101. PRE | | XBRL Taxonomy Extension Presentation Linkbase Document (submitted electronically herewith). |
| | |
| 101. DEF | | XBRL Taxonomy Extension Definition Linkbase Document (submitted electronically herewith). |
| | |
| 3.1 | | Amend and Restated Certificate of Incorporation* |
| | |
| 3.2 (6) | | Amended and Restated Bylaws* |
| | |
| 3.3 (1) | | Articles of Merger* |
| | |
| 3.4 (1) | | Certificate of Merger* |
| | |
| 4.1 (1) | | Articles of Incorporation (See Exhibit 3.1) * |
| | | |
31.24.2 (3) | | Section 302 Certification by the Corporation’s Chief Financial Officer Form of Common Stock Purchase Warrant, April 2006* |
| | |
| 4.3 (7) | | Form of Common Stock Purchase Warrant, March 2007* |
| | |
| 10.1 (1) | | License Agreement with Sandia; Amendments* |
| | |
| 10.2 (1) | | Lease for 9620 San Mateo* |
| | |
| 10.3 (1) | | Employment Agreement with Tom Anderson* |
| | |
| 10.4 (1) | | Employment Agreement with Walter Aviles* |
| | |
| 10.5 (10) | | Amended and Restated 2004 Stock Incentive Plan* |
| | |
| 10.6 (1) | | Shareholders Agreement* |
| | |
| 10.7 (1) | | Lock Up Agreement* |
| | |
| 10.8 (1) | | Miscellaneous Technical Services Agreement between Aramco Services Company and Novint Technologies, Inc.* |
| | | |
32.110.9 (1) | | Section 906 Certification by the Corporation’s Chief Executive OfficerContract Addendum between Aramco Services Company and Chief Financial Officer Novint Technologies, Inc.* |
| | |
| 10.10 (1) | | Amendment to Contract between Aramco Services Company and Novint Technologies, Inc.* |
| | |
| 10.11 (1) | | Amendment to Contract between Aramco Services Company and Novint Technologies, Inc.* |
| | |
| 10.12 (1) | | Statement of Work between Chevron Corporation and Novint Technologies, Inc.* |
| | |
| 10.13 (1) | | Purchase Order from DaimlerChrylser Corporation* |
| | |
| 10.14 (1) | | Purchase Order # 94059 from LockheedMartin Corporation* |
| | |
| 10.15 (1) | | Purchase Order # 96996 from LockheedMartin Corporation* |
| | |
| 10.16 (1) | | Purchase Order # 97860 from LockheedMartin Corporation* |
| | |
| 10.17 (1) | | Purchase Order # Q50601685 from LockheedMartin Corporation* |
| | |
| 10.18 (1) | | Purchase Order # QQ060592 from LockheedMartin Corporation* |
| | |
| 10.19 (1) | | Purchase Order # Q50608809 from LockheedMartin Corporation* |
| | |
| 10.20 (1) | | Purchase Order # 24232 from Sandia National Laboratories* |
| | |
| 10.21 (1) | | Purchase Order # 27467 from Sandia National Laboratories* |
| | |
| 10.22 (1) | | Purchase Order # 117339 from Sandia National Laboratories* |
| | |
| 10.23 (1) | | Purchase Order # 250810 from Sandia National Laboratories* |
| | |
| 10.24 (1) | | Undersea Exploration Modeling Agreement between Woods Hole Oceanographic Institute and Novint Technologies, Inc.* |
| | |
| 10.25 (1) | | Purchase Order for Lunar Design, Inc. dated April 7, 2005* |
| | |
| 10.26 (1) | | Sublicense Agreement between Manhattan Scientifics and Novint Technologies, Inc.* |
| | |
| 10.27 (1) | | License and Royalty Agreement between Manhattan Scientifics and Novint Technologies, Inc.* |
Filed herewith. | | |
| 10.28 (1) | | Research Development and License Agreement between Manhattan Scientifics and Novint Technologies, Inc.* |
| | |
| 10.29 (1) | | Intellectual Property License Agreement with Force Dimension LLC* |
| | |
| 10.30 (1) | | Purchase Order with Lockheed Martin dated April 1, 2005* |
| | |
| 10.31 (1) | | Purchase Order with Lockheed Martin dated April 4, 2005* |
| | |
| 10.32 (1) | | Purchase Order with Lockheed Martin dated April 21, 2005* |
| | |
| 10.33 (1) | | Purchase Order with Deakin University dated April 6, 2004* |
| | |
| 10.34 (1) | | Purchase Order with Robarts Research dated September 24, 2004* |
| | |
| 10.35 (1) | | Purchase Order with University of New Mexico dated March 16, 2004* |
| | |
| 10.36 (1) | | Amendment to Agreement with Force Dimension Dated May 5, 2005* |
| | |
| 10.37 (1) | | Amendment to contract between Aramco Services Company and Novint Technologies, Inc* |
| | |
| 10.38 (2) | | Purchase Order with Lockheed Martin dated February 16, 2006* |
| | |
| 10.39 (2) | | Amendment to Intellectual Property License Agreement with Force Dimension LLC dated March 9, 2006* |
| | |
| 10.40 (2) | | Purchase Order with Lockheed Martin dated March 3, 2006* |
| | |
| 10.41 (3) | | Form of Subscription Agreement for Securities, April 2006* |
| | |
| 10.42 (4) | | Board of Directors Agreement between V. Gerald Grafe and Novint Technologies, Inc.* |
| | |
| 10.44 (5) | | Manufacturing Agreement dated December 19, 2006 by and between Novint Technologies, Inc. and VTech Communications Ltd.* |
| | |
| 10.45 (5) | | Novint Purchase Order 1056. (Portions of this exhibit have been omitted pursuant to a request for confidential treatment.) * |
| | |
| 10.46 (7) | | Form of Unit Subscription Agreement, March 2007* |
| | |
| 10.47 (7) | | Form of Investor Rights Agreement, March 2007* |
| | |
| 10.48 (8) | | Amendment No. 1 to Unit Subscription Agreement dated March 2, 2007* |
| | |
| 10.49 (8) | | Amendment No. 2 to Unit Subscription Agreement dated March 30, 2007* |
(1)10.50 (8) | Filed on | Amendment No. 1 to Investor Rights Agreement dated March 30, 2007* |
| | |
| 10.51 (10) | | Purchase Order with The Falk Group, LLC dated January 16, 2007* |
| | |
| 10.52 (11) | | Tournabout Intellectual Property Acquisition Agreement dated July 17, 2007* |
| | |
| 10.53 (12) | | Lease Agreement dated May 17, 2004 as an exhibit to our Registration Statement on Form SB-2, and incorporated herein by reference.29, 2007* |
(2) | Filed on March 1, 2007 as an exhibit to our Current Report on Form 8-K, and incorporated herein by reference. | |
(3)10.54 (12) | Filed on | Lease Agreement dated June 21, 2007 as an exhibit to our Current Report on Form 8-K, and incorporated herein by reference.2007* |
SIGNATURES
* Previously filed with the SEC as indicated, and hereby incorporated herein by reference.
In accordance with Section 13 or 15(d)SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| May 14, 2020 | NOVINT TECHNOLOGIES, INC. |
| (Registrant) |
| | |
Date: August 19, 2009 | By: | /s/ Tom AndersonOrin Hirschman |
| | | Tom AndersonName: Orin Hirschman |
| | | ChiefTitle: President (Principal Executive Officer President, and Chief
Principal Financial Officer Officer) |
| | |