As filed with the Securities and Exchange Commission on July 27, 2007
Registration Statement No. 333-115548
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 1
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NOVINT TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
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Delaware
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3577
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85-0461778
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(State or other jurisdiction
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(Primary Standard Industrial
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(I.R.S. Employer
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of incorporation or organization)
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Classification Code Number)
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Identification No.)
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4109 Bryan Avenue, NW
Albuquerque, New Mexico 87114
(Address and telephone number of principal executive offices and principal place of business)
Thomas G. Anderson
4109 Bryan Avenue, NW
Albuquerque, New Mexico 87114
Chief Executive Officer
(866) 298-4420
(Name, address and telephone number of Agent for Service)
Copy to:
Jennifer A. Post, Esq.
Deanna R. Whitestone, Esq.
RICHARDSON & PATEL LLP
10900 Wilshire Boulevard, 5th Floor
Los Angeles, California 90024
(310) 208-1182
Approximate date of proposed sale to the public: From time to time after the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box.
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If this form is filed to register additional securities for an offering pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same offering.
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If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
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If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act,
check the following box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
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If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the
following box.
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NOTE REGARDING REGISTRATION
This Post-Effective Amendment No. 1 to Form SB-2 (the Amendment) is being filed in order to
update the prospectus included in this registration statement to reflect the registrants annual
report on Form 10-KSB for the fiscal year ended December 31, 2006, filed with the Securities and
Exchange Commission (the SEC) on April 2, 2007, the Registrants quarterly report on Form 10-QSB,
filed with the SEC on May 15, 2007, and related disclosures. This Amendment omits from
registration certain shares that were included in the original registration statement, including
(i) 5,311,755 shares that may now be sold pursuant to Rule 144(k), (ii) 90,000 shares underlying
stock options that are now registered on a registration statement on Form S-8, (iii) 515,000 shares
underlying options issued to officers of the Registrant (which are not registered), and 15,000
shares issued to a director of the Registrant (which are not registered).
NOTE REGARDING REGISTRATION FEES
All fees for the registration of the shares registered on this Amendment were paid upon
initial filing of the previously filed registration statement covering such shares. No additional
shares are registered, and accordingly, no additional fees are payable.
The Registrant hereby amends this registration statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in
accordance with
Section 8(a)
of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said Section
8(a)
, may
determine.
The information in this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and is not soliciting an offer
to buy these securities in any state where the offer or sale is not permitted.
Subject
to Completion, dated July 27, 2007
Prospectus
Novint Technologies, Inc.
3,192,900 Shares of Common Stock
This
prospectus covers the resale by selling shareholders named on page 34 of up to
3,192,900 shares of our common stock which include:
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415,000 shares of common stock; and
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2,777,900 shares of common stock underlying common stock purchase warrants.
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These securities will be offered for sale by the selling shareholders identified in
this prospectus in accordance with the methods and terms described in the section of this
prospectus titled Plan of Distribution. Our common stock is currently traded on the
Over-The-Counter Bulletin Board under the symbol NVNT. The last reported sale price on July 19,
2007 was $1.189 per share.
We will not receive any of the proceeds from the sale of these shares. However, we may receive
up to $4,034,900 upon the exercise of the warrants. If some or all of the warrants are exercised,
the money we receive will be used for general corporate purposes, including working capital
requirements. We will pay all expenses incurred in connection with the offering described in this
prospectus, with the exception of the brokerage expenses, fees, discounts and commissions which
will all be paid by the selling shareholders. Our common stock and warrants are more fully
described in the section of this prospectus titled Description of Securities.
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE RISK FACTORS BEGINNING
AT PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
You should rely only on the information contained in this prospectus to make your investment
decision. We have not authorized anyone to provide you with different information. This prospectus
may be used only where it is legal to sell these securities. You should not assume that the
information in this prospectus is accurate as of any date other than the date on the front page of
this prospectus.
The following table of contents has been designed to help you find important information
contained in this prospectus. We encourage you to read the entire prospectus carefully.
The date of this prospectus is _________
, 2007
Table of Contents
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1
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3
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10
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11
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12
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13
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16
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28
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29
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30
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33
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34
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36
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37
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39
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40
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40
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41
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41
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41
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Financial Information
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F-1
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EXHIBIT 5.1
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EXHIBIT 10.53
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EXHIBIT 10.54
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EXHIBIT 23.1
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Prospectus Summary
This summary highlights material information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, including the section titled Risk Factors and our
consolidated financial statements and the related notes.
Our Company
We are a technology development and licensing company in the field of haptics. Haptics refers
to your sense of touch. We develop, market and sell products, applications and technologies that
allow people to use their sense of touch to interact with computers. Our website address is
www.novint.com. Information provided on our website, however, is not part of this prospectus and is
not incorporated herein.
Our computer touch technology allows computer users to realistically feel objects displayed by
a computing device using a 3D haptics (or computer-touch) device. A computer user holds onto the
handle of a haptics device, which we call a grip, which can be moved right-left and
forwards-backwards like a mouse, but can also be moved up and down. As the haptics device is moved
by the user, it controls a three-dimensional cursor or other pointing icon displayed by the
computer (much like a mouse controlling a two-dimensional cursor) and when the cursor makes contact
with virtual objects displayed by the computer, the computer registers the contact and updates
motors in the haptics device (approximately 1000 times a second) creating feedback to the handle of
the haptics device and giving a realistic sense of touch in the users hand.
For example, a user can feel the recoil of a gun that has been fired, hit a virtual golf ball,
swing a sword at an ogre, throw a football, feel weight and textures of objects, cast a spell by
moving a wand, or generally interact with objects displayed by a computer in a more realistic
manner by including a detailed and realistic sense of touch. We believe that haptics technology
adds another sensory component (the sense of touch) to make games, and other applications, more
realistic.
We historically derived the majority of our revenue developing professional applications for
our customers. These applications provided a sensory-touch component to engineering and design
software products. We have completed work on a number of contracts with companies such as Aramco,
Lockheed Martin, Chrysler, Chevron, Sandia National Laboratories, and Woods Hole Oceanographic
Institute. However, we intend to generate future revenues from the sale of our Novint Falcon
product, the associated grips, or handles that are shaped to mirror the application that the
product is being used to simulate, e.g. a gun handle, a sword handle, or a steering wheel, and the
sale or license of our computer games (designed to be used with the Falcon), and ultimately the
license fees from hardware and software companies who support the Falcon. We intend to leverage our
computer touch technology to exploit opportunities in the consumer console and PC interactive
computer games market. Using our haptics technology, games and applications will have the crucial
missing third sense 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. We have not derived any revenue from the licensure of our technology for consumer console
and PC interactive computer games.
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 (Novint).
SUMMARY FINANCIAL INFORMATION
In the table below we provide you with historical selected consolidated financial data for the
two years ended December 31, 2006 and 2005, and the three months ended March 31, 2007 and 2006,
derived from our audited and unaudited financial statements, respectively, included elsewhere in
this prospectus. Historical results are not necessarily indicative of the results that may be
expected for any future period. When you read this historical selected financial data, it is
important that you read along with it the historical consolidated financial statements and related
notes and Managements Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this prospectus.
Condensed Balance Sheet as of March 31, 2007 (unaudited):
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Total current assets
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$
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8,913,786
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Total non-current assets
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$
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673,106
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Total assets
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$
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9,586,892
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Total current liabilities
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$
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1,038,631
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Total stockholders equity
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$
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8,548,261
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Total liabilities and stockholders equity
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$
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9,586,892
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1
Condensed Statements of Operations for the three months ended March 31, 2007 and 2006 (unaudited):
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2007
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2006
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Total revenue
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$
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128,731
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$
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38,781
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Total cost of goods sold
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$
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107,481
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$
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25,679
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Gross profit
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$
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21,250
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$
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13,102
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Total operating expenses
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$
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1,921,400
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$
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609,912
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Total other (income) expenses
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$
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116,049
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$
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32,927
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Net loss
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$
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(2,016,199
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$
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(629,737
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Basic and diluted net loss per share
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$
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(0.09
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$
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(0.04
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Condensed Balance Sheet as of December 31, 2006:
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Total current assets
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$
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686,960
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Total non-current assets
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$
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688,655
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Total assets
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$
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1,375,615
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Total current liabilities
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$
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1,205,623
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Total stockholders equity
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$
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169,992
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Total liabilities and stockholders equity
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$
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1,375,615
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Condensed Statements of Operations for the year ended December 31, 2006 and 2005:
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2006
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2005
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Total revenue
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90,109
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$
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362,097
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Total cost of goods sold
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$
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63,402
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$
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179,162
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Gross profit
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$
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26,707
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$
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182,935
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Total operating expenses
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$
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4,084,402
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$
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3,296,657
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Total other (income) expenses
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$
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252,006
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$
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272,683
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Net loss
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$
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(4,309,701
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$
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(3,386,405
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Basic and diluted net loss per share
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$
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(0.24
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$
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(0.24
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Risks Related to Our Business
Our business is subject to a number of risks, which you should be aware of before making an
investment decision. These risks are discussed more fully in the section of this prospectus titled
Risk Factors.
Strategic Financing 2004
In February and May 2004, we sold 3,049,000 shares of our Companys common stock for $1.00 per
share pursuant to Subscription Applications with accredited investors (the Investors). The net
proceeds from the sale of the common stock have been used
2
for working capital. In connection with
this transaction, we issued to the Investors warrants to purchase up to 1,524,500 shares of our
common stock at any time or from time to time on or before May 5, 2009, as discussed further below.
In this prospectus, we refer to the warrants as the Warrants. Hunter World Markets (Hunter)
served as placement agent for the transaction and provided a bridge loan. In consideration for
Hunters services, Hunter received a fee of $304,680 and warrants to purchase 263,500 shares of our
common stock with an exercise price of $1.00 per share. Additionally, in consideration for
providing the bridge loan, Hunter received interest in the amount of $60,000.
The five-year Warrants permit the Investors to purchase up to 1,524,500 shares of our common
stock, at any time or from time to time, at an exercise price of $2.00 per share. We may call the
Warrants if the closing price for 10 consecutive trading days exceeds 150% of the exercise price.
The Investors have contractually agreed that the Warrants shall not be exercised to the extent
such exercise would result in any of the Investors, together with its affiliates, beneficially
owning in excess of 4.99% of the number of shares of our common stock outstanding at that time. The
Investors may cause this 4.99% limitation to expire by providing us 60 days advance notice of its
intention to do so. This 4.99% limitation does not preclude exercise of the Warrants over time, so
long as each Investors beneficial ownership of our common stock, together with its affiliates,
does not exceed the limitation amount.
In connection with this financing, we are registering 1,524,500 Warrant Shares sold in this
financing.
We are also registering 300,000 shares of common stock that were issued upon the exercise of
warrants at a purchase price of $0.25 per share, 115,000 shares of common stock that were issued
upon the exercise of warrants at a purchase price of $0.50 per share, and 1,253,400 shares of
common stock issuable pursuant to warrants issued by us to various investors and service providers
of our company in the past 7 years.
The Offering
We are registering 3,192,900 shares of our common stock for sale by the selling shareholders
identified in the section of this prospectus titled Selling Shareholders. The shares included in
the table identifying the selling shareholders consist of:
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415,000 shares of common stock;
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1,524,500 shares of common stock underlying common stock purchase warrants issued pursuant to the finanicng; and
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1,253,400 shares of common stock underlying common stock purchase warrants issued by us to various investors
and service providers of our company in the past 7 years.
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The shares issued and outstanding prior to this offering consist of 31,628,052 shares of
common stock and do not include:
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15,216,125 shares of common stock issuable upon the exercise of
warrants (including 2,777,900 shares of common stock covered by this
prospectus);
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12,121,217 shares of common stock reserved for issuance upon the
exercise of outstanding stock options granted under our Amended and
Restated 2004 Stock Incentive Plan (the 2004 Stock Option Plan) and
options granted outside of the Plan; and
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4,027,500 shares of common stock reserved for issuance under our 2004
Stock Option Plan which have not yet been issued.
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After this offering, assuming the exercise of all warrants with underlying shares which are
covered by this prospectus, we would have 34,405,952 shares of common stock outstanding. If all of
our other issued and outstanding options and warrants were exercised, we would have a total of
58,965,394 shares of common stock issued and outstanding. .
Information regarding our common stock and the warrants is included in the section of this
prospectus titled Description of Securities.
Corporate Information
We maintain a principal office at 4109 Bryan Avenue, NW, Albuquerque, New Mexico, 87114. Our
telephone number at that address is (866) 298-4420. Our web address is
www.novint.com
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Information included on our website is not part of this prospectus.
Risk Factors
You should carefully consider the risks described below before making an investment decision. Our
business could be harmed by any of these risks. The trading price of our common stock could decline
due to any of these risks, and you may lose all or part of your investment. In assessing these
risks, you should also refer to the other information contained in this prospectus, including our
financial statements and related notes.
3
Risks Related to Our Business
The market for haptics-enabled technologies and haptics-enabled products is at an early stage
and if market demand does not develop, we may not achieve or sustain revenue growth.
The market for our haptics-enabling technologies and our licensees haptics-enabled products
is at an early stage. If Novint and its licensees are unable to develop demand for haptics-enabling
technologies and haptics-enabled products, we may not achieve or sustain revenue growth. We cannot
accurately predict the growth of the markets for these technologies and products, the timing of
product introductions or the timing of commercial acceptance of these products.
Even if our haptics-enabling technologies and our licensees haptics-enabled products are
ultimately widely adopted, widespread adoption may take a long time to occur. The timing and amount
of royalties and product sales that we receive will depend on whether the products marketed achieve
widespread adoption and, if so, how rapidly that adoption occurs. We expect that we will need to
pursue extensive and expensive marketing and sales efforts to educate prospective licensees and end
users about the uses and benefits of our technologies and to persuade software developers to create
software that utilizes our technologies.
Currently 100% of our revenue is derived from a few customers and we could experience
substantial losses if a single customer stops conducting business with us.
Currently, 100% of our revenues are derived from a few customers. Until and unless we secure
customer relationships with substantially more customers and until we begin our consumer sales of
the Falcon and related products, it is likely that we will experience periods during which we will
be highly dependent on a limited number of customers. Dependence on a few customers will make it
difficult to satisfactorily negotiate attractive prices for our products and will expose us to the
risk of substantial losses if a single dominant customer stops conducting business with us; however
we do not foresee remaining dependent on our professional applications services for revenue going
forward. During the years ended December 31, 2005 and 2006, our revenues were derived from three
key professional applications customers. During the three months ended March 31, 2007, our revenues
were derived from two key professional applications customers. The following is a list of such
customers representing 10% or more of our revenues for the years ended December 31, 2005 and 2006
and the three months ended March 31, 2007:
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12/31/05
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12/31/06
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3/31/07
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Aramco
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$
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77,142
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21
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$
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12,672
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14
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%
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%
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The Falk Group, LLC
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$
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%
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$
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%
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121,688
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95
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%
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Sandia National Laboratories
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$
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48,545
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13
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%
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$
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%
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%
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Lockheed Martin Perry
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$
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206,065
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57
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%
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$
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74,342
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83
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%
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7,043
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5
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We anticipate that our expenses will dramatically increase to execute our business plan. Thus,
we may experience losses in the near future and may not achieve or maintain profitability.
Our operating losses were $3,113,722 and $4,057,695, respectively, for the 12 month periods
ended December 31, 2005 and 2006. Our accumulated deficit as of December 31, 2005 and 2006 was
$8,168,232 and $12,648,907, respectively. Our operating expenses totaled $4,084,402 for the 12
month period ending December 31, 2006, compared to $3,296,657 for the 12 month period ended
December 31, 2005. Our operating losses were $1,900,150 for the three months ended March 31, 2007.
Our accumulated deficit as of March 31, 2007 was $14,665,106. Our operating expenses totaled
$1,921,400 for the three month period ending March 31, 2007.
We anticipate that our expenses will dramatically increase as we continue to leverage our
computer touch technology and to acquire rights to a new 3D haptics interaction device to exploit
opportunities in the consumer console and PC interactive computer gaming industry. If our revenues
do not grow significantly or if our operating expenses exceed expectations, we may not achieve or
maintain profitability.
Our historical financial information does not reflect our current primary business strategy
for achieving revenue growth. Historically, our primary business has been contracting for the
development of professional applications of our technologies for our
customers. However, our primary business strategy for achieving growth is development of our
technologies for computer gaming use.
Historically, we have derived the substantial majority of our revenue from development
contracts. For the 12 month periods ended December 31, 2006 and 2005, 97% and 92%, respectively, of
our revenues were from development contracts. For the three months ended March 31, 2007, 100% of
our revenues were from development contracts. While we anticipate that royalty revenue from
licensing our technologies and sales of products that we plan to develop, such as the Falcon,
grips, and related games, will constitute the majority of our revenue, such royalty and sales
revenue may not increase and may decrease in the future. Accordingly, we cannot predict our future
revenues based on historical financial information.
We will depend on product sales and licensees to generate royalty revenue and we may not be
able to sell a sufficient number of products or attract any or a sufficient number of licensees. We
currently do not have any licensees.
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Our primary business strategy with respect to leveraging our computer touch technology to
exploit opportunities in the consumer console and PC interactive computer gaming industry is to
license our intellectual property to companies that manufacture and sell haptics-enabled products
(both hardware and software) and to manufacture and sell our products directly and through
retailers. For us to be successful, we will have to attract licensees and our licensees must
manufacture and distribute haptics-enabled products in a timely fashion and generate consumer
demand through marketing and other promotional activities. We may not be able to attract any or a
sufficient number of licensees to generate a significant amount of royalty revenue. If we are not
able to attract any or a sufficient number of licensees or our licensees fail to stimulate and
capitalize upon market demand for products that generate royalties for us, our revenue with respect
to that business segment will not grow. Additionally, we will have to attract retailers who will
sell our products to consumers at price points that provide us with revenue. If we are not able to
attract a sufficient number of retailers, and if the retailers do not sell to consumers in
sufficient quantity or at prices which generate revenues, we may be unable to succeed in the gaming
applications we have developed.
We have established a direct manufacturing contract and direct software development contracts;
these are areas in which we have little experience.
Much of our growth will come from sales in the video game market. To facilitate this part of
our strategy we entered into a direct contract manufacturing agreement with VTech Communications,
Ltd. in China, in 2006 for the manufacture of the Falcon. We are developing our own initial game
programs to be packaged with the Falcon. We do not have experience or a track record for creating
hardware products or interactive video and computer games. We cannot be sure that the games we
develop will appeal to consumers or enhance the sales of the Novint Falcon. In addition, there will
be additional risks such as cash flow management, financing materials, and coordinating product
distribution and fulfillment either internally or by contract, all of which we have no experience
in. If we expend significant resources on these initiatives and are not successful, our business
and results of operations could be negatively impacted and the value of our securities could
decline.
Demand for products that incorporate our technologies are generally seasonal and failure to
deliver products to take advantage of year end holiday season demand could substantially impact
royalty revenue generated, if any, from products that incorporate our technologies.
Peak demand for products that incorporate our technologies, especially in the gaming market,
typically occurs in the fourth calendar quarter as a result of increased demand during the year-end
holiday season. If we or our licensees do not succeed in shipping licensed products in a timely
fashion or fail to achieve strong sales in the second half of the calendar year, it would impact
our revenues. We do not have experience in distributing our own product and we do not control or
influence the degree to which our licensees promote our technologies or the prices at which they
sell products incorporating our technologies. As a result, products incorporating our technologies
may not be brought to market, achieve commercial acceptance or generate meaningful revenue for us.
If retailers do not purchase our product and generate sales to consumers it will be difficult
for us to execute our business strategies and we may not achieve our revenue growth.
An important part of our strategy is to create market acceptance for the Falcon product, and
future products and games we may develop, that will generate revenues for us. These potential sales
are important not only to generate revenue but to create consumer awareness of our products and
create a desire on the part of third party game and hardware developers to enter into license
arrangements with us that will similarly generate revenues. If we cannot generate consumer and
potential licensee interests, we will not generate sufficient revenues to support our continued
operations or expand our product lines.
If the contract manufacturer we have entered into an agreement with fails to deliver products
on time, or delivers products that are faulty, we may not achieve our revenue growth.
We have entered into a manufacturing agreement with VTech Communications, Ltd. to manufacture
the Falcon according to our specifications. We have submitted one purchase order to VTech but
anticipate submitting additional orders as demand grows. While we believe that VTech will fulfill
our orders timely and to specification, we cannot assure that there will not be delays. If we are
unable to have our products manufactured and delivered timely and to specifications, we may lose
sales and we may be unable to generate revenues.
If industry leaders do not adopt our technologies, it may be difficult for us to execute our
business strategies and we may not achieve revenue growth.
An important part of our strategy is to penetrate new markets by targeting licensees that are
leaders in those markets. This strategy
is designed to encourage other participants in those markets to also adopt our technologies. If a
high profile industry participant adopts our technologies for one or more of their products but
fails to achieve success with those products, other industry participants perception of our
technologies could be adversely affected. Likewise, if a market leader adopts and achieves success
with a competing technology, our revenue growth could be limited and other potential licensees may
not license our technologies. Finally, if no industry participant adopts our technologies at all,
we may not be able to achieve any revenue growth from licensing our technologies.
A significant portion of our intellectual property rights is based on our license from Sandia.
Failure to comply with the terms of the Sandia license may terminate or make such license
nonexclusive which may result in a material negative impact on our business and revenues.
A significant portion of our intellectual property rights are based on our license from Sandia
National Laboratories (Sandia). The Sandia license is a 12 year exclusive license for
human-computer haptics interfaces. Sandia has the right to reduce our rights granted pursuant to
the Sandia license (e.g., make rights non-exclusive) if we breach the provisions of the Sandia
license or fail to meet the
5
$30,000 per year minimum royalties set forth in the Sandia license.
Failure to comply with such terms of the Sandia license may result in a material negative impact on
our business and revenues.
If we fail to protect and enforce our intellectual property rights or if licensors who license
intellectual property rights to us fails to protect and enforce such licensors intellectual
property rights, our ability to license our technologies and to generate revenues would be
impaired.
Our business depends on generating revenues by licensing our intellectual property rights and
by selling products that incorporate our technologies. In addition, a portion of our intellectual
properties are licensed from Sandia, one of our stockholders. If our company or Sandia is not
successful in protecting and enforcing their respective intellectual property rights, our ability
to obtain future licenses and royalty revenue could be impaired. In addition, if a court limits the
scope, declares unenforceable or invalidates any of our or Sandias intellectual properties,
current licensees may refuse to make royalty payments or may themselves choose to challenge one or
more of our intellectual property rights. Also it is possible that:
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Sandias or our patents may not be broad enough to protect our proprietary rights;
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Sandias or our patents could successfully be challenged by one or more third parties, which could result in our
or Sandias loss of the right to prevent others from exploiting the inventions claimed in those patents;
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current and future competitors may develop alternative technologies that are not covered by Sandias patents; and
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effective patent protection may not be available in every country in which our licensees do business.
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Our company and Sandia also rely on licenses, confidentiality agreements and copyright,
trademark and trade secret laws to establish and protect their proprietary rights. It is possible
that:
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laws and contractual restrictions may not be sufficient to prevent misappropriation of our
or Sandias technologies or deter others from developing similar technologies;
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shrinkwrap and clickwrap license agreements upon which we will rely to protect some of
our software will not be signed by the user and may not be enforceable under the laws of all
jurisdictions;
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other companies may claim common law trademark rights based upon state or foreign laws that
precede federal registration of our trademarks;
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current federal laws that prohibit software copying provide only limited protection from
software pirates, and effective trademark, copyright and trade secret protection may be unavailable
or limited in some foreign countries; and
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policing unauthorized use of our products and trademarks is difficult, expensive and
time-consuming, particularly overseas.
If we are unable to develop new license relationships, our revenue growth may be limited.
A substantial part of our projected revenue growth depends on our ability to enter into
license arrangements. Particularly with respect to those licenses which involve the implementation
of our hardware components or software games, we face numerous risks in obtaining new licenses on
terms consistent with our business objectives and in maintaining, expanding and supporting our
relationships with our current licensees. These risks include:
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the lengthy and expensive process of building a relationship with potential licensees;
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the fact that we may compete with the internal design teams of potential licensees;
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difficulties in persuading consumer product manufacturers to work with us, to rely on us for
critical technology and to disclose to us proprietary product development and other strategies; and
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difficulties in persuading potential licensees to bear development costs to incorporate our
technologies into their products.
The potential higher costs of haptics-enabled products may inhibit or prevent our technologies
from achieving market acceptance. Failure to achieve market acceptance will significantly limit our
revenue growth in our computer gaming business.
Haptics-enabled products are likely to be more expensive to consumers than products that are
not Haptic-enabled. The greater expense of products containing our technologies may be a
significant barrier to their widespread adoption and success in consumer markets.
While we have not entered into any licenses that generate royalty revenue, if and when we do
enter into such licenses, a small number of licensees may account for a large portion of our
royalty revenue.
While we have not entered into any licenses that generate royalty revenue, a significant
portion of our royalty revenue may be derived from a small number of licensees. If any of such
limited group of licensees fails to achieve anticipated sales volumes, our results of operations
may be adversely affected.
Our technologies must work with Microsofts or another companys operating system software.
Thus, our costs could increase and our revenues could decline if Microsoft or such other company
modifies their operating system software.
6
Our hardware and software technology must be compatible with operating system software,
including Microsofts or other similar companys entertainment applications programming interface.
Any modifications, additions or deletions by Microsoft or another companys operating system could
require us to modify our technologies and could cause delays in the release of products by our
licensees. If Microsoft or another company modifies their software products in ways that limit the
use of our other licensees products, our costs could be increased and our revenues could decline.
We intend to utilize third party manufacturers to produce and distribute haptics interface
hardware devices. Any delays in delivery of the haptics interface hardware devices, quality
problems or cost increases with respect to such manufacturers could cause us to lose customers and
could adversely affect our revenue from our gaming business.
We intend to utilize third party manufacturers to produce and distribute haptics interface
hardware devices such as the Novint Falcon. We will have limited control over delivery schedules,
quality assurance, manufacturing capacity, yields, costs and misappropriation of our intellectual
property. Any delays in delivery of the haptics interface hardware devices, quality problems or
cost increases could cause us to lose customers and could adversely affect our relationships with
our licensees.
If we are unable to improve, and reduce the cost of, our technologies, companies may not
incorporate our technologies into their products and our revenue growth may be impaired.
Our success will depend on our ability to improve, and reduce the cost of, our technologies
and to introduce these technologies to the marketplace in a timely and cost effective manner. If
our development efforts are not successful or are significantly delayed, companies may not
incorporate our technologies into their products and our revenue growth may be impaired.
We may become involved in costly and time consuming litigation over proprietary rights which
may delay bringing products incorporating our technologies to market and adversely affecting our
revenue from our gaming business.
We attempt to avoid infringing known proprietary rights of third parties. We have not,
however, conducted and do not conduct comprehensive patent searches to determine whether aspects of
our technology infringe patents held by third parties. Third parties may hold, or may in the future
be issued, patents that could be infringed by our products or technologies. Any of these third
parties might make a claim of infringement against us with respect to our products and
technologies. In November 2000, we received a letter from Immersion Corporation, a competitor
public company which has greater financial resources than we do, asserting that some of our
technologies, or those of our licensees, may infringe their intellectual property rights. Although
this matter has not resulted in litigation to date, any of these notices, or additional notices
that we could receive in the future from this or other companies, could lead to litigation. We
might also elect to enforce our intellectual property rights against third parties which could
result in litigation.
Any intellectual property litigation, whether brought by us or by others, could result in the
expenditure of significant financial resources and the diversion of managements time and efforts.
In addition, litigation in which we are accused of infringement may cause product shipment delays,
require us to develop non-infringing technology or require us to enter into royalty or license
agreements even before the issue of infringement has been decided on the merits. If any litigation
were not resolved in our favor, we could become subject to substantial damage claims from third
parties and indemnification claims from our licensees. Our company and/or our licensee could be
enjoined from the continued use of the technology at issue without a royalty or license agreement.
Royalty or license agreements, if required, might not be available on acceptable terms, or at all.
If a successful claim of infringement were made against us and we could not develop non-infringing
technology or license the infringed or similar technology on a timely and cost-effective basis, our
expenses would increase and our revenues could decrease.
We project rapid growth and change in our business, and our failure to manage this could harm
our business and negatively affect our strategy of starting and growing our gaming business.
Any future periods of rapid growth may place significant strains on our managerial, financial,
engineering and other resources. The rate of any future expansion, in combination with our complex
technologies, may demand an unusually high level of managerial effectiveness in anticipating,
planning, coordinating and meeting our operational needs as well as the needs of our licensees.
Product liability claims, including claims relating to alleged repetitive stress injuries,
could be time-consuming and costly to defend, and could expose us to loss.
Claims that consumer products have flaws or other defects that lead to personal or other
injury are common in the computer peripherals industry. In particular, manufacturers of peripheral
products, such as computer mice, have in the past been subject to claims alleging that use of their
products has caused or contributed to various types of repetitive stress injuries, including carpal
tunnel syndrome. We have not experienced any product liability claims to date. Although we seek to
limit our exposure to product liability claims by using certain provisions in licensing agreements,
existing or future laws or unfavorable judicial decisions could limit or invalidate such
provisions. If products sold by us or by our licensees cause personal injury, financial loss or
other injury to us or our licensees customers, the customers, or our licensees, may seek damages
or other recovery from us. These claims would be time-consuming and expensive to defend,
distracting to management and could result in substantial damages. In addition, the assertion of
these claims, even if unsuccessful, could damage our reputation or that of our licensees or their
products. This damage could limit the market for our licensees haptics-enabled products and harm
our results of operations.
We anticipate raising additional capital in the future. Failure to raise sufficient capital
will limit our ability to operate and expand our business.
We anticipate raising additional funds through public or private financing, strategic
relationships or other arrangements in the future to carry out our business strategy. We cannot be
certain that any financing will be available on acceptable terms, or at all, and our failure
7
to raise capital when needed could limit our ability to expand our business. Additional equity
financing may be dilutive to the holders of our common stock, and debt financing, if available, may
involve restrictive covenants. Moreover, strategic relationships, if necessary to raise additional
funds, may require that we relinquish valuable rights.
Our executive officers, directors and major stockholders have significant shareholdings, which
may lead to conflicts with other stockholders over corporate governance matters.
Our current directors, officers and more than 10% stockholders, as a group, beneficially own
approximately 36.3% of our outstanding common stock. Acting together, these stockholders would be
able to significantly influence all matters that our stockholders vote upon, including the election
of directors and mergers or other business combinations. Provisions in our Delaware certificate of
incorporation and bylaws may have the effect of delaying or preventing a change of control or
changes in our management. These provisions could limit the price that investors might be willing
to pay in the future for shares of our common stock.
A substantial portion of our business strategy is to develop haptics enabled devices for use
in the computer gaming industry and to develop our own interactive computer gaming products which
incorporate our technologies. Such industry is highly volatile and competitive.
The interactive computer gaming industry has historically been a volatile and highly dynamic
industry affected by changing technology, limited hardware platform life cycles, hit products,
competition, component supplies, seasonality, consumer spending and other economic trends. Such
industry is also intensely competitive. Interactive computer gaming products typically have life
spans of only 3 to 12 months. In addition, the market is crowded with a large number of titles
competing for limited shelf space at retail. Our future success will depend in large part on
companies that will develop games requiring the use of our technologies to develop and introduce
new competitive products on a timely basis and to get those products distributed widely at retail.
To compete successfully, new products must adapt to new hardware platforms and emerging industry
standards, provide additional functionality and be successfully distributed in numerous changing
worldwide markets. If our company or companies that will develop games requiring the use of our
technologies were unable, due to resource constraints or technological or other reasons, to
successfully develop and distribute such products in a timely manner, this inability would have a
material adverse effect on our operating results and our financial condition.
Development of successful interactive computer gaming products is highly unpredictable and
complex and is subject to platform changes. Failure to manage the development of such gaming
products or to anticipate such platform changes may significantly impact our revenue growth from
our gaming business.
Product development schedules are difficult to predict because they involve creative
processes, use of new development tools for new platforms and the learning process, research and
experimentation associated with development for new technologies. Products frequently include a
large amount of content and are complex, time-consuming and costly to develop. A large portion of
the interactive computer games that we will produce or that will use our technologies will be
designed to be played on proprietary video game platforms such as those owned by Sony, Microsoft,
and Nintendo. The success of our products is significantly affected by market acceptance of the new
video game hardware systems and the life span of older hardware platforms, and our ability to
accurately predict these factors with respect to each platform. In many cases, we will have
expended a large amount of development and marketing resources on products designed for new video
game systems that have not yet achieved large installed bases or will have continued product
development for older hardware platforms that may have shorter life cycles than we expected.
Conversely, if we did not choose to develop for a platform that achieves significant market
acceptance, or discontinue development for a platform that has a longer life cycle than expected,
our revenue growth may be adversely affected.
Success of interactive computer games is increasingly hits driven. The market for such games
is highly unpredictable and development of new content is inherently risky and expensive.
Interactive computer games have become increasingly hits driven. Additional marketing and
advertising funds are required to drive and support hit products, particularly television
advertising. There can be no assurance that we will be able to produce hit titles,
or that advertising for any product will increase sales sufficiently to recoup those advertising
expenses. Whether games will become hits are highly dependent on consumer tastes and moods and are
highly unpredictable.
Development of new content is inherently risky and expensive. We cannot assure that products
will be developed on time, in a cost effective manner, or that they will be commercially
successful.
Obtaining a license from hardware manufacturers will be required to publish interactive
computer game titles on their platform. We have not obtained such licenses and may not be able to
obtain such licenses on acceptable terms, or at all.
We will be required to obtain a license to develop and publish titles for each hardware
platform for which we will develop and publish titles. Hardware manufacturers, including Sony
(PlayStation, PlayStation 2, and Playstation 3), Nintendo (GameCube and Wii) and Microsoft (Xbox
and Xbox 360) require that we obtain approval for the incorporation of our technologies on their
platforms. Such manufacturers are large companies with substantial financial resources and will be
able to impose a very manufacturer favored agreement. We cannot assure that we will be able to
obtain such licenses on acceptable terms, or at all.
Our officers, directors and employees have no experience in the interactive computer gaming
industry and may not be able to operate this business effectively. Failure to operate our computer
gaming business will significantly affect our revenue growth and results of operations.
Offering and developing interactive computer games is a substantial departure from our current
business of offering product development services and limited sales of haptics devices. Our
officers, directors and employees have no experience in developing,
8
producing, pricing, marketing,
selling, or distributing interactive computer games and will rely on their ability to employ
persons that have such experience to carry out their business strategy with respect to developing
interactive computer games. Because of our inexperience in this area, we may not be effective in
achieving success that may otherwise be attainable by more experience.
We have discontinued the sale of our Novint sono product.
Our Novint sono product was not carried in very many ultrasound centers. As a result, we have
determined to discontinue this product. We did not believe that the sono product line would be a
substantial contributor to the revenue and earnings generation of the Company. The sono product
would have been dilutive to our efforts to focus on computer gaming. We cannot assure however that
any loss in revenue from the discontinuance of the sono products will not harm our revenue growth.
The market for our common stock may not be liquid.
Our common stock is and may continue to be thinly traded compared to larger more widely known
companies. Thinly traded common stock can be more volatile than stock trading in an active public
market. We cannot predict the extent to which an active public market for our common stock will
develop or be sustained. Further, there is no assurance that our common stock may be listed on any
stock exchange or even qualify to be quoted on the over-the-counter bulletin board going forward.
Failure to do so may make it very difficult to sell our common stock.
Our prior external auditors determined that a material weakness related to our internal
controls and procedures existed.
As part of the December 31, 2004 and 2003 audits, we were advised by our former independent
registered public accounting firm, Grant Thornton LLP, that there were certain material weaknesses
in internal controls and procedures related to the financial reporting process at December 31,
2004, and through the interim periods reviewed through September 30, 2005. As a result, for the
year ended December 31, 2004, audit and review of quarterly financial information through September
30, 2005, Grant Thornton LLP proposed, and Novint recorded, numerous adjusting journal entries and
additional disclosures to correct the financial statements. Management believes that it has taken
sufficient steps necessary to correct its internal control and procedures related to the financial
reporting process. The Companys current independent registered public accounting firm, AJ Robbins
PC, has not notified the Company of any material weaknesses in internal controls and procedures
related to the financial reporting process at December 31, 2005 and December 31, 2006.
Risks Related to Ownership of Our Securities
Our common stock is considered a penny stock. The application of the penny stock rules to
our common stock could limit the trading and liquidity of the common stock, adversely affect the
market price of our common stock and increase your transaction costs to sell those shares.
Our common stock is a low-priced security or penny stock under rules promulgated under the
Securities Exchange Act of 1934. In accordance with these rules, broker-dealers participating in
transactions in low-priced securities must first deliver a risk disclosure document which describes
the risks associated with such stocks, the broker-dealers duties in selling the stock, the
customers rights and remedies and certain market and other information. Furthermore, the
broker-dealer must make a suitability determination approving the customer for low-priced stock
transactions based on the customers financial situation, investment experience and objectives.
Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific
written consent from the customer, and provide monthly account statements to the customer. The
effect of these restrictions will probably decrease the willingness of broker-dealers to make a
market in our common stock, will decrease liquidity of our common stock and will increase
transaction costs for sales and purchases of our common stock as compared to other securities.
The stock market in general has experienced volatility that often has been unrelated to the
operating performance of listed
companies. These broad fluctuations may be the result of unscrupulous practices that may adversely
affect the price of our stock, regardless of our operating performance.
Shareholders should be aware that, according to SEC Release No. 34-29093 dated April 17, 1991,
the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include (1) control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (3) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4)
excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the
wholesale dumping of the same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the resulting inevitable collapse of those prices and
with consequent investor losses. The occurrence of these patterns or practices could increase the
volatility of our share price.
We do not expect to pay dividends for the foreseeable future, and we may never pay dividends.
We currently intend to retain any future earnings to support the development of our business
and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future
dividends will be at the discretion of our board of directors after taking into account various
factors, including but not limited to our financial condition, operating results, cash needs,
growth plans and the terms of any credit agreements that we may be a party to at the time. In
addition, our ability to pay dividends on our common stock may be limited by Delaware state law.
Accordingly, investors must rely on sales of their common stock after price appreciation, which may
never occur, as the only way to realize a return on their investment. Investors seeking cash
dividends should not purchase our common stock.
Limitations on director and officer liability and our indemnification of officers and
directors may discourage shareholders from bringing suit against a director.
9
Our certificate of incorporation and bylaws provide, with certain exceptions as permitted by
governing Delaware law, that a director or officer shall not be personally liable to us or our
shareholders for breach of fiduciary duty as a director, except for acts or omissions which involve
intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These
provisions may discourage shareholders from bringing suit against a director for breach of
fiduciary duty and may reduce the likelihood of derivative litigation brought by shareholders on
our behalf against a director. In addition, our certificate of incorporation and bylaws provide for
mandatory indemnification of directors and officers to the fullest extent permitted by Delaware
law.
Future sales of our common stock could put downward selling pressure on our shares, and
adversely affect the stock price. There is a risk that this downward pressure may make it
impossible for an investor to sell his shares at any reasonable price, if at all.
Future sales of substantial amounts of our common stock in the public market, if such a market
develops, or the perception that such sales could occur, could put downward selling pressure on our
shares, and adversely affect the market price of our common stock.
The OTC Bulletin Board is a quotation system, not an issuer listing service, market or
exchange. Therefore, buying and selling stock on the OTC Bulletin Board is not as efficient as
buying and selling stock through an exchange. As a result, it may be difficult for you to sell your
common stock or you may not be able to sell your common stock for an optimum trading price.
The OTC Bulletin Board is a regulated quotation service that displays real-time quotes, last
sale prices and volume limitations in over-the-counter securities.
Because trades and quotations on the OTC Bulletin Board involve a manual process, the market
information for such securities cannot be guaranteed. In addition, quote information, or even firm
quotes, may not be available. The manual execution process may delay order processing and
intervening price fluctuations may result in the failure of a limit order to execute or the
execution of a market order at a significantly different price. Execution of trades, execution
reporting and the delivery of legal trade confirmations may be delayed significantly. Consequently,
one may not be able to sell shares of our common stock at the optimum trading prices.
When fewer shares of a security are being traded on the OTC Bulletin Board, volatility of
prices may increase and price movement may outpace the ability to deliver accurate quote
information. Lower trading volumes in a security may result in a lower likelihood of an
individuals orders being executed, and current prices may differ significantly from the price one
was quoted by the OTC Bulletin Board at the time of the order entry.
Orders for OTC Bulletin Board securities may be canceled or edited like orders for other
securities. All requests to change or cancel an order must be submitted to, received and processed
by the OTC Bulletin Board. Due to the manual order processing involved in handling OTC Bulletin
Board trades, order processing and reporting may be delayed, and an individual may not be able to
cancel or edit his order. Consequently, one may not able to sell shares of common stock at the
optimum trading prices.
The dealers spread (the difference between the bid and ask prices) may be large and may
result in substantial losses to the seller of securities on the OTC Bulletin Board if the common
stock or other security must be sold immediately. Further, purchasers of securities may incur an
immediate paper loss due to the price spread. Moreover, dealers trading on the OTC Bulletin Board
may not have a bid price for securities bought and sold through the OTC Bulletin Board. Due to the
foregoing, demand for securities that are traded through the OTC Bulletin Board may be decreased or
eliminated.
Over 13,335,254 shares of our issued and outstanding common stock, in addition to the
10,081,113 shares being registered in this offering, will become eligible for sale by July 1, 2007.
Sales of large quantities of our common stock may adversely affect the market price.
From time to time certain of our shareholders may be eligible to sell all or some of their
shares of common stock by means of ordinary brokerage transactions in the open market pursuant to
Rule 144, promulgated under the Securities Act of 1933, as amended, subject to certain limitations.
In general, pursuant to Rule 144, a shareholder (or shareholders whose shares are aggregated) who
has satisfied a one-year holding period may, under certain circumstances, sell within any
three-month period a number of securities which does not exceed 1% of the then outstanding shares
of common stock. Rule 144 also permits, under certain circumstances, the sale of securities,
without any limitation, by a companys shareholders that are non-affiliates that have satisfied a
two-year holding period. Any substantial sale, or cumulative sales, of our common stock pursuant to
Rule 144 or pursuant to any resale prospectus may have a material adverse effect on the market
price of our securities. As of July 1, 2007, 9,828,788 shares of our issued and outstanding common
stock could be sold pursuant to Rule 144 and 3,506,466 shares of our issued and outstanding common
stock could be sold pursuant to Rule 144(k), which amounts to a total of 13,335,254 shares of our
issued and outstanding common stock. Sales of large quantities of our common stock at any one time
may adversely affect the market price.
We expect volatility in the price of our common stock, which may subject us to securities
litigation.
The market for our common stock may be characterized by significant price volatility when
compared to seasoned issuers, and we expect that our share price will be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities
class action litigation against a company following periods of volatility in the market price of
its securities. We may in the future be the target of similar litigation. Securities litigation
could result in substantial costs and liabilities and could divert managements attention and
resources.
Special Note Regarding Forward-Looking Statements
This prospectus, including the sections titled Prospectus Summary, Risk Factors,
Managements Discussion and Analysis or Plan of Operation and Description of Business, contains
forward-looking statements.
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Forward-looking statements include, but are not limited to, statements about:
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our ability to raise capital when we need it;
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our ability to market and distribute or sell our product; and
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our ability to protect our intellectual property and operate our
business without infringing upon the intellectual property rights of
others.
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These statements relate to future events or our future financial performance, and involve
known and unknown risks, uncertainties and other factors that may cause our actual results, levels
of activity, performance or achievements to be materially different from any future results, levels
of activity, performance or achievements expressed or implied by these forward-looking statements.
These risks and other factors include those listed under Risk Factors and elsewhere in this
prospectus. In some cases, you can identify forward-looking statements by terminology such as
may, could, expects, intends, plans, anticipates, believes, potential, continue
or the negative of these terms or other comparable terminology. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. We do not intend to update any of the
forward-looking statements after the date of this prospectus or to conform these statements to
actual results. Neither the Private Securities Litigation Reform Act of 1995 nor Section 27A of the
Securities Act of 1933, as amended, provides any protection for statements made in this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares by the selling security holders.
Should the selling security holders holding warrants choose, in their sole discretion, to exercise
any of their warrants, we would receive the proceeds from the exercise price. We intend to use the
proceeds from the exercise of warrants by the selling security holders for working capital and
general corporate purposes.
USE OF PROCEEDS FROM WARRANT EXERCISE (IF ANY):
The use of the net proceeds from the exercise of the Warrants issued in the private offering
(assuming all such Warrants will be exercised) are allocated as follows:
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Warrant Exercise
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Proceeds, if any
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Compensation Expenses
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$
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500,000
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Software Developer, Engineers & Game Development
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$
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1,000,000
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Marketing
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$
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750,000
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Acquisition & Development of Hardware
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$
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500,000
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General & Administrative Expenses
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$
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299,000
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Total:
|
|
$
|
3,049,000
|
|
To the extent that less than 100% of the Warrants are exercised, we will allocate the use of
exercise proceeds consistently with the above table, and on a percentage basis, as follows:
Compensation Expenses, 16.4%; Software Developer, Engineers & game Development, 32.8%; Marketing,
24.6%; Acquisition & Development of Hardware, 16.4%; General & Administrative Expenses, 9.8%. This
table reflects the exercise of the Warrants exercisable for $2.00 per share issued in connection
with the financing transaction described under the Offering and issued to our investors. We may
receive up to an additional $985,900 if the other warrants included in this prospectus are all
exercised for cash. The proceeds of any cash exercises of warrants will be applied in the same
percentages, and to the same uses, as set forth in the above table. We do not anticipate receiving
cash upon the exercise of any options included in this prospectus since such options contain a
cashless exercise feature and we anticipate that all such options will be exercised on a cashless
basis.
11
Market for Common Equity and Related Shareholder Matters
Our common stock is traded on the over-the-counter market on the OTC Bulletin Board under the
symbol NVNT. The following table sets forth the high and low bid information for our common stock
for each quarter within the last two fiscal years and the first two quarters of the current fiscal
year.
Quarterly Common Stock Price Ranges
QUARTER ENDED 2007
HIGH LOW
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
$
|
1.55
|
|
|
$
|
1.00
|
|
June 30, 2007
|
|
$
|
1.40
|
|
|
$
|
0.87
|
|
QUARTER ENDED 2006
HIGH LOW
|
|
|
|
|
|
|
|
|
March 31, 2006
|
|
|
N/A
|
|
|
|
N/A
|
|
June 30, 2006
|
|
|
N/A
|
|
|
|
N/A
|
|
September 30, 2006
|
|
$
|
1.35
|
|
|
$
|
0.53
|
|
December 31, 2006
|
|
$
|
1.50
|
|
|
$
|
0.80
|
|
QUARTER ENDED 2005
HIGH LOW
|
|
|
|
|
|
|
|
|
March 31, 2005
|
|
|
N/A
|
|
|
|
N/A
|
|
June 30, 2005
|
|
|
N/A
|
|
|
|
N/A
|
|
September 30, 2005
|
|
|
N/A
|
|
|
|
N/A
|
|
December 31, 2005
|
|
|
N/A
|
|
|
|
N/A
|
|
These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions. The historical stock price information was obtained from
the OTC Bulletin Boards Quarterly Trade and Quote Summary Reports.
As of July 20, 2007, there are approximately 234 holders of record of our common stock.
Dividends
We have never paid dividends. We anticipate that any future earnings will be retained for the
development of our business and we do not anticipate paying any dividends on our common stock in
the foreseeable future.
12
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
|
remaining
|
|
|
|
|
|
|
|
|
|
|
for issuance
|
|
|
|
|
|
|
Weighted
|
|
under
|
|
|
Number of
|
|
Average
|
|
equity
|
|
|
securities to be
|
|
Exercise
|
|
compensation
|
|
|
issued upon
|
|
Price of
|
|
plans (excluding
|
|
|
exercise
|
|
outstanding
|
|
securities
|
|
|
of outstanding
|
|
options,
|
|
reflected
|
|
|
options, warrants
|
|
warrants
|
|
in column
|
|
|
and rights (1)
|
|
and rights
|
|
(1)
|
Equity Compensation Plans Approved by Security Holders
|
|
|
3,472,500
|
|
|
$
|
0.75
|
|
|
|
4,027,500
|
|
Equity Compensation Plans Not Approved by Security Holders
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Total:
|
|
|
3,472,500
|
|
|
|
|
|
|
|
4,027,500
|
|
|
|
|
(1)
|
|
The Table reflects outstanding options, warrants and rights as of the
end of fiscal year 2006 and the period January 1, 2007 to July 20,
2007.
|
On February 17, 2004 the Board of Directors adopted, and the majority stockholders approved,
the Novint Technologies, Inc. 2004 Stock Incentive Plan (the Plan). The Plan authorizes awards of
options (both incentive stock options and non-qualified stock options). Persons eligible to receive
awards under the Plan include our employees, officers and directors and our consultants,
independent contractors and advisors. We currently have sixteen employees, two officers, one of
whom is also a director, and two outside directors who would be eligible to receive awards under
the Plan. The number of persons covered by the Plan may increase if we add additional employees
(including officers) and directors.
Our Board of Directors administers the Plan. The Board has the authority to determine, at its
discretion, the number and type of awards that will be granted, the recipients of the awards, any
exercise or purchase price required to be paid, when options may be exercised and the term of
option grants. Awards under the Plan are not defined as to any group. The term of the Plan is 10
years from the date the Plan was adopted by the Board of Directors. A total of 3,500,000 shares of
common stock were originally reserved for awards under the Plan, which the Board increased to
7,500,000 shares on November 1, 2006. The increase was approved by our stockholders on June 19,
2007. Accordingly, the increased number of shares may be granted as incentive stock options,
described below. As of July 19, 2007, the approximate total fair market value of the common stock
remaining to be awarded from the Plan, totaling 4,027,500 shares, was approximately $4,788,698. As
of July 20, 2007, we had issued and outstanding 3,472,500 options under the Plan.
Options may be designated as incentive options or non-qualified options. Incentive options
must have an exercise price equivalent to the fair market value of the common stock on the date of
grant, except in the case of individuals owning 10% or more of the common stock, in which case the
exercise price must be 110% of the fair market value of the common stock on the date of grant. The
exercise price for non-qualified stock options may not be less than 85% of the fair market value of
the common stock on the date of grant. Neither incentive options nor non-qualified options may have
a term exceeding 10 years. In the case of an incentive option that is granted to an individual
owning 10% or more of the common stock, the term may not exceed 5 years.
Managements Discussion and Analysis or Plan of Operation
The following discussion of our financial condition and results of operations should be read
in conjunction with our consolidated financial statements and the notes to those statements
included elsewhere in this prospectus. In addition to the historical consolidated financial
information, the following discussion and analysis contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set forth under Risk
Factors and elsewhere in this prospectus.
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.
To date, we have derived the majority of our revenues developing professional applications for
our customers. We have completed a number of contracts with companies such as Aramco, Lockheed
Martin, Chrysler, Chevron, Sandia National Laboratories, and Woods Hole Oceanographic Institute.
Although we continue our operations in professional applications for our customers, we will
begin to focus more of our attention in leveraging our computer touch technology to exploit
opportunities in the consumer console and PC interactive computer games market. Using our haptics
technology, games and applications will have the crucial missing third sense 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 will become the focus of our operations
which we will devote a majority of our resources to further developing, seeking new business
relationships in the video game software developers and hardware manufacturers.
Our haptic technology became ready to market to consumers in the latter part of the second quarter
of 2007.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
High-quality financial statements require rigorous application of accounting policies. Our
policies are discussed in our audited financial statements for the year ended December 31, 2006,
and are considered by management to be critical for an understanding of our
13
financial statements
because their application places the most significant demands on managements 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 2006 or during 2007. However, we are evaluating how improvements in processes and
other changes in haptics technology and our emerging video games business may impact revenue
recognition policies in the future.
REVENUE AND COST RECOGNITION We recognize 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.
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 Statement of Position (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 each contract. We account for these
measurements on the balance sheet 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.
IMPAIRMENT In accordance with 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 remaining life
(five years) of our software platform.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires
that we recognize in our financial statements the benefit of a tax position if that position is
more likely than not of being sustained on audit, based on the technical merits of the position.
The provisions of FIN 48 become effective as of the beginning of our 2007 fiscal year, with the
cumulative effect of the change in accounting principle recorded as an adjustment to opening
retained earnings. We are currently evaluating the impact that FIN 48 will have on our financial
statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (FAS 157),
which defines fair value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The provisions of FAS 157 become effective for the period beginning
after November 15, 2007. We are currently evaluating the impact that FAS 157 will have on our
financial statements.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No.
108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements (SAB 108), which addresses how to quantify the effect of financial
statement errors. The provisions of SAB 108 become effective as of the end of our 2007 fiscal year.
We do not expect the adoption of SAB 108 to have a significant impact on our financial statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement No. 115 (FAS 159). FAS
159 permits companies to choose to measure many financial instruments and certain other items at
fair value that are not currently required to be measured at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons between companies that
choose different measurement attributes for similar types of assets and liabilities. The provisions
of FAS 159 become effective as of the beginning of our 2008 fiscal year. We are
14
currently
evaluating the impact that FAS 159 will have on our financial statements.
In December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration Payment
Arrangements. This FASB Staff Position (FSP) addresses an issuers accounting for registration
payment arrangements. This FSP specifies that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other agreement, should
be separately recognized and measured in accordance with FASB Statement No. 5,
Accounting for
Contingencies
. The guidance in this FSP amends FASB Statements No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, and No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity
, and FASB Interpretation No. 45,
Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others
, to include scope exceptions for registration payment arrangements. This FSP
further clarifies that a financial instrument subject to a registration payment arrangement should
be accounted for in accordance with other applicable generally accepted accounting principles
(GAAP) without regard to the contingent obligation to transfer consideration pursuant to the
registration payment arrangement. This FSP is effective immediately for registration payment
arrangements and the financial instruments subject to those arrangements that are entered into or
modified subsequent to the date of issuance of this FSP. For registration payment arrangements and
financial instruments subject to those arrangements that were entered into prior to the issuance of
this FSP, this guidance shall be effective for financial statements issued for fiscal years
beginning after December 15, 2006, and interim periods within those fiscal years. Early adoption of
this FSP for interim or annual periods for which financial statements or interim reports have not
been issued is permitted. Early adoption of this FSP for interim or annual periods for which
financial statements or interim reports have not been issued is permitted. We have chosen to adopt
this FSP early.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2006
REVENUES. During the three months ended March 31, 2007, we had revenues of $128,731 as
compared to revenues of $38,781 during the three months ended March 31, 2006, a increase of
approximately 232%. During the three months ended March 31, 2007, our revenues were derived from
the development of professional applications for customers. In 2006, we redirected much of our
attention in the development and completion of our haptics technology and hardware platforms for
consumers. However, we still generated revenues during both periods from developing professional
applications, with more contracts occurring in 2007 than in 2006. We will still continue to provide
development of professional applications in future years but not at the level as prior years since
we believe our future growth will be centered around our haptics technology and hardware platform
for consumers.
COST OF GOODS SOLD AND GROSS PROFIT (LOSS). Cost of Goods Sold, which consists of materials
purchased for resale to customers and the direct labor incurred for delivering on projects, were
$107,481 for the three months ended March 31, 2007, compared to $25,679 for the three months ended
March 31, 2006. Our average gross profit percentage on contract activity was approximately 17% for
the three months ended March 31, 2007, compared to 51% for the three months ended March 31, 2006.
The decrease in gross profit percentage resulted as the contracts in 2007 required contracted labor
to complete the project, resulting in a lower margin.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development totaled $235,570 for the three
months ended March 31, 2007 compared to $89,840 for the three months ended March 31, 2006, an
increase of $145,730 or 162%. Our research and development for 2007 increased as development was
completed for the various software applications of our haptics technology.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $1,551,290
for the three months ended March 31, 2007, compared to $469,027 for the three months ended March
31, 2006 , an increase of $1,082,263 or 231%. The increase in general and administrative expenses
compared to the prior year was primarily related to the activity to prepare for the launch of
haptic technology sales. Business and professional fees increased approximately $831,000 for
business development consulting during 2007. Payroll and other overhead expenses increase
approximately $240,000 as we prepared to bring our haptic technology out to market during the
latter part of the 2
nd
quarter of 2007.
SALES AND MARKETING EXPENSE. Sales and marketing expense totaled $93,352 for the three months
ended March 31, 2007 compared to $26,348 for the three months ended March 31, 2006, a increase of
$67,004 or 254%. The increase was primarily contributed trade show expenses and professional fees
for a public relations firm. We anticipated such expenses to increase during 2007 as we bring our
haptic technology out to market during the latter part of the 2
nd
quarter of 2007.
LOSS FROM OPERATIONS. We had a Loss from Operations of $1,900,150 for the three months ended
March 31, 2007, compared to a Loss from Operations of $596,810 for the three months ended March 31, 2006. Our
operating losses have increased as a result of the increase in our operating expenses as described
above.
NET LOSS. We had a net loss of $2,016,199, or $0.09 per share, for the three months ended
March 31, 2007, compared to $800,711, or $0.04 per share, for the three months ended March 31,
2006. Our net losses increased as a result of the increase in our operating expenses as described
above. Additionally, our interest expense increased $110,757, but this was offset by an increase in
interest income of $27,635.
YEAR ENDED DECEMBER 31, 2006 COMPARED TO THE YEAR ENDED DECEMBER 31, 2005.
REVENUES. During the year ended December 31, 2006, we had revenues of $90,109 as compared to
revenues of $362,097 during the year ended December 31, 2005, a decrease of approximately 75%.
During the year ended December 31, 2005, our revenues were principally derived from the development
of professional applications for customers such as Lockheed Martin Perry, Sandia National
15
Laboratories and Aramco. In 2006, we redirected much of our attention in the development and
completion of our haptics technology and hardware platforms for consumers. However, we still
generated revenues during 2006 from developing professional applications but not at the level of
the prior year. We will still continue to provide development of professional applications in
future years but not at the level as prior years since we believe our future growth will be
centered around our haptics technology and hardware platform for consumers.
COST OF GOODS SOLD AND GROSS PROFIT (LOSS). Cost of Goods Sold, which consists of materials
purchased for resale to customers and the direct labor incurred for delivering on projects, were
$63,402 for the year ended December 31, 2006, compared to $179,162 for the year ended December 31,
2005. Our average gross profit percentage on contract activity was approximately 27% for the year
ended December 31, 2006, compared to 49% for the year ended December 31, 2005. The decrease in
gross profit percentage resulted as the contracts in 2006 were negotiated at a lower margintime
and materials.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development totaled $496,844 for the year
ended December 31, 2006 compared to $1,341,710 for the year ended December 31, 2005, a decrease of
$844,866 or 63%. Our research and development fees for 2006 decreased primarily due to the majority
of the development of our haptic technology having occurred in 2005 and because we reached
technological feasibility and the additional amounts are now capitalized.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled $3,329,351
for the year ended December 31, 2006, compared to $1,707,166 for the year ended December 31, 2005,
an increase of $1,622,185 or 97%. The increase in general and administrative expenses compared to
the prior year was primarily related to business and professional fees totaling $1,729,946 for
business development consulting and placement agent fees related capital raised during 2006. We do
not anticipate incurring such large business development and professional fees for 2007.
SALES AND MARKETING EXPENSE. Sales and marketing expense totaled $151,680 for the year ended
December 31, 2006 compared to $124,255 for the year ended December 31, 2005, a increase of $27,425
or 22%. The increase was primarily contributed to additional time spent on marketing to customers
in developing professional applications and promoting our haptics technology. We anticipate sales
and marketing to increase in 2007 as we bring our haptic technology out to market during the latter
part of the 2
nd
quarter of 2007.
LOSS FROM OPERATIONS. We had a Loss from Operations of $4,097,695 for the year ended December
31, 2006, compared to a Loss from Operations of $3,113,722 for the year ended December 31, 2005.
Our net losses have increased as a result of the increase in our operating expenses as described
above.
NET LOSS. We had a net loss of $4,309,701, or $0.24 per share, for the year ended December 31,
2006, compared to $3,386,405, or $0.23 per share, for the year ended December 31, 2005. While there
was an increase in the loss from operations, the interest expense decreased approximately $60,000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2007, we had total current assets of $8,913,786 and total current liabilities
of $1,038,631, resulting in a working capital surplus of $7,875,155. As of March 31, 2007, we had
cash totaling $8,368,921. Our cash flows from operating activities for the three months ended March
31, 2007 was $1,058,534. Our cash flows from investing activities for the three months ended March
31, 2007 was $15,639. Our cash flows from financing activities for the three months ended March 31,
2007 was $9,187,626. Overall, our cash flows for the three months ended March 31, 2007 netted a
surplus of $8,113,453.
We closed funding rounds in 2006 in which we raised $2,510,500 (net of offering costs of
$14,500) through the sale of common stock and warrants. We have used a significant portion of the
sources of cash to pay off certain liabilities including notes payable, offering costs and
salaries. On March 5, 2007 and May 11, 2007, we successfully raised $9.58 million through an equity
sale agreement involving the sale of shares of common stock and warrants the proceeds of which are
more than sufficient to support our operations beyond twelve months. This equity raise should allow
us to further develop our haptics technology, and seek and develop partnerships with game
publishers and hardware manufacturers that will utilize our haptics technology. We will also
utilize these funds, in part, to increase customer awareness and demand and to drive sales. We will
support these activities by adding corporate infrastructure, in terms of customer fulfillment and
support. These activities will more than likely increase the current monthly burn rate to an
estimated average of $350,000 to $400,000, from June 2007 through December 2007. Additionally, we
will increase our spending on inventory for finished
hardware products. We estimate that we will utilize an additional $3 million to fund the
manufacturing of these products. We are also in discussions with banking institutions to establish
lines of credit for potential operating cash flow needs dependent upon our overall future sales and
demand for the haptics technology. This element will further increase our ability to utilize cash
on hand to extend our operations without having to raise additional capital.
Description of the Business
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 (Novint).
We are a technology development and licensing company in the field of haptics. Haptics refers
to your sense of touch. We develop, market and sell products, applications and technologies that
allow people to use their sense of touch to interact with computers. Our website address is
www.novint.com. Information provided on our website, however, is not part of this prospectus and is
not incorporated herein.
16
We historically derived the majority of our revenue developing professional applications for
our customers. We have completed work on a number of contracts with companies such as Aramco,
Lockheed Martin, Chrysler, Chevron, Sandia National Laboratories, and Woods Hole Oceanographic
Institute. However, we intend to generate future revenues from the sale of our Falcon product
(described in this section below), the associated grips, or handles that are shaped to mirror the
application that the product is being used to simulate, e.g. a gun handle, a sword handle, or a
steering wheel, and the sale or license of our computer games (designed to be used with the
Falcon), and ultimately the license fees from hardware and software companies who support the
Falcon. We intend to leverage our computer touch technology to exploit opportunities in the
consumer console and PC interactive computer games market. Using our haptics technology, games and
applications will have the crucial missing third sense 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. We have not derived any revenue from the licensure of
our technology for consumer console and PC interactive computer games.
The Haptics Technology Experience
Our computer touch technology allows computer users to realistically feel objects displayed by
a computing device using a 3D haptics (or computer-touch) device. A computer user holds onto the
handle of a haptics device, which we call a grip, which can be moved right-left and
forwards-backwards like a mouse, but can also be moved up and down. As the haptics device is moved
by the user, it controls a three-dimensional cursor or other pointing icon displayed by the
computer (much like a mouse controlling a two-dimensional cursor) and when the cursor makes contact
with virtual objects displayed by the computer, the computer registers the contact and updates
motors in the haptics device (approximately 1000 times a second) creating feedback to the handle of
the haptics device and giving a realistic sense of touch in the users hand.
For example, a user can feel the recoil of a gun that has been fired, hit a virtual golf ball,
swing a sword at an ogre, throw a football, feel weight and textures of objects, cast a spell by
moving a wand, or generally interact with objects displayed by a computer in a more realistic
manner by including a detailed and realistic sense of touch. We believe that haptics technology
adds another sensory component (the sense of touch) to make games, and other applications, more
realistic.
Opportunities in the Interactive Computer Game Market
The interactive computer game market is a very large and rapidly growing market. According to
60 Minutes: Cyber Athlete Fatality (aired January 22, 2006), the global game industry in 2007 is
projected to be $35 billion. The three primary gaming console companies are Sony (Playstation 3),
Microsoft (Xbox 360), and Nintendo (Wii). We anticipate developing games and hardware for the
console platforms. We have developed the Novint Falcon and will be developing complimentary grips
as well as a line of games that work with the Falcon as a way to initially enter the interactive
computer game market. We will initially sell these products directly to consumers over the Internet
via our website. We plan to expand our sales through distributors and retail locations in the
future. We currently have no such arrangements in place.
Our Interactive Computer Gaming Strategy
Our interactive computer gaming strategy is based upon the creation of a fundamentally new way
users interact when playing interactive computer games adding the sense of touch. The
introduction of games incorporating the sense of touch involves development of both hardware and
software. We anticipate licensing our haptics enabled hardware designs in the future to a number of
hardware manufacturers to gain support for the technology. At the same time, once developed, we
anticipate licensing our computer touch software to a number of game publishers to create many
haptics enabled video games or licensing games developed by us to game publishers for distribution.
We have not, however, entered into any such licenses at the present time. We will also distribute
mods to popular third party games in order to drive the acceptance of the Falcon in the
marketplace, by creating a haptics enabled version of these games. A mod is a modification to an
existing game.
Our Haptics Hardware and Software Products
To capture our share of the consumer game market we will provide the consumer with the two
components necessary for consumers to play with and experience haptics as part of their gaming:
hardware and software.
The Novint Falcon
For the hardware component, we have designed and are poised to introduce the Novint Falcon for
consumers. The Falcon is our flagship product that enables the consumer/user to navigate, in a 3D
space, the game that they are seeing on the screen, and to feel the elements that they are seeing,
including the textures, force, centrifugal force, recoil, etc. The degree to which these elements
are felt by the user (the amount of force/impact, weight of an object) will be determined by the
game developer to best suit the game play that they intended. In the future, we intend to develop
software that will enable the consumer to customize the forces felt in the game.
We intend to create additional hardware devices that work with the Falcon including the handle
or grip for the device to best mimic the grip that consumers would be using if they were actually
participating in the game they are playing. For example, in a shooting game, we will provide a gun
handle to better simulate the role the consumer is playing in the game. The number of grips that we
have an opportunity to provide is almost limitless. We believe that the consumer will want to
purchase several of these grips for each Falcon they purchase. We anticipate that users will gain a
greater utility and more realistic sense of touch with these grips, as they are paired with the
appropriate games.
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The Falcon is designed for consumer retail sales and is expected to be sold at consumer price
points. We acquired rights to the base hardware designs for the Falcon from Force Dimension under
our development agreement with them. As part of the transaction with Force Dimension, Force
Dimension delivered concept models from which we were able to create a consumer design and initiate
manufacturing. We have contracted with a design firm, Lunar Design, which worked with the initial
concept models to design prototypes that could be manufactured for mass sale and distribution. A
working prototype from Lunar Design that can be manufactured for mass sale and distribution was
finalized in December of 2005. Our agreements with Lunar Design and Force Dimension are described
below. We have initiated manufacturing of the Falcon, also described below.
We have had discussions with other hardware manufacturers to license our hardware technology
for use on their hardware platforms. These discussions are ongoing and while we remain optimistic
of their outcome, we do not in any way guarantee an agreement with any of these companies will be
reached. We have also had discussions with console manufacturers. We believe these manufacturers
may want to license our technology as a competitive advantage against other consoles since our
technology adds a haptics aspect to the games, differentiating them from other games and we
believe, making them more appealing to consumers. These discussions are ongoing and while we remain
optimistic of their outcome, we do not in any way guarantee an agreement with any of these
companies will be reached.
We believe we will be able to successfully leverage our computer touch technology to exploit
opportunities in the consumer console and PC interactive computer games market. We believe the
Novint Falcon, coupled with games developed for it, will provide a significant improvement in
experience to gamers. It is our intent to encourage a number of manufacturers to embrace and
license the technology and, thereby, preemptively establish ourselves as the de facto haptics
standard in the industry.
Sales and Marketing Strategy
We intend to sell our products directly to consumers, both online through our web site and in
the future through retailers. We have discussed selling the Novint Falcon with retailers, but there
are no such agreements in place now, nor is there any guarantee there will ever be such agreements.
Consumer Awareness
We believe that using and trying out the Novint Falcon is an integral component to the
purchase decision by the consumer. We also believe that it is the nature of gaming industry
enthusiasts, that they are a relatively close knit community and they tend to communicate with each
other about new products, techniques, companies, etc. A good buzz associated within that
community with respect to a product would be helpful in ensuring a curiosity about our product and
its commercial success. We anticipate that good buzz regarding our product will yield consumer to
consumer recommendations to buy it, creating product awareness and demand.
We intend to engage in a number of customer awareness and demand creation activities such as
attending appropriate trade shows. For example, we attended and demonstrated the Falcon at the Game
Development Conference in San Francisco in March of 2007. The Game Development Conference is well
attended by the customer demographic targeted by us and strategic partners that we may look to
align with. We will attend other appropriate trade shows throughout the year such as Digital Life,
at the end of September 2007 and E for All, in October of the same year. We are planning a Swoop
Tour which will be a multi-city event in the U.S., in the fall of 2007, where we will co-host
events with gaming companies and other companies targeting similar customers. The target audience
in our initial rollout of our products will be persons who seek to buy new technologies and core
and enthusiast gamers. We believe this target group is composed primarily of 12 to 35 years old
video gamers, with an emphasis of males. As our market presence increases, our target audience will
broaden to the 12 to 45 age range, and we believe will have a much more balanced gender split
between male and female consumers. Additionally, as our market presence expands, we believe
consumers of our products will include casual gamers.
We are in the process of identifying events where we anticipate that our targeted demographic
will attend, such as University campuses, sporting events, concerts, and similar venues where this
audience gathers. This will allow us an opportunity to showcase the Falcon and permit potential
buyers and customers an opportunity to try the Falcon, which we believe is a key component of
marketing the
product and generating demand. While we are in the planning stages of the Swoop Tour, there are no
such agreements in place now to co-host events, nor is there any guarantee there will ever be such
agreements.
As part of our consumer awareness initiative, we have created a blog on our website that
allows customers and potential customers to discuss the product on-line. The intended effect of the
blog is to increase awareness of our product and create a forum for users to exchange ideas about
how to implement the product in the course of game play. We hope that our blog will create a sense
of belonging and community in the user base. The blog is also an effective customer feedback tool
for us to understand customer response to our products. We cannot and do not make any guarantees
that any of the targeted customers will engage in our blog.
As part of our retail strategy, we request that retailers provide a demonstration platform
within each store to demonstrate the Falcon product to consumers. Novint will provide training and
software for the retail sales people to effectively demonstrate the product in the store. We
believe this is viable channel to introduce the Falcon and provide a chance to demonstrate the
product directly to large numbers of consumers.
Sales Representatives and Distribution Channels
We intend to engage manufacturers sales representatives, in the U.S. initially, as a
mechanism for providing sales coverage into the various retailers that we are targeting. Initially
we may contract with independent representatives and as our market presence increases, create sales
and representative positions internally at the company. We will engage with representatives that
have experience selling to targeted retailers and that are selling products similar to those
provided by the company. The representatives would be compensated only
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for sales generated and thus
are a cost effective way to get geographic coverage and expert experience with specific retailers
without significant costs of overhead and hiring for the company. We have engaged in discussions
with six such sales representative firms in the U. S. They each will have designated geographic and
specific retailers and other potential customers for our products within their territory that are
assigned to them. We expect that they will report their activities and progress directly to our
management. We will seek to engage representatives with specific experience and relationships
within the targeted retailers and customer base that we are trying to penetrate.
These representatives will be well trained to demonstrate the product to the retailers. All
financial transactions with the retailers, however, will be negotiated between us and the retailers
directly. The nature of the relationship with the manufacturers representatives is that of a
consultant and we intend to structure the arrangements so that they can be terminated at any time
with reasonable notice from us, envisioned to be sixty days. These discussions are ongoing and,
while we remain optimistic of their outcome, we do not in any way guarantee that an agreement with
any of these representatives will be reached.
We also plan to sell our products through on-line sales markets on our website and through
established web sales sites. Future strategic partners in the computer and/or gaming industry may
also agree to sell the Falcon on their websites, and through their online markets, and/or through
their other distribution outlets. We also plan to sell the product through catalogues that cater to
the same demographic that we are targeting. Our internet sales, catalogue and strategic
distribution marketing and sales plans are still in development and may change quickly as demand
for our product emerges.
To provide customer support of product, in the hands of consumers, we will provide support
through our distribution partners and through our own resources. We will provide support
information, such as FAQs on our web site and through our blog. We will also provide a
multi-layered support schematic that starts with email support for customers from a trained
customer service representative (CSR) employed by the company. These CSRs will also provide the
secondary customer support for the customers of our distribution partners. We will also have a toll
free number for customers to call in and speak with a trained CSR. We believe that customer
satisfaction is key to our success. We will therefore attempt to maintain a high level of customer
satisfaction with all of our products on an ongoing basis, at a global level.
We continue to work on a product roadmap for the base unit, the Falcon, and the grips and
anticipate bringing several versions of each to market over time. The timing of the development of
these items and the introduction to the market of these new products will depend in large part upon
consumer acceptance and demand for the Falcon, grips and related games. These products will utilize
the same distribution, fulfillment and support resources that have been described herein.
Software and Games Development for the Novint Falcon
For the software component of the solution, we are developing software and games to work with
the Falcon. One of the ways that we are creating games to work with the Falcon is through direct
in-house development by our technical staff. We have also entered into several contracts with
external game developers to create games designed to showcase the haptic features of the Falcon. In
that way, we create games from the ground up that fully use the potential of the Falcon. These
games may still be licensed to a publisher, as the publishers distribution channels can then be
utilized for sales, in which case we would collect a royalty.
We are continuing to develop and refine our haptics technologies for gaming use by producing
initial games to be packaged with the Falcon, technology demonstrations and sample programs, and an
Application Programming Interface (API) to be used with third party developers and publishers. We
have been and are continuing to develop software used to demonstrate basic, fundamental gameplay
incorporating haptics technology. For example, we have developed software that demonstrates what it
would feel like to throw a basketball, catch a baseball, swordplay, etc. in games. This software
forms the basis of our gaming software and is used to prove the concept of using haptics technology
for video game play to game publishers and developers. We have expanded on these base technological
capabilities and will bundle mini games with the Falcon, access to drivers to run Half-Life 2 (a
popular PC game title), and a collection of sports games as part of the base package.
Another method that we have used to create games is through acquisitions or licenses. We have
acquired/licensed several games and are actively looking to acquire/license other games that have
gameplay that naturally lends itself to 3D touch interactions, where we can incorporate the Falcon
as a controller for the game with the intention to improve the experience of the game.
When we license a game, we typically have the exclusive rights to sell the game where it uses
3D touch control. In that type of situation, we typically obtain the exclusive license for the 3D
touch field of use, obtain source code, and integrate the Falcon as a controller for the game.
A final way that we intend to create games and applications for the Falcon is by licensing our
Software Developers Kit (SDK) out to game publishers and game developers so that they can
incorporate touch into their game, with or without our help and interaction. In some cases we will
provide resident experts to assist their developer teams. After we license our SDK to a developer
or publisher we would then collect royalties on those game sales, where the game uses the Novint
Falcon. We anticipate that over time, as we grow, the majority of all games developed that support
the Falcon will be published by third party publishers, and will be distributed through their
distribution channels. To date, we have not yet sold any such licenses and have generated no
revenues under such arrangements.
We anticipate that software titles will be published in one of two forms: (i) those that may
be played with traditional mice, joysticks, gamepads, etc., as well as our 3D/6D haptics
controllers to enhance the game play; or (ii) those that may be played only with our devices
(initially reserved for selected titles in which transcendent game play and experiential dimensions
are delivered). Software platform compatibility will conform to the hardware compatibility
discussed above.
We continue to have meetings with a number of game developers and publishers, and expect our
discussions with them to continue.
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Our goal is to enter into many agreements with game publishers
and developers, to create additional games that will use our 3D touch technology both on the
Novint Falcon and on third-party hardware platforms where our haptics technology has been embedded
under license. We have no licensing agreements or development agreements at this time.
Games for the Falcon and Third Party Games Current Development Initiatives
To date, we have done our own internal game development, where our software developers have
created games that show the power of the Falcon. In these games we have created the art assets
(models, animations) both internally and through externally hired artists and companies. Our
internally developed games include games where you launch a duck into ponds, shoot an apple off a
monkeys head, smash cockroaches, shoot bad guys, fish, push penguins like shuffle pucks, shoot
basketballs, and throw bolas.
We have also contracted with external game developers to create games to our specifications.
In many cases, we incorporate the haptic component after receiving the full source for the game. We
own the intellectual property rights underlying these games, as well as the rights to distribute
and sell the games that are developed in these contracts. These games include a drumming rhythm
game, a boat racing game, an underwater shooting game, a rolling game, an airtable hockey game, a
homerun hitting game, a motorcycle racing game, a bowling game, a table tennis game, a snowboarding
game, and a golf game.
We have also acquired games, or similarly, exclusively licensed the 3D touch field of use for
games. After this type of acquisition or license, we receive the source code to a game, and then
incorporate touch into the game. Sometimes the acquisition or license includes a development
contract to modify the game to better fit our needs. These games include a throwing arcade game, a
3D flying game, a 3D puzzle game, a platform jumping game, and a pinball game.
We have not yet sold or licensed any of these games and we have not yet generated any revenues
associated with these games.
Manufacturing of the Falcon
We have entered into a manufacturing agreement with VTech Communications, Ltd., a contract
manufacturer in China (the Vtech Agreement) for the production of the Falcon for sale to
consumers. VTech manufactures the Falcon to our specification and ships the product to us based
upon our purchase orders to them. The lead time to build these products is currently approximately
90 days. The VTech Agreement has a term of eighteen (18) months after the date of the first product
delivery to consumer outlets, anticipated to be June 2007. The Agreement will automatically renew
every twelve (12) months unless either party gives at least 120 days prior written notice of
termination. Under the Agreement, we will periodically submit purchase orders to VTech for product
delivery. We placed an initial manufacturing order for 5,000 units with VTech in November of 2006,
and accepted delivery of the first Falcon units in March of 2007. The Falcon is now being sold
on-line through our website directly to consumers in the United States.
Order Fulfillment
In order to fulfill the orders generated by us and our distribution partners when such demand
is created, we will first fulfill these orders by utilizing internal resources. We have or will
obtain sufficient resources to inspect each of the initial deliveries as they come in, provide
secured storage and shipment to customers. As demand grows, we will engage fulfillment partners to
outsource the fulfillment function. We will look to outsource such services as inventory, return to
depot, pick and pack capabilities, freight forwarding, and related tasks. We are in early
discussions with many fulfillment partner candidates and we expect to complete a partnership
agreement in the coming months. We may use other companies for international fulfillment
requirements if international demand for our products grows.
Launch of Our Consumer Game Products
We launched these products and entered the gaming market on June 18, 2007. We began accepting
pre-orders for the Falcon in January of 2007. We accepted the initial phase of production of these
products from our manufacturing partner in March 2007, and we
began shipping these products to consumers on June 18, 2007. These products have performed well and
we believe the rest of the manufactured products, and the software that we generate and license,
will also perform well. However, we have no track record of being able to manufacture these
products in significant quantities and distribute them to consumers.
Recent Acquisition of Intellectual Property Assets
On July 17, 2007, we acquired all of the intellectual property assets of Tournabout
Incorporated, including its video game contest and community infrastructure software. The
integration of Tournabouts applications will enable our customers to develop online personas,
participate in community message boards and chat rooms, post high scores, and join multiplayer
games and online tournaments.
Company History & Development of Haptics Technology
Our software technology originated at Sandia National Laboratories (Sandia), a multi-billion
dollar government research laboratory, which was one of the earliest pioneers in the human-computer
haptics interaction field. We were granted a 12-year exclusive license, which is non-exclusive
after twelve years, by Sandia that encompasses over five years of pioneering research and
development in the field of human-computer haptics interfaces at Sandia. We were the first company
in which Sandia received capital stock as part of a licensing agreement. Our CEO, Mr. Tom Anderson,
was an employee at Sandia.
The software technology utilizes haptic devices to generate computer touch sensations and
interactions. The haptic device technology allows the touch sensations commanded by the software to
be felt by users. Initially we applied this technology to professional applications, described
below. However, the focus of our development and sales strategy will be in consumer gaming.
History of Novint Haptic Hardware and Technology
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In connection with the development of our computer touch or haptic device, we entered into an
agreement on January 5, 2004 with Force Dimension, LLC (Force Dimension). The agreement consists
of an exclusive Intellectual Property License Agreement (Agreement) with Force Dimension, a
company in the Haptics hardware technologies and products arena. Certain portions of this
Intellectual Property are in turn sub-licensed by Force Dimension from Prodex. The Agreement
provides us with a sublicense to a hardware patent and an assignment of a pending patent from Force
Dimension. The Agreement, in turn, provides Force Dimension a security interest and a general lien
in the assigned patent, as well as an irrevocable, exclusive license in the patent that has been
assigned to us. We were obligated to make certain milestone payments to Force Dimension as they
completed certain milestones under the Agreement.
On May 10, 2005, we amended our contract with Force Dimension, Inc. to provide for: a license
fee in the amount of $15,000 due on the effective date; the payment of a milestone payment in the
amount of $50,000 within ten days of the contract amendments effective date; a license fee in the
amount of $50,000 within 30 days of our initial public offering of stock; and a support and license
fee in the amount of $455,000 due no later than January 5, 2006, for all technical and support
services rendered to us during such time period for total payments of $620,000.
In addition, we were to issue 250,000 shares of our common stock within 30 days of the
contract amendments effective date as consideration for extending the payment terms of the
agreement. These shares of stock were issued to Force Dimension on May 12, 2005, and have been
accounted for as a financing cost related to a modification of our payment terms. The fair value of
the stock issued is $250,000 and is reflected as interest expense in the amount of $245,968 for the
year ended December 31, 2005, and as a deferred financing cost in the amount of $4,032 in the
balance sheet at December 31, 2005. The deferred financing costs are being amortized to interest
expense through January 5, 2006, the maturity date of this obligation to Force Dimension.
On March 9, 2006, we issued 607,500 shares of our common stock to Force Dimensions in full
satisfaction of the remaining $465,000 owed as of December 31, 2005. In December of 2006, we paid
to Force Dimension $50,000 as a prepayment on royalties.
During the year ended December 31, 2004, we paid $15,000 to Force Dimensions for the license
fee in the amount of $15,000 due on the effective date. During 2005, we paid $140,000 to Force
Dimension, representing a portion of the $50,000 milestone payment originally due to Force
Dimension upon or before our receipt of the Second Deliverable as described in the original
agreement, the $50,000 milestone payment due on the amendments effective date, and $50,000
representing a portion of the licensing fees due. We received the Second Deliverable on December
30, 2004. The remaining amount of $465,000 due to Force Dimensions is recorded as accrued research
and development liabilities on the accompanying balance sheet as of December 31, 2005.
The Agreement requires us to pay up to $15 million to Force Dimension, including the amounts
above, on a per unit of Licensed Product basis for license fees, royalties and a percentage of
product sales. In addition, we are entitled to 5% license fees/royalties for any licensed products
sold related to the sublicense we granted to Force Dimension. We have not recorded any fees related
to such arrangement. Our obligation to pay royalty or license fees shall terminate upon our payment
in total of $15,000,000 to Force Dimension and payment in full of any other obligations arising
pursuant to the terms and conditions of this Agreement.
Prior Third Party Haptic Hardware and Technology
We had a reseller agreement with SensAble to sell a line of haptic devices called the Phantom.
SensAble owns intellectual property rights with respect to their Phantom Systems. Our reseller
agreement with SensAble expired in November 2004. We did not negotiate a renewal of our agreement.
We believe that going forward we will not rely on this product as part of our overall sales
generation; we are
now focused on distribution and sales of the Falcon and related software games. As such, we do not
believe that the absence of a reseller agreement, or any discounts we previously enjoyed on the
Phantom System, will affect our business operations or prospects. Historically, we have not sold
many of these devices and our profits on such sales are very minor relative to the total amount of
our revenues. Given the development of the Novint Falcon, we will rely on it as our haptic
hardware.
Professional Applications
We have developed professional applications for customers such as Aramco, Lockheed Martin,
Chevron, Chrysler and Sandia National Laboratories. These efforts have allowed us to build our
intellectual property portfolio. We have derived the majority of our revenue developing
professional applications for our customers.
Several of the projects we have completed (such as those with Aramco, Lockheed Martin, and
Sandia) may grow into other follow up projects. All of our ongoing work in this market will support
itself, and much of the intellectual property and software development developed with respect to
these contracts will be applicable towards other applications of our technology.
We released another product, our Novint sono system. Our Novint sono system, which allows a
parent to virtually touch their baby before he/she is even born, was chosen as one of Time
Magazines Coolest Technologies of the Year in November of 2002. We have sold one Novint sono
system. We stopped the development and shipment of the sono system in the fall of 2006 to provide
more focus to our core business.
We have sold professional application products to Deakin University and University of New
Mexico each for a collection of our applications for demonstration purposes as well as sales to
various entities for Phantom Haptics devices. Other than that, our revenue has derived mainly from
project contracts.
Aramco Contract
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We were contracted by Aramco to develop an application to apply haptics interaction techniques
in the interpretation and understanding of volumetric reservoir modeling for oil exploration. In
this ongoing effort, capabilities were added to support and enhance the oil reservoir and well path
modeling process. The project is aimed at demonstrating and validating the use of haptics
interaction techniques in the interpretation and understanding of volumetric reservoir modeling
data.
During the first year of this contract, our volumetric modeling program was extended to
support Aramcos process. Aramcos data is now supported and can be seen and felt in real-time in
a desktop environment. Our results during the first year and our continued progress have led to the
award of yearly contracts. For such contracts, we are further refining Aramcos modeling program to
be able to handle full production level oil reservoir model data sets, adding additional
visualization support to allow oil company personnel to focus on key areas of their models,
developing larger data set visualization and multi-modal interaction to include graphics, haptics
and sound.
Description of the Aramco Contract Terms:
We entered into a Miscellaneous Technical Services Agreement dated April 10, 2001 with Aramco
Services Corporation (ASC). This Agreement was terminable by each party upon breach of the other.
It was also terminable at will by ASC. Under the contract, we performed over a six month period to
create haptics interactive software device for geologic volume modeling on a desk top environment.
The contract provided for six months to deliver a working prototype. The contact provided for
multiple delivery dates for alpha version, test versions, beta release and final functional
prototype during the six-month performance period. ASC was provided an evaluation right before
final payment was made. Payments were made as follows: 25% ($15,962.5) upon signing, 25% upon
delivery of an alpha version, 25% upon delivery of a beta version and 25% (for a total of $63,850)
upon final delivery and evaluation of the product by ASC. ASC was granted a perpetual, nonexclusive
license and rights to use the developed software internally. The license includes the right to
internally enhance software, but no rights to market or sell the software or grant rights to third
parties. This contract is paid in full, the work is completed and no further payment or work is
pending.
There was an Addendum to the contract dated July 10, 2002. The Addendum provided for six
months for our development of Phase II software for the VNP2 software enhancements (developed
under the original contract) in the areas of graphics, sounds, and miscellaneous performance. The
Addendum provided for delivery of a beta version in the first 12 weeks of performance. Final
deliverables were due within 6 months. Payments were made as follows: $17,947 at signing, $17,947
on beta software delivery, and $18,490 on final delivery. ASC was granted a perpetual, nonexclusive
license and rights to use the developed software internally. The license includes the right to
internally enhance the software, but no rights to market or sell the software or grant rights to
third parties. We were paid a total of $54,385 under the Addendum. This Addendum is paid in full,
the work is completed and no further payment or work is pending.
There was another Addendum to the contract dated August 22, 2003. Our performance was due on
December 31, 2003. We developed Phase III enhancements to VNP2 software together with select
hardware upgrades and configurations. Payments were made under the Addendum as follows: $14,710 at
signing, $14,710 at installation of initial workstation, $14,710 at delivery of version 1 of the
software upgrades, $14, 710 upon version 2 of the upgrades, and $14,710 at final delivery and
evaluation. ASC was granted a perpetual, nonexclusive license and rights to use the developed
software internally. The license includes the right to internally enhance the software, but no
rights to market or sell the software or grant rights to third parties. We were paid a total of
$73,550 under the Addendum. This Addendum is paid in full, the work is completed and no further
payment or work is pending.
There was a further Addendum dated May 3, 2004. The Addendum provided for the development of
improvements on haptics products previously delivered to ASC under the contract and prior
Addendums. Our performance was extended to January 1, 2005. Payment of $75,000 was made at
completion. Improvements were made in the areas of global functionality, graphics, sound and
miscellaneous performance of the software. ASC was granted a perpetual, nonexclusive license and
rights to use the developed software internally. The license includes the right to internally
enhance the software, but no rights to market or sell the software or grant rights to third
parties. We were paid a total of $75,000 under the Addendum. This Addendum is paid in full, the
work is completed and no further payment or work is pending.
There was a further Addendum dated September 8, 2005. The Addendum provided for the
enhancement of event monitoring capabilities, enabling Haptic Device button operations, and other
general enhancements. Deliverables will include an updated version of the VNP2 software for 32 bit
Windows, and an updated user manual detailing the new features. Our performance was extended to
January 1, 2006. Payment of $75,000 will be made upon written confirmation of acceptance of work
from ASC. We received payment in full of $75,000 in February 2006.
Lockheed Martin Contract
We have ongoing contracts for the last four years with Lockheed Martin to develop a mission
planning system for autonomous robotic vehicles. This system allows users to plan, verify, monitor
and replay the overall mission for an unmanned underwater vehicle. Our work includes extensions for
a data manager which provides the user an integrated view of information from real time sonar
sensors. Our system allows the user to control the vehicle and understand its status in a
straightforward, easy-to-use manner.
Description of Lockheed Martin Purchase Orders:
We have ten purchase orders and amendments thereto with Lockheed Martin dated June 11, 2002,
November 27, 2002, February 7, 2003, June 28, 2004, December 22, 2004, April 1, 2005, April 4,
2005, April 21, 2005, February 16, 2006 and March 23, 2006. Eight of these Purchase Orders have
been completed and paid in full.
Development and delivery of software under the purchase orders was for AUV defense mission and
planning under specifications
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agreed to between the parties. The Purchase Orders also provided for
the further customization and upgrade of delivered AUV software. Over the course of the Purchase
Orders, Lockheed Martin paid an aggregate of $131,774 to us. We have fully performed the first
seven purchase orders and delivered the purchased software and upgrades required thereunder. No
other payment is due or owing on the completed Purchase Orders.
A Purchase Order was entered into with Lockheed Martin for the development and delivery of a
Data Manager and Review Software (DMRS) dated April 21, 2005. The application will be used to
investigate the undersea hulls of naval ships to flag any anomalies. The project work has been
finished. The Purchase Order amount is $153,865. We fully performed this Purchase Order during 2005
and it was paid in full. A Purchase Order was entered into with Lockheed Martin to provide
engineering services for specific haptic related projects on February 16, 2006. That Purchase Order
is open as to amount and we will bill Lockheed Martin periodically for such services at a rate of
$96 per hour. A Purchase Order was entered into with Lockheed Martin to enhance certain mission
planning and evaluation software on March 23, 2006. The amount of the Purchase Order is $6,100.
Performance is ongoing under the February 16 and March 23 Purchase Orders and we have received
$83,435 on the February 16 Purchase Order and $6,100 on the March 23 Purchase Order.
Chrysler Contract
We were contracted by DaimlerChrysler Corporation to develop a haptics interaction module for
DaimlerChrysler Corporations Conceptual Rendering System (CRS). Utilizing a large-scale haptics
device, the haptics interaction module adds touch feedback to DaimlerChryslers virtual car
prototyping capabilities and enables more cost effective and realistic design and evaluation of car
ergonomics prior to the manufacture of physical models.
Description of the DaimlerChrysler Purchase Order:
We had a Purchase Order with DaimlerChrysler dated December 13, 2001. The Purchase Order
relates to our development and delivery of a small car platform virtual reality software system. We
have fully performed the Purchase Order and no further work is pending. DaimlerChrysler has paid an
aggregate of $63,000, in full and no further payment or performance is due or owing.
Chevron Contract
We were contracted by Chevron to apply haptics interaction to boundary models of important
geophysical structures based on seismic and other empirical oil field data. The haptics interaction
allows modelers to quickly and precisely designate the location of surfaces, feel as well as see
their extent and shape, and directly modifies them using their sense of touch.
Description of Chevron Statement of Work:
We had a Statement of Work with Chevron dated May 7, 2001. The contract concerned the
development and installation of a haptics interface for the GOCAD V2.0 software used to represent
geological entities and formations. Deliverables were due under the contract as follows: (i) within
one week of commencement specifications finalized; (ii) within two weeks of commencement final
statement of work specifications delivered by us; (iii) technical implementation to commence within
three weeks of commencement; (iv) initial prototypes for NT operating stations installed in June
2001; (v) within three months of commencement, beta type of software installed and performing; and
(vi) within four months of commencement, delivery of final release to Chevron. The amount due from
Chevron for completion of the work was $70,000 that was paid in full. The amount was paid in
$25,000 installments upon the signing of the agreement and upon delivery of the initial prototype,
beta type and then final delivery and completion. We retained all rights associated with the
developed software. Chevrons sole right is a license to use the software internally at Chevron for
evaluation and demonstration purposes. The agreement has been paid in full and no further
performance is due from us or Chevron.
Sandia National Laboratories Contract
We were contracted by Sandia Laboratories to develop an architectural walkthrough application.
This application allows users to load in large scale, detailed architectural models and to explore
their design using our haptic software technology. Haptics technology is used both in the user
interface to this application and to allow the user to feel the digital models to get a more
precise understanding of their nature and extent. In addition, various touch-enabled programs can
be launched as the user navigates in the digital realm.
As a second phase to this contract, we have developed an application, known as Layout, which
allows digital objects to be quickly, and unambiguously arranged and placed. Layout was developed
for Sandia National Laboratories to aid in the interior layout of buildings. Architectural objects,
such as chairs, can be picked up and placed in a touch-enabled manner. The user can feel the shape
and weight of these objects and when they collide with other objects in the environment. Using our
technology for the placement of 3D digital objects means that objects can be organized much faster
than when using a mouse and it also means that their placement in the environment can be much more
precise. The user merely has to reach out, grab an object and place it to get the job done just
as in the physical world. For example, a user can pick up a virtual vase and place it on a virtual
table and know that it is properly placed since he or she will feel the vase placement on the
table.
In addition, we are developing applications for Sandia with which users can arrange all of
their electronic components onto a virtual printed circuit board effectively using their sense of
touch. Hundreds of electronic parts such as transistors and capacitors can be represented using
this application, and each component displays physical properties that make its placement intuitive
and realistic. Users will feel collisions between objects that are positioned too closely to one
another, feedback that helps ensure proper circuit assembly. This application also allows users to
conduct simulated voltage tests that verify the successful operation of their virtual design once
completed.
23
Finally, we are developing applications for Sandia to help researchers analyze computational
data, such as the detonation of test weaponry or the examination of the effects of a catastrophic
fire. This application allows scientists to explore complex data setssometimes containing hundreds
of variables that are generated from experimental simulations. With this application, users can
represent data graphically with 3D surfaces, then use their sense of touch to feel through the
data set. Because the program is touch-based, this application can represent variables such as
temperature or pressure with physical phenomena like viscosity and vibration, allowing users to
understand data using more than just their sight.
Description of the Sandia Purchase Orders:
We had a Purchase Order with Sandia National Laboratories (Sandia) dated September 19, 2001
in the amount of $50,437. The Purchase Order related to the development of a multimodal layout and
visualization prototype a form of haptics desktop device with specified software features. The
work was to be completed by December 15, 2001. The contract provided for periodic milestones and
payments as follows: $10,000 upon project concept review, $17,500 upon demonstration of progress,
$12,500 upon delivery of preliminary program executables, $1,470 upon delivery of user documents in
word compatible format, $1,058 upon delivery of source code, $3,890 upon demonstration of certain
functionalities and $4,018 upon final report and delivery. We timely performed the contract in full
and Sandia has paid in full. There is no further payment or performance due under the contract.
We had a second Purchase Order with Sandia dated February 7, 2002 in the amount of $44,237.
Work under the Purchase Order was to be completed by May 2, 2002. The Purchase Order related to the
enhancement and further development of the software developed under the September 19, 2001 Purchase
Order, including continued development of a multimodal layout and visualization prototype,
specifically a standard multimodal file format and refinements to Sandias specified layout
applications. The contract provided for periodic milestones and payments as follows: $6,635 on
commencement and proposal review, $6,635 on delivery of preliminary draft concept papers, $13,271
on delivery of source code and build scripts, $2,211 on delivery of final version of file format,
$15,040 upon delivery of refinements to layout application and source code and build scripts, and
$442 on delivery of written summary of multimodal file format. We timely performed the contract in
full and Sandia has paid in full. There is no further payment or performance due under the
contract.
We had a third Purchase Order with Sandia dated February 18, 2003 in the amount of $149,808.
The Purchase Order related to the development of a distributed component architecture (DCA) to
allow rapid development of design simulators for use by Sandia on a desktop environment. Work under
the Purchase Order included DCA architecture as well as the 3D Electronic Component Layout (ECL)
application example. The work was to be completed by July 21, 2003. The contract provided for
periodic milestones and payments as follows: $14,981 upon commencement, $22,471 upon agreement to
specific layout task specifications, $29,962 upon layout software user interface and function
verification, $22,417 upon DCA preliminary design delivery, $37,452 upon DCA and layout software
progress updates, $22,471 upon final delivery of DCA and layout software. We timely performed the
contract in full and Sandia has paid in full. There is no further payment or performance due under
the contract.
We had a fourth Purchase Order with Sandia dated March 12, 2004 in the amount of $132,890. The
Purchase Order related to creating enhancements to the DCA software created under the third
Purchase Order. Enhancements included refinements to the 3D ECL application and development of the
Multivariate, Multimodal Data Visualization (MMDV) application. Work was to be completed by August
16, 2004. The contract provided for periodic milestones and payments as follows: $29,192 upon
delivery of 3DECL applications, $13,269 upon delivery of MMDV project plan, $26,538 upon delivery
of MMDV prototype, $37,153 upon delivery of MMDV revised prototype, and $26,538 upon delivery of
final MMSV version. We timely performed the contract in full and Sandia has paid in full. There is
no further payment or performance due under the contract.
In connection with each of the above Purchase Orders, we granted to Sandia the right to use
the developed software and technology internally and to enhance and develop the software
internally. It is a perpetual, royalty free right to use and develop the software. The license
rights granted also include the right for Sandia to distribute the software, in executable form
only, to third parties. We retain sole rights of ownership and commercial distribution for all
software in source code form and its derivative works. Sandia cannot distribute the software in
source code form outside of Sandia. Accordingly, we have no right to receive any royalties or other
payments on any enhancement developed and used by Sandia.
Woods Hole Oceanographic Institute Contract
We were contracted by Woods Hole Oceanographic Institute (WHOI) to integrate haptics
interaction into undersea exploration systems (i.e., underwater vehicles). We have developed a
prototype 3D touch-enabled mission rehearsal system (i.e., simulation) for underwater vehicle
operations.
The Falk Group, LLC
We had a Purchase Order with the Falk Group, LLC (Falk) for $121,688 dated January 16, 2007.
We were engaged to create an interactive injection clinic for use at a medical practitioners
conference that showcased a new medication. For this contract we developed a customized grip (or
handle) to simulate an injection. We utilized the services of Lunar Design in fulfilling this
contract. We have no further obligations under the Purchase Order. We have been paid $73,013 on
this Purchase Order, and there is $48,675 still outstanding.
Various Purchase Orders
Description of the Deakin University Purchase Order:
24
We had a Purchase Order with Deakin University dated April 16, 2003 in the amount of $131,196.
The Purchase Order concerned the delivery and installation of a phantom haptics interface and
related software and drivers. We have completed delivery under this Purchase Order and Deakin
University has paid in full. No further payment or performance is due or owing.
Description of University of New Mexico Purchase Order:
We had a Purchase Order with the University of New Mexico dated March 16, 2004 in the amount
of $47,176. The Purchase Order concerned the delivery and installation of a phantom desktop and
related software, together with certain device drivers. We have completed delivery under this
Purchase Order and University of New Mexico has paid in full. No further payment or performance is
due or owing.
Description of Robarts Research Purchase Order:
We had a Purchase Order with Robarts Research dated September 24, 2004 in the amount of
$50,200. The Purchase Order relates to the delivery and installation of a phantom haptic interface
and related software and device drivers. We have completed the delivery under this Purchase Order
and Robarts Research has paid in full. No further payment or performance is due or owing.
Our project revenues are currently $87,014 and $331,752 for the years ended December 31, 2006
and 2005, respectively. Our revenues have been from contracts to develop professional applications
using our haptics technology, and related haptics devices, for a number of customers, including
Chevron, ARAMCO, Woods Hole Oceanographic Institute, Lockheed Martin Perry Technologies, SensAble
Technologies, Sandia National Laboratories, Deakin University and Daimler Chrysler Automotive
Corporation. Further, we have sold 22 haptics interface systems (hardware) along with its software.
We had net losses of $4,309,701 and $3,386,405 for the years ended December 31, 2006 and 2005, and
sustained a subsequent loss from operation in due primarily to our continued research and
development activities related to development of the gaming technologies and related haptic
devices.
Competition
In the past 15 years we believe that there have been approximately a dozen companies involved
in haptics hardware and/or software development. Most of these companies are hardware developers.
We have been focusing many of our efforts on software development, and we believe that we will
maintain our lead in the field in software. With respect to hardware, we believe the consumer
release of the Novint Falcon will be a significant event in the field of haptics, and will give us
a strong competitive advantage in our licensing strategy. We believe that none of our potential
hardware competitors have any experience with a consumer 3D haptics enabled device. 3D haptics
hardware devices available now retail for approximately $2,000 to $15,000. Most of these companies
are potential partners.
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SensAble Technologies (www.sensable.com) is a haptics hardware and software
developer. Their first product was the Phantom haptics interface. Their primary
application focus is their computer aided design products and other high end uses
of haptics technology. We have performed software development contracts with
SensAble.
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Immersion Corporation (www.immersion.com) is primarily a 1D or 2D haptics (a
Haptic computer interaction in which forces are mechanically displayed to a user
in 1 or 2 directions of movement; examples are force feedback joysticks and force
feedback mice) hardware company. Immersion is a public company, which has acquired
other haptics device companies. They have acquired Cybernet, Haptech and Virtual
Technologies. Immersion also purchased HT Medical, which is now called Immersion
Medical.
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Reach In Technologies (www.reachin.se) is a Swedish based haptics software company.
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MPB (www.mpb-technologies.ca/space/p_freedom6s.html) is a Canadian based haptics
hardware company that has developed an interesting high end 3D haptics hardware
device, the Freedom 6.
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Microsoft has several haptic devices that simply vibrate and rumble, such as the
control pads for their Xbox systems. We believe our technology offers more
features and provides a richer haptic experience for the user.
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Force Dimension (www.forcedimension.com), in Switzerland, has unveiled their
haptics hardware device, the Delta. Force Dimension has been our partner and
helped to develop the Falcon.
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FCS Robotics (www.fcs-cs.com/robotics/) developed a large workspace haptics device
called the HapticMaster. This is another high-end device that can be used with our
software.
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Logitech sells haptics mice, wheels, and joysticks that they licensed
from Immersion and that are primarily used for gaming. Logitechs
haptics products are two-dimensional and do not offer as many features
as our products will.
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Sensegraphics, a Swedish company, that produces haptics based software.
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Intellectual Property
Patents
25
We own the following issued and pending patent applications:
1. Human-Computer Interface Including Efficient Three-Dimensional Controls. U.S. Patent 6,727,924
issued 4/27/2004. Claims a technology that allows efficient and intuitive interaction in a
three-dimensional world with familiar two-dimensional controls. This patent application describes
an intuitive type of haptics control object that allows developers to create toolbars and other
common types of interface objects. These toolbars are easily accessible and greatly improve
user-interface issues related to problems associated with depth perception of a 3D cursor. Tom
Anderson assigned the patent to us on February 13, 2004 recorded with the USPTO on February 23,
2004.
2. Coordinating Haptics with Visual Images in a Human-Computer Interface. U.S. Patent Application
pending, some claims already allowable. PCT and foreign counterparts also filed. Claims a method
for efficiently generating haptics models for use with existing images, without requiring the cost
of generating a three dimensional model. The claimed method can effectively add a haptics dimension
to the large volume of existing visual content. Assigned by Jake Jones to us dated September 26,
2001, recorded with USPTO on December 7, 2001.
3. Human-Computer Interfaces Incorporating Haptics. U.S. Provisional Patent Application 60/431,060.
Provides an early priority date for several later utility patent applications. This provisional
patent application describes a number of haptics techniques particularly applicable to computer
games.
4. Human-Computer Interfaces Incorporating Haptics and Path-Based Interaction. U.S. Patent
Application pending, some claims already allowable. PCT counterpart also filed. Claims a number of
methods and apparatuses related to communication with a user, with specific application to computer
games. Examples are drawn from a variety of games, each of which has been implemented to utilize 3
dimensional positional input devices with force feedback.
5. Force Frames in Animation, US Patent application pending. Claims methods for utilizing haptics
in computer animation. Assigned by Tom Anderson to us on February 13, 2004, recorded with USPTO on
February 23, 2004.
6. Human-Computer Interface Including Efficient Three-Dimensional Controls. Continuation
application of U.S. Patent 6,727,924, 10/831,682 filed 4/22/2004. Claims a technology that allows
efficient and intuitive interaction in a three-dimensional world with familiar two-dimensional
controls. This patent application describes an intuitive type of haptics control object that allows
developers to create toolbars and other common types of interface objects. These toolbars are
easily accessible and greatly improve user-interface issues related to problems associated with
depth perception of a 3D cursor. Assigned by Tom Anderson to us on February 13, 2004, recorded
with USPTO on February 23, 2004.
7. Computer Interface Methods and Apparatuses. U.S. Provisional Patent Application 60/681,007.
Describes many interface technologies and methods of particular importance to three-dimensional and
haptic-enabled computer games.
8. Human-Computer Interface Incorporating Personal and Application Domains. Continuation of U.S.
Patent 6,724,400, filed 3/16/2004. Claims variations on the user interface.
9. Production of a three-dimensional object representative of an in-utero baby. U.S. Provisional
Patent Application 60/842,404, filed September 5, 2006. Describes use of three-dimensional and
haptic technology to automatically produce three-dimensional objects directly from ultrasound data.
10. Bimodal User Interaction with a Simulated Object. U.S. Patent Applications 11/433,173, filed
May 13, 2006. Describes many interface technologies and methods of particular importance to
three-dimensional and haptic-enabled computer games. Assigned by Tom Anderson to us on November 15,
2006, recorded with USPTO on November 22, 2006.
11. Bimodal User Interaction with a Simulated Object. International Application number
PCT/US2006/042557. Describes many interface technologies and methods of particular importance to
three-dimensional and haptic-enabled computer games.
Copyrights
We own copyrights in application software and application development tools, including:
1. e-Touch, copyright 2000, 2001, 2002, 2003 Novint Technologies, Inc.
2. Novint sono software
3. Mandrin Pinball computer game
4. IncrediBubble computer game
5. Super Slam Ball computer game
We have licenses, exclusive in our fields of use, to application software, including: Glider
computer game and Inago Rage computer game.
Trademarks
We own the following trademarks:
1. NOVINT, on the Federal Principal Register, number 2512087. Branding for multiple products and
services.
2. Novint logo, common law trademark. Branding for multiple products and services.
26
3. E-TOUCH, application for federal Principal Register, 76/061,390. Intended branding for the
haptics software products.
4. e-Touch logo, application for federal Principal Register, 78/037,119. Intended branding for the
haptics software products.
5. NOVINT FALCON, application for federal Principal Register, 78/561,954.
6. FEELIN IT, application for federal Principal Register, 77075488.
7. NEWTON THE MONKEY, application for federal Principal Register, 77077459.
8. NEWTONS MONKEY BUSINESS, application for federal Principal Register, 77077460.
Domain Names
We own 145 domain names related to our branding strategy.
Patents from the Sandia License
1. Multidimensional Display Controller. U.S. Patent 6,208,349 issued 3/27/2001. Claims a control
technology allowing intuitive control of multidimensional displays. This patent application was
submitted based on the usage of a two handed interface, where the users second hand can be used to
manipulate the users viewpoint within the environment while allowing the users first hand to
control navigation.
2. Multidimensional Navigational Controller, U.S. Patent Application pending. Claims a control
technology allowing intuitive navigation through multidimensional spaces. This patent application
describes a variety of navigation techniques and control objects that utilize haptics. Navigation
in a virtual environment is a significant problem. Sandia did a study examining the benefits of
haptically controlled navigation and the results were statistically significant that users were
better able to navigate through three separate environments with haptics feedback compared with
mouse-based interactions.
3. Human Computer Interfaces. U.S. Provisional Patent Application. Provides an early priority date
for several later utility patent applications. This provisional patent application describes 34
additional potentially patentable concepts.
4. Human-computer Interface. U.S. Patent 6,833,826. Claims a haptics technology that allows
intuitive interaction with boundaries
between interface domains. This patent application describes a specific type of haptics object that
enables transitions between separate domains by breaking through it.
5. Human-Computer Interface Incorporating Personal and Application Domains. U.S. Patent 6,724,400
issued 4/20/2004. Claims a user interface that provides consistent, intuitive control interface to
any application. This patent application describes mechanisms for the concept of a personal space.
This is a valuable and core component of e-Touch, our professional Application Programming
Interface, and allows users to customize their own personal space while intuitively allowing
interaction with a variety of applications or virtual environments.
6. Human-Computer Interface Incorporating Personal and Application Domains. U.S. Patent Application
pending. Continuation of the previous issued patent, claims variations on the user interface.
7. Human-Computer Interface Including Haptically Controlled Interactions. U.S. Patent Application
allowed. Claims an interface technique that allows haptics control of common interface operations.
This patent application describes several scrolling and zooming techniques based around haptics
interaction.
8. Navigation and Viewing in a Multidimensional Space. U.S. Patent Application 11/283,969, filed
November 21, 2005. Continuation application of U.S. patent 6,954,899 and others. Claims specific
variations on multidimensional navigation techniques.
9. Navigation and Viewing in a Multidimensional Space. U.S. Patent Application 11/244,584, filed
October 6, 2005. Continuation application of U.S. patent 6,954,899 and others. Claims specific
variations on multidimensional navigation techniques.
Assigned to us, subject to certain obligations we have under the agreement with Force Dimension:
European Patent Office Application Serial No. 03016030.3, filed July 15, 2003 entitled, Parallel
Kinematics Mechanism. Counterparts in U.S., Japan, and Canada pending. The invention relates in
general to movement transmission, and for example, to a device or assembly for transmitting a
movement using a parallel kinematics mechanism, to a haptic device or system or a force-reflecting
control interface, such as a hand controller for computers, game consoles, simulators or other
systems, and to a movement transmission device for a parallel kinematics manipulator or a parallel
kinematics measuring system.
Licensed to us under the license with Force Dimension (patents licensed by Force Dimension from
Prodex):
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Application
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Registration
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Maximum
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Country
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Filing Date
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Number
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Date
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Patent No.
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Validity
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Canada
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12-15-86
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525321
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04-14-1992
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1,298,806
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04-14-2009
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Japan
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12-10-86
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50331/1986
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05-20-1993
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1,761,286
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12-12-2006
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Switzerland
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12-16-1985
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5348/85-6
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10-31-1989
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672089-4
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12-16-2005
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USA
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12-10-1986
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07/403,987
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12-11-1990
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4,976,582
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12-11-2007
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Europe
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12-10-1986
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86906759,5
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07-17-1991
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0250470
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12-10-2006
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27
Other License Agreements
MANHATTAN SCIENTIFICS
We are parties to a License and Royalty Agreement with Manhattan
Scientifics dated May 16, 2001, one of our shareholders. We had a prior license agreement with
Manhattan Scientifics that provided the initial funding of our development of a web browser and
content creation tools to which Manhattan Scientifics had an exclusive license from us for specific
internet fields of use. No royalties ever became due under the original agreement by either party
and no marketable technologies were ever developed. Under our current agreement with Manhattan
Scientifics we granted Manhattan Scientifics an exclusive sub license of our haptics technology,
within a specified field of use for Teneo and other technologies. Under the agreement, Manhattan
Scientifics granted to us a license to use the Teneo technology that relates to dental training
interfaces and oil and gas visualization applications. Manhattan Scientifics also assigned back to
us the internet fields of use that were the subject of the first (prior) agreement. No royalties
have been paid by either party pursuant to this license to date. No marketable technologies have
yet been developed under this agreement. The agreement provides that we would pay to Manhattan
Scientifics 5% of the net revenues we derive from the use or sale of the Teneo technology. In
addition, the agreement provides that Manhattan Scientifics will pay to us 5% of the net revenues
they derive from the use of sale of the technology that is the subject of the sub license granted
to them. No such revenues have been derived by either party and accordingly, no royalty payments
are due or owing by either party. The term of the license granted under the current agreement is
intended to be perpetual. In connection with our agreements with Manhattan Scientifics, Manhattan
Scientifics has received an aggregate of 4,067,200 shares of our common stock and we have received
an aggregate of 1,000,000 shares of Manhattan Scientifics common stock.
Teneo License
We license: (i) Virtual Reality Dental Training System Software; and (ii)
Voxel Notepad Software, from Teneo Computing, Inc., a company acquired by one of our shareholders,
Manhattan Scientifics. There are currently no patents covering either the Virtual Reality Dental
Training System Software or the Voxel Notepad Software. We believe that the Harvard School of
Dentistry filed or will file a patent covering the Virtual Reality Dental Training System Software
or the Voxel Notepad Software. In addition to Teneos current license, Teneo had an exclusive right
to get a license for any patents issued to Harvard School of Dentistry for the Virtual Reality
Dental Training System Software or the Voxel Notepad Software. We decided to let this exclusive
right lapse and currently have no plans
to pursue such a license.
Research and Development
Research and development expenses were $496,844 and $1,341,710 for the years ended December
31, 2006 and 2005, respectively. Research and development expenses were $235,570 for the three
months ended March 31, 2007.
Employees
As of July 20, 2007, we have 20 full time employees and 10 consultants.
We have an employment agreement with our CEO, Tom Anderson. Under such agreement, he is
entitled to an annual base salary of $150,000 per year and cash bonus to be determined by us, is
subject to confidentiality provisions and is entitled to a severance of one year base salary if he
is terminated by us without cause.
We also have an employment agreement with our CTO, Walter Aviles. Under such agreement, he was
originally granted options to purchase 400,000 shares of our common stock, but options to purchase
200,000 shares were cancelled, he is entitled to an annual base salary of $155,000 per year and
cash bonus to be determined by us, is subject to confidentiality provisions and is entitled to a
severance of two months base salary if he is terminated by us without cause.
Recruiting efforts will continue as we bring our products to market.
Government Regulations
The growth and development of the market for Internet commerce may prompt calls for stringent
consumer protection laws, such as laws against identity theft that may impose additional burdens on
companies like us who conduct business over the Internet. While none of the current laws governing
Internet commerce has imposed significant burdens on us to date, in the future our business,
results of operations and financial condition could be materially and adversely affected by the
adoption or modification of laws or regulations relating to the Internet, or the application of
existing laws to the Internet or Internet-based advertising. We are not aware of any other specific
regulatory rules or regulations that we are subject to due to the specific nature of our business
operations.
Description of Property
We entered into a lease for office space in Albuquerque,
New Mexico. The facility will be our primary operating offices
and headquarters. It is anticipated that the facility will be
ready for occupancy by the end of September 2007. The facility
is approximately 4,323 square feet. The lease has a five year term
at a base monthly rent of $7,186. Until the office facility is ready
for occupancy, we will continue to operate virtually with employees
working from their homes or private offices. We also entered into a
lease for a storage and office facility in San Diego, California.
The facility is approximately 2,000 square feet. The primary purpose
of the facility is to store the Novint Falcon as it arrives from
our manufacturer. The initial twelve month term is at a monthly
base rent of $4,040.00 and the second twelve month term of the
lease is at a monthly base rent of $4,181.40. The lease will
expire on July 31, 2009. We believe that the foregoing facilities
are sufficient for our operational needs.
28
Directors, Executive Officers, Promoters and Control Persons
The directors and executive officers of the Company and their ages at July 20, 2007 are as
follows:
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Name
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Age
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Position Held
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Officer/Director since
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Tom Anderson
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32
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Chief Executive Officer, President, Chief Financial Officer, Chairman of the Board and Director
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2000
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Walter Aviles
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47
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Chief Technical Officer
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2001
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Marvin Maslow
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69
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Director
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2000
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V. Gerald Grafe
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43
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Director
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2006
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The directors named above will serve until the next annual meeting of our stockholders or
until their successors are duly elected and have qualified. Officers will hold their positions at
the pleasure of the board of directors, absent any employment agreement. There is no arrangement or
understanding between any of our directors or officers and any other person pursuant to which any
director or officer was or is to be selected as a director or officer, and there is no arrangement,
plan or understanding as to whether non-management stockholders will exercise their voting rights
to continue to elect the current board of directors. There are also no arrangements, agreements or
understandings between non-management stockholders that may directly or indirectly participate in
or influence the management of our affairs.
Biographical Information
Tom Anderson CEO, President, Acting CFO, and Chairman of the Board
. Tom Anderson,
our CEO, President and Chairman of the Board, is one of the earliest pioneers in 3D touch software.
He has led us since our inception and has been responsible for overseeing all aspects of our
business development. He began his work on computer touch more than ten years ago at Sandia
National Laboratories using the first PHANTOM (the first haptics device of its kind) ever sold. Mr.
Anderson was the inventor and principal investigator during
the five-year computer touch project at Sandia responsible for developing the technology and
applying it to important problems. Mr. Anderson then worked to obtain an exclusive license to the
Sandia Technology for us. From 1998 to 2000, Mr. Anderson was a member of the technical staff at
Sandia National Laboratories. His responsibilities included software programming and haptic project
development. Sandia National Laboratories is a Department of Energy National Research Laboratory.
From 2000 to the present, Mr. Anderson serves as our CEO. His responsibilities include all aspects
of running the company including overseeing product and project development, business development,
legal, accounting, hiring, management of employees, and company operations. Mr. Anderson has a B.S.
in Electrical Engineering, Magna Cum Laude, from the University of New Mexico, and an M.S. in
Electrical Engineering from the University of Washington, where he studied both computer interface
technology and business management.
Walter Aviles Chief Technical Officer
. Our Chief Technical Officer, Walter A.
Aviles, has over 20 years of technical and managerial experience in commercial, government and
academic environments in the design and development of advanced, first of a kind, human/machine
interfaces, virtual environments and robotic systems. He holds undergraduate and graduate degrees
in Electrical Engineering and Computer Science from Stanford University and The Massachusetts
Institute of Technology. He is a founding member of the Virtual Environment and Teleoperator
Research Consortium (VETREC), an Associate Editor of the MIT Press Journal Presence and a member of
the Tau Beta Pi and Sigma Chi engineering honor associations. From 1999 to 2000, Mr. Aviles founded
and operated Teneo Computing, Inc., where he worked on projects including: a prototype dental
cavity preparation simulator developed in collaboration with the Harvard University School of
Dentistry, a three-dimensional data understanding and editing system for volumetric seismic data
developed with Mobil Oil, and a computer interface for the blind research system developed with NHK
Television of Japan. Prior to founding Teneo Computing, from 1996 to 1999, Mr. Aviles was a Vice
President of product development at SensAble Technologies in Cambridge, Massachusetts, where he
helped establish the corporations software group and developed the worlds first commercial
haptics software toolkit. He also spearheaded the development of real-time techniques and
commercial applications for interaction with volumetric models including the FreeForm application.
Marvin Maslow Director
. Marvin Maslow is the first board member after Tom Anderson,
and is the CEO of Manhattan Scientifics. Mr. Maslow has provided a strong guiding hand in our early
growth. From June 1990 through September 1996, Mr. Maslow served as chief executive officer of
Projectavision, Inc., a company he co-founded to develop and market video projection technology.
Since November 1996, Mr. Maslow has served as chief executive officer and chairman of the board of
Tamarack Storage Devices, Inc. From 1999 through 2002, Mr. Maslow served as a director of NMXS.com,
Inc. For more than 20 years, Mr. Maslow has been President of Normandie Capital Corp., a private
investment and consulting company. Mr. Maslow is credited with the starting up and financing of
more than 20 enterprises during his career. Mr. Maslow received an A.A.S. degree from the Rochester
Institute of Technology in 1957 and an honorable discharge from the U.S. Army Signal Corps in 1963.
Mr. Maslow is the Chief Executive Officer of Manhattan Scientifics, Inc., a publicly traded company
which is also one of our shareholders.
29
V. Gerald Grafe Director
. V. Gerald Grafe is a member of our board. Mr. Grafe is a
founder of Hisey Grafe, PC, a law firm focused on emerging companies, emerging technologies, and
intellectual property. Mr. Grafe provides strategic consulting, legal counsel, and intellectual
property services for a select group of companies. Mr. Grafe has helped guide the formation and
funding of numerous startups, has represented early stage companies in numerous transactions with
giants in their respective fields, and serves as the corporate secretary of several companies. Mr.
Grafe became general counsel of InLight Solutions, Inc., in 2002, where he also helped architect
the creation of three venture-funded spinouts. Prior to joining InLight, Mr. Grafe was employed at
Sandia National Laboratories, serving first as a researcher in advanced computing, and then as an
attorney in the patent and licensing organization (where he wrote and prosecuted Sandias first
haptics patents). Mr. Grafe has a B.S. in Electrical Engineering, summa cum laude, from Texas A&M
University, an M.S. in Electrical and Computer Engineering from the University of New Mexico, and
was first in his class when receiving his J.D. degree from the University of New Mexico.
Family Relationships
There are no family relationships among the directors and executive officers.
Involvement in Certain Legal Proceedings
None of the directors or executive officers has, during the past five years:
(a) Had any bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or within two years prior
to that time;
(b) Been convicted in a criminal proceeding or subject to a pending criminal proceeding;
(c) Been subject to any order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities, futures,
commodities or banking activities; and
(d) Been found by a court of competent jurisdiction (in a civil action), the Securities and
Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Audit Committee
We currently have a separately designated Audit Committee. Our audit committee is comprised of
Mr. Ralph Anderson, who is not a director, or employee, or consultant to the company. We believe
Mr. Anderson is a financial expert as that term is defined by the SEC.
The purposes of the audit committee are:
- to oversee the quality and integrity of the financial statements and other financial information
we provide to any governmental body or the public;
- to oversee the independent auditors qualifications and independence;
- to oversee the performance of our independent auditors;
- to oversee our systems of internal controls regarding finance,
- accounting, legal compliance and ethics that management and the Board of Directors has
established or will establish in the future;
- to establish procedures for the receipt, retention and treatment of employees and executives;
- complaints regarding accounting, internal controls, and other auditing matters and for the
confidential, anonymous submission by our employees of concerns regarding questionable accounting
or auditing matters;
- to provide an open avenue of communication among the independent auditors, financial and senior
management, the internal auditing department, and the board of directors, always emphasizing that
the independent auditors are accountable to the audit committee; and
- to perform such other duties as are directed by the board of directors.
Code of Ethics
We adopted a Code of Business Conduct and Ethics as of March 31, 2006, which applies to all
employees, including our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions.
Executive Compensation
Summary of Compensation
The following executive compensation disclosure reflects all compensation awarded to, earned
by or paid to the executive officers below for the fiscal year ended December 31, 2006. The
following table summarizes all compensation for fiscal year 2006 earned by our Chief Executive
Officer, and our two most highly compensated executive officers who earned more than $100,000 in
fiscal year 2006.
30
SUMMARY COMPENSATION TABLE
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Non-
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Nonquali-
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Equity
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fied
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Incentive
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Deferred
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All
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Plan
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Compen-
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Other
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Stock
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Option
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Compen-
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sation
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Compen
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Name and
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Awards
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Awards
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sation
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Earnings
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-sation
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principal position
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Year
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Salary ($)
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Bonus ($)
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($)
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($)
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($)
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($)
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($)
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Total ($)
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Tom Anderson, Chief
Executive Officer,
Chief Financial
Officer and
Director
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2006
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$
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150,000
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$
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150,000
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Walter Aviles,
Chief Technical
Officer
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2006
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$
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155,000
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$
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155,000
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|
The following table sets forth certain information concerning stock option awards granted to our
named executive officers.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
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OPTION AWARDS
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STOCK AWARDS
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Equity
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incentive
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Equity
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plan
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|
incentive
|
|
awards:
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plan awards:
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Market
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number
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or payout
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Equity
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of
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value of
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Incentive
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|
unearned
|
|
unearned
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Plan
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Number
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Market
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shares,
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|
shares,
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|
|
|
|
Number of
|
|
Awards:
|
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|
|
|
|
|
|
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|
of shares
|
|
value of
|
|
units or
|
|
units or
|
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|
Number of
|
|
securities
|
|
Number of
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or units
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shares or
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other
|
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other
|
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|
securities
|
|
underlying
|
|
Securities
|
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of stock
|
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units of
|
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rights
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rights
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underlying
|
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unexercised
|
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underlying
|
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that have
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stock that
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that have
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that have
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|
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unexercised
|
|
options (#)
|
|
unexercised
|
|
Option
|
|
Option
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not
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have not
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not
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not
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|
|
options (#)
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|
Unexercis-
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|
unearned
|
|
exercise
|
|
expiration
|
|
vested
|
|
vested
|
|
vested
|
|
vested
|
Name
|
|
Exercisable
|
|
able
|
|
options (#)
|
|
price ($)
|
|
date
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
Tom Anderson (1)
|
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3,000,000
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$
|
0.05
|
|
|
|
6/14/2012
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Tom Anderson (2)
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200,000
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300,000
|
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$
|
0.66
|
|
|
|
6/10/2014
|
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Walter Aviles (1)
|
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81,515
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|
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$
|
0.01
|
|
|
|
11/1/2010
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31
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|
OPTION AWARDS
|
|
STOCK AWARDS
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Equity
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incentive
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Equity
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plan
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|
|
|
incentive
|
|
awards:
|
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|
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plan awards:
|
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Market
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number
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or payout
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Equity
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of
|
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value of
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Incentive
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unearned
|
|
unearned
|
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|
Plan
|
|
|
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|
|
|
Number
|
|
Market
|
|
shares,
|
|
shares,
|
|
|
|
|
|
|
Number of
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
of shares
|
|
value of
|
|
units or
|
|
units or
|
|
|
Number of
|
|
securities
|
|
Number of
|
|
|
|
|
|
|
|
|
|
or units
|
|
shares or
|
|
other
|
|
other
|
|
|
securities
|
|
underlying
|
|
Securities
|
|
|
|
|
|
|
|
|
|
of stock
|
|
units of
|
|
rights
|
|
rights
|
|
|
underlying
|
|
unexercised
|
|
underlying
|
|
|
|
|
|
|
|
|
|
that have
|
|
stock that
|
|
that have
|
|
that have
|
|
|
unexercised
|
|
options (#)
|
|
unexercised
|
|
Option
|
|
Option
|
|
not
|
|
have not
|
|
not
|
|
not
|
|
|
options (#)
|
|
Unexercis-
|
|
unearned
|
|
exercise
|
|
expiration
|
|
vested
|
|
vested
|
|
vested
|
|
vested
|
Name
|
|
Exercisable
|
|
able
|
|
options (#)
|
|
price ($)
|
|
date
|
|
(#)
|
|
($)
|
|
(#)
|
|
($)
|
Walter Aviles (1)
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
11/1/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter Aviles (1)
|
|
|
1,100,000
|
|
|
|
|
|
|
|
|
|
|
$
|
0.05
|
|
|
|
6/14/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walter Aviles (3)
|
|
|
400,000
|
|
|
|
600,000
|
|
|
|
|
|
|
$
|
0.66
|
|
|
|
6/14/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
This option was fully vested as of December 31, 2006.
|
|
(2)
|
|
100,000 options vest each year on June 10 starting on June 10, 2005.
|
|
(3)
|
|
200,000 options vest each year on February 18 starting February 18, 2005.
|
Stock Options
There were no stock options granted to executive officers during the fiscal year ended December 31,
2006 and there was no exercise of incentive stock options during the last completed fiscal year by
the executive officers.
Director Compensation
The following director compensation disclosure reflects all compensation awarded to, earned by or
paid to the directors below for the fiscal year ended December 31, 2006.
DIRECTOR COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
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|
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Change in
|
|
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|
|
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|
|
Non-
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Nonqualified
|
|
|
|
|
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Deferred
|
|
|
|
|
|
|
or Paid in
|
|
Stock
|
|
Option
|
|
Compen-
|
|
Compensation
|
|
All Other
|
|
|
|
|
Cash
|
|
Awards
|
|
Awards
|
|
sation
|
|
Earnings
|
|
Compensation
|
|
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
Total ($)
|
Ed Barsis, former director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marvin Maslow (1)
|
|
|
|
|
|
|
|
|
|
$
|
1,335,000
|
(4)
|
|
|
|
|
|
|
|
|
|
$
|
75,000
|
(3)
|
|
$
|
1,410,000
|
|
V. Gerald Grafe (2)
|
|
|
|
|
|
$
|
15,000
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
103,817
|
(2)
|
|
$
|
118,817
|
|
|
|
|
(1)
|
|
The aggregate number of stock awards and option awards issued to Mr. Maslow and
outstanding as of December 31, 2006 is 0 and 1,750,000, respectively.
|
|
(2)
|
|
The aggregate number of stock awards and option awards granted to Mr. Grafe and
outstanding as of December 31, 2006 is 13,637 and 0, respectively. Mr. Grafe is a
shareholder and practicing attorney at the law firm Hisey Grafe, P.C. (the Firm),
which represents us on intellectual property and other
|
32
|
|
|
|
|
related matters. The Firm
accrued $103,817 in legal fees in 2006. Mr. Grafe was issued 43,290 shares of
common stock as payment for $43,290 of these legal fees.
|
|
(3)
|
|
Compensation earned for fund raising and investor relations services provided to us.
|
|
(4)
|
|
The value of the option award was calculated using the Black-Scholes option pricing
model based on the following assumptions: weighted average life of 10 years;
risk-free interest rate of 5.25%; volatility rate of 146%; and fair market value of
$0.90 per share at date of grant.
|
|
(5)
|
|
We granted 13,637 shares to Mr. Grafe on September 20, 2006. The value of the stock
award was calculated based on the aggregate grant date fair value computed in
accordance with FAS 123R.
|
Long-Term Incentive Plan Awards
We do not currently have any long term incentive plans.
Compensation of Directors
We have a director agreement with V. Gerald Grafe providing that Mr. Grafe will be compensated
for each year of service, at his election, either (i) shares of our common stock having an
aggregate fair market value of $15,000 or (ii) options to purchase our common stock having an
aggregate fair market value of $15,000 with an exercise price equal to the fair market value at the
time of the option grant. Mr. Grafe will also receive shares or options in the manner described
above having an aggregate fair market of $1,000 for each meeting of the Board of Directors Mr.
Grafe attends.
There are no other director agreements between us and any other board member. The remaining
directors do not generally receive cash compensation for their services as directors, but are to be
reimbursed for expenses incurred in attending board meetings. There is no expressed cap for such
expenses and we will reimburse all such reasonable expenses incurred by its directors.
Employment Agreements, Termination of Employment and Change-in-Control Arrangements
We have an employment agreement with our CEO, Tom Anderson. Under such agreement, he is
entitled to an annual base salary of $150,000 per year and cash bonus to be determined by us, is
subject to confidentiality provisions and is entitled to a severance of one year base salary if he
is terminated by us without cause. This agreement does not provide provisions covering a change in
control of Novint. The commencement date of this agreement is March 2004.
We also have an employment agreement with our CTO, Walter Aviles. Under such agreement, he was
originally granted options to purchase 400,000 shares of our common stock, but options to purchase
200,000 shares were cancelled. He is currently entitled to an annual base salary of $155,000 per
year and cash bonus to be determined by us, is subject to confidentiality provisions and is
entitled to a severance of two months base salary if he is terminated by us without cause. This
agreement does not provide provisions covering a change in control of Novint. The commencement date
of this agreement is November 11, 2000.
Certain Relationships and Related Transactions
Described below are certain transactions or series of transactions between us and our
executive officers, directors and the beneficial owners of 5% or more of our common stock, on an as
converted basis, and certain persons affiliated with or related to these persons, including family
members, in which they had or will have a direct or indirect material interest in an amount that
exceeds the lesser of $120,000 or 1% of the average of our total assets as of year-end for the last
three completed fiscal years, other than compensation arrangements that are otherwise required to
be described under Executive Compensation.
In March 2006, we granted 250,000 options at an exercise price of $1.00 per share, with a
5-year annual vesting provision, to purchase common stock to Mr. Bill Anderson, an employee. Mr.
Bill Anderson is Mr. Tom Andersons brother. Mr. Tom Anderson is our Chief Executive Officer. Based
on the value of the common stock on the date of grant, the dollar value of the shares underlying
the options was $250,000.
On December 12, 2006, we issued a stock option to purchase 1,500,000 shares of our common
stock at an exercise price of $0.90 per share to Mr. Marvin Maslow, our director and the CEO of
Manhattan Scientifics, Inc., one of our principal shareholders, as compensation for consulting
services. 750,000 option vested as of December 31, 2006. Another 500,000 options vest on December
31, 2007, and the
remaining 250,000 options vest on December 31, 2008. We also accrued $75,000 in compensation due
Mr. Maslow for funding raising and investor relations services provided to us.
Effective September 20, 2006, Mr. V. Gerald Grafe was appointed as a member of our Board of
Directors. Mr. Grafe is a shareholder and practicing attorney at the law firm Hisey Grafe, P.C.
(the Firm), which represents us on intellectual property and other related matters. We incurred
$56,015, $28,766 and $103,817 in legal fees with the Firm in 2004, 2005 and 2006, respectively. Mr.
Grafe will serve as a director in his individual capacity, and not as a representative of the Firm.
We and Mr. Grafe will both make our best efforts to keep all services as a director, and
compensation therefor, separate from services as legal counsel, and compensation therefor. There
are no transactions or relationships between us and Mr. Grafe in which Mr. Grafe had or is to have
a direct or indirect material interest other than those described herein.
33
On March 5, 2007, we closed the initial $9,000,000 of a $10,000,000 unit financing transaction
in which Mr. Tom Anderson, our CEO and Chairman, invested $25,000. Mr. Anderson received 25,000
shares of our common stock and warrants to purchase 25,000 shares of our common stock at an
exercise price of $1.50 per share. On May 11, 2007, we issued and sold an additional 580,000 of
units for $580,000, which concluded the unit offering. See Unit Offering described elsewhere in
this prospectus.
Director Independence
We currently have one director, Mr. Grafe, who is an independent director as that term is
defined under NASDAQ Rule 4200(a)(15).
Selling Shareholders
The following table sets forth the names of the selling shareholders who may sell their shares
under this prospectus from time to time. No selling shareholder has, or within the past three years
has had, any position, office or other material relationship with us or any of our predecessors or
affiliates.
The following table also provides certain information with respect to the selling
shareholders ownership of our securities as of July 20, 2007, the total number of securities they
may sell under this prospectus from time to time, and the number of securities they will own
thereafter assuming no other acquisitions or dispositions of our securities. The selling
shareholders can offer all, some or none of their securities, thus we have no way of determining
the number they will hold after this offering. Therefore, we have prepared the table below on the
assumption that the selling shareholders will sell all shares covered by this prospectus.
Some of the selling shareholders may distribute their shares, from time to time, to their
limited and/or general partners or managers, who may sell shares pursuant to this prospectus. Each
selling shareholder may also transfer shares owned by him or her by gift, and upon any such
transfer the donee would have the same right of sale as the selling shareholder.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMBER OF SHARES BENEFICIALLY
|
|
|
NUMBER OF SHARES
|
|
|
|
|
|
OWNED AFTER OFFERING (2)
|
|
|
BENEFICIALLY OWNED BEFORE
|
|
NUMBER OF SHARES
|
|
NUMBER OF
|
|
|
NAME
|
|
OFFERING (1)
|
|
BEING OFFERED
|
|
SHARES
|
|
PERCENTAGE
|
Absolute Return Europe Fund
|
|
|
1,162,500
|
(3)
|
|
|
250,000
|
|
|
|
912,500
|
|
|
|
2.9
|
%
|
European Catalyst Fund Ltd.
|
|
|
1,162,500
|
(4)
|
|
|
125,000
|
|
|
|
1,037,500
|
|
|
|
3.3
|
%
|
Concorde Bank Limited
|
|
|
77,500
|
(5)
|
|
|
25,000
|
|
|
|
52,500
|
|
|
|
*
|
|
Motus Management S.A.
|
|
|
155,000
|
(6)
|
|
|
50,000
|
|
|
|
105,000
|
|
|
|
*
|
|
Alan Schram
|
|
|
38,750
|
(7)
|
|
|
12,500
|
|
|
|
26,250
|
|
|
|
*
|
|
Frederick Manlunas
|
|
|
42,625
|
(8)
|
|
|
13,750
|
|
|
|
28,875
|
|
|
|
*
|
|
Craig Noell
|
|
|
7,750
|
(9)
|
|
|
2,500
|
|
|
|
5,250
|
|
|
|
*
|
|
Duane Stullich
|
|
|
11,625
|
(10)
|
|
|
3,750
|
|
|
|
7,875
|
|
|
|
*
|
|
Daniel S. Conway
|
|
|
31,000
|
(11)
|
|
|
10,000
|
|
|
|
21,000
|
|
|
|
*
|
|
Nishen Radia
|
|
|
7,750
|
(12)
|
|
|
2,500
|
|
|
|
5,250
|
|
|
|
*
|
|
Gayle C. Pomerantz
|
|
|
38,750
|
(13)
|
|
|
12,500
|
|
|
|
26,250
|
|
|
|
*
|
|
Spencer Stuart Management Ltd
|
|
|
97,500
|
(14)
|
|
|
25,000
|
|
|
|
72,500
|
|
|
|
*
|
|
Victor Ho
|
|
|
69,750
|
(15)
|
|
|
22,500
|
|
|
|
47,250
|
|
|
|
*
|
|
Bennett Group Arizona LLC
|
|
|
96,152
|
(16)
|
|
|
10,000
|
|
|
|
86,152
|
|
|
|
*
|
|
Rose M. and Joseph S. Bruglio
|
|
|
96,152
|
(17)
|
|
|
25,000
|
|
|
|
71,152
|
|
|
|
*
|
|
Todd and Nancy Gillenwater
|
|
|
38,750
|
(18)
|
|
|
12,500
|
|
|
|
26,250
|
|
|
|
*
|
|
Joseph W. and Corinne M. Kliegl
|
|
|
155,000
|
(19)
|
|
|
50,000
|
|
|
|
105,000
|
|
|
|
*
|
|
Edward and Martin Santangelo
|
|
|
155,000
|
(20)
|
|
|
50,000
|
|
|
|
105,000
|
|
|
|
*
|
|
Chad R. Worthington
|
|
|
7,750
|
(21)
|
|
|
2,500
|
|
|
|
5,250
|
|
|
|
*
|
|
Corporate Advisors Group
|
|
|
305,000
|
(22)
|
|
|
200,000
|
|
|
|
105,000
|
|
|
|
*
|
|
Hunter World Markets, Inc.
|
|
|
558,400
|
(23)
|
|
|
558,400
|
|
|
|
0
|
|
|
|
0
|
|
Richardson & Patel LLP
|
|
|
627,554
|
(24)
|
|
|
400,000
|
|
|
|
227,554
|
|
|
|
*
|
|
PFK Acquisition Co I, LLC
|
|
|
310,000
|
(25)
|
|
|
50,000
|
|
|
|
260,000
|
|
|
|
*
|
|
PFK Acquisition Co II, LLC
|
|
|
310,000
|
(26)
|
|
|
50,000
|
|
|
|
260,000
|
|
|
|
*
|
|
Howard Zuker
|
|
|
54,250
|
(27)
|
|
|
17,500
|
|
|
|
36,750
|
|
|
|
*
|
|
Todd M. Ficeto
|
|
|
550,000
|
(28)
|
|
|
500,000
|
|
|
|
50,000
|
|
|
|
*
|
|
Chad Lupia
|
|
|
5,000
|
(29)
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0
|
|
Jihyun Joe Kim
|
|
|
5,000
|
(30)
|
|
|
5,000
|
|
|
|
0
|
|
|
|
0
|
|
CFSB LLC
|
|
|
772,200
|
(31)
|
|
|
702,000
|
|
|
|
70,200
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
6,949,208
|
|
|
|
3,192,900
|
|
|
|
3,756,308
|
|
|
|
|
|
|
|
|
*
|
|
Indicates less than 1%.
|
34
|
|
|
(1)
|
|
The number and percentage of shares beneficially owned is determined in accordance with
Rule 13d-3 of the Securities Exchange Act of 1934, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rule, beneficial ownership
includes any shares as to which each selling stockholder has sole or shared voting power or
investment power and also any shares, which the selling stockholder has the right to acquire within
60 days.
|
|
(2)
|
|
Assumes that all of the shares offered hereby are sold and that shares owned before the
offering but not offered hereby are not sold.
|
|
(3)
|
|
Includes up to 250,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock. Also includes 387,500 shares owned by European
Catalyst Fund Ltd, an entity under common control. The individual person who has or share the power
to vote and/or dispose of these securities and the securities of European Catalyst Fund Ltd is
Darius Parsi.
|
|
(4)
|
|
Includes up to 125,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock. Also includes 775,000 shares owned by Absolute
Return Europe Fund, and entity under common control. The individual person who has or share the
power to vote and/or dispose of these securities and the securities of Absolute Return Europe Fund
is Darius Parsi.
|
|
(5)
|
|
Includes up to 25,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock. The individual person who has or share the power
to vote and/or dispose of these securities is A. Marina Corbin.
|
|
(6)
|
|
Includes up to 50,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock. The individual person who has or share the power
to vote and/or dispose of these securities is Robert Lucindni.
|
|
(7)
|
|
Includes up to 12,500 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(8)
|
|
Includes up to 13,750 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(9)
|
|
Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(10)
|
|
Includes up to 3,750 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(11)
|
|
Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(12)
|
|
Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(13)
|
|
Includes up to 12,500 shares of common stock to be issued upon the exercise of a warrant at an
exercise prices of $2.00 per share of common stock.
|
|
(14)
|
|
Includes up to 25,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock. The individual person who has or share the power
to vote and/or dispose of these securities is David Daniel, CEO of Spencer Stuart Management Ltd.
|
|
(15)
|
|
Includes up to 22,500 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(16)
|
|
Includes up to 10,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock. The individual person who has or shares the
power to vote and/or dispose of these securities is Richard Bennett.
|
|
(17)
|
|
Includes up to 25,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(18)
|
|
Includes up to 12,500 shares of common stock to be issued upon the exercise of a warrant
at an exercise price of $2.00 per share of common stock.
|
|
(19)
|
|
Includes up to 50,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
35
|
|
|
(20)
|
|
Includes up to 50,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(21)
|
|
Includes up to 2,500 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(22)
|
|
Includes up to 200,000 shares of common stock to be issued upon the exercise of a warrant at
an exercise price of $1.00 per share of common stock. The individual person who has or shares the
power to vote and/or dispose of these securities is Raj Nair.
|
|
(23)
|
|
Includes up to 253,500 shares of common stock to be issued upon the exercise of a warrant at
exercise prices of $1.00 per share of common stock and up to 304,900 shares of common stock to be
issued upon the exercise of an overallotment option at an exercise price of $1.00 per share of
common stock. The individual person who has or shares the power to vote and/or dispose of these
securities is Todd Ficeto. Hunter World Markets is a licensed broker-dealer and is an underwriter
within the meaning of the Securities Act in connection with sales of Novint securities under this
prospectus.
|
|
(24)
|
|
Includes up to 300,000 shares of common stock to be issued upon the exercise of a warrant at
an exercise price of $0.25 per share, 100,000 shares of common stock to be issued upon the exercise
of a warrant at an exercise price of $1.00 per share, and 63,225 shares of common stock to be
issued upon the exercise of a warrant at an exercise price of $2.00 per share. The individual
person who has or shares the power to vote and/or dispose of these securities is Nimish Patel.
Richardson & Patel LLP is Novints general counsel. The warrant exercisable for 300,000 shares
originally contained an exercise price of $.50 per share but was amended to reflect an exercise
price of $.25 per share in connection with a fee agreement between the Company and Richardson &
Patel LLP entered into on March 22, 2005. The warrant for 100,000 shares exercisable at $1.00 was
also issued under the fee agreement.
|
|
(25)
|
|
Includes up to 50,000 shares of common stock to be issued upon the exercise of a warrant
at an exercise price of $2.00 per share of common stock. Includes 150,000 shares owned by PFK
Acquisition Co. II LLC. The individual person who has or shares the power to vote and/or dispose of
these securities is Paul Klapper.
|
|
(26)
|
|
Includes up to 50,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock. Includes 150,000 shares owned by PFK Acquisition
Co. I LLC. The individual person who has or shares the power to vote and/or dispose of these
securities is Paul Klapper.
|
|
(27)
|
|
Includes up to 17,500 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock.
|
|
(28)
|
|
Todd Ficeto is the President of Hunter World Markets. Includes up to 135,000 shares of common
stock to be issued upon the exercise of warrants at an exercise price of $0.50 per share of common
stock held by Mr. Ficetos minor children.
|
|
(29)
|
|
Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at
exercise prices of $1.00 per share of common stock.
|
|
(30)
|
|
Includes up to 5,000 shares of common stock to be issued upon the exercise of a warrant at
exercise prices of $1.00 per share of common stock.
|
|
(31)
|
|
Includes 702,000 shares of common stock to be issued upon the exercise of a warrant at an
exercise price of $2.00 per share of common stock. The warrant was transferred by RAB Special
Situations LP, another selling shareholder in this offering, to CFSB LLC. CFSB LLC is the custodial
bank of RAB Special Situations LP. There is no shared voting or dispositive power over the warrant.
Mr. Joseph Jayraj exercises voting power and power to dispose the warrant held by CFSB LLC.
|
Plan of Distribution
The shares covered by this prospectus may be sold from time to time by the selling
shareholders, or by pledgees, donees, transferees or other successors in interest. Such sales may
be made on one or more exchanges or in the over-the-counter market, or otherwise at prices and at
terms then prevailing or at prices related to the then-current market price, or in negotiated
transactions. The shares may be sold by one or more of the following: (i) a block trade in which
the broker or dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (ii) purchases by a
broker or dealer as principal and resale by such broker or dealer for its account pursuant to the
resale registration statement; (iii) an exchange distribution in accordance with the rules of such
exchange; (iv) one or more underwritten offerings on a firm commitment or best efforts basis; (v)
ordinary brokerage transactions and transactions in which the broker solicits purchasers; and (vi)
transactions between sellers and purchasers without a broker/dealer. In addition, any securities
covered by this prospectus that qualify for sale pursuant to Rule 144 may be sold under Rule 144
rather than pursuant to this prospectus. For so long as a selling shareholder owns any of the
shares covered by this prospectus, such holder shall not maintain a Net Short Position. For
purposes herein, a Net Short Position by a person means a position whereby such person has
executed one or more sales of common stock that is marked as a short sale and that is executed at a
time when such holder has no equivalent offsetting long position in the common stock. For purposes
of determining whether a holder has an equivalent offsetting long position in the common stock, all
common stock that is owned by such holder shall be deemed to be held long by such holder. The
36
selling shareholders may also distribute the shares and the warrants they hold to their partners,
members, stockholders or shareholders to the extent such distributions are effected in full
compliance with applicable securities laws and provided that the distributing holders and the
distributees provide us with such documents and other information as reasonably requested by us. In
effecting sales, brokers or dealers engaged by the selling holders may arrange for other brokers or
dealers to participate. Brokers or dealers will receive commissions or discounts from selling
holders in amounts to be negotiated immediately prior to the sale.
The selling shareholders and any broker-dealers or agents that are involved in selling the
shares are deemed to be underwriters within the meaning of the Securities Act of 1933, as
amended, in connection with such sales. In such event, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed
to be underwriting commissions or discounts under the Securities Act of 1933, as amended. Each
selling shareholder has informed us that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute our common stock.
We are required to pay certain fees and expenses incurred by us incident to the registration
of the shares. We have agreed to indemnify the selling shareholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act of 1933, as amended.
Because selling shareholders are deemed to be underwriters within the meaning of the
Securities Act of 1933, as amended, they will be subject to the prospectus delivery requirements of
the Securities Act of 1933, as amended, including Rule 172 thereunder. In addition, any securities
covered by this prospectus that qualify for sale pursuant to Rule 144 under the Securities Act of
1933, as amended, may be sold under Rule 144 rather than under this prospectus. There is no
underwriter or coordinating broker acting in connection with the proposed sale of the resale shares
by the selling shareholders.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the
shares may be resold by the selling shareholders without registration and without regard to any
volume limitations by reason of Rule 144(k) under the Securities Act of 1933, as amended, or any
other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus
or Rule 144 under the Securities Act of 1933, as amended, or any other rule of similar effect. The
resale shares will be sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale shares may not be sold
unless they have been registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act of 1934, as amended,
any person engaged in the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the distribution. In addition, the selling
shareholders will be subject to applicable provisions of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, including Regulation M, which may limit the
timing of purchases and sales of shares of the common stock by the selling shareholders or any
other person. We will make copies of this prospectus available to the selling shareholders and have
informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale (including by compliance with Rule 172 under the Securities Act of 1933, as
amended).
The sales of the shares under this prospectus may be at fixed or negotiated prices.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of July 20, 2007 with respect to the
beneficial ownership of the outstanding shares of our capital stock by (i) each stockholder known
to be the beneficial owner of five percent (5%) or more of the outstanding shares, (ii) each
executive officer and director, and (iii) all the aforementioned executive officers and directors
as a group.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to securities. Shares of
common stock subject to options, warrants or convertible securities exercisable or convertible
within 60 days of July 20, 2007 are deemed outstanding for computing the percentage of the person
or entity holding such options, warrants or convertible securities but are not deemed outstanding
for computing the percentage of any other person, and is based on 31,628,052 common shares issued
and outstanding as of July 20, 2007.
37
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Percent of
|
|
|
Shares of
|
|
Shares of
|
|
|
Common
|
|
Common
|
|
|
Stock
|
|
Stock
|
|
|
Beneficially
|
|
Beneficially
|
Name of Beneficial Owner and Address (1)
|
|
Owned (2)
|
|
Owned (2)
|
Tom Anderson
|
|
|
6,640,118
|
(3)
|
|
|
19.0
|
%
|
Walter Aviles
|
|
|
1,782,220
|
(4)
|
|
|
5.3
|
%
|
V. Gerald Grafe
|
|
|
279,806
|
(5)
|
|
|
*
|
|
Marvin Maslow
|
|
|
900,000
|
(6)
|
|
|
2.8
|
%
|
Manhattan Scientifics, Inc.
|
|
|
1,658,859
|
(6)
|
|
|
5.2
|
%
|
Dean R. Danielson
|
|
|
1,814,773
|
(7)
|
|
|
5.7
|
%
|
Walter M. Zierman
|
|
|
3,118,939
|
(8)
|
|
|
9.6
|
%
|
RAB Special Situations (Master) Fund Limited
|
|
|
2,106,000
|
(9)
|
|
|
6.5
|
%
|
AIGH Investment Partners, LLC
|
|
|
3,600,000
|
(10)
|
|
|
10.8
|
%
|
Paul Packer
|
|
|
2,300,000
|
(11)
|
|
|
7.0
|
%
|
All Executive Officers and Directors as a Group (4 persons)
|
|
|
9,602,144
|
|
|
|
25.5
|
%
|
|
|
|
*
|
|
Less than 1%.
|
|
(1)
|
|
Unless otherwise indicated, the address of the beneficial owner will be c/o Novint
Technologies, Inc., 4109 Bryan Avenue, NW, Albuquerque, New Mexico 87114.
|
|
(2)
|
|
Percentage based upon 31,628,052 shares of our common stock outstanding as of July 20, 2007.
|
|
(3)
|
|
Includes an option to purchase 3,000,000 shares of our common stock at an exercise price of
$0.05 per share and an option to purchase 200,000 shares of our common stock at an exercise
price of $0.66 per share. Under this option, 100,000 additional shares vest on June 10,
2008 and June 10, 2009. Also includes a warrant to purchase 25,000 shares of our common
stock at an exercise price of $1.50 per share.
|
|
(4)
|
|
Includes options to purchase 82,220 shares of our common stock at an exercise price of
$0.01 per share, 1,100,000 shares of our common stock at an exercise price of $0.05 per
share, and 600,000 shares of our common stock at an exercise price of $0.66 per share.
Under the last option, 200,000 additional shares vest on February 18, 2008 and February 18,
2009.
|
|
(5)
|
|
Mr. Grafe is a Director and owns 229,806 shares of our common stock and warrants to
purchase 50,000 shares of our common stock at an exercise price of $1.50.
|
|
(6)
|
|
Mr. Maslow is a Director of Novint and is the CEO of Manhattan Scientifics which owns
1,658,859 shares of our common stock. Includes an option to purchase 100,000 vested shares
at an exercise price of $0.66 per share. Under this option 50,000 shares vest on June 10 of
each year until 2009. Also includes an option to purchase 750,000 vested shares at an
exercise price of $0.90 per share. Under this option, 500,000 additional shares vest on
December 31, 2007 and 250,000 shares on December 31, 2008.
|
|
(7)
|
|
Mr. Danielsons address is P.O. Box 3462, Coeur DAlene, Idaho 83816.
|
38
|
|
|
(8)
|
|
Includes warrants to purchase 1,025,000 shares of our common stock, 425,000 shares at an
exercise price of $2.00 per share, 150,000 shares at an exercise price of $1.01 per share,
and 450,000 shares at an exercise price of $1.00 per share. Also includes 1,881,818 shares
held as trustee for the Zierman Living Trust and the Walter M. Zierman DDS PA Age-Weighted
Profit Sharing Plan and Trust. Mr. Ziermans address is 1058 Camino Manana, Santa Fe, New
Mexico 87501.
|
|
(9)
|
|
Includes warrants to purchase 702,000 shares of our common stock at an exercise price of
$2.00 per share. The address for RAB Special Situations (Master) Fund Limited (RAB) is
P.O. Box 908GT, Walker House Mary Street, George Town, Cayman Islands. Mr. Benjamin Hill
and Mr. Fraser McGee exercise shared voting and investment control over such shares.
|
|
(10)
|
|
Includes warrants to purchase 1,800,000 shares of our common stock at
an exercise price of $1.50 per share. Inclusion of the warrant shares
assumes the warrants will be exercisable within 60 days of July 20,
2007. The address for AIGH Investment Partners, LLC (AIGH) is 6006
Berkeley Avenue, Baltimore, Maryland 21209. Orin Hirschman is the
managing member of AIGH and exercises sole voting and investment
control over such shares.
|
|
(11)
|
|
Includes 900,000 shares of our common stock and warrants to purchase
900,000 shares of our common stock at an exercise price of $1.50 per
share held by Globis Capital Partners, LP and 175,000 shares of our
common stock and warrants to purchase 175,000 shares of our common
stock at an exercise price of $1.50 per share held by Globis Overseas
Fund, Ltd. Mr. Packer exercises sole voting and investment control
over these shares. Also includes warrants to purchase 75,000 shares
of our common stock at an exercise price of $1.50 per share held by
Mr. Packer. The address for Mr. Packer is 60 Broad Street,
38
th
floor, New York, New York 10004.
|
Description of Securities
General
We are authorized to issue common shares (otherwise referred to as common stock). The total
number of shares of common stock that we may issue is 150,000,000, with $0.01 par value per share.
We have no preferred stock authorized.
Common Stock
The securities being offered by the selling shareholders are shares of our common stock. As of
July 20, 2007 there were issued and outstanding 31,628,052 shares of common stock that were held of
record by 234 shareholders.
The holders of common stock are entitled to one vote per share on all matters to be voted upon
by the shareholders. The holders of common stock are entitled to receive ratably any dividends that
may be declared from time to time by the board of directors out of funds legally available for that
purpose. In the event of our liquidation, dissolution or winding up, the holders of common stock
are entitled to share ratably in all assets remaining after payment of liabilities. The common
stock has no preemptive or conversion rights or other subscription rights. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common stock offered in this
offering will be fully paid and not liable for further call or assessment.
Please review our articles of incorporation, as amended, and bylaws, copies of which have been
filed with the Securities and Exchange Commission, as well as the applicable statutes of the State
of Delaware for a more complete description of the rights and liabilities of holders of our shares.
Warrants
As of July 20, 2007, there were outstanding warrants to purchase 9,900,000 shares of our
common stock at an exercise price of $1.50 per share, which were issued in conjunction with a
private unit offering we undertook in March and May 2007. If there is no effective registration
statement registering the underlying shares these warrants contain cashless exercise provisions
that allow the holder to exercise the warrant for a lesser number of shares of common stock in lieu
of paying cash. The number of shares that would be issued in this case would be based upon the
market price of the common stock at the time of the net exercise.
As of July 20, 2007, there were also outstanding warrants to purchase 5,316,125 shares of our
common stock at prices ranging from $0.25 to $2.00 per share.
As of July 20, 2007, there were 15,216,125 shares of common stock reserved for issuance upon
exercise of all outstanding warrants.
The exercise price and the number of shares issuable upon exercise of all the foregoing
warrants will be adjusted upon the occurrence of certain events, including reclassifications,
reorganizations or combinations of the common stock. At all times that the warrants are
outstanding, we will authorize and reserve at least that number of shares of common stock equal to
the number of shares of common stock issuable upon exercise of all outstanding warrants.
39
Registration Rights
Holders of certain shares and warrants for the purchase of common stock issued in 2004, 2005,
2006 and 2007 and prior to that time have registration rights. Except for the shares covered by
this prospectus, such holders have either waived or deferred such rights as of the date hereof, or
such securities were previously registered. In addition, we granted registration rights to persons
who purchased units in our unit offering, described below.
Prior Offerings
Unit Offering March and May 2007
On February 23, 2007, we entered into a Unit Subscription Agreement (the Agreement) with 42
investors (the Purchasers) pursuant to which we issued and sold a total of $9,580,000 of units,
at a price of one dollar per unit. There were two closings on the unit sales March 5, 2007 for
$9,000,000 and May 11, 2007 for $580,000. Each unit consists of one share of common stock and one
five-year warrant to purchase one share of common stock at an exercise price of $1.50. Accordingly,
an aggregate of 9,580,000 shares of our common stock and warrants to purchase 9,580,000 shares of
common stock were issued to investors (the Financing). The Financing terminated on May 11, 2007.
As part of the terms of the Agreement, we entered into an Investor Rights Agreement with the
Purchasers pursuant to which we agreed to file the registration statement of which this prospectus
is a part, to register for resale the shares of common stock sold in the Financing, including the
shares of common stock underlying the warrants. We have agreed not to grant any registration rights
that are senior to the registration rights of the Purchasers for a period of two years from the
closing date without the prior written consent of a majority of the Purchasers. In the event the
registration statement of which this prospectus is a part shall not be effective prior to the time
all the shares covered by this prospectus are sold, we may become subject to significant cash
liabilities as liquidated damages to the selling shareholders.
Common Stock and Warrant Offerings 2005, 2006 and 2007
During 2005, 2006 and 2007, we issued and sold an aggregate of 3,025,000 shares of common
stock and warrants to purchase an aggregate of 2,667,400 shares of common stock. Of such warrants,
1,204,900 are exercisable at $1.00 per share, 500,000 are exercisable at $1.50 per share, and
962,500 are exercisable at $2.00 per share. We sold the common stock and warrants in a series of
private placements for an aggregate purchase price of $3,025,000. The offerings were conducted
between February 6, 2006 and February 1, 2007. In addition, we issued 25,000 warrants to purchase
common stock at an exercise price of $1.00 to persons who acted as placement agents in those
offerings.
Disclosure of Commission Position of Indemnification for Securities Act Liabilities
As permitted by Section 102(b)(7) of the Delaware General Corporation Law, our Certificate of
Incorporation includes a provision that eliminates the personal liability of each of our directors
for monetary damages for breach of such directors fiduciary duty as a director, except for
liability: (i) for any breach of the directors duty of loyalty to us or our stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of the law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any
transaction from which the director derived an improper personal benefit.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws
provide that we may, in our discretion,
|
|
|
indemnify our directors, officers, employees and agents and persons serving in such capacities in
other business enterprises at our request, to the fullest extent permitted by Delaware law, and
|
|
|
|
|
advance expenses, as incurred, to our directors and officers in connection with defending a proceeding.
|
We may enter into indemnification agreements with each of our directors and officers that
provide the maximum indemnity allowed to directors and officers by Section 145 of the Delaware
General Corporation Law and the bylaws as well as certain additional procedural protections.
The indemnification provisions in the bylaws and the indemnification agreements which we may
enter into with our directors and officers may be sufficiently broad to permit indemnification of
our directors and officers for liabilities arising under the Securities Act. However, insofar as
indemnification for liabilities arising under the Securities Act may be permitted for our
directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than
the payment by us for expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the question whether our
indemnification is against public policy as expressed in the Securities Act and will be governed by
the final adjudication of the issue by the court.
Where You Can Find More Information
We have filed with the SEC a post effective amendment to a registration statement on Form SB-2
under the Securities Act with respect to the common stock being offered in this offering. This
prospectus does not contain all of the information set forth in the registration statement, certain
items of which are omitted in accordance with the rules and regulations of the Commission. The
omitted information may be inspected and copied, at prescribed rates, at the public reference
facilities maintained by the Commission at Judiciary Plaza, 100 F
40
Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. The Commission maintains an Internet site at
http://www.sec.gov
that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission. Statements contained in
this prospectus as to the contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete, and in each instance where reference is made
to the copy of the document filed as an exhibit to the registration statement, each such statement
is qualified in all respects by such reference. For further information with respect to our company
and the securities being offered in this offering, reference is hereby made to the registration
statement, including the exhibits thereto and the financial statements, notes, and schedules filed
as a part thereof.
Experts
AJ. Robbins, P.C., certified public accountants, audited our financial statements at December
31, 2006 and December 31, 2005, as set forth in their report. We have included our financial
statements in the prospectus and elsewhere in the registration statements in reliance on the report
of AJ. Robbins, P.C., given on their authority as experts in accounting and auditing.
Legal Matters and Interests of Named Experts
Richardson & Patel LLP has given us an opinion relating to the due issuance of the common
stock being registered. The law firm of Richardson & Patel LLP or its various principals, counsel
to us, owns 164,329 shares of our common stock and warrants to purchase 300,000 shares of our
common stock at $0.25 per share, warrants to purchase 100,000 shares of our common stock at $1.00
per share, and warrants to purchase 63,225 shares of our common stock at $2.00 per share.
Transfer Agent
Our transfer agent and registrar is Interwest Transfer Company, Inc., 1981 East 4800 South,
Salt Lake City, Utah, 84117; telephone number: 801-272-9294.
41
|
|
|
|
|
|
|
PAGE
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
F-1
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
216 SIXTEENTH STREET
SUITE 600
DENVER, COLORADO 80202
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Novint Technologies, Inc.
Albuquerque, New Mexico
We have audited the accompanying balance sheet of Novint Technologies, Inc. as of December 31,
2006, and the related statements of operations, changes in stockholders equity (deficit), and cash
flows for the years ended December 31, 2006 and 2005. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Novint Technologies, Inc. as of December 31, 2006, and the
results of its operations and its cash flows for the years ended December 31, 2006 and 2005, in
conformity with generally accepted accounting principles in the United States of America.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
Denver, Colorado
March 5, 2007
F-2
Novint Technologies, Inc.
BALANCE SHEET
|
|
|
|
|
|
|
December 31,
|
|
|
2006
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
255,468
|
|
Prepaid expenses and other current assets
|
|
|
94,067
|
|
Deferred financing costs
|
|
|
54,354
|
|
Deposit on purchase of inventory
|
|
|
283,071
|
|
|
|
|
|
|
Total current assets
|
|
|
686,960
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
287,959
|
|
SOFTWARE DEVELOPMENT COSTS, NET
|
|
|
302,948
|
|
INTANGIBLE ASSETS, NET
|
|
|
97,748
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,375,615
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
Accounts payable
|
|
$
|
464,883
|
|
Accrued payroll related liabilities
|
|
|
204,780
|
|
Accrued expenses
|
|
|
100,504
|
|
Accrued expenses related parties
|
|
|
71,875
|
|
Billings in excess of costs and estimated earnings
|
|
|
5,500
|
|
Convertible Notes payable
|
|
|
358,081
|
|
Total current liabilities
|
|
|
1,205,623
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
Conditionally redeemable convertible preferred stock, Series A: aggregate liquidation preferences,
$100,000, $0.01 par value; 4,000 shares authorized, none issued and outstanding
|
|
|
|
|
Common stock, authorized 50,000,000 shares, $0.01 par value; 19,894,091 shares issued and outstanding
|
|
|
198,942
|
|
Additional paid-in capital
|
|
|
12,624,562
|
|
Accumulated deficit
|
|
|
(12,648,907
|
)
|
Accumulated other comprehensive loss
|
|
|
(4,605
|
)
|
|
|
|
|
|
Total stockholders equity
|
|
|
169,992
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,375,615
|
|
The accompanying notes are an integral part of these financial statements.
F-3
Novint Technologies, Inc.
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2006
|
|
2005
|
Revenue:
|
|
|
|
|
|
|
|
|
Project
|
|
$
|
87,014
|
|
|
$
|
331,752
|
|
Product
|
|
|
3,095
|
|
|
|
30,345
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
90,109
|
|
|
|
362,097
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
Project
|
|
|
63,402
|
|
|
|
168,038
|
|
Product
|
|
|
|
|
|
|
11,124
|
|
|
|
|
|
|
|
|
|
|
Total cost of goods sold
|
|
|
63,402
|
|
|
|
179,162
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
26,707
|
|
|
|
182,935
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
496,844
|
|
|
|
1,341,710
|
|
General and administrative
|
|
|
3,329,351
|
|
|
|
1,707,166
|
|
Depreciation and amortization
|
|
|
106,527
|
|
|
|
123,526
|
|
Sales and marketing
|
|
|
151,680
|
|
|
|
124,255
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,084,402
|
|
|
|
3,296,657
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,057,695
|
)
|
|
|
(3,113,722
|
)
|
Other (income) expense
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(176
|
)
|
|
|
(3,023
|
)
|
Interest expense
|
|
|
212,182
|
|
|
|
275,706
|
|
Loss on registration rights agreement
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net other expenses
|
|
|
252,006
|
|
|
|
272,683
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4,309,701
|
)
|
|
|
(3,386,405
|
)
|
|
|
|
|
|
|
|
|
|
Preferred stock accretion
|
|
|
(170,974
|
)
|
|
|
(29,606
|
)
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(4,480,675
|
)
|
|
$
|
(3,416,011
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share, basic and diluted:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.24
|
)
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(0.25
|
)
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
|
17,594,513
|
|
|
|
14,172,406
|
|
The accompanying notes are an integral part of these financial statements.
F-4
Novint Technologies, Inc.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
For the Years Ended December 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Conditionally Redeemable,
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Convertible Preferred Stock
|
|
Common Stock
|
|
Paid-in
|
|
Accumulated
|
|
Comprehensive
|
|
Unearned
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
(Deficit)
|
|
Loss
|
|
Compensation
|
|
Total
|
Balances, December 31, 2004
|
|
|
4,000
|
|
|
$
|
246,720
|
|
|
|
13,795,814
|
|
|
$
|
137,958
|
|
|
$
|
5,942,975
|
|
|
$
|
(4,752,221
|
)
|
|
$
|
(4,605
|
)
|
|
$
|
(746,980
|
)
|
|
$
|
577,127
|
|
Common stock issued to consultants for services
|
|
|
|
|
|
|
|
|
|
|
527,400
|
|
|
|
5,274
|
|
|
|
505,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
511,250
|
|
Options issued to employees for future services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,000
|
|
|
|
|
|
|
|
|
|
|
|
(68,000
|
)
|
|
|
|
|
Options issued to consultants for future services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,407
|
|
Cancelled options for employees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,383
|
)
|
|
|
|
|
|
|
|
|
|
|
56,383
|
|
|
|
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,699
|
|
|
|
195,699
|
|
Preferred stock accretion
|
|
|
|
|
|
|
29,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,606
|
)
|
|
|
|
|
|
|
|
|
|
|
(29,606
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,386,405
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,386,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2005
|
|
|
4,000
|
|
|
$
|
276,326
|
|
|
|
14,323,214
|
|
|
$
|
143,232
|
|
|
$
|
6,534,975
|
|
|
$
|
(8,168,232
|
)
|
|
$
|
(4,605
|
)
|
|
$
|
(562,898
|
)
|
|
$
|
(2,057,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock sold for cash, net of offering
costs of $14,500
|
|
|
|
|
|
|
|
|
|
|
2,525,000
|
|
|
|
25,250
|
|
|
|
2,485,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,510,500
|
|
Common stock issued to consultants for services
|
|
|
|
|
|
|
|
|
|
|
164,950
|
|
|
|
1,650
|
|
|
|
190,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
192,560
|
|
Common stock issued related to exercise of
options
|
|
|
|
|
|
|
|
|
|
|
55,334
|
|
|
|
554
|
|
|
|
(524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Common stock issued for repayment of notes
payable
|
|
|
|
|
|
|
|
|
|
|
1,373,224
|
|
|
|
13,732
|
|
|
|
970,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
983,846
|
|
Common stock issued for settlement of accrued
liabilities
|
|
|
|
|
|
|
|
|
|
|
1,005,069
|
|
|
|
10,051
|
|
|
|
657,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
667,865
|
|
Options issued to employees for services
performed or to be performed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251,399
|
|
|
|
|
|
|
|
|
|
|
|
40,460
|
|
|
|
291,859
|
|
Options issued to consultants for services
performed or to be performed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,426,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,426,003
|
|
Reclassification of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(489,954
|
)
|
|
|
|
|
|
|
|
|
|
|
522,438
|
|
|
|
32,484
|
|
Expense related to re-priced options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,748
|
|
Preferred stock accretion
|
|
|
|
|
|
|
170,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(170,974
|
)
|
|
|
|
|
|
|
|
|
|
|
(170,974
|
)
|
Preferred stock converted into common stock
|
|
|
(4,000
|
)
|
|
|
(447,300
|
)
|
|
|
447,300
|
|
|
|
4,473
|
|
|
|
442,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447,300
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,309,701
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,309,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006
|
|
|
|
|
|
$
|
|
|
|
|
19,894,091
|
|
|
$
|
198,942
|
|
|
$
|
12,624,562
|
|
|
$
|
(12,648,907
|
)
|
|
$
|
(4,605
|
)
|
|
$
|
|
|
|
$
|
169,992
|
|
The accompanying notes are an integral part of these financial statements.
F-5
Novint Technologies, Inc.
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2006
|
|
2005
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,309,701
|
)
|
|
$
|
(3,386,405
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
106,527
|
|
|
|
123,526
|
|
Common stock issued for services
|
|
|
192,560
|
|
|
|
511,250
|
|
Options issued to employees for services performed or to be peformed
|
|
|
324,343
|
|
|
|
|
|
Options issued to consultants for services
|
|
|
1,426,003
|
|
|
|
74,407
|
|
Expense related to re-priced options
|
|
|
155,748
|
|
|
|
|
|
Issuance of convertible notes payable for research and development
|
|
|
|
|
|
|
481,303
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
195,699
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
75,140
|
|
|
|
(47,990
|
)
|
Prepaid expenses
|
|
|
(85,886
|
)
|
|
|
(156
|
)
|
Deferred financing costs
|
|
|
(50,322
|
)
|
|
|
(4,032
|
)
|
Deposit on purchase of inventory
|
|
|
(283,071
|
)
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
591,056
|
|
|
|
41,107
|
|
Accrued interest
|
|
|
6,061
|
|
|
|
29,563
|
|
Accrued expenses related party
|
|
|
48,404
|
|
|
|
23,471
|
|
Costs and estimated earnings in excess of billings on contracts, net
|
|
|
|
|
|
|
3,271
|
|
Reserve for contract loss
|
|
|
|
|
|
|
(6,775
|
)
|
Billings in excess of costs and estimated earnings on contracts, net
|
|
|
(7,170
|
)
|
|
|
(47,185
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(1,810,308
|
)
|
|
|
(2,008,946
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from (to) investing activities:
|
|
|
|
|
|
|
|
|
Intangible expenditures
|
|
|
(5,001
|
)
|
|
|
|
|
Capital outlay for software development costs
|
|
|
(310,345
|
)
|
|
|
|
|
Property and equipment acquisitions
|
|
|
(271,505
|
)
|
|
|
(3,355
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(586,851
|
)
|
|
|
(3,355
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from (to) financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of options
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
2,525,000
|
|
|
|
|
|
Offering costs
|
|
|
(14,500
|
)
|
|
|
|
|
Proceeds from notes payable
|
|
|
340,000
|
|
|
|
725,000
|
|
Repayment of notes payable
|
|
|
(240,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,610,500
|
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
213,341
|
|
|
|
(1,287,301
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
42,127
|
|
|
|
1,329,428
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
255,468
|
|
|
$
|
42,127
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
33,200
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
850
|
|
|
$
|
850
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Payment of notes payable with 1,373,224 shares of common stock
|
|
$
|
983,846
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Payment of accrued liabilities with 1,005,069 shares of common stock
|
|
$
|
667,839
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of 4,000 shares of preferred stock into 447,300 shares of common stock
|
|
$
|
447,300
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development paid with Note Payable
|
|
$
|
|
|
|
$
|
481,303
|
|
|
|
|
|
|
|
|
|
|
Fair value accretion on conditionally redeemable, convertible preferred stock
|
|
$
|
170,974
|
|
|
$
|
29,606
|
|
The accompanying notes are an integral part of these financial statements.
F-6
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 1 NATURE OF BUSINESS
Novint Technologies, Inc. (the Company or 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. The Company currently is engaged in the
development and sale of haptics (or computer touch) hardware, software, and services. The Company
plans to expand into the consumer interactive gaming market. The Companys operations are based in
New Mexico with sales primarily to private entities and quasi-governmental agencies in the United
States.
Managements Plans
As of December 31, 2006, the Company had total current assets of $686,960 and total current
liabilities of $1,205,623, resulting in a working capital deficit of $518,663. As of December 31,
2006, the Company had cash and cash equivalents totaling $255,468. Our cash flow from operating
activities for the year ended December 31, 2006 resulted in a deficit of $1,810,308. Cash flow from
investing activities for the year ended December 31, 2006 resulted in a deficit of $586,851. Our
cash flow from financing activities for the year ended December 31, 2006 resulted in surplus of
$2,610,500. Overall, the Companys cash flows for the year ended December 31, 2006, netted a
surplus of $213,341. Subsequent to December 31, 2006 as further discussed in Note 14, the Company
raised approximately $9,000,000 from the sale of shares of common stock with warrants through an
equity agreement. The equity agreement allows for the sale of an additional $1,000,000 common stock
and warrants prior to March 30, 2007 to a strategic investor. This recent equity raised subsequent
to December 31, 2006 should allow the Company to further develop its haptics technology, and seek
and develop strategic partnerships with game publishers and hardware manufacturers that will
utilize the Companys haptics technology. The Company believes that it has sufficient capital and
existing equity financing arrangements, as result of the subsequent to December 31, 2006 equity
raise, to sustain its operations beyond twelve months and execute its current business plans with
respect to the haptics technology.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in
the United States of America, management makes estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant estimates include
the fair value of the Companys common stock and the fair value of options and warrants to purchase
common stock, and depreciation and amortization.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three
months or less at the date of purchase to be cash equivalents.
F-7
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Marketable Equity Securities
The Company classifies marketable equity securities as available-for-sale. Available-for-sale
investments are recorded at fair value determined based on quoted market prices with unrealized
gains and losses excluded from earnings and reported as a separate component of other comprehensive
loss in the accompanying statements of operations. Declines in the fair value of available-for-sale
securities below their cost that are deemed to be other than temporary are reflected in earnings as
realized losses. Fair market values are based on quoted market prices. Realized gains and losses on
the sale of securities are recorded on the trade date and are determined using the specific
identification method. Due to the immaterial amount of the marketable equity securities held by the
Company at December 31, 2006, they have been reported as prepaid expenses and other current assets
in the accompanying balance sheets. The Company did not record any change in the value of these
marketable equity securities during the years ended December 31, 2006 or 2005.
Accounts Receivable/Concentration of Credit Risk
The Company utilizes the allowance method for accounts receivable valuation, providing for
allowances for estimated uncollectible accounts receivable. The Company routinely assesses the
financial strength of its customers as part of its consideration of accounts receivable
collectibility by performing credit evaluations of customers. Trade receivables are not
collateralized. The Company generally grants credit terms to most customers ranging from 30 to 90
days.
The Companys financial instruments that are exposed to concentration of credit risk consist
primarily of uninsured cash, cash equivalents held at commercial banks and institutions primarily
in the United States, and trade receivables from the Companys customers. The Company maintains all
cash in bank accounts, which at times may exceed federally insured limits. The Company has not
experienced a loss in such accounts. At December 31, 2006, the Companys cash exceeded its
financial institution fully insured depository amount by approximately $155,000.
For the years ended December 31, 2006 and 2005, the Companys revenues were substantially
attributable to a government agency headquartered in New Mexico and several government contractors
located in the United States. Following is a summary of the Companys customers with sales over
10%, and the percentage of these sales to total sales for the years ended December 31, 2006 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
|
2006
|
|
%
|
|
2005
|
|
%
|
Lockheed Martin Perry
|
|
$
|
74,342
|
|
|
|
83
|
|
|
$
|
206,065
|
|
|
|
57
|
|
Sandia National Laboratories
|
|
|
|
|
|
|
|
|
|
|
48,545
|
|
|
|
13
|
|
Aramco
|
|
|
12,672
|
|
|
|
14
|
|
|
|
77,142
|
|
|
|
21
|
|
Fair Value of Financial Instruments
The Companys financial instruments, including cash and cash equivalents, accounts receivable,
accrued liabilities, accounts payable and notes payable are carried at historical cost, which
approximates their fair value because of the short-term maturities or repayment terms of these
instruments. Marketable equity securities are carried at fair value.
Advertising Costs
Advertising is expensed as incurred. The Company did not incur advertising expense in 2006 and
2005.
F-8
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Software Development Costs
The Company accounts for its software development costs in accordance with Statement of Financial
Accounting Standards (SFAS) Number 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 generally 5 years. The Company has capitalized software development costs in
connection with its haptics technology beginning in 2005. Amortization is computed on the
straight-line basis over the esimated life (5 years) of the haptics technology. As of December 31,
2006, the Companys capitalized software development costs totaled $302,948 (net of $7,397 of
accumulated amortization). The estimated annual amortization expense related to the capitalized
software development cost is approximately $56,000 per year.
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 December 31, 2006, capitalizable
costs incurred have not been significant for any development projects. Accordingly, the Company has
charged all costs to research and development expense in the periods incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property 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 $24,686 and $49,359 for the
years ended December 31, 2006 and 2005, respectively.
Intangible Assets
Intangible assets consist of licensing agreements $250,000 and patents $10,734, and are carried at
cost less accumulated amortization. Amortization is computed using the straight-line method over
the economic life of the assets, which range between 3 and 12 years. For the years ended December
31, 2006 and 2005, the Company recognized amortization expense of approximately $74,444 and
$74,167, respectively, related to intangible assets.
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 of 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 in 2006
or 2005.
F-9
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Annual amortization of intangible assets remaining at December 31, 2006, are as follows:
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
$
|
71,666
|
|
2008
|
|
|
2,500
|
|
2009
|
|
|
2,500
|
|
2010
|
|
|
2,500
|
|
2011 and after
|
|
|
18,582
|
|
Total
|
|
$
|
97,748
|
|
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, The
Company reviews its 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. No impairment loss was recorded in 2006 or 2005.
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.
The Companys 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 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.
Revenue from product sales relates to the sale of the Phantom haptics interface, which is a
human-computer user interface (the Phantom). The Phantom allows the user to experience sensory
information when using a computer and its handle and is the approximate size and shape of a writing
instrument. Phantoms are manufactured by an unrelated party and are shipped directly to the
customer.
F-10
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. The
Companys costs associated with shipping product items to the Companys customers are included in
the Companys Cost of Goods Sold. The Company does not charge a separate or additional fee for
shipment to their customers, rather this fee is included in the price and, therefore, part of the
Companys product revenue. No provision for sales returns has been provided in these financial
statements as the Company has never had a sales return.
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 Companys
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 Companys agreement with its
customer, further obligation is limited to the terms defined in its warranty.
The Companys customers are provided a warranty from the Companys supplier. This warranty
guarantees that the suppliers products shall be free from manufacturing defects. The supplier
agrees to provide, free of charge, replacements for any components found to be defective within 1
year of delivery. The Companys customers also have the option of purchasing a Maintenance Renewal,
which extends the suppliers warranty coverage for the following year. The Companys supplier
handles all administration and actual repairs provided for under the basic and renewal programs
and, therefore, the Company has not recorded a warranty accrual. To date, the Companys customers
have not purchased a Maintenance Renewal.
Income Taxes
In accordance with SFAS 109, Accounting for Income Taxes, the Company accounts for income taxes
under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis and operating loss and
tax credit carryforwards. 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 income in the period that includes the enactment date.
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 December 31, 2006 and
2005, the Company had a total of 12,208,794 and 10,251,338, respectively, in potentially dilutive
securities.
F-11
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock Based Compensation
On January 1, 2006, the Company adopted SFAS No. 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.
The Company adopted SFAS No. 123(R) using the modified prospective transition method, which
required the application of the accounting standard as of January 1, 2006. The accompanying
consolidated financial statements as of and for the year ended December 31, 2006 reflect the impact
of SFAS No. 123(R). In accordance with the modified prospective transition method, the Companys
accompanying consolidated financial statements for the prior periods have not been restated, and do
not include the impact of SFAS No. 123(R). Stock based compensation expense recognized under SFAS
No. 123(R) for the year ended December 31, 2006 totaled $324,343. Pro forma stock based
compensation for the year ended December 31, 2005 totaled $332,008. The following table summarizes
the pro forma effect for the year ended December 31, 2005:
|
|
|
|
|
|
|
December 31,
|
|
|
2005
|
Net loss available to common shareholders, as reported
|
|
$
|
(3,416,011
|
)
|
Add: Stock-based employee compensation expense included in reported net income
|
|
|
195,699
|
|
Deduct: Total stock-based employee compensation expense determined under fair
value-based method for all awards
|
|
|
(332,008
|
)
|
|
|
|
|
|
Pro forma net loss available to common shareholders
|
|
$
|
(3,552,320
|
)
|
|
|
|
|
|
Loss available to common shareholders per share, basic and diluted:
|
|
|
|
|
As reported
|
|
$
|
(0.24
|
)
|
Pro forma
|
|
$
|
(0.25
|
)
|
In calculating the fair value of options for the above pro forma disclosure, the following
assumptions were used for stock options issued during the years of 2005: fair market value of $1.00
per share, risk-free rates ranged from 1.73% to 3.66%, volatility of the options ranged from 73% to
91%, estimated lives of 3 to 10 years and exercise prices ranged from $0.50 to $0.66 per share. In
calculating the fair value of options for stock based compensation recognized under SFAS No.
123(R), the following assumptions were used for stock options issued during the year of 2006:
closing price of the common stock at the date of grant, risk-free rates ranged from 5.15% to 5.25%,
volatility of the options ranged from 141% to 146%, estimated lives of 3 to 10 years and exercise
prices ranged from $0.90 to $1.20 per share.
Research and Development
Research and development costs are expensed as incurred and amounted to $496,844 and $1,341,710 for
the years ended December 31, 2006 and 2005, respectively.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires
that we recognize in our financial statements the benefit of a tax position if that position is
more likely than not of being sustained on audit, based on the technical merits of the position.
The provisions of FIN 48 become effective as of the beginning of our 2008 fiscal year, with the
cumulative effect of the change in accounting principle recorded as an adjustment to opening
retained earnings. The Company is currently evaluating the impact that FIN 48 will have on our
financial statements.
F-12
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (FAS 157), which
defines fair value, establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. The provisions of FAS 157 become effective as of the beginning of our
2008fiscal year. The Company is currently evaluating the impact that FAS 157 will have on our
financial statements.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108), which addresses how to quantify the effect of financial statement
errors. The provisions of SAB 108 become effective as of the end of our 2007 fiscal year. The
Company does not expect the adoption of SAB 108 to have a significant impact on our financial
statements.
In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of FASB Statement No. 115 (FAS 159). FAS 159
permits companies to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. The provisions of FAS 159
become effective as of the beginning of our 2009 fiscal year. The Company is currently evaluating
the impact that FAS 159 will have on our financial statements.
In December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration Payment
Arrangements. This FASB Staff Position (FSP) addresses an issuers accounting for registration
payment arrangements. This FSP specifies that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other agreement, should
be separately recognized and measured in accordance with FASB Statement No. 5,
Accounting for
Contingencies
. The guidance in this FSP amends FASB Statements No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, and No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity
, and FASB Interpretation No. 45,
Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others
, to include scope exceptions for registration payment arrangements. This
FSP further clarifies that a financial instrument subject to a registration payment arrangement
should be accounted for in accordance with other applicable generally accepted accounting
principles (GAAP) without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement. This FSP is effective immediately for registration payment
arrangements and the financial instruments subject to those arrangements that are entered into or
modified subsequent to the date of issuance of this FSP. For registration payment arrangements and
financial instruments subject to those arrangements that were entered into prior to the issuance of
this FSP, this guidance shall be effective for financial statements issued for fiscal years
beginning after December 15, 2006, and interim periods within those fiscal years. Early adoption of
this FSP for interim or annual periods for which financial statements or interim reports have not
been issued is permitted. The Company has chosen to adopt this FSP early. See note 11 for effect of
the adoption of this pronouncement.
Reclassifications
Certain reclassifications have been made to the 2005 balances in order to conform to the 2006
presentation.
F-13
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 3 MARKETABLE EQUITY SECURITIES
At December 31, 2006, the Company held 8,284 shares of Manhattan Scientifics, Inc. (Manhattan)
common stock.
As of December 31, 2006, the marketable equity securities had an original cost of $5,102, gross
unrealized losses of $4,605 and a fair value of $497. There have been no substantial changes in the
fair value of such securities during 2006. The Companys marketable equity securities are carried
at fair value and are included in prepaid and other current assets in the accompanying financial
statements.
There were no sales of marketable securities during the years ended December 31, 2006 or 2005.
NOTE 4 COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS AND BILLINGS IN EXCESS OF
COSTS AND ESTIMATED EARNINGS ON CONTRACTS
Costs and estimated earnings in excess of billings on contracts consisted of the following at:
|
|
|
|
|
|
|
December 31,
|
|
|
2006
|
Costs and estimated earnings incurred on uncompleted contracts
|
|
$
|
|
|
Billings on uncompleted contracts
|
|
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
|
|
Billings in excess of costs and estimated earnings on contracts consisted of the following at:
|
|
|
|
|
|
|
December 31,
|
|
|
2006
|
Billings on uncompleted contracts
|
|
$
|
(73,744
|
)
|
Costs and estimated earnings incurred on uncompleted contracts
|
|
|
68,244
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
$
|
(5.500
|
)
|
NOTE 5 INTANGIBLE ASSETS
Intangible assets consisted of the following at:
|
|
|
|
|
|
|
December 31,
|
|
|
2006
|
Licensing agreements
|
|
$
|
250,000
|
|
Patent
|
|
|
10,734
|
|
Less accumulated amortization
|
|
|
(162,986
|
)
|
|
|
$
|
97,748
|
|
NOTE 6 NOTES PAYABLE
During the year ended December 31, 2005, management executed a number of bridge loans. The first
loan for $200,000 has an original due date of March 7, 2006 and a stated interest rate of 20% or
$20,000 for the first six months outstanding. The note has the option to extend for one year under
certain conditions with an interest rate of 12%. These conditions have been met and the due date of
this note was September 8, 2006. As of September 30, 2006, this note has been fully satisfied. The
remaining bridge loans ranged from $15,000 to
$450,000. These notes were originally due one year from the date of issuance at a stated interest
rate of 12%. During the nine months ended September 30, 2006, $825,000 of outstanding principal
balance and $35,624 of accrued interest was settled through issuance of 1,250,002 shares of the
Companys common stock.
F-14
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 6 NOTES PAYABLE (Continued)
The balances on these notes were paid for with Novint stock. As of September 30, 2006, the $825,000
loans plus accrued interest were paid.
NOTE 7 CONVERTIBLE NOTES PAYABLE
On March 22, 2005, the Company executed a convertible promissory note in the amount of $123,222 to
Lunar Design for the costs incurred during January 2005 associated with contracted research and
development efforts. The terms of the promissory note include payment due March 22, 2006, in part
or in whole in cash during the time prior to maturity date. In accordance with the agreement, since
the promissory note was not paid in full in cash at the promissory notes maturity date, during the
second quarter of 2006, the Company converted the unpaid balance of the note into 123,222 shares of
the Companys common stock which equated to the price per share equal to the last sale price of the
Companys common stock on the maturity date, or on the last business day prior to the maturity
date.
During 2005, the Company executed additional convertible promissory notes in the amount of $358,081
to Lunar Design for the costs incurred during 2005 associated with contracted research and
development efforts. The promissory notes are non-interest bearing, passed their maturity dates
(maturity dates varying throughout 2006) and are currently due on demand. If the promissory notes
were not paid in full in cash at the promissory notes maturity date, the Company will convert the
unpaid balance of the note into shares of the Companys common stock at the price per share equal
to the last sale price of the Companys common stock on the maturity date, or on the last business
day prior to the maturity date. As of December 31, 2006, there were no conversion related to any of
these amounts and the Company is currently negotiating repayment terms on such promissory notes.
NOTE 8 INCOME TAXES
A reconciliation of income tax expense using the statutory federal and state income tax rates is as
follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
Income tax benefit at statutory rate
|
|
$
|
(1,463,000
|
)
|
|
$
|
(1,151,000
|
)
|
State income taxes
|
|
|
(207,000
|
)
|
|
|
(163,000
|
)
|
Increase in valuation allowance
|
|
|
1,670,000
|
|
|
|
1,314,000
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
|
|
|
$
|
|
|
Deferred income taxes reflect the tax consequences on future years for differences between the tax
basis of assets and liabilities and their basis for financial reporting purposes. Temporary
differences giving rise to the current deferred tax asset and liability primarily relate to
accrual-to-cash adjustments as the Company follows the accrual basis of accounting for financial
reporting but the cash basis for tax purposes. The other major temporary timing differences giving
rise to the non-current deferred tax asset are net operating loss carryforwards. The temporary
differences giving rise to the non-current deferred tax liability consist of the software costs
that have been capitalized for financial reporting purposes but are deductible for tax reporting
purposes.
F-15
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 8 INCOME TAXES (Continued)
Deferred income taxes reflect the tax consequences on future years of differences between the tax
basis of assets and liabilities and their basis for financial reporting purposes. Deferred tax
assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
Net operating loss carryforwards
|
|
$
|
3,906,000
|
|
|
$
|
2,795,000
|
|
Accrual-to-cash adjustment
|
|
|
249,000
|
|
|
|
320,000
|
|
Options granted for services
|
|
|
859,000
|
|
|
|
105,000
|
|
Other
|
|
|
18,000
|
|
|
|
23,000
|
|
Software capitalized for books
|
|
|
(120,000
|
)
|
|
|
|
|
Valuation allowance
|
|
|
(4,912,000
|
)
|
|
|
(3,243,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
As a result of the significant net losses incurred since inception and the likelihood of being able
to utilize these losses is not presently determinable, the Company has recorded a valuation
allowance to fully reserve its net deferred tax asset.
At December 31, 2006, the Company has available unused state and federal operating loss
carryforwards of approximately $8.8 million for federal taxes and $7.2 million for state taxes that
may provide future tax benefits, expiring between 2006 and 2010 for state taxes and 2020 through
2026 for federal taxes, as follows:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
State
|
NOL carryforward expiration:
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
|
|
|
$
|
408,177
|
|
2008
|
|
|
|
|
|
|
562,930
|
|
2009
|
|
|
|
|
|
|
726,425
|
|
2010
|
|
|
|
|
|
|
3,068,623
|
|
2011
|
|
|
|
|
|
|
2,429,700
|
|
Thereafter
|
|
|
8,824,000
|
|
|
|
|
|
|
|
$
|
8,824,000
|
|
|
$
|
7,195,855
|
|
NOTE 9 GENERAL AND ADMINISTRATIVE EXPENSE BREAKOUT
The breakout by major category (categories greater than 5% of the 2006 and 2005, total general and
administrative expense balance) are listed below for the respective years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
Consultant and employee compensation
|
|
$
|
1,637,674
|
|
|
$
|
1,141,213
|
|
Professional fees
|
|
|
1,465,253
|
|
|
|
378,606
|
|
Insurance
|
|
|
98,594
|
|
|
|
84,429
|
|
Remaining (accounts not greater than 5%)
|
|
|
127,830
|
|
|
|
102,918
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,329,351
|
|
|
$
|
1,707,166
|
|
F-16
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 10 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.
The Company has a licensing agreement with Sandia National Laboratories (Sandia), which initially
developed Flight, the precursor to e-TouchTM (the technology) and employed the Companys founder.
The licensing agreement provides the Company the right to utilize the technology exclusively for a
period of 12 years (expiring in 2011) and non-exclusively in perpetuity and places certain
restrictions on its use as well as requires the Company to pay a 1.5 percent royalty fees to Sandia
in connection with any income earned based upon the technology. Additionally, under the original
agreement, the Company is obligated to pay to Sandia on a semi-annual basis annual minimum earned
royalties of $6,000 in 2001, $14,000 in 2002, $24,000 in 2003 and $30,000 from 2004 through 2011.
The agreement was amended on June 29, 2005, modifying the royalty payment terms such that the
Company will pay royalties of $40,000 for 2001 and 2002, $24,000 in 2003, 30,000 shares of the
Companys Common Stock in 2004, and $30,000 for 2005. Novint had paid all cash amounts due and
issued the agreed shares of common stock for its obligations up through December 31, 2006. The
Company anticipates any future amounts due to Sandia will approximate $30,000 per year as it
relates to the royalty payment terms.
The Sandia agreement also allows for sublicensure of the technology to others, which was provided
to Manhattan Scientifics, Inc. (Manhattan), one of the Companys shareholders, under an agreement
dated June 24, 2000. This agreement was superseded by the Final License and Royalty Agreement dated
May 16, 2001, through which, Manhattan acquired all of the shares of Teneo. Manhattan then entered
into an agreement with the Company concerning Teneos intellectual property. The agreement between
the Company and Manhattan, also dated May 16, 2001, grants an exclusive right to all of the
intellectual property previously held by Teneo and grants Manhattan an exclusive right to all
Novint intellectual property within a particular Field of Use.
Under this agreement, Novint is entitled to a 5% royalty on net revenues derived from such
sublicense. Any previous agreements granting the Companys intellectual property to Manhattan were
superseded.
From the date of the agreement through December 31, 2006, the Company had not earned or received
royalties associated with this agreement.
The Company has an agreement with Lunar Design, a product design firm, to design and develop its
haptics game controller. The current statement of work outlines the delivery of a final prototype
in August 2005 as well as provides for additional projects as agreed to by the parties through
2006. The prototype was delivered in October 2005. In addition, Lunar Design will provide support
for the Companys manufacturing partner for design problems or other trade-offs encountered in
creating the manufacturing prototype. Lunar Design has agreed to accept payment in the form of
cash, promissory note or Novint common stock. At December 31, 2006, the Company has recorded
accounts payable in the accompanying balance sheet due to Lunar Design of $354,820 and convertible
notes payable in the amount of $358,081, see Note 6. In 2005, such costs were expensed as research
and development expenses. In 2006, $250,129 was capitalized as of software development costs. The
Company does not anticipate any further work with regards to this agreement. Any future work
provided by Lunar Design will be new work outside of this agreement.
F-17
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 10 COMMITMENTS AND CONTINGENCIES (Continued)
On January 5, 2004, the Company entered into an exclusive Intellectual Property License Agreement
(Agreement) with Force Dimension, a company in the haptics hardware technologies and products
field. The Agreement provides the Company with a sublicense to a hardware patent and an assignment
of a pending patent from Force Dimension. The Agreement, in turn, provides Force Dimension a
security interest and a general lien in the assigned patent as well as an irrevocable, exclusive
license in the patent that has been assigned to the Company. On May 10, 2005, the Company amended
its contract with Force Dimension, Inc. to provide for: a license fee in the amount of $15,000 due
on the effective date; the payment of a milestone payment in the amount of $50,000 within ten days
of the contract amendments effective date; a license fee in the amount of $50,000 within 30 days
of the Companys IPO; and a support and license fee in the amount of $455,000 due no later than
January 5, 2006, for all technical and support services rendered to the Company during such time
period for total payments of $620,000.
In addition, the Company was to issue 250,000 shares of the Companys common stock within 30 days
of the contract amendments effective date as consideration for extending the payment terms of the
agreement. These shares of stock were issued to Force Dimension on May 12, 2005, and have been
accounted for as a financing cost related to a modification of Novints payment terms. The fair
value of the stock issued is $250,000 and is reflected as interest expense in the amount of
$245,968 for the year ended December 31, 2005, and $4,032 for the year ended December 31, 2006.
During the year ended December 31, 2004, the Company paid $15,000 to Force Dimensions for the
license fee in the amount of $15,000 due on the effective date. During 2005, Novint paid $140,000
to Force Dimension, representing a portion of the $50,000 milestone payment originally due to Force
Dimension upon or before Novints receipt of the Second Deliverable as described in the original
agreement, the $50,000 milestone payment due on the amendments effective date, and $50,000
representing a portion of the licensing fees due. The Second Deliverable was received by Novint on
December 30, 2004. The remaining amount of $465,000 due to Force Dimensions was recorded as accrued
research and development liabilities as of December 31, 2005 then completely settled in March 2006
through issuance of 607,500 shares of common stock.
The Agreement requires Novint to pay up to $15 million to Force Dimension, including the amounts
above, on a per unit of Licensed Product basis for license fees, royalties and a percentage of
product sales after the product becomes technologically feasible. In addition, Novint is entitled
to 5% license fees/royalties for any licensed products sold related to the sublicense granted to
Force Dimension by Novint. Novint has not recorded any fees related to such arrangement. This
Agreement shall terminate upon Novints payment in total of $15,000,000 to Force Dimension and
payment in full of any other obligations arising pursuant to the terms and conditions of this
Agreement.
The Company has a perpetual employment agreement with the CEO. Under such agreement, he is entitled
to an annual base salary of $150,000 per year and cash bonus to be determined by the Company, is
subject to confidentiality provisions and is entitled to a severance of one year base salary if he
is terminated by the Company without cause.
The Company also has a perpetual employment agreement with the CTO. Under such agreement, he was
originally granted options to purchase 400,000 shares of the Companys common stock, but options to
purchase 200,000 shares were cancelled. He is entitled to an annual base salary of $155,000 per
year and cash bonus to be determined by the Company, is subject to confidentiality provisions and
is entitled to a severance of two months base salary if he is terminated by the Company without
cause.
F-18
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 10 COMMITMENTS AND CONTINGENCIES (Continued)
Effective May 1, 2006, the Company entered into negotiations for a consultant agreement with AF
Double Eagle (Consultant) whereby Consultant will become a full time employee of the Company
approximately 6 months after the effective date of the agreement. The Company and Consultant may
transition to Consultant becoming a full time employee earlier upon mutual consent. In accordance
with the agreement, Consultant will assist the Company in revenue generation, strategic partnering,
strategic planning, funding process and general corporate operations.
Compensation arrangements to the consultant are as follows:
Cash compensation The Company will pay Consultant $10,000 at the beginning of each month as
compensation for these services.
Equity compensation Subject to applicable laws, and the Companys stock option plan, and
consistent with the Companys usual option grant terms, The Company will grant to Consultant
options to purchase 1,213,930 shares of the Companys common stock. The options shall have an
exercise price of $1.00 per share, and shall be exercisable for 7 years from the date of grant.
These options were granted to Consultant on May 1, 2006, and the Company calculated the initial
value of the options using the Black-Scholes model based on the following assumptions: a risk-free
rate of 5.15%, volatility of 137%, estimated life of 10 years and a fair market value of $1.40 per
share.
If the Company sells shares of its common stock in a sale or sales cumulating at least $3,000,000
net proceeds to the Company before May 1, 2007, and the average per share price of such sale or
sales (the Average Price) is less than $1.00, then the Company shall issue additional options on
substantially the same terms, such that the total number of options, including previous options
plus newly issued options, times the Average Price equals $1,213,930.
The options shall initially be unvested. The Company, Consultant, and Foley anticipate that vesting
of options will continue in connection with employment. If such employment is not entered for any
or no reason, then any options unvested at the termination of this Agreement shall be forfeited to
the Company.
Option Group A. Options equal to 5/7ths of consultants total number of options shall vest monthly
over five years, with the first such installment vesting June 1, 2006. If at any time the number of
options vested shall be determined, the number vested according to the preceding monthly
installment schedule shall be rounded to the nearest whole number of options.
Option Group B. Options equal to 1/7th of consultants total number of options shall vest on the
close of a sale of equity in the Company to a Consultant Source totaling not less than $1,000,000
net proceeds to the Company, or on the vesting of Option Group C, whichever first occurs. A
Consultant Source is a party that Consultant first introduces to the Company (i.e., the Company
had no relationship with the party prior to Consultants introduction), and who purchases equity in
the Company in a transaction in which Consultant actively participates in communications and
negotiations, and who purchase equity in the Company prior to the termination of this Agreement. If
on May 1, 2009, this condition has not been met, and this Agreement has not been terminated, then
Option Group B shall vest on May 1, 2009.
Option Group C. Options equal to 1/7th of consultants total number of options shall vest on the
date that The Companys cumulative product sales total either (a) 100,000 units of Falcon interface
units (not including end effectors or other accessories sold apart from a base unit) or (b)
$20,000,000 in revenue to The Company. If on May 1, 2009, this condition has not been met, and this
Agreement has not been terminated, then Option Group C shall vest on May 1, 2009.
Bonus compensation The Company will pay to Consultant an amount equal to 4% of the net proceeds
to the Company of any sale of equity to a Consultant Source closing before the termination of this
Agreement.
F-19
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 10 COMMITMENTS AND CONTINGENCIES (Continued)
The Company will pay to Consultant an amount equal to 20% of the gross revenue to the Company of
any Consultant Sales, where Consultant Sales are sales of the Company products to parties that were
first introduced to the Company by Consultant but only for so long as Consultant is actively
promoting and driving sales to the party and actively managing the relationship with the party.
Although this consulting agreement has not been signed, the Company has paid and continues to pay
Consultant under the terms of the agreement and the options were considered granted May 1, 2006.
NOTE 11 STOCKHOLDERS EQUITY
Common Stock and Warrants Sold with Conditional Exercise Price Adjustment
In April 2006, the Company sold 500,000 shares of common stock and 250,000 warrants to purchase
common stock to an unrelated party for $500,000. The warrants have an exercise price per share of
$2.00. The purchase price of the common stock is subject to adjustment as follows: In the event,
that after the date of the agreement, the Company shall complete an offering of securities on or
before April 1, 2007 which results in gross proceeds to the Company of not less than $3,000,000,
and if such offering is conducted at a price per share of common stock of $1.11 per share or less,
then, the purchase price per share of common stock shall be automatically adjusted to equal 90% of
the issue price.
In August 2006, the Company sold 1,000,000 shares of common stock and 500,000 warrants to purchase
common stock to an unrelated parties for $1,000,000. The warrants have an exercise price per share
of $2.00. The purchase price of the common stock is subject to adjustment as follows: In the event,
that after the date of the agreement, the Company shall complete an offering of securities on or
before April 1, 2007 which results in gross proceeds to the Company of not less than $3,000,000,
and if such offering is conducted at a price per share of common stock of $1.11 per share or less,
then, the purchase price per share of common stock shall be automatically adjusted to equal 90% of
the issue price.
In September 2006, the Company sold 280,000 shares of common stock and 140,000 warrants to purchase
common stock to an unrelated party for $280,000. The warrants have an exercise price per share of
$2.00. The purchase price of the common stock is subject to adjustment as follows: In the event,
that after the date of the agreement, the Company shall complete an offering of securities on or
before April 1, 2007 which results in gross proceeds to the Company of not less than $3,000,000,
and if such offering is conducted at a price per share of common stock of $1.11 per share or less,
then, the purchase price per share of common stock shall be automatically adjusted to equal 90% of
the issue price.
Common Stock and Warrants Sold with Registration Rights
Included in the 1,000,000 shares of common stock and 500,000 warrants sold in August 2006 as
discussed previously, 250,000 shares of common stock and 125,000 warrants includes a provision for
registration rights. As part of the private placement, the Company agreed to register the shares of
common stock sold in the placement. The agreement requires the Company to file a registration
statement within 120 days of the closing and to have the registration statement declared effective
within 240 days of the closing. If the Company does not file a registration statement within 120
days of the closing, the Company must pay a monthly pro rated penalty in common stock of 1% of the
number of shares sold, but in no event beyond 240 days of the closing. If the Company fails to have
the registration statement declared effective within 240 days of the closing, the Company must pay
a prorated monthly penalty in common stock of 3% of the number of shares sold, but in no event
after one year. The Company has not filed a registration statement covering these shares and
accordingly the registration statement has not been declared effective. Management does not believe
it will file the registration statement in the near future nor will it be declared effective within
240 days of the closing.
F-20
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 11 STOCKHOLDERS EQUITY (Continued)
In accordance with FSP EITF 00-19-2, on the date of the private placement, the Company reviewed the
terms of the registration rights agreements and as of that date, the Company believed they would
meet all of the required deadlines under the agreement. As a result, the Company did not record any
liability associated with the registration rights agreement. The Company has yet to file the
registration statement and now believes that the registration statement covering the shares issued
in the private placement will not be declared effective within the 240 day requirement. As a result
the Company has determined that it is probable that the Company will be required to pay the full
amount of the penalty. The full amount of the penalty would result in 10,000 shares of common stock
under the first default and 30,000 shares under the second default. The Company has accrued $40,000
for these shares. Subsequent to year end, the Company issued 40,000 shares to the investor.
Conditionally Redeemable, Convertible Preferred Stock
On April 20, 2000, in connection with the license agreement with Sandia, the Company issued all
4,000 authorized shares of Series A conditionally redeemable, convertible preferred stock at $25.00
per share. The preferred stock was convertible into fully paid and non-assessable common stock as
follows: at the holders option based on the conversion price in effect on the conversion date or
automatically upon the closing of an IPO, which would result in 447,300 shares of common stock. The
conversion price shall be (i) the subscription price ($100,000 when expressed as an aggregate
amount or $25.00 per share when expressed on a per-share basis) divided by (ii) the conversion
price in effect on the conversion date. Additionally, the Company is obligated to redeem the
preferred shares, if there is no IPO or initial sale within 10 years from the issue date.
In connection with the effectiveness of the Companys registration statement, on February 6, 2006
the Company issued 447,300 shares of common stock to Sandia for the conversion of the preferred
stock in accordance with the agreement.
Accordingly, the Company accreted the fair value of the common stock conversion to retained
earnings through the conversion date of February 6, 2006. When the Company was approved for public
filing, it recognized an additional charge of $170,974 to retained earnings of the converted shares
at the fair value as compared to the IPO price. The fair value of the stock on February 6, 2006 was
estimated to be $1.00 per share.
Stock Options
In March 2004, the Board of Directors approved the adoption of the 2004 Stock Incentive Plan which
was then amended in February 2007 increasing the number of shares of common stock reserved under
this from 3,500,000 shares to 7,500,000 shares. The Company has issued options to purchase shares
of common stock to employees and various consultants for payment of services.
F-21
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 11 STOCKHOLDERS EQUITY (Continued)
Option activity during the years ended December 31, 2006 and 2005, is summarized in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Shares
|
|
|
|
|
|
Average
|
|
|
Under
|
|
Price per
|
|
Exercise
|
|
|
Option
|
|
Share
|
|
Price
|
Options outstanding at 12/31/04
|
|
|
7,930,538
|
|
|
$
|
0.01 $0.66
|
|
|
$
|
0.28
|
|
Granted
|
|
|
238,636
|
|
|
$
|
0.66
|
|
|
$
|
0.66
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Canceled
|
|
|
(158,333
|
)
|
|
$
|
0.66
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at 12/31/05
|
|
|
8,010,841
|
|
|
$
|
0.01$0.66
|
|
|
$
|
0.26
|
|
Granted
|
|
|
3,469,763
|
|
|
$
|
0.90$1.20
|
|
|
$
|
0.96
|
|
Exercised
|
|
|
(58,505
|
)
|
|
$
|
0.01$0.66
|
|
|
$
|
0.07
|
|
Canceled
|
|
|
(5,000
|
)
|
|
$
|
0.66
|
|
|
$
|
0.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at 12/31/06
|
|
|
11,417,099
|
|
|
$
|
0.01$1.20
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at 12/31/05
|
|
|
5,705,174
|
|
|
$
|
0.01$0.66
|
|
|
$
|
0.12
|
|
Exercisable at 12/31/06
|
|
|
6,525,169
|
|
|
$
|
0.01$1.01
|
|
|
$
|
0.22
|
|
The following summarizes certain information regarding outstanding options December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Remaining
|
|
|
|
|
|
Weighted
|
Exercise
|
|
|
|
|
|
Average
|
|
Contractual
|
|
|
|
|
|
Average
|
Price
|
|
Number
|
|
Exercise Price
|
|
Life (years)
|
|
Number
|
|
Exercise Price
|
$0.01
|
|
|
284,911
|
|
|
$
|
0.01
|
|
|
|
1.55
|
|
|
|
284,911
|
|
|
$
|
0.01
|
|
$0.05
|
|
|
4,600,000
|
|
|
$
|
0.05
|
|
|
|
5.46
|
|
|
|
4,600,000
|
|
|
$
|
0.05
|
|
$0.50
|
|
|
11,364
|
|
|
$
|
0.50
|
|
|
|
6.63
|
|
|
|
11,364
|
|
|
$
|
0.50
|
|
$0.66
|
|
|
3,126,894
|
|
|
$
|
0.66
|
|
|
|
7.47
|
|
|
|
1,328,894
|
|
|
$
|
0.66
|
|
$0.90
|
|
|
1,500,000
|
|
|
$
|
0.90
|
|
|
|
9.92
|
|
|
|
|
|
|
$
|
0.90
|
|
$1.00
|
|
|
1,463,930
|
|
|
$
|
1.00
|
|
|
|
9.30
|
|
|
|
|
|
|
$
|
1.00
|
|
$1.01
|
|
|
380,000
|
|
|
$
|
1.01
|
|
|
|
9.71
|
|
|
|
300,000
|
|
|
$
|
1.01
|
|
$1.20
|
|
|
50,000
|
|
|
$
|
1.20
|
|
|
|
9.75
|
|
|
|
|
|
|
$
|
1.20
|
|
Total
|
|
|
11,417,099
|
|
|
$
|
0.49
|
|
|
|
7.15
|
|
|
|
6,525,169
|
|
|
$
|
0.22
|
|
NOTE 12 OPTIONS AND WARRANTS
Options
During the years ended December 31, 2006 and 2005, respectively, the Company recognized
compensation expense of $562,898 and $195,699, respectively, of deferred compensation related to
options issued to employees in current and prior years.
In January 2005, the Company granted 75,000 options to an employee at an exercise price of $0.66
per share. These options have annual vesting periods over 5 years. Unearned compensation of $25,500
was recorded at the measurement date and will be amortized ratably over the vesting period. For the
year ended December 31, 2005, $5,100 was recognized as compensation.
F-22
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 12 OPTIONS AND WARRANTS (Continued)
In January 2005, the Company granted 10,000 options to an advisory board member at an exercise
price of $0.66. Expense recorded in connection with these options totaled approximately $2,580 for
the year ended December 31, 2005. These options have a semi-annual vesting period over 4 years. At
December 31, 2005, The Company calculated the value of these options using the Black-Scholes model
based on the following assumptions: a risk-free rate of 4.29 volatility of 41%, estimated life of
10 years and a fair market value of $1.00 per share. The following assumptions were used in
calculating the initial fair value of these options: risk-free rate of 4.24%, volatility of 73%,
contractual term of 10 years, exercise price of $0.66 per share and fair market value of $1.00 per
share.
In March 2005, the Company granted 100,000 options to an employee at an exercise price of $0.66 per
share. These options have annual vesting periods over 5 years. These options had intrinsic value
because the exercise price of $0.66 per share was less than the fair market value of $1.00 per
share. Unearned compensation of $34,000 was recorded at the measurement date and will be amortized
ratably over the vesting period. For the year ended December, 2005, $12,467 was recognized as
compensation.
In May 2005, the Company granted 28,636 non-qualified options to purchase Company stock to certain
related parties and consultants at an exercise price of $.66 per share for services rendered during
the second quarter of 2005. The options vest immediately upon issuance. The following assumptions
were used in calculating the initial fair value of these options: risk-free rate of 3.94%,
volatility of 57%, contractual term of 10 years, exercise price of $0.66 per share and fair market
value of $1.00 per share. Expense recorded in connection with these options totaled approximately
$16,409 for the year ended December 31, 2005.
On May 5, 2005, the Company granted 25,000 options to purchase Company stock to an employee for
services rendered during the second quarter of 2005. These options had intrinsic value because the
exercise price of $0.66 per share was less than the fair market value of $1.00 per share. These
options vest immediately. For the year ended December, 2005, $8,500 was recognized as compensation.
Warrants
A summary of the status of the total number of warrants as of December 31, 2006 and 2005,
respectively, and changes during the periods then ended is presented in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
December 31, 2005
|
|
|
|
|
|
|
Wtd Avg
|
|
|
|
|
|
Wtd Avg
|
|
|
Shares
|
|
Ex Price
|
|
Shares
|
|
Ex Price
|
Outstanding at beginning of year
|
|
|
3,442,900
|
|
|
$
|
1.37
|
|
|
|
3,442,900
|
|
|
$
|
1.37
|
|
Granted
|
|
|
2,545,625
|
|
|
|
1.41
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(
|
)
|
|
|
|
|
|
|
(
|
)
|
|
|
|
|
Forfeited
|
|
|
(304,900
|
)
|
|
|
1.00
|
|
|
|
(
|
)
|
|
|
|
|
Outstanding at end of year
|
|
|
5,683,625
|
|
|
|
1.27
|
|
|
|
3,442,900
|
|
|
|
1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
5,683,625
|
|
|
|
1.40
|
|
|
|
2,888,000
|
|
|
|
1.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of warrants granted
|
|
$
|
1.46
|
|
|
|
|
|
|
$
|
1.99
|
|
|
|
|
|
F-23
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 12 OPTIONS AND WARRANTS (Continued)
A summary of outstanding warrants as of December 31, 2006, the range of exercise prices, the
weighted-average exercise price, the weighted-average remaining contractual life, the amount of
warrants currently exercisable and the weighted-average exercise price of warrants currently
exercisable is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding
|
|
|
|
|
|
Warrants Exercisable
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
Number
|
|
Remaining
|
|
Average
|
|
Number
|
|
Average
|
Range of
|
|
Outstanding at
|
|
Contractual
|
|
Exercise
|
|
Exercisable
|
|
Exercise
|
Exercise Prices
|
|
12/31/2006
|
|
Life
|
|
Price
|
|
at 12/31/2006
|
|
Price
|
$0.00 to $0.25
|
|
|
600,000
|
|
|
7.88 years
|
|
$
|
0.25
|
|
|
|
600,000
|
|
|
$
|
0.25
|
|
$0.26 to $0.50
|
|
|
135,000
|
|
|
|
7.85
|
|
|
|
0.50
|
|
|
|
135,000
|
|
|
|
0.50
|
|
$0.51 to $1.00
|
|
|
2,043,400
|
|
|
|
4.49
|
|
|
|
0.96
|
|
|
|
2,043,400
|
|
|
|
0.96
|
|
$1.01 to $2.00
|
|
|
2,905,225
|
|
|
|
3.13
|
|
|
|
1.98
|
|
|
|
2,905,225
|
|
|
|
1.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.00 to $2.00
|
|
|
5,683,625
|
|
|
|
|
|
|
|
|
|
|
|
5,683,625
|
|
|
|
|
|
During the year ended December 31, 2004, the Company committed to issue 304,900 warrants in
connection with an overallotment agreement with a consulting group for private placement services.
The warrants will have an exercise price of $1.00 per share and will have a six-month term. The
date of issue will be coincident with the date of the Companys IPO. As the Company was currently
undergoing IPO procedures and did not know of its IPO date, these warrants were not deemed
outstanding as of December 31, 2005. Concurrent with the effectiveness of the Companys
registration statement on February 6, 2006, the warrants were granted. As of December 31, 2006,
these warrants were not exercised and have since expired.
NOTE 13 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. At
December 31, 2006, the Company calculated the value of the 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. 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. The vesting schedule is prorated over the reporting period, and $26,690 and
$17,375, respectively, was recorded as consultant expense during the years ended December 31, 2006
and 2005.
In March 2004, Normandie New Mexico Corporation, which is owned by Manhattan Scientifics, Inc.s
Chief Executive Officer (CEO), who is also a member of the Companys Board of Directors, entered
into an agreement with the Company to provide consulting services in relation to business
development and marketing support. Fees per the agreement are $6,250 per month. For the years ended
December 31, 2006 and 2005, the Company had paid $9,375 and $68,750, respectively, for these
services. As of December 31, 2006, the Company owed $71,875 to Normandie New Mexico under the
agreement.
On April 1, 2004, the Company committed to issue 250,000 shares of common stock at $1.00 per share
to Manhattans Chief Operating Officer (COO) for future consulting services. Vesting terms are as
follows: 50,000 shares per quarter as long as the COO is still providing services to the Company,
up to a total of 250,000 shares, beginning April 1, 2004. As of the year ended December 31, 2005,
all shares vested, and the Company recognized $100,000 in consulting expense for a cumulative total
of $250,000 to date related to this issuance.
F-24
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 13 RELATED PARTIES
(
Continued)
On June 10, 2004, the Company granted 250,000 options to purchase common stock to one of the
members of the Companys 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. At December 31, 2006, the Company calculated the value of the
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 $33,075 and $34,000,
respectively, was recorded as consultant expense during the years ended December 31, 2006 and 2005.
On March 9, 2006 the Company granted 250,000 options to purchase common stock to an employee, who
is the brother of the Companys Chief Executive Officer, at an exercise price of $1.00 per share.
The options 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.
In November 2006, the Company approved the issuance of stock options for 1,500,000 shares of common
stock with an exercise of $0.90 per share to a director with a fair value of $1,504,261. The fair
value was calculated under the Black-Scholes options pricing model using the following assumptions:
stock price at grant of $0.90; life of 5 years; volatility of 145%; no dividend yield and discount
rate of 5.15%.
NOTE 14 SUBSEQUENT EVENTS
During January 2007, the Company issued 500,000 shares of common stock with warrants for 500,000
shares of common stock for total proceeds of $500,000.
During January 2007, the Company issued 195,960 shares of common stock to various consultants for
services provided and to be provided.
During January 2007. the Company issued 415,000 shares of common stock related to exercise of
warrants at $0.50 and $0.25 per share for total proceeds of $132,500.
During January 2007, the Company issued 40,000 shares of common stock to satisfy a $40,000 accrued
liability reflected in the accompanying balance as of December 31, 2006.
During February 2007, the Company issued 150,000 shares of common stock valued at $150,000 to Lunar
Design as an incentive to continue assisting the Company with the haptics game controller.
During February 2007, the Company issued 232,627 shares of common stock as a payment towards the
convertible note payable as discussed in Note 7.
During January 2007, the Company issued 13,621 shares of common stock to an employee for the
cashless exercise of options to purchase 25,000 shares of common stock.
On February 14, 2007, the Company approved an increase in the authorized shares of common stock
from 50,000,000 shares to 150,000,000 shares and to cancel the 4,000 authorized Series A Preferred
Stock.
F-25
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 14 SUBSEQUENT EVENTS (Continued)
On March 5, 2007, the Company entered into a Unit Subscription Agreement (the Agreement) with 42
accredited investors (the Purchasers) for the sale of $9,000,000 of units at a price of $1.00 per
unit. Each unit consists of one share of the Companys common stock and a warrant for one share of
common stock with an exercise price of $1.50 exercisable for up to five years. The Agreement was
closed on March 5, 2007 with the entire unit offering sold. Under the terms of the Agreement, the
Company may sell an additional 1,000,000 units for $1,000,000 to a strategic investor. Gross
proceeds from the Agreement totaled $9,000,000, of which $320,000 was paid to certain individuals
who served as placement agents for the transaction and approximately $50,000 was paid for counsel
of the Purchasers in connection with the transaction. The Companys Chief Executive Officer
invested $25,000 in the Agreement. As part of the terms of the Agreement, the Company entered into
an Investor Rights Agreement among the Purchasers pursuant to which the Company has agreed to file
a registration statement to register for resale the shares of common stock sold in the Agreement,
including the shares of common stock underlying the warrants, within 55 days following the closing
of the Agreement. Subject to certain exceptions, in the event the registration statement is not
filed within such 55 day period or does not become effective within certain time periods set forth
in the Investor Rights Agreement, the Company would be required to pay each purchaser in the
Agreement an amount in cash equal to 0.0333% of the sum of (i) the purchase amount paid by the
Purchaser and (ii) the amount paid upon exercise of the warrants for each day the filing or
effectiveness of the registration statement is delayed and, pursuant to the terms of the warrants,
the Purchasers would be entitled to exercise their warrants pursuant to a cashless exercise
formula. In addition, the Company has agreed not to grant any registration rights that are senior
to the registration rights of the Purchasers for a period of two years from the closing date
without the prior written consent of a majority of the Purchasers.
F-26
Novint Technologies, Inc.
BALANCE SHEET
(Unaudited)
|
|
|
|
|
|
|
March 31, 2007
|
ASSETS
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,368,921
|
|
Accounts receivable
|
|
|
75,417
|
|
Prepaid expenses and other current assets
|
|
|
62,702
|
|
Receivable related to stock options exercised
|
|
|
75,000
|
|
Costs and estimated earnings in excess of billings on contracts
|
|
|
48,675
|
|
Deposit on purchase of inventory
|
|
|
283,071
|
|
Total current assets
|
|
|
8,913,786
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
281,543
|
|
SOFTWARE DEVELOPMENT COSTS, NET
|
|
|
302,773
|
|
INTANGIBLE ASSETS, NET
|
|
|
88,790
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,586,892
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
Accounts payable
|
|
$
|
383,867
|
|
Accrued payroll related liabilities
|
|
|
231,371
|
|
Accrued expenses
|
|
|
276,349
|
|
Accrued expenses related parties
|
|
|
107,369
|
|
Deferred revenue
|
|
|
31,507
|
|
Billings in excess of costs and estimated earnings
|
|
|
8,168
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,038,631
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
Conditionally redeemable convertible preferred stock, Series A: aggregate liquidation preferences,
$100,000, $0.01 par value; 4,000 shares authorized, none issued and outstanding
|
|
|
|
|
Common stock, authorized 50,000,000 shares, $0.01 par value; 30,441,299 shares issued and outstanding
|
|
|
304,414
|
|
Additional paid-in capital
|
|
|
22,913,558
|
|
Accumulated deficit
|
|
|
(14,665,106
|
)
|
Accumulated other comprehensive loss
|
|
|
(4,605
|
)
|
|
|
|
|
|
Total stockholders equity
|
|
|
8,548,261
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
9,586,892
|
|
The accompanying notes are an integral part of these financial statements.
F-27
Novint Technologies, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended
|
|
|
March 31, 2007
|
|
March 31, 2006
|
Revenue:
|
|
|
|
|
|
|
|
|
Project
|
|
$
|
128,731
|
|
|
$
|
36,856
|
|
Product
|
|
|
|
|
|
|
1,925
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
128,731
|
|
|
|
38,781
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
Project
|
|
|
107,481
|
|
|
|
25,679
|
|
Product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of goods sold
|
|
|
107,481
|
|
|
|
25,679
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
21,250
|
|
|
|
13,102
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
235,570
|
|
|
|
89,840
|
|
General and administrative
|
|
|
1,551,290
|
|
|
|
469,027
|
|
Depreciation and amortization
|
|
|
41,188
|
|
|
|
24,697
|
|
Sales and marketing
|
|
|
93,352
|
|
|
|
26,348
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,921,400
|
|
|
|
609,912
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,900,150
|
)
|
|
|
(596,810
|
)
|
Other (income) expense
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(27,635
|
)
|
|
|
|
|
Interest expense
|
|
|
143,684
|
|
|
|
32,927
|
|
|
|
|
|
|
|
|
|
|
Net other expenses
|
|
|
116,049
|
|
|
|
32,927
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,016,199
|
)
|
|
|
(629,737
|
)
|
Preferred stock accretion
|
|
|
|
|
|
|
(170,974
|
)
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(2,016,199
|
)
|
|
$
|
(800,711
|
)
|
Loss per share, basic and diluted:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.09
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(0.09
|
)
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic and diluted
|
|
|
23,352,495
|
|
|
|
15,161,091
|
|
The accompanying notes are an integral part of these financial statements.
F-28
Novint Technologies, Inc.
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the Three Months Ended March 31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
Common Stock
|
|
Paid-in
|
|
Accumulated
|
|
Comprehensive
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
(Deficit)
|
|
Loss
|
|
Total
|
Balances, December 31, 2006
|
|
|
19,894,091
|
|
|
$
|
198,942
|
|
|
$
|
12,624,562
|
|
|
$
|
(12,648,907
|
)
|
|
$
|
(4,605
|
)
|
|
$
|
169,992
|
|
|
Common stock sold for cash, net of offering
costs of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$424,364
|
|
|
9,500,000
|
|
|
|
95,000
|
|
|
|
8,980,636
|
|
|
|
|
|
|
|
|
|
|
|
9,075,636
|
|
Common stock issued related to exercise of
options/warrants
|
|
|
428,621
|
|
|
|
4,286
|
|
|
|
128,350
|
|
|
|
|
|
|
|
|
|
|
|
132,636
|
|
Common stock issued to consultants for services
|
|
|
311,700
|
|
|
|
3,117
|
|
|
|
347,884
|
|
|
|
|
|
|
|
|
|
|
|
351,001
|
|
Common stock issued for repayment of notes
payable
|
|
|
232,627
|
|
|
|
2,326
|
|
|
|
355,755
|
|
|
|
|
|
|
|
|
|
|
|
358,081
|
|
Common stock issued for settlement of accrued
liabilities
|
|
|
65,000
|
|
|
|
650
|
|
|
|
73,350
|
|
|
|
|
|
|
|
|
|
|
|
74,000
|
|
Options vested for employees services
|
|
|
|
|
|
|
|
|
|
|
86,442
|
|
|
|
|
|
|
|
|
|
|
|
86,442
|
|
Options vested to consultants for services
|
|
|
|
|
|
|
|
|
|
|
306,671
|
|
|
|
|
|
|
|
|
|
|
|
306,671
|
|
Common stock issued for purchase of licenses
|
|
|
9,260
|
|
|
|
93
|
|
|
|
9,908
|
|
|
|
|
|
|
|
|
|
|
|
10,001
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,016,199
|
)
|
|
|
|
|
|
|
(2,016,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2007
|
|
|
30,441,299
|
|
|
$
|
304,414
|
|
|
$
|
22,913,558
|
|
|
$
|
(14,665,106
|
)
|
|
$
|
(4,605
|
)
|
|
$
|
8,548,261
|
|
The accompanying notes are an integral part of these financial statements.
F-29
Novint Technologies, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended
|
|
|
March 31, 2007
|
|
March 31, 2006
|
Cash flows from (to) operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,016,199
|
)
|
|
$
|
(629,737
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
41,188
|
|
|
|
24,697
|
|
Common stock issued for services
|
|
|
351,001
|
|
|
|
8,500
|
|
Options issued to employees and consultants for services
|
|
|
393,113
|
|
|
|
88,251
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(75,417
|
)
|
|
|
67,478
|
|
Prepaid expenses
|
|
|
31,365
|
|
|
|
400
|
|
Deferred financing costs
|
|
|
|
|
|
|
4,032
|
|
Accounts payable and accrued liabilities
|
|
|
195,421
|
|
|
|
189,959
|
|
Accrued expenses related party
|
|
|
35,494
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on contracts, net
|
|
|
(48,675
|
)
|
|
|
(23,874
|
)
|
Deferred revenue
|
|
|
31,507
|
|
|
|
|
|
Billings in excess of costs and estimated earnings on contracts, net
|
|
|
2,668
|
|
|
|
(6,485
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(1,058,534
|
)
|
|
|
(276,779
|
)
|
Cash flows from (to) investing activities:
|
|
|
|
|
|
|
|
|
Capital outlay for software development costs
|
|
|
(15,639
|
)
|
|
|
|
|
Property and equipment acquisitions
|
|
|
|
|
|
|
(4,294
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(15,639
|
)
|
|
|
(4,294
|
)
|
Cash flows from (to) financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of options
|
|
|
57,636
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
9,500,000
|
|
|
|
|
|
Offering costs
|
|
|
(370,010
|
)
|
|
|
|
|
Proceeds from notes payable
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
9,187,626
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
8,113,453
|
|
|
|
18,927
|
|
Cash and cash equivalents at beginning of period
|
|
|
255,468
|
|
|
|
42,127
|
|
Cash and cash equivalents at end of period
|
|
$
|
8,368,921
|
|
|
$
|
61,054
|
|
|
|
|
|
|
|
|
|
|
Supplemental information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
|
|
|
$
|
|
|
Income taxes paid
|
|
$
|
|
|
|
$
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Deferred financing cost recognize and netted against paid-in capital
|
|
$
|
54,354
|
|
|
$
|
|
|
Purchase of licenses with common stock
|
|
$
|
10,001
|
|
|
$
|
|
|
Payment of accrued research and development liabilities with common stock
|
|
$
|
|
|
|
$
|
465,000
|
|
Payment of notes payable and accrued interest with common stock
|
|
$
|
358,081
|
|
|
$
|
860,624
|
|
Payment of accrued liabilities with common stock
|
|
$
|
74,000
|
|
|
$
|
|
|
Receivable related to stock options exercised
|
|
$
|
75,000
|
|
|
$
|
|
|
Fair value accretion on conditionally redeemable, convertible preferred stock
|
|
$
|
|
|
|
$
|
170,974
|
|
The accompanying notes are an integral part of these financial statements.
F-30
Novint Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006 (Unaudited)
NOTE 1 BASIS OF PRESENTATION AND NATURE OF BUSINESS
Basis of Presentation
The unaudited financial statements have been prepared by Novint Technologies, Inc. (the Companyor
Novint), in accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-QSB and Regulation S-B 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-KSB for the period ended December 31, 2006. 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 months ended March 31, 2007 are not necessarily indicative of the results
to be expected for the full year ending December 31, 2007.
Reclassifications
Certain prior year amounts were reclassified to conform to the March 31, 2007 presentation.
Nature of Business
Novint Technologies, Inc. (the Company or 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. The Company currently is engaged in the
development and sale of haptics products and equipment, including installation services and
support, to production and manufacturing companies in the United States. Haptics refers to ones
sense of touch. The Company is expanding into the consumer interactive computer gaming market,
which is a substantial departure from its current business of offering product development services
and limited sales of haptic technology. The Companys operations are based in New Mexico with sales
primarily to private entities and quasi-governmental agencies in the United States.
Managements Plans
As of March 31, 2007, the Company had total current assets of $8,913,786 and total current
liabilities of $1,038,631, resulting in a working capital surplus of $7,875,155. As of March 31,
2007, the Company had cash totaling $8,368,921. During the three months ended March 31, 2007 as
further discussed in Note 7, the Company raised approximately $9,663,000 from the sale of shares of
common stock with warrants through an equity agreement and exercise of stock purchase warrants. The
equity agreement allows for the sale of an additional $1,000,000 common stock and warrants to a
strategic investor, which the Company closed on the sale of 580,000 units for $580,000 on May 11,
2007. This recent equity raised should allow the Company to further develop its haptics technology,
and seek and develop strategic partnerships with game publishers and hardware manufacturers that
will utilize the Companys haptics technology. The Company believes that it has sufficient capital
and existing equity financing arrangements, as result of the equity raise, to sustain its
operations beyond twelve months and execute its current business plans with respect to the haptics
technology.
F-31
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Software Development Costs
The Company accounts for its software development costs in accordance with Statement of Financial
Accounting Standards (SFAS) Number 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 generally 5 years. The Company has capitalized software development costs in
connection with its haptics technology beginning in 2005. Amortization is computed on the
straight-line basis over the estimated life (5 years) of the haptics technology. As of March 31,
2007, the Companys capitalized software development costs totaled $302,773 (net of $103,270 of
accumulated amortization). The estimated annual amortization expense related to the capitalized
software development cost is approximately $56,000 per year. Amortization expense for the three
months ended March 31, 2007 and 2006 totaled $15,813 and $0.
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 March 31, 2007, capitalizable
costs incurred have not been significant for any development projects. Accordingly, the Company has
charged all costs to research and development expense in the periods incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property 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 $6,416 and $6,155 for the
three months ended March 31, 2007 and 2006, respectively.
Intangible Assets
Intangible assets consist of licensing agreements $260,001 and patents $10,734, and are carried at
cost less accumulated amortization. Amortization is computed using the straight-line method over
the economic life of the assets, which range between 3 and 12 years. For the three months ended
March 31, 2007 and 2006, the Company recognized amortization expense of approximately $18,959 and
$18,542, respectively, related to intangible assets.
Annual amortization of intangible assets remaining at March 31, 2007, is as follows:
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
|
55,209
|
|
2008
|
|
|
5,836
|
|
2009
|
|
|
5,836
|
|
2010
|
|
|
3,335
|
|
2011 and after
|
|
|
18,584
|
|
|
|
|
|
|
Total
|
|
$
|
88,790
|
|
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.
F-32
The Companys 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 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.
Revenue from product sales relates to the sale of the Phantom haptics interface, which is a
human-computer user interface (the Phantom). The Phantom allows the user to experience sensory
information when using a computer and its handle and is the approximate size and shape of a writing
instrument. Phantoms are manufactured by an unrelated party and are shipped directly to the
customer.
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. The
Companys costs associated with shipping product items to the Companys customers are included in
the Companys Cost of Goods Sold. The Company does not charge a separate or additional fee for
shipment to their customers, rather this fee is included in the price and, therefore, part of the
Companys product revenue. No provision for sales returns has been provided in these financial
statements as the Company has never had a sales return.
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 Companys
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 Companys agreement with its
customer, further obligation is limited to the terms defined in its warranty.
The Companys customers are provided a warranty from the Companys supplier. This warranty
guarantees that the suppliers products shall be free from manufacturing defects. The supplier
agrees to provide, free of charge, replacements for any components found to be defective within 1
year of delivery. The Companys customers also have the option of purchasing a Maintenance Renewal,
which extends the suppliers warranty coverage for the following year. The Companys supplier
handles all administration and actual repairs provided for under the basic and renewal programs
and, therefore, the Company has not recorded a warranty accrual. To date, the Companys customers
have not purchased a Maintenance Renewal.
Deferred Revenue
As of March 31, 2007, the Company recorded deferred revenue totaling
$31,507 related to pre-sale orders on the Falcon product, a gaming haptics hardware device, and
related gaming software. The Company will record these pre-sale orders as revenue upon shipment of
such products which is anticipated to occur during the second quarter of 2007.
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 March 31, 2007 and
2006, the Company had a total of 26,245,724 and 10,251,338 in potentially dilutive securities,
respectively.
F-33
Stock Option Plans
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. SFAS No. 123R eliminates the ability to account for the award of these instruments under the
intrinsic value method proscribed by Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and allowed under the original provisions of SFAS No. 123.
The Company recognized $393,113 and $88,251 in share-based compensation expense for the three
months ended March 31, 2007 and 2006, 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 months ended March31, 2007 and 2006, the following
assumptions were used: closing price of the common stock at the date of grant, risk-free rates
ranged from 5.15% to 5.25%, volatility of the options ranged from 73% to 151%, estimated lives of 3
to 10 years and exercise prices ranged from $0.66 to $1.20 per share.
Research and Development
Research and development costs are expensed as incurred and amounted to $235,570 and $89,840 for
the three months ended March 31, 2007 and 2006, respectively.
Recent Accounting Pronouncements
The Company has adopted all accounting pronouncements issued before March 31, 2007, which are
applicable to the Company.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN
48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires
that we recognize in our financial statements the benefit of a tax position if that position is
more likely than not of being sustained on audit, based on the technical merits of the position.
The provisions of FIN 48 become effective as of the beginning of the 2007 fiscal year, with the
cumulative effect of the change in accounting principle recorded as an adjustment to opening
retained earnings. The adoption of the provisions of FIN 48 did not have an impact on its financial
condition or results of operations.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108), which addresses how to quantify the effect of financial statement
errors. The provisions of SAB 108 become effective as of the end of its 2007 fiscal year. The
adoption of the provisions of SAB 108 did not have an impact on its financial condition or results
of operations.
NOTE 3 COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS AND BILLINGS IN EXCESS OF
COSTS AND ESTIMATED EARNINGS ON CONTRACTS
Costs and estimated earnings in excess of billings on contracts consisted of the following at March
31, 2007:
|
|
|
|
|
Costs and estimated earnings incurred on uncompleted contracts
|
|
$
|
121,688
|
|
Billings on uncompleted contracts
|
|
|
73,013
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
|
$
|
48,675
|
|
|
Billings in excess of costs and estimated earnings on contracts consisted of the following at:
|
|
Billings on uncompleted contracts
|
|
$
|
83,455
|
|
Costs and estimated earnings incurred on uncompleted contracts
|
|
|
72,287
|
|
Billings in excess of costs and estimated earnings on uncompleted contracts
|
|
$
|
8,l68
|
|
F-34
NOTE 4 INTANGIBLE ASSETS
Intangible assets consisted of the following at March 31, 2007:
|
|
|
|
|
Licensing agreements
|
|
$
|
260,001
|
|
Patent
|
|
|
10,734
|
|
Less accumulated amortization
|
|
|
(181,945
|
)
|
|
|
|
|
|
|
|
$
|
88,790
|
|
NOTE 5 CONVERTIBLE NOTES PAYABLE
During 2005, the Company executed convertible promissory notes in the amount of $358,081 to Lunar
Design for the costs incurred during 2005 associated with contracted research and development
efforts. The promissory notes were non-interest bearing, past their maturity dates (maturity dates
varied throughout 2006) and were due on demand. If the promissory notes were not paid in full in
cash at the promissory notes maturity date, the Company was to convert the unpaid balance of the
note into shares of the Companys common stock at the price per share equal to the last sale price
of the Companys common stock on the maturity date, or on the last business day prior to the
maturity date. Subsequent to the maturity dates, the Company negotiated with Lunar regarding
conversion terms and during the quarter ended March 31, 2007, the Company converted the entire
remaining balance totaling $358,081 of the promissory note balance into 232,627 shares of common
stock and agreed to issue an additional 77,313 shares valued at $81,178 to cover a portion of
$141,532 as settlement , which has been accrued for and recorded as interest expense during the
three months ended March 31, 2007.
NOTE 6 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.
F-35
NOTE 7 STOCKHOLDERS EQUITY
On February 14, 2007, the Company approved an increase (subject to stockholder approval) in the
authorized shares of common stock from 50,000,000 shares to 150,000,000 shares and to cancel the
4,000 authorized Series A Preferred Stock.
Conditionally Redeemable, Convertible Preferred Stock
On April 20, 2000, in connection with the license agreement with Sandia, the Company issued all
4,000 authorized shares of Series A conditionally redeemable, convertible preferred stock at $0.25
per share. The preferred stock was convertible into fully paid and non-assessable common stock as
follows: at the holders option based on the conversion price in effect on the conversion date or
automatically upon the closing of an IPO, which would result in 447,300 shares of common stock. The
conversion price shall be (i) the subscription price ($100,000 when expressed as an aggregate
amount or $25.00 per share when expressed on a per-share basis) divided by (ii) the conversion
price in effect on the conversion date. Additionally, the Company is obligated to redeem the
preferred shares, if there is no IPO or initial sale within 10 years from the issue date.
In connection with the effectiveness of the Companys registration statement, on February, 6 2006
the Company issued 447,300 shares of common stock to Sandia for the conversion of the preferred
stock in accordance with the agreement.
Accordingly, the Company accreted the fair value of the common stock conversion to retained
earnings through the conversion date of February 6, 2006. When the Company was approved for public
filing, it recognized an additional charge of $170,974 to retained earnings of the converted shares
at the fair value as compared to the IPO price. The fair value of the stock on February 6, 2006 was
estimated to be $1.00 per share.
F-36
Sale of Common Stock and Warrant
During January 2007, the Company sold 500,000 shares of common stock and warrants for 500,000
shares of common stock to 8 investors for a total of $500,000. The warrants have an exercise price
of $1.00 per share and life of five years.
Unit Subscription Agreement
On March 5, 2007, the Company entered into a Unit Subscription Agreement (the Agreement) with 42
accredited investors (the Purchasers) pursuant to which the Company issued and sold $9,000,000 of
Units, at a price of one dollar per Unit. Each Unit consists of one share of common stock, , and
one five-year warrant to purchase one share of common stock at an exercise price of $1.50.
Accordingly, an aggregate of 9,000,000 shares of its common stock, and warrants to purchase
9,000,000 shares of common stock were issued (the Financing). The Financing closed on March 5,
2007. Under the terms of the Unit Subscription Agreement the Company may sell an additional
1,000,000 Units for $1,000,000 to a strategic investor, of which the Company closed on the sale of
580,000 units for $580,000 on May 11, 2007 and closed the Unit Subscription Agreement on any
further sales. Gross proceeds from the Financing to the Company were $9,000,000, of which $320,010
was paid to certain individuals who served as placement agents for the transaction and
approximately $50,000 was paid to counsel for the Purchasers in connection with the transaction. In
addition, the Company had netted a previously capitalized deferred offering cost totaling $54,354
towards the gross proceeds from the Financing. The Company granted warrants to purchase 320,000
shares of common stock with an exercise price of $1.50 to certain individuals who served as
placement agents in the financing and options to purchase 173,419 shares of common stock with an
exercise price of $1.00 to AF Double Eagle upon the closing of the Financing. These warrants and
options have been accounted for as related offering costs. Mr. Tom Anderson, the Companys Chief
Executive Officer, invested $25,000 in the Financing.
As part of the terms of the Agreement, the Company entered into an Investor Rights Agreement among
the Purchasers pursuant to which the Company has agreed to file a registration statement to
register for resale the shares of common stock sold in the Financing, including the shares of
common stock underlying the warrants, within 55 days following the closing of the Financing.
Subject to certain exceptions, in the event the registration statement is not filed within such 55
day period or does not become effective within certain time periods set forth in the Investor
Rights Agreement, the Company would be required to pay each purchaser in the Financing an amount in
cash equal to 0.0333% of the sum of (i) the purchase amount paid by the Purchaser and (ii) the
amount paid upon exercise of the warrants for each day the filing or effectiveness of the
registration statement is delayed and, pursuant to the terms of the warrants, the Purchasers would
be entitled to exercise their warrants pursuant to a cashless exercise formula. In addition, the
Company has agreed not to grant any registration rights that are senior to the registration rights
of the Purchasers for a period of two years from the closing date without the prior written consent
of a majority of the Purchasers. The filing timeline to file a registration statement had been
extended to May 30, 2007 which the Company believes it will be able to file the registration
statement timely and become effective within the time prescribed in the Investors Rights Agreement
and accordingly no accrual is considered necessary with regards to any potential penalties
associated with a delayed filing and effectiveness. The Company has considered the provisions of
FSP 00-19-1 in its assessment of the penalty provisions and accrual.
NOTE 8 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. At
March 31, 2007, the Company calculated the value of the options using the Black-Scholes model based
on the following assumptions: a risk-free rate of 5.15%, volatility of 151%, estimated life of 10
years and a fair market value of $1.38 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. The vesting schedule is prorated over the reporting period, and $13,809 and
$3,413, respectively, was recorded as consultant expense during the three months ended March 31,
2007 and 2006.
In March 2004, Normandie New Mexico Corporation, which is owned by the Chief Executive Officer
(CEO) of Manhattan Scientific (a significant shareholder) who is also a member of the Companys
Board of Directors, entered into an agreement with the Company to provide consulting services in
relation to business development and marketing support. Fees per the agreement are $6,250 per
month. For the three months ended March 31, 2007 and 2006, the Company had paid $-0- and $-0-,
respectively, for these services. As of March 31, 2007, the Company owed $90,625 to Normandie New
Mexico under the agreement.
F-37
On June 10, 2004, the Company granted 250,000 options to purchase common stock to one of the member
of the Companys 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. At March 31, 2007, the Company calculated the value of the options
using the Black-Scholes model based on the following assumptions: a risk-free rate of 5.15%,
volatility of 151%, estimated life of 10 years and a fair market value of $1.38 per share. The
vesting schedule is prorated over the reporting period, and approximately $26,000 and $8,000,
respectively, was recorded as consultant expense during the three months ended March 31, 2007 and
2006.
NOTE 9 SUBSEQUENT EVENTS
In May 2007, the Company increased the equity compensation options related to a consulting
agreement negotiated on May 1, 2006 with AF Double Eagle from 1,213,933 to 1,613,933 which the
exercise price for such additional options are $1.02 per share. Although this consulting agreement
has not been signed, the Company has paid and continues to pay Consultant under the terms of the
agreement and the original options were considered granted May 1, 2006. Of these options, 173,419
vested on March 5, 2007 upon the closing of the Financing as disclosed in Note 7. An additional
173,419 options will vest on May 1, 2007 for services performed. In addition, the Company granted
the consultant an option to purchase up to $150,000 worth of common stock at $1.00 per share along
with one warrant with an exercise price of $1.50 which vest at a rate of $50,000 equally on July 1,
2007, October 1, 2007 and January 1, 2008.
During May 2007, the Company issued a total of 99,447 shares of common stock to seven investors
pursuant to provisions within their investment subscription agreements consummated in 2006 which
provides for additional shares to be issued as an anti-dilutive measure which terminated in May
2007. These shares issued pursuant to the anti-dilutive measure will be accounted for as additional
shares issued as part of the overall original sale of stock related to the investment subscription
agreement during 2006. The par value of the 99,447 shares of common stock will recorded as a
reduction to additional paid-in capital.
During May 2007, the Company issued 13,637 shares of common stock to a board director as payment
for serving as a director. The value of the 13,637 shares totaled $16,364 of $1.20 per share.
During May 2007, the Company issued 25,000 shares of common stock to a board director as prepayment
for future services performed totaling $30,000 or $1.20 per share.
F-38
No person is authorized to give any information or to make any representation not contained or
incorporated by reference in this prospectus, and any information or representation not contained
or incorporated by reference herein must not be relied upon as having been authorized by Shumate
Industries, Inc. or the selling stockholders. This prospectus does not constitute an offer of any
securities other than the registered securities to which it relates or an offer to any person in
any jurisdiction where such an offer would be unlawful. Neither the delivery of this prospectus nor
any sales made hereunder shall, under any circumstances, create any implication that there has been
no change in the affairs of Shumate Industries, Inc. or its subsidiaries since the date hereof.
TABLE OF CONTENTS
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Prospectus Summary
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Risk Factors
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Special Note Regarding Forward Looking Statements
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Use of Proceeds
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Market for Common Equity and Related Shareholder Matters
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Managements Discussion and Analysis or Plan of Operation
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Description of Business
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Description of Property
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Directors, Executive Officers, Promoters and Control Persons
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Executive Compensation
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Certain Relationships and Related Transactions
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Selling Shareholders
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Plan of Distribution
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Security Ownership of Certain Beneficial Owners and Management
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Description of Securities
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Disclosure of Commission Position on Indemnification for Securities Act Liabilities
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Where You Can Find More Information
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Experts
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Legal Matters and Interests of Named Experts
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Transfer Agent
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Financial Information
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3,192,900 Shares
Novint Technologies, Inc.
Common Stock
PROSPECTUS
Part II
Item 24. Indemnification of Directors and Officers.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law, our Certificate of
Incorporation includes a provision that eliminates the personal liability of each of our directors
for monetary damages for breach of such directors fiduciary duty as a director, except for
liability: (i) for any breach of the directors duty of loyalty to us or our stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation
of the law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any
transaction from which the director derived an improper personal benefit.
In addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws
provide that we may, in our discretion,
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indemnify our directors, officers, employees and agents and persons serving in such capacities in
other business enterprises at our request, to the fullest extent permitted by Delaware law, and
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advance expenses, as incurred, to our directors and officers in connection with defending a proceeding.
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We may enter into indemnification agreements with each of our directors and officers that
provide the maximum indemnity allowed to directors and officers by Section 145 of the Delaware
General Corporation Law and the bylaws as well as certain additional procedural protections.
The indemnification provisions in the bylaws and the indemnification agreements which we may
enter into with our directors and officers may be sufficiently broad to permit indemnification of
our directors and officers for liabilities arising under the Securities Act. However, insofar as
indemnification for liabilities arising under the Securities Act may be permitted for our
directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we
have been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than
the payment by us for expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether our indemnification is against public policy as
expressed in the Securities Act and will be governed by the final adjudication of the issue by the
court.
II-1
Item 25. Other Expenses of Issuance and Distribution.
The following is an itemized statement of all expenses, all of which we will pay, in
connection with the registration of the common stock offered hereby:
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Amount
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Printing fees
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$
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10,000
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*
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Legal fees
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$
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35,000
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*
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Accounting fees and expenses
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$
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3,000
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*
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Total
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$
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48,000
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*
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*
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Estimates
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(#)
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Rounded up to nearest whole dollar.
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Item 26. Recent Sales of Unregistered Securities.
During the past three years, the registrant has issued and sold the following unregistered
securities.
In January 2004, we issued 378,788 shares of common stock at $ 0.66 per share to an accredited
investor. The recipient of the shares was Jan Arnett. We relied upon the exemption from
registration as set forth in Section 4(2) of the Act for the issuance of these shares. The
shareholder took the shares for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the shares. The
shareholder was permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as an accredited investor and his dealings with
development companies generally, we deem the shareholder sophisticated for the purposes of Section
4(2) of the Act.
In February 2004, we issued 10,000 shares of common stock to a director for services rendered
to us. The recipient of the shares was Scott L. Bach. We relied upon the exemption from
registration as set forth in Section 4(2) of the Act for the issuance of these shares. The
shareholder took the shares for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the shares. The
shareholder was permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as a director and his dealings with development
companies generally, we deem the shareholder sophisticated for the purposes of Section 4(2) of the
Act.
On February 19, 2004, we completed an initial closing of a financing transaction in which we
sold 2,140,000 shares of our common stock to select institutional and individual accredited
investors, in order to raise a total of $2,140,000. On May 5, 2004, we completed the final closing
of this financing transaction in which we sold an additional 909,000 shares of our common stock to
select institutional and individual accredited investors, in order to raise an additional $909,000.
The per share offering price was $1.00 per share. The investors also received warrants to purchase
an aggregate of 1,524,500 shares of common stock at an exercise price of $2.00 per share. The
placement agent for this private placement received fees in the amount of $304,680. We relied upon
the exemption from registration as set forth in Section 4(2) of the Act and Rule 506 of Regulation
D promulgated under such Act for the issuance of these shares. The investors were permitted access
to our management for the purpose of acquiring investment information and due to the investors
status as accredited, we deem the investors sophisticated for the purposes of Section 4(2) of the
Act.
In February 2004, we issued options to purchase 1,330,000 shares of common stock to various
employees with an exercise price of $0.66 per share and a 5-year annual vesting provision. The
recipients of the options were Jonathon Miller,
II-2
Richard Aviles, Walt Aviles and Nick Brown. We relied upon the exemption from registration as set
forth in Section 4(2) of the Act for the issuance of these options. The shareholders are accredited
investors as defined in the Securities Act who took the options for investment purposes without a
view to distribution and had access to information concerning us and our business prospects, as
required by the Securities Act. In addition, there was no general solicitation or advertising for
the acquisition of the options. The shareholders were permitted access to our management for the
purpose of acquiring investment information. Due to the shareholders status as employees and their
dealings with development companies generally, we deem the shareholders sophisticated for the
purposes of Section 4(2) of the Act.
In March 2004, we issued a warrant to purchase 200,000 shares of our common stock to a
consultant as compensation for providing services to us with an exercise price of $1.00 per share.
The recipient of the warrant was Corporate Advisors Group. We relied upon the exemption from
registration as set forth in Section 4(2) of the Act for the issuance of the warrant. The warrant
holder is an accredited investor as defined in the Securities Act who took the warrant for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the acquisition of the warrant. The investor was permitted access
to our management for the purpose of acquiring investment information. Due to the investors status
as a consultants and their dealings with development companies generally, we deem the investors
sophisticated for the purposes of Section 4(2) of the Act.
In April 2004, we issued a warrant to purchase 263,500 shares of our common stock to an
accredited investor with an exercise price of $1.00 per share. The recipient of the warrant was
Hunter World Markets, Inc. We relied upon the exemption from registration as set forth in Section
4(2) of the Act for the issuance of the warrant. The warrant holder took the warrant for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the acquisition of the warrant. The shareholder was permitted
access to our management for the purpose of acquiring investment information. Due to the
shareholders status as an accredited investor and its dealings with development companies
generally, we deem the shareholder sophisticated for the purposes of Section 4(2) of the Act.
In April 2004, we committed to issue 250,000 shares of common stock at $1.00 per share to a
consultant for future services. The recipient of the shares was Jack Harrod. The consultant will
receive stock as follows: 50,000 shares per quarter as long as the consultant is still providing
services to us, up to a total of 250,000 shares, beginning April 1, 2004. As of December 31, 2005,
all 250,000 shares had been issued. We relied upon the exemption from registration as set forth in
Section 4(2) of the Act for the issuance of these shares. The shareholder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as a consultant and his dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
In May 2004, we issued a warrant to purchase 250,000 shares of our common stock with an
exercise price of $0.66 per share to a consultant for services rendered. The recipient of the
warrant was Marc Bernstein. We relied upon the exemption from registration as set forth in Section
4(2) of the Act for the issuance of the warrant. The warrant holder took the warrant for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the acquisition of the warrant. The shareholder was permitted
access to our management for the purpose of acquiring investment information. Due to the
shareholders status as a consultant and his dealings with development companies generally, we deem
the shareholder sophisticated for the purposes of Section 4(2) of the Act.
In June 2004, we granted 25,000 options at an exercise price of $0.66 per share to purchase
common stock to a director for services rendered to us. The recipient of the options was Scott L.
Bach. We relied upon the exemption from registration as set forth in Section 4(2) of the Act for
the issuance of these options. The shareholder took the options for investment purposes without a
view to distribution and had access to information concerning us and our business prospects, as
required by the Securities Act. In addition, there was no general solicitation or advertising for
the issuance of the options. The shareholder was permitted access to our management for the purpose
of acquiring investment information. Due to the shareholders status as a director and his dealings
with development companies generally, we deem the shareholder sophisticated for the purposes of
Section 4(2) of the Act.
II-3
In June 2004, we granted 50,000 options at an exercise price of $0.66 per share, with a 5-year
annual vesting provision, to purchase common stock to a consultant for services rendered to us. The
recipient of the options was Claire Bauder. We relied upon the exemption from registration as set
forth in Section 4(2) of the Act for the issuance of these options. The shareholder took the
options for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the options. The shareholder was
permitted access to our management for the purpose of acquiring investment information. Due to the
shareholders status as an employee and her dealings with development companies generally, we deem
the shareholder sophisticated for the purposes of Section 4(2) of the Act.
In June 2004, we granted 250,000 options at an exercise price of $0.66 per share, with a
5-year annual vesting provision, to purchase common stock to a director for services rendered to
us. The recipient of the options was and Marvin Maslow. We relied upon the exemption from
registration as set forth in Section 4(2) of the Act for the issuance of these options. The
shareholder took the options for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the options. The
shareholder was permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as a director and his dealings with development
companies generally, we deem the shareholder sophisticated for the purposes of Section 4(2) of the
Act.
In June 2004, we granted 500,000 options at an exercise price of $0.66 per share, with a
5-year annual vesting provision, to purchase common stock to an employee. The recipient of the
options was Tom Anderson. We relied upon the exemption from registration as set forth in Section
4(2) of the Act for the issuance of these options. The shareholder took the options for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the options. The shareholder was permitted access
to our management for the purpose of acquiring investment information. Due to the shareholders
status as an employee and his dealings with development companies generally, we deem the
shareholder sophisticated for the purposes of Section 4(2) of the Act.
In July 2004, we committed to issue 10,000 shares of common stock at $1.00 per share to an
employee for future services. The recipient of the shares was Mark Benak. The shares have vested.
We relied upon the exemption from registration as set forth in Section 4(2) of the Act for the
issuance of these shares. The shareholder took the shares for investment purposes without a view to
distribution and had access to information concerning us and our business prospects, as required by
the Securities Act. In addition, there was no general solicitation or advertising for the issuance
of the shares. The shareholder was permitted access to our management for the purpose of acquiring
investment information. Due to the shareholders status as an employee and his dealings with
development companies generally, we deem the shareholder sophisticated for the purposes of Section
4(2) of the Act.
In July 2004, we granted 50,000 options at an exercise price of $0.66 per share, with a 5-year
annual vesting provision, to purchase common stock to an employee. The recipient of the options was
Mark Benak. During 2005, 30,000 of these options were cancelled due to Mark Benak no longer being
employed by us. We relied upon the exemption from registration as set forth in Section 4(2) of the
Act for the issuance of these options. The shareholder took the options for investment purposes
without a view to distribution and had access to information concerning us and our business
prospects, as required by the Securities Act. In addition, there was no general solicitation or
advertising for the issuance of the options. The shareholder was permitted access to our management
for the purpose of acquiring investment information. Due to the shareholders status as an employee
and his dealings with development companies generally, we deem the shareholder sophisticated for
the purposes of Section 4(2) of the Act.
In August 2004, we granted 50,000 options at an exercise price of $0.66 per share, with a
5-year annual vesting provision, to purchase common stock to an employee. The recipient of the
options was Annette Radcliffe. We relied upon the exemption from registration as set forth in
Section 4(2) of the Act for the issuance of these options. The shareholder took the options for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the options. The shareholder was permitted access
to our management for the purpose of acquiring investment information. Due to the shareholders
status as an employee and her dealings with development companies generally, we deem the
shareholder sophisticated for the purposes of Section 4(2) of the Act.
II-4
In October 2004, we issued 160,000 shares of common stock at $1.00 per share to consultants
for services. The recipients of the shares were Dean Danielson and Neil Krull. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
shares. The shareholders took the shares for investment purposes without a view to distribution and
had access to information concerning us and our business prospects, as required by the Securities
Act. In addition, there was no general solicitation or advertising for the issuance of the shares.
The shareholders were permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as consultants and their dealings with development
companies generally, we deem the shareholders sophisticated for the purposes of Section 4(2) of the
Act.
In November 2004, we granted 230,000 options at an exercise price of $0.66 per share, with a
5-year annual vesting provision, to purchase common stock to employees. The recipients of the
options were George Lancaster, Daryl Lee, and Marc Midura. During 2005, 45,000 of these options
were cancelled due to George Lancaster no longer being employed by us. We relied upon the exemption
from registration as set forth in Section 4(2) of the Act for the issuance of these options. The
shareholders took the options for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the options. The
shareholders were permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as employees and their dealings with development
companies generally, we deem the shareholders sophisticated for the purposes of Section 4(2) of the
Act.
In December 2004, we granted 500,000 options to purchase shares of common stock at $0.66 per
share and a 5-year annual vesting provision to an employee. The recipient of the options was
Antonia Chappell. We relied upon the exemption from registration as set forth in Section 4(2) of
the Act for the issuance of these options. The shareholder took the options for investment purposes
without a view to distribution and had access to information concerning us and our business
prospects, as required by the Securities Act. In addition, there was no general solicitation or
advertising for the issuance of the options. The shareholder was permitted access to our management
for the purpose of acquiring investment information. Due to the shareholders status as an employee
and her dealings with development companies generally, we deem the shareholder sophisticated for
the purposes of Section 4(2) of the Act.
In January 2005, we granted 75,000 options to purchase common stock at $0.66 per share and a
5-year annual vesting provision to an employee and 10,000 options to purchase common stock at $0.66
per share and a 4-year annual vesting provision to an advisory board member for consulting
services. The recipients of the options were Bill Anderson and Eric Hansen. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
options. The shareholders took the options for investment purposes without a view to distribution
and had access to information concerning us and our business prospects, as required by the
Securities Act. In addition, there was no general solicitation or advertising for the issuance of
the options. The shareholders were permitted access to our management for the purpose of acquiring
investment information. Due to the shareholders status as employees and consultants and their
dealings with development companies generally, we deem the shareholders sophisticated for the
purposes of Section 4(2) of the Act.
In March 2005, we granted 110,000 options to purchase common stock at $0.66 per share and a
4-year annual vesting provision to employees. The recipients of the options were Jonathan Miller
and Peter Thomas. We relied upon the exemption from registration as set forth in Section 4(2) of
the Act for the issuance of these options. The shareholders took the options for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the options. The shareholders were permitted access
to our management for the purpose of acquiring investment information. Due to the shareholders
status as employees and their dealings with development companies generally, we deem the
shareholders sophisticated for the purposes of Section 4(2) of the Act.
In March 2005, we issued a warrant to purchase 100,000 shares of our common stock to our legal
counsel, Richardson & Patel LLP as part of a fee agreement for providing legal services to us
during 2004 with an exercise price of $1.00 per share. We relied upon the exemption from
registration as set forth in Section 4(2) of the Act for the issuance of the warrant. The warrant
holder is an accredited investor as defined in the Securities Act who took the warrant for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the acquisition of the warrant. The investor was permitted access
to our management for the purpose of acquiring investment information. Due to the investors status
as a service provider and its dealings with development companies generally, we deem the investor
sophisticated for the purposes of Section 4(2) of the Act.
II-5
In May 2005, we issued 127,400 shares of common stock to certain consultants in exchange for
services rendered during the first quarter of 2005 and for services to be rendered. The recipients
of the shares were Coleman Brand Worx, Gerald Grafe, Brad Carvey, Rob Shaw, Jan Easton Carrasco,
Brenda Brown, Claire Bauder and Sandia National Laboratories. We relied upon the exemption from
registration as set forth in Section 4(2) of the Act for the issuance of these shares. The
shareholders took the shares for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the shares. The
shareholders were permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as consultants and their dealings with development
companies generally, we deem the shareholders sophisticated for the purposes of Section 4(2) of the
Act.
In May 2005, we issued 22,000 shares of common stock to certain consultants in exchange for
services rendered during the second quarter of 2005 and for services to be rendered. The recipients
of the shares were Allan Hisey, Ed Barsis, Peter Mattern, and Glyn Anderson. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
shares. The shareholders took the shares for investment purposes without a view to distribution and
had access to information concerning us and our business prospects, as required by the Securities
Act. In addition, there was no general solicitation or advertising for the issuance of the shares.
The shareholders were permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as consultants and their dealings with development
companies generally, we deem the shareholders sophisticated for the purposes of Section 4(2) of the
Act.
In May 2005, we issued 10,000 shares of common stock to Mark Benak, an employee for services
rendered during the second quarter of 2005. We relied upon the exemption from registration as set
forth in Section 4(2) of the Act for the issuance of these shares. The shareholder took the shares
for investment purposes without a view to distribution and had access to information concerning us
and our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as an employee and his dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
In May 2005, we issued 250,000 shares of common stock to Force Dimension in connection with an
amendment to our contract. We relied upon the exemption from registration as set forth in Section
4(2) of the Act for the issuance of these shares. The shareholder took the shares for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as a consultant and its dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
In May 2005, we granted 28,636 non-qualified options to purchase our stock to certain related
parties and consultants at an exercise price of $0.66 per share for services rendered during the
second quarter of 2005. The recipients of the options were Steven Maslow, Arline Pranitz and Lem
Hunter. We relied upon the exemption from registration as set forth in Section 4(2) of the Act for
the issuance of these options. The shareholders took the options for investment purposes without a
view to distribution and had access to information concerning us and our business prospects, as
required by the Securities Act. In addition, there was no general solicitation or advertising for
the issuance of the options. The shareholders were permitted access to our management for the
purpose of acquiring investment information. Due to the shareholders status as employees and
consultants and their dealings with development companies generally, we deem the shareholders
sophisticated for the purposes of Section 4(2) of the Act.
In May 2005, we granted 25,000 options to purchase our stock to Antonia Chappell, an employee,
for services rendered during the second quarter of 2005. We relied upon the exemption from
registration as set forth in Section 4(2) of the Act for the issuance of these options. The
shareholder took the options for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the options. The
shareholder was permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as an employee and her dealings with development
companies generally, we deem the shareholder sophisticated for the purposes of Section 4(2) of the
Act.
II-6
In June 2005, we issued 2,500 shares of common stock to Peter Thomas, a consultant, for
services performed. The stock was valued at $0.66 per share for total consideration of $1,650. An
additional 2,500 shares of common stock were issued on March 1, 2006 and we committed to issue an
additional 2,500 shares each on September 1, 2006 and March 1, 2007. We relied upon the exemption
from registration as set forth in Section 4(2) of the Act for the issuance of these shares. The
shareholder took the shares for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the shares. The
shareholder was permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as a consultant and his dealings with development
companies generally, we deem the shareholder sophisticated for the purposes of Section 4(2) of the
Act.
We issued 15,000 shares of common stock to Mark Betti, an advisory board member, for services
rendered during the third quarter of 2005. We relied upon the exemption from registration as set
forth in Section 4(2) of the Act for the issuance of these shares. The shareholder took the shares
for investment purposes without a view to distribution and had access to information concerning us
and our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as an employee and consultant and his dealings with development companies generally, we deem the
shareholder sophisticated for the purposes of Section 4(2) of the Act.
In August 2005, we issued 500 shares of common stock to Hector Reyes, a consultant, for
services rendered during the third quarter of 2005. We relied upon the exemption from registration
as set forth in Section 4(2) of the Act for the issuance of these shares. The shareholder took the
shares for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the shares. The shareholder was
permitted access to our management for the purpose of acquiring investment information. Due to the
shareholders status as a consultant and his dealings with development companies generally, we deem
the shareholder sophisticated for the purposes of Section 4(2) of the Act.
In February 2006, we issued a warrant to purchase 304,900 shares of our common stock to an
accredited investor with an exercise price of $1.00 per share. The recipient of the warrant was
Hunter World Markets, Inc. We relied upon the exemption from registration as set forth in Section
4(2) of the Act for the issuance of the warrant. The warrant holder took the warrant for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the acquisition of the warrant. The shareholder was permitted
access to our management for the purpose of acquiring investment information. Due to the
shareholders status as an accredited investor and its dealings with development companies
generally, we deem the shareholder sophisticated for the purposes of Section 4(2) of the Act.
In February 2006, we converted 4,000 shares of preferred stock to 447,300 shares of common
stock in accordance with the terms of the conversion options of the original issuance of stock to
Sandia Corporation. We relied upon the exemption from registration as set forth in Section 4(2) of
the Act for the issuance of these shares. The shareholder took the shares for investment purposes
without a view to distribution and had access to information concerning us and our business
prospects, as required by the Securities Act. In addition, there was no general solicitation or
advertising for the issuance of the shares. The shareholder was permitted access to our management
for the purpose of acquiring investment information. Due to the shareholders status as a
constulant and its dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
In March 2006, we issued 6,000 shares of common stock to Ralph Anderson, a member of our audit
committee. We relied upon the exemption from registration as set forth in Section 4(2) of the Act
for the issuance of these shares. The shareholder took the shares for investment purposes without a
view to distribution and had access to information concerning our and our business prospects, as
required by the Securities Act. In addition, there was no general solicitation or advertising for
the issuance of the shares. The shareholder was permitted access to our management for the purpose
of acquiring investment information. Due to the shareholders status as an employee and consultant
and his dealings with development companies generally, we deem the shareholder sophisticated for
the purposes of Section 4(2) of the Act.
II-7
In March 2006, we issued 1,250,002 shares of common stock to various investors in repayment of
promissory notes issued during the year ended December 31, 2005. We relied upon the exemption from
registration as set forth in Section 4(2) of the Act for the issuance of these shares. The
shareholders took the shares for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the shares. The
shareholders were permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as accredited investors and their dealings with
development companies generally, we deem the shareholders sophisticated for the purposes of Section
4(2) of the Act.
In March 2006, we granted 607,500 shares of common stock to Force Dimension in full payment of
amounts outstanding on our contract. We relied upon the exemption from registration as set forth in
Section 4(2) of the Act for the issuance of these shares. The shareholder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as a consultant and its dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
In March 2006, we also granted 200,329 shares of common stock to our private placement
investors in recognition of delays in meeting specified filing obligations. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
shares. The shareholders took the shares for investment purposes without a view to distribution and
had access to information concerning us and our business prospects, as required by the Securities
Act. In addition, there was no general solicitation or advertising for the issuance of the shares.
The shareholders were permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as accredited investors and their dealings with
development companies generally, we deem the shareholders sophisticated for the purposes of Section
4(2) of the Act.
In March 2006, we granted 250,000 options at an exercise price of $1.00 per share, with a
5-year annual vesting provision, to purchase common stock to an employee. The recipient of the
options was Bill Anderson. We relied upon the exemption from registration as set forth in Section
4(2) of the Act for the issuance of these options. The shareholder took the options for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the options. The shareholder was permitted access
to our management for the purpose of acquiring investment information. Due to the shareholders
status as an employee and his dealings with development companies generally, we deem the
shareholder sophisticated for the purposes of Section 4(2) of the Act.
In April 2006, we issued 500,000 shares of common stock at a price per share of $1.00,
together with a Common Stock Purchase Warrant to purchase 250,000 shares of common stock at an
exercise price of $2.00 per share, exercisable until April 1011. The recipient of the common stock
and warrant was an accredited investor within the meaning of the Securities Act. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
securities. The holder took the securities for investment purposes without a view to distribution
and had access to information concerning us and our business prospects, as required by the
Securities Act. In addition, there was no general solicitation or advertising for the issuance of
the securities. The holder was permitted access to our management for the purpose of acquiring
investment information. Due to the holders status as accredited and his dealings with development
companies generally, we deem the holder sophisticated for the purposes of Section 4(2) of the Act.
In April 2006, we issued a warrant to purchase 50,000 shares of common stock at an exercise
price of $0.25 per share, exercisable until April 2011, to Todd Ficeto in exchange for services
rendered to us. In addition, we reduced the exercise price from $0.50 to $0.25 per share on a
warrant to purchase 250,000 shares of common stock previously issued to Todd Ficeto. We relied upon
the exemption from registration as set forth in Section 4(2) of the Act for the issuance of the
warrant. The shareholder took the warrant for investment purposes without a view to distribution
and had access to information concerning us and our business prospects, as required by the
Securities Act. In addition, there was no general solicitation or advertising for the issuance of
the warrant. The shareholder was permitted access to our management for the purpose of acquiring
investment information. Due to the shareholders status as a consultant and his dealings with
development companies generally, we deem the shareholder sophisticated for the purposes of Section
4(2) of the Act.
II-8
In May 2006, we granted 1,213,930 options at an exercise price of $1.00 per share to purchase
common stock to a consultant. The recipient of the options was Aidan Foley. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
options. The shareholder took the options for investment purposes without a view to distribution
and had access to information concerning us and our business prospects, as required by the
Securities Act. In addition, there was no general solicitation or advertising for the issuance of
the options. The shareholder was permitted access to our management for the purpose of acquiring
investment information. Due to the shareholders status as a consultant and his dealings with
development companies generally, we deem the shareholder sophisticated for the purposes of Section
4(2) of the Act.
In May 2006, we issued 145,000 shares of common stock at a price per share of $1.00, together
with Common Stock Purchase Warrants to purchase 72,500 shares of common stock at an exercise price
of $2.00 per share, exercisable until May 1011. The three recipients of the common stock and
warrants were accredited investors within the meaning of the Securities Act. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
securities. The holders took the securities for investment purposes without a view to distribution
and had access to information concerning us and our business prospects, as required by the
Securities Act. In addition, there was no general solicitation or advertising for the issuance of
the securities. The holders were permitted access to our management for the purpose of acquiring
investment information. Due to the holders status as accredited and their dealings with
development companies generally, we deem the holders sophisticated for the purposes of Section 4(2)
of the Act.
In May 2006, we issued 50,000 shares of common stock to an employee pursuant to the cashless
exercise of 50,505 stock options. The recipient of the shares was Bill Anderson. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
shares. The shareholder took the shares for investment purposes without a view to distribution and
had access to information concerning us and our business prospects, as required by the Securities
Act. In addition, there was no general solicitation or advertising for the issuance of the shares.
The shareholder was permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as an employee and his dealings with development
companies generally, we deem the shareholder sophisticated for the purposes of Section 4(2) of the
Act.
In June 2006, we issued 30,000 shares of common stock to Sandia Corporation as payment for
royalties due under a License Agreement. We relied upon the exemption from registration as set
forth in Section 4(2) of the Act for the issuance of these shares. The shareholders took the
options for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the options. The shareholder was
permitted access to our management for the purpose of acquiring investment information. Due to the
shareholders status as a consultant and its dealings with development companies generally, we deem
the shareholder sophisticated for the purposes of Section 4(2) of the Act.
In June 2006, we granted a warrant to purchase 25,000 shares of common stock at an exercise
price of $1.00 per share, exercisable until June 2009, to Security Research Associates, Inc.
pursuant to a modification to a placement agent agreement. We relied upon the exemption from
registration as set forth in Section 4(2) of the Act for the issuance of the warrant. The
shareholder took the warrant for investment purposes without a view to distribution and had access
to information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the warrant. The
shareholder was permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as an accredited invstor and its dealings with
development companies generally, we deem the shareholder sophisticated for the purposes of Section
4(2) of the Act.
In June 2006, we issued 2,360 shares of common stock to an employee pursuant to the cashless
exercise of 5,000 stock options. We relied upon the exemption from registration as set forth in
Section 4(2) of the Act for the issuance of these shares. The shareholder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as an employee and his dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
II-9
In June 2006, we issued 123,222 shares of common stock to Lunar Design in settlement of notes
payable for research and development services. We relied upon the exemption from registration as
set forth in Section 4(2) of the Act for the issuance of these shares. The shareholders took the
shares for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the shares. The shareholder was
permitted access to our management for the purpose of acquiring investment information. Due to the
shareholders status as a consultant and its dealings with development companies generally, we deem
the shareholder sophisticated for the purposes of Section 4(2) of the Act.
In August 2006, we granted 50,000 options at an exercise price of $1.20 per share, with a
5-year annual vesting provision, to purchase common stock to an employee. The recipient of the
options was Chris Crosher. We relied upon the exemption from registration as set forth in Section
4(2) of the Act for the issuance of these options. The shareholder took the options for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the options. The shareholder was permitted access
to our management for the purpose of acquiring investment information. Due to the shareholders
status as an employee and his dealings with development companies generally, we deem the
shareholder sophisticated for the purposes of Section 4(2) of the Act.
In August 2006, we issued 1,000,000 shares of common stock at a price per share of $1.00,
together with Common Stock Purchase Warrants to purchase 500,000 shares of common stock at an
exercise price of $2.00 per share, exercisable until August 1011. The four recipients of the common
stock and warrants were accredited investors within the meaning of Regulation D of the Securities
Act. We relied upon the exemption from registration as set forth in Section 4(2) of the Act for the
issuance of these securities. The holders took the securities for investment purposes without a
view to distribution and had access to information concerning us and our business prospects, as
required by the Securities Act. In addition, there was no general solicitation or advertising for
the issuance of the securities. The holders were permitted access to our management for the purpose
of acquiring investment information. Due to the holders status as accredited and their dealings
with development companies generally, we deem the holders sophisticated for the purposes of Section
4(2) of the Act.
In August 2006, we issued 2,974 shares of common stock to an employee pursuant to the cashless
exercise of 3,000 stock options. We relied upon the exemption from registration as set forth in
Section 4(2) of the Act for the issuance of these shares. The shareholder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as an employee and his dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
In August 2006, we issued 30,000 shares of common stock to Sandia Corporation for royalties
due under a License Agreement. We relied upon the exemption from registration as set forth in
Section 4(2) of the Act for the issuance of these shares. The shareholder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as a consultant and its dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
In August 2006, we issued 18,290 shares of common stock in satisfaction of legal fees in the
amount of $18,290 due to Gerald Grafe. We relied upon the exemption from registration as set forth
in Section 4(2) of the Act for the issuance of these shares. The shareholder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as our legal counsel and his dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
In August 2006, we issued 3,950 shares of common stock to two individuals in payment of
consulting services rendered. We relied upon the exemption from registration as set forth in
Section 4(2) of the Act for the issuance of these shares. The shareholders took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation
II-10
or advertising for the issuance of the shares. The shareholders were permitted access to our
management for the purpose of acquiring investment information. Due to the shareholders status as
consultants and their dealings with development companies generally, we deem the shareholders
sophisticated for the purposes of Section 4(2) of the Act.
In September 2006, we granted 300,000 options at an exercise price of $1.01 per share, with a
5-year annual vesting provision, to purchase common stock to two consultants. The recipients of the
options were Dean Danielson and Walt Zierman, each receiving 150,000 options. The recipients of the
options were accredited investors within the meaning of the Securities Act. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
options. The shareholders took the options for investment purposes without a view to distribution
and had access to information concerning us and our business prospects, as required by the
Securities Act. In addition, there was no general solicitation or advertising for the issuance of
the options. The shareholders were permitted access to our management for the purpose of acquiring
investment information. Due to the shareholders status as accredited and their dealings with
development companies generally, we deem the shareholders sophisticated for the purposes of Section
4(2) of the Act.
In September 2006, we granted 80,000 options at an exercise price of $1.01 per share, with a
5-year annual vesting provision, to purchase common stock to an employee. The recipient of the
options was Rich Vargas. We relied upon the exemption from registration as set forth in Section
4(2) of the Act for the issuance of these options. The shareholder took the options for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the options. The shareholder was permitted access
to our management for the purpose of acquiring investment information. Due to the shareholders
status as an employee and his dealings with development companies generally, we deem the
shareholder sophisticated for the purposes of Section 4(2) of the Act.
In September 2006, we issued 280,000 shares of common stock at a price per share of $1.00,
together with Common Stock Purchase Warrants to purchase 140,000 shares of common stock at an
exercise price of $2.00 per share, exercisable until September 1011. The three recipients of the
common stock and warrants were accredited investors within the meaning of Regulation D of the
Securities Act. We relied upon the exemption from registration as set forth in Section 4(2) of the
Act for the issuance of these securities. The holders took the securities for investment purposes
without a view to distribution and had access to information concerning us and our business
prospects, as required by the Securities Act. In addition, there was no general solicitation or
advertising for the issuance of the securities. The holders were permitted access to our management
for the purpose of acquiring investment information. Due to the holders status as accredited and
their dealings with development companies generally, we deem the holders sophisticated for the
purposes of Section 4(2) of the Act.
In September 2006, we issued 50,000 shares of common stock to the Bennett Group in payment of
consulting services rendered. We relied upon the exemption from registration as set forth in
Section 4(2) of the Act for the issuance of these shares. The shareholder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as a consultant and its dealings with development companies generally, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
In October 2006, we issued 126,450 shares of common stock and warrants to purchase 63,225
shares of common stock at an exercise price of $2.00 per share, exercisable for ten years, in
satisfaction of legal fees outstanding in the amount of $126,450. We relied upon the exemption from
registration as set forth in Section 4(2) of the Securities Act for the issuance of these
securities. The shareholder took the securities for investment purposes without a view to
distribution and had access to information concerning us and our business prospects, as required by
the Securities Act. In addition, there was no general solicitation or advertising for the issuance
of the securities. The shareholder was permitted access to our management for the purpose of
acquiring investment information. Due to the shareholders status as our legal counsel and their
dealings with companies similar to ours, we deem the shareholder sophisticated for the purposes of
Section 4(2) of the Act.
In October 2006, we issued 10,000 shares of common stock in payment of consulting services
rendered. We relied upon the exemption from registration as set forth in Section 4(2) of the
Securities Act for the issuance of these shares. The shareholder took the shares for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders status
as a consultant and its dealings with companies similar to ours, we deem the shareholder
sophisticated for the purposes of Section 4(2) of the Act.
II-11
In October 2006, we issued 500,000 shares of common stock at a price of $1.00 per share,
together with Common Stock Purchase Warrants to purchase 750,000 shares of common stock at an
exercise price of $1.00 per share, exercisable for ten years. The two recipients of the common
stock and warrants were accredited investors within the meaning of Regulations D of the Securities
Act. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities
Act for the issuance of these securities. The shareholders took the securities for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the securities. The shareholders were permitted
access to our management for the purpose of acquiring investment information. Due to the
shareholders status as accredited investors and their dealings with companies similar to ours, we
deem the shareholders sophisticated for the purposes of Section 4(2) of the Act.
In November 2006, we issued 100,000 shares of common stock at a price of $1.00 per share,
together with Common Stock Purchase Warrants to purchase 150,000 shares of common stock at an
exercise price of $1.00 per share, exercisable for ten years. The recipient of the common stock and
warrants was an accredited investor within the meaning of Regulations D of the Securities Act. We
relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act for
the issuance of these securities. The shareholder took the securities for investment purposes
without a view to distribution and had access to information concerning us and our business
prospects, as required by the Securities Act. In addition, there was no general solicitation or
advertising for the issuance of the securities. The shareholder was permitted access to our
management for the purpose of acquiring investment information. Due to the shareholders status as
accredited and its dealings with companies similar to ours, we deem the shareholder sophisticated
for the purposes of Section 4(2) of the Act.
In December 2006, we issued 87,500 shares of common stock to two consultants in payment of
consulting services rendered. We relied upon the exemption from registration as set forth in
Section 4(2) of the Securities Act for the issuance of these shares. The shareholders took the
shares for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the shares. The shareholders were
permitted access to our management for the purpose of acquiring investment information. Due to the
shareholders status as consultants and their dealings with companies similar to ours, we deem the
shareholders sophisticated for the purposes of Section 4(2) of the Act.
In December 2006, we issued an option to our Director, Marvin Maslow, for the purchase of
1,500,000 shares of common stock. The option is exercisable at a price per share of $0.90, and the
right to exercise the option will vest over time. The option was granted under our stock and option
plan. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities
Act for the issuance of the option. The shareholder took the option for investment purposes without
a view to distribution and had access to information concerning us and our business prospects, as
required by the Securities Act. In addition, there was no general solicitation or advertising for
the issuance of the option. The shareholder is a member of our management. Due to the shareholders
status and his dealings with companies similar to ours, we deem the shareholder sophisticated for
the purposes of Section 4(2) of the Act.
In January 2007, we issued a total of 145,000 shares of common stock to two individuals in
payment of consulting services rendered. We relied upon the exemption from registration as set
forth in Section 4(2) of the Securities Act for the issuance of these shares. The shareholders took
the shares for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the shares. The shareholders were
permitted access to our management for the purpose of acquiring investment information. Due to the
shareholders status as consultants and their dealings with companies similar to ours, we deem the
shareholders sophisticated for the purposes of Section 4(2) of the Securities Act.
In January 2007, we issued 9,000 shares of common stock Ralph Anderson in payment for services
rendered on our audit committee. We relied upon the exemption from registration as set forth in
Section 4(2) of the Securities Act for the issuance of these shares. The shareholder took the
shares for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the shares. The shareholder was
permitted access to our management for the purpose of acquiring investment information. Due to the
shareholders status on our audit committee and his dealings with companies similar to ours, we
deem the shareholder sophisticated for the purposes of Section 4(2) of the Securities Act.
II-12
In January 2007, we issued 25,000 shares of common stock, together with Common Stock Purchase
Warrants to purchase 25,000 shares of common stock at an exercise price of $1.50 per share, in
satisfaction of legal fees outstanding. We relied upon the exemption from registration as set forth
in Section 4(2) of the Securities Act for the issuance of these shares. The shareholder took the
shares for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the shares. The shareholder was
permitted access to our management for the purpose of acquiring investment information. Due to the
shareholders status as our legal counsel and his dealings with companies similar to ours, we deem
the shareholder sophisticated for the purposes of Section 4(2) of the Securities Act.
In January 2007, we issued 115,000 shares of common stock to Todd M. Ficeto pursuant to an
exercise of options at a purchase price of $0.50 per share. The recipient of the common stock was
an accredited investor within the meaning of Regulation D of the Securities Act. We relied upon the
exemption from registration as set forth in Section 4(2) of the Securities Act for the issuance of
these shares. The shareholder took the shares for investment purposes without a view to
distribution and had access to information concerning us and our business prospects, as required by
the Securities Act. In addition, there was no general solicitation or advertising for the issuance
of the shares. The shareholder was permitted access to our management for the purpose of acquiring
investment information. Due to the shareholders status as an accredited investor and his dealings
with development companies generally, we deem the shareholder sophisticated for the purposes of
Section 4(2) of the Securities Act.
In January 2007, we issued 500,000 shares of common stock at a price per share of $1.00,
together with Common Stock Purchase Warrants to purchase 500,000 shares of common stock at an
exercise price of $1.50 per share, exercisable until January 2012. The eight recipients of the
common stock and warrants were accredited investors within the meaning of Regulation D of the
Securities Act. We relied upon the exemption from registration as set forth in Section 4(2) of the
Securities Act for the issuance of these securities. The holders took the securities for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the securities. The holders were permitted access
to our management for the purpose of acquiring investment information. Due to the holders status
as accredited investors and their dealings with development companies generally, we deem the
holders sophisticated for the purposes of Section 4(2) of the Securities Act.
In February 2007, we issued 13,621 shares of common stock to an employee pursuant to the
cashless exercise of 25,000 stock options. The recipient of the shares was Antonia Chappell. We
relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act for
the issuance of these shares. The shareholder took the shares for investment purposes without a
view to distribution and had access to information concerning us and our business prospects, as
required by the Securities Act. In addition, there was no general solicitation or advertising for
the issuance of the shares. The shareholder was permitted access to our management for the purpose
of acquiring investment information. Due to the shareholders status as an employee and her
dealings with development companies generally, we deem the shareholder sophisticated for the
purposes of Section 4(2) of the Securities Act.
In February 2007, we issued a total of 197,700 shares of common stock to three individuals in
payment of consulting services rendered. We relied upon the exemption from registration as set
forth in Section 4(2) of the Securities Act for the issuance of these shares. The shareholders took
the shares for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the shares. The shareholders were
permitted access to our management for the purpose of acquiring investment information. Due to the
shareholders status as consultants and their dealings with companies similar to ours, we deem the
shareholders sophisticated for the purposes of Section 4(2) of the Securities Act.
In February 2007, we issued 232,627 shares of common stock to Lunar Design in satisfaction of
an accrued liability related to the conversion of a note payable. We relied upon the exemption from
registration as set forth in Section 4(2) of the Securities Act for the issuance of these shares.
The shareholder took the shares for investment purposes without a view to distribution and had
access to information concerning us and our business prospects, as required by the Securities Act.
In addition, there was no general solicitation or advertising for the issuance of the shares. The
shareholder was permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as a consultant and its dealings with development
companies generally, we deem the shareholder sophisticated for the purposes of Section 4(2) of the
Securities Act.
II-13
In February 2007, we issued 9,260 shares of common stock to Dejobaan Games as payment for the
acquisition of software. We relied upon the exemption from registration as set forth in Section
4(2) of the Securities Act for the issuance of these shares. The shareholder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The shareholder was permitted access to
our management for the purpose of acquiring investment information. Due to the shareholders
dealings with development companies generally, we deem the shareholder sophisticated for the
purposes of Section 4(2) of the Securities Act.
In March 2007, we issued 9,000,000 shares of common stock at a price per share of $1.00,
together with Common Stock Purchase Warrants to purchase 9,000,000 shares of common stock at an
exercise price of $1.50 per share, exercisable until March 2012. The forty-two recipients of the
common stock and warrants were accredited investors within the meaning of Regulation D of the
Securities Act. We relied upon the exemption from registration as set forth in Section 4(2) of the
Securities Act for the issuance of these securities. The holders took the securities for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the securities. The holders were permitted access
to our management for the purpose of acquiring investment information. Due to the holders status
as accredited investors and their dealings with development companies generally, we deem the
holders sophisticated for the purposes of Section 4(2) of the Securities Act.
In March 2007, we issued 300,000 shares of common stock to Todd M. Ficeto pursuant to an
exercise of options at a purchase price of $0.25 per share. The recipient of the common stock was
an accredited investor within the meaning of Regulation D of the Securities Act. We relied upon the
exemption from registration as set forth in Section 4(2) of the Act for the issuance of these
shares. The shareholder took the shares for investment purposes without a view to distribution and
had access to information concerning us and our business prospects, as required by the Securities
Act. In addition, there was no general solicitation or advertising for the issuance of the shares.
The shareholder was permitted access to our management for the purpose of acquiring investment
information. Due to the shareholders status as an accredited investor and his dealings with
development companies generally, we deem the shareholder sophisticated for the purposes of Section
4(2) of the Securities Act.
In March 2007, we granted warrants to purchase 320,000 shares of common stock at an exercise
price of $1.50 per share, exercisable until March 2012, to individuals who served as placement
agents in a private placement offering that closed on March 5, 2007. We relied upon the exemption
from registration as set forth in Section 4(2) of the Securities Act for the issuance of these
shares. The recipients of the warrants were accredited investors within the meaning of Regulation D
of the Securities Act. The shareholders took the warrants for investment purposes without a view to
distribution and had access to information concerning us and our business prospects, as required by
the Securities Act. In addition, there was no general solicitation or advertising for the issuance
of the options. The shareholders ware permitted access to our management for the purpose of
acquiring investment information. Due to the shareholders status as a consultant and its dealings
with development companies generally, we deem the shareholder sophisticated for the purposes of
Section 4(2) of the Securities Act.
In May 2007, we issued 580,000 shares of common stock at a price per share of $1.00, together
with Common Stock Purchase Warrants to purchase 580,000 shares of common stock at an exercise price
of $1.50 per share, exercisable until May 2012. The four recipients of the common stock and
warrants were accredited investors within the meaning of Regulation D of the Securities Act. We
relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act for
the issuance of these securities. The holders took the securities for investment purposes without a
view to distribution and had access to information concerning us and our business prospects, as
required by the Securities Act. In addition, there was no general solicitation or advertising for
the issuance of the securities. The holders were permitted access to our management for the purpose
of acquiring investment information. Due to the holders status as accredited investors and their
dealings with development companies generally, we deem the holders sophisticated for the purposes
of Section 4(2) of the Securities Act.
II-14
In May 2007, we issued 11,539 shares of common stock to Dreams In Motion for services
rendered. We relied upon the exemption from registration as set forth in Section 4(2) of the
Securities Act for the issuance of the shares. The recipient of the shares was an accredited
investor within the meaning of Regulation D of the Securities Act. The holder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The holder was permitted access to our
management for the purpose of acquiring investment information. Due to the holders status as an
accredited investor and its dealings with development companies generally, we deem the holder
sophisticated for the purposes of Section 4(2) of the Securities Act.
In May 2007, we issued 185,717 shares of common stock to a consultant for services rendered to
us. The recipient of the shares was Lunar Design. We relied upon the exemption from registration as
set forth in Section 4(2) of the Securities Act for the issuance of the shares. The holder took the
shares for investment purposes without a view to distribution and had access to information
concerning us and our business prospects, as required by the Securities Act. In addition, there was
no general solicitation or advertising for the issuance of the shares. The holder was permitted
access to our management for the purpose of acquiring investment information. Due to the holders
status as a consultant and its dealings with development companies generally, we deem the holder
sophisticated for the purposes of Section 4(2) of the Securities Act.
In May 2007, we increased the equity compensation options related to a consulting agreement
negotiated on May 1, 2006 with AF Double Eagle from 1,213,933 to 1,613,933. The exercise price for
such additional options is $1.02 per share. In addition, we granted the consultant an option to
purchase up to $150,000 worth of Units at a price of $1.02 per Unit. Each Unit consists of one
share of common stock along with one warrant to purchase one share of common stock at an exercise
price of $1.50 per share which vests at a rate of $50,000 equally on July 1, 2007, October 1, 2007
and January 1, 2008. We relied upon the exemption from registration as set forth in Section 4(2) of
the Securities Act for the issuance of the securities. The holder took the securities for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the securities. The holder was permitted access to
our management for the purpose of acquiring investment information. Due to the holders status as a
consultant and its dealings with development companies generally, we deem the holder sophisticated
for the purposes of Section 4(2) of the Securities Act.
In May 2007, we issued a total of 99,447 shares of common stock to seven investors pursuant to
provisions within their investment subscription agreements consummated in 2006 which provided for
additional shares to be issued as an anti-dilutive measure which terminated in May 2007. We relied
upon the exemption from registration as set forth in Section 4(2) of the Securities Act for the
issuance of the shares. The holders took the shares for investment purposes without a view to
distribution and had access to information concerning us and our business prospects, as required by
the Securities Act. In addition, there was no general solicitation or advertising for the issuance
of the shares. The holders were permitted access to our management for the purpose of acquiring
investment information. Due to the holders status as accredited and their dealings with
development companies generally, we deem the holders sophisticated for the purposes of Section 4(2)
of the Securities Act.
In May 2007, we issued 13,637 shares of common stock to a board director as payment for
serving as a director. We relied upon the exemption from registration as set forth in Section 4(2)
of the Securities Act for the issuance of the shares. The holder took the shares for investment
purposes without a view to distribution and had access to information concerning us and our
business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The holder was permitted access to our
management for the purpose of acquiring investment information. Due to the holders status as a
director and his dealings with development companies generally, we deem the holder sophisticated
for the purposes of Section 4(2) of the Securities Act.
During May 2007, we issued 25,000 shares of common stock to a board director as prepayment for
future services to be performed. We relied upon the exemption from registration as set forth in
Section 4(2) of the Securities Act for the issuance of the shares. The holder took the shares for
investment purposes without a view to distribution and had access to information concerning us and
our business prospects, as required by the Securities Act. In addition, there was no general
solicitation or advertising for the issuance of the shares. The holder was permitted access to our
management for the purpose of acquiring investment information. Due to the holders status as a
director and his dealings with development companies generally, we deem the holder sophisticated
for the purposes of Section 4(2) of the Securities Act.
In July 2007, we issued 250,000 shares of common stock to Tournabout, Inc. as payment for the
acquisition of all of its intellectual property assets. We relied upon the exemption from
registration as set forth in Section 4(2) of the Securities Act for the issuance of the shares. The
holder took the shares for investment purposes without a view to distribution and had access to
information concerning us and our business prospects, as required by the Securities Act. In
addition, there was no general solicitation or advertising for the issuance of the shares. The
holder was permitted access to our management for the purpose of acquiring investment information.
Due to the holders status as a developer and his dealings with development companies generally, we
deem the holder sophisticated for the purposes of Section 4(2) of the Securities Act.
II-15
Item 27. Exhibits
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Number
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Description
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3.1 (9)
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Amend and Restated Certificate of Incorporation
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3.2 (6)
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Amended and Restated Bylaws
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3.3 (1)
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Articles of Merger
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3.4 (1)
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Certificate of Merger
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4.1 (1)
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Articles of Incorporation (See Exhibit 3.1)
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4.2 (3)
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Form of Common Stock Purchase Warrant, April 2006
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4.3 (7)
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Form of Common Stock Purchase Warrant, March 2007
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5.1
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Opinion of Richardson & Patel LLP
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10.1 (1)
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License Agreement with Sandia; Amendments
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10.2 (1)
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Lease for 9620 San Mateo
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10.3 (1)
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Employment Agreement with Tom Anderson
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10.4 (1)
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Employment Agreement with Walter Aviles
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10.5 (10)
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Amended and Restated 2004 Stock Incentive Plan
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10.6 (1)
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Shareholders Agreement
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II-16
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Number
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Description
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10.7 (1)
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Lock Up Agreement
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10.8 (1)
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Miscellaneous Technical Services Agreement between Aramco Services Company and Novint Technologies, Inc.
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10.9 (1)
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Contract Addendum between Aramco Services Company and Novint Technologies, Inc.
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10.10 (1)
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Amendment to Contract between Aramco Services Company and Novint Technologies, Inc.
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10.11 (1)
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Amendment to Contract between Aramco Services Company and Novint Technologies, Inc.
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10.12 (1)
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Statement of Work between Chevron Corporation and Novint Technologies, Inc.
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10.13 (1)
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Purchase Order from DaimlerChrylser Corporation
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10.14 (1)
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Purchase Order # 94059 from LockheedMartin Corporation
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10.15 (1)
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Purchase Order # 96996 from LockheedMartin Corporation
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10.16 (1)
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Purchase Order # 97860 from LockheedMartin Corporation
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10.17 (1)
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Purchase Order # Q50601685 from LockheedMartin Corporation
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10.18 (1)
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Purchase Order # QQ060592 from LockheedMartin Corporation
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10.19 (1)
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Purchase Order # Q50608809 from LockheedMartin Corporation
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10.20 (1)
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Purchase Order # 24232 from Sandia National Laboratories
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10.21 (1)
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Purchase Order # 27467 from Sandia National Laboratories
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II-17
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Number
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Description
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10.22 (1)
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Purchase Order # 117339 from Sandia National Laboratories
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10.23 (1)
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Purchase Order # 250810 from Sandia National Laboratories
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10.24 (1)
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Undersea Exploration Modeling Agreement between Woods Hole Oceanographic Institute and Novint Technologies, Inc.
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10.25 (1)
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Purchase Order for Lunar Design, Inc. dated April 7, 2005
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10.26 (1)
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Sublicense Agreement between Manhattan Scientifics and Novint Technologies, Inc.
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10.27 (1)
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License and Royalty Agreement between Manhattan Scientifics and Novint Technologies, Inc.
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10.28 (1)
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Research Development and License Agreement between Manhattan Scientifics and Novint Technologies, Inc.
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10.29 (1)
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Intellectual Property License Agreement with Force Dimension LLC
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10.30 (1)
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Purchase Order with Lockheed Martin dated April 1, 2005
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10.31 (1)
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Purchase Order with Lockheed Martin dated April 4, 2005
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10.32 (1)
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Purchase Order with Lockheed Martin dated April 21, 2005
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10.33 (1)
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Purchase Order with Deakin University dated April 6, 2004
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10.34 (1)
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Purchase Order with Robarts Research dated September 24, 2004
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10.35 (1)
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Purchase Order with University of New Mexico dated March 16, 2004
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II-18
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Number
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Description
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10.36 (1)
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Amendment to Agreement with Force Dimension Dated May 5, 2005
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10.37 (1)
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Amendment to contract between Aramco Services Company and Novint Technologies, Inc.
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10.38 (2)
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Purchase Order with Lockheed Martin dated February 16, 2006
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10.39 (2)
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Amendment to Intellectual Property License Agreement with Force Dimension LLC dated March 9, 2006
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10.40 (2)
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Purchase Order with Lockheed Martin dated March 3, 2006
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10.41 (3)
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Form of Subscription Agreement for Securities, April 2006.
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10.42 (4)
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Board of Directors Agreement between V. Gerald Grafe and Novint Technologies, Inc.
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10.44 (5)
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Manufacturing Agreement dated December 19, 2006 by and between Novint Technologies, Inc. and VTech Communications Ltd.
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10.45 (5)
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Novint Purchase Order 1056. (Portions of this exhibit have been omitted pursuant to a request for confidential treatment.)
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10.46 (7)
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Form of Unit Subscription Agreement, March 2007
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10.47 (7)
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Form of Investor Rights Agreement, March 2007
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10.48 (8)
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Amendment No. 1 to Unit Subscription Agreement dated March 2, 2007
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10.49 (8)
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Amendment No. 2 to Unit Subscription Agreement dated March 30, 2007
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10.50 (8)
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Amendment No. 1 to Investor Rights Agreement dated March 30, 2007
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10.51 (10)
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Purchase Order with The Falk Group, LLC dated January 16, 2007
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10.52 (11)
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Tournabout Intellectual Property Acquisition Agreement dated July 17, 2007
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10.53
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Lease Agreement dated May 29, 2007
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10.54
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Lease Agreement dated June 21, 2007
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II-19
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Number
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Description
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14 (2)
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Code of Ethics
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23.1
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Consent of A.J. Robbins, P.C.
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(1)
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Filed with the Issuers Registration Statement on Form SB-2 on May 17, 2004, and as
subsequently amended, and incorporated herein by reference.
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(2)
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Filed with the Issuers Annual Report on Form 10-KSB, filed with the Commission on April 17,
2006, and incorporated herein by reference.
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(3)
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Filed with the Issuers Periodic Report on Form 10-QSB, filed with the Commission on May 22,
2006, and incorporated herein by reference.
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(4)
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Filed with the Issuers Current Report on Form 8-K, filed with the Commission on September 22,
2006, and incorporated herein by reference.
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(5)
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Filed with the Issuers Current Report on Form 8-K, filed with the Commission on December 20,
2006, and incorporated herein by reference.
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(6)
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Filed with the Issuers Current Report on Form 8-K, filed with the Commission on March 1, 2007.
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(7)
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Filed with the Issuers Current Report on Form 8-K, filed with the Commission on March 9, 2007.
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(8)
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Filed with the Issuers Periodic Report on Form 10-QSB, filed with the Commission on May 15,
2007.
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(9)
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Filed with the Issuers Current Report on Form 8-K, filed with the Commission on June 21, 2007.
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(10)
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Filed with the Issuers Registration Statement on Form SB-2 on May 24, 2007.
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(11)
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Filed with the Issuers Current Report on Form 8-K, filed with the Commission on July 20, 2007.
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All other exhibits are filed herewith.
ITEM 28. Undertakings.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
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i.
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Include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
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ii.
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Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing,, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering price
set forth in the Calculation of Registration Fee table in the effective
registration statement; and
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iii.
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Include any additional or changed material information on the plan of distribution.
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2. For determining liability under the Securities Act of 1933, treat each post-effective
amendment as a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-20
3. File a post-effective amendment to remove from registration any of the securities that
remain unsold at the end of offering.
4. Each prospectus filed by the undersigned small business issuer pursuant to Rule 424(b)(3)
shall be deemed to be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
5. Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating
to an offering, other than registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no statement
made in a registration statement or prospectus that is part of the registration statement or made
in a document incorporated or deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement or made in any
such document immediately prior to such date of first use.
6. Insofar as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons under the foregoing provisions or
otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than our payment of expenses incurred or paid by
any of our directors, officers or controlling persons in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by us is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-21
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in
the City of Albuquerque, State of New Mexico on July 27, 2007.
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NOVINT TECHNOLOGIES, INC.
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Dated: July 27, 2007
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By:
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/s/ Tom Anderson
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Tom Anderson, President,
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Chief Executive Officer and
Chief Financial Officer
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Name
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Position
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Date
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/s/ Tom Anderson
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Director
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July 27, 2007
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Tom Anderson
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/s/ Marvin Maslow
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Director
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July 27, 2007
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Marvin Maslow
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/s/ V. Gerald Grafe
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Director
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July 27, 2007
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V. Gerald Grafe
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II-22