FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. ___)
Delaware 3577 85-0461778
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
|
Tom Anderson,
Chief Executive Officer
Novint Technologies, Inc.
9620 San Mateo Blvd., NE
Albuquerque, New Mexico 87113 USA
Copy to:
Nimish P. Patel, Esq.
RICHARDSON & PATEL LLP
10900 Wilshire Boulevard, Suite 500
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 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. |_|
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. |_|
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. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
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.
SUBJECT TO COMPLETION, DATED MAY ___, 2004
PROSPECTUS
[LOGO]
NOVINT TECHNOLOGIES, INC.
8,719,255 shares of Common Stock
This prospectus covers the resale by selling stockholders of up to 8,719,255 shares of our common stock, $0.01 par value, which include:
3,049,000 shares of common stock issued pursuant to the Subscription Agreements,
1,524,500 shares of common stock underlying the warrants issued in conjunction with foregoing Subscription Agreement, and
1,745,455 shares of common stock issued and 2,400,300 shares of common stock underlying options and warrants that were issued to various investors, employees and service providers.
These securities will be offered for sale by the selling security holders identified in this prospectus in accordance with the terms described in the section of this prospectus entitled "Plan of Distribution." We will not receive any of the proceeds from the sale of the common stock by the selling security holders. Our common stock and the warrants are more fully described in the section of this prospectus entitled "Description of Securities."
The placement agent for the sale of the shares of common stock issued pursuant to the Over Allotment Agreement was granted an over-allotment option, under which the placement agent has an option to purchase 304,900 shares of our common stock at an exercise price of $1.00 per share for the sole purpose of covering over-allotments.
This is our initial registration of common stock. Our securities are not currently listed on any securities exchange, nor are they quoted on the Over-the-Counter Electronic Bulletin Board.
AN INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE OUR SECURITIES ONLY IF YOU CAN AFFORD LOSING YOUR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING AT PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Please read this prospectus carefully. It describes our company, finances, products and services. Federal and state securities laws require that we include in this prospectus all the important information that you will need to make an investment decision.
You should rely only on the information contained or incorporated by reference in this prospectus to make your investment decision. We have not authorized anyone to provide you with different information. The selling security holders are not offering these securities in any state where the offer is not permitted. 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.
TABLE OF CONTENTS
Prospectus Summary........................................................... 6 Risk Factors................................................................. 7 Use of Proceeds.............................................................. 16 Selling Security Holders..................................................... 16 Plan of Distribution......................................................... 19 Legal Proceedings............................................................ 20 Directors, Executive Officers, Promoters and Control Persons................. 21 Security Ownership of Certain Beneficial Owners and Management............... 22 Description of Securities.................................................... 23 Interest of Named Experts and Counsel........................................ 27 Description of Business...................................................... 27 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................. 36 Description of Property...................................................... 38 Certain Relationships and Related Transactions............................... 38 Market For Common Equity and Related Stockholder Matters..................... 38 Executive Compensation....................................................... 40 Summary Compensation Table................................................... 40 |
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before investing in our common stock. You should read the entire prospectus carefully, including the "Risk Factors" section. Some of the statements contained in this prospectus, including statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operation" and "Business," are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and may involve a number of risks and uncertainties. Actual results and future events may differ significantly based upon a number of factors. You should not put undue reliance on these forward-looking statements, which speak only as of the date of this prospectus.
In this prospectus, we refer to Novint Technologies, Inc. as "we," "our," or the "Company." We refer to our subsidiaries collectively as "Subsidiaries." In this prospectus, we refer to Novint Technologies, Inc. as "we," "our," or the "Company."
OUR COMPANY
We develop, market, and sell applications and technologies that allow people to use their sense of touch to interact with computers. The term "haptics" which refers to a person's sense of touch is used to describe this field. Our computer touch technology allows computer users to realistically feel objects displayed by a computer on a monitor in the same way the monitor allows people to see what a computer is displaying. We have released a product, e-Touch sono, for exploring 3D ultrasounds, which allows a parent to actually touch their baby before he/she is even born. This product was chosen by Time Magazine as one of the coolest technologies of 2002. To date, we have derived the majority of our revenue developing professional applications for customers such as Aramco, Lockheed Martin, Chevron, Chrysler and Sandia National Laboratories. We are preparing to leverage our computer touch technology to exploit opportunities in the consumer console and PC interactive computer gaming industry.
We maintain our principal offices at 4109 Bryan Ave NW, Albuquerque, New Mexico 87114. Our telephone number at that address is (866) 298-4420. Our website address is www.novint.com.
STRATEGIC FINANCING
In February and March 2004, we sold 3,049,000 shares of our Company's common stock pursuant to Subscription Applications with accredited investors (the "Investors"). The net proceeds from the sale of the common stock have been used 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 Hunter's 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 and warrants to purchase 500,000 shares of our common stock with an exercise price of $0.50 per share.
The five-year Warrants permits 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 have contractually agreed to file a registration statement covering the common stock sold in this financing and the Warrant Shares.
We are also registering common stock issued and common stock issuable pursuant to options and warrants issued by us to various employees, investors and service providers of our company in the past 5 years.
THE OFFERING
We are registering 8,719,255 shares of our common stock for sale by the selling security holders identified in the section of this prospectus entitled "Selling Security Holders." The shares included in the table identifying the selling security holders include 4,794,455 shares of our issued common stock plus an additional 3,924,800 shares of common stock that have not yet been, but that may be, issued to designated selling security holders should they exercise their options or warrants. Information regarding our common stock and the warrants is included in the section of this prospectus entitled "Description of Securities."
RISK FACTORS
An investment in the common stock offered hereby involves a high degree of risk. In addition to the other information in this prospectus, the following risk factors should be considered carefully in evaluating we and its business. All forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of we. Do not place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. In evaluating such statements, prospective investors should review carefully various risks and uncertainties identified in this prospectus, including the matters set below and in our other SEC filings. These risks and uncertainties could cause our actual results to differ materially from those indicated in the forward-looking statements. We undertake no obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.
THE MARKET FOR HAPTICS-ENABLING 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 we and our 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.
WHILE WE HAVE MAINTAINED POSITIVE CASHFLOW BY KEEPING EXPENSES LOW, 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.
We have been able to maintain positive cashflow by keeping expenses low but we anticipate that our expenses will dramatically increase as we prepare to leverage our computer touch technology and to acquire rights to a new 3D haptic interaction device to exploit opportunities in the consumer console and PC interactive computer gaming industry. If our revenues grow more slowly than anticipated 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, we have derived the substantial majority of our revenue from development contracts. We anticipate that royalty revenue from licensing our technologies and sales of products that we plan to develop will constitute an increasing portion of our revenue. Accordingly, we cannot predict our future revenues based on historical financial information.
WE WILL DEPEND ON OUR LICENSEES TO GENERATE ROYALTY REVENUE.
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 haptic-enabled products (both hardware and software). The sale of those products generates royalty revenue for us. For us to be successful, our licensees must manufacture and distribute haptic-enabled products in a timely fashion and generate consumer demand through marketing and other promotional activities. If our licensees fail to stimulate and capitalize upon market demand for products that generate royalties for us, our revenue will not grow. Peak demand for products that incorporate our technologies, especially in the gaming market, typically occurs in the third and fourth calendar quarters as a result of increased demand during the year-end holiday season. If 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, we would not receive related royalty revenue. 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 royalty revenue for us.
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.
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") which is the holder of our preferred stock. The Sandia license is a 12 year exclusive license for human-computer haptic 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 minimum royalties set forth in the Sandia license or fail to raise a minimum capital investment of $3,000,000 by 2004. 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 substantial 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 Sandia's 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:
- Sandia's or our patents may not be broad enough to protect our proprietary rights;
- Sandia's or our patents could successfully be challenged by one or more third parties, which could result in our or Sandia's loss of the right to prevent others from exploiting the inventions claimed in those patents;
- current and future competitors may develop alternative technologies that are not covered by Sandia's patents; and
- effective patent protection may not be available in every country in which our licensees do business.
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:
- laws and contractual restrictions may not be sufficient to prevent misappropriation of our or Sandia's technologies or deter others from developing similar technologies;
- "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;
- other companies may claim common law trademark rights based upon state or foreign laws that precede federal registration of our trademarks;
- 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
- 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 big 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:
- the lengthy and expensive process of building a relationship with potential licensees;
- the fact that we may compete with the internal design teams of potential licensees;
- 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
- difficulties in persuading potential licensees to bear development costs to incorporate our technologies into their products.
THE POTENTIAL HIGHER COST OF HAPTIC-ENABLED PRODUCTS MAY INHIBIT OR PREVENT OUR TECHNOLOGIES FROM ACHIEVING MARKET ACCEPTANCE.
Haptic-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.
COMPETITION IN THE COMPUTER PERIPHERALS MARKET COULD LEAD TO REDUCTIONS IN THE SELLING PRICE OF LICENSED PRODUCTS, WHICH WOULD REDUCE OUR ROYALTY REVENUE.
The computer peripherals market in which some of our licensees may compete is highly competitive and is characterized by rapid technological change, short product life cycles, cyclical market patterns, a trend of declining average selling prices and increasing foreign and domestic competition. We believe that competition among computer peripheral manufacturers will continue to be intense, and that competitive pressures will drive the price of our licensees' products downward. Any reduction in our royalties per unit might not be offset by corresponding increases in unit sales, and our revenue might then decline.
A SMALL NUMBER OF LICENSEES MAY ACCOUNT FOR A LARGE PORTION OF OUR 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 MICROSOFT'S OR OTHER COMPANY'S OPERATING SYSTEM SOFTWARE, THUS OUR COSTS COULD INCREASE AND OUR REVENUES COULD DECLINE IF MICROSOFT OR SUCH OTHER COMPANY MODIFIES THEIR OPERATING SYSTEM SOFTWARE.
Our hardware and software technology must be compatible with operating system software, including Microsoft's or their similar company's entertainment applications programming interface. Any modifications, additions or deletions by Microsoft or another company's 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 WILL DEPEND ON THIRD PARTY MANUFACTURERS TO PRODUCE AND DISTRIBUTE HAPTIC INTERFACE HARDWARE DEVICES.
We will depend on third party manufacturers to produce and distribute haptic interface hardware devices such as game controllers. 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 haptic 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.
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 significantly 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 management's 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.
COMPETITION FROM PRODUCTS THAT DO NOT INCORPORATE OUR TECHNOLOGIES COULD LIMIT OUR REVENUES OR CAUSE OUR REVENUES TO DECLINE.
Our licensees may seek to develop products that are based on alternative technologies that do not require a license under our intellectual property. The haptics field was not invented by us and has a substantial history of prior art. Several companies currently market haptics enabled products. These or other potential competitors may have significantly greater financial, technical and marketing resources. If existing or potential licensees do not license technology or intellectual property from us, our revenue growth could be limited or revenues could decline.
WE MIGHT BE UNABLE TO RECRUIT OR RETAIN NECESSARY PERSONNEL, WHICH COULD SLOW THE DEVELOPMENT AND DEPLOYMENT OF OUR TECHNOLOGIES.
Our future success and ability to sustain our revenue growth depend upon the continued service of our executive officers and other key personnel and upon hiring additional key personnel. We intend to hire additional sales, support, marketing and research and development personnel in calendar year 2004 and 2005. Competition for these individuals are intense, and we may not be able to attract, assimilate or retain additional highly qualified personnel in the future. In addition, our technologies are complex and we rely upon the continued service of our existing engineering personnel to support licensees, enhance existing technology and develop new technologies.
WE PROJECT RAPID GROWTH AND CHANGE IN OUR BUSINESS, AND OUR FAILURE TO MANAGE THIS COULD HARM OUR 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.
IF WE FAIL TO DEVELOP NEW OR ENHANCED TECHNOLOGIES FOR NEW COMPUTER APPLICATIONS AND PLATFORMS, OUR RESULTS OF OPERATIONS MIGHT BE HARMED.
We expect to develop new or enhanced technologies and to license technologies for new applications and new platforms. These initiatives may not be favorably received by consumers and could damage our reputation or our brand. Expanding our technology could also require significant additional expenses and strain our management, financial and operational resources. The lack of market acceptance of these efforts or our inability to generate additional revenues sufficient to offset the associated costs could harm our results of operations.
FUTURE ACQUISITIONS MIGHT DILUTE STOCKHOLDER VALUE, DIVERT MANAGEMENT ATTENTION OR CAUSE INTEGRATION PROBLEMS.
As part of our business strategy, we have in the past acquired, and might in the future acquire, businesses or intellectual property that we feel could complement our business, enhance our technical capabilities or increase our intellectual property portfolio. If we consummate acquisitions through an exchange of our securities, our stockholders could suffer significant dilution. Acquisitions could create risks for us, including:
- unanticipated costs associated with the acquisitions;
- use of substantial portions of our available cash, including the proceeds of this Offering, to consummate the acquisitions;
- diversion of management's attention from other business concerns; and
- difficulties in assimilation of acquired personnel or operations.
Any future acquisitions, even if successfully completed, might not generate any additional revenue or provide any benefit to our business.
WE ANTICIPATE RAISING ADDITIONAL CAPITAL IN THE FUTURE.
We anticipate raising additional funds through public or private financing, strategic relationships or other arrangements in the near 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 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 CONTROL OVER US, WHICH MAY LEAD TO CONFLICTS WITH OTHER STOCKHOLDERS OVER CORPORATE GOVERNANCE MATTERS.
Our current directors, officers and more than 10% stockholders will, as a group, beneficially own approximately 49.1% 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 COMPUTING GAMING INDUSTRY AND TO DEVELOP OUR OWN INTERACTIVE COMPUTER GAMING PRODUCTS WHICH INCORPORATES 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 UNPREDICABLE AND COMPLEX AND IS SUBJECT TO PLATFORM CHANGES.
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 are designed to be played on proprietary video game platforms such as the PlayStation2, Nintendo Gamecube and Microsoft's Xbox. 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 discontinues development for a platform that has a longer life cycle than expected, our revenue growth may be adversely affected.
SUCCESS OF INTERACTIVE COMPUTER GAMES ARE 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.
THE INTERACTIVE COMPUTER GAMING INDUSTRY IS CYCLICAL, AND WE MAY FAIL TO ANTICIPATE CHANGING CONSUMER PREFERENCES.
A substantial portion of our business will depend on our success in the interactive computer gaming industry which is cyclical and our ability to anticipate changing consumer preferences. The interactive computer gaming industry has historically been cyclical in nature and has been characterized by periods of significant growth followed by rapid declines. Our success will depend on numerous factors beyond our control, including:
- the popularity, price and timing of new software and hardware platforms being released and distributed by us and our competitors;
- international, national and regional economic conditions, particularly economic conditions adversely affecting discretionary consumer spending;
- changes in consumer demographics;
- the availability of other forms of entertainment; and
- critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted.
In order to plan for acquisition and promotional activities, we will be required to anticipate and respond to rapid changes in consumer tastes and preferences. A decline in the popularity of interactive computer games or particular platforms could cause potential sales to be very low. The period of time necessary to develop new game titles, obtain approvals of manufacturers and produce CD-ROMs or game cartridges is unpredictable. During this period, consumer appeal of a particular title may decrease, causing projected sales to decline.
OBTAINING A LICENSE FROM HARDWARE MANUFACTURERS WILL BE REQUIRED TO PUBLISH ANY INTERACTIVE COMPUTER GAME TITLES. WE HAVE NOT OBTAINED SUCH LICENSE AND MAY NOT BE ABLE TO OBTAIN SUCH LICENSE 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 and PlayStation2), Nintendo (Game Boy Color, Game Boy Advance and GameCube) and Microsoft (Xbox) require that we obtain approval for the publication of new games. Such manufactures 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.
Offering and developing interactive computer games is a substantial departure from our current business of offering product development services and limted sales of haptic devices. Our officers, directors and employees have no experience in developing, producing, pricing, marketing, selling, or distributing interactive computer games and will rely on its ability to employ persons that have such experience to carry out its 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 MAY BE UNABLE TO INCREASE SALES OF OUR E-TOUCH SONO PRODUCT IF, AS A RESULT OF THE CURRENT ECONOMIC SLOWDOWN OR OTHER FACTORS, MEDICAL INSTITUTIONS DO NOT BUDGET FOR SUCH DEVICES.
Our e-Touch sono product is new and, as a result, many medical institutions do not budget for such devices. To increase sales of our e-Touch sono, we must, in addition to convincing medical institution personnel of the utility of the devices, persuade them to include a significant expenditure for the devices in their budgets. If these medical institutions are unwilling to budget for such devices or reduce their budgets as a result of the economic slowdown, cost-containment pressures or other factors, we may not be able to increase sales of its e-Touch sono product at a satisfactory rate. If we are unable to increase sales of our e-Touch sono product, our results of operations and financial condition may be adversely affected.
REDUCED SPENDING BY CORPORATE RESEARCH AND DEVELOPMENT DEPARTMENTS MAY ADVERSELY AFFECT SALES OF OUR PROFESSIONAL APPLICATIONS BUSINESS.
To date, we have derived the majority of our revenues developing professional applications for customers such as Aramco, Lockheed Martin, Chevron, Chrysler and Sandia. We believe that the current economic downturn has led to a reduction in such corporations' budgets for research and development in several sectors, including the automotive and aerospace sectors, which use our services and products. Sales of our services and products may be adversely affected by these cuts in corporate research and development budgets.
LEGISLATIVE ACTIONS, HIGHER INSURANCE COST AND POTENTIAL NEW ACCOUNTING PRONOUNCEMENTS ARE LIKELY TO IMPACT OUR FUTURE FINANCIAL POSITION AND RESULTS OF OPERATIONS.
There have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and there may potentially be new accounting pronouncements or additional regulatory rulings which will have an impact on our future financial position and results of operations. The Sarbanes-Oxley Act of 2002 and other rule changes as well as proposed legislative initiatives following the Enron bankruptcy are likely to increase general and administrative costs. In addition, insurers are likely to increase premiums as a result of high claims rates over the past year, which we expect will increase our premiums for insurance policies. Further, proposed initiatives are expected to result in changes in certain accounting rules, including legislative and other proposals to account for employee stock options as a compensation expense. These and other potential changes could materially increase the expenses we report under generally accepted accounting principles, and adversely affect our operating results.
THE MARKET FOR OUR COMMON STOCK, EVEN IF REGISTERED UNDER THE SECURITIES ACT,
MAY NOT BE LIQUID.
Even if our common stock is registered under the Securities Act, it may 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 its 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 listed on the over-the-counter bulletin board. Failure to do so may make it very difficult to sell our common stock.
CHANGES IN GENERAL ECONOMIC CONDITIONS, ESPECIALLY INTEREST RATES AND BUSINESS CYCLES, MAY SIGNIFICANTLY AFFECT OUR INCOME AND REVENUES.
Any substantial deterioration in general political or economic conditions, particularly in the United States, may adversely affect the need for our financial performance. The terrorist attacks that took place in the United States on September 11, 2001, along with the U.S. military campaign against terrorism in Iraq, Afghanistan and elsewhere and continued violence in the Middle East have created many economic and political uncertainties, some of which may materially harm demand of our services and products and our business and revenues. The long-term effects of these events on our industry, the market for our products and the U.S. economy as a whole are uncertain. The consequences of any additional terrorist attacks, or any expanded-armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our markets or our business.
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.
SELLING SECURITY HOLDERS
The following table provides certain information with respect to the selling security holders' beneficial ownership of our securities as of the date of this prospectus. The selling security holders can offer all, some or none of their shares of our common stock, 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. None of the selling security holders are or were affiliated with registered broker-dealers. See "Plan of Distribution."
NUMBER OF SHARES BENEFICIALLY
OWNED AFTER OFFERING (2)
NUMBER OF SHARES -----------------------------
BENEFICIALLY OWNED BEFORE NUMBER OF SHARES NUMBER OF
NAME OFFERING (1) BEING OFFERED SHARES PERCENTAGE
---- ------------ ------------- ------ ----------
Absolute Return Europe Fund 750,000 (3) 750,000 0 0
European Catalyst Fund Ltd. 375,000 (4) 375,000 0 0
RAB Special Situations L.P. 2,106,000 (5) 2,106,000 0 0
Concorde Bank Limited 75,000 (6) 75,000 0 0
Motus Management S.A. 150,000 (7) 150,000 0 0
Alan Schram 37,500 (8) 37,500 0 0
Frederick Manlunas 41,250 (9) 41,250 0 0
Craig Noell 7,500 (10) 7,500 0 0
Duane Stullich 11,250 (11) 11,250 0 0
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NUMBER OF SHARES BENEFICIALLY
OWNED AFTER OFFERING (2)
NUMBER OF SHARES -----------------------------
BENEFICIALLY OWNED BEFORE NUMBER OF SHARES NUMBER OF
NAME OFFERING (1) BEING OFFERED SHARES PERCENTAGE
---- ------------ ------------- ------ ----------
Daniel S. Conway 30,000 (12) 30,000 0 0
Nishen Radia 7,500 (13) 7,500 0 0
Gayle C. Pomerantz 37,500 (14) 37,500 0 0
Spencer Stuart Management Ltd 75,000 (15) 75,000 0 0
Victor Ho 67,500 (16) 67,500 0 0
Bennett Group Arizona LLC 30,000 (17) 30,000 0 0
Rose M. and Joseph S. Bruglio 75,000 (18) 75,000 0 0
Todd and Nancy Gillenwater 37,500 (19) 37,500 0 0
Joseph W. and Corinne M. Kliegl 150,000 (20) 150,000 0 0
Edward and Martin Santangelo 150,000 (21) 150,000 0 0
Chad R. Worthington 7,500 (22) 7,500 0 0
Sandia Corporation 487,300 (23) 487,300 0 0
Bill Anderson 15,000 (24) 15,000 0 0
Tom Anderson 500,000 (25) 500,000 0 0
Jan Arnett 757,576 757,576 0 0
Richard Aviles 15,000 (26) 15,000 0 0
Walt Aviles 15,000 (27) 15,000 0 0
Scott L. Bach 15,000 15,000 0 0
Ed Barsis 15,000 (28) 15,000 0 0
Nick Brown 15,000 (29) 15,000 0 0
Corporate Advisors Group 300,000 (30) 300,000 0 0
Gerald Grafe 15,000 15,000 0 0
Jack Harrod 250,000 250,000 0 0
Allan Hisey 15,000 15,000 0 0
Hunter World Markets, Inc. 263,000 (31) 263,000 0 0
Jake Jones 15,000 (32) 15,000 0 0
Loman International SA 100,000 100,000 0 0
Manhattan Scientifics 500,000 500,000 0 0
Sheila Pounds 15,000 (33) 15,000 0 0
Richardson & Patel LLP 337,879 (34) 337,879 0 0
PFK Acquisition Co I, LLC 150,000 (35) 150,000 0 0
PFK Acquisition Co II LLC 150,000 (36) 150,000 0 0
Howard Zuker 52,500 (37) 52,500 0 0
Todd M. Ficeto 250,000 (38) 250,000 0 0
John M. Alderson 250,000 (39) 250,000 0 0
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(1) The number and percentage of share 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 shares will be resold by the Selling Security Holders after this offering.
(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.
(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.
(5) Includes up to 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
(15) 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.
(16) 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.
(17) 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.
(18) 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.
(19) 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.
(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 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.
(22) 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.
(23) Includes up to 447,300 shares of common stock to be issued upon the conversion of 4,000 shares of preferred stock.
(24) Includes up to 15,000 shares of common stock to be issued upon the exercise of options at exercise prices of $0.01 per share of common stock.
(25) Includes up to 500,000 shares of common stock to be issued upon the exercise of options at exercise prices of $0.05 per share of common stock. Mr. Anderson is the CEO and director of the company.
(26) Includes up to 15,000 shares of common stock to be issued upon the exercise of options at exercise prices of $0.05 per share of common stock.
(27) Includes up to 15,000 shares of common stock to be issued upon the exercise of options at exercise prices of $0.01 per share of common stock.
(28) Mr. Barsis is a director of the company.
(29) Includes up to 15,000 shares of common stock to be issued upon the exercise of options at exercise prices of $0.05 per share of common stock.
(30) 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.
(31) Includes up to 263,500 shares of common stock to be issued upon the exercise of a warrant at exercise prices of $1.00 per share of common stock.
(32) Includes up to 15,000 shares of common stock to be issued upon the exercise of options at exercise prices of $0.01 per share of common stock.
(33) Includes up to 15,000 shares of common stock to be issued upon the exercise of options at exercise prices of $0.01 per share of common stock.
(34) Includes up to 300,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $0.50 per share of common stock.
(35) 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.
(36) 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.
(37) 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.
(38) Includes up to 250,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $0.50 per share of common stock.
(39) Includes up to 250,000 shares of common stock to be issued upon the exercise of a warrant at an exercise price of $0.50 per share of common stock.
PLAN OF DISTRIBUTION
Each selling security holder is free to offer and sell his or her common stock at such times, in such manner and at such prices as he or she may determine. As used in this prospectus, "Selling Security Holders" includes the ~ledges, donees, transferees or others who may later hold the selling security holders' interests in our common stock. We will pay the costs and fees of registering the common stock, but each selling security holders will pay their own brokerage commissions, discounts or other expenses relating to the sale of the common shares. We will not receive the proceeds from the sale of the shares by the selling security holders, except in the event that a selling security holder exercises any warrants. Although the selling security holders are not required to exercise the warrants, if they do so we will receive the proceeds from the exercise.
The selling security holders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling security holders may use any one or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
o an exchange distribution in accordance with the rules of the applicable exchange;
o privately negotiated transactions;
o settlement of short sales
o broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale;
o through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; and
o any other method permitted pursuant to applicable law.
The selling security holders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. Broker-dealers engaged by the selling security holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling shareholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling security holders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.
In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The selling security holders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act 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. The selling security holders have informed us that none of them have any agreement or understanding, directly or indirectly, with any person to distribute the common stock.
We are required to pay all 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.
LEGAL PROCEEDINGS
The Company is not presently a party to any pending or threatened legal proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, ages, and positions of our
directors and officers.
Name Age Position Held Officer/Director since
---- --- ------------- ----------------------
Tom Anderson 29 Chief Executive Officer, President, 1999
Chairman of the Board and Director
Walter Aviles 44 Chief Technical Officer 2001
Marvin Maslow 67 Director 2000
Ed Barsis 63 Director 2000
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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.
Directors will be elected for one-year terms at the annual stockholders meeting.
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 other than a shareholders
agreement between Manhattan Scientifics, Tom Anderson and the Company whereby
the parties agree: (i) to elect Tom Anderson and Marvin Maslow as directors;
(ii) that Manhattan Scientifics will have the right to elect 2 board members.
There are no family relationships among the directors and executive offices. 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.
BIOGRAPHICAL INFORMATION
TOM ANDERSON, CEO, PRESIDENT 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 Novint over the past five years and has been responsible for overseeing all aspects of its business development including leading Novint to a break-even point on cash flow. He began his work on computer touch more than eight years ago at Sandia National Laboratories using the first PHANTOM (the first haptic 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 Novint Technologies. Mr. Anderson has a BS in Electrical Engineering, Magna Cum Laude, from the University of New Mexico, and an MS in Electrical Engineering from the University of Washington, where he studied both computer interface technology and business management.
WALT AVILES, CHIEF TECHNICAL OFFICER
Novint's 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. As a founding principal of Teneo Computing, Inc., 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, Mr. Aviles was a Vice President at SensAble Technologies in Cambridge, Massachusetts, where he helped establish the corporat'on's software group and developed the wo'ld's first commercial haptic 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
Marvin Maslow is the first board member after Tom Anderson, and is the CEO of our principal investor, 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 Chairman of the Board of Manhattan Scientifics, Inc., a publicly traded company which is also one of our shareholders.
ED BARSIS
Dr. Edwin H. Barsis is a partner in BMV Associates, a consulting firm he co-founded in 1995 that specializes in managerial consulting, technology assessment and business development. Clients include new business ventures, large and small commercial corporations and the US government. Previously, during a 26-year career at Sandia National Laboratories, Dr. Barsis held positions on the technical staff and in senior management where he was responsible for building and directing technical groups, managing the corporat'on's R&D investments and business development. He graduated from Cornell University with B.S., M.S., and Ph.D. degrees in Engineering Physics; and subsequently served as a Captain in the US Army from 1967 to 1969.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock as of May 5, 2004 by (i) each person who is known
by we to own beneficially more than five percent (5%) of the outstanding shares
of our voting securities, (ii) each director and executive officer of we, and
(iii) all directors and executive officers of we as a group. Unless otherwise
indicated below, to the knowledge of we, all persons listed below have sole
voting and investing power with respect to their shares of common stock, except
to the extent authority is shared by spouses under applicable community property
laws, and, unless otherwise stated, their address is 4109 Bryan Ave NW,
Albuquerque, New Mexico 87114.
Amount and Nature of Beneficial Percent
Title of Class Name and Address of Beneficial Owner Ownership(1) of Class (6)
-------------- ------------------------------------ ------------ ------------
Common Tom Anderson 6,290,218(2) 28.6%
Common Walter Aviles 1,182,220 (3) 5.4%
Common Ed Barsis 113,867 (4) 0.5%
Common Marvin Maslow 3,216,913 (5) 14.6%
Common Manhattan Scientifics, Inc. 3,216,913 14.6%
All officers and directors as a group 49.1%
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(1) 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 May 5, 2004, 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.
(2) Mr. Anderson is the CEO and owns 3,290,218 shares of our common stock and an option to purchase 3,000,000 shares of our common stock at an exercise price of $0.05 per share.
(3) Mr. Aviles is the CTO and owns options to purchase 82,220 shares at an exercise price of $0.01 per share and 1,100,000 shares at an exercise price of $0.05 per share of our common stock.
(4) Mr. Barsis is a Director.
(5) Mr. Maslow is a Director of the Company and is the CEO of Manhattan Scientifics which owns 3,216,913 shares of common stock.
(6) Percentages are based on 21,996,652 shares outstanding or subject to options, warrants or convertible securities exercisable or convertible within 60 days of May 5, 2004.
DESCRIPTION OF SECURITIES
We are currently authorized to issue 50,004,000 shares of capital stock, consisting of 50,000,000 shares of Common Stock with a par value of $0.01 per share and 4,000 shares of Preferred Stock with a par value of $0.01 per share.
COMMON STOCK
As of May 5, 2004, 14,183,114 shares of our Common Stock are issued and outstanding. PREFERRED STOCK As of May 5, 2004, 4,000 shares of our preferred stock (the "Preferred Stock") |
are issued and outstanding.
The following is a brief summary of the preferences and rights contained in our Certificate of Incorporation with respect to the Preferred Stock and is qualified in its entirety by reference to such Certificate.
Dividends
In all respects regarding dividends or distributions of any kind to holders of Common Stock, holders of the Preferred Stock shall have the rights, privileges, and share in all respects as if such holders had converted the Preferred Stock to the number of shares of Common Stock corresponding to the conversion provisions.
Liquidation Preference
In the event of our voluntary or involuntary liquidation, dissolution or other winding up of our affairs, before any distribution or payment is made to the Common Stock, the holders of the Preferred Stock shall be entitled to be paid $100,000 in cash or in property taken at its fair value as determined by the Board of Directors, or both, at the election of the Board of Directors. If such payment shall have been made in full to the holders of the Preferred Stock, the holders of the Preferred Stock shall be entitled to share ratably, treated as if such Preferred Stock had been converted to Common Stock according to the conversion provisions, with the holders of the Common Stock with respect to our remaining assets and funds. Neither the consolidation or merger of our company into or with another corporation or corporations, nor the sale of all or substantially all of the assets of our company to another corporation or corporations shall be deemed a liquidation, dissolution or winding up of the affairs of our company.
Voting Rights
The holders of the issued and outstanding shares of the Preferred Stock shall have no voting rights except, without the consent of the holders of at least a majority of the shares of the Preferred Stock then outstanding we will not: (i) increase the authorized amount of the Preferred Stock; (ii) issue any stock with rights on parity or senior to the Preferred Stock or increase the authorized amount of any such other class, except in exchange for consideration to us not substantially less than the fair market value of such parity or senior stock, as determined in good faith by the Board of Directors; or (iii) amend, alter or repeal any provision of the Certificate of Incorporation so as to adversely affect the rights, preferences or privileges of the Preferred Stock in a substantial way.
Redemption
If there is no Initial Public Offering (defined as any transaction by which
stock of the Company becomes publicly traded) or an Initial Sale (defined as the
sale of the Company to an independent third party (whether by merger, statutory
share exchange, consolidation, recapitalization, sale of all or substantially
all of its assets or sale of all or not less than 85% of the equity and voting
interests in the Company)) within 10 years from the issue date of the Preferred
Stock, then we are required to repurchase the number of shares of the Preferred
Stock as the holders thereof may from time to time request, but in any 12 month
period not more than 10% of the largest number of shares of the Preferred Stock
that have ever been outstanding, at an amount per share equal to the greater of
(a) $0.25/share, or (b) that portion of the fair market value of the Company, as
determined in good faith by the Board of Directors, corresponding to the number
of shares of Common Stock to which the shares of the Preferred Stock to be
redeemed would convert according to the conversion provisions.
Conversion
Optional Conversion. Subject to and upon compliance with the conversion provisions, the holder of any shares of the Preferred Stock has the right at such holder's option, at any time or from time to time, to convert any of such shares of the Preferred Stock into fully paid and nonassessable shares of Common Stock at the Conversion Price set forth below.
Automatic Conversion. Each outstanding share of the Preferred Stock shall automatically be converted, without any further act by us or our stockholders, into fully paid and nonassessable shares of Common Stock at the Conversion Price then in effect upon the closing of an Initial Public Offering (defined as any transaction by which stock of the Company becomes publicly traded) or an Initial Sale (defined as the sale of our Company to an independent third party (whether by merger, statutory share exchange, consolidation, recapitalization, sale of all or substantially all of its assets or sale of all or not less than 85% of the equity and voting interests in us)).
Conversion Price. Each share of the Preferred Stock shall be converted into a
number of shares of the Common Stock determined by dividing (i) $0.25/share by
(ii) the Conversion Price in effect on the Conversion Date. The Conversion Price
shall initially be equal to $0.25/share. The Conversion Price shall be subject
to the following adjustments.
1. Automatic Conversion. In the event of an automatic conversion, before automatic conversion is triggered, the Conversion Price shall be adjusted to that price that will result in the total shares of the Preferred Stock to be convertible to 447,300 shares of Common Stock.
2. Common Stock Issued at Less Than the Conversion Price. If we issue any Common Stock other than Excluded Stock (defined as (A) shares of Common Stock issued or reserved for issuance by us as a stock dividend payable in shares of Common Stock, or upon any subdivision or split-up of the outstanding shares of Common Stock or the Preferred Stock, or upon conversion of shares of the Preferred Stock and (B) up to 20,000 shares of Common Stock to be issued to our key employees, consultants and advisors together with any such shares that are repurchased by us and reissued to any such employee, consultant or advisor) without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to such issuance, the Conversion Price in effect immediately prior to each such issuance shall immediately (except as provided below) be reduced to the price determined by dividing (1) an amount equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issuance multiplied by the Conversion Price in effect immediately prior to such issuance and (B) the consideration, if any, received by us upon such issuance, by (2) the total number of shares of Common Stock outstanding immediately after such issuance. In the case of the issuance of Common Stock for cash, the amount of the consideration received by us shall be deemed to be the amount of the cash proceeds received by us for such Common Stock before deducting therefrom any discounts, commissions, taxes or other expenses allowed, paid or incurred by us for any underwriting or otherwise in connection with the issuance and sale thereof. In the case of the issuance of Common Stock (otherwise than upon the conversion of our shares of capital stock or other securities) for a consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof as determined by the Board of Directors, irrespective of any accounting treatment.
3. Options and Convertible Securities. In the case of the issuance of
(i) options, warrants or other rights to purchase or acquire Common Stock
(whether or not at the time exercisable), (ii) securities by their terms
convertible into or exchangeable for Common Stock (whether or not at the time so
convertible or exchangeable) or options, warrants or rights to purchase such
convertible or exchangeable securities (whether or not at the time exercisable):
A. the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options, warrants or other rights to purchase or acquire Common Stock shall be deemed to have been issued at the time such options, warrants or rights were issued and for a consideration equal to the consideration, if any, received by us upon the issuance of such options, warrants or rights plus the minimum purchase price provided in such options, warrants or rights for the Common Stock covered thereby;
B. the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities, or upon the exercise of options, warrants or other rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such securities were issued or such options, warrants or rights were issued and for a consideration equal to the consideration, if any, received by us for any such securities and related options, warrants or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional consideration, if any, to be received by us upon the conversion or exchange of such securities, or upon the exercise of any related options, warrants or rights to purchase or acquire such convertible or exchangeable securities and the subsequent conversion or exchange thereof;
C. on any change in the number of shares of Common Stock deliverable upon exercise of any such options, warrants or rights or conversion or exchange of such convertible or exchangeable securities or any change in the consideration to be received by us upon such exercise, conversion or exchange, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Price as then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made upon the issuance of such options, warrants or rights not exercised prior to such change, or of such convertible or exchangeable securities not converted or exchanged prior to such change, upon the basis of such change;
D. on the expiration or cancellation of any such options, warrants or rights, or the termination of the right to convert or exchange such convertible or exchangeable securities, if the Conversion Price shall have been adjusted upon the issuance thereof, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have been obtained had an adjustment been made upon the issuance of such options, warrants, rights or such convertible or exchangeable securities on the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options, warrants or rights, or upon the conversion or exchange of such convertible or exchangeable securities; and
E. if the Conversion Price shall have been adjusted upon the issuance of any such options, warrants, rights or convertible or exchangeable securities, no further adjustment of the Conversion Price shall be made for the actual issuance of Common Stock upon the exercise, conversion or exchange thereof;
4. Stock Dividends, Subdivisions, Reclassifications or Combinations. If we (i) subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares, or (ii) combine or reclassify the outstanding Common Stock into a smaller number of shares, the Conversion Price in effect at the time of the record date for such dividend or distribution or the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the holder of any shares of the Preferred Stock surrendered for conversion after such date shall be entitled to receive the number of shares of Common Stock which he would have owned or been entitled to receive had such Preferred Stock been converted immediately prior to such date. Successive adjustments in the Conversion Price shall be made whenever any event specified above shall occur.
THE WARRANTS
The Warrant is exercisable for $2.00/share at anytime for five years but is redeemable by us if the average closing bid price of our Common Stock as quoted on the OTC Bulletin Board or any other listed exchange exceeds 150% of $2.00 for any 10 consecutive trading days ending 1 month before the date of the mailing of a notice of redemption.
We are also registering shares of common stock issuable pursuant to: (i)
warrants to purchase 300,000, 500,000 and 463,500 shares of common stock at
exercise prices of $0.50/share, $0.50/share and $1.00/share respectively; and
(ii) options to purchase up to 590,000 shares of common stock at an exercise
price of either $0.01 or $0.05. These warrants may be exercised at anytime for
five years.
INTEREST OF NAMED EXPERTS AND COUNSEL
Our audited financial statements at December 31, 2003 and 2002 appearing in the prospectus and elsewhere in the registration statement have been audited by Grant Thornton LLP, as set forth on their report thereon appearing elsewhere in the prospectus, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. Grant Thornton LLP does not have any interest in us.
Richardson & Patel LLP has given us an opinion relating to the due issuance of the common stock being registered. Richardson & Patel LLP owns 37,879 shares of our Common Stock and a warrant to purchase an additional 300,000 shares of our Common Stock with an exercise price of $0.50 per share.
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Article Eight of our Certificate of Incorporation limits the liability of our directors to us or our stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174(b) of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived any improper personal benefit. Article Nine of our Certificate of Incorporation provides that we shall indemnify our officers, directors, employees and agents to the fullest extent allowed by the Delaware General Corporation Law.
The provisions of our Bylaws and Articles of Incorporation regarding indemnification are not exclusive of any other right of we to indemnify or reimburse our officers or directors in any proper case, even if not specifically provided for in our charter or Bylaws.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
We were initially incorporated in the State of New Mexico as Novint Technologies, Inc. On February 26, 2002, we changed our state of incorporation to Delaware by merging into Novint Technologies, Inc., a Delaware corporation (the "Company").
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.
Our computer touch technology allows computer users to realistically feel objects displayed by a computer using a 3D haptic (or computer-touch) device in the same way that the monitor allows people to see what a computer is displaying. A computer user holds onto the handle of a haptics device 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 three-dimensional cursor or other pointing icon displayed by the computer (much like a mouse controlling a two-dimensional cursor) and when such cursor makes contact with virtual objects displayed by the computer, the computer registers such 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 user's hand.
For example, a user can hit a virtual golf ball, swing a sword at an ogre, throw a football, 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 will fundamentally change the interactive computer game industry because it adds another sensory (the sense of touch) component to make games more realistic. We believe that future interactive computer games will be played with three dimension touch devices, and the technology will expand beyond computer games and toys and may eventually replace the computer mouse entirely.
We are currently planning to exploit new opportunities in the consumer interactive computer game market. This opportunity is only recently possible because of the development of a new low-cost three-dimensional haptics interaction device that works with our existing computer touch software. We believe that this device may retail for under $100, bringing it within reach to a large number of consumers.
Haptics technology is unlike any other previous computer interaction. It opens the door to a whole new way in which users can interact with computers. We believe that this is one of the few technologies that will fundamentally revolutionize the ways in which people use computers and we aim to be a leader and pioneer in this exciting and growing field.
COMPANY HISTORY & DEVELOPMENT OF HAPTICS TECHNOLOGY
Our technology originated at Sandia National Laboratories ("Sandia"), a multi-billion dollar government research laboratory, which is one of the earliest pioneers in the human-computer haptics interaction field. We were established in 2000. We were granted an exclusive license 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 and our management team has over 30 years of experience in the human-computer haptics interaction field, and includes some of the earliest researchers in the field of haptics.
We received a first round of funding of approximately $1,500,000 from Manhattan Scientifics, Inc., a publicly traded technology incubator company (OTCBB: MHTX). We have used such funds to grow to a breakeven point with respect to our cash-flow. See, Financial Statements.
In May 2001, Manhattan Scientifics acquired Teneo Computing, Inc. ("Teneo") and caused Teneo to grant to us an exclusive, worldwide license to all of Teneo's technology. The Teneo license brought a number of customers and added a suite of haptics applications and technology for us.
Our revenues are currently approximately $505,566 and $243,080 for 2003 and 2002, respectively. All of our revenues have been from contracts to develop professional applications using our haptics technology 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 a few haptics interface systems along with its software.
OUR HAPTICS TECHNOLOGY
Our computer touch technology allows computer users to realistically feel objects displayed by a computer on a monitor in the same way that the monitor allows people to see what a computer is displaying. A computer user holds onto the handle of a haptics device 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 cursor or other pointing icon displayed by the computer (much like a mouse controlling a cursor) and when such cursor makes contact with virtual objects displayed by the computer, the computer registers such 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 user's hand.
Our computer touch technology encompasses both hardware and software. The hardware component includes designs and development of devices that users can hold or feel to receive the touch sensations. We have a reseller agreement with SensAble to sell a haptics device called the Phantom System. The software component includes software that interacts with the hardware component to update motors in the haptics device to create the touch sensations.
Our computer touch technology has had broad and significant implications and utility in many domains including the engineering, scientific, medical, entertainment and educational fields. To date, 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.
CURRENT PRODUCTS & SERVICES
To date, we have derived the majority of our revenue 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.
We believe that our professional application development services business is poised to expand. Several of the projects we have completed (such as those with Aramco, Lockheed Martin, and Sandia) may grow into much larger 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 have also recently released two products, an interface to an Atomic Force Microscope and our e-Touch sono system. Our e-Touch sono, which allows a parent to "virtually" touch their baby before he/she is even born was chosen as one of Time Magazine's Coolest Technologies of the Year in November of 2002.
No sales of products in general other than a sale to Deakin University and University of New Mexico each for a collection of our applications for demonstration purposes. We have also sold Phantom Haptic interfaces. Other than that, our revenue is from contracts so far, but we hope to have product revenue in the near future.
SALES OF CURRENT PRODUCTS
We are actively marketing for other projects through interactions at trade shows, through our web site, our reputation as a leader in 3D haptics, and through leads generated from friends of the Company.
PRODUCTS AND SERVICES IN DEVELOPMENT: INTERACTIVE COMPUTER GAMING
We are currently preparing 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.
Opportunities in the Interactive Computer Game Market
The interactive computer game market is a very large and rapidly growing market. According to sales figures from The NPD Group, total U.S. retail sales of video game hardware, software and accessories grew 10 percent in 2002 over 2001. The video game industry generated $10.3 billion in record-breaking sales, surpassing the previous record high of $9.4 billion in 2001. The category of video game software, consisting of both console and portable software, experienced sales gains of 21 percent in dollar volume and sold 15 percent more units in 2002 than in 2001. The three primary gaming console companies are Sony (Playstation 2), Microsoft (XBox), and Nintendo (Gamecube). The Company anticipates developing games for the Sony and Microsoft platforms.
The U.S. entertainment software industry (computer and video game software sales) grew 8% to a record-breaking $6.9 billion in 2002, according to the Interactive Digital Software Association (IDSA). 2002 U.S. sales of console games totaled $5.5 billion while computer games accounted for $1.4 billion in sales, including edutainment games. Total game software sales in 2001 were $6.35 billion, with console games bringing in $4.6 billion in sales and computer games accounting for $1.75 billion. According to a poll by IDSA, 41% of all Americans, and almost two-thirds (63%) of parents, say that they plan to purchase at least one game this year.
Our Interactive Computer Gaming Strategy
Our interactive computer gaming strategy is based upon the creation of a fundamentally new and improved 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 to a number of hardware manufacturers to gain support for the technology. At the same time, 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 anticipate playing an active role in creating the hardware and software over the early years of development, but over time we anticipate a licensing model where we will control and license the interface between the hardware and the software and receive royalties on hardware and software sales.
Hardware
Initially, we anticipate the development of two iterations of haptics controller devices: the first-generation 3D version and the second-generation 6D version (with 6 degrees of freedom, allowing users to move and rotate objects). We anticipate that the 3D controllers will be introduced by 2005 for the Sony PlayStation2 and the PC and by 2006, a 3D controller for Microsoft's XBox will be introduced, along with 6D controllers and upgrade kits for all three platforms. Further, we anticipate that by 2007, the 3D controller will be replaced by the 6D controller and additionally accommodate the anticipated introductions of the Sony PlayStation3 and Microsoft XBox2 next generation consoles. We anticipate that each controller will be bundled with its own flagship game title.
We anticipate that all hardware will be manufactured and sold by third parties such as Sony, Microsoft, Logitech, Interact, Kensington, etc., under licensing agreements with us. 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. Ultimately, we anticipate that the current generation of mice, joysticks, gamepads, etc. are supplanted by haptics controllers, and all those controllers employ our technology.
Software
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 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 anticipate that our computer touch software will be licensed to third party publishers. We anticipate two broad types of licenses. The first category is one in which we license the haptic technology to a publisher so that their development team can add the sense of touch into a game. In this type of license, we will provide our computer touch software and within it, the interface to the applicable hardware. In many cases, we will aid in the development of the game. The second category of games is one in which we are the primary developer, where we take on the creation of the game. These games are still licensed to a publisher, as the publisher's name and distribution channels are utilized for sales, but we anticipate that it will receive a higher royalty on these games given the higher level of control and involvement.
We anticipate that all games developed will be published by 3rd party
publishers, and will be distributed through their distribution channels. As
described above, we will either aid another developer in incorporating haptics
into the game, or we will act as the game developer. To achieve the introductory
library of games, we anticipate employing a two-pronged development strategy
wherein we will: (i) support third party publishers by providing developmental
API/toolsets, our resident experts to assist their developer teams and, in
selected cases, an advance on all or a portion of the development funding; and
(ii) serve as the developer of record, and advance the development funding, for
the respective publishers of the three initial haptics-only titles.
We have started to approach game publishers, such as Nickelodeon, Eidos, HIP Interactive, Electronic Arts, Jaleco, and others. We are continuing to make contacts with other publishers currently as well. Our technology has been well received in our initial meetings. Our goal is to enter into several Letters of Intent with game publishers, stating their interest in creating games using our technology, and then to approach hardware manufacturers to license our hardware technology. We have also approached game console manufacturers. To date, we have had initial meetings with Nintendo and Microsoft, and hope to have follow up meetings shortly.
For our hardware business, we began to solicit proposals from engineering and design companies who can help us to further our hardware design to a mass market pre-production stage. We have also solicited a proposal and have met with Lunar Design to develop the exterior, aesthetic design of the device.
COMPETITION
In the past 8 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 our efforts on software development, and we believe that it will maintain our lead in the field in software. With respect to hardware, our ability to acquire exclusive rights to release a mass market 3D haptics enabled device (targeted to be under $100 to consumers) would be a significant event in the field of haptics, and would give us a strong competitive advantage in our licensing strategy as it would be the first to market with a number of strategic partnerships. We believe that none of our potential hardware competitors have any experience with a mass market 3D haptics enabled device. 3D haptics hardware devices available now retail for approximately over $14,000.
o SensAble Technologies (www.sensable.com) is a haptics hardware and software developer. Their first product was the Phantom haptic interface, which remains today the premier high-end 3D hardware device on the market. Their primary application focus is their computer aided design product called Freeform, which they are selling to Product Designers. We have a partnership with SensAble as developers of new applications, enabling increased sales of their Phantom hardware. We have performed software development contracts with SensAble.
o Immersion Corporation (www.immersion.com) is primarily a 2D haptics hardware company. Immersion is a public company, which has acquired other haptics device companies. Over the past 3 years they have acquired Cybernet, Haptech and Virtual Technologies. Immersion also purchased HT Medical, which is now called Immersion Medical.
o Reach In Technologies (www.reachin.se) is a Swedish based haptics software company focused on developing medical and oil/gas applications. They have not been aggressive in their growth and their markets, and we believe that they will not emerge as a competitor.
o MPB (www.mpb-technologies.ca/space/p_freedom6s.html) is a Canadian based haptics hardware company that has developed an interesting 3D haptic hardware prototype, the Freedom 6.
o Microsoft has been an active player in haptics technology. In 1995 they acquired Exos, one of the early developers of 2D and 3D haptic devices. Since that time, they have released joysticks with force feedback capabilities, and it is anticipated that the Xbox will continue to advance this technology for gaming. Microsoft's haptics products are two dimensional, which is significantly different from our 3D technology.
o Force Dimension (www.forcedimension.com), in Switzerland, has unveiled their haptics hardware device, the Delta. They are utilizing our e-Touch software as a software platform to develop applications for their high-end devices.
o 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 e-Touch.
o Logitech sells haptics mice, wheels, and joysticks that they licensed from Immersion and that are primarily used for gaming. Logitech's haptics products are two-dimensional.
o Essential Reality (www.essentialreality.com) recently released the P5 Glove which has 6 DOF tracking (3D position sensing and rotation sensing) similar to our prototype device, but has no force feedback. The force feedback is a significant competitive advantage over their hardware.
INTELLECTUAL PROPERTIES
Patents.
We own rights with respect to 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 haptic 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.
2. Coordinating Haptics with Visual Images in a Human-Computer Interface. U.S. Patent Application pending. PCT and foreign counterparts also filed. Claims a method for efficiently generating haptic models for use with existing images, without requiring the cost of generating a three dimensional model. The claimed method can effectively add a haptic dimension to the large volume of existing visual content.
3. Human-Computer Interfaces Incorporating Haptics. U.S. Provisional Patent Application. Provides an early priority date for several later utility patent applications. This provisional patent application describes a number of haptic techniques particularly applicable to computer games.
4. Human-Computer Interfaces Incorporating Haptics. U.S. Patent Application pending. 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.
We own copyrights in application software and application development tools, including:
1. e-Touch, copyright 2000, 2001, 2002, 2003 Novint Technologies, Inc.
2. e-Touch sono software
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.
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. TOUCHCITY, common law trademark. Intended branding for Internet exploitation of the haptics technology.
6. FEEL THE FUTURE, common law trademark. Intended branding to associate with haptics products and services.
Domain Names.
We own 145 domain names related to our branding strategy.
License Agreements
Sandia License - Our intellectual properties are based on intellectual property licensed from Sandia. The Sandia license is a 12 year exclusive license on haptics human-computer interface technology entered into on April 11, 2000. Novint is required to pay a 1.5% royalty fee in connection with any income earned based upon the Sandia License. The license is subject to certain minimum royalties earned to Sandia. 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 minimum royalties set forth in the Sandia license or fail to raise a minimum capital investment of $3,000,000 by 2004. Failure to comply with such terms of the Sandia license may result in a material negative impact on our business and revenues. The license includes rights to existing software, issued and pending U.S. patents, and rights to additional patents submitted based on the Sandia work. Our license with Sandia also uses cross-licenses for future developments to establish a continuing research relationship between us and Sandia.
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 user's second hand can be used to manipulate the environment and navigation within the environment while allowing the user's first hand to interact directly through a haptic device.
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 haptic 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 Application allowed. Claims a haptic technology that allows intuitive interaction with boundaries between interface domains. This patent application describes a specific type of haptic 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, 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 pending. Claims an interface technique that allows haptic control of common interface operations. This patent application describes several scrolling and zooming techniques based around haptic interaction.
Copyrights from the Sandia License.
1. Flight v.9 alpha, copyright Sandia National Laboratories 2000. Haptics software developed at Sandia that implements early versions of many important haptics developments. Flight was the predecessor to e-Touch.
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 License - On June 24, 2000, we granted an exclusive sub license of our haptics technology to Manhattan Scientifics, one of our shareholders, within a specified Field of Use. We are entitled to a 5% royalty on net revenues derived from such license.
Force Dimension - We have acquired an exclusive sublicense to a hardware patent and were assigned a pending patent from Force Dimension. This sublicense and patent allows us to develop a new low-cost three-dimensional haptics enabled interaction device that works with our existing e-Touch software. We have received the initial prototype and will be receiving a second prototype within 3 months.
GOVERNMENTAL REGULATION
We are not aware of any specific government regulations governing our services.
RESEARCH AND DEVELOPMENT
We estimate that in Fiscal Year 2003 we spent approximately $10,925 on development costs and in Fiscal Year 2002 approximately $79,454.
EMPLOYEES
As of the date of this filing, we currently have 4 full time employees, 1 full time consultant and 7 part time employees.
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 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.
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 the Company's common stock, but options to purchase 200,000 shares were cancelled, 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 two months base salary if he is terminated by the Company without cause.
Recruiting efforts will continue as we bring our products to market.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of us should be read in conjunction with the financial statements and related notes thereto included in this prospectus. The following discussion contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
OVERVIEW
We will continue to work towards expanding our professional application development services business while gearing up to exploit opportunities in the computer gaming industry.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31,
2002, FACTORING IN DISCONTINUED OPERATIONS.
REVENUES. During the year ended December 31, 2003, we had revenues of $505,566 as compared to revenues of $243,080 during the year ended December 31, 2002, an increase of approximately 108%. This increase is attributable to increasing work for ongoing contracts from previous customers. We believe that our revenues will continue to increase as projects continue to grow.
OPERATING EXPENSES. Operating expenses totalled $996,221 for the year ended December 31, 2003 as compared to $583,862 for the year ended December 31, 2002, an increase of approximately 71%. This increase is attributable to an increase in compensation expense paid to various service providers and interest expense on various loans. We believe that our compensation expenses will continue to increase due to our expansion into the computer gaming business but our interest expense will decrease due to our ability to raise money through sale of our securities.
GROSS PROFIT. Cost of goods sold were $362,261 for the year ended December 31, 2003 as compared to $208,540 for the year ended December 31, 2002. Gross profit was $143,305 for the year ended December 31, 2003 as compared to $34,540 for the year ended December 31, 2002. The increase in our gross profits is attributable to better margins due to efficiencies gained as a result of our ability to execute new projects by building on knowledge and software from previous projects. We believe this trend will continue since we are completing more and more projects and are able to build such completed projects while the amount we are able to charge for projects are also increasing. However, we believe that our gross profit will decrease substantially in the short term as we enter and invest our resources in the computer gaming market.
NET LOSS. We had a net loss of $1,142,984 or $0.12 per share for the year ended December 31, 2003 as compared to $836,294 or $0.09 per share for the year ended December 31, 2002. The increase in net loss is attributable to our increase in expenses as discussed above. We believe that net losses will increase substantially in the short term as we enter and invest our resources in the computer gaming market.
LIQUIDITY AND CAPITAL RESOURCES
We closed a funding round in May of 2004 in which we raised $3,049,000. We believe that this funding, in addition to our ongoing Revenues, should last between 1 1/2 to 2 years. We will not need any additional funding during that time, and our professional services business is at break-even for cash flow right now. However, if we are successful in developing our video games business, and in developing partnerships with game publishers and hardware manufacturers, we will need to raise approximately another $10 million in funding to execute our current business plan with respect to our video games business.
PLAN OF OPERATION
Professional Application Development Services
We will continue expanding on current projects with Sandia, Aramco, and Lockheed Martin. We will continue to look to develop new contracts through trade shows and through the many Company relationships we have in place. We will continue to work towards expanding our technology and our project work, and license products. Our licensing strategy for our professional application development services is to license a product to a distributor who will handle sales and marketing of the product, reducing our need for direct sales and marketing staff. We believe that we can grow the business in this manner in a much more scalable business model.
Computer Gaming
We have approached game publishers, such as Nickelodeon, Eidos, HIP Interactive, Electronic Arts, Jaleco, and others. We are also continuing to make contacts with other publishers. Our technology has been well received in our initial meetings. Our goal is to enter into several Letters of Intent with game publishers, stating their interest in creating games using our technology, and then to approach hardware manufacturers to license our hardware technology. We also approached game console manufacturers. We have had an initial meeting with Nintendo and Microsoft, and hope to have follow up meetings shortly.
For our hardware business, we began to solicit proposals from engineering and design companies who can help us to further our hardware design to a mass market pre-production stage. We have also solicited a proposal and have met with Lunar Design to develop the exterior, aesthetic design of the device.
PRODUCT RESEARCH AND DEVELOPMENT
We continue to believe research and development activities are important to our success. We are currently working with Force Dimension in developing a new low-cost three-dimensional haptics enabled interaction device that works with our existing e-Touch software. We plan in Fiscal Year 2004 to complete a prototype of such device and to seek manufacturers that will produce this device.
ACQUISITION OF PLANT AND EQUIPMENT
We do not own any real estate or significant plant or equipment.
PERSONNEL
As of the date of this filing, we currently have 4 full time employees, 1 full time consultant and 7 part time employees. Numerous technically skilled employees along with business development and marketing personnel will be required to bring our computing gaming services and products to market. Recruiting efforts have begun and will continue in the near future. Independent consultants, accountants and attorneys have been retained in the past and will continue to be used extensively in the future.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
DESCRIPTION OF PROPERTY
We do not own any real estate. During fiscal year 2003, we rented office space in Albuquerque, New Mexico on a month to month basis at a rate of $800 per month. The rent may be paid either in cash or in Manhattan Scientifics, Inc. common stock (see below).
We own 8,284 shares of Manhattan Scientifics, Inc. (Manhattan) common stock, a publicly-traded company located in New York.
We do not anticipate investing in real estate or interests in real estate, real estate mortgages, or securities of or interests in persons primarily engaged in real estate activities. We currently have no formal investment policy, and we do not intend to undertake investments in real estate as a part of our normal operations.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
At this time there is no public trading market for our common stock. We currently have a total of 14,183,114 shares of our common stock outstanding.
We have 4,000 shares of Preferred Stock outstanding that converts automatically into 447,300 shares of our common stock when our securities become publicly traded.
We have outstanding warrants that were issued in conjunction with a private offering of our common stock. These warrants, if exercised, would permit shareholders to purchase an additional 1,524,500 shares of our common stock. These warrants may be exercised until May 5, 2009, at which time they will expire if not exercised. The price for each share of common stock purchased in accordance with the warrants is $2.00.
In addition, we also have outstanding warrants issued to various service providers. These warrants, if exercised, would permit such service providers to purchase an additional 1,263,500 shares of our common stock. These warrants may be exercised until 2009, at which time they will expire if not exercised. The price for each share of common stock purchased in accordance with the warrants is as follows: 800,000 at $0.50 per share and 463,500 at $1.00 per share.
We have outstanding vested options that were issued to our various employees. These options, if exercised, would permit employees to purchase an additional 5,025,538 shares of our common stock. The price for each share of common stock purchased in accordance with such options is between $0.01 to $0.66. We have also granted 4 employees and 1 director options to purchase a total of 1,330,000 shares of our common stock pursuant to our Stock Incentive Plan with an exercise price of $0.50 per share. These options will vest over the next 5 years; however none are currently vested.
Assuming all of the warrants and vested options are exercised, we will have outstanding 21,996,652 shares of common stock, of which 8,719,255 will be freely tradable, without restriction. We issued the remaining shares of outstanding common stock in private transactions in reliance upon exemptions from registration under the Securities Act. Those shares may be sold only if we file a registration statement or if there is an applicable exemption from registration. Rule 144 of the Securities Act of 1933 is not available for the resale of our common stock. Other than the common stock being registered for the selling shareholders in this offering, we have no agreement with any shareholder to register our securities.
HOLDERS
We currently have 94 record holders of our common stock.
DIVIDENDS
We have not paid any cash dividends and we currently intend to retain any future earnings to fund the development and growth of our business. Any future determination to pay dividends on our common stock will depend upon our results of operations, financial condition and capital requirements, applicable restrictions under any credit facilities or other contractual arrangements and such other factors deemed relevant by our Board of Directors.
EQUITY COMPENSATION PLAN INFORMATION
In March, 2004, we established the 2004 Stock Incentive Plan ("Plan"). The Plan was approved by our Board of Directors and security holders holding a majority of the shares of our common stock outstanding. The purpose of the Plan is to grant stock and stock options to purchase our common stock to our employees and key consultants. The total amount of shares subject to the Plan is 3,500,000 shares.
The following table sets forth information regarding our compensation plans and individual compensation arrangements under which our equity securities are authorized for issuance to employees or non-employees (such as directors, consultants, advisors, vendors, customers, suppliers or lenders) in exchange for consideration in the form of goods or services.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities to Weighted-average
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available
Plan Category warrants and rights warrants and rights for future issuance
------------- ------------------- ------------------- -------------------
Equity Compensation Plans approved by 1,330,000 $0.50 2,170,000
security holders.
Equity Compensation Plans not approved 0 0 0
by security holders.
TOTAL 1,330,000 $0.50 2,170,000
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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 years ended December 31, 2003, 2002 and 2001. None of our executive officers received compensation in excess of $100,000 for the fiscal years ended December 31, 2003, 2002 or 2001, respectively. The following table summarizes all compensation received by our Chief Executive Officer, Chief Technical Officer and Chief Financial Officer in fiscal years 2003, 2002 and 2001.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------------- ------------------------------------------------------
Awards Payouts
------ -------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Fiscal Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
------------------ ---- --- --- --- --- --- --- ---
Tom Anderson 2003 $90,000 -- -- -- -- -- --
Chief Executive 2002 $90,000 -- -- -- 3,000,000 Options -- --
Officer 2001 $90,000 -- -- -- -- -- --
Walter Aviles 2003 $100,000 -- -- -- -- -- --
Chief Technical 2002 $100,000 -- -- -- 1,100,000 -- --
Officer 2001 $100,000 -- -- -- 705 -- --
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The following table shows all grants during the fiscal year ended December 31, 2003 of stock options under our stock option plans to the named executive officers.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Percent of
Number of Total Options
Securities Granted to
Underlying Employees Exercise or
Option during Fiscal Base Price Expiration
Name Granted (#) Year (%) ($/Sh) Date
---- ----------- -------- ------ ----
Arthurine Breckenridge 75,758 87.0% $0.66 2013
Lem Hunter 11,364 13.0% $0.50 2013
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The following table provides information as to the number and value of unexercised options to purchase our common stock held by the named executive officers at December 31, 2003. None of the named executive officers exercised any options during the fiscal year ended December 31, 2003.
AGGREGATE OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Year- Options at Fiscal Year-End ($)
Name End (#) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------------------------- -------------------------
Tom Anderson 3,000,000 /0 $3,000,000 / $0
Walt Aviles 1,002,220 / 200,000 $1,002,220 / $200,000
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LONG-TERM INCENTIVE PLAN AWARDS ("LTIP") TABLE
We do not currently have any LTIP.
COMPENSATION OF DIRECTORS
Directors do not generally receive compensation for their services as directors, but are to be reimbursed for expenses incurred in attending board meetings. Mr. Edwin Barsis, a current director, and Mr. Scott L. Bach, a former director of the Company, each received 15,152 shares of the Company's common stock for past services as directors of the Company.
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 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. This agreement does not provide provisions covering a change in control of the Company.
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 the Company's common stock, but options to purchase 200,000 shares were cancelled, 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 two months base salary if he is terminated by the Company without cause. This agreement does not provide provisions covering a change in control of the Company.
Financial Statements and
Report of Independent Certified Public Accountants
NOVINT TECHNOLOGIES, INC.
December 31, 2003 and 2002
CONTENTS
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................... F-2
FINANCIAL STATEMENTS
Balance Sheets...................................................... F-3
Statements of Operations............................................ F-4
Statements of Stockholders' Equity.................................. F-5
Statements of Cash Flows............................................ F-6
Notes to Financial Statements.................................. F-7 - F-22
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Novint Technologies, Inc.
|
We have audited the accompanying balance sheets of Novint Technologies, Inc. as of December 31, 2003 and 2002 and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement. 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, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Albuquerque, New Mexico
March 18, 2004
NOVINT TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31,
2003 2002
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 32,119 $ 4,820
Restricted cash 291,254 --
Marketable equity securities, available for sale (Note 3) 497 27,513
Prepaid interest expense 24,750 5,625
Prepaid private placement issuance costs 237,737 --
Accounts receivable 81,865 250
Costs and estimated earnings in excess of billings on
contracts (Note 4) -- 18,740
----------- -----------
Total current assets 668,222 56,948
----------- -----------
SOFTWARE DEVELOPMENT COSTS, NET (Note 5) 16,012 32,022
----------- -----------
PROPERTY AND EQUIPMENT:
Office equipment 45,586 44,873
Software 7,246 7,046
Computer equipment 155,067 143,665
----------- -----------
207,899 195,584
Less: Accumulated depreciation 124,146 84,728
----------- -----------
Total property and equipment 83,753 110,856
----------- -----------
INTANGIBLE ASSETS, NET (Note 6) 111,313 322,949
----------- -----------
Total assets $ 879,300 $ 522,775
=========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,891 $ 19,345
Accrued payroll related liabilities 205,612 66,250
Accrued consulting fees 56,614 --
Other accrued liabilities 46,687 4,182
Billings in excess of costs and estimated earnings on
contracts (Note 4) -- 22,024
Notes payable, investor (Note 7) 100,000 100,000
Notes payable, net of discount (Note 7) 461,269 --
----------- -----------
Total current liabilities 884,073 211,801
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
MANDATORILY REDEEMABLE, CONVERTIBLE
PREFERRED STOCK
Series A: $0.01 par value; 4,000 shares authorized,
issued and outstanding 10,000 10,000
----------- -----------
STOCKHOLDERS' (DEFICIT) EQUITY (Note 10):
Common stock, authorized 50,000,000 shares, $0.01 par value;
10,028,026 and 9,244,834 issued and outstanding as of
December 31, 2003 and 2002, respectively 100,280 92,448
Additional paid-in capital 1,984,134 1,398,703
Accumulated deficit (2,089,632) (946,648)
Accumulated other comprehensive loss (Note 3) (4,605) (233,229)
Unearned compensation (Note 2) (4,950) (10,300)
----------- -----------
Total stockholders' (deficit) equity (14,773) 300,974
----------- -----------
Total liabilities and stockholders' (deficit) equity $ 879,300 $ 522,775
=========== ===========
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The accompanying notes are an integral part of these financial statements.
NOVINT TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
2003 2002
----------- -----------
Revenue
Project $ 370,387 $ 211,454
Products 135,179 31,626
----------- -----------
Total revenue 505,566 243,080
Cost of goods sold 362,261 208,540
----------- -----------
Gross profit 143,305 34,540
----------- -----------
Costs and expenses
Estimated loss on project in process -- 14,635
Research and development 10,925 79,454
General and administrative 705,396 164,952
Depreciation and amortization 269,929 298,055
Sales and marketing 9,971 26,766
----------- -----------
Total costs and expenses 996,221 583,862
----------- -----------
Loss from operations (852,916) (549,322)
----------- -----------
Other expense
Realized loss on sale of securities 239,040 237,355
Interest expense 51,028 1,875
Interest income -- (2,258)
----------- -----------
Total other expenses 290,068 236,972
----------- -----------
Loss before income taxes (1,142,984) (786,294)
Income tax expense (Note 8) -- 50,000
----------- -----------
Net loss (1,142,984) (836,294)
Other comprehensive loss, net of tax
Change in unrealized loss on securities (10,416) (180,084)
----------- -----------
Comprehensive loss $(1,153,400) $(1,016,378)
=========== ===========
Net loss per common share, basic and diluted $ (0.12) $ (0.09)
=========== ===========
Weighted-average common shares outstanding,
basic and diluted 9,465,313 9,051,580
=========== ===========
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The accompanying notes are an integral part of these financial statements.
NOVINT TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31,
Mandatorily Redeemable,
Convertible Preferred Stock Common Stock Additional
-------------------------- -------------------------- Paid-in
Share s Amount Shares Amount Capital
----------- ----------- ----------- ----------- -----------
Balances, as restated, December 31, 2001 4,000 $ 10,000 9,004,607 $ 90,046 $ 1,365,562
Common stock issued to consultants for services -- -- 47,500 475 19,900
Common stock issued for interest -- -- 150,000 1,500 6,000
Common stock issued upon exercise of options for cash -- -- 42,727 427 --
Options issued to consultants for services -- -- -- -- 7,241
Amortization of unearned compensation -- -- -- -- --
Change in unrealized holding loss -- -- -- -- --
Reclassification of realized loss on investments -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balances, as restated, December 31, 2002 4,000 10,000 9,244,834 92,448 1,398,703
Common stock issued to consultants for services -- -- 209,092 2,091 135,909
Common stock issued for Board of Directors services -- -- 30,304 303 19,697
Common stock issued for cash -- -- 378,788 3,788 246,212
Common stock issued for interest -- -- 50,000 500 32,500
Common stock issued upon exercise of options for cash -- -- 115,008 1,150 --
Options issued to consultants for services -- -- -- -- 55,776
Warrants issued in private placement transaction -- -- -- -- 28,991
Warrants issued in connection with notes payable 58,096
Executive compensation paid by shareholder -- -- -- -- 8,250
Amortization of unearned compensation -- -- -- -- --
Change in unrealized holding loss on investments -- -- -- -- --
Reclassification of realized loss on investments -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balances, December 31, 2003 4,000 $ 10,000 10,028,026 $ 100,280 $ 1,984,134
=========== =========== =========== =========== ===========
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Accumulated
Retained Other
Earnings Comprehensive Unearned
(Deficit) Loss Compensation Total
----------- ----------- ----------- -----------
Balances, as restated, December 31, 2001 $ (110,354) $ (290,500) $ (24,050) $ 1,030,704
Common stock issued to consultants for services -- -- -- 20,375
Common stock issued for interest -- -- -- 7,500
Common stock issued upon exercise of options for cash -- -- -- 427
Options issued to consultants for services -- -- -- 7,241
Amortization of unearned compensation -- -- 13,750 13,750
Change in unrealized holding loss -- (180,084) -- (180,084)
Reclassification of realized loss on investments -- 237,355 -- 237,355
Net loss (836,294) -- -- (836,294)
----------- ----------- ----------- -----------
Balances, as restated, December 31, 2002 (946,648) (233,229) (10,300) 300,974
Common stock issued to consultants for services -- -- -- 138,000
Common stock issued for Board of Directors services -- -- -- 20,000
Common stock issued for cash -- -- -- 250,000
Common stock issued for interest -- -- -- 33,000
Common stock issued upon exercise of options for cash -- -- -- 1,150
Options issued to consultants for services -- -- -- 55,776
Warrants issued in private placement transaction -- -- -- 28,991
Warrants issued in connection with notes payable -- -- -- 58,096
Executive compensation paid by shareholder -- -- -- 8,250
Amortization of unearned compensation -- -- 5,350 5,350
Change in unrealized holding loss on investments -- (10,416) -- (10,416)
Reclassification of realized loss on investments -- 239,040 -- 239,040
Net loss (1,142,984) -- -- (1,142,984)
----------- ----------- ----------- -----------
Balances, December 31, 2003 $(2,089,632) $ (4,605) $ (4,950) $ (14,773)
=========== =========== =========== ===========
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The accompanying notes are an integral part of these financial statements.
NOVINT TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
2003 2002
----------- -----------
Cash flows from operating activities:
Net loss $(1,142,984) $ (836,294)
Adjustments to reconcile net loss to net cash used by
operating activities
Depreciation and amortization 269,929 298,055
Common stock issued for services 158,000 20,375
Options issued to consultants for services 55,776 7,241
Amortization of warrants issued in connection with notes payable 58,096 --
Executive compensation paid by shareholder 8,250 --
Amortization of unearned compensation 5,350 13,750
Services paid with investments 16,600 50,053
Common stock issued for interest 13,875 1,875
Deferred income taxes -- 50,000
Realized loss on disposition of securities 239,040 237,355
Changes in operating assets and liabilities:
Accounts receivable (81,615) 68,278
Prepaid expenses -- 1,681
Accounts payable (5,454) (33,896)
Accrued liabilities 238,481 5,303
Costs and estimated earnings in excess of billings
on contracts, net 18,740 632
Billings in excess of costs and estimated earnings
on contracts, net (22,024) (55,065)
----------- -----------
Net cash used by operating activities (169,940) (170,657)
----------- -----------
Cash flows from investing activities:
Cash proceeds from disposition of investments -- 67,850
Capital expenditures (15,180) (6,721)
Restricted cash (291,254) --
----------- -----------
Net cash (used) provided by investing activities (306,434) 61,129
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of options 1,150 427
Proceeds from issuance of common stock 250,000 --
Expenditures for prepaid private placement issuance fees (208,746) --
Borrowings on notes payable, investor -- 100,000
Proceeds from notes payable, net of discount 461,269 --
----------- -----------
Net cash provided by financing activities 503,673 100,427
----------- -----------
Net increase (decrease) in cash and cash equivalents 27,299 (9,101)
Cash and cash equivalents at beginning of period 4,820 13,921
----------- -----------
Cash and cash equivalents at end of period $ 32,119 $ 4,820
=========== ===========
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The accompanying notes are an integral part of these financial statements.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND 2002
NOTE 1 - NATURE OF BUSINESS
Novint Technologies, Inc. (the Company), is incorporated in the state of Delaware and is engaged in the development and sale of software products, installation services and support to production and manufacturing companies in the United States. e-Touch(TM) is a software program designed to utilize haptic (the sense of touch) equipment, using sight and sound to enable 3D interaction for the user of a computer. The Company's efforts are primarily concentrated on the development and marketing of e-Touch(TM) applications.
The Company's operations are based in New Mexico with sales primarily to private entities and quasi-governmental agencies in the United States.
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 Company's common stock and the fair value of options and warrants to purchase common stock.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original or remaining maturities of three months or less at to date of purchase to be cash equivalents.
Restricted Cash
In connection with the Company's private placement, a loan of $500,000 was provided in November 2003 for use solely with private placement expenses and a hardware licensing agreement with a third party. As of December 31, 2003, the Company had approximately $291,000 in cash on hand restricted for use to close the private placement and payment of milestones pursuant to the licensing agreement.
Marketable Equity Securities
The Company classifies marketable equity securities as available-for-sale in accordance with Statement of Financial Accounting Standard (SFAS) 115, Accounting for Certain Investments in Debt and Equity Securities. 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 statement 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.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable/Concentration of Credit Risk
The Company utilizes the allowance method for accounts receivable valuation, providing for allowances for estimated uncollectible accounts receivable. At December 31, 2003 and 2002, management believes all receivables are collectible; therefore, no allowances have been provided. The Company's financial instruments that are exposed to concentration of credit risk consist primarily of uninsured cash, cash equivalents and available for sale securities held at commercial banks and institutions primarily in the United States and trade receivables from the Company's customers. For the year ended December 31, 2003, the Company had sales to four customers that accounted for approximately 16%, 13%, 33% and 28%, respectively, of its sales. For the year ended December 31, 2002, the Company had sales to three customers that accounted for approximately 21%, 23%, and 21%, respectively, of its sales. 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, however in some instances longer payment terms may be provided.
Fair Value of Financial Instruments
The Company's financial instruments, including cash and cash equivalents, accounts receivable, accrued liabilities, and accounts payable, are carried at historical cost, which approximates their fair value because of the short-term maturities of these instruments. Marketable equity securities are carried at fair value.
Advertising Costs
The Company did not incur advertising expense in 2003 and 2002.
Software Development Costs
The Company accounts for its 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. The Company has capitalized software development costs in connection with e-touch(TM) beginning in 2000. Amortization is computed on the straight-line basis over the remaining life (five years) of the e-touch(TM) platform. As of December 31, 2003 and 2002, the Company's software development costs, net of amortization, are approximately $16,000 and $32,000, respectively.
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.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company adopted Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, during 2001, which requires capitalization of certain costs incurred during the development of internal use software. Through December 31, 2003, 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 they were incurred.
Intangible Assets
Intangible assets, which consist of licensing agreements and a patent, are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the economic life of the assets, which are 3 and 12 years. For the years ended December 31, 2003 and 2002, the Company recognized amortization expense of $212,000 and $212,000, respectively, related to the intangible assets.
Effective January 1, 2002, the Company adopted (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 do 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 their remaining lives against their 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 2002 and 2003.
Annual amortization of intangible assets remaining at December 31, 2003 are as follows:
Year ended December 31:
2004 $ 90,694
2005 2,500
2006 2,500
2007 2,500
2008 and thereafter 13,119
--------
$111,313
========
|
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
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 2002 and 2003.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Company's revenue recognition policy is as follows:
o Revenue from product sales relates to the sale of the Phantom haptic interface (haptics refers to the sense of touch), 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 is the approximate size and shape of a writing instrument. Phantoms are manufactured by an unrelated party and are shipped directly to the customer. As such, no inventory is maintained and sales revenue and cost of sales are recorded when the item is shipped from the manufacturer. The Company is under no commitment to purchase a minimum number of Phantoms from the manufacturer. No provision for sales returns has been provided in these financial statements; as such, returns have historically been minimal.
o 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 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 on the balance sheet under cost in excess of billings on contracts and billings in excess of costs on contracts.
Provisions for estimated losses on uncompleted contracts are made and recorded in the period in which the loss is identified.
Income Taxes
Income taxes are accounted for 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 bases 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
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
The Financial Accounting Standards Board (FASB) issued SFAS 128 Earnings Per Share, which is effective for periods ending after December 15, 1997. 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 loss 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, 2003 and 2002, the Company had a total of 5,845,538 and 5,096,151 potentially dilutive securities.
Stock Option Plans
The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, in accounting for the recognition and measurement of its fixed plan stock options. As such, unearned compensation is recorded on the date of grant if the current market price of the underlying stock exceeds the exercise price and is amortized over the service period. As of December 31, 2003 and 2002, amortization of unearned compensation approximates $5,000 and $14,000, respectively.
SFAS 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As permitted by SFAS 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above, and has adopted the disclosure-only requirements of SFAS l23.
The following table illustrates the effect on net loss if the company had applied the fair value recognition provisions of SFAS 123 to all stock-based employee compensation for the year ended December 31:
2003 2002
----------- -----------
Net loss, as reported $(1,142,984) $ (836,294)
Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects 5,350 13,750
Deduct: Total stock based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects (151,942) (14,482)
----------- -----------
Pro forma net loss $(1,289,576) $ (837,026)
=========== ===========
Loss per share, basic and diluted:
As reported $ (0.12) $ (0.09)
Pro forma $ (0.14) $ (0.09)
|
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In calculating the fair value of options for the above pro forma disclosure, risk free rates ranging from 4.97% to 5.06% in 2002 were used, volatility of the Company's stock was set at 160%, estimated lives of the options were set at 2 to 3 years in 2002, exercise prices ranged from $0.01 to $0.05 per share, and fair market values ranged from $0.05 to $0.098 per share. There were no options granted to employees in 2003.
Research and Development
Research and development costs are expensed as incurred and amounted to $10,925 and $79,454 for the years ended December 31, 2003 and 2002.
Recent Accounting Pronouncements
In November 2002, FASB Interpretation (FIN) 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, was issued. FIN 45 requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee. A company previously did not record a liability when guaranteeing obligations unless it became probable that the Company would have to perform under the guarantee. FIN 45 applies prospectively to guarantees the Company issues or modifies subsequent to December 31, 2002, but has certain disclosure requirements effective for interim and annual periods ending after December 15, 2002. The Company has historically not issued guarantees and does not anticipate FIN 45 will have a material effect on its financial statements.
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities. FIN 46 clarifies the application of ARB 51, Consolidated Financial Statements, for certain entities that do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest ("variable interest entities"). FIN 46 or FIN 46(R) should be applied to entities considered to be special-purpose entities (SPEs) no later than as of the end of the first reporting period ending after December 15, 2003 (as of December 31, 2003 for a calendar-year reporting enterprise). For this purpose, SPEs are entities that would have previously been accounted for under EITF Issue 90-15, "Impact of Nonsubstantive Lessors, Residual Value Guarantees, and Other Provisions in Leasing Transactions," EITF Issue 96-21, "Implementation Issues in Accounting for Leasing Transactions involving Special-Purpose Entities," EITF Issue 97-1, "Implementation Issues in Accounting for Lease Transactions, including Those involving Special-Purpose Entities," and EITF Topic D-14, "Transactions involving Special-Purpose Entities." SPEs within the scope of this transition provision include any entity whose activities are primarily related to securitizations or other forms of asset-backed financings or single-lessee leasing arrangements. FIN 46(R) should be applied to all entities within its scope by the end of the first reporting period that ends after December 15, 2004, for reporting enterprises that are small business issuers (that is, as of December 31, 2004 for calendar-year reporting enterprises). The Company is in the process of determining what impact, if any, the adoption of the provisions of FIN 46 and FIN 46(R) will have on its financial condition or results of operations.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On May 15, 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS 150 changes the classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in earnings. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and, with one exception, is effective at the beginning of the first interim period beginning after June 15, 2003 (July 1, 2003 for calendar year companies). The effect of adopting SFAS 150 will be recognized as a cumulative effect of an accounting change as of the beginning of the period of adoption. Restatement of prior periods is not permitted. The Company adopted the provisions of SFAS 150 on May 15, 2003 and there was no impact on the Company's financial conditions or results of operations.
Reclassifications
Certain reclassifications have been made to prior year balances in order to conform to the current year presentation.
NOTE 3 - MARKETABLE EQUITY SECURITIES
At December 31, 2003 and 2002, the Company held 8,284 and 423,284 shares of Manhattan Scientifics, Inc. (Manhattan) common stock with original cost basis of $5,102 and $260,742, respectively. At December 31, 2003 and 2002, there were unrealized holding losses of $4,605 and $233,229 related to its investment in marketable equity securities, which have been presented as accumulated other comprehensive losses in the statement of stockholders' equity.
NOTE 3 - MARKETABLE EQUITY SECURITIES (CONTINUED)
The following provides information regarding the amortized cost, gross unrealized gains or losses and estimated fair values of the Company's marketable equity securities:
2003
------------------------------------------------------------------------------
Gross Gross
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
-------------- ---------------- ----------------- ----------
$ 5,102 $ -- $ 4,605 $ 497
2002
------------------------------------------------------------------------------
Gross Gross
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
-------------- ---------------- ----------------- ----------
$260,742 $ -- $233,229 $ 27,513
2003 2002
-------------------------------
Proceeds from disposition $ -- $ 67,850
Gross realized gains $ -- $ --
Gross realized losses $ 239,040 $ 237,355
|
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
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 consist of the following at December 31:
2003 2002
--------- ---------
Costs and estimated earnings incurred on
uncompleted contracts $ -- $ 55,232
Billings on uncompleted contracts -- (36,492)
--------- ---------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ -- $ 18,740
========= =========
|
Billings in excess of costs and estimated earnings on contracts consist of the following at December 31:
2003 2002
--------- ---------
Billings on uncompleted contracts $ -- $ 35,894
Costs and estimated earnings incurred on
uncompleted contracts -- (13,870)
--------- ---------
Billings in excess of costs and estimated
earnings on uncompleted contracts $ -- $ 22,024
========= =========
|
NOTE 5 - SOFTWARE DEVELOPMENT COSTS
Capitalized software development costs consisted of the following at December 31:
2003 2002
--------- ---------
Software development costs $ 80,058 $ 80,058
Less accumulated amortization (64,046) (48,036)
--------- ---------
$ 16,012 $ 32,022
========= =========
|
NOTE 6 - INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31:
2003 2002
--------- ---------
Licensing agreements $ 665,000 $ 665,000
Patent 3,688 824
Less accumulated amortization (557,375) (342,875)
--------- ---------
$ 111,313 $ 322,949
========= =========
|
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 7 - NOTES PAYABLE
In October 2002, the Company issued a promissory note of $100,000 with a maturity date of October 2003. During 2003, the maturity date was extended to October 2004. The Company repaid the $100,000 note in full in March 2004. In conjunction with the issuance of the $100,000 promissory note, the Company issued 150,000 shares of common stock in October 2002 in lieu of interest. In October 2003, as a result of the repayment extension and in accordance with the original terms of the promissory note, the Company issued an additional 50,000 shares of common stock. The fair market value of the shares issued in lieu of interest has been recorded as interest expense over the term of the note. The fair values of the shares issued total $33,000 and $7,500 as of December 31, 2003 and 2002, respectively. The Company recorded interest expense of $1,875, based on the fair market values of the shares, for the period the loan was outstanding as of December 31, 2002. During the year ended December 31, 2003, the Company recorded the remaining fair value of $5,625 on shares issued in 2002 and an additional $8,250 on shares issued in 2003, as interest expense.
In November 2003, the Company issued a promissory note of $500,000 with an interest rate of 12% per annum and maturing in May 2004. In conjunction with the issuance of the $500,000 promissory note, the Company issued a warrant for the purchase of 500,000 shares of the Company's common stock at an exercise price of $0.50 per share. The warrant expires in November 2013. The Company calculated the value of the warrant to be approximately $58,000 using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.31%, volatility of 86%, contractual life of 10 years, and a common stock fair market value of $0.66 per share. As these warrants were issued in connection with a note, the value of the warrant was recorded as a debt discount and the amount amortized to interest expense in 2003 was approximately $19,000.
NOTE 8 - INCOME TAXES
A reconciliation of income tax expense using the statutory federal and state income tax rate rates is as follows for the years ended December 31:
2003 2002
---------- ----------
Income tax benefit at statutory rate $ (389,000) $ (289,000)
State income taxes (69,000) (51,000)
Increase in valuation allowance 458,000 390,000
---------- ----------
Deferred income tax expense $ -- $ 50,000
========== ==========
|
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 are the accrual for billings in excess of estimated costs and accounts payable which are recorded for financial reporting purposes but not currently deductible for tax reporting. Temporary differences giving rise to the non-current deferred tax asset include accrued payroll not paid and contribution carryover, which are deductible for financial reporting purposes but not currently deductible for tax reporting. The other major temporary timing differences giving rise to the non-current deferred tax asset is the net operating loss carryforward. The temporary differences giving rise to the current deferred tax liability consist of the accounts receivable, prepaid expenses and estimated costs and estimated earnings in excess of billings that are accrued for financial reporting purposes but are
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 8 - INCOME TAXES (CONTINUED)
not currently includible for tax reporting purposes. 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.
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:
2003 2002
----------- ----------
Net operating loss carryforwards $ 941,000 $ 637,000
Accrual to cash adjustment 85,000 26,000
Capitalized software (18,000) (22,000)
Prepaid private placement issuance costs 90,000 --
Other 1,000 --
Valuation allowance (1,099,000) (641,000)
----------- ----------
$ -- $ --
=========== ----------
|
As a result of the significant net losses incurred during 2003 and in prior years and potential statutory limitations on the ability to recognize these losses, the Company recorded a valuation allowance to fully reserve its net deferred tax asset.
At December 31, 2003, the Company has available unused federal and state operating loss carryforwards of approximately $2,400,000 that may provide future tax benefits, expiring between 2006 and 2023.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company has a month-to-month operating lease of $800 per month for office space. The monthly rent shall be paid in either cash or Manhattan common stock in an amount of shares calculated based on the closing price on the previous trading day.
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 Company's founder. The licensing agreement provides the Company the right to utilize the technology exclusively for a period of 12 years and non-exclusively in perpetuity and places certain restrictions on its use as well as requires the Company to pay 1.5 percent royalty fees to Sandia in connection with any income earned based upon the technology. The agreement also allows for sub-licensure of the technology to others, which was provided to Manhattan under an agreement dated June 24, 2000. As of December 31, 2003, the Company accrued approximately $24,000 in royalty fees owed to Sandia under the royalty agreement.
As of December 31, 2002, the Company owed $20,000 to Sandia under the royalty agreement, which was paid by issuing 40,000 shares of common stock at a fair value of $0.50 per share.
At December 31, 2002, the Company was contingently liable to pay employees for wages totaling approximately $160,000 that were earned during 2002 but payable only if and when the Company received adequate funding. During 2003, the Company recorded this amount as compensation expense.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 10 - STOCKHOLDERS' EQUITY
Mandatorily Redeemable, Convertible Preferred Stock
The Company is authorized to issue a maximum of 4,000 shares of preferred stock with $0.01 par value. On April 20, 2000, the Company completed a private placement of 4,000 shares of Series A convertible preferred stock. The preferred stock is convertible into fully paid and nonassessable common stock as follows: at the holder's option based on the conversion price in effect on the conversion date, or automatically upon the closing of an initial public offering. The conversion price is to be (i) the subscription price ($100,000 when expressed as an aggregate amount, or $25 per share when expressed on a per share basis) divided by (ii) the conversion price in effect on the conversion date. The holders of the issued and outstanding shares of preferred stock shall have no voting rights. In all respects regarding dividends or distributions of any kind to holders of common stock, holders of preferred stock shall have the rights, privileges, and share in all respects as if such holders had converted the preferred stock to the number of shares of common stock corresponding to their conversion provisions. In the event of any voluntary or involuntary liquidation, dissolution or other winding up of the Company, the holders of the preferred stock shall be entitled to be paid the subscription price of all outstanding shares of preferred stock, in cash or in property taken at its fair value as determined by the Board of Directors, or both, at the election of the Board of Directors, prior to any distribution to the holders of common stock.
If there is no initial public offering or initial sale within 10 years from the issue date, then the Company shall repurchase the number of shares of preferred stock as the holders thereof may from time to time request, but in any 12 month period, not more than 10% of the largest number of shares of preferred stock that have ever been outstanding, at an amount per share equal to the redemption price. The redemption price is the greater of (a) the subscription price, and (b) that portion of the fair market value of the Company, as determined in good faith by the Board of Directors, corresponding to the number of shares of common stock to which the shares of preferred stock to be redeemed would convert according to the conversion provisions.
Common Stock
The Company is authorized to issue a maximum of 50,000,000 shares of common stock with a par value of $0.01 per share. For the years ended December 31, 2003 and 2002, the Company had 10,028,026 and 9,244,834 shares issued and outstanding, respectively.
During 2002, the Company had a 100 to 1 stock split. All amounts herein have been shown assuming the stock split occurred during the earliest period presented.
Stock Options
The Company has issued options to purchase shares of common stock to employees and various consultants for payment of services. These options are non-qualified stock options and are not part of any formal plan of the Company. There were no shares authorized for option grants as of December 31, 2003 and 2002.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)
Option activity during the years ended December 31, 2003 and 2002 is summarized in the following table:
Shares Weighted
Under Average
Option Price per Share Exercise Price
---------- --------------- --------------
Options outstanding at 12/31/01 485,151 $ 0.01 $ 0.01
Granted 4,631,000 $0.01 - $0.05 $ 0.05
Exercised (20,000) $ 0.01 $ 0.01
Canceled -- -- $ --
---------- ------------- ------
Options outstanding at 12/31/02 5,096,151 $0.01 - $0.05 $ 0.05
Granted 87,122 $0.50 - $0.66 $ 0.64
Exercised (137,735) $ 0.01 $ 0.01
Canceled -- -- $ --
---------- ------------- ------
Options outstanding at 12/31/03 5,045,538 $0.01 - $0.66 $ 0.06
Exercisable at 12/31/02 373,651 $ 0.01 $ 0.01
Exercisable at 12/31/03 4,539,288 $0.01 - $0.66 $ 0.06
|
The following summarizes certain information regarding outstanding options at December 31, 2003:
Outstanding Exercisable
--------------------------------------------------------- ----------------------------------
Weighted Average
Remaining Weighted
Exercise Weighted-Average Contractual Life Average
Price Number Exercise Price (years) Number Exercise Price
------------ ---------------- ------------------- -------------------- -------------- -----------------
$0.01 358,416 $0.01 3.51 302,166 $0.01
$0.05 4,600,000 $0.05 8.46 4,150,000 $0.05
$0.50 11,364 $0.50 9.26 11,364 $0.50
$0.66 75,758 $0.66 9.78 75,758 $0.66
------------ ---------------- ------------------- -------------------- -------------- -----------------
Total 5,045,538 $0.06 8.35 4,539,288 $0.06
================ =================== ==================== ============== =================
|
NOTE 11 - EQUITY TRANSACTIONS
In June and October 2002, the Company issued an aggregate of 42,727 shares of its common stock in connection with option exercises at $0.01 per share.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 11 - EQUITY TRANSACTIONS (CONTINUED)
In June 2002, the Company issued a total of 7,500 shares of its common stock to a consultant for services rendered. The Company recorded a charge of $375, based on the fair market values of the shares, when these shares were issued.
In October 2002, the Company signed a one-year promissory note for $100,000. In conjunction with this note, the Company issued 150,000 shares of common stock to the note holder in lieu of interest. The Company recorded interest expense of $1,875, based on the fair market values of the shares, for the period the loan was outstanding as of December 31, 2002. During the year ended December 31, 2003, the Company recorded the remaining fair value charge of $5,625 as interest expense.
In November 2002, the Company issued a total of 40,000 shares of its common stock to Sandia as repayment of its 2001 and 2002 royalty dues in the amount of $20,000. The number of shares issued was based on the fair value of the common stock.
In September 2003, the Company sold 378,788 shares of its common stock to an investor for $250,000.
In October 2003, the Company issued a total of 30,304 shares of its common stock to two members of the board of directors. The Company recorded a charge of $20,000, based on the fair market values of the shares, when these shares were issued.
In October 2003, as consideration for granting a one year repayment extension on the October 2002 $100,000 note, the Company issued an additional 50,000 shares of its common stock to the note holder. The fair market value of the shares will be recorded as interest expense over the term of the note. The fair values of the shares issued totaled $33,000.
During 2003, the Company issued an aggregate of 209,092 shares of its common stock to various consultants for services rendered. The Company recorded a charge of approximately $138,000, based on the fair market values of the shares, when these shares were issued.
During 2003, the Company issued an aggregate of 115,008 shares of its common stock in connection with option exercises at $0.01 per share.
NOTE 12 - OPTIONS AND WARRANTS
Options In June 2002, the Company issued 4,360,000 options to employees with vesting terms ranging from under 1 year to 1.5 years. There was no |
intrinsic value associated with these options.
In January and June 2002, the Company issued 271,000 options to consultants with 21,000 vesting immediately and 250,000 vesting over 1.5 years. Expense recorded in connection with these options totaled approximately $6,200 and $7,200 for the years ended December 31, 2003 and 2002, respectively. The following assumptions were used in calculating the fair value of these options: risk free rates ranging from 4.92% to 5.06%, volatility of 160%, contractual term of 10 years, exercise prices from $0.01 to $0.05 per share, and fair market value of $0.05 per share.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 12 - OPTIONS AND WARRANTS (continued)
During 2003, the Company issued 87,122 options to consultants that immediately vest. Expense recorded in connection with these options totaled approximately $50,000 for the year ended December 31, 2003. The following assumptions were used in calculating the fair value of these options: risk free rates ranging from 3.56% to 4.26%, volatility of 86%, contractual term of 10 years, exercise prices from $0.50 to $0.66 per share, and fair market value of $0.66 per share.
Warrants
In September 2003, the Company issued 300,000 warrants to an attorney for services rendered in connection with a private placement at an exercise price of $0.50 per share. Of the total number issued, 150,000 warrants are immediately vested with the remaining warrants vesting on the first anniversary of the date of the agreement. The fair market value of the warrants totaled approximately $58,000. As of December 31, 2003, the Company recognized approximately $29,000 as a prepaid private placement issuance cost, which will be recorded as a reduction of the offering proceeds when the offering is funded. The following assumptions were used in calculating the fair value of these warrants: risk free rate of 4.05%, volatility of 86%, contractual term of 10 years, exercise price of $0.50 per share, and fair market value of $0.66 per share.
In November 2003, the Company issued 500,000 warrants in connection with a loan at an exercise price of $0.50 per share. The warrants vested immediately. The Company calculated the value of the warrant to be $58,000 using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.31%, volatility of 86%, contractual term of 10 years, and a common stock fair market value of $0.66 per share. As these warrants were issued in connection with a note, the value of the warrant was recorded as a debt discount and the amount amortized to interest expense in 2003 was $19,365.
NOTE 13 - PRIVATE PLACEMENT
On October 31, 2003, the Company entered into an agreement with an agent to provide a private placement offering of its common stock at $2.00 per unit, each unit consisting of two shares of common stock and a warrant to purchase one share of common stock at $2.00 per share. The placement has a minimum funding of $1,500,000 and a maximum funding of $5,000,000. In November 2003, the agent loaned the Company $500,000 bearing interest at 12%, with principal and interest due on the sixth month from the date of funding. The undisbursed proceeds are recorded as restricted cash since proceeds were limited to certain uses in order to assist with the private placement and growth of the Company in preparation for an initial public offering. As of December 31, 2003, the Company has incurred a total of approximately $238,000 in private placement issuance costs, which has been recorded as a prepayment until the private placement is completed in 2004, at which time this amount will be recorded as a reduction of offering proceeds.
NOTE 14 - RELATED PARTIES
As of December 31, 2003 and 2002, the Company had a loan outstanding for $100,000 from an investor. This loan was repaid in March 2004.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 14 - RELATED PARTIES (CONTINUED)
Manhattan Securities ("Manhattan") is the Company's main investor with approximately 41% and 44% ownership in the Company as of December 31, 2003 and 2002, respectively. During the year ended December 31, 2003, Manhattan issued Manhattan stock to the Chairman, President and Chief Executive Officer as compensation. No repayment is required. In connection with this transaction the Company recorded $8,250 in compensation expense during the year ended December 31, 2003.
In April 2000, Sandia licensed to the Company the right to utilize the Flight technology, which is the precursor to e-TouchTM, exclusively for a period of 12 years and non-exclusively in perpetuity as well as requiring the Company to pay 1.5 percent royalty fees to Sandia in connection with any income earned based upon the technology. In connection with this licensing agreement, the Company issued 4,000 shares of Series A mandatorily redeemable, convertible preferred stock, which can be converted into 447,300 shares of common stock. Additionally, the Company issued to Sandia 40,000 shares of common stock as repayment of their 2001 and 2002 royalty fees, which totaled $20,000, at $0.50 per share.
NOTE 15 - SUBSEQUENT EVENTS
Equity Transactions
On January 31, 2004, the Company sold 378,788 shares of its common stock to a private investor for $250,000.
Private Placement
Effective February 19, 2004, the private placement offering was completed for $2,140,000. In connection with this offering, the Company issued 2,140,000 shares of common stock and 1,070,000 for net proceeds of $1,807,500 (after fees were paid to their placement agent and lawyers).
During March and April 2004, the Company received additional proceeds of approximately $909,000 for 909,000 shares of common stock and warrants to purchase 454,500 shares of common stock. The Company received net proceeds of approximately $648,340 after fees were paid to their placement agent and lawyers.
Initial Public Offering
In March 2004, the board of directors authorized the Company to file a registration statement with the Securities and Exchange Commission for an initial public offering of the Company's common stock.
2004 Stock Incentive Plan
In March 2004, the board of directors approved the adoption of the 2004 Stock Incentive Plan. A total of 3,500,000 shares of common stock have been reserved for issuance under this plan.
NOVINT TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2003 AND 2002
NOTE 16 - RESTATEMENT
The Company has restated its financial statements as of December 31, 2001 with adjustments to retained earnings (deficit), additional paid-in-capital and unearned compensation to reflect intangible assets contributed by a shareholder in May 2001 and the related amortization that was previously unrecorded and the impact of expected volatility on the fair value of options. The restatement is presented as follows:
December 31, 2001 As Originally Restatement
Reported Adjustment As Restated
Retained earnings (deficit) $ 14,076 $(124,430) $ (110,354)
Additional paid in capital $ 805,562 $ 560,000 $1,365,562
Unearned compensation $ (43,230) $ 19,180 $ (24,050)
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The December 31, 2002 financial statements have also been restated with adjustments to common stock, additional paid-in-capital, net loss, unearned compensation, prepaid interest expense and intangible assets. The adjustments to common stock and additional paid-in-capital were required to reflect the fair value of common stock issued for interest and options issued to consultants. The adjustment to additional paid-in-capital also reflects the impact of the 2001 adjustment. Net loss was adjusted primarily to reflect the amortization of intangible assets and the revised fair value of options issued to consultants, as discussed above. Adjustments to unearned compensation were required to reflect the impact of expected volatility on the fair value of options. Previously unrecorded prepaid interest was recorded to reflect the value of common stock issued in connection with a loan. Intangible assets were adjusted for the impact of the 2002 adjustment and additional amortization. The restatement is presented as follows:
December 31, 2002 As Originally Restatement
Reported Adjustment As Restated
Common stock $ 91,056 $ 1,392 $ 92,448
Additional paid-in-capital $ 843,737 $ 554,966 $ 1,398,703
Net loss $(595,739) $(240,555) $ (836,294)
Unearned compensation $ (27,940) $ 17,640 $ (10,300)
Prepaid interest expense $ -- $ 5,625 $ 5,625
Intangible assets, net $ 98,949 $ 224,000 $ 322,949
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In September, 2003, Meyners + Company, LLC, were dismissed and on the same date Grant Thornton LLP was appointed as the Company's independent certified public accountant.
Meyners + Company, LLP has not been associated with any of our financial statements subsequent to the fiscal year ended December 31, 2001. The change in independent auditors was effective for the fiscal quarter ended March 31, 2002, was approved by our Board of Directors, and was not due to any disagreement between us and Meyners + Company, LLC on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedure. Our principal accountant's report on the financial statements for either of the past two years did not contain an adverse opinion or disclaimer of opinion, or was modified as to uncertainty, audit scope, or accounting principles.
We have not been advised by either Meyners + Company, LLC or Grant Thornton LLP of any of the following:
(a) lack of internal controls necessary for us to develop reliable financial statements;
(b) any information that has come to the attention of our auditors that has led them to no longer being able to rely on management's representations or that has made them willing to be associated with the financial statements prepared by management;
(c) any need to expand significantly the scope of our auditors' audit or information that has come to our auditors' attention during the two financial years prior to and preceding the change in our independent auditors that, if further investigated, would:
(i) materially impact the fairness or reliability of the previously issued audit report or the financial statements issued or covering that period; or
(ii) cause our auditors to become unwilling to rely on management's representations or that has made them unwilling to be associated with our financial statements, or due to the replacement of Davidson and Company, or any other reason, our auditors did not so expand the scope of the audit or conduct such further investigation; and
(d) any information that has come to the attention of our auditors that has led them to conclude that such information materially impacts the fairness or reliability of the audit reports or the financial statements issued covering the two financial years prior to and preceding the change in our independent auditors (including information that, unless resolved, to the satisfaction of such auditors, would prevent it from rendering an unqualified audit report on those financial statements) and due to the replacement of Meyners + Company, LLC or any other reason, any issue has not been resolved to such auditors' satisfaction prior to Meyners + Company, LLC's replacement.
REPORTS TO SECURITY HOLDERS
We will be filing annual and quarterly reports with the U.S. Securities and Exchange Commission (SEC). In addition, we will file additional reports for matters such as material developments or changes within us, changes in beneficial ownership of officers and director, or significant shareholders. These filings are a matter of public record and any person may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. We are not required to deliver an annual report with this prospectus, nor will we do so. However, you may obtain a copy of our annual report, or any of our other public filings, by contacting us or from the SEC as mentioned above. Our Internet site is at http://www.novint.com.
WHERE YOU CAN FIND MORE INFORMATION
We will be subject to the informational requirements of the Securities Exchange Act of 1934 and will file reports, proxy statements and other information with the Securities and Exchange Commission. The reports, information statements and other information we file with the Commission can be inspected and copied at the Commission at the Public Reference Room, 450 Fifth Street, N.W. Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330. The Commission also maintains a Web site (http://www.sec.gov) that contains reports, proxy, and information statements and other information regarding registrants, like us, which file electronically with the Commission.
This prospectus constitutes a part of a registration statement on Form SB-2 filed by us with the Commission under the Securities Act of 1933. As permitted by the rules and regulations of the Commission, this prospectus omits certain information that is contained in the registration statement. We refer you to the registration statement and related exhibits for further information with respect to us and the securities offered. Statements contained in the prospectus concerning the content of any documents filed as an exhibit to the registration statement (or otherwise filed with the Commission) are not necessarily complete. In each instance you may refer to the copy of the filed document. Each statement is qualified in its entirety by such reference.
No person is authorized to give you any information or make any representation other than those contained or incorporated by reference in this prospectus. Any such information or representation must not be relied upon as having been authorized. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the date of the prospectus.
NOVINT TECHNOLOGIES, INC.
PROSPECTUS
8,719,255 Shares of Common Stock
May ___, 2004
No person is authorized to give any information or to make any representation other than those contained in this prospectus, and if made such information or representation must not be relied upon as having been given or authorized. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the securities offered by this prospectus or an offer to sell or a solicitation of an offer to buy the securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.
The delivery of this prospectus shall not, under any circumstances, create any implication that there has been no changes in the affairs of we since the date of this prospectus. However, in the event of a material change, this prospectus will be amended or supplemented accordingly.
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 102(b)(7) of the General Corporation Law of the State of Delaware, Article Eighth of the registrant's Certificate of Incorporation includes a provision that eliminates the personal liability of each of its directors for monetary damages for breach of such director's fiduciary duty as a director, except for liability: (i) for any breach of the director's duty of loyalty to the registrant or its 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 General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of the indemnity provided by the General Corporation Law shall not adversely affect any limitation on the personal liability of the registrant's directors.
The registrant's Certificate of Incorporation requires it, to the extent and in the manner provided by the General Corporation Law, to indemnify the registrant's officers directors, employees and agents.
The registrant's Bylaws provide that it will, to the fullest extent permitted by Section 145 of the Delaware General Corporation Law, indemnify its directors, officers and employees against all claims and actions against any such person by reason of the fact that the person is or was an officer, director or employee of the registrant. If the General Corporation Law is amended to provide narrower rights to indemnification than are available under the registrant's Bylaws, such amendment shall not apply to alleged actions or omissions that precede the effective date of such amendment. The registrant's Bylaws permit it to indemnify its employees and agents to the fullest extent permitted by the General Corporation Law.
Section 145 of the General Corporation Law of the State of Delaware permits indemnification of a corporation's agents (which includes officers and directors) because he is a party (or he is threatened to be made a party) to any action or proceeding by reason of the fact that the person is or was an agent of the corporation or because he is a party (or he is threatened to be made a party) to any action or proceeding brought by or on behalf of a corporation. If the agent is successful on the merits in defense of any action or proceeding, the corporation must indemnify the agent against expenses actually and reasonably incurred by the agent in such defense. Indemnification must be authorized in the specific case upon a determination that indemnification is proper because the person has met the applicable standard of conduct to require indemnification. This provision of the General Corporation Law of the State of Delaware is not exclusive of any other rights to which persons seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise.
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:
AMOUNT
SEC Filing Fee........................................ $ 1,602
Blue Sky Fees and Expenses............................ 10,000*
Legal Fees............................................ 100,000*
Accounting Fees and Expenses.......................... 50,000*
Miscellaneous......................................... 30,000*
-----------
Total........................................ $ 191,602*
----------------
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*Estimates
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On June 6, 2001, we issued 200,000 shares of common stock to consultants as compensation for advisory and strategic positioning services. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On June 8, 2001, we sold and issued 40,000 shares of common stock to consultants of the Company for $2.50 per share. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On July 6, 2001, we issued 75,000 shares of common stock to a former employee as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On July 6, 2001, we issued options to purchase 2,225 shares of common stock with an exercise price of $0.01 per share to a former employee as compensation for providing services to the Company. This option remains unexercised. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these options.
On July 25, 2001, we issued options to purchase 55,000 shares of common stock
with an exercise price of $0.01 per share to consultants of the Company as
compensation for providing services to the Company. These options were exercised
in December 2001. We relied upon the exemption from registration as set forth in
Section 4(2) of the Securities Act of 1933 for the issuance of these options and
shares.
On October 1, 2001, we issued options to purchase 5,000 shares of common stock with an exercise price of $0.01 per share to a former employee as compensation for providing services to the Company. This option remains unexercised. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these options.
On October 24, 2001, we issued 100,000 shares of common stock to a former employee as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On October 30, 2001, we issued 3,800 shares of common stock to a former employee as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On November 1, 2001, we issued options to purchase 13,236 shares of common stock with an exercise price of $0.01 per share to our employees as compensation for providing services to the Company. These options remain unexercised. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these options.
On November 1, 2001, we issued 164 shares of common stock to a former employee as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On January 15, 2002, we issued options to purchase 1,000 shares of common stock with an exercise price of $0.01 per share to our employees as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these options.
II-2
In June 2002, we issued 270,000 options to consultants with 20,000 vesting immediately and 250,000 vesting over 1.5 years with exercise prices from $0.01 to $0.05 per share, and fair market value of $0.05 per share. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
In June 2002, we issued 4,360,000 options to employees with vesting terms ranging from under 1 year to 1.5 years. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
In June 2002, we issued 7,500 shares of common stock to a consultant as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for issuance of these shares.
In December 2002, we issued an aggregate of 42,727 shares of its common stock in connection with option exercises at $0.01 per share. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
In October 2002, we signed a one year promissory note for $100,000. In conjunction with this note, we issued to 150,000 shares of common stock to the note holder in lieu of interest. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
In November 2002, we issued a total of 40,000 shares of our common stock to Sandia as repayment of its 2001 and 2002 royalty dues in the amount of $20,000. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
During 2003, we issued options to purchase an aggregate of 87,122 shares of our common stock with exercise price of ranging from $0.50 to $0.66 per share to our employees and consultants as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these options.
In January 2003, we issued 3,788 shares of common stock to a consultant as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for issuance of these shares.
On May 19, 2003, we issued 3,030 shares of our common stock to two former consultants as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On August 31, 2003, we issued warrants to purchase 300,000 shares of common stock to an attorney for services rendered in connection with a private placement at an exercise price of $0.50 per share. Of the total number issued, 150,000 warrants are immediately vested with the remaining warrants vesting on the first anniversary of the date of the agreement. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these warrants.
II-3
On September 30, 2003, we issued 22,727 shares of our common stock to a consultant as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On September 30, 2003, we issued 37,879 shares of our common stock to a law firm as compensation for providing legal services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On October 1, 2003, we issued an aggregate of 71,972 shares of our common stock to directors and consultants as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On October 9, 2003, as consideration for granting a one year repayment extension on the October 2002 $100,000 note, we issued an additional 50,000 shares of our common stock to the note holder. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
On November 15, 2003, we issued 100,000 shares of our common stock to a consultant as compensation for providing services to the Company. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
In November 2003, we issued 500,000 warrants in connection with a loan at an exercise price of $0.50 per share. The warrants vested immediately. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
During 2003, we issued an aggregate of 115,008 shares of its common stock in connection with option exercises at $0.01 per share. We relied upon the exemption from registration as set forth in Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
II-4
In September 2003, we sold 378,788 shares of our unregistered restricted common
stock to an individual accredited investor. The per share sale price was $0.66
per share. This investor received a right to purchase another 378,788 shares of
our unregistered restricted common stock at an exercise price of $0.66 per share
which was exercised in January 2004. As a result, another 378,788 shares of our
unregistered restricted common stock were issued pursuant to the exercise of
such right. We relied upon the exemption from registration as set forth in
Section 4(2) of the Securities Act of 1933 for the issuance of these shares.
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 Securities Act of 1933 and Rule 506 of Regulation D promulgated under such Act for the issuance of these shares.
In March, 2004, we issued a warrant to purchase 200,000 shares of our common stock to consultants as compensation for providing services to the Company 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 Securities Act of 1933 for the issuance of these options.
ITEM 27. EXHIBITS.
Number Description ---------------- --------------------------------------------------------------- 3.1 Articles of Incorporation ---------------- --------------------------------------------------------------- 3.2 Bylaws ---------------- --------------------------------------------------------------- 3.3 Articles of Merger ---------------- --------------------------------------------------------------- 3.4 Certificate of Merger ---------------- --------------------------------------------------------------- 4.1 Articles of Incorporation (See Exhibit 3.1) ---------------- --------------------------------------------------------------- 5 Opinion re legality from Richardson & Patel LLP ---------------- --------------------------------------------------------------- 10.1 License Agreement with Sandia; Amendments ---------------- --------------------------------------------------------------- 10.2 Lease for 9620 San Mateo ---------------- --------------------------------------------------------------- 10.3 Employment Agreement with Tom Anderson ---------------- --------------------------------------------------------------- 10.4 Employment Agreement with Walter Aviles ---------------- --------------------------------------------------------------- 10.5 2004 Incentive Stock Plan ---------------- --------------------------------------------------------------- 23.1 Consent of Grant Thornton, filed herewith. ---------------- --------------------------------------------------------------- 23.2 Consent of Richardson & Patel LLP (See Exhibit 5) ---------------- --------------------------------------------------------------- |
II-5
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:
i. Include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
ii. Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement;
iii. Include any additional or changed material information on the plan of distribution.
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.
3. File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of offering.
4. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
5. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant 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, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
II-6
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 Los Angeles, State of California on May 14, 2004.
NOVINT TECHNOLOGIES, INC.
By: /s/ Tom Anderson ------------------------------------- Tom Anderson, Chief Executive Officer |
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated:
Name Title Date
---- ----- ----
/s/ Tom Anderson Chief Executive Officer, Acting Chief May 14, 2004
----------------------------------- Financial Officer and Director
Tom Anderson
/s/ Ed Barsis Director May 14, 2004
-----------------------------------
Ed Barsis
/s/ Marvin Maslow Director May 14, 2004
-----------------------------------
Marvin Maslow
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II-7
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:30 PM 22/13/2001
010640532 - 3468406
CERTIFICATE OF INCORPORATION
OF
NOVINT TECHNOLOGIES (DELAWARE), INC,
ARTICLE ONE
The name of the Corporation is NOVINT TECHNOLOGIES (DELAWARE), INC.
ARTICLE TWO
The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
ARTICLE FOUR
The total number of shares of all classes of stock which the Corporation shall have authority to issue is 50,004,000 of which 50,000,000 shares, $.01 par value, shall be of a class designated "Common Stock" (the "Common Stock"), and 4,000 shares, $.01 per value, shall be of a class designated "Series A Preferred Stock" (the "Preferred Stock"). The rights, preferences, privileges, and restrictions granted to and imposed upon the Preferred Stock and Common Stock are set forth below in this Article Four. Except as otherwise provided in this Article Four, the Common Stock and Preferred Stock shall have the same rights and privileges and will rank equally, share ratably, and be identical in all respects as to all matters.
1.0 DEFINITIONS. Unless the context otherwise requires, terms in upper case shall have, for all purposes of this Article Four, the meanings herein specified.
1.1 COMMON STOCK shall mean all shares now or hereafter authorized of any class of Common Stock of the Corporation and any other stock of the Corporation, howsoever designated, authorized after the ISSUE DATES which has the right (subject always to prior rights of any class or series of preferred stock) to participate in the distribution of the assets and earnings of the Corporation without limit as to per share amount.
1.2 INITIAL FINANCING shall mean consideration including at least $1,000,000 cash to NOVINT not subject to repayment, in exchange for stock in NOVINT.
1.3 INITIAL PUBLIC OFFERING shall mean (a) an underwritten public offering
pursuant to an effective registration statement under the Securities Act
of 1933, as amended, covering the offering and sale of COMMON STOCK for
the account of the Corporation in which the aggregate gross proceeds
received by the Corporation equals or exceeds $1,000,000, or (b) any other
transaction by which stock of the corporation become publicly traded,
including without limitation a reverse merger.
1.4 INITIAL SALE shall mean the sale of the Company to an independent third
party (whether by merger, statutory share exchange, consolidation,
recapitalization, sale of all or substantially all of its assets or sale
of all or not less than 85% of the equity and voting interests in the
Company).
1.5 Issue DATE shall mean the date that shares of PREFERRED STOCK are first
issued by the Corporation.
1.6 JUNIOR STOCK shall mean, for purposes of paragraphs below, the Common
Stock and any other class or series of stock of the Corporation issued
after the ISSUE DATE not entitled to receive any assets upon the
liquidation, dissolution or winding up of the affairs of the Corporation
until the PREFERRED STOCK shall have received the entire amount to which
such stock is entitled upon such liquidation, dissolution or winding up.
1.7 PARITY STOCK shall mean, for purposes of paragraphs below, any other class
or series of stock of the Corporation issued after the ISSUE DATE entitled
to receive assets upon the liquidation, dissolution or winding up of the
affairs of the Corporation on a parity with the PREFERRED STOCK.
1.8 REDEMPTION PRICE shall mean the price to be paid upon redemption of the
PREFERRED STOCK, as determined in accordance with subparagraph 4.1 below.
1.9 SENIOR STOCK shall mean, for purposes of paragraphs below, any class or
series of stock of the Corporation issued after the ISSUE DATE ranking
senior to the PREFERRED STOCK in respect of the right to receive
dividends, and, for purposes of paragraphs below, any class or series of
stock of the Corporation issued after the ISSUE DATE ranking senior to the
PREFERRED STOCK in respect of the right to receive assets upon the
liquidation, dissolution or winding up of the affairs of the Corporation.
1.10 SUBSCRIPTION PRICE shall mean $100,000, when expressed as an aggregate
amount, or shall mean $0.25 per share, when expressed on a per share
basis.
1.11 SUBSIDIARY shall mean any corporation of which shares of stock possessing
at least a majority of the general voting power in electing the board of
directors are, at the time as of which any determination in being made,
owned by the Corporation, whether directly or indirectly through one or
more Subsidiaries.
2. PARTICIPATION. In all respects regarding dividends or distributions of any
kind to holders of COMMON STOCK, holders of PREFERRED STOCK shall have the
rights, privileges, and share in all respects as if such holders had
converted the PREFERRED STOCK to the number of shares of COMMON STOCK
corresponding to the conversion provisions below. Apart from determining
the number of shares according to the
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conversion provisions, PREFERRED STOCK shall have no other preference in
regards to dividends as compared with COMMON STOCK.
3. DISTRIBUTION UPON LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of
any voluntary or involuntary liquidation, dissolution or other winding up
of the affairs of the Corporation, subject to the prior preferences and
other rights of any SENIOR STOCK, but before any distribution or payment
shall be made to the holders of JUNIOR STOCK, the holders of the PREFERRED
STOCK shall be entitled to be paid the SUBSCRIPTION PRICE of all
outstanding shares of PREFERRED STOCK as of the date of such liquidation
or dissolution or such other winding up, in cash or in property taken at
its fair value as determined by the Board of Directors, or both, at the
election of the Board of Directors. If such payment shall have been made
in full to the holders of the PREFERRED STOCK, and if payment shall have
been made in full to the holders of any SENIOR STOCK and PARITY STOCK of
all amounts to which such holders shall be entitled, the holders of the
PREFERRED STOCK shall be entitled to share ratably, treated as if such
PREFERRED STOCK had been converted to COMMON STOCK according to the
conversion provisions, with the holders of COMMON STOCK with respect to
the remaining assets and funds of the Corporation. If, upon any such
liquidation, dissolution or other winding up of the affairs of the
Corporation, the net assets of the Corporation distributable among the
holders of all outstanding shares of the PREFERRED STOCK and of any PARITY
STOCK shall be insufficient to permit the payment in full to such holders
of the preferential amounts to which they are entitled, then the entire
net assets of the Corporation remaining after the distributions to holders
of any SENIOR STOCK of the full amounts to which they may be entitled
shall be distributed among the holders of the PREFERRED STOCK and of any
PARITY STOCK ratably in proportion to the full amounts to which they would
otherwise be respectively entitled. Neither the consolidation or merger of
the Corporation into or with another corporation or corporations, nor the
sale of all or substantially all of the assets of the Corporation to
another corporation or corporations shall be deemed a liquidation,
dissolution or winding up of the affairs of the Corporation within the
meaning of this paragraph.
4. REPURCHASE BY THE CORPORATION.
4.1 If there is no INITIAL PUBLIC OFFERING or INITIAL SALE within 10 years
from the ISSUE DATE, then the Corporation shall repurchase the number of
shares of PREFERRED STOCK as the holders thereof may from time to time
request, but in any 12 month period not more than 10% of the largest
number of shares of PREFERRED STOCK that have ever been outstanding, at an
amount per share equal to the REDEMPTION PRICE, where the REDEMPTION PRICE
is the greater of (a) the SUBSCRIPTION PRICE, and (b) that portion of the
fair market value of the Corporation, as determined in good faith by the
Board of Directors, corresponding to the number of shares of COMMON STOCK
to which the shares of PREFERRED STOCK to be redeemed would convert
according to the conversion provisions. Upon written notice from a holder
of PREFERRED STOCK, NOVINT shall have 30 days to place in escrow funds
sufficient to redeem the indicated number of shares at the REDEMPTION
PRICE. The holder of PREFERRED STOCK shall be entitled to receive such
funds from escrow upon delivery of certificates representing such shares
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as are to be repurchased or delivery of written relinquishment of the
rights and privileges associated with such shares as are to be
repurchased.
5. VOTING RIGHTS.
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5.1. The holders of the issued and outstanding shares of PREFERRED STOCK shall have no voting rights except as set forth herein and as required by law.
5.2. Without the consent of the holders of at least a majority of the shares of PREFERRED STOCK then outstanding, given in writing or by vote at a meeting of stockholders called for such purpose, such consent to be deemed given if not expressly withheld within 14 days of receipt of written request therefor, the Corporation will not
5.2.1. increase the authorized amount of PREFERRED STOCK;
5.2.2. issue any PARITY STOCK or SENIOR STOCK or increase the authorized amount of any such other class, except in exchange for consideration to the Corporation not substantially less than the fair market value of such PARITY STOCK or SENIOR STOCK, as determined in good faith by the Board of Directors;
5.2.3. amend, alter or repeal any provision of the Certificate of Incorporation so as to adversely affect the rights, preferences or privileges of the PREFERRED STOCK in a substantial way,
6. CAPITAL. On any redemption of PREFERRED STOCK, the Corporation's capital shall be reduced by an amount equal to the SUBSCRIPTION PRICE multiplied by the number of shares of PREFERRED STOCK redeemed on such date. The provisions of this paragraph 6 shall apply to all certificates representing PREFERRED STOCK whether or not all such certificates have been surrendered to the Corporation.
7. COVENANTS. In addition to any other rights provided by law, so long as any PREFERRED STOCK is outstanding, the corporation, without first obtaining the affirmative vote or written consent of the holders of not less than a majority of such outstanding shares of Preferred Stock, such consent to be deemed given if not expressly withheld within 14 days of receipt of written request therefor, will not:
7.1 amend or repeal any provision of, or add any provision to, the Corporation's Certificate of Incorporation or By-Laws if such action would alter substantially adversely or change substantially the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, any PREFERRED STOCK, or increase or decrease the number of shares of PREFERRED STOCK authorized hereby;
7.2 reclassify any class or series of any JUNIOR STOCK into PARITY STOCK or SENIOR STOCK or reclassify any series of PARITY STOCK into SENIOR STOCK;
7.3 materially change the principal business of the Corporation; or
8. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by law, the shares of PREFERRED STOCK shall not have any rights or preferences, other than those specifically set forth herein (as such Article III may be amended from time to time). The shares of PREFERRED STOCK shall have no preemptive or subscription rights.
9. CONVERSION PROVISIONS. The PREFERRED STOCK shall be convertible into COMMON Stock as set forth herein. The Conversion Provisions are intended to protect the economic value of the PREFERRED STOCK and not to limit the Corporation's actions.
9.1 Optional Conversion. Subject to and upon compliance with the conversion provisions, the holder of any shares of PREFERRED STOCK shall have the right at such holder's option, at any time or from time to time, to convert any of such shares of PREFERRED STOCK into fully paid and nonassessable shares of COMMON STOCK at the CONVERSION PRICE (as hereinafter defined) in effect on the CONVERSION DATE (as hereinafter defined) upon the terms hereinafter set forth.
9.2 Automatic Conversion. Each outstanding share of PREFERRED STOCK shall automatically be converted, without any further act of the Corporation or its stockholders, into fully paid and nonessessable shares of COMMON STOCK at the CONVERSION PRICE then in effect upon the closing of an INITIAL PUBLIC OFFERING or an INITIAL SALE.
9.3 Conversion Price. Each share of PREFERRED STOCK shall be converted into a number of shares of COMMON STOCK determined by dividing (i) the SUBSCRIPTION PRICE by (ii) the CONVERSION PRICE in effect on the CONVERSION DATE. On conversion to COMMON STOCK, the PREFERRED STOCK to be converted shall be converted in aggregate, then the number of shares of COMMON STOCK rounded up to the next whole number of shares. The CONVERSION PRICE at which shares of COMMON STOCK shall initially be issuable upon conversion of the shares of PREFERRED STOCK shall be equal to the SUBSCRIPTION PRICE. The CONVERSION PRICE shall be subject to adjustment as set forth below.
9.4 Mechanics of Conversion. The holder of any shares of PREFERRED STOCK may exercise the optional conversion right specified herein by surrendering to the Corporation or any transfer agent of the Corporation the certificate or certificates for the shares to be converted, accompanied by written notice specifying the number of shares to be converted. Upon automatic conversion, the outstanding shares of PREFERRED STOCK shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided that the Corporation shall not be obligated to issue to any such holder certificates evidencing the shares of COMMON STOCK issuable upon such conversion unless certificates evidencing the shares of PREFERRED STOCK am either delivered to the Corporation or any transfer agent of the Corporation. Conversion shall be deemed to have been effected on the date when delivery of notice of an election to convert and certificates for shares is made or on the date of the occurrence of the event triggering automatic conversion, as the case may be, and such date is referred to herein as the "CONVERSION DATE." As promptly as practicable thereafter (and after surrender of the certificate or certificates representing shares of PREFERRED STOCK to the Corporation or any transfer agent of the Corporation in the case of optional conversions) the Corporation shall issue and deliver to or upon the written order of such holder a certificate or certificates for the number of full shares of COMMON STOCK to which such holder is entitled. The person in whose name the certificate or certificates for COMMON STOCK
are to be issued shall be deemed to have become a holder of record of such COMMON STOCK on the applicable CONVERSION DATE. Upon conversion of only a portion of the number of shares covered by a certificate representing shares of PREFERRED STOCK surrendered for conversion, the Corporation shall issue and deliver to or upon the written order of the holder of the certificate so surrendered for conversion, at the expense of the Corporation, a new certificate covering the number of shares of PREFERRED STOCK representing the unconverted portion of the certificate so surrendered.
9.5 Conversion Price Adjustment: Automatic Conversion before Initial Financing. If automatic conversion is triggered before closing of INITIAL FINANCING, the CONVERSION PRICE shall be adjusted to that price that will result In the total shares of the PREFERRED STOCK to be convertible to shares of common stock representing 5% of the total shares of all classes of stock issued and outstanding, including but not limited to issued shares and outstanding warrants and options for shares.
9.6 Conversion Price Adjustment: Initial Financing before Automatic Conversion. Upon closing of INITIAL FINANCING before automatic conversion is triggered, the CONVERSION PRICE shall be adjusted to that price that will result in the total shares of the PREFERRED STOCK to be convertible to shares of common stock representing 5% of the total shares of all classes of issued and outstanding stock, including but not limited to issued shares and outstanding warrants and options for shares. The Conversion Price shall be further adjusted from time to time as set forth below.
9.6.1 Common Stock Issued at Less Than the Conversion Price. If the
Corporation shall issue any COMMON STOCK other than EXCLUDED
STOCK (as hereinafter defined) without consideration or for a
consideration per share less than the CONVERSION PRICE in effect
immediately prior to such issuance, the CONVERSION PRICE in
effect immediately prior to each such issuance shall immediately
(except as provided below) be reduced to the price determined by
dividing (1) an amount equal to the sum of (A) the number of
shares of COMMON STOCK outstanding immediately prior to such
issuance multiplied by the CONVERSION PRICE in effect
immediately prior to such issuance and (B) the consideration, if
any, received by the Corporation upon such issuance, by (2) the
total number of shares of COMMON STOCK outstanding immediately
after such issuance. In the case of the issuance of COMMON STOCK
for cash, the amount of the consideration received by the
Corporation shall be deemed to be the amount of the cash
proceeds received by the Corporation for such COMMON STOCK
before deducting therefrom any discounts, commissions, taxes or
other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance
and sale thereof. In the case of the issuance of COMMON STOCK
(otherwise than upon the conversion of shares of capital stock
or other securities of the Corporation) for a consideration in
whole or in part other than cash, including securities acquired
in exchange therefor (other than securities by their terms so
exchangeable), the consideration other than cash shall be deemed
to be the fair value thereof as determined by the Board of
Directors, irrespective of any accounting treatment.
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9.6.2 Options and Convertible Securities. In the case of the issuance
of (i) options, warrants or other rights to purchase or acquire
Common Stock (whether or not at the time exercisable), (ii)
securities by their terms convertible into or exchangeable for
Common Stock (whether or not at the time so convertible or
exchangeable) or options, warrants or rights to purchase such
convertible or exchangeable securities (whether or not at the
time exercisable):
9.6.2.1 the aggregate maximum number of shares of COMMON STOCK
deliverable upon exercise of such options, warrants or
other rights to purchase or acquire COMMON STOCK shall
be deemed to have been issued at the time such options,
warrants or rights were issued and for a consideration
equal to the consideration (determined in the manner
provided in subclauses (A) and (B) above), if any,
received by the Corporation upon the issuance of such
options, warrants or rights plus the minimum purchase
price provided in such options, warrants or rights for
the COMMON STOCK covered thereby;
9.6.2.2 the aggregate maximum number of shares of COMMON STOCK
deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities, or upon the
exercise of options, warrants or other rights to
purchase or acquire such convertible or exchangeable
securities and the subsequent conversion or exchange
thereof, shall be deemed to have been issued at the time
such securities were issued or such options, warrants or
rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for
say such securities and relaxed options, warrants or
rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the
additional consideration (determined in the manner
provided in subclauses (A) and (B) above), if any, to be
received by the Corporation upon the conversion or
exchange of such securities, or upon the exercise of any
related options, warrants or rights to purchase or
acquire such convertible or exchangeable securities and
the subsequent conversion or exchange thereof;
9.6.2.3 on any change in the number of shares of COMMON STOCK
deliverable upon exercise of any such options, warrants
or rights or conversion or exchange of such convertible
or exchangeable securities or any change in the
consideration to be received by the Corporation upon
such exercise, conversion or exchange, including, but
not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price
as then in effect shall forthwith be readjusted to such
Conversion Price as would have been obtained had an
adjustment been made upon the issuance of such options,
warrants or rights not exercised prior to such change,
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or of such convertible or exchangeable securities not
converted or exchanged prior to such change, upon the
basis of such change;
9.6.2.4 on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to
convert or exchange such convertible or exchangeable
securities, if the Conversion Price shall have been
adjusted upon the issuance thereof, the Conversion Price
shall forthwith be readjusted to such Conversion Price
as would have been obtained had an adjustment been made
upon the issuance of such options, warrants, rights or
such convertible or exchangeable securities on the basis
of the issuance of only the number of shares of COMMON'
STOCK actually issued upon the exercise of such options,
warrants or rights, or upon the conversion or exchange
of such convertible or exchangeable securities; and
9.6.2.5 if the Conversion Price shall have been adjusted upon
the issuance of any such options, warrants, rights or
convertible or exchangeable securities, no further
adjustment of the Conversion Price shall be made for the
actual issuance of Common Stock upon the exercise,
conversion or exchange thereof;
9.6.2.6 provided, however, that no increase in the Conversion
Price shall be made pursuant to 9.6.2.1 or 9.6.2.2.
9.6.3 EXCLUDED STOCK shall mean (A) shares of Common Stock issued or
reserved for issuance by the Corporation as a stock dividend
payable in shares of Common Stock, or upon any subdivision or
split-up of the outstanding shares of Common Stock or PREFERRED
STOCK, or upon conversion of shares of PREFERRED STOCK and (B)
up to 2,000,000 shares of Common Stock to be issued to key
employees, consultants and advisors of the Corporation together
with any such shares that are repurchased by the Corporation and
reissued to any such employee, consultant or advisor. All shares
of EXCLUDED STOCK which the Corporation has reserved for
issuance shall be deemed to be outstanding for all purposes of
computations of CONVERSION PRICE adjustments.
9.6.4 Stock Dividends, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (i) subdivide or
reclassify the outstanding shares of Common Stock into a greater
number of shares, or (ii) combine or reclassify the outstanding
Common Stock into a smaller number of shares, the CONVERSION
PRICE in effect at the time of the record date for such dividend
or distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately
adjusted so that the holder of any shares of PREFERRED STOCK
surrendered for conversion after such date shall be entitled to
receive the number of shares of Common Stock which he would have
owned or been entitled to receive had such PREFERRED STOCK been
converted immediately prior to such date. Successive adjustments
in the CONVERSION PRICE shall be made whenever any event
specified above shall occur.
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9.7 Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In
any case in which an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence
of such event (A) issuing to the holder of any share of PREFERRED STOCK
converted after such record date and before the occurrence of such event
the additional shares of COMMON STOCK issuable upon such conversion by
reason of the adjustment required by such event over and above the shares
of COMMON STOCK issuable upon such conversion before giving effect to such
adjustment and (B) paying to such holder any amount of cash in lieu of a
fractional share of COMMON STOCK pursuant to subparagraph (e) of this
paragraph 5; provided that the Corporation upon request shall deliver to
such holder an appropriate instrument evidencing such holder's right to
receive such additional shares, and such cash, upon the occurrence of the
event requiring such adjustment.
9.8 Statement Regarding Adjustments. Whenever the CONVERSION PRICE shall be
adjusted, the Corporation shall forthwith file, at the office of any
transfer agent for the PREFERRED STOCK and at the principal office of the
Corporation, a statement showing in detail the facts requiring such
adjustment and the CONVERSION PRICE that shall be in effect after such
adjustment, and the Corporation shall also cause a copy of such statement
to be sent by mail, first class postage prepaid, to each holder of shares
of PREFERRED STOCK at its address appearing on the Corporation's records.
Each such statement shall be signed by the Corporation's independent
public accountants, if applicable.
9.9 Treasury Stock. For the purposes of this paragraph 5, the sale or other
disposition of any Common Stock theretofore hold in the Corporation's
treasury shall be deemed to be an issuance thereof.
9.10 Costs. The Corporation shall pay all documentary, stamp, transfer or other
transactional taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any shares of PREFERRED STOCK; provided
that the Corporation shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of
the shares of PREFERRED STOCK in respect of which such shares are being
issued.
9.11 Reservation of Shares. The Corporation shall reserve at all times so long
as any shares of PREFERRED Stock remain outstanding, free from preemptive
rights, out of its treasury stock (if applicable) or its authorized but
unissued shares of Common Stock, or both, solely for the purpose of
effecting the conversion of the shares of PREFERRED STOCK, sufficient
shares of Common Stock to provide for the conversion of all outstanding
shares of PREFERRED STOCK.
9.12 Approvals. If any shares of Common Stock to be reserved for the purpose of
conversion of shares of PREFERRED STOCK require registration with or
approval of any governmental authority under any Federal or state law
before such shares may be validly issued or delivered upon conversion,
then the Corporation will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may be. If,
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and so long as, any Common Stock into which the shares of PREFERRED STOCK
are then convertible is listed on any national securities exchange, the
Corporation will, if permitted by the rules of such exchange, list and
keep listed on such exchange, upon official notice of issuance, all shares
of such Common Stock issuable upon conversion.
9.13 Valid Issuance. All shares of Common Stock which may be issued upon
conversion of the shares of PREFERRED STOCK will upon issuance by the
Corporation be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance
thereof, and the Corporation shall take no action which will cause a
contrary result (including without limitation, any action which would
cause the CONVERSION PRICE to be less than the par value, if any, of the
Common Stock).
10. HEADINGS OF SUBDIVISIONS. The headings of the various subdivisions hereof
are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
11. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of the
PREFERRED STOCK set forth in this Article Four (as such Article Four may
be amended from time to time) is invalid, unlawful or incapable of being
enforced by reason of any rule of law or public policy, all other rights,
preferences and limitations set forth in this Article Four (as so amended)
which can be given effect without the invalid, unlawful or unenforceable
right, preference or limitation shall, nevertheless, remain in full force
and effect, and no right, preference or limitation herein set forth shall
be deemed dependent upon any other such right, preference or limitation
unless so expressed herein.
12. STATUS OF REACQUIRED SHARES. Shares of PREFERRED STOCK which have been
issued and reacquired in any manner shall (upon compliance with any
applicable provisions of the laws of the State of New Mexico) have the
status of authorized and unissued shares of PREFERRED STOCK issuable in
series undesignated as to series and may be redesignated and reissued.
ARTICLE FIVE
The Board of Directors is authorized to make, alter or repeal the by-laws
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of the Corporation. Election of directors need not be by written ballot
ARTICLE SIX
The name and mailing address of the incorporator is Thomas G. Anderson, 8400 Menaul NE, Suite A-210, Albuquerque, New Mexico 87112.
ARTICLE SEVEN
The name and mailing address of each person who is to serve as a director until the first annual meeting of the stockholders or until a successor is elected and qualified, is Thomas G. Anderson, 8400 Menaul NE, Suite A-210, Albuquerque, New Mexico 87112.
ARTICLE EIGHT
A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts of omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174b of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit.
ARTICLE NINE
The Corporation shall indemnify its officers, directors, employees, and agents to extent permitted by the General Corporation Law of Delaware.
END OF CERTIFICATE OF INCORPORATION
SIGNATURE PAGE TO CERTIFICATE OF INCORPORATION
I, THE UNDERSIGNED, being the incorporator hereinabove named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 30th day of June 2001.
/s/ Thomas G. Anderson ---------------------- THOMAS G. ANDERSON, Incorporator |
BYLAWS
OF
NOVINT TECHNOLOGIES, INC.
I.
SHAREHOLDERS
A. Meetings: The Annual Meeting of Shareholders will be held on the second Monday of April at the time and place fixed by the Board. Special Meetings of Shareholders may be called by the President, the Board, or the holders of one-tenth of the shares entitled to vote at the meeting, and will be held at the time and place fixed by the person calling the Special Meeting, to each Shareholder or record entitled to vote at the meeting. If the place of the meeting is not fixed, the meeting will be held at the registered office of the Corporation.
B. Notice: Written Notice stating the time, place, and, if a Special Meeting, the purpose, will be delivered not less than ten nor more than fifty days before the meeting date either personally, by telecopy transmission, or by mail at the direction of the President, the Secretary, or the persons calling the meeting. If mailed, a Notice is deemed delivered when deposited postage prepaid in the United States mail addressed to the Shareholder at the address shown on the Corporation transfer books.
C. Quorum - Voting: A majority of the shares entitled to vote represented in person or by proxy will constitute a quorum at a meeting of Shareholders. A quorum once attained continues until adjournment despite voluntary withdrawal of enough shares to leave less than a quorum. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter will be the act of the Shareholders unless the vote of a greater number or class voting is required by the Business Corporation Act.
II.
DIRECTORS
A. Number, Tenure, Qualification, Election: The Board will consist of one or more Directors who will be elected annually by the Shareholders at their Annual Meeting to serve until their successors have been elected and qualified. A Director need not be a Shareholder or a New Mexico resident. A Director may be removed at any time with or without cause by the Shareholders, or may resign. Vacancies may be filled by a majority of the remaining Directors though less than a quorum. Newly created directorships may be filled by the Directors for a term of office continuing only until the next election of Directors by the Shareholders.
B. Meetings: An Annual Meeting of the Board will be held without notice immediately following the Shareholders' Annual Meeting. Special Meetings of the Board may be called by any Director or Officer, and will be held at the time and place fixed by the person calling the Special Meeting. Written Notice stating the time, place and purpose of the Special Meeting will be delivered either personally, by mail, or by telecopy transmission at the direction of the person calling the meeting, to each Director at least 24 hours before the Special Meeting time. If mailed, a Notice is deemed delivered when deposited, postage or charges prepaid, in the United States mail.
C. Quorum - Action: A majority of the number of Directors then in office will constitute a quorum at Board Meetings. A quorum once attained continues until adjournment despite voluntary withdrawal of enough Directors to leave less than a quorum. The act of a
majority of Directors present at a meeting at which a quorum is present will be the act of the Board. The Directors will manage the business and affairs of the Corporation, and may act only as a Board with each Director having one vote. The Board of Directors, by resolution adopted by the majority of the full Board, may designate from among its members one or more committees each of which will have and may exercise all the authority of the Board to the extent provided by law.
III.
OFFICERS
A. Number, Tenure, Qualification and Election: The officers of the Corporation will be a President, Vice President, Secretary and Treasurer, and such other officers as the Board may decide, who will be elected annually by the Board at its Annual Meeting to serve until their successors are elected and qualified. Officers need not be Shareholders, Directors, or New Mexico residents. An officer may be removed with or without cause by the Board, or may resign. Vacancies and newly created offices will be filled by the Board. One person may hold more than one office, but no person may be both President and Secretary. Officers will perform the duties, and will have the power and authority, assigned by the Board, incident to the office, and provided in these Bylaws.
B. President and Vice President: The President, or the Vice President during the absence, disability, or failure to act of the President, will be the chief executive officer of the Corporation, will preside at all Corporation meetings, and when authorized will execute and deliver documents in the name of the Corporation.
C. Secretary and Assistants: The Secretary, or any Assistant Secretary during the absence, disability, or failure to act of the Secretary, will keep and have custody of, the record of Shareholders, the stock transfer books, and the minutes of the proceedings of the Shareholders and Directors; will give all Notices required; and when authorized, will execute, attest, seal and deliver documents of the Corporation.
D. Treasurer and Assistants: The Treasurer, or any Assistant Treasurer during the absence, disability, or failure to act of the Treasurer, will be custodian of the property of, and will be responsible for keeping, correct and complete books and records of account for, the Corporation.
IV.
ACTION WITHOUT A MEETING
Any action required or permitted to be taken at a meeting of Shareholders or Directors may be taken without a meeting if a consent in writing setting forth the action so taken is signed by all of the Shareholders entitled to vote with respect to the subject matter thereof, or by all the Directors, as the case may be.
V.
WAIVER OF NOTICE
Whenever any notice is required to be given to any Shareholder or Director, a waiver thereof in writing signed by the person entitled to the notice is equivalent to the giving of the notice. The attendance of a Shareholder, in person or by proxy, or of a Director, at a meeting constitutes a waiver of notice of the meeting except when attendance is for the sole purpose of objecting because the meeting is not lawfully called or convened.
VI.
SEAL
The Board may adopt a corporate seal which the Corporation may use by impressing or affixing it or a facsimile thereof, but the failure to have or affix a corporate seal does not affect the validity of any instrument or any action taken in reliance thereon or in pursuance thereof.
VII.
SHARE CERTIFICATES AND TRANSFER
The board will adopt a form of certificate to represent the shares of the Corporation. Each Shareholder is entitled to a certificate, signed by the President or Vice President, and the Secretary or an Assistant Secretary, and representing the number of full and fractional fully-paid shares owned by the Shareholder. Share transfer and issuance will be done by the Secretary, or the designee thereof, in the manner provided by the Business Corporation Act and Uniform Commercial Code of New Mexico. The name and address of the Shareholder to whom the certificate is issued, the number and class of shares represented, and the date of original issue or the date of transfer and from whom such shares are transferred will be entered on the record of Shareholders of the Corporation. The person or entity in whose name shares stand on the record of Shareholders of the Corporation will be the Shareholder and will be deemed by the Corporation to be the owner of the shares for all purposes whether or not the Corporation has other knowledge. Shares will be transferred only on the stock transfer books of the Corporation.
VIII.
MONETARY MATTERS
A. Funds and Borrowing: The depository for corporate funds, the persons entitled to draw these funds, the persons entitled to borrow on behalf of the Corporation, and the manner of accomplishing these matters will be determined by the Board.
B. Compensation: The Compensation for Directors and Officers will be established by the Board. Compensation of employees will be established by the President, subject to review by the Board.
C. Fiscal Year: The fiscal year of the Corporation will end on such date as may be approved or established by the Board.
IX.
INTERESTED PARTIES
No transaction of the Corporation will be affected because a Shareholder, Director, Officer or Employee of the Corporation is interested in the transaction. Such interested parties will be counted for quorum purposes and may vote when the Corporation considers the transaction. Such interested parties will not be liable to the Corporation for the party's profits, or the Corporation's losses, from the transaction.
X.
INDEMNIFICATION
The Corporation will indemnify and defend each of its Officers, Directors and employees, to the full extent permitted by law, against all claims and actions against any such person by reason of the fact that the person is or was an Officer, Director or employee of the Corporation.
XI.
AMENDMENTS
These Bylaws may be altered, amended, or repealed by the Board unless the power to do so is reserved to the Shareholders by the Articles of Incorporation.
XII.
SECRETARY'S CERTIFICATE
I certify the foregoing to be a true copy of the Bylaws duly adopted by the Corporation on April 10, 1999.
/s/ [ILLEGIBLE] --------------------------------------- SECRETARY |
ARTICLES OF MERGER
OF
NOVINT TECHNOLOGIES, INC.
AND
NOVINT TECHNOLOGIES (DELAWARE), INC.
NOVINT TECHNOLOGIES (DELAWARE), INC., a Delaware corporation ("Successor") and NOVINT TECHNOLOGIES, INC., a New Mexico corporation ("Merged Company") adopt the following Articles of Merger under the New Mexico Business Corporation Act:
1. The Shareholders of each Corporation approved the attached Agreement of Merger.
2. Each Corporation has two authorized classes of shares. The number of outstanding shares of each Corporation and the number of shares voted for or against the Plan of Merger are:
CORPORATION SHARES OUTSTANDING FOR AGAINST
----------- ------------------ --- -------
Successor Common: 1,000 1,000 0
Preferred: 0 0 0
Merged Company Common: 86,244 86,244 0
Preferred: 4,000 4,000 0
3. Novint Technologies (Delaware), Inc., the surviving corporation agrees
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that:
The surviving corporation may be served with process in the state of New Mexico at 6300 Riverside Plaza Lane, NW, Suite 225, Albuquerque, New Mexico 87120 in any proceeding for the enforcement of an obligation of a New Mexico constituent corporation and in any proceeding for the enforcement of the rights of a dissenting shareholder of a New Mexico corporation against it. It will promptly pay to the dissenting shareholders of any New Mexico corporation the amount to which they are entitled under the provisions of the Business Corporation Act with respect to the rights of dissenting shareholders.
The secretary of state is irrevocably appointed as its agent to accept service of process in any such proceeding.
Date: ___________________
Novint Technologies, Inc.
Name of corporation
By: /s/ Thomas G. Anderson ------------------------------------- Name: Thomas G. Anderson Title: Chairman |
Novint Technologies, (Delaware) Inc.
Name of corporation
By: /s/ Thomas G. Anderson ------------------------------------- Name: Thomas G. Anderson Title: Chairman |
Exhibit 3.4
CERTIFICATE OF MERGER
OF
NOVINT TECHNOLOGIES, INC.
INTO
NOVINT TECNHOLOGIES (DELAWARE), INC.
NOVINT TECHNOLOGIES (DELAWARE), INC., a corporation organized and existing under the Laws of the State of Delaware, does hereby certify:
FIRST: That the name and state of incorporation of each of the constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
---- ----------------------
Novint Technologies (Delaware), Inc. Delaware
Novint Technologies, Inc. New Mexico
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SECOND: That an agreement of merger between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of section 252 of the General Corporation Law of Delaware.
THIRD: That the name of the surviving corporation of the merger is Novint Technologies (Delaware), Inc.
FOURTH: That the amendments or changes in the Certificate of Incorporation of Novint Technologies (Delaware), Inc., the surviving corporation, as are to be effected by the merger are as follows:
Article FIRST of the Certificate of Incorporation is amended so that as amended it will read as follows:
"FIRST:
The name of the Corporation is Novint Technologies, Inc."
FIFTH: That the executed Agreement of Merger is on file at the principal place of business of the surviving corporation, the address of which is 6300 Riverside Plaza Lane NW, Suite 225, Albuquerque, New Mexico 87120.
SIXTH: That a copy of the Agreement of Merger will be furnished by the surviving corporation, on request and without cost, to any stockholder of any constituent corporation.
SEVENTH: That the number of authorized shares of stock of the New Mexico corporation are 100,000 shares of no par value Common Stock and 4,000 shares of no par value Preferred Stock.
NOVINT TECHNOLOGIES (DELAWARE), INC.
By /s/ Thomas G. Anderson --------------------------------- Its Chairman, Thomas G. Anderson |
Exhibit 5
RICHARDSON & PATEL LLP
A Law Corporation
10900 Wilshire Boulevard
Suite 500
Los Angeles, California 90024
Telephone (310) 208-1182
Facsimile (310) 208-1154
May 5, 2004
Novint Technologies, Inc.
4900 Cutting Ave NW
Albuquerque, New Mexico 87114
Re: Registration of Form SB-2
Ladies and Gentlemen:
We have acted as counsel to Novint Technologies, Inc. (the "Company") in connection with the registration with the Securities and Exchange Commission on Form SB-2 of 8,719,225 shares of our common stock, par value $0.001 (the "Shares"), 4,794,455 of which have been issued to certain selling shareholders and the remainder of which may be issued to certain selling shareholders upon the exercise of certain warrants. In connection with this registration, we have reviewed the proceedings of the Board of Directors of Novint Technologies, Inc. relating to the registration and the issuance (or the proposed issuance) of the Shares, its Certificate of Incorporation and all amendments thereto, the Bylaws of we and all amendments thereto, and such other documents and matters as we have deemed necessary to render the following opinion.
Based upon that review, it is our opinion that the Shares now issued, as well as the Shares that may be issued upon exercise of the warrants, will be legally issued, fully paid, and nonassessable.
We do not find it necessary for the purposes of this opinion to cover, and accordingly we express no opinion as to, the application of the securities or blue sky laws of the various states as to the issuance and sale of the Shares.
We consent to the use of this opinion in the registration statement filed with the Securities and Exchange Commission in connection with the registration of the Shares and to the reference to our firm under the heading "Experts" in the registration statement.
Very truly yours,
RICHARDSON & PATEL LLP
By: /s/ Nimish Patel
-------------------------------------
Nimish Patel, Esq.
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EXHIBIT 10.1
LICENSE AGREEMENT
Between
SANDIA CORPORATION
and
NOVINT Technologies, Inc.
License Number; OO-C00842
License Agreement; page 1
LICENSE AGREEMENT
Effective on the date of last signature hereto, Sandia Corporation (hereinafter "SANDIA"), a corporation whose principal place of business is located in Albuquerque, New Mexico, and NOVINT Technologies, Inc. (hereinafter "NOVINT"), a corporation whose principal place of business is located in Albuquerque, NM, agree as follows:
1. Background
1.1. Whereas, SANDIA manages and operates a federally-owned facility known as Sandia National Laboratories for the United States Department of Energy (hereinafter "DOE") under contract DE-ACO4-94AL85000.
1.2. Whereas, SANDIA has developed and acquired, and may further develop and acquire, SANDIA SOFTWARE (as defined herein) and SANDIA PATENTS (as defined herein), and SANDIA is, and may further become, the assignee of SANDIA PATENTS.
1.3. Whereas, SANDIA desires to license SANDIA PATENTS and SANDIA SOFTWARE in support of technology transfer to United States industries to enhance the competitiveness of the United States.
1.4. Whereas, the United States Government is neither a party to nor assumes any liability for activities of SANDIA in connection with this License Agreement.
1.5. Whereas, SANDIA has either been granted or will request a waiver of title from DOE for SANDIA PATENTS and permission to assert copyright for SANDIA SOFTWARE. Under the terms of the waiver and the assertion, the United States Government reserves a nonexclusive license in SANDIA PATENTS and SANDIA SOFTWARE for use by or on behalf of the United States Government.
1.6. Whereas, NOVINT desires to obtain from SANDIA, and SANDIA is willing to make available to NOVINT, a license to SANDIA PATENTS and SANDIA SOFTWARE, in accordance with the terms and conditions set forth herein, including the payment of moneys.
NOW, THEREFORE, in consideration of the agreement between SANDIA and NOVINT, and in consideration of the faithful performance of this License Agreement, it is hereby agreed as follows;
2. Definitions
2.1. Terms in this License Agreement which are set forth in uppercase letters have the meanings established herein.
2.2. SANDIA and NOVINT may each be referred to as a PARTY or, collectively, as PARTIES to this License Agreement.
2.3. SANDIA PATENTS shall mean the disclosures, patent applications, and U.S. Patents identified in Exhibit A, and any additional disclosures, patent applications, and U.S. patents not identified in Exhibit A to the extent they claim rights to inventions conceived before the effective date of this License Agreement and are required to exercise the rights granted herein to SANDIA SOFTWARE.
2.4. SANDIA SOFTWARE shall mean the Sandia-developed computer programs described in EXHIBIT B and all technical information and data relating thereto which has been or may be developed, made or acquired by Sandia prior to the effective date of this License Agreement. However, the term SANDIA SOFTWARE shall not include technical information or data acquired from third parties which are subject to nondisclosure restrictions, thereby preventing disclosure hereunder or requiring accounting to such third parties.
2.5. SANDIA PARTNERS shall mean third parties that have a formal relationship with Sandia, and that do at least one of: fund SANDIA to perform research, development, or testing; fund others to perform research,
License Agreement; page 2
development, or testing in cooperation with SANDIA; perform internally research, development, or testing in cooperation with SANDIA; are funded by SANDIA to perform research, development, or testing in cooperation with SANDIA. SANDIA PARTNERS includes but is not limited to CRADA partners, WFO and FIA sponsors, and University researchers funded by SANDIA.
2.6. NOVINT SOFTWARE shall mean software developed by or for NOVINT that is derived from, includes, or relies on SANDIA SOFTWARE or derivative works thereof, or uses or relies on SANDIA PATENTS RIGHTS.
2.7. NOVINT INTERFACE SOFTWARE shall mean NOVINT SOFTWARE that has as its primary purpose the human-computer interface.
2.8. NOVINT APPLICATION SOFTWARE shall mean NOVINT SOFTWARE that has as its primary purpose an application other than the human-computer interface.
2.9. APPROVED PRODUCT shall mean any goods or services that Sandia has approved for marking with the Flight(TM) trademark.
2.10. SANDIA DERIVATIVE SOFTWARE shall mean derivative works of NOVINT INTERFACE SOFTWARE prepared by or on behalf of SANDIA, and software prepared by or on behalf of SANDIA that includes NOVINT INTERFACE SOFTWARE.
2.11. NOVINT EXCLUSIVE FOU shall mean human-computer interfaces, where a human-computer interface includes any software interface between a person and a computer, including but not limited to any interface to a computer network of a networked database or any computer operating system or any of its applications. Interfaces between a human and a mechanical device or system, where the mechanical device or system has a primary purpose other than control of a computer, even if a computer is intermediate, are not in the NOVINT EXCLUSIVE FOU.
2.12. TRANSACTION shall mean any arrangement by which NOVINT does any of the following: (1) grants rights to any of (a) SANDIA PATENTS, (b) SANDIA SOFTWARE, (c) NOVINT SOFTWARE, and (d) any rights or products obtained by NOVINT in exchange for rights granted herein; (2) sells or leases products or services incorporating or affecting any of (a) SANDIA PATENTS, (b) SANDIA SOFTWARE, (c) NOVINT SOFTWARE, and (d) any rights or products obtained by NOVINT in exchange for rights granted herein; and (3) prepares NOVINT SOFTWARE, or sublicenses others to do so.
2.13. REVENUES shall mean any form of consideration (to include cash and equity) for a TRANSACTION minus shipping and returns.
2.14. GOVERNMENT means the government of the United States of America and agencies thereof.
2.15. END USERS shall mean parties who have rights to use but not distribute software.
3. License
3.1. NOVINT Rights
3.2. Subject to the terms and conditions of this License Agreement and to the extent of its rights, Sandia hereby grants NOVINT a worldwide, nontransferable, royalty-bearing, license to
3.2.1. use SANDIA SOFTWARE and NOVINT SOFTWARE internally;
3.2.2. reproduce SANDIA SOFTWARE and NOVINT SOFTWARE;
3.2.3. prepare software that includes, is derived from, or relies on SANDIA SOFTWARE or derivative works thereof, or uses or relies on SANDIA PATENTS;
3.2.4. distribute NOVINT SOFTWARE to END USERS;
3.2.5. perform and display publicly SANDIA SOFTWARE and NOVINT SOFTWARE;
3.2.6. mark APPROVED PRODUCT with the Flight(TM) trademark;
3.2.7. make, use, and sell inventions claimed in SANDIA PATENTS;
3.2.8. extend to distributors the right and license to distribute NOVINT SOFTWARE to end-users, provided that each such distributor licensed by extension (hereinafter "LICENSED DISTRIBUTOR") agrees to be bound by all of the terms and conditions of this License Agreement, except the payment of royalties, to the same extent as NOVINT. LICENSED DISTRIBUTORS' obligations to pay royalties to SANDIA shall be as expressly provided for in this License Agreement. Upon such extension to a LICENSED DISTRIBUTOR, NOVINT shall be deemed to include any and all LICENSED DISTRIBUTORS. For the purposes of this License Agreement, the operations of such LICENSE
License Agreement; page 3
DISTRIBUTOR shall be deemed to be the operations of NOVINT who shall be jointly and severally responsible therefor.
3.2.9. extend to third parties any of the rights and licenses granted herein to NOVINT, including the right to further extend the rights and licenses to other third parties, provided that each such third party licensed by extension (hereinafter "LICENSED DEVELOPER") agrees to be bound by all of the terms and conditions of this License Agreement, except the payment of royalties, to the same extent as NOVINT. If NOVINT does not spend at least $400,000 in development of NOVINT SOFTWARE within one year from the receipt by NOVINT of outside capital investment of at least $1,000,000 then LICENSED DEVELOPERS shall be obligated to pay royalties to SANDIA on the same terms and rates as NOVINT. Otherwise, LICENSED DEVELOPER'S obligations to pay royalties to SANDIA shall be as expressly provided for in this License Agreement. Upon such extension to a LICENSED DEVELOPER, N0VINT shall be deemed to include any and all LICENSED DEVELOPERS. For the purposes of this License Agreement, the operations of such LICENSED DEVELOPERS shall be deemed to be the operations of NOVINT who shall be jointly and severally responsible therefor.
3.3. The rights granted above are exclusive for 12 years from the effective date of this agreement in the NOVINT EXCLUSIVE FCU, and nonexclusive elsewhere and after the 12 years in the NOVINT EXCLUSIVE FOU.
3.4. Express or implied rights and licenses outside the scope of Article 3.2 are expressly excluded.
3.5. SANDIA Rights
3.5.1. NOVINT agrees to accept reasonable projects from SANDIA for developments within NOVINT INTERFACE SOFTWARE needed by SANDIA. NOVINT will expedite the attainment of resources to support SANDIA projects and provide development at the most favored rate,
3.5.2. SANDIA retains the right to make derivative works of SANDIA SOFTWARE, to use SANDIA SOFTWARE internally for any purpose, to reproduce SANDIA SOFTWARE, and to perform and display publicly executable applications of SANDIA SOFTWARE, and to distribute SANDIA SOFTWARE tO SANDIA PARTNERS for their internal use but not distribution. SANDIA further reserves the right to make and use inventions covered by SANDIA PATENTS internally for any purpose, on behalf of third parties for any purpose, and to allow SANDIA PARTNERS to make and use inventions covered by SANDIA PATENTS internally.
3.5.3. NOVINT grants to SANDIA the right to make and have made derivative works of NOVINT INTERFACE SOFTWARE, to use NOVINT INTERFACE SOFTWARE internally for any purpose including but not limited to on behalf of SANDIA PARTNERS, to reproduce and perform and display publicly executable applications of NOVINT INTERFACE SOFTWARE. Upon request, NOVINT will supply SANDIA with the source code and accompanying documentation for the current version of NOVINT INTERFACE SOFTWARE within 30 days.
3.5.4. NOVINT grants to SANDIA the right to distribute SANDIA DERIVATIVE SOFTWARE, without accounting, to SANDIA PARTNERS for their internal use in the field of scientific visualization. NOVINT agrees to grant licenses at no charge as needed to NOVINT INTERFACE SOFTWARE to such SANDIA PARTNERS for such use within 15 days of request by SANDIA.
3.5.5. NOVINT agrees to grant licenses to NOVINT INTERFACE SOFTWARE for the internal use only of SANDIA PARTNERS; the first year of such licenses to be at no charge.
3.5.6. NOVINT agrees to grant licenses to NOVINT INTERFACE SOFTWARE for the internal use only of SANDIA PARTNERS for periods beyond one year at NOVINT'S most favorable terms and conditions (a fee at NOVINT'S most favorable rate will be charged for training and support).
3.5.7. NOVINT will provide a reasonable amount of support and training for SANDIA'S continued haptics efforts. Support and training will include email support, phone support, and on-site visits to train SANDIA employees on the use and programming of NOVINT INTERFACE SOFTWARE, and on the use and programming of haptics. The support will be provided at NOVINT'S most favorable rate.
4. Duties of the PARTIES
License Agreement; page 4
4.1. Nondisclosure
4.1.1. NOVINT shall not disclose source code or technical information about the SANDIA SOFTWARE Or information relating to SANDIA SOFTWARE to any third party without prior written approval of SANDIA. Such approval Will not be unreasonably withheld, and will be deemed to be given if SANDIA does not respond within 30 days of receipt by SANDIA of request for such approval from NOVINT. NOVINT shall limit access to SANDIA SOFTWARE and information relating to SANDIA S0FrWARE to those employees, contractors, and third panics who require access for the enjoyments of the rights under this License Agreement, and who are obliged to not thither disclose the SANDIA SOFTWARE or information relating to SANDIA SOFTWARE.
4.1.2. The existence of this License Agreement may be disclosed for business purposes to third parties, however, no PARTY shall disclose the terms and conditions of this License Agreement to any third party unless (a) necessary to enforce the PARTY'S legal rights under this License Agreement, (b) to the extent the terms and conditions of this License Agreement condition an agreement with a third PARTY, or (c) as required by law or regulation.
4.1.3. Duties relating to nondisclosure shall continue for five (5) years after termination of this License Agreement, regardless of the reason for termination.
4.2. NOVINT will meet all of the diligence provisions in Exhibit D.
4.3. SANDIA will notify NOVINT of any of SANDIA PATENTS that SANDIA does not intend to file or prosecute. Such notification shall be given before expiration of bar dates or prosecution deadlines known to SANDIA, and in relation to initial filing, shall further be within 30 days of notice from NOVINT to SANDIA of NOVINT'S intention to file such SANDIA PATENT. SANDIA will allow and reasonably cooperate with NOVINT in the filing or prosecution, at NOVINT'S expense, of such SANDIA PATENTS. SANDIA shall be the assignee of such patents, and NOVINT'S rights thereto shall be according to this License Agreement.
5. License Fees and Royalties
5.1. In consideration of SANDIA granting the rights and licenses under this License Agreement, NOVINT agrees to pay SANDIA nonrefundable license fees and royalties in accordance with the terms of this license Agreement and in the amounts set forth in Exhibit C.
6. Statements, Reports, and Payments
6.1. For the purpose of computing royalties hereunder, NOVINT SOFTWARE shall be considered conveyed by NOVINT, and royalties earned with respect thereto, when billed or shipped, whichever occurs first, by NOVINT.
6.2. NOVINT shall deliver to SANDIA by January 31 and July 31 of each calendar year, while this License Agreement is in effect, a statement reporting all TRANSACTIONS during the preceding semiannual accounting period, beginning January 1 for the July 31 statement and July 1 for the January 31 statement. The statement shall give all information necessary for the determination of royalties payable hereunder. NOVINT shall accompany each such statement with the payment of all such royalties due SANDIA. If for any annual accounting period no royalty payment shall be due, NOVINT shall submit a written statement to SANDIA to that effect. All statements shall be delivered to SANDIA at the address specified in this License Agreement.
6.3. NOVINT shall maintain true and accurate records in such manner and detail as to permit the verification of all royalties paid and all royalties due under this License Agreement. Such records shall be made available during ordinary business hours for inspection at NOVINT'S ordinary place of business by authorized representatives of SANDIA. NOVINT shall retain these records for five years after the last annual statement is rendered to SANDIA.
6.4. Any taxes, assessments or charges assessed or imposed by an entity or government, other than by the government of the United States of America or by any state or local government in the United States of America, that SANDIA or NOVINT shall be required to pay with respect to fees or royalties under this License Agreement shall be borne by NOVINT.
License Agreement; page 5
6.5. The rate of exchange to be used in calculating royalties payable by NOVINT for an accounting period shall be the rate of exchange published by the Wall Street Journal on the last business day of such accounting period.
6.6. Without excusing prompt payment of fees or royalties due, any and all fees or royalties left unpaid after becoming due as specified in this License Agreement shall bear interest at the prime rate as published in the Wall Street Journal on the date the payment of fees or royalties becomes due, plus three (3) percentage points.
6.7. The DOE may require SANDIA tO report on the utilization or the effect of using NOVINT SOFTWARE in the commercial marketplace. In this regard, NOVINT agrees to reasonably cooperate with and assist SANDIA in making all such reports.
7. Duration and Termination
7.1. Except as expressly stated otherwise, the rights and licenses granted to NOVINT under this License Agreement are perpetual. The obligation to pay royalties and fees under this License Agreement shall continue until 20 years from the effective date of this License Agreement
7.2. SANDIA may terminate or reduce the rights and licenses granted Novn4T under this License Agreement at its sole discretion if NOVIP4T, at any time;
7.2.1. defaults in the payment of any license fee or royalty due to SANDIA;
7.2.2. commits any material breach of this License Agreement, and fails to remedy or cure the breach within sixty days after SANDIA gives written notice to NOVINT thereof;
7.2.3. fails to meet the diligence provisions in Exhibit 0;
7,2.4. makes any false statement relating to SANDIA or this License Agreement
7.3. Sandia may terminate or reduce the rights and licenses granted under this License Agreement at its sole discretion by giving written notice to NOVINT in the event that NOVINT experiences any of the following events: dissolution, insolvency, filing of a voluntary petition in bankruptcy (other than reorganization under Chapter 11), adjudication as a bankrupt pursuant to an involuntary petition, appointment by a court of a temporary or permanent receiver, trustee or custodian for its business, or an assignment for the benefit of creditors. This termination will become effective immediately upon SANDIA giving written notice to NOVINT.
7.4. If NOVINT'S rights are terminated under 7.2 or 7.3, then the rights of LICENSED DISTRIBUTORS and LICENSED DISTRIBUTORS shall continue, provided that such LICENSED DEVELOPERS and LICENSED DISTRIBUTORS shall pay to SANDIA all fees, royalties, or other consideration that would otherwise have been due to NOVINT.
8. Warranty, Liability, and Indemnification
8.1. EXCEPT FOR THE WARRANTIES EXPRESSLY PROVIDED HEREIN, ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXCLUDED HEREUNDER.
8.2. SANDIA warrants that it has the right to grant the rights and licenses in this License Agreement.
8.3. SANDIA makes no warranty, express or implied, as to the accuracy, validity, or utility of SANDIA PATENTS. SANDIA further makes no warranty, express or implied, that the use of SANDIA PATENTS will not infringe any United States or foreign patent or copyright. SANDIA PATENTS are made available to NOVINT on an "AS-IS" basis.
8.4. Neither SANDIA nor the GOVERNMENT, nor their agents, officers and employees shall be liable for any loss, damage (including, incidental, consequential and special), injury or other casualty of whatsoever kind, or by whomsoever caused, to the person or property of anyone, including NOVINT, its successors. and assigns, arising out of or resulting from the licenses granted to NOVINT herein, or the accuracy and validity of SANDIA PATENTS and SANDIA SOFTWARE and the Flight(TM) trademark. NOVINT agrees for
License Agreement; page 6
PROPRIETARY
itself, its successors and assigns, to defend SANDIA and to indemnify and hold SANDIA and the GOvERI'4MENT harmless from and against all claims, demands, liabilities, suits or actions (including all reasonable expenses and attorney's fees incurred by or imposed on SANDIA or the GOVERNMENT in connection therewith) for such loss, damage (including incidental, consequential and special), injury or other casualty. NOVINT agrees to impose such indemnification and hold harmless obligation on its LICENSED DEVELOPERS and LICENSED DISTRIBUTORS.
8.5 NOVINT shall promptly bring to SANDIA'S attention any information of which NOVINT is aware relating to infringement of SANDIA PATENTS and SANDIA SOFTWARE and the Flight(TM) trademark.
9. General Provisions
9.1. NOVINT shall not, without the express written consent of SANDIA, make any verbal or written statements or perform any act indicating that SANDIA endorses or approves, or has endorsed or approved, any NOVINT SOFTWARE. NOVINT shall not, without the express written consent of SANDIA, associate or in any way connect any name or trademark of SANDIA, including "Sandia", "Sandia Corporation", "Sandia National Laboratories", and the Sandia Thunderbird Logo, with any NOVINT SOFTWARE, NOVINT may, however, indicate that NOVINT SOFTWARE is licensed under rights and licenses granted by SANDIA.
9.2. Any notice with respect to this License Agreement shall be deemed to be given on the date when sent by facsimile transmission with receipt of confirmation or when mailed by registered mail, return receipt requested, addressed to the PARTY to be notified, at its address set forth below.
9.2.1. Statements and Notices to SANDIA:
Sandia National Laboratories
Attention: Licensing Agreements Administrator, Org. 4331
REF: License #00-C00842
P.O.Box 5800
Mailstop 1380
Albuquerque, NM 87185-1380
Telephone: (505) 843-4172
Facsimile: (505) 843-4163
9.2.2. Payments to SANDIA:
Sandia National Laboratories
c/o Nations Bank
REF: License #00-C00842
P.O. Box 25848
Albuquerque, NM 87125
9.2.3. Notices to NOVINT:
NOVINT, Inc.
Attention:
Tom Anderson
4900 Cutting Ave. NW
Albuquerque, NM 87114
Telephone: (505) 890-8841 Facsimile: (505) 890-8841 email: tom@novint.com
9.3. The waiver of a breach of this License Agreement, or the failure of either PARTY to exercise any right under this License Agreement, shall not constitute a waiver as to any other breach, whether similar or dissimilar in nature, or prevent the exercise of any right under this License Agreement.
9.4. NOVINT shall affix appropriate statutory patent markings to all materials included in NOVINT SOFTWARE made hereunder and covered by issued and unexpired claims of SANDIA PATENTS and to modify such markings as SANDIA may from time to time direct in conformity with patent law.
License Agreement; page 7
9.5. The Index and Headings used in this License Agreement are for reference purposes only and shall not be used in construction and interpretation of this License Agreement.
10. Assignment
10.1. NOVINT shall not, without the prior written consent of SANDIA, assign, delegate, or otherwise transfer any rights or duties under this License Agreement. Any such assignment is void. After 1 year from the effective date of this License Agreement, SANDIA shall not unreasonably withhold such consent.
10.2. SANDIA may assign, delegate, or otherwise transfer any rights or duties under this License Agreement to any assignee or transferee.
11. U.S. Competitiveness
11.1. NOVINT agrees that any resulting design and development using SANDIA PATENTS and SANDIA SOFTWARE will be performed in U.S. and that resulting products will be substantially manufactured in the U.S.
12. Government Rights and Sponsorship
12.1. The GOVERNMENT has been granted for itself and others acting on its behalf a paid-up, nonexclusive, nontransferable, irrevocable license to practice or have practiced SANDIA PATENTS and SANDIA SOFTWARE throughout the world by or on behalf of the GOVERNMENT.
12.2. NEITHER THE GOVERNMENT, THE DOE, NOR ANY OF THEIR EMPLOYEES, MAKES ANY WARRANTY, EXPRESS OR IMPLIED, OR, ASSUMES ANY LEGAL LIABILITY OR RESPONSIBILITY FOR THE ACCURACY, COMPLETENESS, OR USEFULNESS OF ANY INFORMATION, APPARATUS, PRODUCT, OR PROCESS DISCLOSED, OR REPRESENTS THAT ITS USE WOULD NOT INFRINGE PRIVATELY OWNED RIGHTS.
12.3. The PARTIES agree and understand that the GOVERNMENT retains "march-in" rights, in accordance with the procedures set forth in 37 CFR 401.6 and any supplemental regulations promulgated by the DOE.
13. Export Control
13.1. NOVINT shall abide by the export control laws and regulations of the United States Department of Commerce and other United States governmental regulations relating to the export of technology relating to NOVINT SOFTWARE. Failure to obtain an export control license or other authority from the GOVERNMENT may result in criminal liability under U.S. laws.
14. Controlling Law
14.1. This License Agreement is made in Albuquerque, New Mexico, U.S.A., and shall be governed by and construed in accordance with the procedural and substantive laws of the State of New Mexico except as these would require the application of the laws of another jurisdiction. The PARTIES agree to the exclusive jurisdiction of the courts of New Mexico or the United States District Court of New Mexico.
15. Severability
15.1. In the event that any one or more of the provisions contained in this License Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect other provisions of this License Agreement.
16. Force Majeure
16.1. If either PARTY is prevented from or delayed in carrying out any of the provisions of this License Agreement by reason of any natural disaster, war, accident, labor disturbance, breakdown of plant or equipment, lack or failure of transportation facilities, sources of supply of labor. raw materials, power or supplies, or by reason of any law, order, proclamation, regulation, ordinance, demand or requirement of any government or any subdivision, authority or representative of any such government, the PARTY 50 prevented or delayed shall be excused from performance to the extent and during the period of such prevention or delay.
17. Entire Agreement
License Agreement; page 8
17.1. Each PARTY warrants and represents that the execution and delivery of this License Agreement by SANDIA and NOVINT has not been induced by any promises, representations, warranties or other agreements, other than those specifically expressed, This License Agreement includes Exhibits A, B. C, and D and embodies the entire understanding between NOVINT and SANDIA with respect to the subject matter described within this License Agreement. This License Agreement shall supersede all previous communications, representations or undertakings, either verbal or written, between NOVINT and SANDIA with regard to SANDIA PATENTS, SANDIA SOFTWARE, and the Flight trademark.
17.2. No modification of this License Agreement shall be valid or binding upon the PARTY against whom enforcement of the modification is sought unless the modification is made in writing and signed by duly authorized representatives of both SANDIA and NOVINT.
17.3. This License Agreement is binding and shall inure to the heirs, assigns or successors of the PARTIES to this License Agreement.
IN CONSIDERATION OF TEE FOREGOING TERMS AND CONDITIONS, NOVINT and SANDIA have caused this License Agreement to be executed in duplicate by their duly authorized representatives. This License Agreement will be effective on the last day and year written below.
Approved as to Legal Form
SANDIA CORPORATION:
By: /s/ David L. Goldheim
-------------------------------
David L. Goldheim
Title: Director, Corporate Business Development
and Partnerships
Date: 4/11/00
|
NOVINT
By: /s/ Tom Anderson ------------------------------- Tom Anderson Title: CEO, NOVINT, Inc. Date: 4/11/00 |
PROPRIETARY
Patent Title: Multidimensional Display Controller, SD5982;S88402
Filing Date: April 10, 1997
Inventors: Thomas G. Anderson and George S. Davidson
License Agreement; page 10
EXHIBIT 10.2
COMMERCIAL PROPERTY LEASE
The State of New Mexico County of Bernalillo
This lease is made between MicroDexterity Systems, Inc., of 9620 San Mateo Bl. NE, Albuquerque, NM 87113, herein referred to as lessor, and, Novint Technologies, of 9620 San Mateo Bl. NE, Albuquerque, NM 87113, herein referred to as Lessee.
Lessor hereby leases to lessee and lessee hereby hires the space presently known as:
One office immediately adjacent to the reception office and access to the conference room, rest rooms, kitchen and other common areas in the building located at 9620 San Mateo Bl. NE, Albuquerque, NM 87113, referred to below as the building, the same constituting 140 square fee, MOL.
The space is leased for a term of one month, to commence on 18 May 2002 and to continue from month to month thereafter until canceled upon 30 days prior notice by either party.
The monthly rental shall be $800 (Eight Hundred and 0/lOOths Dollars). The
monthly rental shall be payable in Manhattan Scientifics (MHTX) common stock in
an amount of shares calculated from the fo1lowing formu1a:
MHTX shares -- $800 / (MHTX share closing price on previous trading day)
Lessee may pay rent in an advance block of up to twelve months rent at one time.
Lessor will refund any excess rent if the lease is cancelled as prescribed in
this lease.
Lessee shall pay rent, and any additional rental as provided below, to lessor at lessor's above stated address, or at such other place as lessor may designate in writing, without demand, and without counterclaim, deduction or setoff.
Lessee shall use and occupy the premises as an Executive Office and for no other purpose. Lessor represents that the premises may be lawfully used for such purpose.
Lessee shall commit no act of waste and shall take good care of the premises and the fixtures and appurtenances therein, and shall, in the use and occupancy of the premises, conform to all laws, orders and regulations of the federal, state, and municipal government of any of their departments. All improvements made by lessee to the premises which are so attached to the premises that they cannot be removed without material injury to the premises, shall become the property of lessor upon installation.
Not later than the last day of the term lessee shall, at lessee's expense, remove all of lessee's personal property and those improvements made by lessee which have not become the property of the lessor, including trade fixtures, cabinet work, movable paneling, partitions and the like; repair all injury done by or in connection with the installation or removal of the property and improvements; surrender the premises in as good condition as they were at the beginning of the term, reasonable wear and damage by fire, the elements, casualty, or other cause not due to the misuse or neglect by lessee or lessee's agents, servants, visitors, servants or licensees, excepted. All property of the
lessee remaining on the property after the last day of the tern of this lease shall be conclusively deemed abandoned and may be removed by lessor, and lessee shall reimburse lessor for the cast of such removal. Lessor may have any such property stored at lessee's risk and expense.
Lessee shall not, without first obtaining the written consent of the lessor, make any alterations, additions or improvements in, to or about the premises.
Lessee shall not do or suffer anything to be done on the premises which will cause an increase in the rate of fire insurance on the building.
Lessee shall not permit the accumulation of waste or refuse matter on the leased premises or anywhere in or near the building.
Lessee shall not, without first obtaining the written consent of the lessor, abandon the premises, or allow the premises to become vacant or deserted.
Lessee shall not, without obtaining the written consent of the lessor, assign, mortgage, pledge, or encumber this lease, in whole or in part, or sublet the premises or any part of the premises.
Lessee shall observe and comply with such reasonable rules and regulations as may be established from time to time by lessor.
If the building is damaged by fire or any other cause to such extent that the cost of restoration, as reasonably estimated by lessor, will equal or exceed 60% of the replacement value of the building, just prior to the occurrence of the damage, then lessor may, no later than the seventh day following the damage, give lessee a notice of election to terminate the lease. In the event of such election this lease shall be deemed to terminate as of the date of the damage or destruction, and lessee shall surrender the premises within a reasonable time thereafter, and any pre-paid rent shall be refunded proportionally.
If the premises or any part of the premises, or any part of the building materially affecting lessee's use of the premises, be taken by eminent domain, this lease shall terminate on the date when title vests pursuant to such taking. The rent shall be apportioned as of the termination date and any rent paid for any period beyond such date shall be repaid to lessee.
This lease shall be subject and subordinate to all underlying leases and to mortgages which may now or hereafter affect such leases or the real property of which the premises form a part, and also all renewals, modifications, consolidations, and replacements of the underlying leases and mortgages. Lessee agrees to execute such estoppel letters or other documents required to confirm the same.
Lessor may enter the premises at any reasonable time, upon adequate notice to lessee (except that no notice need be given in case of an emergency) for the purpose of inspection or the making of such repairs, replacements, or additions in, to, on and about the premises or the building, as lessor deems necessary or desirable.
Lessor shall make repairs, except where the repair has been made necessary by misuse or neglect by lessee or lessee, to the structural items defined as the roof, walls, and items within the walls. All other repairs shall be the sole responsibility of the lessee.
Lessor agrees to furnish electricity for usual office requirements; however, lessee shall not use any electrical equipment which in lessor's reasonable opinion will overload the wiring installations or interfere with the reasonable use of such installations by lessor or other tenants in the building.
Lessor agrees to let the lessee store furniture throughout the open areas of the building. This furniture will be available or use by the lessor on a temporary basis. Since this additional area is not being leased by the lessee, the stored furniture may be moved or relocated at the sole discretion of the lessor.
The furniture that will be stored in the lessor's facility will constitute a security deposit. If the lessee should abandon the property or fail to pay the monthly rent as defined above, the furniture may be sold or converted to the use of the lessor in payment of that rent at a rate consistent with current fair market value of the stored furniture. Such transfer or conversion relating to the furniture will be at the sole discretion of the lessor and will not automatically occur unless the lessee abandons the property.
Lessor shall not maintain insurance for theft, fire, or other damage to property belonging to lessee. Lessee shall not be covered by any insurance policy maintained by the lessor for liability, personal injury, worker's compensation, health, or any other coverage. Lessee shall indemnify lessor against loss associated with any activity of lessee including but not limited to; persons visiting lessee; business activity of lessee; or any injury that might occur as a result of allowing lessee access to the lessor's facility. Lessee shall hold the lessor harmless in any and all actions resulting from the lessee's use of the lessor's facility.
This document represents the entire agreement of the parties and there are no representations not stated herein, and this agreement may only be modified by a writing executed by both parties hereto.
Dated: 5/29/02 /s/ J. Michael Stuart --------------------- J. Michael Stuart MicroDexterity Systems, Inc. /s/ Tom Anderson ---------------- Tom Anderson Novint Technologies |
Exhibit 10.3
EMPLOYMENT AGREEMENT
NOVINT TECHNOLOGIES, INC., a Delaware corporation (the "Company") and THOMAS G ANDERSON (the "Employee") agree:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee agrees to serve, as President and CEO of the Company and any subsidiaries or affiliates of Company (together, the "Subsidiaries"). Employee's duties include growing and running the Company. The Employee agrees to devote his full business time and attention and best efforts to the affairs of the Company and the Subsidiaries during the period of Employee's employment with Company. Employee will execute and deliver to Company the Proprietary Information and Inventions Agreement required of all Company employees.
2. START DATE. The employment of the Employee by the Company under the terms and conditions of this Agreement will commence as of March, 2004.
3. COMPENSATION. The Employee will receive the following compensation:
3.1 ANNUAL SALARY. The Company shall pay to the Employee an annual salary of $150,000 initially (the "Base Salary") payable in installments in accordance with Company policy; such Base Salary may be increased by the Board at its sole discretion
3.2 CASH BONUS. The Company may pay to Employee a cash bonus (the "Cash Bonus"). Any such bonus will be paid at the sole discretion of the Company.
3.3 REIMBURSEMENT OF EXPENSES. The Employee shall be entitled to receive prompt reimbursement of all reasonable expenses incurred by the Employee in performing services hereunder, including all expenses of travel, entertainment and living expenses while away from Employee's primary residence on business at the request of, or in the service of, the Company or any Subsidiary, provided that such expenses are incurred and accounted for in accordance with the policies and procedures and approved operating budget established by the Company.
3.4 BENEFITS. The Employee shall be entitled to participate in and be covered by all health, insurance, pension, cash performance or profit sharing bonus plans, and other Employee plans and benefits established by the Company for its employees generally, subject to meeting applicable eligibility requirements.
3.5 PERSONAL LEAVE AND HOLIDAYS. The Employee shall be entitled to an annual personal leave of twenty (20) days at full pay. Employee may take a reasonable amount of sick leave, which does not count as personal leave, subject to company's policies on sick leave. The Employee shall also be entitled to ten paid holidays a year. Such holidays will be established by the Company for all employees.
4. CONFIDENTIALITY AND NON-COMPETITION. The Employee agrees to the following confidentiality and non-competition restrictions:
4.1 CONFIDENTIALITY. The Employee will not during his
employment by the Company or thereafter at any time disclose, directly
or indirectly, to any person or entity or use, or permit the use of,
any trade secrets or confidential information relating to the Company
or any Subsidiary (the "Confidential Information") except as required
by law. "Confidential Information" shall include, but shall not be
limited to, (i) products or services, (ii) business or strategic plans,
(iii) designs, (iv) analyses, (v) drawings, photographs and reports,
(vi) computer hardware and software, including operating systems,
applications, program listings, and installation plans and techniques,
(vii) flow charts, manuals and documentations, (viii) data bases, (ix)
tax or financial data, (x) trade secrets, know-how, inventions,
devices, new developments, methods and processes, whether patentable or
unpatentable and whether or not reduced to practice, (xi) customers and
clients and customers or client lists or other marketing or sales
programs or plans, (xii) other copyrightable works, (xiii) all
technology and trade secrets, (xiv) the terms of any agreement for the
development or commercialization of any invention or technology related
thereto, (xv) the terms of any license, marketing, sales or
distribution agreement of Company, (xvi) all information denominated as
"Confidential" and made available only on a restricted basis and (xvii)
all similar and related information.; provided however, that
"Confidential Information" shall not include information which comes
into the public domain through no fault of the Employee or which the
Employee obtains after the termination of employment with the Company
or otherwise from a third party who, to the knowledge of the Employee,
has the right to disclose such information.
4.2 RETURN OF COMPANY MATERIAL. The Employee shall promptly deliver to the Company on termination of the Employee's employment with the Company, for whatever the reason, or at any time the Company may so request, all Company or Subsidiary memoranda, notes, records, reports, manuals, drawings, computer software, and all documents containing Confidential Information belonging to the Company, including all copies of such materials which the Employee may then possess or have under the Employee's control irrespective of the format of such materials. Upon termination, Employee shall become the owner of all property that Employee is in control of in the Employee's home office, including, without limitation, computers, laptops, haptic interfaces, furniture and other electronic equipment.
4.3 RIGHT TO INJUNCTIVE AND EQUITABLE RELIEF As a result of the Employee's position as an Employee of the Company, the Employee's obligations not to disclose or use Confidential Information and to refrain from the activities described in this Section 4 are of a special and unique character which gives them a peculiar value, and which is supported by valuable consideration. The Company cannot be reasonably or adequately compensated in damages in an action at law in the event the Employee breaches such obligations. Therefore, the Employee expressly agrees that the Company shall be entitled to injunctive and other equitable relief without bond or other security in the event of such breach in addition to any other rights or remedies which the Company may possess. Furthermore, the obligations of the
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Employee and the rights and remedies of the Company under this Section 4 are cumulative and in addition to, and not in lieu of, any obligations, rights, or remedies created by applicable law relating to misappropriation or theft of trade secrets or confidential information.
5. TERMINATION. Company and Employee agree to the following termination provisions:
5.1 TERMINATION BY THE COMPANY. Company's Board of Directors may terminate the Employee's employment hereunder as follows:
(a) Upon the death of the Employee, whereupon this Agreement shall immediately terminate;
(b) Upon a determination of Permanent Disability; "Permanent Disability" shall mean a physical or mental incapacity as a result of which the Employee becomes totally unable to continue the performance of his duties hereunder for a period of 180 consecutive days or an aggregate of 270 days in any 24 month period. A determination of Permanent Disability shall be subject to the certification of a qualified medical doctor agreed to by the Company and the Employee or, in the event of the Employee's incapacity to designate a doctor, the Employee's legal representative. In the absence of agreement between the Company and the Employee, each party shall nominate a qualified medical doctor and the two doctors so nominated shall select a third doctor, who shall make the determination as to the occurrence and continuance of a Permanent Disability; or
(c) For cause. "Cause" shall mean only the following:
(i) the willful and, after written notice and a reasonable opportunity to cure, continued failure by the Employee to follow the reasonable directions of the Company Management not inconsistent with this Agreement (other than such failure resulting from the Employee's incapacity due to physical or mental illness);
(ii) willful and, after written notice and a reasonable opportunity to cure, continued misconduct by the Employee that materially adversely affects the Company;
(iii) conviction of a felony or guilty plea or plea of nolo contendre to a crime or offense relating to the performance of the Employee's duties to the Company;
(iv) willful theft from the Company;
(v) a willful violation of any law, rule or regulation, or the imposition
of a final order issued by any regulatory authority against the Company, which, in any event, prohibits the Employee from holding an Employee position with the Company or any Subsidiary;
(vi) the Employee's habitual drunkenness or habitual use of illegal substances, after notice to cease and the opportunity provided by the Company to enter into and successfully complete a reputable rehabilitation program at the expense of the Company; or
(vii) the Employee fails to substantially perform any material term or provision of this Agreement.
For purposes of this Agreement, no act, or failure to act, on the Employee's part shall be considered "willful" unless done, or omitted to be done, by the Employee in bad faith and without a reasonable belief that such action or omission by the Employee was in the best interests of the Company, and no termination by the Company for "Cause" shall be effective unless the Employee shall have been given written notice of the breaches of this Section 4.1(c) and a period of 30 days within which to cure any such breach. provided that such curative period shall be permitted only once in any 12 month period.
(d) Without Cause for any reason or no reason.
5.2 TERMINATION BY EMPLOYEE. The Employee may voluntarily terminate his employment hereunder at any time for any reason or no reason.
5.3 SEVERANCE PAYMENTS; TERMINATION FOR CAUSE. In the event of
termination for Cause, the Employee shall receive no severance, and
shall be entitled to receive, in lieu of any other payments or
benefits, his accrued and unpaid salary at the rate provided in Section
3.1 (as increased from time to time by the Board of Directors) through
the date of termination, plus any accrued but unpaid Cash Bonus, and
plus (i) any amounts earned but unpaid for any benefit plans in which
Employee is a participant on the date of termination for prior
completed fiscal or calendar year including any accrued vacation and
(ii) any unpaid reimbursable expenses incurred prior to the date of
termination ((i) and (ii) collectively called the "Unpaid Benefits").
5.4 SEVERANCE PAYMENTS; TERMINATION AS A RESULT OF DEATH. In the event of termination because of the death of Employee, the Employee's estate or beneficiaries, as the case may be, shall be entitled to receive, in addition to any other payments or benefits hereunder, (i) the proceeds from any insurance policies paid for by the Company in favor of the Employee's estate or beneficiaries, (ii) any Unpaid Benefits, and (iii) all of the Employee's stock. Such amounts shall be paid promptly, and amounts (i) and (ii) in a lump sum in cash.
5.5 SEVERANCE PAYMENTS; TERMINATION WITHOUT CAUSE. In the event of termination by the Company without Cause, the Employee shall be entitled to receive (i) Unpaid Benefits through the date of
termination, plus (ii) an amount equal to any accrued but unpaid Cash Bonus (each of the amounts in subclauses (i) and (ii) payable in a lump sum in cash within 30 days after the date of termination), plus (iii) an amount equal to his Base Salary for a one year period.
5.6 SEVERANCE PAYMENTS; VOLUNTARY TERMINATION BY EMPLOYEE. If the Employee shall voluntarily resign, he shall be entitled only to Unpaid Benefits through the effective date of such resignation or voluntary termination, and any such amounts shall be promptly paid in a lump sum in cash.
5.7 SEVERANCE PAYMENTS; TERMINATION DUE TO PERMANENT DISABILITY. If the Employee's employment hereunder is terminated as a result of Permanent Disability, in lieu of any other payments or benefits (other than any such disability benefits he may receive), he shall be paid an amount equal to all Unpaid Benefits in a single lump sum in cash within thirty (30) days of the date of his termination.
5.8 GENERAL RELEASE. Prior to the Employee's receipt of any severance payment under this Section 5, the Employee shall issue a general release to the Company in such form as the Company may reasonably require, which release shall extinguish all actual or potential claims or causes of action he has, may have had, or hereafter may have against the Company. The Company shall simultaneously provide a release to the Employee in the same form given to the Company by the Employee.
5.9 OTHER PAYMENTS UPON TERMINATION. If notice of termination of the employment of Employee is given by the Employee or the Company, the Employee shall continue to receive his then Base Salary and benefits as provided in this Agreement until the date of termination.
6. GENERAL PROVISIONS.
6.1 NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt required, postage prepaid, as follows:
If to the Company:
Novint Technologies, Inc.
PO Box 66956
Albuquerque, NM 87193
If to Employee:
Tom Anderson
4109 Bryan Ave NW
Albuquerque, NM 87114
or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
6.2 NO WAIVERS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Employee and the Company. No waiver by either party hereto at any time or any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver or similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
6.3 NO MITIGATION; NO OFFSET. In the event of the Employee's termination of employment, he shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Employee hereunder on account of any remuneration the Employee may obtain from any subsequent employment.
6.4 LEGAL FEES. The losing party shall promptly pay or reimburse the prevailing party for reasonable costs of enforcing this Agreement, including, specifically, the fees and expenses of counsel.
6.5 ARBITRATION. Any and all disputes or controversies arising out of or relating to this Agreement, other than injunctive relief pursuant to Section 4.3, shall be resolved by arbitration at the American Arbitration Association at its Albuquerque, New Mexico offices before a panel of three arbitrators under the then existing rules and regulations of the American Arbitration Association. The parties agree that in any such arbitration, the arbitrators shall not have the power to reform or modify this Agreement in any way and to that extent their powers are so limited. The determination of the arbitrators shall be final and binding on the parties hereto and judgment on it may be entered in any court of competent jurisdiction. Except as required by law, neither the Company nor the Employee shall issue any press release or make any statement which is reasonably foreseeable to become public with respect to any arbitration or dispute between the parties without receiving the prior written consent of the other party to the content of such press release or statement. The losing party in such arbitration will, in addition to any other amounts deemed payable by the losing party, reimburse the prevailing party for the prevailing party's expenses (including, without limitation, legal fees and expenses) incurred in connection with such proceedings. All such amounts shall be paid promptly, but in any event within ten (10) days after the Employee provides the Company with a statement of such amounts to be recovered.
6.6 INDEMNIFICATION. The Company hereby agrees to hold the Employee harmless and indemnify the Employee from and against, and to reimburse the Employee for, any and all judgments, fines, liabilities, amounts paid in settlement and expenses, including attorneys' fees, incurred directly or indirectly as a result of or in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, whether or not such action, suit or proceeding is by or in the right of
the Company to procure a judgment in its favor, including an action, suit or proceeding by or in the right of any other corporation of any type or kind, domestic or foreign, or any partnership, joint venture, trust, employee benefit plan or other enterprise for which the Employee served in any capacity at the request of the Company, to which the Employee is, was or at any time becomes a party, or is threatened to be made a party, or a result of or in connection with any appeal therein, by reason of the fact that the Employee is or was at any time a director, officer, employee or agent of the Company; provided, however, that (i) indemnification shall be paid pursuant to this paragraph if and only if the Employee acted in good faith and in a manner reasonably believed by the Employee to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the Employee's conduct was unlawful; and (ii) no indemnification shall be payable pursuant to this paragraph if a court having jurisdiction in the matter shall determine that such indemnification is not lawful.
6.7 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Mexico without regard to its Conflicts of Laws provisions.
6.8 SEVERABILITY OR PARTIAL INVALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
6.9 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
6.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties and supersedes all prior written or oral and all contemporaneous oral agreements, understanding, and negotiations between the parties with respect to the subject matter hereof. This Agreement is intended by the parties as the final expression of their agreement with respect of such terms as are included in this agreement and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement constitutes the complete and exclusive statements of its terms and that no extrinsic evidence may be introduced in any judicial proceeding involving this Agreement.
6.11 ASSIGNMENT. This Agreement and the rights, duties and obligations hereunder may not be assigned or delegated by any party without the prior written consent of the other party. Any such assignment or delegation without the prior written consent of the other party shall be void and be of no effect. Notwithstanding the foregoing provisions of this Section 6.11, the Company may assign or delegate its rights, duties and obligations hereunder to any person or entity which succeeds to all or substantially all of the business of the Company through merger, consolidation, reorganization, or other business combination or by acquisition of all or substantially all of the assets of the Company; provided that such person assumes the Company's obligations under this Agreement.
6.12 BENEFICIAL INTERESTS. This Agreement shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee, or other designee, or, if there be no such designee, to the Employee's estate.
DATED AS OF: March 2004
COMPANY: EMPLOYEE:
NOVINT TECHNOLOGIES, INC. ------------------------------
THOMAS G ANDERSON
By
--------------------------------
Its
----------------------------
|
Exhibit 10.4
EMPLOYMENT AGREEMENT
NOVINT TECHNOLOGIES, INC., a New Mexico corporation (the "Company") and WALTER A. AVILES (the "Employee") agree:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee agrees to serve, as Chief Technical Officer of Company and any subsidiaries or affiliates of Company (together, the "Subsidiaries"). Subject to the direction of the Chief Executive Officer, the Employee will be responsible for, in addition to any other matters assigned to Employee, Company's technical development, including development of Company's e-touch software, development of applications and products, and management of technical staff. The Employee agrees to devote his full business time and attention and best efforts to the affairs of the Company and the Subsidiaries during the period of Employee's employment with Company. Employee will execute and deliver to Company the Proprietary Information and Inventions Agreement required of all Company employees.
2. START DATE. The employment of the Employee by the Company under the terms and conditions of this Agreement will commence as of November 1, 2000.
3. COMPENSATION. The Employee will receive the following compensation:
3.1 ANNUAL SALARY. The Company shall pay to the Employee an annual salary of $100,000.00 (the "Base Salary") payable in installments in accordance with Company policy. The Chief Executive Officer shall review the performance of the Employee periodically and, subject to the sole discretion of the Chief Executive Officer, determine whether the Employee is entitled to an increase in the Base Salary.
3.2 CASH BONUS. The Company may pay to Employee a cash bonus (the "Cash Bonus"). Any such bonus will be paid at the sole discretion of the Company.
3.3 REIMBURSEMENT OF EXPENSES. The Employee shall be entitled to receive prompt reimbursement of all reasonable expenses incurred by the Employee in performing services hereunder, including all expenses of travel, entertainment and living expenses while away from Employee's primary residence on business at the request of, or in the service of, the Company or any Subsidiary, provided that such expenses are incurred and accounted for in accordance with the policies and procedures and approved operating budget established by the Company.
3.4 BENEFITS. The Employee shall be entitled to participate in and be covered by all health, insurance, pension, cash performance or profit sharing bonus plans, and other Employee plans and benefits established by the Company for its employees generally, subject to meeting applicable eligibility requirements.
3.5 PERSONAL LEAVE AND HOLIDAYS. The Employee shall be entitled to an annual personal leave of twenty (20) days at full pay. Employee may take a reasonable amount of sick leave, which does not count as personal leave, subject to company's policies on sick leave. The Employee shall also be entitled to ten paid holidays a year. Such holidays will be established by the Company for all employees.
3.6 STOCK PLAN AND AGREEMENT. Employee shall be eligible to participate in Company's employee stock option plan and, pursuant to the terms and conditions of the plan and a separate agreement between Company and Employee, shall be granted options to purchase 4,000 shares of Company common stock.
4. CONFIDENTIALITY AND NON-COMPETITION. The Employee agrees to the following confidentiality and non-competition restrictions:
4.1 CONFIDENTIALITY. The Employee will not during his
employment by the Company or thereafter at any time disclose, directly
or indirectly, to any person or entity or use, or permit the use of,
any trade secrets or confidential information relating to the Company
or any Subsidiary (the "Confidential Information") except as required
by law. "Confidential Information" shall include, but shall not be
limited to, (i) products or services, (ii) business or strategic plans,
(iii) designs, (iv) analyses, (v) drawings, photographs and reports,
(vi) computer hardware and software, including operating systems,
applications, program listings, and installation plans and techniques,
(vii) flow charts, manuals and documentations, (viii) data bases, (ix)
tax or financial data, (x) trade secrets, know-how, inventions,
devices, new developments, methods and processes, whether patentable or
unpatentable and whether or not reduced to practice, (xi) customers and
clients and customers or client lists or other marketing or sales
programs or plans, (xii) other copyrightable works, (xiii) all
technology and trade secrets, (xiv) the terms of any agreement for the
development or commercialization of any invention or technology related
thereto, (xv) the terms of any license, marketing, sales or
distribution agreement of Company, (xvi) all information denominated as
"Confidential" and made available only on a restricted basis and (xvii)
all similar and related information.; provided however, that
"Confidential Information" shall not include information which comes
into the public domain through no fault of the Employee or which the
Employee obtains after the termination of employment with the Company
or otherwise from a third party who, to the knowledge of the Employee,
has the right to disclose such information.
4.2 RETURN OF COMPANY MATERIAL. The Employee shall promptly deliver to the Company on termination of the Employee's employment with the Company, for whatever the reason, or at any time the Company may so request, all Company or Subsidiary memoranda, notes, records, reports, manuals, drawings, computer software, and all documents containing Confidential Information belonging to the Company, including all copies of such materials which the Employee may then possess or have under the Employee's control irrespective of the format of such materials.
4.3 NON-COMPETITION. During the period of Employee's employment with the Company and for up to a one-year period thereafter, the Employee will not, within the United States, directly or
indirectly, without the consent of the Board of Directors of the Company: (i) own, manage, operate, join, control, or participate in or be connected with, as an officer, employee, partner, stockholder of greater than 1% of available shares, director, adviser, consultant, or agent (whether paid or unpaid), any business, which is at the time engaged in any activities which compete with the business of the Company or any Subsidiary; or (ii) utilize any employees of the Company to perform any service which conflicts with their full-time employment with the Company or otherwise take actions which result in the termination of any employee's relationship with the Company. Employee hereby acknowledges that because of Company's national presence in its industry it is necessary for this section to apply to the entire United States in order to adequately protect Company's interests.
4.4 RIGHT TO INJUNCTIVE AND EQUITABLE RELIEF As a result of the Employee's position as an Employee of the Company, the Employee's obligations not to disclose or use Confidential Information and to refrain from the activities described in this Section 4 are of a special and unique character which gives them a peculiar value, and which is supported by valuable consideration. The Company cannot be reasonably or adequately compensated in damages in an action at law in the event the Employee breaches such obligations. Therefore, the Employee expressly agrees that the Company shall be entitled to injunctive and other equitable relief without bond or other security in the event of such breach in addition to any other rights or remedies which the Company may possess. Furthermore, the obligations of the Employee and the rights and remedies of the Company under this Section 4 are cumulative and in addition to, and not in lieu of, any obligations, rights, or remedies created by applicable law relating to misappropriation or theft of trade secrets or confidential information.
5. TERMINATION. Company and Employee agree to the following termination provisions:
5.1 TERMINATION BY THE COMPANY. The Chief Executive Officer may terminate the Employee's employment hereunder as follows:
(a) Upon the death of the Employee, whereupon this Agreement shall immediately terminate;
(b) Upon a determination of Permanent Disability; "Permanent Disability" shall mean a physical or mental incapacity as a result of which the Employee becomes totally unable to continue the performance of his duties hereunder for a period of 180 consecutive days or an aggregate of 270 days in any 24 month period. A determination of Permanent Disability shall be subject to the certification of a qualified medical doctor agreed to by the Company and the Employee or, in the event of the Employee's incapacity to designate a doctor, the Employee's legal representative. In the absence of agreement between the Company and the Employee, each party
shall nominate a qualified medical doctor and the two doctors so nominated shall select a third doctor, who shall make the determination as to the occurrence and continuance of a Permanent Disability; or
(c) For cause. "Cause" shall mean only the following:
(i) the willful and, after written notice and a reasonable opportunity to cure, continued failure by the Employee to follow the reasonable directions of the Chief Executive Officer not inconsistent with this Agreement (other than such failure resulting from the Employee's incapacity due to physical or mental illness);
(ii) willful and, after written notice and a reasonable opportunity to cure, continued misconduct by the Employee that materially adversely affects the Company;
(iii) conviction of a felony or guilty plea or plea of nolo contendre to a crime or offense relating to the performance of the Employee's duties to the Company;
(iv) willful theft from the Company;
(v) a willful violation of any law, rule or regulation, or the imposition of a final order issued by any regulatory authority against the Company, which, in any event, prohibits the Employee from holding an Employee position with the Company or any Subsidiary;
(vi) the Employee's habitual drunkenness or habitual use of illegal substances, after notice to cease and the opportunity provided by the Company to enter into and successfully complete a reputable rehabilitation program at the expense of the Company; or
(vii) the Employee fails to substantially perform any material term or provision of this Agreement.
For purposes of this Agreement, no act, or failure to act, on the Employee's part shall be considered "willful" unless done, or omitted to be done, by the Employee in bad faith and without a reasonable belief that such action or omission by the Employee was in the best interests of the Company, and no termination by the Company for "Cause" shall be effective unless the Employee shall have been given written notice of the breaches of this Section 4.1(c) and a period of 30 days within which to cure any such breach. provided that such curative period shall be permitted only once in any 12 month period.
(d) Without Cause for any reason or no reason.
5.2 TERMINATION BY EMPLOYEE. The Employee may voluntarily terminate his employment hereunder at any time for any reason or no reason.
5.3 SEVERANCE PAYMENTS; TERMINATION FOR CAUSE. In the event of
termination for Cause, the Employee shall receive no severance, and
shall be entitled to receive, in lieu of any other payments or
benefits, his accrued and unpaid salary at the rate provided in Section
3.1 (as increased from time to time by the Chief Executive Officer)
through the date of termination, plus any accrued but unpaid Cash
Bonus, and plus (i) any amounts earned but unpaid for any benefit plans
in which Employee is a participant on the date of termination for prior
completed fiscal or calendar year including any accrued vacation and
(ii) any unpaid reimbursable expenses incurred prior to the date of
termination ((i) and (ii) collectively called the "Unpaid Benefits").
5.4 SEVERANCE PAYMENTS; TERMINATION AS A RESULT OF DEATH. In the event of termination because of the death of Employee, the Employee's estate or beneficiaries, as the case may be, shall be entitled to receive, in addition to any other payments or benefits hereunder, (i) the proceeds from any insurance policies paid for by the Company in favor of the Employee's estate or beneficiaries and (ii) any Unpaid Benefits. Such amounts shall be paid promptly in a lump sum in cash.
5.5 SEVERANCE PAYMENTS; TERMINATION WITHOUT CAUSE. In the event of termination by the Company without Cause, the Employee shall be entitled to receive (i) Unpaid Benefits through the date of termination, plus (ii) an amount equal to any accrued but unpaid Cash Bonus (each of the amounts in subclauses (i) and (ii) payable in a lump sum in cash within 30 days after the date of termination), plus (iii) an amount equal to his Base Salary for a two week period.
5.6 SEVERANCE PAYMENTS; VOLUNTARY TERMINATION BY EMPLOYEE. If the Employee shall voluntarily resign, he shall be entitled only to Unpaid Benefits through the effective date of such resignation or voluntary termination, and any such amounts shall be promptly paid in a lump sum in cash.
5.7 SEVERANCE PAYMENTS; TERMINATION DUE TO PERMANENT DISABILITY. If the Employee's employment hereunder is terminated as a result of Permanent Disability, in lieu of any other payments or benefits (other than any such disability benefits he may receive), he shall be paid an amount equal to all Unpaid Benefits in a single lump sum in cash within thirty (30) days of the date of his termination.
5.8 GENERAL RELEASE. Prior to the Employee's receipt of any severance payment under this Section 5, the Employee shall issue a general release to the Company in such form as the Company may reasonably require, which release shall extinguish all actual or potential claims or causes of action he has, may have had, or hereafter may have against the Company. The Company shall simultaneously provide a release to the Employee in the same form given to the Company by the Employee.
5.9 OTHER PAYMENTS UPON TERMINATION. If notice of termination of the employment of Employee is given by the Employee or the Company, the Employee shall continue to receive his then Base Salary and benefits as provided in this Agreement until the date of termination.
6. GENERAL PROVISIONS.
6.1 NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt required, postage prepaid, as follows:
If to the Company:
Novint Technologies, Inc.
8500 Menaul Blvd NE
Suite A210
Albuquerque, NM 87112
Attention: Chief Executive Officer
If to Employee:
or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
6.2 NO WAIVERS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Employee and the Company. No waiver by either party hereto at any time or any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver or similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.
6.3 NO MITIGATION; NO OFFSET. In the event of the Employee's termination of employment, he shall be under no obligation to seek other employment and there shall be no offset against any amounts due the Employee hereunder on account of any remuneration the Employee may obtain from any subsequent employment.
6.4 LEGAL FEES. The losing party shall promptly pay or reimburse the prevailing party for reasonable costs of enforcing this Agreement, including, specifically, the fees and expenses of counsel.
6.5 ARBITRATION. Any and all disputes or controversies arising out of or relating to this Agreement, other than injunctive relief pursuant to Section 4.4, shall be resolved by arbitration at the American Arbitration Association at its Albuquerque, New Mexico offices before a panel of three arbitrators under the then existing rules and regulations of the American Arbitration Association. The parties agree that in any such arbitration, the arbitrators shall not have the power to reform or modify this Agreement in any way and to that extent their powers are so limited. The determination of the arbitrators shall be final and binding on the parties hereto and judgment on it may be entered in any court of competent jurisdiction. Except as required by law, neither the Company nor the Employee shall issue any press release or make any statement which is reasonably foreseeable to become public with respect to any arbitration or dispute between the parties without receiving the prior written consent of the other party to the content of such press release or statement. The losing party in such arbitration will, in addition to any other amounts deemed payable by the losing party, reimburse the prevailing party for the prevailing party's expenses (including, without limitation, legal fees and expenses) incurred in connection with such proceedings. All such amounts shall be paid promptly, but in any event within ten (10) days after the Employee provides the Company with a statement of such amounts to be recovered.
6.6 INDEMNIFICATION. The Company hereby agrees to hold the
Employee harmless and indemnify the Employee from and against, and to
reimburse the Employee for, any and all judgments, fines, liabilities,
amounts paid in settlement and expenses, including attorneys' fees,
incurred directly or indirectly as a result of or in connection with
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, whether or
not such action, suit or proceeding is by or in the right of the
Company to procure a judgment in its favor, including an action, suit
or proceeding by or in the right of any other corporation of any type
or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise for which the Employee served
in any capacity at the request of the Company, to which the Employee
is, was or at any time becomes a party, or is threatened to be made a
party, or a result of or in connection with any appeal therein, by
reason of the fact that the Employee is or was at any time a director,
officer, employee or agent of the Company; provided, however, that (i)
indemnification shall be paid pursuant to this paragraph if and only if
the Employee acted in good faith and in a manner reasonably believed by
the Employee to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the Employee's conduct was unlawful; and
(ii) no indemnification shall be payable pursuant to this paragraph if
a court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
6.7 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the internal laws of theState of New Mexico without regard to its Conflicts of Laws provisions.
6.8 SEVERABILITY OR PARTIAL INVALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.
6.9 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
6.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the parties and supersedes all prior written or oral and all contemporaneous oral agreements, understanding, and negotiations between the parties with respect to the subject matter hereof. This Agreement is intended by the parties as the final expression of their agreement with respect of such terms as are included in this agreement and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement constitutes the complete and exclusive statements of its terms and that no extrinsic evidence may be introduced in any judicial proceeding involving this Agreement.
6.11 ASSIGNMENT. This Agreement and the rights, duties and obligations hereunder may not be assigned or delegated by any party without the prior written consent of the other party. Any such assignment or delegation without the prior written consent of the other party shall be void and be of no effect. Notwithstanding the foregoing provisions of this Section 6.11, the Company may assign or delegate its rights, duties and obligations hereunder to any person or entity which succeeds to all or substantially all of the business of the Company through merger, consolidation, reorganization, or other business combination or by acquisition of all or substantially all of the assets of the Company; provided that such person assumes the Company's obligations under this Agreement.
6.12 BENEFICIAL INTERESTS. This Agreement shall inure to the benefit of and be enforceable by the Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Employee should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Employee's devisee, legatee, or other designee, or, if there be no such designee, to the Employee's estate.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
DATED AS OF: November ___, 2000
COMPANY: EMPLOYEE:
NOVINT TECHNOLOGIES, INC.
----------------------------------
WALTER A. AVILES
By
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Its
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|
Exhibit 10.5
NOVINT TECHNOLOGIES, INC.
2004 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2004 Stock Incentive Plan is intended to promote the interests of Novint Technologies, Inc., a Delaware corporation (the "Corporation") by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the Service of the Corporation. Capitalized terms not defined herein, shall have the meanings assigned to them in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall have a Discretionary Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock.
B. The provisions of Articles One and Three shall apply to all equity programs under the Plan and shall govern the interests of all persons under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board or one or more committees appointed by the Board, provided that (1) beginning with the Section 12 Registration Date, the Primary Committee shall have sole and exclusive authority to administer the Plan with respect to Section 16 Insiders, and (2) administration of the Plan may otherwise, at the Board's discretion, be vested in the Primary Committee or a Secondary Committee. Beginning with the Section 12 Registration Date, any discretionary option grants or stock issuances to members of the Primary Committee must be authorized and approved by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall serve for such period of time as the Board may determine and may be removed by the Board at any time. The Board may also at any time terminate the functions of any Secondary Committee and reassume all powers and authority previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant to make such determinations under, and issue such interpretations of, the provisions of such programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant under its jurisdiction or any option or stock issuance thereunder.
D. Service on the Primary Committee or the Secondary Committee shall constitute service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Primary Committee or the Secondary Committee shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors of any Subsidiary, and
(iii) consultants and other independent advisors who provide services to the Corporation (or any Subsidiary).
B. Each Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority to determine with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive grants, the time or times when such grants are to be made, the number of shares to be covered by each such grant, the status of a granted option as either an Incentive Option or a Non-Statutory Option, the time or times when each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding.
C. The Plan Administrator shall have the absolute discretion to grant options in accordance with the Discretionary Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The maximum number of shares of Common Stock initially reserved for issuance over the term of the Plan shall not exceed 2,500,000 shares. No one person participating in the Plan may receive stock options for more than __________________ shares of Common Stock in the aggregate per calendar year.
B. Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) those options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. Unvested shares issued under the Plan and subsequently cancelled by the Corporation shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants under the Plan. In addition, should the exercise price of an option under the Plan be paid with shares of Common Stock or should shares of Common Stock otherwise issuable under the Plan be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option or the vesting of a stock issuance under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced only by the net number of shares of Common Stock issued to the holder of such option or stock issuance, and not by the gross number of shares for which the option is exercised or which vest under the stock issuance.
C. If any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to: (i) the maximum number and/or class of securities issuable under the Plan; (ii) the number and/or class of securities for which any one person may be granted stock options under this Plan per calendar year; and (iii) the number and/or class of securities and the exercise price per share in effect under each outstanding option under the Plan. Such adjustments to the outstanding options are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive.
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such option.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per share of Common Stock on the option grant date, except that the exercise price shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date in the case of any person who owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or its subsidiary corporations.
2. The exercise price shall become immediately due upon exercise of the option and may, subject to the provisions of Section I of Article Three, be payable by cash or check made payable to the Corporation. Payment of the exercise price for the purchased shares must be made on the Exercise Date, except as otherwise provided by the Plan Administrator.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option.
(ii) Any option held by the Optionee at the time of death and exercisable in whole or in part at that time may be subsequently exercised by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution of by the Optionee's designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for Misconduct or should the Optionee otherwise engage in Misconduct while holding one or more outstanding options under this Article Two, then all those options shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion, either at the time an option is granted or at any time while the option remains outstanding, to:
(i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.
D. NO STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.
E. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. Non-Statutory Options shall be subject to the same limitation, except that a Non-Statutory Option may be assigned in whole or in part during Optionee's lifetime to one or more members of the Optionee's Immediate Family or to a trust established for the exclusive benefit of one or more family members or the Optionee's former spouse, to the extent such assignment is in connection with Optionee's estate plan or pursuant to a domestic relations order. The assigned portion shall be exercisable only by the person or persons who acquire a proprietary interest in the option pursuant to such assignment. The terms applicable to the assigned portion shall be the same as those in effect for this option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. Notwithstanding the foregoing, the Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under this Article Two, and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee's death while holding those options. Such beneficiary or beneficiaries shall take the transferred option
subject to all the terms and conditions of this Agreement, including (without limitation) the limited time period during which the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Three shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.
D. FAILURE TO QUALIFY AS INCENTIVE OPTION. To the extent that any option governed by this Plan does not qualify as an Incentive Option by reason of the dollar limitation described in Section II.C of Article Two or for any other reason, such option shall be exercisable as a Non-Statutory Option under the Federal tax laws.
E. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option Grant Program and to grant in substitution new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new grant date.
IV. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. No option outstanding at the time of a Change in Control shall become exercisable on an accelerated basis if and to the extent: (i) that option is, in connection with the Change in Control, assumed by the successor corporation (or Parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, (ii) such option is replaced with a cash incentive program of the successor corporation which preserves the spread existing at the time of the Change in Control on the shares of Common Stock for which the option is not otherwise at that time exercisable
and provides for subsequent payout in accordance with the same exercise/vesting schedule applicable to those option shares or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. However, if none of the foregoing conditions are satisfied, then each option outstanding at the time of the Change in Control but not otherwise exercisable for all the shares of Common Stock at that time subject to such option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Change in Control, become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully vested shares of Common Stock.
B. Immediately following the consummation of the Change in Control, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or Parent thereof) or otherwise expressly continued in full force and effect pursuant to the terms of the Change in Control transaction.
C. Each option which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments to reflect such Change in Control shall also be made to: (i) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same; (ii) the maximum number and/or class of securities available for issuance over the remaining term of the Plan; and (iii) the maximum number and/or class of securities for which any one person may be granted options under the Plan per calendar year. To the extent the actual holders of the Corporation's outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control transaction, the successor corporation may, in connection with the assumption of the outstanding options under the Discretionary Option Grant Program, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.
D. The Plan Administrator shall have the discretionary authority to structure one or more outstanding options under the Discretionary Option Grant Program so that those options shall, immediately prior to the effective date of a Change in Control, become exercisable for all the shares of Common Stock at that time subject to such options on an accelerated basis and may be exercised for any or all of such shares as fully vested shares of Common Stock, whether or not those options are to be assumed or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction.
E. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall vest and become exercisable for all the
shares of Common Stock at that time subject to such options on an accelerated
basis in the event the Optionee's Service is subsequently terminated by reason
of an Involuntary Termination within a designated period (not to exceed eighteen
(18) months) following the effective date of any Change in Control in which
those options do not otherwise accelerate. Any options so accelerated shall
remain exercisable for fully vested shares of Common Stock until the expiration
or sooner termination of the option term.
F. The Plan Administrator shall have the discretionary authority to structure one or more outstanding options under the Discretionary Option Grant Program so that those options shall, immediately prior to the effective date of a Hostile Take-Over, vest and become exercisable for all the shares of Common Stock at that time subject to such options on an accelerated basis and may be exercised for any or all of such shares as fully vested shares of Common Stock.
G. The portion of any Incentive Option accelerated in connection with a Change in Control or Hostile Take-Over shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws.
H. The grant of options under the Discretionary Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option exercise price under the Discretionary Option Grant Program by delivering a full-recourse, interest bearing promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. In no event may the maximum credit available to the Optionee exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Optionee in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon the exercise of options or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state and local income and employment tax withholding requirements.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan Effective Date. Options may be granted under the Discretionary Option Grant at any time on or after the Plan Effective Date. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's stockholders. If such stockholder approval is not obtained within twelve (12) months after the Plan Effective Date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall terminate upon the EARLIEST of (i) the tenth anniversary of the Plan Effective Date, (ii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested shares or (iii) the termination of all outstanding options in connection with a Change in Control. Upon such plan termination, all outstanding option grants and unvested stock issuances shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to stock options or unvested stock issuances at the time outstanding under the Plan unless the Optionee consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the Discretionary Option Grant Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained any required approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under the Plan and the issuance of any shares of Common Stock upon the exercise of any granted option shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Subsidiary employing or retaining such person) or of the Optionee, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause.
X. FINANCIAL REPORTS
THE CORPORATION SHALL DELIVER FINANCIAL REPORTS AND OTHER INFORMATION IF SUCH REPORTS AND INFORMATION IS REQUIRED TO BE DELIVERED PURSUANT TO APPLICABLE LAW.
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control of the Corporation effected through any of the following transactions:
(i) a stockholder-approved merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction;
(ii) a sale, transfer or other disposition of all or substantially all of the Corporation's assets; or
(iii) the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board recommends such stockholders accept.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATION shall mean Novint Technologies, Inc., a Delaware corporation, and its successors.
F. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option grant program in effect under the Plan.
G. EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.
H. EXERCISE DATE shall mean the date on which the Corporation shall have received written notice of the option exercise.
I. FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:
(i) if the Common Stock is then listed or quoted on a Trading Market, the Fair Market Value is the daily volume weighted average price per share of the Common Stock for such date (or the nearest preceding date) on the primary Trading Market on which the Common Stock is then listed or quoted;
(ii) if the Common Stock is not then listed or quoted on an Trading Market and if prices for the Common Stock are then reported in the "Pink Sheets" published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the Fair Market Value is the most recent bid price per share of the Common Stock so reported; or
(iii) in all other cases, the Fair Market Value of a share of Common Stock shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.
J. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's stockholders which the Board does not recommend such stockholders to accept; or
(ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either: (a) have been Board members continuously since the beginning of such period; or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (a) who were still in office at the time the Board approved such election or nomination.
K. IMMEDIATE FAMILY shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.
L. INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422.
(i) INVOLUNTARY TERMINATION shall mean the termination of the Service of any individual which occurs by reason of such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct.
M. MISCONDUCT shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee or other person in the Service of the Corporation (or any Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted under the Discretionary Option Grant Program.
Q. PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
R. PLAN shall mean the Corporation's 2004 Stock Incentive Plan, as set forth in this document.
S. PLAN ADMINISTRATOR shall mean the particular entity, whether the Primary Committee, the Board or the Secondary Committee, which is authorized to administer the Discretionary Option Grant with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons under its jurisdiction.
T. PLAN EFFECTIVE DATE shall mean the date on which the Plan was adopted by the Board.
U. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-employee Board members appointed by the Board to administer the Discretionary Option Grant with respect to Section 16 Insiders following the Section 12 Registration Date.
V. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board members appointed by the Board to administer any aspect of Plan not required hereunder to be administered by the Primary Committee. The members of the Secondary Committee may be Board members who are Employees eligible to receive discretionary option grants, stock bonus or other stock plan of the Corporation (or any Subsidiary).
W. SECTION 12 REGISTRATION DATE shall mean the date on which the Common Stock is first registered under Section 12(g) or Section 15 of the 1934 Act.
X. SECTION 16 INSIDER shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
Y. SERVICE shall mean the performance of services for the Corporation (or any Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance.
Z. SHORT TERM FEDERAL RATE shall mean the federal short-term rate in effect under Section 1274(d) of the Code for the period the shares were held in escrow.
AA. STOCK EXCHANGE shall mean either the American Stock Exchange or the New York Stock Exchange.
BB. SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
CC. TAXES shall mean the Federal, state and local income and employment tax liabilities incurred by the holder of Non-Statutory Options or unvested shares of Common Stock in connection with the exercise of those options or the vesting of those shares.
DD. TRADING MARKET means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the OTC Bulletin Board, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap Market.
EE. 10% STOCKHOLDER shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Subsidiary).
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
We have issued our reports dated March 18, 2004, accompanying the financial statements and schedules of Novint Technologies, Inc. contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned reports in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts."
Albuquerque, New Mexico
May 13, 2004