NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2020
(Unaudited)
NOTE
1 – DESCRIPTION OF BUSINESS
Novint
Technologies, Inc. (the “Company” or “Novint”) was originally incorporated in the State of New Mexico
in April 1999. On February 26, 2002, the Company changed its state of incorporation to Delaware by merging with Novint Technologies,
Inc., a Delaware corporation. This merger was accounted for as a reorganization of the Company.
Nature
of Business
The
Company currently is engaged in the development and sale of 3D haptics products and equipment. Haptics refers to one’s sense
of touch. The Company’s focus is in the consumer interactive computer gaming market, but the Company also does project work
in other areas. The Company’s operations are based in New Mexico with sales of its haptics products primarily to consumers
through retail outlets.
Going
Concern and Management’s Plans
These
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has incurred recurring losses and at September 30, 2020, had an accumulated
deficit of $41,419,655. For the period ended September 30, 2020, the Company sustained a net loss of $133,520. These factors,
among others, indicate that the Company may be unable to continue as a going concern for the next twelve months from the date
the financial statements were issued. These financial statements do not include any adjustments relating to the recoverability
and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the
Company be unable to continue as a going concern. The Company’s continuation as a going concern is contingent upon its ability
to obtain additional financing, and to generate revenue and cash flow to meet its obligations on a timely basis. Management intends
to source new inventory and generate revenue. The Company will continue to seek and raise
additional funding through debt or equity financing during the next twelve months.
We
may be at risk as a result of the current COVID-19 pandemic. Risks that could affect our business include the duration and scope
of the COVID-19 pandemic and the impact on the demand for our products; actions by governments, businesses and individuals taken
in response to the pandemic; the length of time of the COVID-19 pandemic and the possibility of its reoccurrence; the timing required
to develop effective treatments and a vaccine in the event of future outbreaks; the eventual impact of the pandemic and actions
taken in response to the pandemic on global and regional economies; and the pace of recovery when the COVID-19 pandemic subsides.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates and assumptions made in the preparation of the financial statements
relate to accrued royalties and contingent consideration. Actual results could differ from those estimates.
Basis
of Presentation
The
accompanying unaudited condensed financial statements were prepared using generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these unaudited condensed
financial statements do not include all information or notes required by generally accepted accounting principles for annual financial
statements and should be read in conjunction with the Company’s annual financial statements included within the Company’s
Special Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on May 5, 2020.
In
the opinion of management, the unaudited condensed financial statements included herein contain all adjustments necessary to present
fairly the Company’s financial position and the results of its operations and cash flows for the interim periods presented.
Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2020 may
not be indicative of results for the full year.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. The
Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to federally insured limits. At times balances may exceed FDIC insured limits. The Company has not experienced any losses in
such accounts.
Revenue
and Cost Recognition
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers (Topic 606), and has since issued amendments thereto (collectively referred
to as “ASC 606”). The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services, and the guidance defines a five-step process to achieve this core principle. The five-step
process to achieve this principle is as follows: (i) identify the contract(s) with a customer, (ii) identify the performance obligations
in the contract(s), (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations
in the contract(s), and (v) recognize revenue when, or as, the entity satisfies a performance obligation. ASC 606 also mandates
additional disclosure about the nature, amount, timing and uncertainty of revenues and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
Revenue
from product sales relates to the sale of the Falcon 3D Touch Haptic Controller (the “Falcon”), which is a human-computer
user interface and related accessories. The Falcon allows the user to experience the sense of touch when using a computer, while
holding its interchangeable handle. The Falcons are manufactured by an unrelated party. Revenue from product sales are recognized
when products are shipped to the customer and the Company has earned the right to receive and retain reasonable assured payments
for the products sold and delivered. Consequently, if revenue recognition requirements are not met, such sales will be recorded
as deferred revenue until revenue recognition requirements are met.
Accounts
Receivable
Accounts
receivable are stated at the amounts management expects to collect. An allowance for doubtful accounts is recorded based on a
combination of historical experience, aging analysis and information on specific accounts. Account balances are written off against
the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Management
has determined that $0 allowance is required at September 30, 2020 and December 31, 2019.
Income
Taxes
The
Company accounts for its income taxes under the provisions of ASC Topic 740, “Income Taxes”. The method of accounting
for income taxes under ASC 740 is an asset and liability method which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax
assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will
not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.
Fair
Value of Financial Instruments
The
Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
for disclosures about fair value of its financial instruments and to measure the fair value of its financial instruments. The
FASB ASC establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into
three broad levels. The three levels of fair value hierarchy are described below:
Level
1
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
Level 2
|
Pricing inputs other
than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting
date.
|
|
|
Level 3
|
Pricing inputs that
are generally observable inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
carrying amounts of the Company’s financial assets and liabilities, including cash, inventory, prepaid expenses, accounts
payable, accrued expenses, payroll and related liabilities, and advances approximate their fair values because of the short maturity
of these instruments.
Recently
Issued Accounting Pronouncements
The
Company has reviewed the recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American
Institute of Certified Public Accountants, and the SEC and they did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statement presentation or disclosures.
NOTE
3 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses are as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Trade payables
|
|
$
|
107,203
|
|
|
$
|
99,486
|
|
Accrued expenses
|
|
|
5,283
|
|
|
|
7,756
|
|
Accrued royalties
|
|
|
570,632
|
|
|
|
533,132
|
|
Total accounts payable and accrued expenses
|
|
$
|
683,118
|
|
|
$
|
640,374
|
|
NOTE
4 – COMMITMENTS AND CONTINGENCIES
From
time to time, in the normal course of business, the Company is subject to routine litigation incidental to its business. Although
there can be no assurances as to the ultimate disposition of any such matters, it is the opinion of management, based upon the
information available at this time, that there are no matters, individually or in the aggregate, that will have a material adverse
effect on the results of operations and financial condition of the Company.
The
Company has licensing agreements with various parties providing gaming software. These licensing agreements have royalty fees
ranging from 5% to 50% of either gross or net revenue, and a flat per user end fee of $0.50. Under one or more of these agreements,
there was an annual aggregate minimum payment due of $50,000 which has been recorded as accrued royalties but remains unpaid.
Accrued royalty fees as of September 30, 2020 and December 31, 2019, was $570,632 and $533,132, respectively. If contested, the
Company may be found to be in breach of obligations to pay these amounts (although the Company believes this obligation is no
longer ongoing), thus the remaining obligation under this agreement will remain as a liability.
NOTE
5 – INCOME TAXES
The
Company files corporate income tax returns in the United States (Federal), in New Mexico and in New York. The Company is subject
to federal, state and local income tax examinations by tax authorities for the tax years 2015 through 2018.
As
of December 31, 2019, the Company had federal and state net operating loss carry forwards of $33.8 million and $0.5 million, respectively.
Federal net operating losses generated prior to January 1, 2018, amounting to $33.7 million, and may be offset against future
taxable income, subject to limitation under IRC Section 382, which begin to expire in 2022 if not utilized prior to that date,
and fully expire during various years through 2037 for federal purposes. Net operating losses generated after January 1, 2018,
amounting to $0.3 million, are limited to 80% utilization of current year income and no longer have an expiration. State net operating
loss carryforwards will begin to expire in 2034 through 2039.
Other
than minimum taxes, the company does not incur a provision for income taxes because the Company has historically incurred operating
losses and maintains a full valuation allowance against its net deferred tax assets due to the uncertainty surrounding the realizability
of the benefit, based on a more likely than not criteria and in consideration of available positive and negative evidence.
On
December 22, 2017, the Tax Cuts and Jobs Act (“The Act”), was signed into law by President Trump. The Act includes
a number of provisions, including the lowering of the U.S. corporate tax rate from 34 percent to 21 percent, effective January
1, 2018 and the establishment of a territorial-style system for taxing foreign-source income of domestic multinational corporations.
In December 2017, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Act (“SAB118”),
which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment. The
Company remeasured its deferred tax assets and liabilities as of December 31, 2017, applying the reduced corporate income tax
rate and recorded a provisional decrease to the deferred tax assets of $4,504,000, with a corresponding adjustment to the valuation
allowance. In the fourth quarter of 2018, we completed our analysis to determine the effect of the Tax Act and there were no material
adjustments as of December 31, 2018.
NOTE
6 – STOCKHOLDERS’ EQUITY
Preferred
Stock
The
Company is currently authorized to issue up to 12,500,000 shares of $0.0001 par value preferred stock. No shares of preferred
stock are currently outstanding. The Board of Directors may designate the authorized but unissued shares of the Preferred Stock
with such rights and privileges as the board of directors may determine. As such, the board of directors may issue preferred shares
and designate the conversion, voting and other rights and preferences without notice to the shareholders and without shareholder
approval.
Common
Stock
The
Company is currently authorized to issue up to 500,000,000 shares of $0.0001 par value common stock. All issued shares of common
stock are entitled to vote on a 1 share/1 vote basis.
The
Company had 202,308,728 shares of common stock issued and outstanding as of September 30, 2020 and December 31, 2019.
NOTE
7 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through the date these financial statements were issued.