The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements included elsewhere in this report and the
"Cautionary Note Regarding Forward-Looking Statements" above.
Overview
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.
During the earlier years of Novint, the Company sold its products primarily to
consumers and through the retail channels. When the new team came on to try to
save the Company in 2013, the Company continued to sell individual units to
consumers through the Novint online store in an effort to capture a larger
percentage of the sale rather than go through distribution. As the same time,
the Company adopted a new strategy of trying to sell Falcons to more
professional users, small developers and institutions such as schools, which
were more likely to make purchases of multiple units at a time and create more
near-term revenue for the Company considering the extremely limited cash
resources of the Company at the time. This shift in strategy was somewhat
successful as evidenced by the higher level of sales during the next few years.
In 2017, the Company shifted strategy to try to partner with one or more larger
OEMs in the gaming space that could help introduce either the existing Falcon, a
cost reduced version of the Falcon and/or the Xio controller that was in
development. There has been significant interest and testing from two well-known
OEMs in the gaming space but the process with large OEMs is an extremely
strenuous and long process and there can be no assurances that the Company will
be able to successfully conclude a partnering arrangement.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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.
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.
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Revenue from product sales relates to the sale of the Falcon haptics interface,
which is a human-computer user interface (the "Falcon") and related accessories.
The Falcon allows the user to experience the sense of touch when using a
computer, while holding its interchangeable handle. The Falcons are manufactured
by an unrelated party. Revenue from product sales is recognized when the
products are shipped to the customer and the Company has earned the right to
receive and retain reasonable assured payments for the products sold and
delivered. Consequently, if all these revenue from product sales requirements
are not met, such sales will be recorded as deferred revenue until such time as
all revenue recognition requirements are met.
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.
RESULTS OF OPERATIONS
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
REVENUES . During the year ended December 31, 2020, the Company earned revenue
of $1,000 through sales of its Falcon 3D Touch Haptic Controller (the "Falcon").
There were no revenues for the year ended December 31, 2019.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses and professional fees for the year ended December 31,
2020 and 2019, were $168,707 and $133,863, respectively, an increase of $34,844
or 26%. The increase was primarily due to an increase in legal fees of $26,263
due to regular filings with SEC.
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OTHER EXPENSES. Other expenses for the year ended December 31, 2020 and 2019,
were $279 and $239, respectively, an increase of $40 or 17%. The increase was
primarily due to an increase in finance charges of $40 in 2020.
NET LOSS. Net loss for the years ended December 31, 2020 and 2019, respectively,
were $167,986 and $134,177, an increase of $33,809. We expect to continue to
incur significant expenses and operating losses for the foreseeable future. Our
net loss may fluctuate significantly from quarter to quarter and year to year.
Impact of Inflation
The impact of inflation upon our revenue and income / (loss) from operations
during each of the past two fiscal years has not been material to our financial
position or results of operations for those years.
Liquidity and Capital Resources
Management has evaluated whether there is substantial doubt about our ability to
continue as a going concern and has determined that substantial doubt existed as
of the date of this filing. This determination was based on the following: the
Company has incurred recurring losses and at December 31, 2020, had an
accumulated deficit of $41,454,121 and a working capital deficit of $374,597 and
for the year ended December 31, 2020, the Company sustained a net loss of
$167,986. In the opinion of management, these factors, among others, raise
substantial doubt about our ability 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 to raise additional funding
through debt or equity financing during the next twelve months. While the
Company believes in the viability of its strategy to generate revenues and in
its ability to raise additional funds, there can be no assurances to that
effect.
The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business.
Cash Flow Activities
As of December 31, 2020, we had a total cash balance of $322,032. Our cash flow
from operating activities for the fiscal year ended December 31, 2020 resulted
in net cash used in operating activities of $109,683 compared with net cash used
in operating activities of $76,832 for the previous year ended December 31,
2019. We did not have any cash flow from investing activities or financing
activities for the years ended December 31, 2020 or 2019.
Contractual Obligations
We do not currently have fixed contractual obligations or commitments that
include future estimated payments.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources that is material to our investors. We
have no guarantees or obligations other than those that arise out of our
ordinary business operations.
Recent Accounting Standards
See Item 15 - Note 3 to the Consolidated Financial Statements, Summary of
Significant Accounting Policies, for a discussion of recent accounting
standards.
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