United States
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2006

o		TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

NOVINT TECHNOLOGIES, INC.

(Name of Small Business Issuer in its Charter)

Delaware		85-0461778
(State of Incorporation)		(IRS Employer ID. No.)
4109 Bryan Avenue NW, Albuquerque, NM		87114
(Address of Principal Executive Offices)		(Zip Code)

Issuer’s telephone number, including area code: (866) 298-4420

     Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ  No  o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  þ

     State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date: As of November 14, 2006 there were 19,072,641 shares of common stock outstanding and no other outstanding classes of a common equity security.

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION			2
Item 1. Financial Statements			2
Item 2. Management’s Discussion and Analysis or Plan of Operation			19
Item 3. Controls and Procedures			23
PART II — OTHER INFORMATION			23
Item 1. Legal Proceedings			23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			23
Item 3. Defaults Upon Senior Securities			24
Item 4. Submission of Matters to a Vote of Security Holders			24
Item 5. Other Information			25
Item 6. Exhibits			25
ITEM 13. EXHIBITS
SIGNATURES			28
Exhibit 10.43
EXHIBIT 31
EXHIBIT 32

PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements.

Novint Technologies, Inc.

		September 30, 2006
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	823,113
Prepaid expenses and other current assets			44,625
Accounts receivable, net			490
Deferred financing costs			74,354
Costs and estimated earnings in excess of billings on contracts			59,098
Total current assets			1,001,680
PROPERTY AND EQUIPMENT:
Office equipment			48,841
Software			7,246
Computer equipment			217,068
			273,155
Less: Accumulated depreciation			238,536
Net property and equipment			34,619
INTANGIBLE ASSETS, NET			132,232
Total assets		$	1,168,531

The accompanying notes are an integral part of these financial statements.

Novint Technologies, Inc.

		September 30, 2006
		(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	402,085
Accrued payroll related liabilities			167,235
Accrued expenses, related party			56,250
Billings in excess of costs and estimated earnings on uncompleted contracts			8,300
Convertible Notes payable			358,081
Total current liabilities			991,951
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY (DEFICIT):
Preferred stock, Series A: $0.01 par value; authorized 4,000 shares, 0 issued and outstanding			—
Common stock, authorized 50,000,000 shares, $0.01 par value; 19,072,641 issued and outstanding			190,727
Additional paid-in capital			10,892,036
Accumulated deficit			(10,901,578	)
Accumulated other comprehensive loss			(4,605	)
Total stockholders’ equity (deficit)			176,580
Total liabilities and stockholders’ equity (deficit)		$	1,168,531

The accompanying notes are an integral part of these financial statements.

Novint Technologies, Inc.

		For the				For the				For the				For the
		Three Months				Three Months				Nine Months				Nine Months
		Ended				Ended				Ended				Ended
		September 30, 2006				September 30, 2005				September 30, 2006				September 30, 2005
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenue
Project		$	56,212			$	64,313			$	137,562			$	292,118
Product			(231	)			2,059				1,980				30,420
Total revenue			55,981				66,372				139,542				322,538
Cost of goods sold:
Project			37,132				27,115				100,699				137,311
Product			—				2,783				—				17,264
Total cost of goods sold			37,132				29,898				100,699				154,575
Gross margin			18,849				36,474				38,843				167,963
Costs and expenses
Research and development			87,802				366,311				251,346				1,018,105
General and administrative			922,241				337,338				1,943,231				1,256,568
Depreciation and amortization			25,812				29,630				75,710				87,945
Sales and marketing			37,975				29,524				124,410				103,162
Total costs and expenses			1,073,830				762,803				2,394,697				2,465,780
Loss from operations			(1,054,981	)			(726,329	)			(2,355,854	)			(2,297,817	)
Other (income) expense
Interest income			(139	)			—				(139	)			(2,923	)
Interest expense			5,747				75,698				206,656				125,093
Total other expenses			5,608				75,698				206,517				122,170
Net loss			(1,060,589	)			(802,027	)			(2,562,371	)			(2,419,987	)
Preferred stock accretion			—				(7,503	)			(170,974	)			(21,887	)
Net loss available to common stockholders		$	(1,060,589	)		$	(809,530	)		$	(2,733,345	)		$	(2,441,874	)
Loss per share, basic and diluted:
Net loss		$	(0.06	)		$	(0.06	)		$	(0.15	)		$	(0.17	)
Net loss available to common stockholders		$	(0.06	)		$	(0.06	)		$	(0.16	)		$	(0.17	)
Weighted-average common shares outstanding, basic and diluted			18,201,060				14,118,861				16,944,987				14,118,861

The accompanying notes are an integral part of these financial statements.

Novint Technologies, Inc.

		For the
		Nine Months Ended
		September 30, 2006				September 30, 2005
		(Unaudited)				(Unaudited)
Cash flows from operating activities:
Net loss		$	(2,562,371	)		$	(2,419,987	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization			75,710				87,944
Common stock issued for services			105,938				514,650
Options and warrants issued to consultants and employees for services			843,332				51,405
Reprice of warrants previously granted in debt offering			155,748				—
Amortization of unearned compensation			—				148,297
Reserve for contract loss			—				(6,775	)
Changes in operating assets and liabilities:
Accounts receivable			74,650				26,935
Prepaid expenses			(27,097	)			(74,866	)
Deferred financing costs			(70,322	)			(125,000	)
Accounts payable and accrued expenses			296,534				375,665
Accrued interest			6,061				—
Accrued royalties			(30,000	)			(7,500	)
Costs and estimated earnings in excess of billings on contracts, net			(59,098	)			(59,855	)
Billings in excess of costs and estimated earnings on contracts, net			(4,370	)			(19,427	)
Net cash used by operating activities			(1,195,285	)			(1,508,514	)
Cash flows from investing activities:
Property and equipment acquisitions			(11,731	)			(3,354	)
Acquisition of intangibles			(22,498	)			(1,600	)
Net cash provided (used) by investing activities			(34,229	)			(4,954	)
Cash flows from financing activities:
Proceeds from notes payable			340,000				630,000
Repayment of notes payable			(240,000	)			—
Payment of offering costs			(14,500	)			—
Proceeds from sale of common stock			1,925,000				—
Net cash provided by financing activities			2,010,500				630,000
Net increase (decrease) in cash and cash equivalents			780,986				(883,468	)
Cash and cash equivalents at beginning of period			42,127				1,329,428
Cash and cash equivalents at end of period		$	823,113			$	445,960
Supplemental information:
Non-cash: Issuance of common stock in connection with accrued research and development liabilities		$	465,000			$	—
Non-cash: Issuance of common stock in connection with note payable and accrued interest		$	983,846			$	—
Research and Development paid with Note Payable		$	—			$	418,436
Fair value accretion on conditionally redeemable, convertible preferred stock		$	170,974			$	7,090

The accompanying notes are an integral part of these financial statements.

Novint Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2006 AND 2005 (Unaudited)

NOTE 1 — BASIS OF PRESENTATION AND NATURE OF BUSINESS

Basis of Presentation

The unaudited financial statements have been prepared by Novint Technologies, Inc. (the “Company”or “Novint”), in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-QSB and Regulation S-B as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto include on Form 10-KSB for the period ended December 31, 2005. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented. The results of the nine months ended September 30, 2006 are not necessarily indicative of the results to be expected for the full year ending December 31, 2006.

Reclassifications

Certain previous current year quarterly and prior year amounts were reclassified to conform to the September 30, 2006 presentation.

Nature of Business

Novint was originally incorporated in the State of New Mexico in April 1999. On February 26, 2002, the Company changed its state of incorporation to Delaware by merging with Novint Technologies, Inc., a Delaware corporation. This merger was accounted for as a reorganization of the Company. Novint’s technology is primarily within the field of haptics (sense of touch) allowing users the ability to use a high fidelity sense of touch in computing. The Company’s efforts primarily are concentrated on the development and marketing of three-dimensional touch hardware and software. The Company plans to expand into the consumer interactive computer gaming market, which is a substantial departure from its previous business of offering product development services and limited sales of haptic technology. The Company’s operations are based in New Mexico with sales primarily to private entities and quasi-governmental agencies in the United States.

Going Concern and Managements Plans

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern. The Company has experienced recurring losses and operated with negative working capital and, as a result, there exists substantial doubt about its ability to continue as a going concern.

Since inception, the Company has incurred net operating losses and other equity charges, which have resulted in an accumulated deficit of $10,901,578 at September 30, 2006. For the nine months ended September 30, 2006 and 2005, the Company had net losses of $2,562,371 and $2,419,987, respectively. Since inception, management has raised equity totaling approximately $7.0 million through various private equity transactions and had approximately $823,000 in cash on hand at September 30, 2006. As of September 30, 2006, the Company is in the process of negotiating an agreement with a hardware manufacturer which will allow it to further the gaming technology aspects of the Company’s business.

If the Company is successful in developing its gaming technology and video games business, and in developing partnerships with game publishers and hardware manufacturers, it will need to raise another $5 million in funding to execute its current business plan with respect to its video gaming business. There can be no assurances that the Company will be able to obtain any additional funding on favorable terms, if at all. Borrowing money may involve pledging some or all of the Company’s assets. Raising additional funds by issuing common stock or other types of equity securities would further dilute the existing shareholders.

Without additional equity infusion or long-term borrowings, there is substantial doubt of the Company’s ability to continue as a going concern. Management believes it will need additional funding to supplement its cash on hand along with revenues from project and product sales to allow the Company to satisfy its short-term obligations and provide enough cash flow for the Company to continue operations. Management has the ability to curtail spending and negotiate or push back payments to third parties or settle such expenditures in stock in the event it experiences cash shortfalls or in the event the next round of funding does not occur or takes significantly longer than anticipated. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. These factors raise substantial doubt about our ability to continue as a going concern.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Software Development Costs

The Company accounts for its software development costs in accordance with Statement of Financial Accounting Standards (SFAS) Number 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed. This statement requires that, once technological feasibility of a developing product has been established, all subsequent costs incurred in developing that product to a commercially acceptable level be capitalized and amortized ratably over the estimated life of the product, which is generally 5 years. The Company has capitalized software development costs in connection with its 3D touch technology beginning in 2000. Amortization is computed on the straight-line basis over the remaining life (5 years) of the 3D touch technology. As of September 30, 2006 the Company’s unamortized capitalized software was $20,665. The Company has determined that research and development software related costs incurred during 2005 were not capitalizable as the technological feasibility of such products was not yet established. Accordingly, such costs have been expensed as research and development expenses in the period incurred.

Property and Equipment

Property and equipment are stated at cost. Depreciation on property and equipment is calculated on a straight-line depreciation method over the estimated useful lives of the assets, which range from 3 to 5 years for software and computer equipment, and 5 years for office equipment. Repairs and maintenance costs are expensed as incurred. Depreciation expense was $18,253 and $32,215 for the nine months ended September 30, 2006 and 2005, respectively.

Intangible Assets

Intangible assets, which consist of licensing agreements $880,000, capitalized software development costs $102,556 and patents $10,734, are carried at cost less accumulated amortization. Amortization is computed using the straight-line method over the economic life of the assets, which range between 3 and 12 years. For the nine months ended September 30, 2006 and 2005, the Company recognized amortization expense of approximately $57,457 and $55,729, respectively, related to intangible assets.

Annual amortization of intangible assets remaining at September 30, 2006, is as follows:

Year Ended December 31,
2006			19,411
2007			78,230
2008			9,054
2009			7,771
2010 and after			17,766
Total		$	132,232

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:

Project revenue consists of programming services provided to unrelated parties under fixed-price contracts. Revenues from fixed price programming contracts are recognized in accordance with SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, and Accounting Research Bulletin (ARB) 45, Long-Term Construction-Type Contracts, using the percentage-of-completion method, measured by the percentage of costs incurred to date compared with the total estimated costs for each contract. The Company accounts for these measurements in the accompanying balance sheets under costs and estimated earnings in excess of billings on contracts and billings in excess of costs and estimated earnings on contracts. Provisions for estimated losses on uncompleted contracts are made and recorded in the period in which the loss is identified.

Revenue from product sales relates to the sale of the Phantom haptics interface, which is a human-computer user interface (the Phantom). The Phantom allows the user to experience sensory information when using a computer and its handle and is the approximate size and shape of a writing instrument. Phantoms are manufactured by an unrelated party and are shipped directly to the customer.

Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs, require amounts billed to a customer in a sales transaction related to shipping and handling, if any, to be classified and accounted for as revenues earned for the goods provided whereas shipping and handling costs incurred by a company are required to be classified as cost of sales. The Company’s costs associated with shipping product items to the Company’s customers are included in the Company’s Cost of Goods Sold. The Company does not charge a separate or additional fee for shipment to their customers, rather this fee is included in the price and, therefore, part of the Company’s product revenue. No provision for sales returns has been provided in these financial statements as the Company has never had a sales return.

EITF 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred, requires reimbursements received for out-of-pocket expenses incurred while providing services to be characterized in the statements of operations as revenue. The Company’s out-of-pocket expenses incurred in connection with their project revenues are recognized in revenues based on a computed overhead rate that is included in their project labor costs to derive a project price.

In accordance with EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, the Company recognizes its product sales on a gross basis. The Company is responsible for fulfillment, including the acceptability of the product ordered. The Company has risks and rewards of ownership such as the risk of loss for collection, delivery or returns. Title passes to the customer upon receipt of the product by the customer. In accordance with the Company’s agreement with its customer, further obligation is limited to the terms defined in its warranty.

The Company’s customers are provided a warranty from the Company’s supplier. This warranty guarantees that the supplier’s products shall be free from manufacturing defects. The supplier agrees to provide, free of charge, replacements for any components found to be defective within 1 year of delivery. The Company’s customers also have the option of

purchasing a Maintenance Renewal, which extends the supplier’s warranty coverage for the following year. The Company’s supplier handles all administration and actual repairs provided for under the basic and renewal programs and, therefore, the Company has not recorded a warranty accrual. To date, the Company’s customers have not purchased a Maintenance Renewal.

Loss per Common Share

Statement of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS 128) provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. All potentially dilutive securities have been excluded from the computations since they would be antidilutive. However, these dilutive securities could potentially dilute earnings per share in the future. As of September 30, 2006 and 2005, the Company had a total of 12,546,763 and 10,326,338 in potentially dilutive securities, respectively.

Stock Option Plans

The Company adopted SFAS No. 123 (Revised 2004), Share Based Payment (“SFAS No. 123R”), under the modified-prospective transition method on January 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. Share-based compensation recognized under the modified-prospective transition method of SFAS No. 123R includes share-based compensation based on the grant-date fair value determined in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for all share-based payments granted prior to and not yet vested as of January 1, 2006 and share-based compensation based on the grant-date fair-value determined in accordance with SFAS No. 123R for all share-based payments granted after January 1, 2006. SFAS No. 123R eliminates the ability to account for the award of these instruments under the intrinsic value method proscribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and allowed under the original provisions of SFAS No. 123. Prior to the adoption of SFAS No. 123R, the Company accounted for their stock option plans using the intrinsic value method in accordance with the provisions of APB Opinion No. 25 and related interpretations.

Primarily as a result of adopting SFAS No. 123R, the Company recognized $233,720 in share-based compensation expense for the nine months ended September 30, 2006. The impact of this share-based compensation expense on the Company’s basic and diluted earnings per share was $0.00 per share. The fair value of our stock options was estimated using the Black-Scholes option pricing model. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the option’s vesting period. The following is the pro forma expense for the nine months ended September 30, 2005:

Net loss available to common shareholders, as reported		$	(2,441,874	)
Add: Stock-based employee compensation expense included in reported net income			148,297
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards			(247,281	)
Pro forma net loss available to common shareholders		$	(2,540,858	)
Loss available to common shareholders per share, basic and diluted:
As reported		$	(0.17	)
Pro forma		$	(0.18	)

In calculating the fair value of options for the above disclosure, the following assumptions were used for stock options issued during the nine months ended September 30, 2005: fair market value of $1.00 per share, risk-free rates ranged from 1.73% to 3.66%, volatility of the options ranged from 73% to 91%, estimated lives of 3 to 10 years and exercise prices ranged from $0.50 to $0.66 per share.

In addition, FSP FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R), provides additional guidance regarding the accounting treatment for freestanding financial instruments originally issued as employee compensation. Specifically, this instrument would be subject to the recognition and measurement provisions of SFAS 123(R) throughout the instrument’s life, provided the terms of the instrument are not modified after the rights conveyed by the instrument no longer are dependent on whether the holder is an employee.

The guidance in this FSP supersedes FSP EITF 00-19-1, Application of EITF Issue No. 00-19 to Freestanding Financial Instruments Originally Issued as Employee Compensation, and amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This FSP is effective upon initial adoption of SFAS 123(R).

Research and Development

Research and development costs are expensed as incurred and amounted to $251,346 and $1,018,105 for the nine months ended September 30, 2006 and 2005, respectively. Research and development costs primarily relate to costs incurred for development of haptics interface gaming technology prior to the technological feasibility of such technology.

Recent Accounting Pronouncements

The Company has adopted all accounting pronouncements issued before September 30, 2006, which are applicable to the Company.

In May 2005, Financial Accounting Standards Board (FASB) issued SFAS 154, Accounting Changes and Error Corrections. This Statement replaces APB Opinion No. 20, Accounting Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS 154 differentiates between retrospective application and restatement. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. SFAS 154 does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase of the effective date of this Statement. The adoption of the provisions of SFAS 154 did not have an impact on its financial condition or results of operations.

In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140” (“SFAS No. 155”). SFAS No. 155 allows financial instruments that contain an embedded derivative and that otherwise would require bifurcation to be accounted for as a whole on a fair value basis, at the holders’ election. SFAS No. 155 also clarifies and amends certain other provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company does not believe the adoption of SFAS No. 155 will have any impact on the Company’s financial position or results of operations.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (“SFAS No. 156”). SFAS No. 156 provides guidance on the accounting for servicing assets and liabilities when an entity undertakes an obligation to service a financial asset by entering into a servicing contract. This statement is effective for the first fiscal year beginning after September 15, 2006. The Company does not believe the adoption of SFAS No. 156 will have any impact on the Company’s financial position or results of operations.

NOTE 3 — COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON CONTRACTS AND BILLINGS IN EXCESS OF COSTS AND ESTIMATED EARNINGS ON CONTRACTS

     Costs and estimated earnings in excess of billings on contracts consisted of the following at September 30, 2006:

Costs and estimated earnings incurred on uncompleted contracts		$	132,842
Billings on uncompleted contracts			(73,744	)
Costs and estimated earnings in excess of billings on uncompleted contracts		$	59,098

     Billings in excess of costs and estimated earnings on contracts consisted of the following at:

Billings on uncompleted contracts		$	73,744
Costs and estimated earnings incurred on uncompleted contracts			65,444
Billings in excess of costs and estimated earnings on uncompleted contracts		$	8,300

NOTE 4 — INTANGIBLE ASSETS

     Intangible assets consisted of the following at September 30, 2006:

Licensing agreements		$	880,000
Patent			10,734
Software development costs			102,556
Less accumulated amortization			(861,058	)
		$	132,232

NOTE 5 — NOTES PAYABLE

During the year ended December 31, 2005, management executed a number of bridge loans. The first loan for $200,000 has an original due date of March 7, 2006 and a stated interest rate of 20% or $20,000 for the first six months outstanding. The note has the option to extend for one year under certain conditions with an interest rate of 12%. These conditions have been met and the due date of this note is September 8, 2006. As of September 30, 2006, this note has been fully satisfied. The remaining bridge loans ranged from $15,000 to $450,000. These notes were originally due one year from the date of issuance at a stated interest rate of 12%. During the nine months ended September 30, 2006, $825,000 of outstanding principal balance and $35,624 of accrued interest was settled through issuance of 1,250,002 shares of the Company’s common stock. The second group of loans in the amount of $825,000, were secured by the personal guaranty agreement of the Company’s President and CEO and by a pledge of up to 1,250,000 shares of common stock of the Company owned by him. The balances on these notes were paid for with Novint stock. As of September 30, 2006, the $825,000 loans plus accrued interest were paid.

NOTE 6 — CONVERTIBLE NOTES PAYABLE

On March 22, 2005, the Company executed a convertible promissory note in the amount of $123,222 to Lunar Design for the costs incurred during January 2005 associated with contracted research and development efforts. The terms of the promissory note include payment due March 22, 2006, in part or in whole in cash during the time prior to maturity date. In accordance with the agreement, since the promissory note was not paid in full in cash at the promissory note’s maturity date, during the second quarter of 2006, the Company converted the unpaid balance of the note into 123,222 shares of the Company’s common stock which equated to the price per share equal to the last sale price of the Company’s common stock on the maturity date, or on the last business day prior to the maturity date. Additional promissory notes in the amount of $358,081 with the same terms were executed for the costs incurred during the year ended December 31, 2005. These additional notes are due throughout the year ended December 31, 2006 and the Company is currently negotiating repayment terms.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

From time to time, in the normal course of business, the Company is subject to routine litigation incidental to its business. Although there can be no assurances as to the ultimate disposition of any such matters, it is the opinion of management, based upon the information available at this time, that there are no matters, individually or in the aggregate, that will have a material adverse effect on the results of operations and financial condition of the Company.

In connection with a private placement closed in 2004, the Company committed to issue 304,900 warrants for an overallotment agreement with a consulting group for private placement services. The warrants will have an exercise price of $1.00 per share and will have a six-month term. The date of issue will be coincident with the date of Novint’s IPO. The Company’s registration statement was declared effective on February 6, 2006 and in conjunction with its effectiveness, the Company granted the above options.

The Company has a licensing agreement with Sandia National Laboratories (“Sandia”), which initially developed Flight, the precursor to the Company’s 3D touch technology (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 a 1.5 percent royalty fees to Sandia in connection with any income earned based upon the technology. Additionally, under the original agreement, the Company is obligated to pay to Sandia on a semi-annual basis annual minimum earned royalties of $6,000 in 2001, $14,000 in 2002, $24,000 in 2003 and $30,000 from 2004 through 2011. The agreement was amended on June 29, 2005, modifying

the royalty payment terms such that the Company will pay royalties of $40,000 for 2001 and 2002, $24,000 in 2003, 30,000 shares of the Company’s Common Stock in 2004, and $30,000 for 2005. Novint had paid all cash amounts due and issued the agreed shares of common stock for its obligations through 2004 as of December 31, 2005. During the nine months ended September 30, 2006 the Company issued 30,000 shares of common stock to Sandia in settlement of the 2005 fees. As of September 30, 2006 the Company has issued an additional 30,000 shares of common stock to Sandia and as a result has recorded prepaid expense of $7,500.

The Company has an agreement with Lunar Design, a product design firm, to design and develop its haptics game controller. The current statement of work outlines the delivery of a final prototype in August 2005 as well as provides for additional projects as agreed to by the parties through 2006. The prototype was delivered in October 2005. In addition, Lunar Design will provide support for the Company’s manufacturing partner for design problems or other trade-offs encountered in creating the manufacturing prototype. Estimated project costs for the prototype will range between approximately $542,000 and $634,000 and will be billed on a time-and-materials basis. Lunar Design has agreed to accept payment in the form of cash, promissory note or Novint common stock. As of September 30, 2006 the Company had made payments to Lunar Design for incurred costs of approximately $424,000 under this agreement. At September 30, 2006, the Company has recorded $189,646 in accrued research and devlopement liabilities included in accounts payable and accrued expenses on the accompanying balance sheet due to Lunar and convertible notes payable in the amount of $358,081.

Such costs have been expensed as research and development expenses.

On January 5, 2004, the Company entered into an exclusive Intellectual Property License Agreement (Agreement) with Force Dimension, a company in the haptics hardware technologies and products field. The Agreement provides the Company with a sublicense to a hardware patent and an assignment of a pending patent from Force Dimension. The Agreement, in turn, provides Force Dimension a security interest and a general lien in the assigned patent as well as an irrevocable, exclusive license in the patent that has been assigned to the Company. On May 10, 2005, the Company amended its contract with Force Dimension, Inc. to provide for: a license fee in the amount of $15,000 due on the effective date; the payment of a milestone payment in the amount of $50,000 within ten days of the contract amendment’s effective date; a license fee in the amount of $50,000 within 30 days of the Company’s IPO; and a support and license fee in the amount of $455,000 due no later than January 5, 2006, for all technical and support services rendered to the Company during such time period for total payments of $620,000.

In addition, the Company was to issue 250,000 shares of the Company’s common stock within 30 days of the contract amendment’s effective date as consideration for extending the payment terms of the agreement. These shares of stock were issued to Force Dimension on May 12, 2005, and have been accounted for as a financing cost related to a modification of Novint’s payment terms. The fair value of the stock issued is $250,000 and is reflected as interest expense in the amount of $245,968 for the year ended December 31, 2005, and as a deferred financing cost in the amount of $4,032 in the balance sheet at December 31, 2005. The deferred financing cost was amortized to interest expense by January 5, 2006, the maturity date of this obligation to Force Dimension.

During the year ended December 31, 2004, the Company paid $15,000 to Force Dimensions for the license fee in the amount of $15,000 due on the effective date. During 2005, Novint paid $140,000 to Force Dimension, representing a portion of the $50,000 milestone payment originally due to Force Dimension upon or before Novint’s receipt of the Second Deliverable as described in the original agreement, the $50,000 milestone payment due on the amendment’s effective date, and $50,000 representing a portion of the licensing fees due. The Second Deliverable was received by Novint on December 30, 2004. The remaining amount of $465,000 due to Force Dimensions was recorded as accrued research and development liabilities as of December 31, 2005.

On March 9, 2006 the Company issued 607,500 shares of its common stock to Force Dimensions in full satisfaction of the remaining $465,000 owed as of December 31, 2005.

The Agreement requires Novint to pay up to $15 million to Force Dimension, including the amounts above, on a per unit of Licensed Product basis for license fees, royalties and a percentage of product sales after the product becomes technologically feasible. In addition, Novint is entitled to 5% license fees/royalties for any licensed products sold related to the sublicense granted to Force Dimension by Novint. Novint has not recorded any fees related to such arrangement. This Agreement shall terminate upon Novint’s payment in total of $15,000,000 to Force Dimension and payment in full of any other obligations arising pursuant to the terms and conditions of this Agreement.

Effective May 1, 2006, the Company entered into negotiations for a consultant agreement with AF Double Eagle (“Consultant”) whereby Consultant will become a full time employee of the Company approximately 6 months after the effective date of the agreement. The Company and Consultant may transition to Consultant becoming a full time employee earlier upon mutual consent. In accordance with the agreement, Consultant will assist the Company in revenue generation, strategic partnering, strategic planning, funding process and general corporate operations.

Compensation arrangements to the consultant are as follows:

Cash compensation — The Company will pay Consultant $10,000 at the beginning of each month as compensation for these services.

Equity compensation — Subject to applicable laws, and the Company’s stock option plan, and consistent with the Company’s usual option grant terms, The Company will grant to Consultant options to purchase 1,213,930 shares of the Company’s common stock. The options shall have an exercise price of $1.00 per share, and shall be exercisable for 7 years from the date of grant. These options were granted to Consultant on May 1, 2006, and the Company calculated the initial value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 5.15%, volatility of 137%, estimated life of 10 years and a fair market value of $1.40 per share.

If the Company sells shares of its common stock in a sale or sales cumulating at least $3,000,000 net proceeds to the Company before May 1, 2007, and the average per share price of such sale or sales (the “Average Price”) is less than $1.00, then the Company shall issue additional options on substantially the same terms, such that the total number of options, including previous options plus newly issued options, times the Average Price equals $1,213,930.

The options shall initially be unvested. The Company, Consultant, and Foley anticipate that vesting of options will continue in connection with employment. If such employment is not entered for any or no reason, then any options unvested at the termination of this Agreement shall be forfeited to the Company.

Option Group A. Options equal to 5/7th’s of consultant’s total number of options shall vest monthly over five years, with the first such installment vesting June 1, 2006. If at any time the number of options vested shall be determined, the number vested according to the preceding monthly installment schedule shall be rounded to the nearest whole number of options.

Option Group B. Options equal to 1/7th of consultant’s total number of options shall vest on the close of a sale of equity in the Company to a Consultant Source totaling not less than $1,000,000 net proceeds to the Company, or on the vesting of Option Group C, whichever first occurs. A “Consultant Source” is a party that Consultant first introduces to the Company (i.e., the Company had no relationship with the party prior to Consultant’s introduction), and who purchases equity in the Company in a transaction in which Consultant actively participates in communications and negotiations, and who purchase equity in the Company prior to the termination of this Agreement. If on May 1, 2009, this condition has not been met, and this Agreement has not been terminated, then Option Group B shall vest on May 1, 2009.

Option Group C. Options equal to 1/7th of consultant’s total number of options shall vest on the date that The Company’s cumulative product sales total either (a) 100,000 units of Falcon interface units (not including end effectors or other accessories sold apart from a base unit) or (b) $20,000,000 in revenue to The Company. If on May 1, 2009, this condition has not been met, and this Agreement has not been terminated, then Option Group C shall vest on May 1, 2009.

Bonus compensation — The Company will pay to Consultant an amount equal to 4% of the net proceeds to the Company of any sale of equity to a Consultant Source closing before the termination of this Agreement. The Company will pay to Consultant an amount equal to 20% of the gross revenue to the Company of any Consultant Sales, where Consultant Sales are sales of the Company products to parties that were first introduced to the Company by Consultant but only for so long as Consultant is actively promoting and driving sales to the party and actively managing the relationship with the party.

Although this consulting agreement has not been signed, the Company has paid and continues to pay Consultant under the terms of the agreement and the options were considered granted May 1, 2006.

NOTE 8 — STOCKHOLDERS’ EQUITY

Conditionally Redeemable, Convertible Preferred Stock

On April 20, 2000, in connection with the license agreement with Sandia, the Company issued all 4,000 authorized shares of Series A conditionally redeemable, convertible preferred stock at $0.25 per share. The preferred stock was convertible into fully paid and non-assessable common stock as follows: at the holder’s option based on the conversion price in effect on the conversion date or automatically upon the closing of an IPO, which would result in 447,300 shares of common stock. The conversion price shall be (i) the subscription price ($100,000 when expressed as an aggregate amount or $25.00 per share when expressed on a per-share basis) divided by (ii) the conversion price in effect on the conversion date. Additionally, the Company is obligated to redeem the preferred shares, if there is no IPO or initial sale within 10 years from the issue date.

In connection with the effectiveness of the Company’s registration statement, on February, 6 2006 the Company issued 447,300 shares of common stock to Sandia for the conversion of the preferred stock in accordance with the agreement.

Accordingly, the Company accreted the fair value of the common stock conversion to retained earnings through the conversion date of February 6, 2006. When the Company was approved for public filing, it recognized an additional charge of $170,974 to retained earnings of the converted shares at the fair value as compared to the IPO price. The fair value of the stock on February 6, 2006 was estimated to be $1.00 per share.

Stock Options

In March 2004, the Board of Directors approved the adoption of the 2004 Stock Incentive Plan. A total of 3,500,000 shares of common stock have been reserved for issuance under this plan. The Company has issued options to purchase shares of common stock to employees and various consultants for payment of services.

Option activity during the nine months ended September 30, 2006 is summarized in the following table:

		Shares								Weighted-
		Under				Price per				Average
		Option				Share				Exercise Price
Options outstanding at 12/31/05			8,003,341			$	0.01-$0.66			$	0.26
Granted			1,898,830			$	1.00-$1.20			$	1.01
Exercised			(58,505	)		$	0.01-$0.66			$	0.07
Canceled			(5,000	)		$	0.66			$	0.66
Options outstanding at 9/30/06			9,838,666			$	0.01-$1.20			$	0.40
Exercisable at 9/30/06			6,316,569			$	0.01-$1.20			$	0.19

The following summarizes certain information regarding outstanding options at September 30, 2006:

		Outstanding
										Weighted
										Average				Exercisable
						Weighted-				Remaining								Weighted
						Average				Contractual								Average
Exercise Price		Number				Exercise Price				Life (years)				Number				Exercise Price
$0.01			284,911			$	0.01				1.80				284,911			$	0.01
$0.05			4,600,000			$	0.05				5.71				4,600,000			$	0.05
$0.50			1,173,031			$	0.50				7.39				456,364			$	0.50
$0.66			1,881,894			$	0.66				7.95				670,394			$	0.66
$1.00			1,768,830			$	1.00				4.48				304,900			$	1.00
$1.01			80,000			$	1.01				5.00				—			$	1.01
$1.20			50,000			$	1.20				4.92				—			$	1.20
Total			9,838,666			$	0.40				6.76				6,316,569			$	0.19

NOTE 9 — EQUITY TRANSACTIONS

On April 1, 2004, the Company committed to issue 250,000 shares of common stock at $1.00 per share to a consultant for future services. The consultant will receive stock as follows: 50,000 shares per quarter as long as the consultant is still providing services to the Company, up to a total of 250,000 shares, beginning April 1, 2004. As of June 30, 2005, all 250,000 shares had been issued, of which 100,000 shares were issued during the six months ended June 30, 2005. The Company has recognized $100,000 in consulting expense related to this issuance during the six months ended June 30, 2005.

In March 2005, the Company issued 2,500 shares of common stock to an advisory board member for services performed. The stock was valued at $0.66 per share for total consideration of $1,650. Consulting expense of $1,650 was recorded in the Company’s operations during the three months ended March 31, 2005.

During 2005 the Company issued 45,000 shares of common stock for legal services to be provided. The value of the share issued was $29,700 the value of the services to be performed. This amount was recorded as a prepaid expense and is being amortized as expenses are incurred. As of September 30, 2006 and 2005 the Company has amortized $29,700 and $9,334, respectively of this amount as legal expense.

The Company also issued 10,000 shares of common stock to an employee for services rendered during the second quarter of 2005. The fair value of the services was $10,000 and is included in common stock at December 31, 2005, and recorded as compensation expense during the six months ended June 30, 2005.

In March 2006, the Company issued 200,329 shares of common stock to original private placement investors as compensation for delays in obtaining approval for public filing.

The Company issued 6,000 shares of common stock to a consultant for services rendered during the first quarter of 2006. The fair value of the services was $6,000 and is included in common stock at September 30, 2006, and recorded as consulting expense for the nine months ended September 30, 2006.

In March 2006, the Company issued 2,500 shares of common stock to an advisory board member for services performed. The stock was valued at $1.00 per share for total consideration of $2,500. Consulting expense of $2,500 was recorded in the Company’s operations for the nine months ended September 30, 2006.

In April 2006, the Company sold 500,000 shares of common stock and 250,000 warrants to purchase common stock to an unrelated party for $500,000. The warrants have an exercise price per share of $2.00. The purchase price of the common stock is subject to adjustment as follows: In the event, that after the date of the agreement, the Company shall complete an offering of securities on or before April 1, 2007 which results in gross proceeds to the Company of not less than $3,000,000, and if such offering is conducted at a price per share of common stock of $1.11 per share or less, then, the purchase price per share of common stock shall be automatically adjusted to equal 90% of the issue price.

In May 2006, an employee exercised options to purchase 50,505 shares of common stock under the cashless provision of such option. As a result of the cashless provision, in exchange for the 50,505 options with an exercise price of $0.01 and a fair value of common stock on the date of exercise of $1.00, the employee received 50,000 shares of common stock.

In May 2006, the Company sold 145,000 shares of common stock and 72,500 warrants to purchase common stock to unrelated parties for cash proceeds of $130,500, net of offering costs of $14,500. The warrants have an exercise price per share of $2.00.

In June 2006, the Company issued 30,000 shares of common stock to Sandia in settlement of $30,000 due for 2005 royalty fees, and 123,222 shares of common stock to Lunar Design in settlement of a note payable in the amount of $123,222 for research and development activities performed on the company’s behalf.

In June 2006, an employee exercised options to purchase 5,000 shares of common stock under the cashless provision of such option. As a result of the cashless provision, in exchange for the 5,000 options with an exercise price of $0.66 and a fair value of common stock on the date of exercise of $1.25, the employee received 2,360 shares of common stock.

In August 2006, the Company sold 1,000,000 shares of common stock and 500,000 warrants to purchase common stock to an unrelated parties for $1,000,000. The warrants have an exercise price per share of $2.00. The purchase price of the common stock is subject to adjustment as follows: In the event, that after the date of the agreement, the Company shall complete an offering of securities on or before April 1, 2007 which results in gross proceeds to the Company of not less than $3,000,000, and if such offering is conducted at a price per share of common stock of $1.11 per share or less, then, the purchase price per share of common stock shall be automatically adjusted to equal 90% of the issue price.

In August 2006, an employee exercised options to purchase 3,000 shares of common stock under the cashless provision of such option. As a result of the cashless provision, in exchange for the 3,000 options with an exercise price of $0.01 and a fair value of common stock on the date of exercise of $1.15 per share, the employee received 2,974 shares of common stock.

In August 2006, the Company issued 30,000 shares of common stock in satisfaction of $22,500 of accrued liability and $7,500 for prepaid services totaling $30,000 or $1.00 per shares.

In August 2006, the Company issued 18,290 shares of common stock in satisfaction of an accrued liability totaling $18,290.

In August 2006, the Company issued 3,950 shares of common stock to two individuals for consulting services totaling $4,936 or $1.25 per share.

In September 2006, the Company sold 280,000 shares of common stock and 140,000 warrants to purchase common stock to an unrelated party for $280,000. The warrants have an exercise price per share of $2.00. The purchase price of the common stock is subject to adjustment as follows: In the event, that after the date of the agreement, the Company shall complete an offering of securities on or before April 1, 2007 which results in gross proceeds to the Company of not less than $3,000,000, and if such offering is conducted at a price per share of common stock of $1.11 per share or less, then, the purchase price per share of common stock shall be automatically adjusted to equal 90% of the issue price.

In September 2006, the Company issued 50,000 shares of common stock to a company for consulting services valued at $62,500 or $1.25 per share.

On June 10, 2004, the Company granted 50,000 options to a consultant to purchase common stock at an exercise price of $0.66 per share for future consulting services. The options have a 5-year annual vesting provision. At June 30, 2006, the Company calculated the value of these options using the Black-Scholes model based on the following assumptions: a risk-free rate of 5.15%, volatility of 137%, estimated life of 10 years and a fair market value of $1.40 per share. At June 30, 2004, the Company calculated the initial value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.81%, volatility of 100%, estimated life of 10 years and a fair market value of $1.00 per share. The vesting schedules are prorated over the reporting period, and approximately $14,256 and $5,169 was recorded as consultant expense during the nine months ended September 30, 2006 and 2005, respectively.

In January 2005, The Company granted 10,000 options to an advisory board member at an exercise price of $0.66. Expense recorded in connection with these options totaled approximately $2,580 for the year ended December 31, 2005. These options have a semi-annual vesting period over 4 years. At June 30, 2006, The Company calculated the value of these options using the Black-Scholes model based on the following assumptions: a risk-free rate of 5.15, volatility of 137%, estimated life of 10 years and a fair market value of $1.40 per share. The following assumptions were used in calculating the initial fair value of these options: risk-free rate of 4.24%, volatility of 73%, contractual term of 10 years, exercise price of $0.66 per share and fair market value of $1.00 per share. The vesting schedules are prorated over the reporting period, and approximately $2,092 and $1,993 was recorded as consultant expense during the nine months ended September 30, 2006 and 2005, respectively.

NOTE 10 —WARRANTS

A summary of the status of the total number of warrants as of September 30, 2006 and changes during the nine months ended September 30, 2006 is presented in the tables below:

		September 30, 2006
						Wtd Avg
		Shares				Ex Price
Outstanding at December 31, 2005			3,138,000			$	1.29
Granted			1,337,500				2.00
Exercised			—				—
Forfeited			(—	)			—
Outstanding at September 30, 2006			4,475,500			$	1.50
Exercisable at September 30, 2006			4,475,500			$	1.50
Weighted average fair value of warrants granted						$	1.50

A summary of outstanding warrants as of September 30, 2006, the range of exercise prices, the weighted-average exercise price, the weighted-average remaining contractual life, the amount of warrants currently exercisable and the weighted-average exercise price of warrants currently exercisable is as follows:

		Warrants Outstanding
						Weighted-								Warrants Exercisable
		Number				Average				Weighted-								Weighted-
		Outstanding				Remaining				Average				Number				Average
Range of		at				Contractual				Exercise				Exercisable				Exercise
Exercise Prices		6/30/06				Life				Price				at 6/30/06				Price
$0.25			600,000			7.01 years				$	0.25				600,000			$	0.25
$0.50			250,000				7.10				0.50				250,000				0.50
$1.00			838,500				4.20				1.00				588,500				1.00
$2.00			2,787,000				2.39				2.00				2,787,000				2.00
$0.25 to $2.00			4,475,500												4,225,500

In April 2006, the Company modified the exercise price of 250,000 warrants issued in November 2003 from $.50 per share to $.25 per share, effective February 6, 2006. In November 2003, Novint issued a warrant for the purchase of 500,000 shares of Novint’s common stock in conjunction with a $500,000 promissory note that matured in May 2004. The warrant, which expires in November 2013, provides for the purchase of 250,000 shares of Novint’s common stock at an exercise price of $.50 per share. The Company calculated the original fair value of the warrant to be approximately $183,000 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. At June 30, 2006, Novint calculated the value of these warrants on the effective date using the Black-Scholes model based on the following assumptions: a risk-free rate of 5.15%, volatility of 137%, estimated life of 10 years and a fair market value of $1.00 per share. The impact of this modification was an increase in fair value by approximately $156,000. This amount was recorded as interest expense during the nine months ended September 30, 2006 since the original grant of warrants was in connection with the issuance of debt.

In April 2006, the Company granted warrants to purchase 50,000 shares of common stock to a consultant for services provided. The warrants vest immediately, and have an exercise price of $0.25 per share. The Company calculated the fair value of the warrant to be approximately $49,000 using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.55%, volatility of 137%, contractual life of 10 years and a common stock fair market value of $1.00 per share. The value of these warrants was recorded as consulting expense during the nine months ended September 30, 2006.

On June 14, 2006 the Company granted 25,000 warrants to purchase Company stock to a consultant in exchange for services rendered during 2006. The warrants vest immediately and have an exercise price of $1.00 per share. The Company calculated the fair value of the warrants to be approximately $54,000 using the Black-Scholes model based on the following assumptions: a risk-free rate of 5.05%, volatility of 137%, contractual life of 3 years and a common stock fair market value of $2.50 per share. The value of these warrants was recorded as consulting expenses during the nine months ended September 30, 2006.

NOTE 11 — RELATED PARTIES

On February 18, 2004, the Company granted to a significant shareholder for future services 125,000 options to purchase common stock at an exercise price of $0.66 per share. The options have a 5-year annual vesting provision. Options granted to consultants are valued each reporting period to determine the amount to be recorded as consultant expense in the respective

period. As the options vest, they will be valued one last time on the vesting date and an adjustment will be recorded for the difference between the value already recorded and the current value on date of vesting. At June 30, 2006, the Company calculated the value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 5.15%, volatility of 137%, estimated life of 10 years and a fair market value of $1.40 per share. At March 31, 2004, the Company calculated the initial value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.05%, volatility of 91%, estimated life of 10 years and a fair market value of $1.00 per share. The vesting schedule is prorated over the reporting period, and approximately $22,690 and $13,212, respectively, was recorded as consultant expense during the nine months ended September 30, 2006 and 2005.

In March 2004, Normandie New Mexico Corporation, which is owned by Manhattan’s Chief Executive Officer (CEO), who is also a member of the Company’s Board of Directors, entered into an agreement with the Company to provide consulting services in relation to business development and marketing support. Fees per the agreement are $6,250 per month. For the nine months ended September 30, 2006 and 2005, the Company had paid $0 and $37,500, respectively, for these services. As of September 30, 2006, the Company owed $56,250 to Normandie New Mexico under the agreement.

On June 10, 2004, the Company granted 250,000 options to purchase common stock to Manhattan’s CEO for future consulting services at an exercise price of $0.66 per share. The options have a 5-year annual vesting provision. The Company calculated the value of these options using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.81%, volatility of 100%, estimated life of 10 years and a fair market value of $1.00 per share. The vesting schedule is prorated over the reporting period, and approximately $70,102 and $25,772, respectively, was recorded as consultant expense during the nine months ended September 30, 2006 and 2005.

On November 30, 2004, the Company established an Advisory Board who will provide assistance and consultation to the Company management on matters for which the Advisory Board members possess special knowledge, expertise and experience. The Company will appoint up to 10 Advisory Board members who shall receive either 10,000 shares of he Company stock or 10,000 options to purchase the Company stock at the Advisory Board member’s preference. As of September 30, 2006, 20,000 options and 15,000 common shares were issued to these Advisory Board members.

On March 9, 2006 the Company granted 250,000 options to purchase common stock to an employee, who is the brother of the Company’s Chief Executive Officer, at an exercise price of $1.00 per share. The options have a ten year term, and a vesting schedule of 50,000 shares per year beginning March 9, 2007. At June 30, 2006, the Company calculated the value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 5.15%, volatility of 137%, estimated life of 10 years and a fair market value of $1.40 per share. At March 9, 2006, the Company calculated the initial value of the options using the Black-Scholes model based on the following assumptions: a risk-free rate of 4.86%, volatility of 36%, estimated life of 10 years and a fair market value of $1.00 per share. The vesting schedule is prorated over the reporting period, and $30,110 was recorded as share-based compensation expense during the nine months ended September 30, 2006.

NOTE 12 — SUBSEQUENT DISCLOSURE

In November 2006, the Company approved the issuance of 151,450 shares of common stock and warrants for 75,725 shares of common stock with an exercise price of $2.00 per share to two legal firms in satisfaction of an outstanding accounts payable totaling $151,450.

In November 2006, the Company approved the issuance of 87,500 to three individuals for services totaling $116,369 in value.

In November 2006, the Company approved the issuance of stock options for 1,500,000 shares of common stock with an exercise of $1.00 per share to a director with a fair value of $1,504,261. The fair value was calculated under the Black-Scholes options pricing model using the following assumptions: stock price at grant of $1.10; life of 5 years; volatility of 145%; no dividend yield and discount rate of 5.15%.

In November 2006, the Company approved the issuance of stock options for 1,343,930 shares of common stock with an exercise price of $1.00 to three employees with a fair value of $1,347,747. The stock options vested over a period of 5

years. The fair value was calculated under the Black-Scholes options pricing model using the following assumptions: stock price at grant of $1.10; life of 5 years; volatility of 145%; no dividend yield and discount rate of 5.15%.

In November 2006, the Company approved the issuance of 10,000 shares of common stock with a fair value of $11,000 to a consulting firm. Additionally, the Company will issue another 15,000 shares of common stock to the consulting firm upon executing a co-venture or investment agreement.

Item 2. Management’s Discussion and Analysis or Plan of Operation.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements and related notes, which are included herein. This report contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those indicated in the forward-looking statements.

1. OVERVIEW

Novint was initially incorporated in the State of New Mexico as Novint Technologies, Inc., in April 1999. On February 26, 2002, the state of incorporation was changed to Delaware by merging into Novint Technologies, Inc., a Delaware corporation. There are no subsidiaries, and business operates under Novint Technologies, Inc. Novint is a haptics technology company (haptics refers to your sense of touch), which develops, markets and sells applications and technologies that allow people to use their sense of touch to interact with computers.

To date, Novint has derived the majority of its revenues from developing professional applications for its customers. The Company has completed a number of contracts with companies such as Aramco, Lockheed Martin, Chrysler, Chevron, Sandia National Laboratories and Woods Hole Oceanographic Institute.

While Novint continues to develop professional applications for its customers, the Company also is preparing to leverage its 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 hardware and software.

2. RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2005.

REVENUES

During the three months ended September 30, 2006, Novint had revenues of $55,981 as compared to revenues of $66,372 during the three months ended September 30, 2005, a decrease of approximately 16%. The decrease primarily results from fewer contract activities during the three months ended September 30, 2006. Timing of contracts is not within a specified time period during the year so quarterly comparisons may not represent annual results.

COST OF GOODS SOLD AND GROSS PROFIT (LOSS)

Cost of goods sold, which consists of materials purchased for resale to customers and the direct labor incurred for delivering on projects, were $37,132 for the three months ended September 30, 2006, compared to $29,898 for the three months ended September 30, 2005. Novint’s average gross profit percentage on contract activity was approximately 33.7% for the three months ended September 30, 2006, compared to 55% for the three months ended September 30, 2005. The decrease in gross profit percentage resulted due to an unusually high profit percentage on one fixed price contract in 2005. This higher profit percentage was a result of actual costs incurred being lower than those projected during contract negotiations.

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*		Filed with the Issuer’s Registration Statement on Form SB-2 on May 17, 2004, and as subsequently amended, and incorporated herein by reference.
#		Filed with the Issuer’s Annual Report on Form 10-KSB, filed with the Commission on April 17, 2006, and incorporated herein by reference.
**		Filed with the Issuer’s Periodic Report on Form 10-QSB, filed with the Commission on May 22, 2006, and incorporated herein by reference.
##		Filed with the Issuer’s Current Report on Form 8-K, filed with the Commission on September 22, 2006, and incorporated herein by reference.

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	NOVTIN TECHNOLOGIES, INC.
	By:	/s/ TOM ANDERSON
		Tom Anderson Chief Executive Officer, President and Chief Financial Officer November 17, 2006

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