UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




(Mark
One)





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2009





oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.





Commission File No. 000-51783





NOVINT
TECHNOLOGIES, INC.


(Exact
name of registrant as specified in it charter)





Delaware
              
              85-0461778(State
      or other jurisdiction of incorporation or
              
              (IRS
      Employer Identificationorganization)
              
              No.)





4601
Paradise Blvd., NW, Suite B


Albuquerque, NM
87114


(Address
of principal executive offices)





(866) 298-4420


(Registrant's telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 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  xNo  o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period than the
registrant was required to submit and post such
files).  Yes oNo  o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
      Accelerated filer  o
                  Non-Accelerated
      Filer oAccelerated
      Filer o
                  Smaller
      Reporting Company x





The
registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act). Yes  o No x




APPLICABLE
ONLY TO CORPORATE ISSUERS:





Indicate
the number of shares outstanding of each issuer's classes of common stock, as of
the latest practicable date: 32,965,397 issued and outstanding as of August
14, 2009.





NOVINT
TECHNOLOGIES, INC.


TABLE OF
CONTENTS


TO
QUARTERLY REPORT ON FORM 10-Q


FOR
QUARTER ENDED JUNE 30, 2009




PagePART
      I
                FINANCIAL
      INFORMATIONItem
      1.
                Financial
      Statements
                1Item
      2.
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                2Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                8Item
      4.
                Controls
      and Procedures
                8PART
      II
                OTHER
      INFORMATIONItem
      1.
                Legal
      Proceedings
                9Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                9Item
      3.
                Defaults
      Upon Senior Securities
                9Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                9Item
      5.
                Other
      Information
                9Item
      6.
                Exhibits
                10Signatures
                11







PART
I - FINANCIAL INFORMATION





ITEM
      1.
            FINANCIAL
      STATEMENTS





Our
financial statements start on the following page, beginning with page
F-1.




1


Novint
Technologies, Inc.
 BALANCE
SHEETS
 
 June
      30, 2009
                        
                        
                        December
      31, 2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                        
                        $
                        171,397
                        
                        
                        $
                        55,315Accounts
      receivable, net
                        
                        
                        60,014
                        
                        
                        
                        57,170Prepaid
      expenses and other current assets
                        
                        
                        443,977
                        
                        
                        
                        674,608Inventory
                        
                        
                        1,251,114
                        
                        
                        
                        1,333,632Deposit
      on purchase of inventory
                        
                        
                        14,732
                        
                        
                        
                        14,722Deposits
                        
                        
                        4,040
                        
                        
                        
                        12,181Total
      current assets
                        
                        
                        1,945,274
                        
                        
                        
                        2,147,628PROPERTY
      AND EQUIPMENT, NET
                        
                        
                        361,339
                        
                        
                        
                        463,080DEFERRED
      FINANCING COSTS, NET
                        
                        
                        304,428
                        
                        
                        
                        362,247PREPAID
      EXPENSES - NET OF CURRENT PORTION
                        
                        
                        1,214,430
                        
                        
                        
                        1,020,534SOFTWARE
      DEVELOPMENT COSTS, NET
                        
                        
                        514,102
                        
                        
                        
                        585,682INTANGIBLE
      ASSETS, NET
                        
                        
                        505,687
                        
                        
                        
                        680,367DEPOSITS,
      NET OF CURRENT PORTION
                        
                        
                        -
                        
                        
                        
                        16,042Total
      assets
                        
                        $
                        4,845,260
                        
                        
                        $
                        5,275,580LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                        
                        $
                        932,613
                        
                        
                        $
                        684,277Accrued
      payroll related liabilities
                        
                        
                        486,270
                        
                        
                        
                        939,298Accrued
      expenses
                        
                        
                        513,517
                        
                        
                        
                        323,548Accrued
      expenses - related parties
                        
                        
                        67,203
                        
                        
                        
                        86,577Deferred
      revenue
                        
                        
                        29,603
                        
                        
                        
                        29,662Notes
      payable, net of unamortized debt discount of$70,867
      and $69,952, respectively
                        
                        
                        529,133
                        
                        
                        
                        230,040Notes
      payable - original issue discount, net of unamortizeddebt
      discounts of $133,487 and $0, respectively
                        
                        
                        388,388
                        
                        
                        
                        -Total
      current liabilities
                        
                        
                        2,946,727
                        
                        
                        
                        2,293,402LONG
      TERM LIABILITIES:Convertible
      notes payable, net of unamortized debt discount of $3,419,325 and
      $4,132,480, respectively
                        
                        
                        1,742,873
                        
                        
                        
                        1,029,718Total
      liabilities
                        
                        
                        4,689,600
                        
                        
                        
                        3,323,120COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY:Common
      stock, authorized 150,000,000 shares, $0.01 par value; 32,965,397 and
      32,259,131 shares issued and outstanding, respectively
                        
                        
                        329,655
                        
                        
                        
                        322,592Additional
      paid-in capital
                        
                        
                        32,985,368
                        
                        
                        
                        32,026,387Accumulated
      deficit
                        
                        
                        (33,154,758
                        )
                        
                        
                        (30,391,914
                        )Accumulated
      other comprehensive loss
                        
                        
                        (4,605
                        )
                        
                        
                        (4,605
                        )Total
      stockholders' equity
                        
                        
                        155,660
                        
                        
                        
                        1,952,460Total
      liabilities and stockholders' equity
                        
                        $
                        4,845,260
                        
                        
                        $
                        5,275,580
 
 The
accompanying notes are an integral part of these financial
statements.
  F-1
 
 Novint
Technologies, Inc.
 STATEMENTS
OF OPERATIONS
 
 For
      the Three Months Ended
                                                            
                                                            
                                                            For
      the Six Months EndedJune
      30, 2009
                                                            
                                                            
                                                            June
      30, 2008
                                                            
                                                            
                                                            June
      30, 2009
                                                            
                                                            
                                                            June
      30, 2008(Unaudited)
                                                            
                                                            
                                                            (Unaudited)
                                                            
                                                            
                                                            (Unaudited)
                                                            
                                                            
                                                            (Unaudited)Revenue:Project
                                                            
                                                            $
                                                            128,551
                                                            
                                                            
                                                            $
                                                            18,150
                                                            
                                                            
                                                            $
                                                            235,425
                                                            
                                                            
                                                            $
                                                            45,729Product
                                                            
                                                            
                                                            85,400
                                                            
                                                            
                                                            
                                                            65,949
                                                            
                                                            
                                                            
                                                            110,248
                                                            
                                                            
                                                            
                                                            110,199Total
      revenue
                                                            
                                                            
                                                            213,951
                                                            
                                                            
                                                            
                                                            84,099
                                                            
                                                            
                                                            
                                                            345,673
                                                            
                                                            
                                                            
                                                            155,928Cost
      of goods sold:Project
                                                            
                                                            
                                                            102,567
                                                            
                                                            
                                                            
                                                            12,940
                                                            
                                                            
                                                            
                                                            191,458
                                                            
                                                            
                                                            
                                                            34,127Product
                                                            
                                                            
                                                            111,203
                                                            
                                                            
                                                            
                                                            91,109
                                                            
                                                            
                                                            
                                                            156,542
                                                            
                                                            
                                                            
                                                            193,893Total
      cost of goods sold
                                                            
                                                            
                                                            213,770
                                                            
                                                            
                                                            
                                                            104,049
                                                            
                                                            
                                                            
                                                            348,000
                                                            
                                                            
                                                            
                                                            228,020Gross profit
      (Loss)
                                                            
                                                            
                                                            181
                                                            
                                                            
                                                            
                                                            (19,950
                                                            )
                                                            
                                                            
                                                            (2,327
                                                            )
                                                            
                                                            
                                                            (72,092
                                                            )Operating
      expensesResearch
      and development
                                                            
                                                            
                                                            56,835
                                                            
                                                            
                                                            
                                                            281,405
                                                            
                                                            
                                                            
                                                            129,673
                                                            
                                                            
                                                            
                                                            594,931General
      and administrative
                                                            
                                                            
                                                            411,081
                                                            
                                                            
                                                            
                                                            1,256,532
                                                            
                                                            
                                                            
                                                            1,188,980
                                                            
                                                            
                                                            
                                                            2,540,831Depreciation
      and amortization
                                                            
                                                            
                                                            148,927
                                                            
                                                            
                                                            
                                                            119,042
                                                            
                                                            
                                                            
                                                            302,688
                                                            
                                                            
                                                            
                                                            218,190Sales
      and marketing
                                                            
                                                            
                                                            14,175
                                                            
                                                            
                                                            
                                                            114,166
                                                            
                                                            
                                                            
                                                            84,311
                                                            
                                                            
                                                            
                                                            246,015Total
      operating expenses
                                                            
                                                            
                                                            631,018
                                                            
                                                            
                                                            
                                                            1,771,145
                                                            
                                                            
                                                            
                                                            1,705,652
                                                            
                                                            
                                                            
                                                            3,599,967Loss
      from operations
                                                            
                                                            
                                                            (630,837
                                                            )
                                                            
                                                            
                                                            (1,791,095
                                                            )
                                                            
                                                            
                                                            (1,707,979
                                                            )
                                                            
                                                            
                                                            (3,672,059
                                                            )Other
      (income) expenseInterest
      income
                                                            
                                                            
                                                            (3
                                                            )
                                                            
                                                            
                                                            (1,539
                                                            )
                                                            
                                                            
                                                            (11
                                                            )
                                                            
                                                            
                                                            (13,791
                                                            )Interest
      expense
                                                            
                                                            
                                                            137,339
                                                            
                                                            
                                                            
                                                            30,448
                                                            
                                                            
                                                            
                                                            255,151
                                                            
                                                            
                                                            
                                                            31,152Debt
      discounts related to notes and convertible debts
                                                            
                                                            
                                                            409,120
                                                            
                                                            
                                                            
                                                            435,823
                                                            
                                                            
                                                            
                                                            789,245
                                                            
                                                            
                                                            
                                                            435,823Other
      (income) expense
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            10,480
                                                            
                                                            
                                                            
                                                            (2,207
                                                            )Net
      other (income) expense
                                                            
                                                            
                                                            546,456
                                                            
                                                            
                                                            
                                                            464,732
                                                            
                                                            
                                                            
                                                            1,054,865
                                                            
                                                            
                                                            
                                                            450,977Net
      loss
                                                            
                                                            $
                                                            (1,177,293
                                                            )
                                                            
                                                            $
                                                            (2,255,827
                                                            )
                                                            
                                                            $
                                                            (2,762,844
                                                            )
                                                            
                                                            $
                                                            (4,123,036
                                                            )Loss
      per share, basic and diluted
                                                            
                                                            $
                                                            (0.04
                                                            )
                                                            
                                                            $
                                                            (0.07
                                                            )
                                                            
                                                            $
                                                            (0.09
                                                            )
                                                            
                                                            $
                                                            (0.13
                                                            )Weighted-average
      common shares outstanding, basic and diluted
                                                            
                                                            
                                                            32,683,751
                                                            
                                                            
                                                            
                                                            31,949,234
                                                            
                                                            
                                                            
                                                            32,472,614
                                                            
                                                            
                                                            
                                                            31,926,032
 
 The
accompanying notes are an integral part of these financial
statements.
  F-2
 
 Novint
Technologies, Inc.
 STATEMENT
OF CHANGES IN STOCKHOLDERS’ EQUITY
 For
the Six Months Ended June 30, 2009
 
 AccumulatedAdditional
                                
                                
                                
                                
                                
                                OtherCommon
      Stock
                                
                                
                                Paid-in
                                
                                
                                Accumulated
                                
                                
                                ComprehensiveShares
                                
                                
                                Amount
                                
                                
                                Capital
                                
                                
                                (Deficit)
                                
                                
                                Loss
                                
                                
                                TotalBalances,
      December 31, 2008
                                
                                
                                32,259,131
                                
                                
                                $
                                322,592
                                
                                
                                $
                                32,026,387
                                
                                
                                $
                                (30,391,914
                                )
                                
                                $
                                (4,605
                                )
                                
                                $
                                1,952,460Common
      stock issued for settlement of accrued liabilities
                                
                                
                                56,266
                                
                                
                                
                                563
                                
                                
                                
                                19,827
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                20,390Common
      stock issued for services and settlement of lease
                                
                                
                                650,000
                                
                                
                                
                                6,500
                                
                                
                                
                                78,500
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                85,000Options
      issued for settlement of accrued liabilities
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                593,354
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                593,354Options
      vested for employees services
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                142,678
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                142,678Options
      and warrants vested to consultants for services
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                6,521
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                6,521Warrants
      issued with note payable
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                118,101
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                118,101Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                (2,762,844
                                )
                                
                                
                                -
                                
                                
                                
                                (2,762,844
                                )Balances,
      June 30, 2009 (Unaudited)
                                
                                
                                32,965,397
                                
                                
                                $
                                329,655
                                
                                
                                $
                                32,985,368
                                
                                
                                $
                                (33,154,758
                                )
                                
                                $
                                (4,605
                                )
                                
                                $
                                155,660
 
 The
accompanying notes are an integral part of these financial
statements.
  F-3
 
 Novint
Technologies, Inc.
 STATEMENTS
OF CASH FLOWS
 
 For
      the Six Months EndedJune
      30, 2009
                                          
                                          
                                          June
      30, 2008(Unaudited)
                                          
                                          
                                          (Unaudited)Cash
      flows from operating activities:Net
      loss
                                          
                                          $
                                          (2,762,844
                                          )
                                          
                                          $
                                          (4,123,036
                                          )Adjustments
      to reconcile net loss to net cash provided by (used in)operating
      activitiesDepreciation
      and amortization
                                          
                                          
                                          302,688
                                          
                                          
                                          
                                          218,190Amortization
      of debt discount related to warrants issued with debt
                                          
                                          
                                          789,245
                                          
                                          
                                          
                                          464,017Amortization
      of capitalized finance cost
                                          
                                          
                                          86,913
                                          
                                          
                                          
                                          -Amortization
      of discount related to original issue discount notes
                                          
                                          
                                          20,600
                                          
                                          
                                          
                                          -Loss
      on disposal of assets
                                          
                                          
                                          10,480
                                          
                                          
                                          
                                          -Loss
      on assets given to terminated employees
                                          
                                          
                                          15,759
                                          
                                          
                                          
                                          -Loss
      on assets provided as part of lease termination
                                          
                                          
                                          43,894
                                          
                                          
                                          
                                          -Common
      stock issued for services
                                          
                                          
                                          25,000
                                          
                                          
                                          
                                          7,200Common
      stock issued as part of lease settlement
                                          
                                          
                                          60,000
                                          
                                          
                                          
                                          -Original
      issue discount note issued for services
                                          
                                          
                                          105,641
                                          
                                          
                                          
                                          -Options
      issued to employees and consultant for services
                                          
                                          
                                          149,199
                                          
                                          
                                          
                                          519,106Changes
      in operating assets and liabilities:Accounts
      receivable
                                          
                                          
                                          (2,844
                                          )
                                          
                                          
                                          40,423Prepaid
      expenses
                                          
                                          
                                          36,735
                                          
                                          
                                          
                                          (807,866
                                          )Inventory
                                          
                                          
                                          82,518
                                          
                                          
                                          
                                          (900,578
                                          )Deposit
      on purchase of inventory
                                          
                                          
                                          (10
                                          )
                                          
                                          
                                          106,533Prepaid
      expenses, net of current
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (740,703
                                          )Deposits
                                          
                                          
                                          12,183
                                          
                                          
                                          
                                          26,839Accounts
      payable and accrued liabilities
                                          
                                          
                                          594,523
                                          
                                          
                                          
                                          131,647Accrued
      expenses related party
                                          
                                          
                                          30,375
                                          
                                          
                                          
                                          24,353Deferred
      revenues
                                          
                                          
                                          (59
                                          )
                                          
                                          
                                          (3,273
                                          )Net
      cash (used in) operating activities
                                          
                                          
                                          (400,004
                                          )
                                          
                                          
                                          (5,037,148
                                          )Cash
      flows from (to) investing activities:Intangible
      expenditures
                                          
                                          
                                          (10,210
                                          )
                                          
                                          
                                          (22,539
                                          )Capital
      outlay for software development costs and other intangible
      assets
                                          
                                          
                                          (14,610
                                          )
                                          
                                          
                                          (59,549
                                          )Property
      and equipment purchases
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (103,323
                                          )Net
      cash (used in) investing activities
                                          
                                          
                                          (24,820
                                          )
                                          
                                          
                                          (185,411
                                          )Cash
      flows from (to) financing activities:Cash
      paid for offering costs
                                          
                                          
                                          (29,094
                                          )
                                          
                                          
                                          (315,501
                                          )Proceeds
      from notes payable
                                          
                                          
                                          300,000
                                          
                                          
                                          
                                          -Proceeds
      from original issue discount notes
                                          
                                          
                                          270,000Proceeds
      from convertible notes payable
                                          
                                          
                                          -
                                          
                                          
                                          
                                          5,235,097Net
      cash provided by financing activities
                                          
                                          
                                          540,906
                                          
                                          
                                          
                                          4,919,596Net
      increase (decrease) in cash and cash equivalents
                                          
                                          
                                          116,082
                                          
                                          
                                          
                                          (302,963
                                          )Cash
      and cash equivalents at beginning of period
                                          
                                          
                                          55,315
                                          
                                          
                                          
                                          2,704,367Cash
      and cash equivalents at end of period
                                          
                                          $
                                          171,397
                                          
                                          
                                          $
                                          2,401,404Supplemental
      information:Interest
      paid
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -Income
      taxes paid
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -Non-cash
      investing and financing activities:Debt
      discount and deferred financing cost related to convertible
      notespayable recorded against paid-in capital
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          5,235,097Payment
      of offering costs with 60,000 warrants
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          48,459Conversion
      of convertible debts with common stock
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          72,899Payment
      of accrued liabilities with common stock
                                          
                                          $
                                          19,827
                                          
                                          
                                          $
                                          113,900Warrants
      for 1,096,250 shares of common stock granted related to issuance of
      notes payable
                                          
                                          $
                                          118,001
                                          
                                          
                                          $
                                          -Payment
      of accrued liabilities with notes payable
                                          
                                          $
                                          41,859
                                          
                                          
                                          $
                                          -Payment
      of accrued liabilities with warrants
                                          
                                          $
                                          593,354
                                          
                                          
                                          $
                                          -
 
 The
accompanying notes are an integral part of these financial
statements.
  F-4




Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (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-Q and Regulation S-X as promulgated by the Securities and Exchange
Commission (“SEC”). Accordingly, these financial statements do not include all
of the disclosures required by generally accepted accounting principles in the
United States of America for complete financial statements. These unaudited
interim financial statements should be read in conjunction with the audited
financial statements and the notes thereto included on Form 10-K for the period
ended December 31, 2008. In the opinion of management, the unaudited
interim financial statements furnished herein include all adjustments, all of
which are of a normal recurring nature, necessary for a fair statement of the
results for the interim period presented. The results of the three and six
months ended June 30, 2009 are not necessarily indicative of the results to be
expected for the full year ending December 31, 2009.
 
 Reclassifications
 
 Certain
prior year amounts were reclassified to conform to the June 30, 2009
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. 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 the Company’s website at
www.novint.com and 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
June 30, 2009, had an accumulated deficit of $33,154,758. For the three and six
months ended June 30, 2009, the Company sustained a net loss of $1,177,293 and
$2,762,844, respectively. These factors, among others, indicate that the Company
may be unable to continue as a going concern for a reasonable period of time.
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.
 
 The
Company believes there are several factors in continuing as a going concern. The
Company has dramatically reduced operating expenses and staff in the first
quarter of 2009 and will continue do so in areas deemed non-essential during
2009 while maintaining the resources to continue to sell its hardware and
software products. Additionally, in the immediate timeframe, the Company has put
more emphasis on haptics development projects. These projects have historically
generated revenues and expanded the intellectual property portfolio. Next, the
Company is anticipating the release of new top tier games in the second half of
2009, which should generate additional product sales.  Lastly, the
Company will seek to raise additional funding through debt or equity financing
during the next twelve months.
  F-5
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
  NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Use
of Estimates
 
 In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates include the fair value of the Company’s common stock and the fair
value of options and warrants to purchase common stock, allowances for doubtful
accounts, inventory valuation, return and warranty reserves, accounting for
income taxes and uncertainty in income taxes and depreciation and
amortization.
 
 Software
Development Costs
 
 The
Company accounts for its software development costs in accordance with Statement
of Financial Accounting Standards (SFAS) Number 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed. This statement
requires that, once technological feasibility of a developing product has been
established, all subsequent costs incurred in developing that product to a
commercially acceptable level be capitalized and amortized ratably over the
estimated life of the product, which is generally 5 years. The Company has
capitalized software development costs in connection with its haptics technology
beginning in 2000. Amortization is computed on the straight-line basis over the
estimated life (5 years) of the haptics technology. As of June 30, 2009, the
Company’s capitalized software development costs totaled $514,102 (net of
$435,983 of accumulated amortization)  The estimated annual
amortization expense related to the capitalized software development cost is
approximately $155,000 per year.  Amortization expense related to
software development costs for the three and six months ended June 30, 2009 and
2008 totaled $43,418 and $86,189, and $39,225 and $76,983,
respectively.
 
 The
Company follows Statement of Position (SOP) No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, which requires
capitalization of certain costs incurred during the development of internal use
software. Through June 30, 2009, capitalizable costs incurred have not been
significant for any development projects. Accordingly, the Company has charged
all related costs to research and development expense in the periods
incurred.
 
 Property
and Equipment
 
 Property
and equipment is 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 $13,064 and
$31,608, and $26,849 and $ 51,019 for the three and six months ended June 30,
2009 and 2008, respectively.
 
 Intangible
Assets
 
 Intangible
assets consist of licensing agreements of $1,245,543 and patents of $50,917, and
are carried at cost less accumulated amortization of $790,773 at June 30,
2009.  Amortization is computed using the straight-line method over
the economic life of the assets, which range between 3 and 20 years. For the
three and six months ended June 30, 2009 and 2008, the Company recognized
amortization expense of approximately $92,445 and $184,891, and $52,968 and
$90,188, respectively, related to intangible assets.
  F-6
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
 
 Annual
amortization of intangible assets remaining at June 30, 2009, is as
follows:
  For
      the twelve months ending June 30,2010
                        
                        $
                        348,1532011
                        
                        
                        113,5532012
                        
                        
                        5,1912013
                        
                        
                        2,4412014
      and thereafter
                        
                        
                        36,349Total
                        
                        $
                        505,687
 
 In August
2008, the Company entered into a licensing agreement for several games, with a
guaranteed minimum royalty of $100,000.  In March 2009, the Company
signed an amendment to reduce the minimum royalty to $15,000 for a total of two
games.  The Company has accrued for the $15,000 as of December 31,
2008.  This amount was paid in March 2009.
 
 The
Company follows the provisions of SFAS 142, Goodwill and Other Intangible
Assets. SFAS 142 requires intangible assets to be tested for impairment in
accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, which has been superseded by SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. The Company
performs a periodic review of its identified intangible assets to determine if
facts and circumstances exist which indicate that the useful life is shorter
than originally estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances exist, the Company assesses the
recoverability of identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets
over the remaining lives against the respective carrying amounts. Impairment, if
any, is based on the excess of the carrying amount over the fair value of those
assets. After an impairment loss is recognized, the adjusted carrying amount
shall be its new accounting basis. No impairment loss was recorded during the
three and six months ended June 30, 2009 or 2008.
 
 Revenue
and Cost Recognition
 
 The
Company recognizes revenue from the sale of software products under the
provisions of SOP 97-2, Software Revenue Recognition, as amended by SOP 98-4 and
SOP 98-9. SOP 97-2 generally requires that revenue recognized from software
arrangements be allocated to each element of the arrangement based on the
relative vendor specific objective evidence of fair values of the elements, such
as software products, upgrades, enhancements, post contract customer support,
installation or training. Under SOP 97-2, if the determination of vendor
specific objective evidence of fair value for each element of the arrangement
does not exist, all revenue from the arrangement is deferred until such time
that evidence does exist or until all elements of the arrangement are
delivered.
 
 SOP 97-2
was amended in December 1998 by SOP 98-9, Modification of SOP 97-2 Software
Revenue Recognition with Respect to Certain Transactions. SOP 98-9 clarified
what constitutes vendor specific objective evidence of fair value and introduced
the concept of the “residual method” for allocating revenue to elements in a
multiple element arrangement.
  F-7
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
 
 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.  As of June 30, 2009 and December 31, 2008 the
Company did not have any costs and estimated earnings in excess of billings on
contracts or any billings in excess of costs and estimated earnings on
contracts.
  For
project revenue that is not under fixed price programming contracts, the Company
recognizes revenues as the services are completed.
 
 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.
 
 As of
June 30, 2009 and December 31, 2008, the Company had recorded $29,603 and
29,662, respectively, of deferred revenue, which represents fees received for
product and project revenues that have not met all revenue recognition
requirements.
 
 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, which for the three and six months ended
June 30, 2009 and 2008 approximated $23,219 and $29,728, and $16,800 and
$24,900, respectively.
 
 Arrangements
made with certain customers, including slotting fees and co-operative
advertising, are accounted for in accordance with EITF No. 01-9, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products). These incentives are recognized as a reduction in revenue or
as a selling, general, and administrative expense, respectively, when payment is
made to a customer (or at the time the Company has incurred the obligation, if
earlier) unless the Company receives a benefit over a period of time and the
Company meets certain other criteria, such as retailer performance,
recoverability and enforceability, in which case the incentive is recorded as an
asset and is amortized as a reduction of revenue over the term of the
arrangement.
 
 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.
  F-8
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
  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 one (1) year limited warranty on the Falcon.
This warranty guarantees that the products shall be free from defects in
material and workmanship. Additionally, the Company offers its customers of the
Falcon a 30 day money back guarantee. The Company continually evaluates its
reserve accounts for both the limited warranty and 30 day money back guarantee
based on its historical activities. As of June 30, 2009 and December 31, 2008,
the Company has accrued $15,000 and $17,000, respectively, as warranty
reserve.
 
 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 June 30, 2009 and December 31, 2008, the Company had a total
of 16,197,109 and 10,783,473 in potentially dilutive securities,
respectively.
 
 Stock-Based
Compensation
 
 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.
 
 The
Company recognized $22,212 and $142,678, and $114,967 and $237,106 in employee
share-based compensation expense for the three and six months ended June 30,
2009 and 2008, respectively. The fair value of the stock options was estimated
using the Black-Scholes option pricing model.   In calculating
the fair value of options for stock based compensation for the three and six
months ended June 30, 2009, the following assumptions were used: closing price
of the common stock at the date of grant, risk-free rates ranging from 4.00% to
5.25%, volatility of the options ranging from 73% to 157%, estimated lives of 3
to 10 years and exercise prices ranging from $0.66 to $1.06 per
share.  In calculating the fair value of options for stock based
compensation for the three and six months ended June 30, 2008, the following
assumptions were used: closing price of the common stock at the date of grant,
risk-free rates ranging from 4.00% to 5.25%, volatility of the options ranging
from 73% to 157%, estimated lives of 3 to 10 years and exercise prices ranging
from $0.66 to $1.20 per share.
 
 Stock
options and warrants issued to consultants and other non-employees as
compensation for services provided to the Company are accounted for based on the
fair value of the services provided or the estimated fair market value of the
option or warrant, whichever is more reliably measurable in accordance with SFAS
123 and Emerging Issues Task Force No. 96-18, Accounting for Equity Investments
That are Issued to Other Than Employees for Acquiring or in Conjunction with
Selling Goods or Services, including related amendments and
interpretations. The related expense is recognized over the period the services
are provided. For the three and six months ended June 30, 2009 and 2008, stock
options and warrants issued to consultants and other non-employees as
compensation for services that vested during those periods totaled $47,322 and
$6,521, and $147,429 and $282,000, respectively.
  F-9
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
 
 Research
and Development
 
 Research
and development costs are expensed as incurred and amounted to $56,835 and
$129,673, and $281,405 and $594,931 for the three and six months ended June 30,
2009 and 2008, respectively.
 
 Recently
Issued Accounting Pronouncements
 
 The
Company has adopted all recently issued accounting
pronouncements.  The adoption of the accounting pronouncements,
including those not yet effective, is not anticipated to have a material effect
on the financial position or results of operations of the Company.
 
 NOTE
3 – PREPAID ASSETS
 
 As of
June 30, 2009, prepaid expenses totaling $1,658,407 principally consist of
prepayments towards marketing costs, insurance premiums, rents and royalties.
Prepayments on royalties comprise a significant portion of the prepaid expenses
at June 30, 2009 totaling $1,580,513 of which $1,214,430 is considered long-term
portion due to the length of the related license and royalty agreements and the
expected realization.
 
 NOTE
4 — INTANGIBLE ASSETS
 
 Intangible
assets consisted of the following at June 30, 2009:
 
 Licensing
      agreements
                      
                      $
                      1,245,543Patent
                      
                      
                      50,917Less
      accumulated amortization
                      
                      
                      (790,773
                      )$
                      505,687
 
 NOTE
5 – NOTES PAYABLE
 
 In
December 2008, the Company issued two promissory notes totaling $300,000 secured
by all of the Company’s intellectual property, annual interest rate of eight
percent (8%), principal and interest due at maturity, and maturity date of
December 4, 2009.  If the notes are not paid back by the maturity
date, then Novint will have the right but not the obligation to refinance the
notes with new notes equaling the interest and principal from the first note,
with a new maturity date of December 4, 2010 and an annual interest rate of
eight percent (8%). The new notes are convertible into common stock at a rate of
$0.50/share.  Additionally, the Company issued each note holder a
detachable warrant for 150,000 shares of the Company’s common stock for a total
of 300,000 shares.  The Company has accounted for the warrants to
purchase 300,000 shares under Accounting Principles Board Opinion No. 14,
“Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants,” as additional consideration to the promissory notes payable with
an estimated fair value of $100,962 valued using the Black-Scholes option
pricing model under the following assumptions: stock price volatility of 119%;
risk free interest rate of 2.24%; dividend yield of 0% and 5 year
term.  The face amount of the promissory notes of $300,000 was
proportionately allocated to debt and the estimated fair value of the warrants
in the amounts of $224,460 and $75,540, respectively.  The allocable
estimated fair value of the warrants totaling $75,540 has been accounted for as
a debt discount that is being amortized and treated as interest expense over the
term of the promissory notes.  For the three and six months ended June
30, 2009, the Company’s debt discount amortization expense totaled $18,833 and
$37,459, respectively.  The remaining unamortized debt discount at
June 30, 2009 totaled $32,493.
  F-10
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
 
 In
January 2009, the Company issued a promissory note totaling $100,000 secured by
all of the Company’s intellectual property, annual interest rate of eight
percent (8%), principal and interest due at maturity, and maturity date of
December 4, 2009.  If the note is not paid back by the maturity date,
then Novint will have the right but not the obligation to refinance the note
with a new note equaling the interest and principal from the first note, with a
new maturity date of December 4, 2010 and an annual interest rate of eight
percent (8%). The new note would be convertible into common stock at a rate of
$0.50/share.  Additionally, the Company issued the note holder a
detachable warrant for 100,000 shares of the Company’s common
stock.  The Company has accounted for the warrant to purchase 100,000
shares under Accounting Principles Board Opinion No. 14, “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants,” as
additional consideration to the promissory note payable with an estimated fair
value of $37,479 valued using the Black-Scholes option pricing model under the
following assumptions: stock price volatility of 117%; risk free interest rate
of 2.24%; dividend yield of 0% and 5 year term.  The face amount of
the promissory notes of $100,000 was proportionately allocated to debt and the
estimated fair value of the warrants in the amounts of $72,738 and $27,262,
respectively.  The allocable estimated fair value of the warrants
totaling $27,262 has been accounted for as a debt discount that is being
amortized and treated as interest expense over the term of the promissory
notes.  For the three and six months ended June 30, 2009, the
Company’s debt discount amortization expense totaled $7,657 and $14,052,
respectively.  The remaining unamortized debt discount at June 30,
2009 totaled $13,210.
 
 In June
2009, the Company issued a promissory note totaling $200,000 secured by all of
the Company’s intellectual property, annual interest rate of eight percent (8%),
principal and interest due at maturity, and maturity date of June 18,
2010.  If the note is not paid back by the maturity date, then Novint
will have the right but not the obligation to refinance the note with a new note
equaling the interest and principal from the first note, with a new maturity
date of December 4, 2010 and an annual interest rate of ten percent (10%). The
new note would be convertible into common stock at a rate of $0.50/share and for
every two shares issued on conversion of the convertible note, the holder would
receive a warrant to purchase one share of common stock at an exercise price of
$0.50 per share.  Additionally, the Company issued the note holder a
detachable warrant for 300,000 shares of the Company’s common
stock.  The Company has accounted for the warrant to purchase 300,000
shares under Accounting Principles Board Opinion No. 14, “Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants,” as
additional consideration to the promissory note payable with an estimated fair
value of $30,299 valued using the Black-Scholes option pricing model under the
following assumptions: stock price volatility of 148%; risk free interest rate
of 2.24%; dividend yield of 0% and 5 year term.  The face amount of
the promissory notes of $300,000 was proportionately allocated to debt and the
estimated fair value of the warrants in the amounts of $173,687 and $26,313,
respectively.  The allocable estimated fair value of the warrants
totaling $26,313 has been accounted for as a debt discount that is being
amortized and treated as interest expense over the term of the promissory
notes.  For the three and six months ended June 30, 2009, the
Company’s debt discount amortization expense totaled $1,149 and $1,149,
respectively.  The remaining unamortized debt discount at June 30,
2009 totaled $25,164.
 
 NOTE
6 – ORIGINAL ISSUE DISCOUNT NOTES PAYABLE
 
 During
February and March 2009, the Company received $220,000 for three promissory
notes totaling $275,000 with 150% warrant coverage.  The notes are
secured by all of the Company’s assets and intellectual property, no stated
interest rate, principal due February 2010.  These notes are
considered original issue discount notes whereby the discount (difference
between the face value of the notes of $275,000 and amounts actually received of
$220,000) will be amortized over the lives of the notes. For the three and six
months ended June 30, 2009, the Company amortized interest expense totaled
$16,972 and $13,750, respectively.  The remaining unamortized original
issue discount at June 30, 2009 totaled $38,028.  If the notes are
prepaid, the exercise price of the warrants will adjust to the fair market value
of the Company’s stock at the time of prepayment, subject to a floor of $0.02
and a ceiling of $1.00. If an investor sells any shares of our common stock
during 120 days prior to the maturity date of the note, the strike price will
automatically reset to $2.00. If the notes are not paid back by the maturity
date, then the Company will have the right but not the obligation
to refinance the notes with new notes equaling the principal and accrued
interest from the first note, with a new maturity date one year later and
an annual interest rate of five percent (5%). The new note would be convertible
into common stock at a rate of $0.0625/share on the principal balance only. The
conversion rate is subject to change based upon the provision in the
note.  The Company has accounted for the 150% warrants coverage to
purchase 330,000 shares under Accounting Principles Board Opinion No. 14,
“Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants,” as additional consideration to the promissory notes payable with
an estimated fair value of $44,677 valued using the Black-Scholes option pricing
model under the following assumptions: stock price volatility ranging from 122%
to 142%; risk free interest rate of 2.24%; dividend yield of 0% and 5 year
term.  The face amount of the promissory notes of $275,000 was
proportionately allocated to debt and the estimated fair value of the warrants
in the amounts of $236,597 and $38,403, respectively.  The allocable
estimated fair value of the warrants totaling $38,403 has been accounted for as
a debt discount that is being amortized and treated as interest expense over the
term of the promissory notes.  For the three and six months ended June
30, 2009, the Company’s debt discount amortization expense totaled $9,586 and
$12,208, respectively.  The remaining unamortized debt discount at
June 30, 2009 totaled $26,195.
  F-11
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
  In April
2009, the Company received $50,000 for a promissory note totaling $62,500 with
150% warrant coverage.  The note is secured by all of the Company’s
assets and intellectual property, no stated interest rate, principal due April
2010.  The note is considered original issue discount note whereby the
discount (difference between the face value of the note of $62,500 and amount
actually received of $50,000) will be amortized over the life of the note. For
the three and six months ended June 30, 2009, the Company amortized interest
expense totaled $2,604 and $2,604, respectively.  The remaining
unamortized original issue discount at June 30, 2009 totaled
$9,896.  If the note is prepaid, the exercise price of the warrants
will adjust to the fair market value of the Company’s stock at the time of
prepayment, subject to a floor of $0.02 and a ceiling of $1.00. If the investor
sells any shares of our common stock during 120 days prior to the maturity date
of the note, the strike price will automatically reset to $2.00. If the note is
not paid back by the maturity date, then the Company will have the right but not
the obligation to refinance the notes with new a note equaling the
principal and accrued interest from the first note, with a new maturity
date one year later and an annual interest rate of five percent (5%). The new
note would be convertible into common stock at a rate of $0.0625/share on the
principal balance only.
  The
conversion rate is subject to change based upon the provision in the
note.  The Company has accounted for the 150% warrant coverage to
purchase 75,000 shares under Accounting Principles Board Opinion No. 14,
“Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants,” as additional consideration to the promissory notes payable with
an estimated fair value of $6,889 valued using the Black-Scholes option pricing
model under the following assumptions: stock price volatility of 148%; risk free
interest rate of 2.24%; dividend yield of 0% and 5 year term.  The
face amount of the promissory notes of $62,500 was proportionately allocated to
debt and the estimated fair value of the warrants in the amounts of $56,295 and
$6,205, respectively.  The allocable estimated fair value of the
warrants totaling $6,205 has been accounted for as a debt discount that is being
amortized and treated as interest expense over the term of the promissory
notes.  For the three and six months ended June 30, 2009, the
Company’s debt discount amortization expense totaled $2,060 and $2,060,
respectively.  The remaining unamortized debt discount at June 30,
2009 totaled $4,145.
 
 In June
2009, the Company issued three promissory notes totaling $184,375 for services
received with values totaling $147,500, no stated interest rate, principal due
at maturity, and maturity date of June 2010.  These notes are
considered original issue discount notes whereby the discounts (difference
between the face value of the note of $184,375 and amount actually received of
$147,500) will be amortized over the lives of these notes. For the three and six
months ended June 30, 2009, the Company amortized interest expense totaled
$1,024 and $1,024, respectively.  The remaining unamortized original
issue discount at June 30, 2009 totaled $35,851.  Additionally, the
Company issued the note holders detachable warrants totaling 221,250 shares of
the Company’s common stock.  The Company has accounted for the
warrants to purchase 221,250 shares under Accounting Principles Board Opinion
No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants,” as additional consideration to the promissory note payable with
an estimated fair value of $22,330 valued using the Black-Scholes option pricing
model under the following assumptions: stock price volatility of 149%; risk free
interest rate of 2.24%; dividend yield of 0%; and 5 year term.  The
face amount of the promissory notes of $184,375 was proportionately allocated to
debt and the estimated fair value of the warrants in the amounts of $164,457 and
$19,918, respectively.  The allocable estimated fair value of the
warrants totaling $19,918 has been accounted for as a debt discount that is
being amortized and treated as interest expense over the term of the promissory
notes.  For the three and six months ended June 30, 2009, the
Company’s debt discount amortization expense totaled $546 and $546,
respectively  The remaining unamortized debt discount at June 30, 2009
totaled $19,372.
  F-12
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
 
 NOTE
7 – CONVERTIBLE NOTES PAYABLE
  In March
2008, the Company closed on a $2,025,000 private placement of debt securities
under Regulation D promulgated under the Securities Act of 1933 pursuant to
the terms of a subscription agreement among the Company and the subscribers’
signatory thereto (the "Subscription Agreement"). From April 2008 through June
2008, the Company closed an additional $3,210,097 for an aggregate Subscription
Agreement amount of $5,235,097.  Each Subscriber acquired an unsecured
convertible note in the principal amount invested and a warrant to purchase
shares of the Company’s common stock with an exercise price of $1.00 per
share.  In each case, the number of shares of common stock underlying the
warrant equals the principal amount of the unsecured convertible note. Each
warrant is exercisable for a term of five (5) years.  The unsecured
convertible notes have a three (3) year maturity, require payment of principal
and interest in full on the maturity date, and accrue interest at a rate of
seven percent (7%) beginning on the first anniversary of their respective
dates of issuance. At the option of the holder, principal outstanding under a
note may be converted into common stock at the conversion rate then in
effect, initially $1.00 per share. Upon conversion, the holder will receive
common stock at the conversion price of $1.00 per share and additional warrants
to purchase shares of common stock at an exercise price of $1.50 per
share.  The number of shares of common stock underlying the additional
warrants shall equal one-half (1/2) the principal and interest amounts
converted.  The additional warrants shall be exercisable for a term of five
(5) years.  Certain existing shareholders of the Company are entitled to
purchase notes and warrants under the terms of the Subscription Agreement and
the Company was required to create a second offering of these notes and
warrants. The Company has recorded $459,073 as deferred financing costs
associated with the closing that occurred on June 9, 2008. This amount
represents $197,049 for legal expenses associated with the private placement,
$149,403 paid to an investment banking company and $112,621 for the value of
warrants to purchase 143,403 shares of the Company’s common stock at $1.00 per
share for 5 years owed to the same investment banking company. These amounts are
being amortized to interest expense over the term of the notes.
 
 The
Company has determined the convertible debenture contains a beneficial
conversion feature and qualifies for treatment under Emerging Issues Task Force
No. 00-27 and 00-19. The estimated fair value of the detachable warrants of
$4,462,663 has been determined using Black-Scholes option pricing model using
the following assumptions: stock price volatility of 124% to 125%, risk free
interest rate of 3.77%; dividend yield of 0% and 3 year term. The face amount of
the convertible debenture of $5,235,097 was proportionately allocated to the
debenture and the warrants in the amount of $2,849,425 and $2,385,672,
respectively. The convertible debentures’ proportionate allocated value of
$2,849,425 was then further allocated between the debenture and the beneficial
conversion feature, and the entire remaining value of $2,849,425 was allocated
to the beneficial conversion feature. The beneficial conversion feature of
$2,849,425 was allocated to the stock due upon conversion of $2,058,623 and the
warrants due upon conversion of $790,802.  In accordance with EITF
00-27, the beneficial conversion feature attributed to the warrants due upon
conversion of $790,802 is recorded as a debt discount and will not be amortized
until the notes are converted at which time the entire discount will be
expensed.  The combined total value of the initial warrant and
beneficial conversion feature attributed to the stock of $4,444,295 has been
accounted for as a debt discount that is being amortized and treated as interest
expense over the term of the convertible debenture under the effective interest
method.  For the three and six months ended June 30, 2009 and 2008,
the Company’s debt discount amortization expense totaled $360,681 and $721,771,
and $-0-, and $435,823, respectively.  The remaining unamortized debt
discount at June 30, 2009 totaled $3,419,325.
 
 As the
notes are non-interest bearing for the first year, the Company has imputed
interest for the first year.  The Company recorded interest expense of
$60,226 and $120,465, for the three and six months ended June 30,
2009.  As of June 30, 2009 and December 31, 2008 the Company accrued
interest of $293,052 and $174,904, respectively.
  F-13
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
 
 NOTE
8 – STOCKHOLDERS’ EQUITY
 
 In
February 2009, the Board of Directors granted employees and directors 6,850,000
options to purchase shares of common stock at an exercise price of $.10 per
share as compensation for prior services.  The options vest upon grant, and
the expense for these options, totaling $582,102, was recorded in the year ended
December 31, 2008.   The Board of Directors also granted
consultants 700,000 options to purchase shares of common stock at an exercise
price of $.10 per share as compensation for future services.  These options
vest equally every six months for two years following the grant.
 
 Also in
February 2009, the Board of Directors granted 100,000 options to purchase shares
of common stock at an exercise price of $1.00 per share to a consultant for past
services, of which $4,389 of the total value of $6,089 was for services
performed during 2008.  The remaining $1,700 was recorded as expense
during the six months ended June 30, 2009.  The Board of Directors
also approved and the Company issued 250,000 restricted shares of common stock
to a consultant for consulting services and recorded an expense for the six
month ended June 30, 2009 with a value totaling $25,000.  The shares
were issued in May 2009.
 
 In May
2009, the Company issued 31,266 shares of common stock to a consultant for
compensation relating to accounting services with a total value of
$7,890.  8,578 of these shares valued at $4,260 were for services
rendered and recorded in 2008. 22,688 of these shares valued at $3,630 were for
services rendered in the first quarter of 2009.
 
 In May
2009, the Company issued 25,000 shares of common stock to a consultant for
services previously performed with a total value of
$12,500.   This amount was accrued for as of December 31,
2008.
 
 In May
2009, the Company issued 400,000 shares of common stock as part of the lease
settlement for the New Mexico office with a total value of
$60,000.
 
 NOTE
9 — 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
February 2009, the Company received a notice of breach of one of their licensing
agreements.  The Company does not plan to cure this breach.  The
remaining obligation under this agreement of $200,000 related to the breach will
remain as a liability, and all of the prepaid royalties were expensed in
2008.
 
 On March
1, 2009, the Company signed a lease termination agreement for the headquarter
office.  The Company paid $30,000, forfeited the security deposit of
approximately $11,000, transferred title to assets (office furniture, leasehold
improvements and a vehicle) with a net book value of $43,894, and issued 400,000
shares of common stock with a fair value of $60,000 in exchange for termination
of the original lease obligation and use of one small office and 1500 square
feet of storage rent free for at least six months. The shares issued have a
provision limiting sales to a percentage of volume.
 
 In
February 2009, the Company terminated many of its employees in order to reduce
expenses and have retained the personnel necessary to continue key operations to
maintain sales.   The Company does not anticipate or expect any
additional expenses related to the termination other than amounts earned up
through the date of termination.  Included in accrued payroll related
liabilities on the accompanying balance sheet as of June 30, 2009 is $77,680
related to potential severance liabilities owed to these terminated
employees.  As part of the terminations, the Company allowed the
terminated employees to keep their computer equipment with a net book value of
$15,579 and accelerated the vesting of certain options.
  F-14
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
 
 NOTE
10 — 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.   The remaining options were fully
vested on February 18, 2009 and the Company calculated the value of the options
using the Black-Scholes model based on the following assumptions: a risk-free
rate of 2.24%, volatility of 120%, estimated life of 10 years and a fair market
value of $0.20 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 $0 and $(1,651), and $6,027 and $10,917,
respectively, was recorded as consultant expense during the three and six months
ended June 30, 2009 and 2008.  The options were fully vested on
February 18, 2009.
 
 In March
2004, Normandie New Mexico Corporation, which is owned by the former Chief
Executive Officer (CEO) of Manhattan Scientific (a significant shareholder) 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 three and six months ended June 30, 2009 and 2008, the Company had paid
$0 and $0, and $12,500 and $37,500, respectively for these
services.  All remaining amounts totaling $62,500 owed were settled
during the three months ended June 30, 2009 by the issuance of an original issue
discount note payable in the amount of $78,125 and the issuance of five year
warrants to purchase 93,750 shares of common stock at an exercise price of
$1.00.  See Note 5.
 
 On June
10, 2004, the Company granted 250,000 options to purchase common stock to one of
the members of the Company’s Board of Directors for future consulting services
at an exercise price of $0.66 per share. The options have a 5-year annual
vesting provision. At June 30, 2004, the Company calculated the initial value of
these options using the Black-Scholes model based on the following assumptions:
a risk-free rate of 4.81%, volatility of 100%, estimated life of 10 years and a
fair market value of $1.00 per share. The remaining options were fully vested on
June 10, 2009 and the Company calculated the value of the options using the
Black-Scholes model based on the following assumptions: a risk-free rate of
2.24%, volatility of 151%, estimated life of 10 years and a fair market value of
$0.10 per share. The vesting schedule is prorated over the reporting period, and
approximately $1,078 and $(7,832), and $12,000 and $26,000, respectively, was
recorded as consulting expense during the three and six months ended June 30,
2009 and 2008.
 
 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
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 approximately $7,135 and $14,270, and
$7,135 and $14,270, respectively, was recorded as consulting expense during the
three and six months ended June 30, 2009 and 2008.
 
 In
November 2006, the Company granted 1,500,000 options to purchase common stock to
one of the members of the Company’s Board of Directors for future consulting
services at an exercise price of $0.90 per share. The options have a 2-year
annual vesting provision which 750,000 these options vested immediately. At
December 31, 2006, the Company calculated the initial value of these options
using the Black-Scholes model based on the following assumptions: a risk-free
rate of 5.15%, volatility of 146%, estimated life of 10 years and a fair market
value of $1.05 per share. The vesting schedule is prorated over the reporting
period, and approximately $0 (fully vested as of December 31, 2008) and $61,496
and $122,292, respectively, was recorded as consultant expense during the three
and six months ended June 30, 2009 and 2008.
  F-15
  Novint
Technologies, Inc.
 
 NOTES
TO FINANCIAL STATEMENTS
 JUNE
30, 2009 AND 2008
 (Unaudited)
 
 On July
23, 2007, the Company entered into a perpetual employment agreement with an
individual who is related with the Chief Executive Officer through family
marriage.  Under the agreement, the employee is entitled to an annual
base salary of $68,000 per year and cash bonus to be determined by the Company,
is subject to confidentiality provisions and is entitled to a severance equal to
this employee’s base salary for a two week period if this employee is terminated
by the Company without cause.  Additionally, the employment agreement
granted this employee an option for 25,000 shares of common stock with an
exercise price of $0.95 per share which vests over a five-year
period.  In October 2008, this employee was terminated, and 15,000 of
the options were cancelled.  As of June 30, 2009, there is an accrual
of $2,672 for the severance pay that has not yet been issued.
 
 One of
the members of the Company’s Board of Directors provides legal services to
Company.  Total legal expense incurred by the Company for such legal
services by this director totaled $21,085 and $33,141, and $68,106 and $100,935
for the three and six months ended June 30, 2009 and 2008, respectively. 
At the beginning of 2008, the Company granted this board member options to
purchase 100,000 shares of common stock with an exercise price of $.89 per share
for service performed and to be performed in relation to the Company’s
patents.  As of June 30, 2009, 10,709 options had vested and the
Company has recorded $5,344 in expense related to these vested
options.  In June 2009, in satisfaction of $50,000 owed for legal
services previously accrued, the Company issued an original issue discount note
payable in the amount of $62,500 and the issuance of five year warrants to
purchase 75,000 shares of common stock at an exercise price of
$1.00.  See Note 5.
  F-16




ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Statements
included in this management’s discussion and analysis of financial condition and
results of operations, and in future filings by the Company with the SEC, in the
Company’s press releases and in oral statements made with the approval of an
authorized executive officer that are not historical or current facts are
“forward-looking statements” and are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. You are cautioned not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The following important factors, among others, in some cases have
affected and in the future could affect the Company’s actual results and could
cause the Company’s actual financial performance to differ materially from that
expressed in any forward-looking statement: (i) the extremely competitive
conditions that currently exist in the market for companies similar to the
Company and (ii) lack of resources to maintain the Company’s good standing
status and requisite filings with the SEC. The foregoing list should not be
construed as exhaustive, and the Company disclaims any obligation subsequently
to revise any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events. The following discussion should be read in conjunction
with our financial statements and their explanatory notes included as part of
this report.





OVERVIEW





We were
initially incorporated in the State of New Mexico as Novint Technologies, Inc.
in April 1999. On February 26, 2002, we changed our state of incorporation to
Delaware by merging into Novint Technologies, Inc., a Delaware corporation. We
have no subsidiaries and operate our business under Novint Technologies,
Inc.  We are a haptics technology company (haptics refers to your
sense of touch). We develop, market, and sell applications and technologies that
allow people to use their sense of touch to interact with
computers.





We have
derived revenues from 3D touch hardware sales, 3D touch software sales, and the
development of professional applications for our customers. We launched our
Falcon product in June 2007, and are selling it primarily on our on-line store.
We launched an on-line game store in November 2007. We also have completed a
number of professional application contracts with customers who desire custom
developed software.





Novint
focuses many of its efforts to exploit opportunities in the consumer console and
PC interactive games market, and is also looking to expand its efforts in other
areas of computer touch in funded projects. Using our haptics technology, games
and applications will have the crucial missing “third sense”, touch, to human
computer interaction. Users will be able to directly and intuitively feel the
shape, texture, and physical properties of virtual objects using our computer
touch software.  Our haptic technology and related hardware for
consumers is the primary focus of our operations, but we will continue to
develop our professional applications.  We will devote much of our
resources to further developing the video game market and seeking new business
relationships with video game developers and publishers and hardware
manufacturers.  We began selling our haptic product, the Novint
Falcon, in June 2007 through our website at www.novint.com.  We
currently are selling one haptic hardware product, which is a haptic game
controller device called the Novint Falcon marketed in a bundled package that
includes several games. In late 2007, we launched an on-line game store where
consumers can purchase and download a variety of game titles.  In
2008, we launched a pistol grip attachment for the Falcon.  Although
our sales of the Novint Falcon and games since product launch have been limited,
sales of the Novint Falcon, the pistol grip, and games have begun to increase
resulting from the release of new software and games in 2009. One of the most
significant drivers of revenue for Novint will be games and content. This is
true not only in the revenue we receive from the games themselves, but largely
because this is a criterion we see many of our customers desiring in order to
justify the Falcon hardware purchase. For example, if the Novint Falcon has many
games available to play on it, a customer can purchase a single piece of
hardware and then over time purchase multiple games that give a unique gaming
experience, making the initial hardware purchase valuable over a larger amount
of time and across a larger number of games. In 2008, we entered into licensing
agreements with Valve Software and Electronic Arts among others, and therefore
several new AAA level games will soon be supported by the
Falcon.


2


CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





High-quality
financial statements require rigorous application of accounting policies. Our
policies are discussed in our financial statements for the quarter ended June
30, 2009 and are considered by management to be critical for an understanding of
our financial statements because their application places the most significant
demands on management’s judgment, with financial reporting results relying on
estimation about the effect of matters that are inherently uncertain. We review
the accounting policies we use in reporting our financial results on a regular
basis. As part of such review, we assess how changes in our business processes
and products may affect how we account for transactions. We have not changed our
critical accounting policies or practices during 2009. New accounting policies
and practices were implemented in 2008 and in 2009 as necessary based on the
launch of our haptics product sales in June 2007.





REVENUE
AND COST RECOGNITION — We recognize revenue from the sale of software products
under the provisions of Statement of Position (“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.




Our
revenue recognition policy is as follows:





Project
revenue consists of programming services provided to unrelated parties under
fixed-price contracts. Revenues from fixed price programming contracts are
recognized in accordance with SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, and Accounting Research
Bulletin 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.





For
project revenue that is not under fixed price programming contracts, the Company
recognizes revenues as the services are completed.





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 the 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.





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.


3


Arrangements
made with certain customers, including slotting fees and co-operative
advertising, are accounted for in accordance with EITF No. 01-9, Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products). These incentives are recognized as a reduction in revenue or
as a selling, general, and administrative expense, respectively, when payment is
made to a customer (or at the time the Company has incurred the obligation, if
earlier) unless the Company receives a benefit over a period of time and the
Company meets certain other criteria, such as retailer performance,
recoverability, and enforceability, in which case the incentive is recorded as
an asset and is amortized as a reduction of revenue over the term of the
arrangement.





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 one (1) year limited warranty on the Falcon.
This warranty guarantees that the products shall be free from defects in
material and workmanship. Additionally, the Company offers its customers of the
Falcon a 30 day money back guarantee. The Company continually evaluates its
reserve accounts for both the limited warranty and 30 day money back guarantee
based on its historical activities.





IMPAIRMENT
— In accordance with Statement of Financial Accounting (“SFAS”) 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, we review our long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.





SOFTWARE
DEVELOPMENT COSTS — We account for our software development costs in accordance
with SFAS 86, Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed. This statement requires that, once technological
feasibility of a developing product has been established, all subsequent costs
incurred in developing that product to a commercially acceptable level be
capitalized and amortized ratably over the estimated life of the product, which
is 5 years. We have capitalized software development costs in connection with
our haptic software beginning in 2000. Amortization is computed on the
straight-line basis over the estimated life (5 years) of the haptics
technology.





The
Company follows Statement of Position (SOP) No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, which requires
capitalization of certain costs incurred during the development of internal use
software.





STOCK
BASED COMPENSATION – We account for stock based compensation in accordance with
SFAS 123(R), Share-Based Payment, which requires the measurement and recognition
of compensation expense for all share-based payment awards made to employees and
directors, including employee stock options and employee stock purchases,
related to a Employee Stock Purchase Plan based on the estimated fair
values.  We have used stock option awards in the past and continue to
use them as a means of rewarding our employees and directors for their continued
commitment and efforts in helping us execute our overall business
plans.





Stock
options and warrants issued to consultants and other non-employees as
compensation for services provided to the Company are accounted for based on the
fair value of the services provided or the estimated fair market value of the
option or warrant, whichever is more reliably measurable in accordance with SFAS
123 and Emerging Issues Task Force No. 96-18, Accounting for Equity Investments
That are Issued to Other Than Employees for Acquiring or in Conjunction with
Selling Goods or Services, including related amendments and
interpretations. The related expense is recognized over the period the services
are provided.


4


RECENT
ACCOUNTING PRONOUNCEMENTS - The Company has adopted all recently issued
accounting pronouncements. The adoption of the accounting pronouncements,
including those not yet effective is not anticipated to have a material effect
on the financial position or results of operations of the Company.





RESULTS
OF OPERATIONS





THREE
MONTHS ENDED JUNE 30, 2009 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2008.





REVENUES.
During the three months ended June 30, 2009, we had revenues of $213,951 as
compared to revenues of $84,099 during the three months ended June 30, 2008, an
increase of approximately 154%. During the three months ended June 30, 2009, our
revenues were derived from the development of professional applications for
customers totaling $128,551 and the sale of our haptics technology products
totaling $85,400.  Our sales of our haptics technology products
increased 29% from 2008, while our revenues from the development of professional
applications increased 608% as we continued to place emphasis on our
professional applications during the quarter.  We will continue to
provide development of professional applications and in 2009 we expect to grow
this part of our business similarly to how we have in the past.  Much
of our focus will remain on the video game business, but we expect to place more
emphasis on professional applications in our Advanced Products Group than we had
from 2006 to 2008.





COST OF
GOODS SOLD AND GROSS PROFIT (LOSS). Cost of goods sold, which consists of the
cost of the haptics technology products sold, materials purchased for resale to
customers, the direct labor incurred for delivering on projects, warehousing and
freight costs, and inventory write-downs were $213,770 for the three months
ended June 30, 2009, compared to $104,049 for the three months ended June 30,
2008.  Our overall gross profit percentage was approximately (0)% for
the three months ended June 30, 2009, compared to a gross loss percentage of
(24)% for the three months ended June 30, 2008.  For the three months
ended June 30, 2009, our gross profit from our development of professional
applications approximated 20%, a decrease from a gross profit of 29% for the
second quarter of 2008, due to the use of contract labor to complete the
projects. Our gross loss experienced from the sale of our haptics technology
product in the second quarter of 2009 was (30)%, an improvement from 2008 when
the gross loss percentage was (38)%.  Our gross loss experienced from
the sales of our haptics technology product continues to be impacted by our high
warehousing, and in this quarter we had some special promotional pricing on the
products.  Last quarter, we reevaluated our distribution channels to
find a more cost-effective solution.  Warehousing costs for the three
months ended June 30, 2009 and 2008 were $18,461 and $20,839,
respectively.





RESEARCH AND DEVELOPMENT
EXPENSES.  Research and development totaled $56,835 for the three
months ended June 30, 2009 compared to $281,405 for the three months ended June
30, 2008, a decrease of $224,570 or 80%.  During the first half of
2008, we focused on the development of games for use with the
Falcon.  In the first half of 2009, we have decreased the rate of
development of new software associated with the haptics technology product to
match the release schedule of our games.





GENERAL
AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled
$411,081 for the three months ended June 30, 2009, compared to $1,256,532 for
the three months ended June 30, 2008, a decrease of $845,451 or
67%.  In 2009, we are reorganizing our infrastructure to significantly
reduce our costs, while still continuing to market the product. The decrease in
general and administrative expenses compared to the prior year was primarily
related to this reorganization.  Business and professional fees
decreased approximately $251,000, insurance expense decreased $49,000, royalty
expense decreased approximately $11,000, rent decreased $28,000, and payroll and
other overhead expenses decreased approximately $507,000 largely due to a
reduction in the number of employees.





DEPRECIATION
AND AMORTIZATION EXPENSE.   Depreciation and amortization expense
totaled $148,927 for the three months ended June 30, 2009 compared to $119,042
for the three months ended June 30, 2008, an increase of $29,885 or
25%.  This expense increased between the two periods as a result of an
increase in our investment in intangibles and capitalized software and
hardware.


5


SALES AND
MARKETING EXPENSE.  Sales and marketing expense totaled $14,175 for
the three months ended June 30, 2009 compared to $114,166 for the three months
ended June 30, 2008, a decrease of $99,991 or 88%.  In 2009, we had
fewer co-op marketing programs with retailers as we refocused our distribution
channels, and there was a general reduction in marketing efforts, as we
restructured our infrastructure.





LOSS FROM
OPERATIONS.  We had a loss from operations of $630,837 for the three
months ended June 30, 2009, compared to a loss from operations of $1,791,095 for
the three months ended June 30, 2008. Our operating losses have decreased
$1,160,258 primarily as a result of the decrease in our operating expenses as
described above.





NET LOSS.
We had a net loss of $1,177,293, or $0.04 per share, for the three months ended
June 30, 2009, compared to $2,255,827, or $0.07 per share, for the three months
ended June 30, 2008. There was a decrease in the net loss of $1,078,534, which
is a result of a decrease in the loss from operations of approximately
$1,160,000, a decrease in interest income of approximately $1,500, and a net
increase in interest expense and debt discount related to convertible debt of
approximately $80,000.





SIX
MONTHS ENDED JUNE 30, 2009 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
2008.





REVENUES.
During the six months ended June 30, 2009, we had revenues of $345,673 as
compared to revenues of $155,928 during the six months ended June 30, 2008, an
increase of approximately 122%. During the six months ended June 30, 2009, our
revenues were derived from the development of professional applications for
customers totaling $235,425 and the sale of our haptics technology products
totaling $110,248.  Our sales of our haptics technology products
remained consistent with 2008, while our revenues from the development of
professional applications increased 415% as we placed emphasis on our
professional applications during the first half of 2009 while we were
restructuring our distribution channels for the haptics product.  We
will continue to provide development of professional applications and in 2009 we
expect to grow this part of our business similarly to how we have in the
past.  Much of our focus will remain on the video game business, but
we expect to place more emphasis on professional applications in our Advanced
Products Group than we had from 2006 to 2008.





COST OF
GOODS SOLD AND GROSS PROFIT (LOSS). Cost of goods sold, which consists of the
cost of the haptics technology products sold, materials purchased for resale to
customers, the direct labor incurred for delivering on projects, warehousing and
freight costs, and inventory write-downs were $348,000 for the six months ended
June 30, 2009, compared to $228,020 for the six months ended June 30,
2008.  Our overall gross loss percentage was approximately (1)% for
the six months ended June 30, 2009, compared to a gross loss percentage of (46)%
for the six months ended June 30, 2008.  For the six months ended June
30, 2009, our gross profit from our development of professional applications
approximated 19%, a decrease from a gross profit of 25% for the first half of
2008, due to the use of contract labor to complete the projects. Our gross loss
experienced from the sale of our haptics technology product in the first half of
2009 was (42)%, an improvement from 2008 when the gross loss percentage was
(76)%.  Our gross loss experienced from the sales of our haptics
technology product continues to be impacted by our high
warehousing.  Last quarter, we reevaluated our distribution channels
to find a more cost-effective solution.  Warehousing costs for the six
months ended June 30, 2009 and 2008 were $41,743 and $64,740,
respectively.





RESEARCH AND DEVELOPMENT
EXPENSES.  Research and development totaled $129,673 for the six
months ended June 30, 2009 compared to $594,931 for the six months ended June
30, 2008, a decrease of $465,258 or 78%.  During the first half of
2008, we focused on the development of games for use with the
Falcon.  In the first half of 2009, we have decreased the rate of
development of new software associated with the haptics technology product to
match the release schedule of our games.





GENERAL
AND ADMINISTRATIVE EXPENSES. General and administrative expenses totaled
$1,188,980 for the six months ended June 30, 2009, compared to $2,540,831 for
the six months ended June 30, 2008, a decrease of $1,351,851 or
53%.  In 2009, we are reorganizing our infrastructure to significantly
reduce our costs, while still continuing to market the product. The decrease in
general and administrative expenses compared to the prior year was primarily
related to this reorganization.  Business and professional fees
decreased approximately $606,000, insurance expense decreased $58,000, royalty
expense decreased approximately $32,000, rent increased approximately $108,000
as we reached an agreement for an early termination of an office lease in the
first quarter of 2009,  and payroll and other overhead expenses
decreased approximately $764,000 largely due to a reduction in the number of
employees.


6


DEPRECIATION
AND AMORTIZATION EXPENSE.   Depreciation and amortization expense
totaled $302,688 for the six months ended June 30, 2009 compared to $218,190 for
the six months ended June 30, 2008, an increase of $84,498 or
39%.  This expense increased between the two periods as a result of an
increase in our investment in intangibles and capitalized software and
hardware.





SALES AND
MARKETING EXPENSE.  Sales and marketing expense totaled $84,311 for
the six months ended June 30, 2009 compared to $246,015 for the six months ended
June 30, 2008, a decrease of $161,704 or 66%.  In 2009, we had fewer
co-op marketing programs with retailers as we refocused our distribution
channels, and there was a general reduction in marketing efforts, as we
restructured our infrastructure.





LOSS FROM
OPERATIONS.  We had a loss from operations of $1,707,979 for the six
months ended June 30, 2009, compared to a loss from operations of $3,672,059 for
the six months ended June 30, 2008. Our net losses have decreased $1,964,080
primarily as a result of the decrease in our operating expenses as described
above.





NET LOSS.
We had a net loss of $2,762,844, or $0.09 per share, for the six months ended
June 30, 2009, compared to $4,123,036, or $0.13 per share, for the six months
ended June 30, 2008. There was a decrease in the net loss of $1,360,192, which
is a result of a decrease in the loss from operations of approximately
$1,964,000, a decrease in interest income of approximately $14,000, a net
increase in interest expense and debt discount related to convertible debt of
approximately $577,000, and an increase in other expenses of
$13,000.





LIQUIDITY
AND CAPITAL RESOURCES





As of
June 30, 2009, we had a total cash balance of $171,397.  Our cash flow
from operating activities for the six months ended June 30, 2009 resulted in a
deficit of $400,004 compared with a deficit of $5,037,148 in the same period of
the prior year.  This decrease in the deficit from operating
activities of approximately $4,637,144 was a result of a reduction in operating
losses, fewer investments in prepaid expenses and inventory, increase in
non-cash adjustments to reconcile net loss to net cash and an increase in our
accounts payable and accrued expenses.  Our cash flow from investing
activities for the six months ended June 30, 2009 resulted in a deficit of
$24,820 compared with a deficit of $185,411 in the same period of the prior
year, representing less investment in fixed assets and investments in games
through both licensing and internal development. Our cash flow from financing
activities for the six months ended June 30, 2009 resulted in a surplus of
$540,906 from the issuance of notes payable compared to a surplus of $4,919,596
in the same period of the prior year from the net proceeds from convertible
notes payable.  Overall, our cash increased by $116,082 during the six
months ended June 30, 2009.





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. The Company has incurred recurring losses and at
June 30, 2009, had an accumulated deficit of $33,154,758. For the three and six
months ended June 30, 2009, the Company sustained a net loss of $1,177,293 and
$2,762,844, respectively. These factors, among others, indicate that the Company
may be unable to continue as a going concern for a reasonable period of time.
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.





The
Company believes there are several factors in continuing as a going concern. The
Company has dramatically reduced operating expenses and staff in the first
quarter of 2009 and will continue do so in areas deemed non-essential during
2009, while maintaining the resources to continue to sell its hardware and
software products. Additionally, in the immediate timeframe, the Company has put
more emphasis on haptics development projects. These projects have historically
generated revenues and expanded the intellectual property portfolio. Next, the
Company is anticipating on releasing new top tier games in the second half of
2009, which should generate additional product sales.  Lastly, the
Company will seek to raise additional funding through debt or equity financing
during the next twelve months.


7


Contractual
Obligations





We had an
operating lease for our office located in San Diego, California that expired on
July 31, 2009.  The monthly rent for this location was
$4,040.  The lease was not renewed.





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.





ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM
      4.
            CONTROLS
      AND PROCEDURES





Disclosure
Controls and Procedures





As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).  Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the applicable period to
ensure that the information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act (i) is recorded, processed,
summarized, and reported within the time periods specified in Securities and
Exchange Commission rules and forms and (ii) is accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosures.





Changes
in Internal Control over Financial Reporting





There was
no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.


8


PART
II - OTHER INFORMATION





ITEM
      1.
            LEGAL
      PROCEEDINGS





There
have been no material developments during the quarter ended June 30, 2009 in any
material pending legal proceedings to which the Company is a party or of which
any of our property is the subject.





ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




In May
2009, we issued 250,000 restricted shares of common stock to Leonard
Friedman for consulting services with a value totaling $25,000. We relied
on Section 4(2) of the Securities Act of 1933, as amended, as providing an
exemption from registration under the Act.





In May
2009, we issued 31,266 shares of common stock to Ralph Anderson for
compensation relating to accounting services with a total value of $7,890. We
relied on Section 4(2) of the Securities Act of 1933, as amended, as providing
an exemption from registration under the Act.





In May
2009, we issued 25,000 shares of common stock to CFSG for services
previously performed with a total value of $12,500. We relied on Section 4(2) of
the Securities Act of 1933, as amended, as providing an exemption from
registration under the Act.





In May
2009, we issued 400,000 shares of common stock to The Shops at Westpark,
LLC as part of a lease settlement for our New Mexico office with a total
value of $60,000. We relied on Section 4(2) of the Securities Act of 1933, as
amended, as providing an exemption from registration under the Act.




ITEM 3.
            DEFAULTS UPON SENIOR
      SECURITIES





None.





ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.





ITEM
      5.
            OTHER
      INFORMATION




(a)
            None.





(b)
            There were no changes to the
      procedures by which security holders may recommend nominees to our board
      of directors.




9




ITEM
      6.
            EXHIBITS





Exhibit
                    Number
                  
                  Description3.1
                  
                  Amended
      and Restated Certificate of Incorporation, as currently in effect
      (3)3.2
                  
                  Amended
      and Restated Bylaws, as currently in effect (2)3.3
                  
                  Articles
      of Merger (1)
 3.4
                  
                  Certificate
      of Merger (1)31.1
                  
                  Section 302
      Certification by the Corporation’s Chief Executive Officer
    *31.2
                  
                  Section 302
      Certification by the Corporation’s Chief Financial Officer
    *32.1
                  
                  Section 906
      Certification by the Corporation’s Chief Executive Officer and Chief
      Financial Officer
*





*
            Filed
      herewith.





(1)
            Filed on May 17, 2004 as an
      exhibit to our Registration Statement on Form SB-2, and incorporated
      herein by reference.





(2)
            Filed on March 1, 2007 as an
      exhibit to our Current Report on Form 8-K, and incorporated herein by
      reference.





(3)
            Filed on June 21, 2007 as an
      exhibit to our Current Report on Form 8-K, and incorporated herein by
      reference.


10


SIGNATURES





In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.




NOVINT
      TECHNOLOGIES, INC.(Registrant)Date:
      August 19, 2009
              By:
              /s/ Tom AndersonTom
      AndersonChief
      Executive Officer, President, and Chief
                Financial
      Officer




11