NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
Virtual Piggy, Inc. (“the Company”) is a development stage enterprise incorporated in the state of Delaware on February 11, 2008. Virtual Piggy is a technology company that delivers an online ecommerce solution for the family. Its system allows parents and their children to manage, allocate funds and track their expenditures, savings and charitable giving online. Its system is designed to allow the child to transact online without a credit card by gaining the parent’s permission ahead of time and allowing the parent to set up the rules of use and authorized spending limits. Our principal office is located in Hermosa Beach, California and in 2013 we opened an office in London, England to support the sales and marketing efforts in Europe and the development of our mobile applications.
The Oink (formerly Virtual Piggy) service enables online businesses to interact and transact with the “Under 18” market in a manner consistent with the Children’s Online Privacy Protection Act (“COPPA”) and other similar international children’s privacy laws. Oink was launched in the US in 2012 and in the European market in 2013, and now has the capability to offer and deliver gift cards.
We secure agreements with merchants, retail and gaming e-commerce platforms and payment processors, which allow us to offer our Oink service to our user base. Over 20 retailers and gaming companies are using Oink with their e-commerce systems and the Company is in the process of integrating the other signed retailers and gaming companies. The Company is continuing to add merchants. To date, the Company has over 1 million users of its system. The Company defines a system user as a registered account that has accessed the Oink service within the past 12 months.
Basis of Presentation
The financial statements are presented in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 915 for development stage entities. The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Comprehensive Income
The Company follows FASB ASC 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. The Company has one item of other comprehensive loss, consisting of a foreign translation adjustment.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts receivable, insurance receivable, notes payable and accounts payable and accrued expenses. The carrying value of cash, accounts receivable, insurance receivable, notes payable and accounts payable and accrued expenses approximate fair value, because of their short maturity.
Foreign Currency Translation
The functional currency of operations outside the U.S. is British Pounds.
Concentration of Credit Risk Involving Cash
The Company may have deposits with a financial institution which at times exceed Federal Depository Insurance coverage of $250,000.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and certificates of deposit and commercial paper with original maturities of 90 days or less to be cash or cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, principally three to seven years. Maintenance and repairs of property are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of property and equipment, the costs and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in operations. Depreciation of property and equipment was $28,190, $13,336 and $3,001 for the years ended December 31, 2013, 2012 and 2011.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
Revenue Recognition
In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104,
Revenue Recognition
(Codified in FASB ASC 605), the Company will recognize revenue when (i) persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, (ii) a retailer, distributor or wholesaler receives the goods, (iii) the price is fixed or determinable, and (iv) collectability of the sales revenues is reasonably assured. Subject to these criteria, the Company will generally recognize revenue at the time of the sale of the associated product.
Income Taxes
The Company follows FASB ASC 740 when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Tax years from 2008 through 2013 remain subject to examination by major tax jurisdictions.
Loss Per Share
The Company follows FASB ASC 260 when reporting Earnings Per Share resulting in the presentation of basic and diluted earnings per share. Because the Company reported a net loss for the years ended December 31, 2013, 2012 and 2011, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same.
Start-up Costs
In accordance with FASB ASC 720
,
start-up costs are expensed as incurred.
Research and Development Costs
In accordance with FASB ASC 730, research and development costs are expensed when incurred.
Recently Adopted Accounting Pronouncements
As of December 31, 2013 and for the year then ended, there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
As of December 31, 2013, there were no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.
Reclassifications
Certain amounts in the 2012, 2011 and cumulative since inception statements of operations have been reclassified in order for them to be in conformity with the 2013 presentation.
NOTE 2 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and experienced negative cash flow from operations during the development stage. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Since inception, the Company has focused on developing and implementing its business plan. The Company is paying salaries to management and utilizing offshore programmers on a work for hire basis to assist in further development of its products. The Company believes that its existing cash resources will not be sufficient to sustain operations during the next twelve months.
The Company currently needs to generate revenue in order to sustain its operations. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses or obtain financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing shareholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company would likely be unable to execute upon the business plan or pay costs and expenses as they are incurred, which would have a material, adverse effect on the business, financial condition and results of operations.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
The Company’s current monetization model is to derive a percentage of all revenues generated by online merchants using the Oink service. Merchants are billed at the end of each month for all transactions that have been processed by the Company on their behalf in the prior month. As the merchant base and consumer base grows, and as the trend to higher online spending levels continues, the Company expects to generate additional revenue to support operations.
If sufficient revenues are not generated to sustain operations or additional funding cannot be obtained in the short term, the Company will need to reduce monthly expenditures to a level that will enable the Company to continue until such funds can be obtained. The Company raised $6,070,595 net of stock issuance costs of $395,221 through private placements of its equity securities and from exercises of warrants from January 1, 2013 through May 31, 2013. The Company has also raised $185,000 from the exercise of options and $1,432,593 from the exercise of warrants during the year ended December 31, 2013.
The Company is in the development stage at December 31, 2013. Successful completion of the Company’s development program, and the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure. However, there can be no assurances that the Company will be able to secure additional equity investment or achieve an adequate sales level.
NOTE 3 – PATENTS AND TRADEMARKS
The Company continues to apply for patents and purchased the Oink trademark in November 2013. Accordingly, costs associated with the registration of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents (20 years). The trademark is also being amortized on a straight-line basis over its estimated useful life of 20 years. At December 31, 2013 and 2012, capitalized patent and trademark costs were $781,786 and $376,174. Amortization expense for patents and trademarks was $28,451, $12,056 and $1,622 for the years ended December 31, 2013, 2012 and 2011.
NOTE 4 – NOTES PAYABLE
In September 2011, the Company commenced a private placement of up to 10 units at a price of $50,000 per unit to accredited investors. One unit consisted of a demand note payable in the amount of $50,000 due November 12, 2012, warrants to purchase 15,000 shares of common stock at an exercise price of $.50 per share with a term expiring November 12, 2012, and 15,000 shares of common stock. In December 2011, the Company completed the private placement and raised $500,000. The warrants were valued at $20,930, fair value, using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 39.8% to 62.8%, risk free interest rate of .1% and expected option life of 1.2 years. The shares of common stock were valued at $82,655 or $.45 to $.70 per share, fair value. Both the warrant value and the shares of common stock were treated as a discount to the value of the note payable in accordance with FASB ASC 835-30-25,
Recognition
and are being accreted over the term of the note payable for financial statement purposes. As of December 31, 2011, $150,000 of the $500,000 was repaid.
On February 8, 2012, February 27, 2012, and April 10, 2012, $100,000, $50,000, and $25,000 respectively, of the notes payable were repaid.
On April 26, 2012, the remaining balance of the notes payable of $175,000 and accrued interest of $25,000 was converted into 571,428 shares of the Company’s common stock and warrants to purchase 285,714 shares of the Company’s common stock.
On December 27, 2013, the Company entered into two identical agreements with two stockholders that each include a note payable in the amount of $500,000 and two-year warrants to purchase 37,500 shares of the Company’s common stock at $0.01 and two-year warrants to purchase 50,000 shares of the Company’s common stock at $1.00 per share. The note payable bears interest at 10% per annum and is payable upon the earlier of:
|
a.
|
5 days after the sale of the Company’s securities in one transaction or series of related transactions, which sale results in gross proceeds to the Company of at least $3 million;
|
|
b.
|
Upon (i) the sale or other disposition of all or substantially all of the Company’s assets or (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is a party other than a transaction or series of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain, as a result of shares in the Company held by such holders prior to such transaction, at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction or series of transactions;
|
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
The warrants were valued at $92,470, fair value, using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.2%, risk free interest rate of .4% and expected option life of 2 years. The warrant values were treated as a discount to the value of the note payable in accordance with FASB ASC 835-30-25,
Recognition
and are being accreted over the term of the note payable for financial statement purposes. These notes were repaid in January 2014.
During the years ended December 31, 2013, 2012 and 2011, $6,383, $65,560 and $38,035 of interest was accreted on the notes payable.
NOTE 5 - INCOME TAXES
The Company follows FASB ASC 740-10-10 whereby an entity recognizes deferred tax assets and liabilities for future tax consequences or events that have been previously recognized in the Company’s financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of enacted tax law. The effects of future changes in tax laws or rates are not anticipated.
At December 31, 2013, the Company has a net operating loss (“NOL”) that approximates $39.7 million. Consequently, the Company may have NOL carryforwards available for federal income tax purposes, which would begin to expire in 2028. Deferred tax assets would arise from the recognition of anticipated utilization of these net operating losses to offset future taxable income.
The income tax benefit (provision) consists of the following:
|
|
Year
|
|
|
Year
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Current
|
|
$
|
(5,864,000
|
)
|
|
$
|
(4,789,000
|
)
|
|
$
|
(1,020,000
|
)
|
Deferred
|
|
|
(650,000
|
)
|
|
|
(502,000
|
)
|
|
|
(79,000
|
)
|
Change in valuation allowance
|
|
|
6,514,000
|
|
|
|
5,291,000
|
|
|
|
1,099,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net benefit (provision)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The following is a reconciliation of the tax derived by applying the U.S. Federal Statutory Rate of 35% to the earnings before income taxes and comparing that to the recorded tax provisions:
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
U.S federal income tax benefit at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
$
|
(5,592,000
|
)
|
|
|
(35
|
)
|
|
$
|
(4,214,000
|
)
|
|
|
(35
|
)
|
|
$
|
(943,000
|
)
|
|
|
(35
|
)
|
State tax, net of federal tax effect
|
|
|
(959,000
|
)
|
|
|
(6
|
)
|
|
|
(704,000
|
)
|
|
|
(6
|
)
|
|
|
(159,000
|
)
|
|
|
(6
|
)
|
Non-deductible share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
(373,000
|
)
|
|
|
(3
|
)
|
|
|
3,000
|
|
|
|
-
|
|
Non-deductible other expenses
|
|
|
37,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
6,514,000
|
|
|
|
41
|
|
|
|
5,291,000
|
|
|
|
44
|
|
|
|
1,099,000
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
The primary components of the Company’s December 31, 2013 and 2012 deferred tax assets, liabilities and related valuation allowances are as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Deferred tax asset for NOL carryforwards
|
|
$
|
(16,296,000
|
)
|
|
$
|
(10,432,000
|
)
|
Deferred tax asset for stock based compensation
|
|
|
(1,290,000
|
)
|
|
|
(640,000
|
)
|
Valuation allowance
|
|
|
17,586,000
|
|
|
|
11,072,000
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
-
|
|
|
$
|
-
|
|
NOTE 6 – LITIGATION SETTLEMENT
The Company entered into a settlement agreement with an investor, whereby the Company agreed to pay the investor a settlement of $450,000 and the investor agreed to cease trading in the Company’s stock and to return warrants issued to the investor. The Company’s insurance carrier agreed to reimburse the Company with respect to this litigation. Both the settlement payment and the insurance company settlement were completed in 2013.
NOTE 7 – STOCKHOLDERS’ EQUITY
During the three months ended June 30, 2011, the Company issued 100,000 shares of common stock which were valued at the fair market value of $49,000, for consulting services.
In December 2011, the Company commenced a private placement of up to $5,000,000 consisting of up to 12,500,000 shares of the Company’s common stock and warrants to purchase up to 6,250,000 shares of the Company’s common stock. The shares and warrants were sold in units with each unit comprised of two shares and one warrant at a purchase price of $.80 per unit. During December 2011, the Company sold 625,000 units and raised $500,000. On January 11, 2012, the Company amended the Securities Purchase Agreement dated December 1, 2011, by reducing the price of one unit from $.80 to $.70. This increased the number of units to be sold from 6,250,000 units to 7,142,858 units. It also required the Company to issue to one investor an additional 89,286 units, consisting of 178,572 shares common stock and warrants to purchase an additional 89,286 shares of common stock. During the three months ended March 31, 2012, the Company issued an additional 3,922,356 units and raised $2,717,650, net of stock issuance costs of $28,000.
On April 5, 2012, the Company commenced a private placement of up to $3,500,000 consisting of up to 10,000,000 shares of the Company’s common stock and warrants to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price of $.50 per share. The shares and warrants were sold in units with each unit comprised of two shares and one warrant at a purchase price of $.70 per unit. In accordance with the terms of the offering documents, the offering amount was increased to $4 million. From April 5, 2012 to June 30, 2012, the Company sold 6,201,831 units and raised $4,341,282.
On April 2, 2012, the Company entered into a settlement agreement with a former consultant of the Company. In connection with the settlement, the Company made a settlement payment to the consultant of $30,000 and issued the consultant 350,000 shares of the Company’s common stock, which were valued at $297,500, fair value, or $.85 per share.
On April 10, 2012, a company owned by the Secretary and his wife exercised 250,000 options which raised proceeds of $10,000.
On May 2, 2012, the Company entered into a securities purchase agreement with a non-U.S. person, pursuant to which the Company issued and sold 187,500 units at a purchase price of $0.80 per unit, in consideration of gross proceeds of $150,000. Each unit consisted of: (i) two shares of the Company’s common stock, (ii) a warrant to purchase one share of the Company’s common stock at an exercise price of $0.50 per share for a term of two years, and (iii) a warrant to purchase one half share of the Company’s common stock at an exercise price of $1.00 per share for a term of three years. Pursuant to the securities purchase agreement, the purchaser also agreed to purchase an additional $850,000 of units by November 1, 2012. The Company received $950,000 as of December 31, 2012 under this agreement and received the remaining $50,000 on March 1, 2013.
On May 21, 2012, the Company issued five consultants an aggregate of 1,363,185 shares of the Company’s common stock for services, which were valued in the aggregate at $3,312,537, fair value or $2.43 per share, which was the stock price on the day of issuance.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
On May 25, 2012, an investor exercised 350,000 options which raised proceeds of $14,000.
On July 5, 2012, the Company commenced a private placement of up to $100,000 consisting of up to 125,000 units of the Company’s common stock and warrants to purchase up to 125,000 shares of the Company’s common stock at an exercise price of $.50 per share with a term of two years (“Series A Warrants”) and warrants to purchase up to 62,500 at an exercise price of $1.00 per share with a term of three years (“Series B Warrants”). The shares and warrants were sold in units with each unit comprised of two shares and one Series A warrant and one Series B warrant at a purchase price of $.80 per unit. As of August 8, 2012, the Company received gross proceeds of $100,000 under this private placement.
During November and December 2012, the Company entered into private placements for shares of the Company’s common stock. The shares were sold at a purchase price of $.70 per share. Through December 31, 2012, 7,942,858 shares were sold raising $5,560,000.
In December 2012, the Company entered into private placements for shares of the Company’s common stock. The shares were sold at a purchase price of $.75 per share. Through December 31, 2012, 666,667 shares were sold raising $500,000.
During the first quarter of 2013, the Company entered into a private placement for shares of the Company’s common stock. The shares were sold at a purchase price of $.75 per share. Through March 31, 2013, 1,133,334 shares were sold raising $850,000. Issuance costs related to this private placement were $60,783.
On April 15, 2013, the Company issued 26,521 restricted shares of the Company’s common stock to five members of the Board of Directors that were valued at $49,071. In conjunction with this the five members of the Board also received in aggregate options to purchase 1,050,000 shares of the Company’s common stock. These options were valued at $519,080, fair value. The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 29.0%, risk free interest rate of .69% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the three year vesting term.
On May 28, 2013, we entered into a Securities Purchase Agreement with accredited investors, pursuant to which we issued and sold an aggregate of 2,572,553 units at a purchase price of $1.80 per unit (the “Offering”), with each unit being comprised of one (1) share of the Company’s common stock and a warrant to purchase one-half (0.5) of a share of common stock at an exercise price of $3.00 per share for a period of three years. On May 29, 2013, we issued and sold an additional 300,000 units pursuant to the Offering. The Company retained a placement agent in connection with the Offering. The Company paid the placement agent aggregate placement agent fees in the amount of $151,408 plus $155,118 as an expense allowance. In addition, the placement agent received three year warrants to purchase an aggregate of 287,255 shares of the Company’s common stock at an exercise price of $1.80 per share (See Note 8-Stock Options and Warrants). Net proceeds of the Offering to the Company, after the expense allowance and other expenses, were approximately $4,836,157.
During May 2013, options to purchase 750,000 shares of common stock were exercised at $0.04 per share, options to purchase 300,000 shares of common stock were exercised at $0.35 per share, and options to purchase 66,667 shares of common stock were exercised at $0.75, resulting in proceeds of $185,000.
During May and June 2013, warrants to purchase 2,000,000 shares of common stock were exercised at $.04 per share and warrants to purchase 2,660,685 shares of common stock were exercised at $0.50 per share, resulting in proceeds of $1,410,342.
During July and August 2013, warrants to purchase 34,500 shares of common stock were exercised at $.50 per share, resulting in proceeds of $17,250.
In October 2013, an investor exercised 10,000 warrants to purchase common stock at $0.50 per share, resulting in proceeds of $5,000.
NOTE 8 - STOCK OPTIONS AND WARRANTS
During 2008, the Board of Directors (“Board”) of the Company adopted the 2008 Equity Incentive Plan (“2008 Plan”) that was approved by the shareholders. Under the Plan, the Company is authorized to grant options to purchase up to 25,000,000 shares of common stock to any officer, other employee or director of, or any consultant or other independent contractor who provides services to the Company. The Plan is intended to permit stock options granted to employees under the 2008 Plan to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the 2008 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options (“Non-Statutory Stock Options”). As of December 31, 2013, options to purchase 14,234,999 shares of common stock have been issued and are unexercised, and 48,334 shares are available for grants under the 2008 Plan. Of the options to purchase 14,234,999 shares that have been issued and
are unexercised, options to purchase 12,384,999 shares were granted to employees or persons who later became employees and options to purchase 1,850,000 shares were granted to non-employees.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
During 2013, the Board adopted the 2013 Equity Incentive Plan (“2013 Plan”), which was approved by stockholders at the 2013 annual meeting of stockholders. Under the 2013 Plan, the Company is authorized to grant awards of stock options, restricted stock, restricted stock units and other stock-based awards of up to an aggregate of 5,000,000 shares of common stock to any officer, employee, director or consultant. The 2013 Plan is intended to permit stock options granted to employees under the 2013 Plan to qualify as Incentive Stock Options. All options granted under the 2013 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be Non-Statutory Stock Options. As of December 31, 2013, under the 2013 Plan options to purchase 3,702,500 shares of common stock have been issued and are unexercised, and 1,297,500 shares of common stock remain available for grants under the 2013 Plan.
Of the options to purchase 3,702,500 shares of common stock that have been issued and are unexercised, options to purchase 2,172,500 shares were granted to employees or persons who later became employees and options to purchase 1,530,000 shares were granted to non-employees.
The 2008 Plan and 2013 Plan are administered by the compensation committee of the Board, which determines the persons to whom awards will be granted, the number of awards to be granted, and the specific terms of each grant, including the vesting thereof, subject to the terms of the applicable Plan.
In connection with Incentive Stock Options, the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company).
Volatility in all instances presented is the Company’s estimate of volatility that is based on the volatility of other public companies that are in closely related industries to the Company.
In 2008, the Company issued 14,950,002 warrants as part of the units included in the private placements, which were to expire three years from the date of issuance. The expiration date for unexpired and unexercised warrants was extended on January 24, 2011 to six years from the date of issuance. As of January 24, 2011, there were two directors that held warrants to purchase an aggregate of 3,142,858 shares of the Company’s common stock at $.04 per share and 100,000 shares of the Company’s common stock at $.75 per share. The warrants to purchase 3,242,858 shares of the Company’s common stock were reclassified from non-employee warrants to incentive stock warrants, because the recipients had become directors subsequent to the date of original issuance. These warrants were revalued and the incremental cost charged to expense was $16,733. There were also seven consultants that held warrants to purchase an aggregate of 564,286 shares of the Company’s common stock at $.75 per share. These warrants were revalued, at fair value, and the incremental cost charged to expense was $71,868. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 32.3%, risk free interest rate of 1.05% and expected warrant life of 3 to 3.5 years. The warrants expire 6 years from date of original issuance. The incremental fair value of the warrants was expensed immediately.
Employee and Non-Employee Director Grants
On January 27, 2012, the Company issued an employee an option to purchase 30,000 shares of the Company’s common stock at $.52 per share. These options have been valued at $3,718, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.4%, risk free interest rate of 0.8% and expected option life of five years. The options expire five years from the date of issuance. Options granted were expensed over the three year vesting term.
On February 28, 2012, the Company issued an employee an option to purchase 25,000 shares of the Company’s common stock at $.58 per share. These options have been valued at $3,120, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.0%, risk free interest rate of .8% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
On March 2, 2012, the Company issued a Board Member an option to purchase 250,000 shares of the Company’s common stock at $.58 per share. These options have been valued at $33,975, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.9%, risk free interest rate of .9% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed immediately.
On March 5, 2012, the Company issued an employee an option to purchase 25,000 shares of the Company’s common stock at $.58 per
share. These options have been valued at $2,680, fair value. The Company used the Black-Scholes option pricing model to calculate
the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.0%, risk free interest rate of .9% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
On March 31, 2012, the Company issued five employees, options to purchase 4,010,000 shares in the aggregate of the Company’s common stock at $.65 per share. These options have been valued at $759,810, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 31.2%, risk free interest rate of 1.04% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In April 2012, the Company issued six employees options to purchase an aggregate of 80,000 shares of the Company’s common stock at exercise prices ranging from $.65 to $.97 per share. These options were valued at $17,310 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 30.2% to 33.4%, risk free interest rate of .82% to 1.04% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the three year vesting term.
In June 2012, the Company issued three employees and one board member options to purchase an aggregate of 470,000 shares of the Company’s common stock at exercise prices ranging from $1.53 to $1.82 per share. These options were valued at $217,293, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 30.3% to 35.5%, risk free interest rate of .68% to .72% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the three year vesting term or immediately if there is no vesting term.
In July 2012, the Company issued one employee options to purchase an aggregate of 15,000 shares of the Company’s common stock at an exercise price of $1.23 per share. These options were valued at $5,493 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 32.9%, risk free interest rate of .61% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the three year vesting term.
In August 2012, the Company issued seven employees options to purchase an aggregate of 380,000 shares of the Company’s common stock at exercise prices ranging from $1.26 to $1.43 per share. These options were valued at $123,381, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.5% to 29.1%, risk free interest rate of .63% to .69% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the three year vesting term.
In September 2012, the Company issued one employee options to purchase 75,000 shares of the Company’s common stock at an exercise price of $1.54 per share. These options were valued at $26,303, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 24.5%, risk free interest rate of .62% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the three year vesting term or immediately if there is no vesting term.
In October 2012, the Company issued one employee options to purchase 75,000 shares of the Company’s common stock at an exercise price of $1.35 per share. These options were valued at $23,263 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 24.5%, risk free interest rate of .70% to and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the three year vesting term.
In November 2012, the Company issued thirteen employees options to purchase an aggregate of 1,295,000 shares of the Company’s common stock at exercise prices between $1.01 and $1.35 per share. These options were valued at $371,313, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility between 26.1% and 29.3%, risk free interest rate between .76% and .83% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the three year vesting term.
In January 2013, the Company issued eighteen employees options to purchase an aggregate of 260,000 shares of the Company’s common stock at exercise prices between $0.99 and $1.05 per share. These options were valued at $62,662 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility between 23.3% and 26.1%, risk free interest rate between .78% and .89% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
In February 2013, the Company issued four employees options to purchase an aggregate of 760,000 shares of the Company’s common stock at exercise prices between $1.07 and $1.21 per share. These options were valued at $199,843 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility between 22.5% and 25.1%, risk free interest rate between .78% and .88% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In March 2013, the Company issued an employee options to purchase 2,500 shares of the Company’s common stock at an exercise price of $1.36 per share. These options were valued at $728 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.5%, risk free interest rate of .76% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In April 2013, the Company issued an employee options to purchase 5,000 shares of the Company’s common stock at an exercise price of $1.67 per share. These options were valued at $933 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.5%, risk free interest rate of .76% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In April 2013, the Company issued an employee options to purchase 200,000 shares of the Company’s common stock at an exercise price of $1.56 per share. These options were valued at $74,159, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.3%, risk free interest rate of .76% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In May 2013, the Company issued two employees options to purchase an aggregate of 55,000 shares of the Company’s common stock at an exercise price of $2.16 and $2.29 per share. These options were valued at $26,954, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.5% to 25.3%, risk free interest rate of .84% to .85% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In June 2013, the Company issued two employees options to purchase an aggregate of 250,000 shares of the Company’s common stock at exercise prices of $2.40 and $2.92 per share. The vesting of 50,000 of these options is predicated on meeting certain milestones, therefore such options have not been valued. The remaining options were valued at $129,343, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.6% to 26.3%, risk free interest rate of 1.03% to 1.48% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In August 2013, the Company issued three employees options to purchase an aggregate of 210,000 shares of the Company’s common stock at exercise prices of $2.00 and $2.35 per share. These options were valued at $124,392, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 24.2% to 30.3%, risk free interest rate of 1.38% to 1.61% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In September 2013, the Company issued two employees options to purchase an aggregate of 10,000 shares of the Company’s common stock at an exercise price of $1.97 per share. These options were valued at $4,500, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 21.8%, risk free interest rate of 1.71% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In November 2013, the Company issued an employee options to purchase an aggregate of 10,000 shares of the Company’s common stock at an exercise price of $1.04 per share. These options were valued at $2,613, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.6%, risk free interest rate of 1.31% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
In December 2013, the Company issued four employees options to purchase an aggregate of 255,000 shares of the Company’s common stock at an exercise price of $1.13 per share. These options were valued at $65,523, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.2%, risk free interest rate of 1.51% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In addition in December 2013, an employee met a milestone relative to options to purchase 50,000 shares of the Company’s common stock at an exercise price of $2.40 per share. These options were valued at $687, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.3%, risk free interest rate of 1.75% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
Cumulatively and for the years ended December 31, 2013, 2012 and 2011, the Company expensed $1,627,865, $727,858, $434,093 and $16,093 relative to employee options/warrants granted. As of December 31, 2013, there was $1,521,466 of unrecognized compensation expense related to employee non-vested market-based share awards .A summary of stock option/warrant transactions for employees from January 1, 2011 to December 31, 2013 is as follows:
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Option/Warrants
|
|
|
Exercise
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Price
|
|
Outstanding, December 31, 2010
|
|
|
1,100,000
|
|
|
|
$.04 to $.90
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
625,000
|
|
|
|
0.60
|
|
|
|
0.04
|
|
Reclassified from non-employee
|
|
|
7,742,858
|
|
|
.04 to 0.90
|
|
|
|
0.09
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2011
|
|
|
9,467,858
|
|
|
|
$.04 to $.90
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
6,730,000
|
|
|
0.50 to 1.82
|
|
|
|
0.34
|
|
Issued under Private Placements
|
|
|
500,786
|
|
|
|
0.50
|
|
|
|
0.01
|
|
Reclassified from non-employee
|
|
|
810,000
|
|
|
0.50 to 0.75
|
|
|
|
-
|
|
Exercised
|
|
|
(250,000
|
)
|
|
|
0.04
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2012
|
|
|
17,258,644
|
|
|
.04 to 1.82
|
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,067,500
|
|
|
0.99 to 2.92
|
|
|
|
0.28
|
|
Reclassified to non-employee
|
|
|
(235,000
|
)
|
|
0.65 to 2.30
|
|
|
|
(0.02
|
)
|
Exercised
|
|
|
(2,816,667
|
)
|
|
0.04 to 0.75
|
|
|
|
(0.01
|
)
|
Expired/terminated
|
|
|
(698,333
|
)
|
|
0.50 to 2.92
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2013
|
|
|
16,576,144
|
|
|
|
$.04 to $2.40
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2013
|
|
|
9,613,228
|
|
|
|
$.04 to $2.30
|
|
|
$
|
0.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Life,
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2013 (years)
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
Non-Employee Grants
On January 24, 2011, the Company issued four consultants options to purchase an aggregate of 230,000 shares of the Company’s common stock at $1.00 per share. These options have been valued at $46,019, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 33.5%, risk free interest rate of 2.03% and expected option life of five years. The options expire five years from the date of issuance. Options granted were expensed when the service was provided.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
On July 1, 2011, the Company issued a consultant an option to purchase 200,000 shares of the Company’s common stock at $.91 per share. These options have been valued at $19,234, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 39.8%, risk free interest rate of 1.80% and expected option life of five years. The options expire five years from the date of issuance. Options granted were expensed when the service was provided.
On July 22, 2011, the Company issued a consultant an option to purchase 25,000 shares of the Company’s common stock at $.60 per share. These options have been valued at $4,150, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 38.0%, risk free interest rate of 1.53% and expected option life of five years. The options expire five years from the date of issuance. Options granted were expensed when the service was provided.
On August 2, 2011, the Company issued a consultant an option to purchase 20,000 shares of the Company’s common stock at $.60 per share. These options have been valued at $3,803, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 39.6%, risk free interest rate of 1.23% and expected option life of five years. The options expire five years from the date of issuance. Options granted are being expensed as the service is provided.
On August 15, 2011, the Company issued a consultant an option to purchase 150,000 shares of the Company’s common stock at $.75 per share. These options have been valued at $27,273, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 55.8%, risk free interest rate of .99% and expected option life of five years. The options expire five years from the date of issuance. Options granted were expensed when the service was provided.
On January 2, 2012, the Company issued a consultant an option to purchase 250,000 shares of the Company’s common stock at $.50 per share. These options have been valued at $51,692 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 29.2%, risk free interest rate of 0.9% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed when the service is provided.
On January 17, 2012, the Company issued a consultant an option to purchase 200,000 shares of the Company’s common stock at $.50 per share. These options have been valued at $31,437, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 28.0%, risk free interest rate of 0.8% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed when the service is provided.
On March 31, 2012, the Company issued two consultants options to purchase 100,000 shares in the aggregate of the Company’s common stock at $.65 per share. These options have been valued at $18,947, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 31.2%, risk free interest rate of 1.04% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed when the service is provided.
On April 1, 2012, the Company issued a company owned by the former manager of corporate development an option to purchase 250,000 shares of the Company’s common stock at $.70 per share pursuant to an agreement that also required a cash payment of $150,000. These options have been valued at $43,028, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 31.2%, risk free interest rate of 1.04% and expected option life of five years. The options expire five years from the date of issuance. Options granted are being expensed through May 31, 2013, the term of the agreement.
In May 2012, the Company issued a consultant options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $2.17 per share. These options were valued at $79,978 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 31.2%, risk free interest rate of .75% and expected option life of five years. The options expire five years from the date of issuance. Options granted were expensed when the services were provided.
In July 2012, the Company issued one consultant options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $1.55 per share. These options were valued at $40,373 fair value. The Company used the Black-Scholes option
pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 29.3%, risk free interest rate of .64% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed when the services are provided.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
In August 2012, the Company issued two consultants options to purchase an aggregate of 400,000 shares of the Company’s common stock at exercise prices ranging from $.35 to $1.11 per share. These options were valued at $321,221, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 27.1% to 30.5%, risk free interest rate of .27% to .67% and expected option lives of from two to five years. The options expire between two and five years from the date of issuance. Options granted will be expensed when the services are provided.
In September 2012, the Company issued a consultant options to purchase 100,000 shares of the Company’s common stock at an exercise price of $.75 per share. These options were valued at $81,697, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.6%, risk free interest rate of .27% and expected option life of two years. The options expire two years from the date of issuance. Options granted will be expensed when the service is provided.
In October 2012, the Company issued a consultant options to purchase 50,000 shares of the Company’s common stock at an exercise price of $1.14 per share. These options were valued at $5,381, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.5%, risk free interest rate of .19% and expected option life of one year. The options expire one year from the date of issuance. The options granted were expensed when the service was provided.
In November 2012, the Company issued four consultants options to purchase an aggregate of 765,000 shares of the Company’s common stock at an exercise price of $1.01 per share. These options were valued at $188,830, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 26.1%, risk free interest rate of .76% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the term of the agreement.
In December 2012, the Company issued a consultant options to purchase 500,000 shares of the Company’s common stock at an exercise price of $1.15 per share. These options were valued at $195,318, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 24.7%, risk free interest rate of .76% and expected option life of one years. The options expire five years from the date of issuance. Options granted will be expensed over the term of the agreement.
In January 2013, the Company issued a consultant options to purchase 5,000 shares of the Company’s common stock at an exercise price of $1.00 per share. These options were valued at $441 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.3%, risk free interest rate of .78% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the term of the agreement.
In March 2013, the Company issued two consultants options to purchase 1,130,000 shares of the Company’s common stock at exercise prices of $0.75 and $1.48 per share. 130,000 of these options vested immediately and were valued at $54,228, fair value. The vesting of the remaining 1 million options is predicated on meeting certain milestones, which were not met as of December 31, 2013. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.6% and 22.6%, risk free interest rate of .25% and .25%, and an expected option life of two to five years. The options expire two to five years from the date of issuance. The vested options granted, were expensed immediately. The remaining unvested options will be expensed when it is probable that the milestones will be achieved.
In March 2013, the Company issued to a consultant options to purchase 100,000 shares of the Company’s common stock at exercise prices of $1.34 per share. These options vest over a one year period and were valued at $11,664 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 21.7%, risk free interest rate of .14%, and an expected option life of 1 year
.
The options expire five years from the date of issuance. The options will be expensed over a one year period.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
In April 2013, the Company issued a consultant options to purchase 100,000 shares of the Company’s common stock at an exercise price of $2.04 per share. These options were valued at $44,603, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 26.5%, risk free interest rate of .68% and expected option life of five years. The options expire five years from the date of issuance. Options granted were expensed immediately.
In May 2013, the Company issued two consultants options to purchase 125,000 shares in the aggregate of the Company’s common stock at exercise prices ranging from $3.05 to $3.28 per share. These options were valued at $51,869, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no
dividend yield, expected volatility of 23.1% to 23.2%, risk free interest rate of .29% to .31% and expected option life of two years. The options expire two years from the date of issuance. Options granted are expensed over the term of the agreement.
In May 2013, the Company, as part of the cost of the Company’s Offering described in Note 7, issued the placement agent warrants to purchase 287,255 shares of the Company’s common stock at an exercise price of $1.80 per share. These warrants were valued at $409,749, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 23.4% to 23.7%, risk free interest rate of .49% and expected option life of three years. The warrants expire three years from the date of issuance. The warrants granted were recorded as stock issuance costs and reduced additional paid in capital.
In July 2013, the Company issued two consultants options to purchase 100,000 shares in the aggregate of the Company’s common stock at exercise prices ranging from $.75 to $2.61 per share. These options were valued at $124,338, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.8% to 26.6%, risk free interest rate of 1.35% to 1.66% and expected option life of five years. The options expire five years from the date of issuance. $124,338 was expensed immediately.
In September 2013, the Company issued a consultant options to purchase 100,000 shares of the Company’s common stock at an exercise price of $1.17 per share. These options were valued at $26,208, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.1%, risk free interest rate of 1.39% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the term of the agreement, which is three years.
In October 2013, the Company issued a consultant options to purchase 20,000 shares of the Company’s common stock at an exercise price of $1.06 per share. These options were valued at $6,132, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 30.2%, risk free interest rate of 1.33% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the term of the agreement, which is six months.
In November 2013, the Company issued a consultant options to purchase 100,000 shares of the Company’s common stock at an exercise price of $1.04 per share. These options were valued at $26,128, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.6%, risk free interest rate of 1.31% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the term of the agreement, which is one year.
On November 18, 2013, Company approved an amendment extending the term of outstanding warrants to purchase in the aggregate 8,931,505 shares of common stock of the Company at an exercise price of $0.50 per share. These warrants were scheduled to expire at various dates during 2013 and 2014 and were each extended for an additional one year period from the applicable original expiration date, with the new expiration dates ranging from December 20, 2014 to December 28, 2015. The Warrants were originally issued in private placements to accredited investors to raise additional capital during 2011 and 2012.The value of these warrant modifications was $6,540, computed by measuring the warrants immediately before and after such term extension. This was taken as a charge to operations in November 2013.
Cumulatively and for the years ended December 31, 2013, 2012 and 2011, the Company expensed $1,827,936, 857,270, $801,260 and $101,408 relative to non-employee options/warrants granted. As of December 31, 2013, there was $99,156 of unrecognized compensation expense related to such non-vested market-based share awards.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
The following table summarizes non-employee stock options/warrants of the Company from January 1, 2011 to December 31, 2013 as follows:
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Option/Warrant
|
|
|
Exercise
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Price
|
|
Outstanding, December 31, 2010
|
|
|
10,152,144
|
|
|
|
$0.04 to $2.30
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
775,000
|
|
|
0.50 to 1.00
|
|
|
$
|
0.06
|
|
Reclassified from employee
|
|
|
(7,742,858
|
)
|
|
0.04 to 0.90
|
|
|
|
0.09
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2011
|
|
|
3,184,286
|
|
|
|
$0.04 to $2.30
|
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,915,000
|
|
|
0.35 to 2.17
|
|
|
|
0.12
|
|
Issued under Private Placement
|
|
|
11,967,152
|
|
|
0.50 to 1.00
|
|
|
|
0.38
|
|
Reclassified to employee
|
|
|
(810,000
|
)
|
|
0.50 to 0.75
|
|
|
|
-
|
|
Exercised
|
|
|
(350,000
|
)
|
|
|
0.04
|
|
|
|
-
|
|
Expired
|
|
|
(375,000
|
)
|
|
0.91 to 1.00
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2012
|
|
|
16,531,438
|
|
|
0.35 to 2.30
|
|
|
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,048,750
|
|
|
0.01 to 3.28
|
|
|
|
0.18
|
|
Issued under Private Placement
|
|
|
1,723,533
|
|
|
1.80 to 3.00
|
|
|
|
0.30
|
|
Reclassified from employee
|
|
|
235,000
|
|
|
0.50 to 1.01
|
|
|
|
0.01
|
|
Exercised
|
|
|
(3,005,185
|
)
|
|
.35 to .50
|
|
|
|
-
|
|
Expired/Cancelled
|
|
|
(1,405,000
|
)
|
|
0.50 to 1.00
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2013
|
|
|
16,128,536
|
|
|
|
$0.01 to $3.28
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2013
|
|
|
14,553,536
|
|
|
|
$0.01 to $3.28
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Life,
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2013 (years)
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
NOTE 9 - OPERATING LEASES
For the years ended December 31, 2013, 2012 and 2011, total rent expense under leases amounted to $376,038, $146,319 and $34,944, respectively. At December 31, 2013, the Company was obligated under various non-cancelable operating lease arrangements for property as follows:
2014
|
|
$
|
398,120
|
|
2015
|
|
|
298,287
|
|
2016
|
|
|
200,361
|
|
|
|
|
|
|
|
|
$
|
896,768
|
|
NOTE 10 – RELATED PARTY TRANSACTIONS
From inception through December 1, 2010, the Company has utilized offices leased by affiliates of the Company without charge.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
During the years ended December 31, 2013,2012 and 2011, a consultant owning more than 5% of the Company was paid for consulting and travel expenses to provide strategic advice to the Company.
On January 1, 2013, the Company entered into an agreement with this consultant, whereby the Company would pay the consultant $12,500 per month beginning January 1, 2013 for a term of one year. In June 2013, this contract was terminated.
Consulting fees paid during the years ended December 31, 2013, 2012 and 2011 were $130,000, $187,000 and $20,000, respectively. Reimbursable business expenses of $41,459, $76,383 and $67,443 were
paid during the years ended December 31, 2013, 2012 and 2011, respectively.
During the years ended December 31, 2013, 2012 and 2011, a marketing company owned by the Secretary and his spouse was paid $0, $14,560 and $32,250, respectively.
During the years ended December 31, 2013, 2012 and 2011, the certified public accounting firm owned by the former Chief Financial Officer was paid $152,800, $143,800 and $60,000 for accounting services.
In September 2012, the Company entered into a consulting agreement with a company which is partly owned by one of our directors. The agreement granted this company options to purchase 100,000 shares of common stock on the date on which the agreement was executed. The options were valued at $81,697 and expensed in 2012. Additionally, the agreement set forth the terms under which this company could earn additional stock options based on achieving milestones related to merchant acquisition. No additional compensation was earned, and this agreement expired in November 2012.
NOTE 11 – SUBSEQUENT EVENTS
In January 2014, the Company extended the term of its Hermosa Beach, CA office lease to July 2016 and increased the size of its offices, increasing the monthly rental to $6,934.
In January 2014, the Company entered into an office lease in London which expires October 2016 at a monthly rental of £7,840.
In January 2014, the Company, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”), issued to certain private investors 50,450 shares of the Company’s Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Shares”) at an original issue price of $100 per share (the “Original Issue Price”) and warrants to purchase 5,045,000 shares of the Company’s common stock (the “Warrants”) for an aggregate purchase price of $5,045,000. Pursuant to the Purchase Agreement, the Company also granted piggyback registration rights to the holders of the Series A Preferred Shares and Warrants. The Purchase Agreement provides that the holders of the Series A Preferred Shares shall be entitled to nominate two directors of the Company. Dividends accrue at a rate of 8% and are cumulative. As of December 31, 2013, the Company had incurred and capitalized approximately $131,000 of deal costs, which were charged to additional paid in capital in January 2014 when the transaction was consummated.
In January 2014, the Company repaid the bridge notes payable of $1,000,000 plus interest.
In January 2014, the Company issued options to purchase 135,000 shares of common stock to various employees at an exercise price of $1.05 per share.
In February 2014, the Company completed a private placement offering to holders of its outstanding warrants for the purchase of shares of common stock (“Warrantholders”), pursuant to which Warrantholders who were not directors or executive officers of the Company were given the opportunity to immediately exercise all outstanding vested warrants for cash in exchange for (i) the applicable shares of common stock underlying the exercised warrant and (ii) a new two-year warrant, granting rights to acquire an equivalent number of shares of common stock as issued pursuant to the exercised warrant(s), at an exercise price of $1.00 per share (each a “Replacement Warrant”). Pursuant to the offering, the Company (i) received aggregate cash consideration of $2,521,143 from exercised warrants to purchase 5,042,287 shares of Company common stock.
In February 2014, two of our directors resigned from the board of directors, and one new board member was appointed. In connection with the new board appointment, the Company granted the new board member options to purchase 250,000 shares of the Company’s common stock. The options will vest annually over a three year period and be exercisable for a term of five years at an exercise price of $1.10 which is equal to the fair market value on the date of grant. In addition, for the two board members who resigned, the board accelerated vesting on one third of their outstanding stock options, or 833,333 options each and provided the former board members one year to exercise such stock options, after which such stock options will expire. The board also accelerated the vesting period for each such board member’s restricted stock grants, aggregating 11,656 shares.
F-24