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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

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VIRTUAL PIGGY, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

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(561) 220-0408

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal year, if Changed Since Last Report)

 

 

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  ☒    No  ☐

 

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 that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

 

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.

 

 

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 118,017,626 shares of common stock outstanding at November 14, 2016.

 

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This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included or incorporated by reference in this Quarterly Report on Form 10-Q, including without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” “believes,” “contemplates,” “targets,” “could,” “would” or “should” or the negative thereof or any variation thereon or similar terminology or expressions. Management cautions readers not to place undue reliance on any of the Company’s forward-looking statements, which speak only as of the date made.

 

We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to: our ability to raise additional capital, the absence of any operating history or revenue, our ability to attract and retain qualified personnel, our ability to develop and introduce new services and products to the market in a timely manner, market acceptance of our services and products, our limited experience in the industry, the ability to successfully develop licensing programs and generate business, rapid technological change in relevant markets, unexpected network interruptions or security breaches, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments, intense competition with larger companies, general economic conditions, and other risks discussed in this filing, the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission (the “SEC”), and the Company’s other subsequent filings with the SEC.

 

All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. The Company has no obligation to and does not undertake to update, revise, or correct any of these forward-looking statements after the date of this report.

 

 

ITEM 1. FINANCIAL STATEMENTS

 

Virtual Piggy, Inc.

Condensed Consolidated Balance Sheets

See the accompanying notes to the condensed consolidated financial statements.

 

 

Virtual Piggy, Inc.

Condensed Consolidated Statements of Operations

 (Unaudited)

 

		For the Three Months Ended								For the Nine Months
		Ended September 30,								Ended September 30,
		2016				2015				2016				2015
SALES		$	13			$	4,856			$	1,050			$	14,242
OPERATING EXPENSES
Sales and marketing			4,200				131,987				38,235				1,530,263
Product development			136,395				283,310				552,534				1,380,102
Integration and customer support			4,680				46,110				75,255				166,820
General and administrative			401,565				385,968				2,479,678				2,677,053
Strategic consulting			-				1,667				-				340,167
Total operating expenses			546,840				849,042				3,145,702				6,094,405
NET OPERATING LOSS			(546,827	)			(844,186	)			(3,144,652	)			(6,080,163	)
OTHER INCOME (EXPENSE)
Interest income			-				40				-				339
Interest expense			(132,985	)			(88,739	)			(409,563	)			(165,984	)
Cumulative translation adjustment upon closing of England office			-				206,933				-				206,933
Other income			-				-				1,085				-
Gain (loss) on disposition of fixed assets			(2,956	)			-				4,447				-
			(135,941	)			118,234				(404,031	)			41,288
NET LOSS			(682,768	)		$	(725,952	)			(3,548,683	)			(6,038,875	)
Less: Accrued preferred dividends			(268,280	)			(280,223	)			(804,841	)			(812,373	)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(951,048	)		$	(1,006,175	)		$	(4,353,524	)		$	(6,851,248	)
BASIC AND DILUTED NET LOSS PER
COMMON SHARE		$	(0.01	)		$	(0.01	)		$	(0.04	)		$	(0.06	)
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING			117,767,626				117,267,626				117,656,515				118,517,626

 

 

 

Virtual Piggy, Inc.

Condensed Consolidated Statements of Comprehensive Loss

 (Unaudited)

 

 Virtual Piggy, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Nine Months Ended September 30, 2016

 

 

See the accompanying notes to the condensed consolidated financial statements.

 

 Virtual Piggy, Inc.

Condensed Consolidated Statements of Cash Flows

 (Unaudited)

 

 

 Virtual Piggy, Inc.

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

 

Virtual Piggy, Inc. (the “Company”) was incorporated in the state of Delaware on February 11, 2008.   

 

The Company is a technology company that seeks to deliver an online ecommerce solution for the family. The Company’s system allows parents and their children to manage, allocate funds and track their expenditures, savings and charitable giving online. The system is designed to allow a minor to transact online without a credit card by gaining the parents’ permission ahead of time and allowing the parent to set up the rules of use. The Company’s Oink product offering was discontinued in March 2016.
 

The Company believes that a future alternative for Virtual Piggy’s technology will revolve around the FinTech industry with a partner-first go to market model in which established payments market leaders and vertical market participants can incorporate and integrate the Company’s platform into co-branded payments solutions targeting youth and family.  The Company also believes this approach will enable the Company to reduce expenses while broadening its reach.

Within this affinity partner model, the Company will seek to incorporate licensing fees and customization services.  This would enable the company to begin creating shareholder value above and beyond consumer transaction fees.

The Company is also analyzing specific components of our technology for individual monetization as well as exploring opportunities in the Business to Business (“B2B”) realm.

In addition, the Company is currently adding enhancements to the platform, to enable the platform to update itself with any new regulations that are passed, in order to reduce costs associated with manually updating the platform.  This will also enable the Company to market the platform to other companies in need of a solution to comply with the Children’s Online Privacy Protection Act (“COPPA”) or other regulatory requirements.

 

The Company’s primary strategic objective over the next 12 -18 months is to increase the value of the underlying technical assets of the Company by incorporating new essential functionality that will act as a key differentiator in the financial services market.  In addition, the Company is redirecting its marketing efforts to increase its user base by entering into affinity marketing agreements with companies targeting specific user communities.  This approach should greatly reduce the expense associated with direct marketing efforts.

    

The Company’s principal office is located in Palm Beach, Florida.

On December 3, 2015, Finity, Inc. was incorporated as a wholly owned subsidiary of the Company.  On December 11, 2015, Finity, Inc. changed its name to Finitii, Inc.  Finitii, Inc. was established as a not for profit entity for the purpose of teaching children financial literacy.  Finitii, Inc. has had no operations since it was formed.

 

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the SEC. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

 

 

The accompanying condensed consolidated financial statements of Virtual Piggy, Inc. and its wholly owned subsidiary, Finitii, Inc. (collectively the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America.  All intercompany transactions have been eliminated in consolidation.

The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional financing to operationalize the Company’s current technology before another company develops similar technology to compete with the Company.

 

As of September 30, 2016 and for the period then ended, there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.

 

 

As of September 30, 2016, there are no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements through 2017.

 

NOTE 2 – MANAGEMENT PLANS

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 since inception.  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 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.

The Company’s current monetization model is to license its platform to merchants, financial institutions and others to enable them to provide COPPA compliant services for themselves and their customers.

As of November 14, 2016, the Company has a cash position of approximately $340,000.  Based upon the current cash position and the Company’s planned expense run rate, management believes the Company has funds currently to finance its operations through November 2016.

NOTE 3 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES – RELATED PARTIES

 

The Company owes the Chief Executive Officer a total of $39,603 as of September 30, 2016, including unpaid salary of $31,769 and expenses of $7,834.

The Company also owes the Chief Financial Officer a total of $37,694 as of September 30, 2016, including unpaid salary of $23,256, health insurance of $4,725 and unpaid accounting services, to the Chief Financial Officer’s accounting firm for services provided prior to his becoming the Chief Financial Officer of the Company, in the amount of $6,513 as well as services to prepare corporate income tax returns in the amount of $3,200.

 

 

The Company owes the Chief Executive Officer’s brother $2,000 for development work that he is providing under a consulting agreement.  

 

NOTE 4 – 10% SECURED CONVERTIBLE PROMISSORY NOTES PAYABLE

 

On March 6, 2015, the Company, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”), issued $2,000,000 aggregate principal amount of its 10% Secured Convertible Promissory Notes due March 5, 2016 (the “Notes”) to certain stockholders.  On May 11, 2015, the Company issued an additional $940,000 of Notes to stockholders.  The maturity dates of the Notes were extended to March 5, 2017 with the consent of the Note holders.

 

On May 5, 2016, the Company issued an additional $100,000 of Notes to stockholders.

Of the $3,040,000 of Notes, $150,000 were exchanged for 3.5% Secured Convertible Promissory Notes on August 26, 2016 (See Note 5).

The Notes are convertible by the holders, at any time, into shares of the Company’s Series B Preferred Stock at a conversion price of $90.00 per share, subject to adjustment for stock splits, stock dividends and similar transactions with respect to the Series B Preferred Stock only.  Each share of Series B Preferred Stock is currently convertible into 100 shares of the Company’s common stock at a current conversion price of $0.90 per share, subject to anti-dilution adjustment as described in the Certificate of Designation of the Series B Preferred Stock.  In addition, pursuant to the terms of a Security Agreement entered into on May 11, 2015 by and among the Company, the Investors and a collateral agent acting on behalf of the Investors (the “Security Agreement”), the Notes are secured by a lien against substantially all of the Company’s business assets.  Pursuant to the Purchase Agreement, the Company also granted piggyback registration rights to the holders of the Series B Preferred Stock upon a conversion of the Notes.

On August 26, 2016, the Company exchanged in total $2,029,364 principal amount of previously unsecured notes payable of $1,685,000, accounts payable of $143,793, accrued interest of $123,658 and commitment fees of $76,913, for 10% Secured Convertible Prmissory Notes, which are now due March 5, 2017.  Of these notes, $460,100 were subsequently exchanged for 3.5% Secured Convertible Notes.

The Notes are recorded as a current liability as of September 30, 2016, in a total amount of $4,459,264. Interest accrued on the notes was $465,489 and $225,452 as of September 30, 2016 and December 31, 2015.  Interest expense related to these notes payable was $117,260 and $193,052 for the three and nine months ended September 30, 2016 and $74,104 and $151,348 for the three and nine months ended September 30, 2015.

 

NOTE 5 – 3.5% SECURED CONVERTIBLE PROMISSORY NOTES PAYABLE

On August 26, 2016, Virtual Piggy, Inc. (the “Company”), pursuant to a Securities Purchase Agreement (the “Purchase Agreement”), issued $600,000 aggregate principal amount of its 3.5% Secured Convertible Promissory Notes due June 30, 2018 (the “New Secured Notes”) to certain accredited investors (the “Investors”),  The aggregate consideration provided in the New Secured Note Offering consisted of $300,000 in cash and the exchange of $300,000 outstanding principal amount of 10% Secured Convertible Promissory Notes due March 6, 2017 (the “Prior Secured Notes”) for New Secured Notes.

In addition, in September 2016, the Company issued $820,200 aggregate principal amount of its 3.5% Secured Convertible Promissory Notes to certain accredited investors.  The aggregate consideration provided consisted of $510,100 in cash and the exchange of $310,100 outstanding principal amount of 10% Secured Convertible Promissory Notes.

The New Secured Notes are convertible by the holders, at any time, into shares of the Company’s newly authorized Series C Cumulative Convertible Preferred Stock (“Series C Preferred Stock”) at a conversion price of $90.00 per share, subject to adjustment for stock splits, stock dividends and similar transactions with respect to the Series C Preferred Stock only.  Each share of Series C Preferred Stock is currently convertible into 100 shares of the Company’s common stock at a current conversion price of $0.90 per share, subject to full ratchet anti-dilution adjustment for one year and weighted average anti-dilution adjustment thereafter, as described in the Certificate of Designation of the Series C Preferred Stock.  Upon a liquidation event, the Company shall first pay to the holders of the Series C Preferred Stock, on a pari passu basis with the holders of the Company’s outstanding Series A Preferred Stock and Series B Preferred Stock, an amount per share equal to 700% of the conversion price (i.e., $630.00 per share of Series C Preferred Stock), plus all accrued and unpaid dividends on each share of Series C Preferred Stock (the “Series C Preference Amount”).  The Series C Preference Amount shall be paid prior and in preference to payment of any amounts to the Common Stock.  After the payment of all preferential amounts required to be paid to the holders of shares of Series C Preferred Stock, Series A Preferred Stock, Series B Preferred Stock and any additional senior preferred stock, the Series C Preferred Stock participates in further distributions subject to an aggregate cap of seven and one-half times (7.5x) the original issue price thereof, plus all accrued and unpaid dividends.

 

 

The Notes are recorded as a long-term liability as of September 30, 2016.  Interest accrued on the notes was $4,766 and $0 as of September 30, 2016 and December 31, 2015.  Interest expense related to these notes payable was $4,766 for the three and nine months ended September 30, 2016 and $0 for the three and nine months ended September 30, 2015.

NOTE 6 – NOTES PAYABLE - STOCKHOLDERS

 

On January 15 and 19, 2016, the Company entered into agreements with two stockholders that includes notes payable in the aggregate amount of $62,500, and two-year warrants to purchase 12,500 shares of the Company’s common stock at $0.90. The notes bear interest at 10% per annum, and mature on the six month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of the 10% Secured Convertible Promissory Notes.

 

On January 29 and February 3, 2016, the Company entered into agreements with two stockholders that includes notes payable in the aggregate amount of $90,000, and two-year warrants to purchase 18,000 shares of the Company’s common stock at $0.90. The notes bear interest at 10% per annum, and mature on the six month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of the 10% Secured Convertible Promissory Notes.

 

On February 23, 2016, the Company entered into agreements with three stockholders that includes notes payable in the aggregate amount of $26,000, and two-year warrants to purchase 5,200 shares of the Company’s common stock at $0.90 per share.  The notes bear interest at 10% per annum, and mature on the six month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of the 10% Secured Convertible Promissory Notes.

 

 

 

On March 2, 2016, the Company entered into an agreement with a stockholder that includes a note payable in the amount of $5,000, and two-year warrants to purchase 1,000 shares of the Company’s common stock at $0.90. The note bears interest at 10% per annum, and matures on the six month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of the 10% Secured Convertible Promissory Notes.

 

On March 4, 2016, the Company entered into an agreement with a stockholder that includes a note payable in the amount of $100,100, and two-year warrants to purchase 20,020 shares of the Company’s common stock at $0.90. The note bears interest at 10% per annum, and matures on the six month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of the 10% Secured Convertible Promissory Notes.  This note contains a 7.5% commitment fee, which is payable upon maturity of the note.

On March 15, 2016, the Company entered into an agreement with a stockholder that includes notes payable in the amount of $200,000, and two-year warrants to purchase 40,000 shares of the Company’s common stock at $0.90 per share.  The note bears interest at 10% per annum, and matures on the six month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of the 10% Secured Convertible Promissory Notes.  This note contains a 7.5% commitment fee, which is payable upon maturity of the note.

 

On April 18, 2016, the Company issued $20,000 in aggregate principal amount of unsecured Promissory Notes to two accredited investors pursuant to Promissory Note Agreements.  The Investors also received two-year Warrants to purchase an aggregate of 4,000 shares of Company common stock at an exercise price of $0.90 per share.  The Notes bear interest at a rate of ten percent (10%) per annum and mature on the six (6) month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of 10% Secured Convertible Promissory Notes.

 

 

On April 20, 2016, the Company issued $5,000 in aggregate principal amount of unsecured Promissory Notes to an accredited investor pursuant to Promissory Note Agreements.  The Investors also received two-year Warrants to purchase an aggregate of 1,000 shares of Company common stock at an exercise price of $0.90 per share.  The notes bear interest at a rate of ten percent (10%) per annum and mature on the six (6) month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of 10% Secured Convertible Promissory Notes.

On April 25, 2016, the Company issued a $50,000 principal amount unsecured Promissory Note to an accredited investor pursuant to a Promissory Note Agreement.  The Investor also received two-year Warrants to purchase an aggregate of 10,000 shares of Company common stock at an exercise price of $0.90 per share.  The note bears interest at a rate of ten percent (10%) per annum and matures on the six (6) month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of 10% Secured Convertible Promissory Notes.

On June 1, 2016, the Company issued a $50,000 principal amount unsecured Promissory Note to an accredited investor pursuant to a Promissory Note Agreement.  The Investor also received two-year Warrants to purchase an aggregate of 10,000 shares of Company common stock at an exercise price of $0.90 per share.  The note bears interest at a rate of ten percent (10%) per annum and matures on the six (6) month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of 10% Secured Convertible Promissory Notes.

 

On June 9, 2016, the Company issued a $50,000 principal amount unsecured Promissory Note to an accredited investor pursuant to a Promissory Note Agreement.  The Investor also received two-year Warrants to purchase an aggregate of 10,000 shares of Company common stock at an exercise price of $0.90 per share.  The note bears interest at a rate of ten percent (10%) per annum and matures on the six (6) month anniversary of the issuance date, or on such earlier date that (i) the Company completes the closing of a specified joint venture agreement or (ii) the Company completes the sale of at least an additional $1 million of 10% Secured Convertible Promissory Notes.

All of these notes payable, accrued interest and commitment fees were exchanged for 10% Secured Promissory Notes on August 26, 2016 (See Note 4).

 

NOTE 7 – LOANS PAYABLE

During the three months ended June 30, 2016, the Company received loans in the aggregate amount of $9,000.  These loans hade no formal repayment terms and were not accruing interest and were repaid in full during the three months ended September 30, 2016.

NOTE 8 – INCOME TAXES

 

Income tax expense was $0 for the three and nine months ended September 30, 2016 and 2015.

 

As of January 1, 2016, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2016 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the nine months ended September 30, 2016, and there was no accrual for uncertain tax positions as of September 30, 2016. Tax years from 2012 through 2015 remain subject to examination by major tax jurisdictions.

 

There is no income tax benefit for the losses for the three and nine months ended September 30, 2016 and 2015, since management has determined that the realization of the net tax deferred asset is not assured and has created a valuation allowance for the entire amount of such benefits.

 

 

NOTE 9 – CONVERTIBLE PREFERRED STOCK

As of September 30, 2016, the value of the cumulative 8% dividends for all preferred stock was $2,609,143.  Such dividends will be paid when and if declared payable by the Company’s board of directors or upon the occurrence of certain liquidation events.  In accordance with FASB ASC 260-10-45-11, the Company has recorded these accrued dividends as a current liability.

 

 NOTE 10 – STOCKHOLDERS’ EQUITY

In February 2015, the Board of Directors of the Company approved amendments extending the term of outstanding warrants to purchase in the aggregate 3,877,970 shares of common stock of the Company at exercise prices ranging from $0.01 per share to $1.00 per share.  These warrants were scheduled to expire at various dates during 2015 and were each extended for an additional one year period from the applicable current expiration date, with the new expiration dates ranging from February 23, 2016 to December 28, 2016.  The increase in fair value of this term extension was $219,051, which was expensed in 2015. The Company used the Black-Scholes option pricing model to calculate the increase in fair value, with the following assumptions for the extended warrants: no dividend yield, expected volatility of 95.1%, risk free interest rate of 0.22%, and expected warrant life of 1.28 years.

In February 2015, the Company extended options previously granted to two of its executive officers, which included 3,500,000 options exercisable at $0.04 per share.  The increase in fair value of this term extension was $9,692 which was expensed during the period. The Company used the Black-Scholes option pricing model to calculate the increase in fair value after the extension, with the following assumptions: no dividend yield, expected volatility of 96.4%, risk free interest rate of 0.64%, and expected option life of 2 years.

On January 25, 2016, the Board of Directors approved amendments extending the term of outstanding warrants to purchase in the aggregate 24,372,838 shares of common stock of the Company at exercise prices ranging from $0.01 per share to $3.00 per share (the “Warrants”).  These Warrants were scheduled to expire at various dates during 2016 and were each extended for an additional one year period from the applicable current expiration date, with the new expiration dates ranging from January 26, 2017 to December 28, 2017.  The increase in fair value of this term extension was $1,305,411 which was expensed during the three months ended March 31, 2016. The Company used the Black-Scholes option pricing model to calculate the increase in fair value, with the following assumptions for the extended warrants: no dividend yield, expected volatility of 161.3%, risk free interest rate of 0.47%, and expected warrant life of 1.27 years.

 

On April 14, 2016, the Company appointed a new Chief Executive Officer and Chairman of the Board, with such appointments taking effect on April 18, 2016.  In connection with his appointment, the Company also simultaneously entered into an Employment Agreement with the Chief Executive Officer and Chairman of the Board, pursuant to which he will be employed on an at will basis at an annual salary of $240,000 during the first year of employment.  He also received options to purchase 3,000,000 shares of the Company’s common stock at an exercise price of $0.90 per share, vesting over three years and 500,000 shares of restricted stock, 250,000 of which vest immediately and the remainder vest on the one year anniversary of his employment.  The options were valued at $196,505 fair value using the Black-Scholes option pricing model to calculate the fair value, with the following assumptions: no dividend yield, expected volatility of 121.7%, risk free interest rate of 1.24%, and expected option life of 5 years.

 

A restricted stock award (“RSA”) is an award of common shares that is subject to certain restrictions during a specified period. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of the restrictions. The grantee cannot transfer the shares before the restricted shares vest. Shares of nonvested restricted stock have the same voting rights as common stock, are entitled to receive dividends and other distributions thereon and are considered to be currently issued and outstanding. The Company’s restricted stock awards generally vest over a period of one year. The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, straight-line over the period during which the restrictions lapse. For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s common stock on the grant date.  The RSAs were valued at $55,000 based on the market price of the shares on the issuance date, which was $0.11.  The value of the 250,000 RSAs that vested immediately, or $27,500, was expensed immediately and the remainder was recorded as deferred compensation and is being amortized.  For the three and nine months ended September 30, 2016 $6,875 and $38,958 was expensed and for the three and nine months ended September 30, 2015 $0 was expensed.

 

The remaining value of the previous CEO’s RSAs included in deferred compensation in the amount of $48,125 was reclassified to additional paid in capital upon her resignation and the Company reversed expense of $10,312 relative to her departure.

 

 

Risk-free interest rate			1.19	%
Expected volatility			128.6	%
Expected life (in years)			5.0
Dividend yield			0	%
Weighted-average estimated fair value of options granted during the period		$	0.07

		Options Outstanding
										Weighted -
										Average
										Remaining				Aggregate
						Weighted-				Contractual				Intrinsic
		Number of				Average				Term				Value
		Shares				Exercise Price				in years)				(in 000's) (1)
Balance December 31, 2015			8,822,500			$	0.76				2.6
Granted			4,325,000				0.79
Cancelled/forfeited/expired			(1,990,001	)		$	(0.81	)
Balance September 30, 2016			11,157,499			$	0.76				2.5			$	364
Exercisable at September 30, 2016			6,915,833			$	0.77				1.5			$	247
Exercisable at September 30, 2016 and expected to
vest thereafter			11,157,499			$	0.76				2.5			$	364

										Remaining				Aggregate
						Weighted-				Contractual				Intrinsic
		Number of				Average				Term				Value
		Shares				Exercise Price				in years)				(in 000's) (1)
Balance December 31, 2015			26,365,896			$	1.02				0.4
Expired			(1,242,858	)			(0.10	)			-
Granted			131,700			$	0.90				2.0
Balance September 30, 2016			25,254,738			$	1.07				0.6			$	29
Exercisable at September 30, 2016			25,254,738			$	1.07				0.6			$	29
Exercisable at September 30, 2016 and expected to
vest thereafter			25,254,738			$	1.07				0.6			$	29

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

	VIRTUAL PIGGY, INC.
	By:	/s/ Scott McPherson
		Scott McPherson
		Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)
Date: November 14, 2016