10-Q 1 s8812110q.htm FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012 s8812110q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2012

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

For the transition period from         ______________    to   ______________                
 
Commission file number    000-53944
 
                                                                                         
VIRTUAL PIGGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
35-2327649
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)

1221 Hermosa Avenue, Suite 210
Hermosa Beach, CA 90254
(Address of Principal Executive Offices) (Zip Code)

(310) 853-1949
(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 ý 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 Regulations 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  ý 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.

Large accelerated filer
¨
Accelerated filer                     
o
Non-accelerated filer
¨
Smaller reporting company    
x
(Do not check if a smaller reporting company)
     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ¨  NO ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  91,557,983 shares of common stock outstanding at August 14, 2012.
 


 
 

 
 
TABLE OF CONTENTS
Page No.
   
   
PART I
FINANCIAL INFORMATION
 
     
3
27
     
34
     
PART II
OTHER INFORMATION
 
     
35
35
 
 
 
 
 
 
 
PART I - FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS.
 
Virtual Piggy, Inc.
 (A Development Stage Company)

Financial Statements

June 30, 2012
 
 
CONTENTS
 
 
 
 
 
Virtual Piggy, Inc.
(A Development Stage Company)
Balance Sheets

     
June 30, 2012
   
December 31, 2011
 
     
(Unaudited)
   
(Audited)
 
 
ASSETS
           
               
CURRENT ASSETS
           
 
Cash and cash equivalents
  $ 4,545,345     $ 186,159  
 
Accounts Receivable
    1,367       2,500  
 
Prepaid expenses
    16,000       1,765  
                   
TOTAL CURRENT ASSETS
    4,562,712       190,424  
                   
PROPERTY AND EQUIPMENT
               
 
Computer equipment
    39,913       15,679  
 
Furniture and fixtures
    43,247       -  
        83,160       15,679  
 
Less:  accumulated depreciation
    (10,347 )     (6,244 )
        72,813       9,435  
                   
OTHER ASSETS
               
 
Deposit
    87,367       2,667  
 
Patents and trademarks, net of accumulated amoritization of
               
 
  $5,794 and $1,622
    239,174       78,013  
        326,541       80,680  
                   
                   
TOTAL ASSETS
  $ 4,962,066     $ 280,539  
                   
                   
 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
                   
CURRENT LIABILITIES
               
 
Accounts payable and accrued expenses
  $ 374,756     $ 358,513  
 
Notes payable, net of discount of $0 and $65,560
    -       284,440  
                   
TOTAL CURRENT LIABILITIES
    374,756       642,953  
                   
STOCKHOLDERS' EQUITY
               
                   
 
Preferred stock, $.0001 par value; 2,000,000 shares authorized;
               
 
  none issued and outstanding at June 30, 2012 and
               
 
  December 31, 2011
    -       -  
                   
 
Common stock, $ .0001 par value; 150,000,000 shares authorized;
               
 
  91,307,983 and 66,871,422 shares issued and outstanding at
               
 
   June 30, 2012 and December 31, 2011
    9,131       6,687  
 
 
               
 
Common stock subscribed
    550,000       -  
                   
  Common stock subscription receivable     (550,000)       -  
                   
 
Additional paid in capital
    18,660,448       7,065,247  
                   
 
Deficit accumulated during the development stage
    (14,082,269 )     (7,434,348 )
                   
STOCKHOLDERS' EQUITY (DEFICIT)
    4,587,310       (362,414 )
                   
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 4,962,066     $ 280,539  
 
See accompanying notes to these financial statements.
 
Virtual Piggy, Inc.
 (A Development Stage Company)
Statements of Operations
For the Three and Six Months Ended June 30, 2012 and 2011 and
For the period February 11, 2008 (Date of Inception) to June 30, 2012
(Unaudited)
 
 
         
Three Months
   
Three Months
   
Six Months
   
Six Months
 
   
Cumulative
   
Ended
   
Ended
   
Ended
   
Ended
 
   
Since
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
Inception
   
2012
   
2011
   
2012
   
2011
 
                               
SALES
  $ 5,113     $ 19     $ 1,100       1,187     $ 1,426  
                                         
OPERATING EXPENSES
                                       
      General and administrative
    1,621,069       530,218       108,994       871,396       234,939  
      Consulting (a)
    7,296,188       3,538,276       321,695       4,180,125       649,790  
      Payroll (b)
    1,284,800       647,761       -       854,737       16,733  
      Professional fees
    1,267,570       97,399       82,608       242,312       186,057  
      Research and development
    994,463       80,773       144,845       167,379       222,571  
      Travel
    1,095,947       156,369       38,786       244,137       109,713  
Total operating expenses
    13,560,037       5,050,796       696,928       6,560,086       1,419,803  
                                         
OTHER INCOME (EXPENSE)
                                       
     Interest income
    4,489       1,221       622       1,538       1,667  
     Interest expense (c)
    (531,834 )     (53,454 )     -       (90,560 )     -  
      (527,345 )     (52,233 )     622       (89,022 )     1,667  
                                         
NET LOSS
  $ (14,082,269 )   $ (5,103,010 )   $ (695,206 )   $ (6,647,921 )   $ (1,416,710 )
                                         
BASIC AND DILUTED NET LOSS PER
                                       
    COMMON SHARE
          $ (0.06 )   $ (0.01 )   $ (0.09 )   $ (0.02 )
                                         
BASIC AND DILUTED WEIGHTED AVERAGE
                                       
    COMMON SHARES OUTSTANDING
            84,681,306       65,404,755       77,332,126       65,388,089  
 
  (a) - includes share-based compensation of $5,502,590 cumulative, $3,322,708 and $3,671,544 for the three and six months ended June 30, 2012 and $50,148 and $168,141 for the three and six months ended June 30, 2011.
  (b) - includes share-based compensation of $584,949 cumulative, $154,519 and $193,169 for the three and six months ended June 30, 2012 and $0 and $16,733 for the three and six months ended June 30, 2011.
  (c) - includes amortization of deferred costs of $78,243 cumulative, and $0 for the three six months ended June 30, 2012 and 2011.  Also includes $426,095 accretion of discount on notes payable cumulative, and $28,454 and $65,560 for the three and six months ended June 30, 2012 and $0 for the three and six months ended June 30, 2011.
 
Virtual Piggy, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders’ Equity (Deficit)
For the Period February 11, 2008 (Date of Inception) to June 30, 2012
 
                                 
Deficit
       
   
Common
                     
Accumulated
       
   
Stock
          Common Stock    
Additional
   
During the
       
   
Number of
         
Common Stock
    Subscription    
Paid-In
   
Development
       
   
Shares
   
Amount
   
Subscribed
   
Receivable
   
Capital
   
Stage
   
Total
 
                                           
Issuance of initial 19,000,000 shares on February 11, 2008 at $.001
per share
    19,000,000     $ 1,900     $ -     $ -     $ 17,100     $ -     $ 19,000  
Issuance of shares of common stock and 14,285,716 warrants in
February 2008 through private placement at $.035 per unit
    7,142,858       714       -       -       249,286       -       250,000  
Employee options issued for services on March 3, 2008, vested
immediately and valued at $.02 per share
    -       -       -       -       8,825       -       8,825  
Nonemployee options issued for services on March 3,2008, vested immediately and valued at $.02 per share
    -       -       -       -       107,859       -       107,859  
Exercise of options on May 8, 2008 at $.04 per share
    500,000       50       -       -       19,950       -       20,000  
Issuance of shares of common stock and 614,286 warrants in May
and September 2008 through private placement at $.75 per unit
    6,642,858       665       -       -       231,835       -       232,500  
Options issued for services in June 2008, vested immediately and valued at $.07 per share
    -       -       -       -       395,467       -       395,467  
Nonemployee options issued for services in June 19, 2008, vested immediately and valued at $.01 per share
    -       -       -       -       918       -       918  
Issuance of shares of common stock to investors in August
2008 at $1.00 per share
    2,560       -       -       -       2,560       -       2,560  
Exercise of options in September 2008 at $.04 per share
    1,750,000       175       -       -       69,825       -       70,000  
Exercise of warrants in September 2008 at $.04 per share
    250,000       25       -       -       9,975       -       10,000  
Net loss
    -       -       -       -       -       (983,886 )     (983,886 )
                                                         
Balance, December 31, 2008
    35,288,276       3,529       -       -       1,113,600       (983,886 )     133,243  
                                                         
Exercise of options on January 26, 2009 at $.04 per share
    1,000,000       100       -       -       39,900       -       40,000  
Issuance of shares of common stock on April 7, 2009 at $1.00
per share
    400,000       40       -       -       399,960       -       400,000  
Issuance of shares of common stock on June 29, 2009 valued at $2.00 per share
    100,000       10       -       -       199,990       -       200,000  
Exercise of options on July 30, 2009 at $.04 per share
    1,000,000       100       -       -       39,900       -       40,000  
Nonemployee options issued for services on August 18, 2009, vested immediately and valued at $.31 per share
    -       -       -       -       10,462       -       10,462  
Exercise of warrants on August 21, 2009 at $.04 per share
    1,000,000       100       -       -       39,900       -       40,000  
Exercise of options on September 2, 2009 at $.04 per share
    500,000       50       -       -       19,950       -       20,000  
Issuance of shares of common stock on September 17, 2009 at $1.00 per share
    100,000       10       -       -       99,990       -       100,000  
Issuance of shares of common stock for future services on
October 9, 2009 valued at $1.00 per share
    1,080,427       108       -       -       1,080,319       -       1,080,427  
Issuance of shares of common stock on October 16, 2009 at
$1.00 per share
    100,000       10       -       -       99,990       -       100,000  
Exercise of warrants on October 22, 2009 at $.04 per share
    1,000,000       100       -       -       39,900       -       40,000  
Exercise of warrants on December 2, 2009 at $.04 per share
    1,000,000       100       -       -       39,900       -       40,000  
Exercise of options on December 10, 2009 at $.04 per share
    250,000       25       -       -       9,975       -       10,000  
Exercise of warrants on December 31, 2009 at $.04 per share
    1,000,000       100       -       -       39,900       -       40,000  
Stock issuance costs
    -       -       -       -       (65,000 )     -       (65,000 )
Nonemployee options issued for services on March 3,2008, vested immediately and valued at $.02 per share
    -       -       -       -       37,506       -       37,506  
Nonemployee options issued for services in June 19, 2008,
vested immediately and valued at $.01 per share
    -       -       -       -       636       -       636  
Net loss
    -       -       -       -       -       (2,236,476 )     (2,236,476 )
                                                         
Balance, December 31, 2009
    43,818,703       4,382       -       -       3,246,778       (3,220,362 )     30,798  
 
See accompanying notes to these financial statements.
 
Virtual Piggy, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders’ Equity (Deficit) (Continued)
For the Period February 11, 2008 (Date of Inception) to June 30, 2012
 
                                 
Deficit
       
   
Common
                     
Accumulated
       
   
Stock
          Common Stock    
Additional
   
During the
       
   
Number of
         
Common Stock
    Subscription    
Paid-In
   
Development
       
   
Shares
   
Amount
   
Subscribed
    Receivable    
Capital
   
Stage
   
Total
 
Exercise of options on January 5, 2010 at $.04 per share
    1,000,000       100       -       -       39,900       -       40,000  
Exercise of warrant on February 22, 2010 at $.04 per share
    892,858       89       -       -       35,624       -       35,713  
Exercise of warrants in March 2010 at $.04 per share
    1,000,000       100       -       -       39,900       -       40,000  
Exercise of warrants in April 2010 at $.04 per share
    2,500,000       250       -       -       99,750       -       100,000  
Issuance of shares of common stock in conjunction with
notes payable in May through August 2010
    483,750       48       -       -       400,694       -       400,742  
Issuance of shares of common stock for retirement of 400,000
options at $.25 per share
    65,000       6       -       -       (6 )     -       -  
Issuance of share of common stock from August through
December 2010 through private placement at $.20 per share
    9,625,000       963       -       -       1,924,037       -       1,925,000  
Issuance of shares of common stock on November 1, 2010 for
the conversion of notes payable at $.20 per share
    375,000       38       -       -       74,962       -       75,000  
Issuance of shares of common stock on November 19, 2010 for
future services valued at $.90 per share
    111,111       11       -       -       99,989       -       100,000  
Exercise of options on December 2, 2010 at $.04 per share
    3,000,000       300       -       -       119,700       -       120,000  
Exercise of warrants in December 2010 at $.04 per share
    2,500,000       250       -       -       99,750       -       100,000  
Nonemployee options issued for services from August through
November 2010, vested immediately and valued at $.01 per share
    -       -       -       -       13,816       -       13,816  
Nonemployee options issued for services on August 18, 2009,
vested immediately and valued at $.31 per share
    -       -       -       -       27,899       -       27,899  
Net loss
    -       -       -       -       -       (1,489,190 )     (1,489,190 )
                                                         
Balance, December 31, 2010
    65,371,422       6,537       -       -       6,222,793       (4,709,552 )     1,519,778  
                                                         
Issuance of shares of common stock for future services on
June 1, 2011 valued at $.49 per share
    100,000       10       -       -       48,990       -       49,000  
Issuance of shares of common stock in conjunction with notes
payable from September through December 2011
    150,000       15       -       -       82,650       -       82,665  
Issuance of shares of common stock and 625,000 warrants on
December 20, 2011 through private placement at $.80 per unit
    1,250,000       125       -       -       499,875       -       500,000  
Issuance of warrants in conjunction with notes payable from
September through December 2011
    -       -       -       -       20,930       -       20,930  
Fair value of revalued warrants at $.09 to $.76 per share
    -       -       -       -       88,601       -       88,601  
Nonemployee options issued for services from August through
November 2010, vested immediately and valued at $.01 per share
    -       -       -       -       3,146       -       3,146  
Nonemployee options issued for services on January 24, 2011,
vested immediately and valued at $.20 per share
    -       -       -       -       46,019       -       46,019  
Nonemployee options issued for services from July through August
2011, vested immediately and valued from $.10 to $.19 per share
    -       -       -       -       52,243       -       52,243  
Net loss
    -       -       -       -       -       (2,724,796 )     (2,724,796 )
                                                         
Balance December 31, 2011 (Audited)
    66,871,422       6,687       -       -       7,065,247       (7,434,348 )     (362,414 )
 
See accompanying notes to these financial statements.
 
Virtual Piggy, Inc.
(A Development Stage Company)
Statement of Changes in Stockholders’ Equity (Deficit) (Continued)
For the Period February 11, 2008 (Date of Inception) to June 30, 2012
 
                                 
Deficit
       
   
Common
                     
Accumulated
       
   
Stock
          Common Stock    
Additional
   
During the
       
   
Number of
         
Common Stock
    Subscription    
Paid-In
   
Development
       
   
Shares
   
Amount
   
Subscribed
    Receivable    
Capital
   
Stage
   
Total
 
Issuance of shares of common stock and 10,213,474 warrants through
June 30, 2012 through private placement at $.70 per unit
    20,426,948       2,043       -       -       7,084,888       -       7,086,932  
Issuance of shares of common stock and 562,500 warrants through
June 30, 2012 through private placement at $.80 per unit
    1,125,000       113       -       -       449,887       -       450,000  
Issuance of shares of common stock for services on May 21, 2012
valued at $2.43 per share
    1,363,185       136       -       -       3,312,401       -       3,312,537  
Issuance of shares of common stock and 285,714 warrants to discharge
notes payable and accrued interest valued at $.70 per unit
    571,428       57       -       -       199,943       -       200,000  
Issuance of shares of common stock with respect to a settlement
agreement valued at $.85 per share
    350,000       35       -       -       297,465       -       297,500  
Exercise of options on April 10, 2012 at $.04 per share
    250,000       25       -       -       9,975       -       10,000  
Exercise of options on May 25, 2012 at $.04 per share
    350,000       35       -       -       13,965       -       14,000  
Nonemployee options issued for services from July through
August 2011, vested immediately and valued from $.10 to $.19 per share
    -       -       -       -       1,902       -       1,902  
Nonemployee options issued for services from January through
June 2012, vested immediately and valued from $.14 to $.42 per share
    -       -       -       -       93,580       -       93,580  
Employee options issued for services on January 2012 through
June 2012, vesting over three years and valued at $.11 to $.53 per share
    -       -       -       -       74,915       -       74,915  
Employee options issued for services on June 5, 2012, vesting immediately and valued at $.42 per share
    -       -       -       -       84,279       -       84,279  
Stock issuance costs
    -       -       -       -       (28,000 )     -       (28,000 )
Common stock subscription for 687,500 units through private placement at $.80 per unit
    -       -       550,000       (550,000     -       -       -  
Net loss
    -       -       -       -       -       (6,647,921 )     (6,647,921 )
                                                         
Balance June 30, 2012 (Unaudited)
    91,307,983     9,131     550,000     (550,000   18,660,448     (14,082,269 )   4,587,310  
 
See accompanying notes to these financial statements.
 
Virtual Piggy, Inc.
 (A Development Stage Company)
Statements of Cash Flows
For the Six Months Ended June 30, 2012 and 2011 and
For the period February 11, 2008 (Date of Inception) to June 30, 2012

         
Six Months
   
Six Months
 
   
Cumulative
   
Ended
   
Ended
 
   
Since
   
June 30,
   
June 30,
 
   
Inception
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net loss
  $ (14,082,269 )   $ (6,647,921 )   $ (1,416,710 )
Adjustments to reconcile net loss to net cash
                       
used in operating activities
                       
  Fair value of warrants issued in exchange for services
    88,601       -       88,601  
  Fair value of options issued in exchange for services
    959,474       254,677       47,273  
  Fair value of stock issued in exchange for services
    5,039,464       3,610,037       49,000  
  Amortization of deferred costs
    78,243       -       -  
  Accretion of discount on notes payable
    426,095       65,560       -  
  Depreciation and amortization
    16,140       8,274       1,665  
  Provision for bad debt
    42,768       -       -  
(Increase) decrease in assets
                       
Accounts receivable
    (1,367 )     1,133       (425 )
Other receivable
    (42,768 )     -       -  
Prepaid expenses
    (16,000 )     (14,235 )     5,589  
Deposits
    (87,367 )     (84,700 )     -  
Increase (decrease) in liabilities
                       
Accounts payable and accrued expenses
    399,756       41,243       (3,164 )
                         
Net cash used in operating activities
    (7,179,230 )     (2,765,932 )     (1,228,171 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Purchase of equipment
    (83,159 )     (67,481 )     (2,699 )
Patent and Trademark costs
    (244,969 )     (165,333 )     (26,844 )
                         
Net cash used  in investing activities
    (328,128 )     (232,814 )     (29,543 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Proceeds from note payable - stockholders
    747,500       -       -  
Repayment of note payable - stockholders
    (572,500 )     (175,000 )     -  
Proceeds from notes payable
    75,000       -       -  
Proceeds from issuance of common stock
    11,065,989       7,536,932       -  
Proceeds from exercise of options
    384,000       24,000       -  
Proceeds from exercise of warrants
    445,714       -       -  
Stock issuance costs
    (93,000 )     (28,000 )     -  
                         
Net cash provided by financing activities
    12,052,703       7,357,932       -  
                         
NET INCREASE IN CASH AND
                       
CASH EQUIVALENTS
    4,545,345       4,359,186       (1,257,714 )
                         
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
    -       186,159       1,574,448  
                         
CASH AND CASH EQUIVALENTS - END OF PERIOD
  $ 4,545,345     $ 4,545,345     $ 316,734  
                         
                         
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
                       
                         
Income taxes paid
  $ -     $ -     $ -  
                         
Interest paid
  $ 2,498     $ -     $ -  
                         
Fair value of common stock issued as discount for notes payable
  $ 400,744     $ -     $ -  
                         
Conversion of notes payable into common stock
  $ 250,000     $ 200,000     $ -  
                         
Fair value of warrants issued as discount for notes payable
  $ 20,930     $ -     $ -  
                         
Common stock subscription
  $ 550,000     $ 550,000     $ -  
 
See accompanying notes to these financial statements.
 
Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

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.  The Company initially concentrated its efforts on developing a business plan which was designed to allow it to create the massive multiplayer online gaming platform (the “Platform”) and massive multiplayer online games (“MMOGs”) for use on its Platform. Those activities included, but were not limited to, securing initial capital in order to fund the development of a demonstration model for portions of the Platform and working capital, securing a board of directors, management personnel and consultants who the Company believes will assist in developing the Platform and meet the business goals, conducting market research regarding the MMOG industry and the Platform and planned MMOGs, and other pre-marketing activities. Commencing in the fourth quarter of 2010, in light of the Company’s belief that  increased market interest towards the security aspects of online gaming and social networking have emerged, the Company  has refocused its efforts towards delivering a platform technology designed to manage the under 18 age group’s online experience in a secure manner.  The Company has developed and introduced the Virtual Piggy product to the marketplace and is attempting to develop and introduce the ParentMatch product to the marketplace in 2013 to 2014.

Virtual Piggy is designed to provide an online piggy bank security service that allows parents to setup and control their children’s spending online. Parents and guardians will be able to determine who is allowed to contribute to their child’s account as well as provide notification mechanisms back to the contributors when the funds are spent. The parent can establish how much a child can spend in a single transaction and how much they can spend over time. The Virtual Piggy service tracks all spending and the parent can receive alerts and reports on spending patterns. A third-party site would prompt a child to enter their VirtualPiggy ID – when they attempt to make a transaction. This ID along with category, pricing and descriptive information about the purchase would be sent to the VirtualPiggy webservice. Based on the rules set out by the parent, VirtualPiggy would send back a Yes/No signal to the requesting service and either allow or prohibit the transaction.

ParentMatch, and its companion product, ParentPlayback, will be designed to provide the parent/guardian with a higher level of control than is currently provided by ‘nanny’ type services. In addition the ID follows the child whenever they are on a computer as opposed to traditional controls which are resident on a PC by PC basis.  ParentMatch provides filtering for the parent to be able to control such areas as (i) sites a child may access; (ii) types of content they may view and (iii) who they can interact with online. ParentPlayback will provide the parent with a video transcript of their child’s online session.  Since inception, substantially all of the efforts of the Company have been developing technologies for multiplayer online role playing games and the Virtual Piggy, ParentMatch and ParentPlayback platforms.  The Company is in the development stage of raising capital, financial planning, establishing sources of supply, and acquiring property and equipment.  The Company anticipates establishing global markets for its services.

Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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 generally accepted accounting principles 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 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, 2011 as filed with the Securities and Exchange Commission.  Operating results for the six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012.

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.  Since the Company has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss).

Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts receivable, notes payable and accounts payable and accrued expenses.  The carrying value of cash, accounts receivable, notes payable and accounts payable and accrued expenses approximate fair value, because of their short maturity.

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.

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 from Virtual Piggy and Virtual Parent at the time of the sale of the associated product.

Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 2011 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 three and six months ended June 30, 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 June 30, 2012 and for the period 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 June 30, 2012, there were no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

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.

Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 2 – GOING CONCERN (Continued)

Since inception, the Company has focused on developing and implementing its business plan.  The Company has begun to pay salaries to management and has utilized offshore programmers on a work for hire basis to assist in developing the demonstration model. 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 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 may be unable to execute upon the business plan or pay costs and expenses as they are incurred, which could have a material, adverse effect on the business, financial condition and results of operations.

The Company’s current monetization model is to derive a percentage of all revenues generated by online merchants using the Virtual Piggy 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 sufficient 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 $2,717,650, net of stock issuance costs of $28,000 through a private placement of its equity securities from December 31, 2011 through March 31, 2012.  The Company also raised $4,341,282 through an additional private placement from April 5, 2012 through June 30, 2012 and has received commitments for an additional $1,100,000 through other private placements of which the Company has received $450,000 through June 30, 2012. An additional $100,000 was received in July and August 2012 and the remainder will be paid in $150,000 installments through October 1, 2012 with the remaining $100,000 being paid on November 1, 2012.

The Company is in the development stage at June 30, 2012.  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

The Company continues to apply for patents.  Accordingly, costs associated with the registration of these patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents (20 years).  During the three and six months ended June 30, 2012, capitalized patent costs were $90,376 and $165,333 and for the three and six months ended June 30, 2011, capitalized patent costs were $26,843.  Amortization expense for patents was $3,117 and $4,171 for the three and six months ended June 30, 2012 and $232 for the three and six months ended June 30, 2011.

Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

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 consists 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 and 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.  During the three and six months ended June 30, 2012, $28,454 and $65,560 of interest was accreted on the notes payable.

On February 8, 2012, February 27, 2012, and April 10, 2012, $100,000, $50,000, and $25,000 respectively, of the notes payable was repaid.

On April 26, 2012, the remaining balance of the notes payable of $175,000 and accrued interest 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.

NOTE 5 - INCOME TAXES

Income tax expense was $0 for the three and six months ended June 30, 2012 and 2011.

As of January 1, 2012, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2012 related to unrecognized tax benefits.  There has been no change in unrecognized tax benefits during the six months ended June 30, 2012, and there was no accrual for uncertain tax positions as of June 30, 2012.  Tax years from 2008 through 2011 remain subject to examination by major tax jurisdictions.

There is no income tax benefit for the losses for the six months ended June 30, 2012 and 2011, 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 6 – STOCKHOLDERS’ EQUITY

In February 2008, the Company issued 19,000,000 founders shares at $.001 per share or $19,000.

In February 2008, the Company commenced a private placement of up to 7 million units at a price of $.035 per unit to accredited investors.  One unit consisted of one share of the Company’s common stock and two warrants.  Each warrant entitles the holder to purchase one additional share of common stock at a price of $.04 per share and is exercisable for a three year period.  From February through June 2008, 7,142,858 units were sold, raising $250,000 in proceeds and resulting in 14,285,716 warrants being issued.

Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 6 – STOCKHOLDERS’ EQUITY (Continued)

On May 8, 2008, 500,000 options were exercised, which raised proceeds $20,000.  During the three months ended September 30, 2008, 1,750,000 options were exercised, which raised proceeds of $70,000.

On May 27, 2008, the Company commenced a private placement of up to 6 million units at a price of $.035 per unit to accredited investors.  One unit consisted of one share of the Company’s common stock and one warrant. Ten of these warrants entitle the holder to purchase one additional share of common stock at a price of $.75 per share and are exercisable for a three year period.  During the three months ended June 30, 2008, 6,142,858 units were sold with warrants exercisable at a price of $.75 per share, raising $215,000 in proceeds and resulting in 614,286 warrants being issued.  During the three months ended September 30, 2008, 500,000 units were sold with warrants at a price of $.75, raising $17,500 and resulting in 50,000 warrants being issued.

During the three months ended September 30, 2008, the Company sold 2,560 shares, which raised proceeds of $2,560.  The Company filed a registration statement to register 2,560 shares of the Company which became effective on September 3, 2008.

During the three months ended September 30, 2008, 250,000 warrants were exercised which raised proceeds of $10,000.

During the three months ended March 31, 2009, 1 million options were exercised which raised proceeds of $40,000.

During the three months ended March 31, 2009, the Company issued 100,000 shares of common stock which were valued at the fair market value of $200,000 for consulting services.

During the three months ended June 30, 2009, the Company sold 400,000 shares which raised proceeds of $348,000, net of commissions of $52,000.

During the three months ended September 30, 2009, 1 million warrants and 1.5 million options were exercised which raised proceeds of $100,000.  In addition, the Company sold 100,000 shares which raised proceeds of $87,000, net of commissions of $13,000.

On October 9, 2009, the Company was listed on the German stock exchange.  As a result, the Company was required to issue 1,080,427 shares of common stock under a consulting agreement.  These shares were valued at the fair market value of $1,080,427.

On October 21, 2009, the Company sold 100,000 shares to an investor which raised proceeds of $100,000.

On October 22, 2009, an investor exercised 1,000,000 warrants which raised proceeds of $40,000.

On December 2, 2009, two investors exercised 500,000 warrants each (total of 1,000,000 warrants) which raised total proceeds of $40,000.

On December 10, 2009 and December 31, 2009 an investor exercised 250,000 options and 1,000,000 warrants, respectively, which raised total proceeds of $50,000.

Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 6 – STOCKHOLDERS’ EQUITY (Continued)

On January 5, 2010 an investor exercised 1,000,000 options which raised proceeds of $40,000.

On February 22, 2010 an investor exercised 892,858 warrants which raised proceeds of $35,714.

On March 5, 2010 an investor exercised 500,000 warrants which raised proceeds of $20,000.

On March 8, 2010 an investor exercised 500,000 warrants which raised proceeds of $20,000.

On April 13, 2010 an investor exercised 1,000,000 warrants which raised proceeds of $40,000.

On April 16, 2010 an investor exercised 1,500,000 warrants which raised proceeds of $60,000.

In August 2010, the Company retired 400,000 non-employee options with exercise prices of $.04 in exchange for the issuance of 65,000 shares to the option holders.  No additional compensation expense was recorded as the fair value of the options exceeded the value of the stock that was issued.

On August 17, 2010, the Company sold 2,000,000 shares of common stock to investors which raised proceeds of $400,000.

During November and December 2010, the Company sold 7,625,000 shares of common stock to investors which raised proceeds of $1,525,000.

On November 19, 2010, the Company issued 111,111 shares of common stock which were valued at the fair market value of $100,000, for consulting services.

On December 2, 2010, an investor exercised 3 million options which raised proceeds of $120,000.

In December 2010, two investors exercised a total of 2.5 million warrants which raised proceeds of $100,000.

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.

Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 6 – STOCKHOLDERS’ EQUITY (Continued)

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 has received $450,000 as of June 30, 2012 under this agreement with the remaining $550,000 payable in monthly installments of $150,000 through October 1, 2012 with the final installment of $100,000 due November 1, 2012.
 
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.

On May 25, 2012, an investor exercised 350,000 options which raised proceeds of $14,000.

NOTE 7 – STOCK OPTIONS AND WARRANTS

During 2008, the Board of Directors (“Board”) of the Company adopted an Equity Incentive Plan (“Plan”).  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 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 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options (“Non-Statutory Stock Options”).  As of June 30, 2012, 13,160,000 options have been issued and are unexercised, and 2,240,000 options that are available to be issued under the Plan.  Of the 13,160,000 options that have been issued and are unexercised, 11,050,000 options were granted to employees or persons who later became employees and 2,110,000 options were granted to non-employees.

The Plan is administered by 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 Plan.

Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 7 – STOCK OPTIONS AND WARRANTS (Continued)

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.

During 2008, the Company issued the Secretary of the Company options to purchase 500,000 shares of the Company’s common stock at $.04 per share which were valued at $8,825 and expensed immediately.  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 51.8%, risk free interest rate of 2.5%, and expected option life of 5 years.  The options expire five years from the date of issuance.
 
During 2008, the Company entered into an employment agreement with its President and Chief Executive Officer,  whereby, the President and Chief Executive Officer was issued options to purchase 1,000,000 shares of the Company’s common stock at $.04 per share which were valued at $71,871 and expensed immediately. 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 51.8%, risk free interest rate of 3.3%, and expected option life of 5 years.  The options expire five years from the date of issuance.
 
During 2008, the Company entered into an employment agreement with its Director of Corporate Development whereby the Director of Corporate Development was issued options to purchase 2,750,000 shares of the Company’s common stock at $.04 per share which were valued at $197,645 and expensed immediately. 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 51.8%, risk free interest rate of 3.3% and expected option life of 5 years.  The options expire five years from the date of issuance.
 
During 2008, the Company entered into an agreement with a member of the Company’s Board of Directors whereby the member of the Board of Directors was issued options to purchase 1,250,000 shares of the Company’s common stock at $.04 per share which were valued at $89,838, fair value, and expensed immediately.  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 51.8%, risk free interest rate of 3.3%, and expected option life of 5 years.  The options expire five years from the date of issuance.
 
On June 23, 2008, a member of the Board of Directors was issued 500,000 shares of the Company’s common stock at $.04 per share, which were valued at $36,113, fair value, and expensed immediately.  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 51.8%, risk free interest rate of 3.7% and expected option life of 5 years.  The options expire five years from the date of issuance.
 
Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 7 – STOCK OPTIONS AND WARRANTS (Continued)

On March 12, 2010 the Company entered into a three year employment agreement with the Senior Vice President of Marketing and Licensing for €150,000 annually.  The agreement also includes an option to purchase 2 million shares of the Company’s common stock at $1.00 per share.  These options were valued at $1,829,756, 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 41.6%, risk free interest rate of 2.4%, and expected option life of five years.  The options expire five years from the date of issuance.  Options granted under the agreements are expensed when the related service is provided.  In December 2010, this employment agreement was terminated, the options were terminated and any expense relative to the options that was previously recorded was reversed.

During November 2010, the Company issued two directors options to purchase an aggregate of 600,000 shares of the Company’s common stock at $.90 per share.  These options have been valued at $5,207, 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 40.8%, risk free interest rate of 1.5%, 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.

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 an aggregate of 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 uses 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.
 
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 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 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.

Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 7 – STOCK OPTIONS AND WARRANTS (Continued)

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 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 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 an employee 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 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 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 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 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.

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 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 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 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 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 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 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.

Cumulatively and for the three and six months ended June 30, 2012, the Company expensed $584,949, $154,519 and $154,886 and for the three and six months ended June 30, 2011, the Company expensed $0 and $16,733 relative to employee options/warrants granted.  As of June 30, 2012, there was $896,429 of unrecognized compensation expense related to employee non-vested market-based share awards.
 
Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 7 – STOCK OPTIONS AND WARRANTS (Continued)

A summary of stock option/warrant transactions for employees from February 11, 2008 (date of inception) to June 30, 2012 is as follows:

               
Weighted Average
 
   
Option/Warrants
   
Exercise
   
Exercise
 
   
Shares
   
Price
   
Price
 
Outstanding, February 11, 2008 (Date of Inception)
    -     $ -     $ -  
                         
Granted
    6,000,000       0.04       0.04  
Exercised
    (1,750,000 )     0.04       0.04  
Expired
    -       -       -  
                         
Outstanding, December 31, 2008
    4,250,000     $ 0.04     $ 0.04  
                         
Granted
    -       -       -  
Exercised
    (2,750,000 )     0.04       0.04  
Expired
    -       -       -  
                         
Outstanding, December 31, 2009
    1,500,000     $ 0.04     $ 0.04  
                         
Granted
    2,600,000    
.90 to 1.00
      0.83  
Exercised
    (1,000,000 )     0.04       (0.04 )
Terminated
    (2,000,000 )     1.00       (0.65 )
                         
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 .90
      0.09  
Exercised
    -       -       -  
Expired
    -       -       -  
                         
Outstanding, December 31, 2011
    9,467,858     $ .04 to $.90     $ 0.19  
                         
Granted
    4,890,000    
.50 to 1.82
    $ 0.26  
Issued under Private Placement
    912,286       0.50     $ 0.02  
Reclassified from non-employee
    810,000    
0.60 to .65
      -  
Exercised
    (250,000 )     0.04       -  
Expired
    -       -       -  
                         
Outstanding, June 30, 2012
    15,830,144     $ .04 to $1.82     $ 0.39  
                         
Exercisable, June 30, 2012
    11,140,144     $ .04 to $1.67     $ 0.27  
                         
Weighted Average Remaining Life,
                       
  Exercisable, June 30, 2012 (years)
    1.7                  
 
On August 18, 2009, options to purchase 100,000 shares of the Company’s common stock at $2.30 were issued to a consultant, which were valued at $30,689, fair value.  Another consultant also received 25,000 options on August 18, 2009, which were valued at $7,672, 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 58.3%, risk free interest rate of 2.4%, and expected option life of 5 years.  The options expire five years from the date of issuance.  Options granted under the agreements were expensed when the related service or product was provided.

On August 20, 2010, the Company issued the Chief Financial Officer an option to purchase 250,000 shares of the Company’s common stock at $.75 per share.  These options have been valued at $2,012, 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 36.7%, risk free interest rate of 1.5% and expected option life of five years.  The options expire five years from the date of issuance.  Options granted were expensed immediately.

On September 13, 2010, the Company issued the Chief Executive Officer an option to purchase 250,000 shares of the Company’s common stock at $.75 per share.  These options have been valued at $1,676, 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 35.2%, risk free interest rate of 1.5% and expected option life of five years.  The options expire five years from the date of issuance.  Options granted were expensed immediately.
 
Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 7 – STOCK OPTIONS AND WARRANTS (Continued)

On September 13, 2010, the Company issued a consultant an option to purchase 100,000 shares of the Company’s common stock at $.75 per share.  These options have been valued at $670, 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 35.2%, risk free interest rate of 1.5% and expected option life of five years.  The options expire five years from the date of issuance.  Options granted were expensed immediately.

During October and November 2010, the Company issued various consultant option to purchase an aggregate of 1,020,000 shares of the Company’s common stock at $.75, $.78 and $.90 per share.  These options have been valued at $7,397, 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 34.2% to 40.8%, risk free interest rate of 1.1% to 1.5% 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 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 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 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.

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 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 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 immediately.

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 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 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 immediately.

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 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 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 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 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 immediately.
 
Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 7 – STOCK OPTIONS AND WARRANTS (Continued)

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 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 29.2%, 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 over the three year vesting term.
 
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 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 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 immediately.

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 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 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 immediately.

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 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 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.

Cumulatively and for the three and six months ended June 30, 2012, the Company expensed $760,626, $10,171 and $61,507 and for the three and six months ended June 30, 2011, the Company expensed $1,148 and $135,874 relative to non-employee options/warrants granted.  As of June 30, 2012, there was $34,124 of unrecognized compensation expense related to non-vested market-based share awards.



Virtual Piggy, Inc.
 (A Development Stage Company)
Notes to Financial Statements

NOTE 7 – STOCK OPTIONS AND WARRANTS (Continued)

The following table summarizes non-employee stock option/warrant of the Company from February 11, 2008 (date of inception) to June 30, 2012 as follows:
 
               
Weighted Average
 
   
Option/Warrant
   
Exercise
   
Exercise
 
   
Shares
   
Price
   
Price
 
Outstanding, February 11, 2008 (Date of Inception
    -     $ -     $ -  
                         
Granted
    23,450,002    
.04 to .75
      0.07  
Exercised
    (750,000 )     0.04       0.04  
Expired
    -       -       -  
                         
Outstanding, December 31, 2008
    22,700,002     $ .04 to $.75     $ 0.07  
                         
Granted
    125,000       2.30       0.01  
Exercised
    (4,000,000 )     0.04       0.04  
Expired
    -       -       -  
                         
Outstanding, December 31, 2009
    18,825,002     $ 0.04 to $2.30     $ 0.09  
                         
Granted
    1,620,000    
.75 to .90
      0.13  
Exercised
    (9,892,858 )     0.04       0.04  
Retired
    (400,000 )     0.04       0.04  
                         
Outstanding, December 31, 2010
    10,152,144     $ 0.04 to $2.30     $ 0.25  
                         
Granted
    775,000    
.50 to 1.00
    $ 0.06  
Reclassified from employee
    (7,742,858 )  
.04 to .90
      0.09  
Exercised
    -       -       -  
Expired
    -       -       -