NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business
Virtual Piggy, Inc. (“the Company”) is a development stage enterprise incorporated in the state of Delaware on February 11, 2008. Virtual Piggy is a technology company that delivers an online ecommerce solution for the family. Its system allows parents and their children to manage, allocate funds and track their expenditures, savings and charitable giving online. Its system is designed to allow the child to transact online without a credit card by gaining the parent’s permission ahead of time and allowing the parent to set up the rules of use and authorized spending limits. Our principal office is located in Hermosa Beach, California and in 2013 we opened an office in London, England to support the sales and marketing efforts in Europe and the development of our mobile applications.
The Oink (formerly Virtual Piggy) service enables online businesses to interact and transact with the “Under 18” market in a manner consistent with the Children’s Online Privacy Protection Act (“COPPA”) and other similar international children’s privacy laws. Oink was launched in the US in 2012 and in the European market in 2013, and now has the capability to offer and deliver gift cards.
We secure agreements with merchants, retail and gaming e-commerce platforms and payment processors, which allow us to offer our Oink service to our user base. Over 20 retailers and gaming companies are using Oink with their e-commerce systems and the Company is in the process of integrating the other signed retailers and gaming companies. The Company is continuing to add merchants. To date, the Company has over 1 million users of its system. The Company defines a system user as a registered account that has accessed the Oink service within the past 12 months.
Basis of Presentation
The financial statements are presented in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 915 for development stage entities. The accompanying 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 accounting principles generally accepted in the United States (“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 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, 2013 as filed with the Securities and Exchange Commission (the “SEC”). Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Comprehensive Income
The Company follows FASB ASC 220 in reporting comprehensive income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. The Company has one item of other comprehensive loss, consisting of a foreign translation adjustment.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
The Company’s financial instruments consist of accounts receivable, accounts payable and accrued expenses, embedded derivative and warrant liability. The carrying value of accounts receivable, accounts payable and accrued expenses approximate their fair value because of their short maturities.
The Company follows FASB ASC 820, Fair Value Measurements and Disclosures, and applies it to all assets and liabilities that are being measured and reported on a fair value basis. The statement requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
The level in the fair value within which a fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
Foreign Currency Translation
The functional currency of operations outside the U.S. is British Pounds.
Concentration of Credit Risk Involving Cash
The Company may have deposits with a financial institution which at times exceed Federal Depository Insurance (“FDIC”) coverage. The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and certificates of deposit and commercial paper with original maturities of 90 days or less to be cash or cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, principally three to seven years. Maintenance and repairs of property are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of property and equipment, the costs and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in operations. Depreciation of property and equipment was $8,389 and $5,875 for the three months ended March 31, 2014 and 2013 and is included in general and administrative expenses.
Patents and Trademarks
The Company has one issued patent with the United States Patent and Trademark Office (“USPTO”), entitled Systems and Method for Verifying the Age of an Internet User, and filed for nine provisional patents. Additionally, the Company has been issued two patents in Germany, entitled Virtual Piggy Bank and Parent Match, while the remaining patents in Germany are still pending. The Company also has patents pending in Australia, Brazil, Canada and Europe under the Patent Cooperation Treaty (“PCT”). Costs associated with the registration and legal defense of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents which were determined to be 20 years.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Lived Assets
The Company evaluates the recoverability of its long-lived assets in accordance with FASB ASC 360 “Property, Plant, and Equipment.” The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets are measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset, undiscounted and without interest or independent appraisals. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets.
Revenue Recognition
In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (Codified in FASB ASC 605), the Company will recognize revenue when (i) persuasive evidence of a customer or distributor arrangement exists or acceptance occurs, (ii) a retailer, distributor or wholesaler receives the goods, (iii) the price is fixed or determinable, and (iv) collectability of the sales revenues is reasonably assured. Subject to these criteria, the Company will generally recognize revenue at the time of the sale of the associated product.
Income Taxes
The Company follows FASB ASC 740 when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Tax years from 2010 through 2013 remain subject to examination by major tax jurisdictions.
Stock-based Payments
The Company accounts for stock-based compensation under the provisions of FASB ASC 718, Compensation—Stock Compensation which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method. The Company accounts for stock-based compensation awards to non-employees in accordance with FASB ASC 505 -50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded as an expense and additional paid-in capital in stockholders’ equity over the applicable service periods.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were $53,628 and $222,847 for the three months ended March 31, 2014 and 2013 and are included in sales and marketing expenses.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Research and Development Costs
In accordance with FASB ASC 730, research and development costs are expensed when incurred. Research and development costs for the three months ended March 31, 2014 and 2013 were $852,744 and $454,378.
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 months ended March 31, 2014 and 2013, common stock equivalents, including preferred stock, 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.
Segment Information
The Company is organized and operates as one operating segment. In accordance with FASB ASC 280, Segment Reporting, the chief operating decision-maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company subject to Board approval. Since the Company operates in one segment and provides one group of similar products, all financial segment and product line information required by FASB ASC 280 can be found in the consolidated financial statements.
Recently Adopted Accounting Pronouncements
As of March 31, 2014 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 March 31, 2014, there were no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.
Reclassifications
Certain amounts in the 2013 and cumulative since inception statements of operations have been reclassified in order for them to be in conformity with the 2014 presentation.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
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 during the development stage. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Since inception, the Company has focused on developing and implementing its business plan. The Company 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 derive a percentage of all revenues generated by online merchants using the Oink service. Merchants are billed at the end of each month for all transactions that have been processed by the Company on their behalf in the prior month. As the merchant base and consumer base grows, and as the trend to higher online spending levels continues, the Company expects to generate additional revenue to support operations.
If sufficient revenues are not generated to sustain operations or additional funding cannot be obtained in the short term, the Company will need to reduce monthly expenditures to a level that will enable the Company to continue until such funds can be obtained. For the three months ended March 31, 2014, and for the year ended December 31, 2013, the Company raised $7.5 million net of stock issuance costs of $0.2 million, and $8.3 million net of stock issuance costs of $0.4 million, respectively, through private placements of its equity securities and from exercises of warrants. Additionally, in April 2014, the Company raised an additional $5.8 million through a private placements of its equity securities.
The Company is in the development stage at March 31, 2014. Successful completion of the Company’s development program, and the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure. However, there can be no assurances that the Company will be able to secure additional equity investment or achieve an adequate sales level.
NOTE 3 – PATENTS AND TRADEMARKS
The Company continues to apply for patents and purchased the Oink trademark in November 2013. Accordingly, costs associated with the registration of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents (20 years). The trademark is also being amortized on a straight-line basis over its estimated useful life of 20 years. At March 31, 2014 and December 31, 2013, capitalized patent and trademark costs were $784,152 and $739,657. Amortization expense for patents and trademarks was $10,129 and $5,265 for the three months ended March 31, 2014 and 2013.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 4 – NOTES PAYABLE
On December 27, 2013, the Company entered into two identical agreements with two stockholders that each include a note payable in the amount of $500,000 and two-year warrants to purchase 37,500 shares of the Company’s common stock at $0.01 and two-year warrants to purchase 50,000 shares of the Company’s common stock at $1.00 per share. The note payable bears interest at 10% per annum and is payable upon the earlier of:
| | a. | 5 days after the sale of the Company’s securities in one transaction or series of related transactions, which sale results in gross proceeds to the Company of at least $3 million; |
| | b. | Upon (i) the sale or other disposition of all or substantially all of the Company’s assets or (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions to which the Company is a party other than a transaction or series of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain, as a result of shares in the Company held by such holders prior to such transaction, at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction or series of transactions; |
The warrants were valued at $92,470, fair value, using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.2%, risk free interest rate of .4% and expected option life of 2 years. The warrant values were treated as a discount to the value of the note payable in accordance with FASB ASC 835-30-25, Recognition and are being accreted over the term of the note payable for financial statement purposes. These notes were repaid in full in January 2014 and therefore the remaining unamortized discount was fully accreted.
During the three months ended March 31, 2014 and 2013, $86,087 and $0 of interest was accreted on the notes payable.
NOTE 5 - INCOME TAXES
Income tax expense was $0 for the three months ended March 31, 2014 and 2013.
As of December 31, 2013, the Company had net operating loss carry forwards approximating $39.7 million.
As of January 1, 2014, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2014 related to unrecognized tax benefits. There has been no change in unrecognized tax benefits during the three months ended March 31, 2014, and there was no accrual for uncertain tax positions as of March 31, 2014. Tax years from 2010 through 2013 remain subject to examination by major tax jurisdictions.
There is no income tax benefit for the losses for the three months ended March 31, 2014 and 2013, 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.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 6 – LITIGATION SETTLEMENT
The Company entered into a settlement agreement with an investor in 2012, whereby the Company agreed to pay the investor a settlement of $450,000 and the investor agreed to cease trading in the Company’s stock and to return warrants issued to the investor. The Company’s insurance carrier agreed to reimburse the Company with respect to this litigation. Both the settlement payment and the insurance company settlement were completed in 2013.
NOTE 7 – CONVERTIBLE PREFERRED STOCK
In January 2014, the Company, pursuant to a Securities Purchase Agreement (the “Purchase Agreement”), issued to certain private investors 50,450 shares of the Company’s Series A Cumulative Convertible Preferred Stock (the “Preferred Stock”) at an original issue price of $100 per share (the “Original Issue Price”) and warrants to purchase 5,045,000 shares of the Company’s common stock (the “Warrants”) for an aggregate purchase price of $5,045,000. Pursuant to the Purchase Agreement, the Company also granted piggyback registration rights to the holders of the Preferred Stock and Warrants. The Purchase Agreement provides that the holders of the Preferred Stock shall be entitled to nominate two directors of the Company. Dividends accrue at a rate of 8% and are cumulative. As of December 31, 2013, the Company had incurred and capitalized approximately $131,000 of costs associated with this offering, which were charged to additional paid in capital in January 2014 when the transaction was consummated.
In accordance with FASB ASC 480 and 815, the Preferred Stock has been classified as permanent equity and was valued at $3,396,175, net of the beneficial conversion feature of $1,648,825, at January 27, 2014.
The conversion feature of the Preferred Stock is an embedded derivative, which is classified as a liability in accordance with FASB ASC 815 and was valued in accordance with FASB ASC 470 as a beneficial conversion feature at a fair market value of $1,648,825 at January 27, 2014 and $3,834,200 at March 31, 2014. This was classified as an embedded derivative liability and a discount to Preferred Stock. Since the preferred stock can be converted at any time, the full amount of the discount was accreted and reflected as a deemed distribution.
Because the Preferred Stock can be converted at any time, the embedded derivative is classified as a current liability at March 31, 2014.
The warrants associated with the Preferred Stock were also classified as equity, in accordance with FASB ASC 480-10-25. Therefore it is not necessary to bifurcate the warrants from the Preferred Stock.
The Preferred Stock has a preference in liquidation that the holders of the Preferred Stock are to be paid out of assets available for distribution prior to holders of common stock. The Preferred Stockholders may cast the number of votes equal to the number of whole shares of common stock into which the shares of Preferred Stock can be converted.
The conversion price of the Preferred Stock is currently $1.00 per share. There are no arrearages on cumulative dividends.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Derivative Liabilities
For purposes of determining whether certain instruments are derivatives for accounting treatment, the Company follows the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock. The standard applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.
The Company has identified the following liabilities that are measured at fair value on a recurring basis, summarized as follows:
| March 31, 2014 | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| | | | | | | | | | | | | |
| Derivative liability related to fair value of beneficial conversion feature | | $ | - | | | $ | 3,834,200 | | | $ | - | | | $ | 3,834,200 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | - | | | $ | 3,834,200 | | | $ | - | | | $ | 3,834,200 | |
The following table details the approximate fair value measurements within the fair value hierarchy of the Company’s derivative liabilities using Level 2 inputs:
| | | Total | |
| Balance at January 27, 2014 | | $ | 1,648,825 | |
| Change in fair value of derivative liabilities | | | 2,185,375 | |
| | | | | |
| Balance at March 31, 2014 | | $ | 3,834,200 | |
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
As of March 31, 2014, the beneficial conversion feature of the Preferred Stock is treated as an embedded derivative liability and changes in the fair value were recognized in earnings. The shares of Preferred Stock are convertible into shares of the Company’s common stock, which did trade in an active securities market, therefore the embedded derivative liability was valued using the following market based inputs:
| Closing Trading Price of Common Stock | | $ | 1.45 | |
| Series A Preferred Stock Effective Conversion Price | | | 0.69 | |
| Intrinsic value of conversion option per share | | $ | 0.76 | |
The Company has no assets that are measured at fair value on a recurring basis. There were no assets or liabilities measured at fair value on a non-recurring basis as of March 31, 2014 and December 31, 2013.
NOTE 9 – STOCKHOLDERS’ EQUITY
During the first quarter of 2013, the Company entered into a private placement for shares of the Company’s common stock. The shares were sold at a purchase price of $.75 per share. Through March 31, 2013, 1,133,334 shares were sold resulting in proceeds of $850,000. Issuance costs related to this private placement were $60,783.
On April 15, 2013, the Company issued 26,521 restricted shares of the Company’s common stock to five members of the Board of Directors that were valued at $49,071. In conjunction with this the five members of the Board also received in aggregate options to purchase 1,050,000 shares of the Company’s common stock. These options were valued at $519,080, fair value. The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 29.0%, risk free interest rate of .69% and expected option life of five years. The options expire five years from the date of issuance. Options granted will be expensed over the three year vesting term.
On May 28, 2013, the Company entered into a Securities Purchase Agreement with accredited investors, pursuant to which we issued and sold an aggregate of 2,572,553 units at a purchase price of $1.80 per unit (the “Offering”), with each unit being comprised of one (1) share of the Company’s common stock and a warrant to purchase one-half (0.5) of a share of common stock at an exercise price of $3.00 per share for a period of three years. On May 29, 2013, we issued and sold an additional 300,000 units pursuant to the Offering. The Company retained a placement agent in connection with the Offering. The Company paid the placement agent aggregate placement agent fees in the amount of $151,408 plus $155,118 as an expense allowance. In addition, the placement agent received three year warrants to purchase an aggregate of 287,255 shares of the Company’s common stock at an exercise price of $1.80 per share (See Note 8-Stock Options and Warrants). Net proceeds of the Offering to the Company, after the expense allowance and other expenses, were approximately $4,836,157.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 9 – STOCKHOLDERS’ EQUITY (Continued)
During May 2013, options to purchase 750,000 shares of common stock were exercised at $0.04 per share, options to purchase 300,000 shares of common stock were exercised at $0.35 per share, and options to purchase 66,667 shares of common stock were exercised at $0.75, resulting in proceeds of $185,000.
During May and June 2013, warrants to purchase 2,000,000 shares of common stock were exercised at $.04 per share and warrants to purchase 2,660,685 shares of common stock were exercised at $0.50 per share, resulting in proceeds of $1,410,342.
During July and August 2013, warrants to purchase 34,500 shares of common stock were exercised at $.50 per share, resulting in proceeds of $17,250.
In October 2013, an investor exercised 10,000 warrants to purchase common stock at $0.50 per share, resulting in proceeds of $5,000.
In February 2014, the Company completed a private placement offering to holders of its outstanding warrants for the purchase of shares of common stock (“Warrantholders”), pursuant to which Warrantholders who were not directors or executive officers of the Company were given the opportunity to immediately exercise all outstanding vested warrants for cash in exchange for (i) the applicable shares of common stock underlying the exercised warrant and (ii) a new two-year warrant, granting rights to acquire an equivalent number of shares of common stock as issued pursuant to the exercised warrant(s), at an exercise price of $1.00 per share (each a “Replacement Warrant”). Pursuant to the offering, the Company received aggregate cash consideration of $2,521,143 from exercised warrants to purchase 5,042,287 shares of Company common stock.
Modification of Warrants Issued in February 2012 Private Placement and Deemed Dividend
Effective February 7, 2014, when the market price of our common stock was $1.18, we entered an exchange offering with certain investors in the 2011 to 2012 Private Placements to exercise their current warrants at $0.50 per share and receive a new warrant which would be convertible into the same number of common shares as the original warrant. The new warrant has an exercise price of $1.00. Many investors exercised the original warrants and received the new warrants. The Company has recognized a deemed dividend of $717,594 in the Statement of Operations for the three months ended March 31, 2014, attributable to the incremental fair value resulting from the modification of these warrants. The fair value of the new warrants was valued 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 143.2%, risk free interest rate of 0.30% and expected option life approximating two years. The warrants expire two years from the date of issuance.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 10 - STOCK OPTIONS AND WARRANTS
During 2008, the Board of Directors (“Board”) of the Company adopted the 2008 Equity Incentive Plan (“2008 Plan”) that was approved by the shareholders. Under the Plan, the Company is authorized to grant options to purchase up to 25,000,000 shares of common stock to any officer, other employee or director of, or any consultant or other independent contractor who provides services to the Company. The Plan is intended to permit stock options granted to employees under the 2008 Plan to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All options granted under the 2008 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be non-qualified options (“Non-Statutory Stock Options”). As of March 31, 2014, options to purchase 14,023,330 shares of common stock have been issued and are unexercised, and 463,336 shares are available for grants under the 2008 Plan. Of the options to purchase 14,023,330 shares that have been issued and are unexercised, options to purchase 12,228,330 shares were granted to employees or persons who later became employees and options to purchase 1,795,000 shares were granted to non-employees.
During 2013, the Board adopted the 2013 Equity Incentive Plan (“2013 Plan”), which was approved by stockholders at the 2013 annual meeting of stockholders. Under the 2013 Plan, the Company is authorized to grant awards of stock options, restricted stock, restricted stock units and other stock-based awards of up to an aggregate of 5,000,000 shares of common stock to any officer, employee, director or consultant. The 2013 Plan is intended to permit stock options granted to employees under the 2013 Plan to qualify as Incentive Stock Options. All options granted under the 2013 Plan, which are not intended to qualify as Incentive Stock Options are deemed to be Non-Statutory Stock Options. As of March 31, 2014, under the 2013 Plan options to purchase 3,789,166 shares of common stock have been issued and are unexercised, and 1,210,834 shares of common stock remain available for grants under the 2013 Plan. Of the options to purchase 3,789,166 shares of common stock that have been issued and are unexercised, options to purchase 2,264,166 shares were granted to employees or persons who later became employees and 1,525,000 options to purchase shares were granted to non-employees.
The 2008 Plan and 2013 Plan are administered by the Board or its compensation committee, which determines the persons to whom awards will be granted, the number of awards to be granted, and the specific terms of each grant, including the vesting thereof, subject to the terms of the applicable Plan.
In connection with Incentive Stock Options, the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company).
Prior to January 1, 2014, 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. Beginning January 1, 2014, volatility in all instances presented is the Company’s estimate of volatility that is based on the volatility of the Company’s stock history.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
Employee and Non-Employee Director Grants
In January 2013, the Company issued eighteen employees options to purchase an aggregate of 260,000 shares of the Company’s common stock at exercise prices between $0.99 and $1.05 per share. These options were valued at $62,662 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility between 23.3% and 26.1%, risk free interest rate between .78% and .89% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In February 2013, the Company issued four employees options to purchase an aggregate of 760,000 shares of the Company’s common stock at exercise prices between $1.07 and $1.21 per share. These options were valued at $199,843 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility between 22.5% and 25.1%, risk free interest rate between .78% and .88% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In March 2013, the Company issued an employee options to purchase 2,500 shares of the Company’s common stock at an exercise price of $1.36 per share. These options were valued at $728 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.5%, risk free interest rate of .76% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In April 2013, the Company issued an employee options to purchase 5,000 shares of the Company’s common stock at an exercise price of $1.67 per share. These options were valued at $933 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.5%, risk free interest rate of .76% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In April 2013, the Company issued an employee options to purchase 200,000 shares of the Company’s common stock at an exercise price of $1.56 per share. These options were valued at $74,159, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.3%, risk free interest rate of .76% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In May 2013, the Company issued two employees options to purchase an aggregate of 55,000 shares of the Company’s common stock at an exercise price of $2.16 and $2.29 per share. These options were valued at $26,954, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.5% to 25.3%, risk free interest rate of .84% to .85% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
In June 2013, the Company issued two employees options to purchase an aggregate of 250,000 shares of the Company’s common stock at exercise prices of $2.40 and $2.92 per share. The vesting of 50,000 of these options is predicated on meeting certain milestones, therefore such options have not been valued. The remaining options were valued at $129,343, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.6% to 26.3%, risk free interest rate of 1.03% to 1.48% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In August 2013, the Company issued three employees options to purchase an aggregate of 210,000 shares of the Company’s common stock at exercise prices of $2.00 and $2.35 per share. These options were valued at $124,392, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 24.2% to 30.3%, risk free interest rate of 1.38% to 1.61% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In September 2013, the Company issued two employees options to purchase an aggregate of 10,000 shares of the Company’s common stock at an exercise price of $1.97 per share. These options were valued at $4,500, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 21.8%, risk free interest rate of 1.71% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In November 2013, the Company issued an employee options to purchase an aggregate of 10,000 shares of the Company’s common stock at an exercise price of $1.04 per share. These options were valued at $2,613, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.6%, risk free interest rate of 1.31% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In December 2013, the Company issued four employees options to purchase an aggregate of 255,000 shares of the Company’s common stock at an exercise price of $1.13 per share. These options were valued at $65,523, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.2%, risk free interest rate of 1.51% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
In addition, in December 2013, an employee met a milestone relative to options to purchase 50,000 shares of the Company’s common stock at an exercise price of $2.40 per share. These options were valued at $687, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.3%, risk free interest rate of 1.75% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the three year vesting term.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
In January 2014, the Company issued 11 employees options to purchase an aggregate of 90,000 shares of the Company’s common stock at an exercise price of $1.05 per share. These options were valued at $53,927, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 67.7%, risk free interest rate of 1.77% 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 January 2014, the Company issued two employees options to purchase an aggregate of 35,000 shares of the Company’s common stock at an exercise price of $1.05 per share. These options were valued at $27,806, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 67.7%, risk free interest rate of 3.01% and expected option life of ten years. The options expire ten years from the date of issuance. Options granted are expensed over the three year vesting term.
In February 2014, the Company issued to one of our new board of directors members options to purchase an aggregate of 250,000 shares of the Company’s common stock at an exercise price of $1.10 per share. These options were valued at $264,882, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 128.5%, risk free interest rate of 2.70% 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 February 2014, the Company issued two employees options to purchase an aggregate of 20,000 shares of the Company’s common stock at an exercise price of $1.18 per share. These options were valued at $21,048, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 142.1%, risk free interest rate of 1.47% 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 February 2014, the Company extended warrants previously granted to two of its executive officers, which included 1,142,588 warrants exercisable at $0.04 per share and 100,000 warrants exercisable at $.75 per share for an additional two years. The increase in fair value of this term extension was $9,228 which was expensed during the three months ended March 31, 2014. The Company used the Black-Scholes option pricing model to calculate the increase in fair value, with the following assumptions: no dividend yield, expected volatility of 89.3% to 89.5%, risk free interest rate of 0.33%, and expected warrant life of 2 years.
In March 2014, the Company issued to an employee options to purchase an aggregate of 100,000 shares of the Company’s common stock at an exercise price of $1.43 per share. These options were valued at $136,454, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 122.6%, risk free interest rate of 2.73% and expected option life of ten years. The options expire ten years from the date of issuance. Options granted are expensed over the two year vesting term.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
Cumulatively and for the three months ended March 31, 2014 and 2013, the Company expensed $1,533,213, $239,104 and $133,698 relative to employee options/warrants granted. As of March 31, 2014, there was $1,594,574 of unrecognized compensation expense related to employee non-vested market-based share awards. A summary of stock option/warrant transactions for employees from January 1, 2013 to March 31, 2014 is as follows:
| | | | | | | | | Weighted Average | |
| | | Option/Warrants | | | Exercise | | | Exercise | |
| | | Shares | | | Price | | | Price | |
| Outstanding, December 31, 2012 | | | 17,258,644 | | | $ | 0.04 to $1.82 | | | $ | 0.48 | |
| | | | | | | | | | | | | |
| Granted | | | 3,067,500 | | | | 0.99 to 2.92 | | | | 0.28 | |
| Reclassified to non-employee | | | (235,000 | ) | | | 0.65 to 2.30 | | | | (0.02 | ) |
| Exercised | | | (2,816,667 | ) | | | 0.04 to 0.75 | | | | (0.01 | ) |
| Expired/terminated | | | (698,333 | ) | | | 0.50 to 2.92 | | | | (0.01 | ) |
| | | | | | | | | | | | | |
| Outstanding, December 31, 2013 | | | 16,576,144 | | | | 0.04 to 2.40 | | | | 0.74 | |
| | | | | | | | | | | | | |
| Granted | | | 495,000 | | | | 1.05 to 1.43 | | | | 0.03 | |
| Reclassified from non-employee | | | 200,000 | | | | 0.50 | | | | 0.01 | |
| Exercised | | | (100,000 | ) | | | 0.75 | | | | - | |
| Expired/terminated | | | (460,003 | ) | | | 0.65 to 2.16 | | | | (0.02 | ) |
| | | | | | | | | | | | | |
| Outstanding, March 31, 2014 | | | 16,711,141 | | | $ | 0.04 to $2.40 | | | $ | 0.74 | |
| | | | | | | | | | | | | |
| Exercisable, March 31, 2014 | | | 11,436,145 | | | $ | .04 to $2.30 | | | $ | 0.49 | |
| | | | | | | | | | | | | |
| Weighted Average Remaining Life, | | | | | | | | | | | | |
| Exercisable, March 31, 2014 (years) | | | 1.7 | | | | | | | | | |
Non-Employee Grants
In January 2013, the Company issued a consultant options to purchase 5,000 shares of the Company’s common stock at an exercise price of $1.00 per share. These options were valued at $441 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.3%, risk free interest rate of .78% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the term of the agreement.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
In March 2013, the Company issued two consultants options to purchase 1,130,000 shares of the Company’s common stock at exercise prices of $0.75 and $1.48 per share. 130,000 of these options vested immediately and were valued at $54,228, fair value. The vesting of the remaining 1 million options is predicated on meeting certain milestones, which were not met as of March 31, 2014. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.6% and 22.6%, risk free interest rate of .25% and .25%, and an expected option life of two to five years. The options expire two to five years from the date of issuance. The vested options granted, were expensed immediately. The remaining unvested options will be expensed when it is probable that the milestones will be achieved.
In March 2013, the Company issued to a consultant options to purchase 100,000 shares of the Company’s common stock at exercise prices of $1.34 per share. These options vest over a one year period and were valued at $32,155 fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.8%, risk free interest rate of .8%, and an expected option life of 5 years. The options expire five years from the date of issuance. The options will be expensed over a one year period.
In April 2013, the Company issued a consultant options to purchase 100,000 shares of the Company’s common stock at an exercise price of $2.04 per share. These options were valued at $44,603, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 26.5%, risk free interest rate of .68% and expected option life of five years. The options expire five years from the date of issuance. Options granted were expensed immediately.
In May 2013, the Company issued two consultants options to purchase 125,000 shares in the aggregate of the Company’s common stock at exercise prices ranging from $3.05 to $3.28 per share. These options were valued at $51,869, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.1% to 23.2%, risk free interest rate of .29% to .31% and expected option life of two years. The options expire two years from the date of issuance. Options granted are expensed over the term of the agreement.
In May 2013, the Company, as part of the cost of the Company’s Offering described in Note 7, issued the placement agent warrants to purchase 287,255 shares of the Company’s common stock at an exercise price of $1.80 per share. These warrants were valued at $409,749, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 23.4% to 23.7%, risk free interest rate of .49% and expected option life of three years. The warrants expire three years from the date of issuance. The warrants granted were recorded as stock issuance costs and reduced additional paid in capital.
In July 2013, the Company issued two consultants options to purchase 100,000 shares in the aggregate of the Company’s common stock at exercise prices ranging from $.75 to $2.61 per share. These options were valued at $124,338, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 23.8% to 26.6%, risk free interest rate of 1.35% to 1.66% and expected option life of five years. The options expire five years from the date of issuance. $124,338 was expensed immediately.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 10 - STOCK OPTIONS AND WARRANTS (Continued)
In September 2013, the Company issued a consultant options to purchase 100,000 shares of the Company’s common stock at an exercise price of $1.17 per share. These options were valued at $26,208, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 22.1%, risk free interest rate of 1.39% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the term of the agreement, which is three years.
In October 2013, the Company issued a consultant options to purchase 20,000 shares of the Company’s common stock at an exercise price of $1.06 per share. These options were valued at $6,132, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 30.2%, risk free interest rate of 1.33% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the term of the agreement, which is six months.
In November 2013, the Company issued a consultant options to purchase 100,000 shares of the Company’s common stock at an exercise price of $1.04 per share. These options were valued at $26,128, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 25.6%, risk free interest rate of 1.31% and expected option life of five years. The options expire five years from the date of issuance. Options granted are expensed over the term of the agreement, which is one year.
On November 18, 2013, Company approved an amendment extending the term of outstanding warrants to purchase in the aggregate 8,931,505 shares of common stock of the Company at an exercise price of $0.50 per share. These warrants were scheduled to expire at various dates during 2013 and 2014 and were each extended for an additional one year period from the applicable original expiration date, with the new expiration dates ranging from December 20, 2014 to December 28, 2015. The Warrants were originally issued in private placements to accredited investors to raise additional capital during 2011 and 2012.The value of these warrant modifications was $6,540, computed by measuring the warrants immediately before and after such term extension. This was taken as a charge to operations in November 2013.
In February 2014, the Company completed a private placement offering to holders of its outstanding warrants for the purchase of shares of common stock as described in Note 7.
Cumulatively and for the three months ended March 31, 2014 and March 31, 2013, the Company expensed $1,893,237, $49,447 and $73,163 relative to non-employee options/warrants granted. As of March 31, 2014, there was $73,163 of unrecognized compensation expense related to such non-vested market-based share awards.
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
The following table summarizes non-employee stock options/warrants of the Company from January 1, 2013 to March 31, 2014 as follows:
| | | | | | | | | Weighted Average | |
| | | Option/Warrant | | | Exercise | | | Exercise | |
| | | Shares | | | Price | | | Price | |
| Outstanding, December 31, 2012 | | | 16,531,438 | | | | 0.35 to 2.30 | | | | 0.63 | |
| | | | | | | | | | | | | |
| Granted | | | 2,048,750 | | | | 0.01 to 3.28 | | | | 0.18 | |
| Issued under Private Placement | | | 1,723,533 | | | | 1.80 to 3.00 | | | | 0.30 | |
| Reclassified from employee | | | 235,000 | | | | 0.50 to 1.01 | | | | 0.01 | |
| Exercised | | | (3,005,185 | ) | | | .35 to .50 | | | | - | |
| Expired/Cancelled | | | (1,405,000 | ) | | | 0.50 to 1.00 | | | | - | |
| | | | | | | | | | | | | |
| Outstanding, December 31, 2013 | | | 16,128,536 | | | | 0.01 to 3.28 | | | | 0.98 | |
| | | | | | | | | | | | | |
| Granted | | | 50,000 | | | | 1.13 | | | | - | |
| Issued under Private Placement | | | 10,087,287 | | | | 1.00 | | | | 0.49 | |
| Reclassified to employee | | | (200,000 | ) | | | 0.50 | | | | 0.01 | |
| Exercised | | | (5,092,287 | ) | | | .35 to .50 | | | | - | |
| Expired/Cancelled | | | (410,000 | ) | | | 0.60 to 2.30 | | | | - | |
| | | | | | | | | | | | | |
| Outstanding, March 31, 2014 | | | 20,563,536 | | | $ | 0.01 to $3.28 | | | $ | 1.11 | |
| | | | | | | | | | | | | |
| Exercisable, March 31, 2014 | | | 18,968,537 | | | $ | 0.01 to $3.28 | | | $ | 1.08 | |
| | | | | | | | | | | | | |
| Weighted Average Remaining Life, | | | | | | | | | | | | |
| Exercisable, March 31, 2014 (years) | | | 1.7 | | | | | | | | | |
NOTE 11 - OPERATING LEASES
For the three months ended March 31, 2014 and 2013, total rent expense under leases amounted to $138,843 and $55,648, respectively. At March 31, 2014, the Company was obligated under various non-cancelable operating lease arrangements for property as follows:
| 2014 | | $ | 293,696 | |
| 2015 | | | 300,194 | |
| 2016 | | | 200,696 | |
| | | $ | 794,586 | |
Virtual Piggy, Inc.
(A Development Stage Enterprise)
Notes to Financial Statements
NOTE 12 – RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2013, a consultant owning more than 5% of the Company was paid for consulting and travel expenses to provide strategic advice to the Company. On January 1, 2013, the Company entered into an agreement with this consultant, whereby the Company would pay the consultant $12,500 per month beginning January 1, 2013 for a term of one year. In June 2013, this contract was terminated. Consulting fees paid for the three months ended March 31, 2013 were $25,000. Reimbursable business expenses of $2,946 and $23,566 were paid during the three months ended March 31, 2014 and 2013, respectively.
NOTE 13 – SUBSEQUENT EVENTS
In April 2014, the Company issued options to purchase 55,000 shares of common stock to various employees at an exercise price of $1.27 per share.
In April 2014, the Company, pursuant to the Purchase Agreement described in Note 7, issued in a private placement to certain accredited investors an additional 58,150 shares of the Series A Preferred Stock at an original issue price of $100 per share and warrants to purchase 5,815,000 shares of the Company’s common stock for an aggregate purchase price of $5,815,000. Pursuant to the Purchase Agreement, the Company also granted piggyback registration rights to the holders of the Series A Preferred Stock and Warrants. The Purchase Agreement provides that the holders of the Series A Preferred Shares shall be entitled to nominate two directors of the Company. Dividends accrue at a rate of 8% and are cumulative.
In April 2014, the Company entered into an agreement with a consulting firm to provide strategic consulting services. In connection with that agreement, the Company issued 300,000 restricted shares of common stock and an option to purchase 500,000 shares of the Company’s common stock at $1.27 per share, which will vest subject to meeting certain milestones.
On April 10, 2014, the Company was named in a law suit in superior court for the State of California from a former employee alleging wrongful termination and is asking for damages and legal fees to be paid. The Company intends to vigorously dispute the claims made by the former employee, while pursuing reasonable efforts to achieve a resolution of this matter. At this time it is not possible for us to provide any opinion as to any ultimate outcome or any definitive estimate of the amount of loss, if any, although we do not believe that any outcome will be significant to the Company’s financial condition.
