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MOGGLE, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.(Edgar Glimpses Via Acquire Media NewsEdge) Cautionary Statements Regarding Forward-Looking Statements This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included or incorporated by reference in this quarterly report on Form 10-Q, including without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objective of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expects," "intends," "plans," "projects," "estimates," "anticipates," or "believes" or the negative thereof or any variation thereon or similar terminology or expressions. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to: our ability to raise additional capital, the absence of any operating history or revenue, our ability to attract and retain qualified personnel, our dependence on third party developers who we cannot control, our ability to develop and introduce a new service to the market in a timely manner, market acceptance of our services, our limited experience in a relatively new industry, the ability to successfully develop licensing programs and generate business, rapid technological change in relevant markets, unexpected network interruptions or security breaches, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments, intense competition with larger companies, general economic conditions, as well as other factors set forth under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission, and "Item 2 - Management's Discussions and Analysis of Financial Condition and Results of Operation" below. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements. Overview Moggle, Inc. (the "Company," "we", or "us") was incorporated in Delaware on February 11, 2008 under the name Chimera International Group, Inc. On April 4, 2008, we amended our certificate of incorporation and changed our name to Moggle, Inc. We are a development stage company and have had limited business operations. For the period from inception through June 30, 2011, we have concentrated our efforts on developing a business plan which was initially focused on creating a massive multiplayer online gaming platform and massive multiplayer online games ("MMOG"). We recently changed our business model to focus on the development of online security services. We are a technology development company that delivers an online security platform, which currently is composed of three separate products (the "Platform"), designed for the management of the "Under 18" age group's online experience. Our overarching mission is to deliver solutions to meet the exponential growth of the "Under 18" age group transacting in the global online market. Our Platform is designed to enable online businesses to interact with "tweens" or children between the ages of 8-14 in compliance with the Children's Online Privacy Protection Act ("COPPA"), and other similar international children's privacy laws. 21 --------------------------------------------------------------------------------Our Platform currently consists of three separate security management products targeted at the Under 18 market: · Virtual Piggy; · ParentMatch and ParentPlayback; and · Age Verification Service Our Virtual Piggy product, which has just been launched in the market, enables online businesses to interact and transact with the "Under 18" market in a manner consistent with "COPPA" and other similar international children's privacy laws. Virtual Piggy provides an online payment profile that allows parents to set up, monitor and control their children's online spending. Parents can establish how much a child can spend in a single transaction, or over time, and also control the merchants with which the child can transact business. Parents also have the ability to set up approval rules and notification methods. Our ParentMatch and ParentPlayback products are currently under development and are designed to provide the parent/guardian with a higher level of control than is currently provided by 'nanny' type services. In addition, the web service ID will follow the child whenever he or she is on a computer, unlike traditional controls that are resident on a PC by PC basis. Age Check will be a persistent software system and service designed to provide a verification mechanism for the age of a person online. The system and service will provide a rapid secure checking mechanism to determine a person's age. The main purpose of this system and service is to determine whether setup information supplied by a person to gain access to a social network or other online site is correct. Our Plan of Operation A phased approach to the introduction of our Platform is planned. Our schedule for ParentMatch, ParentPlayback and Age Verification Service has been delayed recently as a result of the concentration and interest in the Virtual Piggy product. At this time, it is uncertain as to the specific time periods that these other products will be fully developed and brought to market. As of the date of this report, we have completed the design and development of Virtual Piggy. We announced the release of Virtual Piggy in January 2011 and commenced marketing and distribution efforts in February 2011. The ParentMatch and ParentPlayback technologies are currently in the design and prototyping phases, but we expect that they will be developed and released as a single application that provides both sets of functionality. Our plan is to market this technology to customers of our Virtual Piggy platform and the mobile market. The last component of our solution is Age Verification Service. This service is still in the design phase and, therefore, our commercialization strategy for this service is still in the preliminary stages and has yet to be finalized. Our ability to execute on our current plan is dependent on raising approximately $3,000,000 of additional capital. In the event that we are unsuccessful in these efforts, we will utilize our cash to attempt to complete a limited demonstration model of our Platform. The foregoing projected implementation plan was prepared by us in good faith based upon assumptions that we believe to be reasonable. No assurance can be given, however, regarding the attainability of our plan or the reliability of the assumptions on which they are based. Strategic Outlook We believe that the online gaming market and virtual goods market will continue to grow over the long term. Within the market, we intend to provide services to the online industry to allow them to transact with children in compliance with COPPA and similar international privacy laws. We believe that this particular opportunity is relatively untapped and expect to be a leading provider of online transactions for children. 22 --------------------------------------------------------------------------------Sustained spending on technology, our ability to raise additional financing, the continued growth of the online market, and compliance with regulatory and reporting requirements are all external conditions that may affect our ability to execute our business plan. In addition, the online payment industry is intensely competitive, and most participants have longer operating histories, significantly greater financial, technical, marketing, customer service, other resources, and greater name recognition. In addition, certain potential customers, particularly large organizations, may view our small size and limited financial resources as a negative even if they prefer our offering to those of our competitors. Our primary strategic objective over the next 12-24 months is to fully develop and implement our Platform and generate revenue that is sufficient to cover our operating expenses and support additional growth over the next several years. We plan to achieve this objective by completing the development and implementation of the Platform in a timely and efficient manner and supplementing the roll-out of each phase of our service with an extensive, layered marketing approach. As our service grows, we intend to hire additional information technology professionals to maintain our product offerings and develop new products to increase our market share. We believe that our near-term success will depend particularly on our ability to develop customer awareness and confidence in our service. Since we have limited capital resources, we will need to closely manage our expenses and conserve our cash by continually monitoring any increase in expenses and reducing or eliminating unnecessary expenditures. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies at an early stage of development, particularly given that we operate in new and rapidly evolving markets, that we have limited financial resources, and face an uncertain economic environment. We may not be successful in addressing such risks and difficulties. Results of Operations Comparison of the Three Months Ended June 30, 2011 and 2010 The following discussion analyzes our results of operations for the three months ended June 30, 2011 and 2010. The following information should be considered together with our financial statements for such period and the accompanying notes thereto. Net Loss for Three Months Ended June 30, 2011 and 2010 We incurred a net loss of $695,206 for the three months ended June 30, 2011, an increase of $384,392 from a net loss of $310,814 for the three months ended June 30, 2010. We had net revenue of $1,100 and $0 during the three months ended June 30, 2011 and 2010, respectively. The following is a summary of the components of such losses: 23 -------------------------------------------------------------------------------- Three Months Three Months Ended Ended June 30, June 30, 2011 2010 Revenues $ 1,100 $ - General and administrative 108,994 10,500 Consulting 321,695 46,334 Payroll - 152,479 Professional fees 82,608 51,085 Research and development 144,845 - Travel 38,786 44,182 Interest income (622 ) (1 ) Interest expense - 6,235 NET LOSS $ 695,206 $ 310,814 Basic and Diluted Net Loss Per Share $ 0.01 $ 0.01 Basic and Diluted Weighted Average Outstanding Shares 65,404,755 48,811,769 Compensation Expense of Stock Options $ 50,148 $ 161,600 Lack of Revenue: As is common with a company in the development stage, we generated minimal revenue of $1,100 and $0 for the three months ended June 30, 2011 and 2010, respectively. During such time, we devoted our efforts to formalizing our business plan and raising initial capital to commence our operations. During the three months ended June 30, 2011, we continued testing our Virtual Piggy platform. Expenses: The following amounts represent the most significant components of expenses for the three months ended June 30, 2011 and 2010: a) General and Administrative expenses: For the three months ended June 30, 2011 general and administrative expenses were $108,994, an increase of $98,494 from $10,500 for the three months ended June 30, 2010. The increase resulted from approximate increases in insurance of $12,500, internet expenses of $11,600, meals and entertainment of $7,600, office expenses of 4,900, website expense of $5,100, and miscellaneous expenses of $12,600. These increases were the result of establishing the infrastructure of a growing organization. In addition, our marketing expenses increased approximately $44,000 as a result of preparing the marketplace for Virtual Piggy. b) Consulting Expense: For the three months ended June 30, 2011, consulting expenses were $321,695, an increase of $275,361 from $46,334 for the three months ended June 30, 2010. This increase resulted from an increase in payments to consultants related to marketing and infrastructure, as well as stock based compensation related to consultant agreements. 24 --------------------------------------------------------------------------------c) Payroll Expenses: During the three months ended June 30, 2011 we incurred $0 of compensation expenses as compared to $152,479 for the three months ended June 30, 2010, a decrease of $152,479. The decrease resulted from no stock option grants being issued during the three months ended June 30, 2011. d) Professional Fees: During the three months ended June 30, 2011, we incurred $82,608 of professional fees as compared to $51,085 for the three months ended June 30, 2010, an increase of $31,523. The increase related primarily to outside legal and accounting fees and the cost of in-house counsel. e) Research and Development: During the three months ended June 30, 2011, we incurred $144,845 of research and development expenses as compared to $0 for the three months ended June 30, 2010, an increase of $144,845. The increase was due to the development costs of our Virtual Piggy, ParentMatch, and ParentPlayback applications. f) Travel: For the three months ended June 30, 2011 travel expenses were $38,786, a decrease of $5,396 from $44,182 for the three months ended June 30, 2010. The expenses incurred were primarily associated with corporate development and capital raising activities. Comparison of the Six Months Ended June 30, 2011 and 2010 The following discussion analyzes our results of operations for the six months ended June 30, 2011 and 2010. The following information should be considered together with our financial statements for such period and the accompanying notes thereto. Net Loss for Six Months Ended June 30, 2011 and 2010 We incurred a net loss of $1,416,710 for the six months ended June 30, 2011, an increase of $917,696 from a net loss of $499,014 for the six months ended June 30, 2010. We had net revenue of $1,426 and $0 during the six months ended June 30, 2011 and 2010, respectively. The following is a summary of the components of such losses: 25-------------------------------------------------------------------------------- Six Months Six Months Ended Ended June 30, June 30, 2011 2010 Revenues $ 1,426 $ - General and administrative 234,939 24,983 Consulting 649,790 89,509 Payroll 16,733 183,631 Professional fees 186,057 83,155 Research and development 222,571 - Travel 109,713 111,503 Interest expense - 6,235 Interest income (1,667 ) (2 ) NET LOSS $ 1,416,710 $ 499,014 Basic and Diluted Net Loss Per Share $ (0.02 ) $ (0.01 ) Basic and Diluted Weighted Average Outstanding Shares 65,388,089 47,205,117 Compensation Expense of Stock Options $ 184,874 $ 197,581 Lack of Revenue: As is common with a company in the development stage, we had minimal revenue of $1,426 and $0 for the six months ended June 30, 2011 and 2010, respectively. During such time we devoted our efforts to formalizing our business plan, and raising initial capital to commence our operations. During the six months ended June 30, 2011, we continued testing our Virtual Piggy platform. Expenses: The following amounts represent the most significant components of expenses for the six months ended June 30, 2011 and 2010: a) General and Administrative expenses: For the six months ended June 30, 2011, general and administrative expenses were $234,939, an increase of $209,956 from $24,983 for the six months ended June 30, 2010. The increase resulted from approximate increases in board fees of $25,000, insurance of $22,000, internet expenses of $15,200, meals and entertainment of $10,300, office expenses of 12,000, telephone expense of $7,100, website expense of $5,100, and miscellaneous expenses of $16,600. These increases were the result of establishing the infrastructure of a growing organization. In addition, our marketing expenses increased approximately $97,000 as a result of preparing the marketplace for Virtual Piggy. b) Consulting Expense: For the six months ended June 30, 2011, consulting expenses were $649,790, an increase of $560,281 from $89,509 for the six months ended June 30, 2010. This increase resulted from an increase in payments to consultants related to marketing and infrastructure, as well as stock based compensation related to consultant agreements. 26 --------------------------------------------------------------------------------c) Payroll Expenses: During the six months ended June 30, 2011, we incurred $16,733 of compensation expenses as compared to $183,631 for the six months ended June 30, 2010, a decrease of $166,898. The decrease resulted from a decrease in stock option grants being issued for the six months ended June 30, 2011compared to the six months ended June 30, 2010. d) Professional Fees: During the six months ended June 30, 2011, we incurred $186,057 of professional fees as compared to $83,155 for the six months ended June 30, 2010, an increase of $102,902. The professional fees were for counsel, accounting, and other professional fees in connection with legal, accounting and other professional services, as well as the cost of in-house counsel. e) Research and Development: During the six months ended June 30, 2011, research and development expenses increased to $222,571 from $0 for the six months ended June 30, 2010. The increase was due to the development costs of our Virtual Piggy, ParentMatch and ParentPlayback applications. f) Travel: For the six months ended June 30, 2011, travel expenses were $109,713, a decrease of $1,790 from $111,503 for the six months ended June 30, 2010. The expenses incurred were primarily associated with corporate development and capital raising activities. g) Interest: For the six months ended June 30, 2011, interest expense decreased to $0 from $6,235 for the six months ended June 30, 2010. Interest expense as of June 30, 2010 was a result of notes payable received from stockholders and common stock issued in conjunction with those notes payable. Liquidity and Capital Resources As of the date of this report, we had cash on hand of approximately $76,417. Net cash used in operating activities for the six months ended June 30, 2011 increased to $1,228,171 from $279,607 for the six months ended June 30, 2010 an increase of $948,564. The increase resulted from expanded operations and establishing the infrastructure of the Company. Net cash used in investing activities for the six months ended June 30, 2011 increased to $29,543 from $0 for the six months ended June 30, 2010. The increase resulted from the purchase of computer equipment and costs of patents and trademarks. Net cash provided by financing activities was $0 for the six months ended June 30, 2011 as compared to $338,214 for the six months ended June 30, 2010. The cash provided during the six months ended June 30, 2010 consisted of proceeds from the issuance of debt securities and the exercise of options and warrants. As we have not generated any meaningful revenues since our inception, we have financed our operations through public and private offerings of debt and equity securities. We do not currently maintain a line of credit or term loan with any commercial bank or other financial institution. The following sets forth our primary sources of capital during the previous two years: In September 2009, we commenced a second public offering of 12 million shares of our common stock at $1.00 per share. However, we raised only $100,000 of proceeds through the sale of 100,000 shares of common stock and deregistered the remaining 11.9 million shares of common stock in November 2010. During 2009, we realized aggregate gross proceeds of $160,000 and $110,000, respectively, from the exercise of options and warrants to purchase an aggregate of 4,000,000 and 2,750,000 shares of our common stock, respectively. In addition, we raised gross proceeds of $500,000 through the sale of 500,000 shares of common stock in a private placement transaction. 27 --------------------------------------------------------------------------------Between August 2010 and December 2010, we raised proceeds of $2 million through the sale of 10 million shares of common stock in a private placement transaction to accredited investors. During 2010, we realized aggregate proceeds of $160,000 and $240,000 from the exercise of options and warrants to purchase an aggregate of 4 million and 6,892,858 shares of our common stock. During 2010, we issued a series of unsecured promissory notes to certain of our affiliates and other investors, in the aggregate principal amount of $342,500. All of the notes were repaid in 2010 either with cash, shares of common stock, or a combination of cash and shares of common stock. Since our inception, we have focused on developing and implementing our business plan. We have not paid any salaries to management and have utilized offshore programmers on a work for hire basis to assist in developing the demonstration model. Our existing cash resources will not be sufficient to sustain our operations during the next twelve months. We are currently in need of approximately $3,000,000 of additional capital to enable us to pay our ongoing costs and expenses as they are incurred, finance the continued development of our Platform, and execute our business plan. We intend to raise such financing through the sale of debt and equity securities. The issuance of additional equity would result in dilution to our existing shareholders. If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms favorable to us, we may be unable to execute upon our business plan or pay our costs and expenses as they are incurred, we would be unable to continue the development of our Platform which could have a material, adverse effect on our business, financial condition and results of operations. Even if we are successful in raising sufficient capital in order to complete the development of our Virtual Piggy and ParentMatch products, our ability to continue in business as a viable going concern can only be achieved when our revenues reach a level that sustains our business operations. We raised approximately $2.7 million during the year ended December 31, 2010 and we project that our Virtual Piggy product will not be ready for full scale introduction to the marketplace until the third quarter of 2011. Accordingly, we do not project that significant revenue will be developed until late 2011 at the earliest. While it is impossible to predict the amount of revenues, if any, that we may receive from our Virtual Piggy product, we presently believe, based solely on our internal projections, that we will generate revenues sufficient to fund our planned business operations if both the Virtual Piggy and ParentMatch products are developed in accordance with our plans. There can be no assurance that we will raise sufficient proceeds, or any proceeds, for us to implement fully our proposed business plan to aggressively develop, complete, and market our Virtual Piggy and ParentMatch products. Moreover there can be no assurance that even if our Virtual Piggy and ParentMatch products are developed, that we will generate revenues sufficient to fund our operations. In either such situation, we may not be able to continue our operations and our business might fail. The foregoing project implementation and projections were prepared by us in good faith based upon assumptions that we believe to be reasonable. No assurance can be given, however, regarding the attainability of the projections or the reliability of the assumptions on which they are based. The projections are subject to the uncertainties inherent in any attempt to predict the results of our operations, especially where new products and services are involved. Certain of the assumptions used will inevitably not materialize and unanticipated events will occur. Actual results of operations are, therefore, likely to vary from the projections and such variations may be material and adverse to us. Accordingly, no assurance can be given that such results will be achieved. Moreover due to changes in technology, new product announcements, competitive pressures, system design and/or other specifications, we may be required to change the current plans for our Virtual Piggy and ParentMatch products. Off-Balance Sheet Arrangements As of June 30, 2011, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. 28 --------------------------------------------------------------------------------Critical Accounting Policies Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in note 2 of the notes to our financial statements. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management. Stock-based Compensation We have adopted the fair value recognition provisions Financial Accounting Standard Board Accounting Standards Codification ("FASB ASC") 718. In addition, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 " Share-Based Payment " ("SAB 107") in March, 2005, which provides supplemental FASB ASC 718 application guidance based on the views of the SEC. Under FASB ASC 718, compensation cost recognized includes compensation cost for all share-based payments granted beginning January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of FASB ASC 718. We have used the Black-Scholes option-pricing model to estimate the option fair values. The option-pricing model requires a number of assumptions, of which the most significant are, expected stock price volatility, the expected pre-vesting forfeiture rate and the expected option term (the amount of time from the grant date until the options are exercised or expire). Compensation expense for unvested options granted to non-employees in previous periods is being amortized over the vesting period of the options, or the term of the consulting agreement, whichever is longer. Revenue Recognition In accordance with Securities and Exchange Commission ("SEC") Staff Accounting Bulletin) No. 104, Revenue Recognition (Codified in FASB ASC 605), we 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, we will generally recognize revenue from Virtual Piggy and ParentMatch at the time of the sale of the associated product and will recognize revenue from the sale of role playing games when shipped. Recently Issued Accounting Pronouncements Recently issued accounting pronouncements are discussed in Note 1 of the Notes to Financial Statements contained elsewhere in this report. |