10-K 1 form10k-98033_bgsc.htm FORM 10-K form10k-98033_bgsc.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
 
Form 10-K
______________________
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
 
or
 
¨
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 000-51661
 
BIGSTRING CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
  
20-0297832
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)

 
 
 157 Broad Street, Suite 109, Red Bank, New Jersey 07701
  
 
(Address of principal executive offices) (Zip Code)
  
     
 
(732) 741-2840
  
 
(Registrant’s telephone number, including area code)
  


Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.0001
(Title of class)

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ¨ No x
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
 
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 x No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
At June 30, 2008, the aggregate market value of shares held by non-affiliates of the Registrant (based upon the closing sale price of such shares on The NASDAQ OTC Bulletin Board on June 30, 2008 was $5,104,854.
 
At March 30, 2009, there were 52,244,394 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates certain information by reference from the Registrant’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 29, 2009.  The Proxy Statement will be filed with the Securities and Exchange Commission (the “SEC”) on or before April 30, 2009.
 
 
 
 
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this Annual Report on Form 10-K and other filings of the Registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.  Such statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results.  Among these risks, trends and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation and other risks identified in the Registrant’s filings with the SEC from time to time, including our registration statement on Form SB-2 (Registration No. 333-143793), filed with the SEC on June 15, 2007, and the subsequent amendments and supplements thereto.

In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology.  Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements.  Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements.  The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Annual Report on Form 10-K.

 
 
 

BIGSTRING CORPORATION

INDEX TO FORM 10-K

PART I
PAGE
     
Item 1.
1
Item 1A.
7
Item 1B.
7
Item 2.
8
Item 3.
8
Item 4.
8
     
PART II
  
     
Item 5.
9
Item 6.
11
Item 7.
11
Item 7A.
19
Item 8.
19
Item 9.
19
Item 9A.
19
Item 9B.
21
     
PART III
  
     
Item 10.*
22
Item 11.*
22
Item 12.*
22
Item 13.*
22
Item 14.*
22
Item 15.
22
 
F-1
 
E-1
     
Signatures
23

*
The information required under this Item is contained in the Registrant’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 29, 2009, and is incorporated herein by reference.  The Proxy Statement will be filed with the SEC on or before April 30, 2009.

 

PART I

Business

Background
 
BigString Corporation (“BigString”) was incorporated in the State of Delaware on October 8, 2003 under the name “Recall Mail Corporation.”  The company’s name was formally changed to “BigString Corporation” in July 2005.  BigString was formed to develop technology that would allow the user of email services to have comprehensive control, security and privacy relating to the email generated by the user.
 
BigString Interactive, Inc. (“BigString Interactive”), incorporated in the State of New Jersey, was formed by BigString in early 2006 to develop technology relating to interactive web portals.
 
PeopleString Corporation (“PeopleString”), incorporated in the State of Delaware, was formed by BigString in early 2009 to launch an incentive-based social network that pays users to receive direct mail and perform a host of internet activities.
 
BigString Interactive and PeopleString are currently BigString’s only operating subsidiaries.
 
BigString has developed an innovative messaging service that allows users to easily send, recall, erase, self-destruct and secure email transmissions. BigString set out to make Internet communication more efficient, reliable and valuable, while protecting individual privacy and intellectual property.  The concept of recallable email was conceived by one of BigString’s founders and current President and Chief Executive Officer, Darin M. Myman.  After inadvertently sending an email to a prospective client which contained sensitive pricing and customer information, Mr. Myman unfortunately learned that there was no way for him to retrieve the email before the prospective client had the opportunity to review the contents thereof.  As a result of this frustrating experience, Mr. Myman and certain other members of BigString’s management team focused on developing a technology that would allow users to have comprehensive control, security and privacy of their email.  In March 2004, the BigString email service was introduced to the market.
 
Business Strategy

The email industry has migrated from an advertising model to a blended model that includes advertising and subscriptions.  Email service providers now offer premium services and products which include, among other features, value-added services such as advanced spam filters, advanced virus protection, additional storage, multiple email addresses and secure email.  In addition to our free email service product, which includes the aforementioned features plus our proprietary features, we offer premium email services, products and applications such as domain/vanity names, POP3 email client access (a protocol used to retrieve email from a mail server), advanced email management and campaign management tools, which are offered in several different packages at various prices and may be purchased by the users of our BigString email service.
 
BigString includes advertising with its email services.  Advertisements are primarily displayed to users of our free service.  Advertisements customarily include text and banner ads and are paid based on a mix of impressions, clicks and actions.  BigString currently has agreements with a number of firms that provide advertising services.  In the future, we may add additional types of advertisements and additional advertising service firms, as well as direct advertisers and sponsors, as we increase the monetization of our user base.
 
Certain Internet service providers (“ISPs”), portals, social networks and content providers have started to use email as a tool to compete against each other.  This strategy incorporates email as part of their offering because email is one of the most effective web applications in bringing users back to a site, multiple times a day, day after day.  Many service providers have recently launched beta versions.  These beta email developments consist primarily of storage and anti-spam/anti-virus filters.  BigString continuously strives to provide a superior user experience with features that we believe exceed those of other providers.
 
Leveraging the ‘stickiness’ of email and the advantage it can offer an Internet property, we introduced email hosting, private label, and co-branded solutions. These solutions offer BigString’s unique email features under the logos and marks of web publishers and content sites, such as search engines, social networks, online dating sites, ISPs and social media portals. Web publishers and content sites can further their image and differentiate their services from competitors, while increasing incremental traffic, page views and ad revenue from their existing members. Most agreements include a revenue share arrangement, and we may also charge development and
 
1

maintenance fees. Web publishers and content sites provide the marketing, which expands awareness of BigString’s unique services beyond BigString’s marketing and can help us grow more quickly.
 
BigString has introduced complementary messaging services to provide a full suite of communications tools for our members. In 2008, BigString introduced a self-destructing instant messaging (“IM”) technology that enables users to send instant messages that self-destruct after being sent; this service continued to develop into a web-based, cross-platform IM application that enables users to send self-destructing or regular IMs across AOL®’s AIM, Yahoo®’s Messenger, MSN®’s Messenger and Google®’s Gtalk. In 2008, we also released a self-destructing, SMS text messaging application; this application was initially configured for BlackBerry® phone users.  In 2009, we released an easy-to-use universal email tracking service that allows users to know when their emails have been opened and read.
 
Through our wholly-owned subsidiary, BigString Interactive, we launched a new interactive entertainment portal in June 2006, built around BigString’s recallable, erasable and self-destructing email platform.  BigString’s entertainment portal contains streaming audio and video programming.
 
Building on the vast popularity of the social networking sites such as Facebook®, MySpace®, Friendster® and LinkedIn®, BigString’s social networking applications allow users to easily send and receive messages, notifications, email and videos that self-destruct on command. These rapidly growing, adjacent markets offer BigString the opportunity to leverage its skills in messaging and streaming audio and video to create complementary messaging applications. Our development efforts are focused to address security and privacy gaps in social networking messaging applications. In 2008, we added the BuddyStumbler social network to the BigString family.
 
Through our wholly-owned subsidiary, PeopleString, we launched an incentive-based social network in March 2009 that pays users to receive direct mail and perform a host of internet activities.
 
Promotion

We promote our messaging service and products through the Internet, including messaging and email tag lines, organic search, paid search, banners, blogs, social networks, video and other viral tactics, multimedia, print, and radio as well as through alliances with marketing affiliates and programs contained on our interactive entertainment portal, such as www.BuddyStumbler.com www.DailyLOL.com, www.FindItAll.com and the OurPrisoner interactive Internet television program. We also offer fee based services, such as our self-destructible SMS text application, through online stores as a point of sale license purchase.
 
Our promotions also include email hosting, private label, and co-branded solutions. The web publishers and content sites may offer our messaging services to their existing registered member base as well as all future members that register. The web publishers and content sites are responsible for marketing. BigString receives advertising revenue associated with these marketing affiliations and may also receive premium fees when registered members upgrade service.  In conjunction with contracts to provide email services to marketing affiliates, BigString may be obligated to make payments, which may represent a portion of revenue, to its marketing affiliates.
 
Market Affiliations

We enter into market affiliations with other Internet companies regarding advertisements and other marketing promotions which can be accessed through our website. Through these marketing affiliations, advertisements, such as banner ads, are posted on our website and may be accessed by our users.  In addition, advertising websites may be accessed directly through our website.  Our marketing affiliates are obligated to pay us a portion of the revenue they receive from advertisers as compensation for BigString’s sale of promotional space on our website.
 
We generate revenue when our users access the advertisements or advertising websites and purchase products and services.  In addition, we generate revenue based on the number of our users accessing advertisements and advertisers’ websites. We also generate revenue based upon the number of impressions per advertisement.
 
Products and Services

BigString offers a web-based, POP3/IMAP server, email service solution.  Our patent pending technology provides a user with the ability to manage and control content sent by email.  The user’s email executes through the BigString server but such execution is transparent to the sender and recipients of the email.
 
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A user of our BigString email services will have his, her or its email transposed from a text-based message through BigString’s server, and an exact, replicated image of the email will be instantaneously streamed to the recipient.  The recipient never actually receives the content, but only receives images of the content.
 
The user of the BigString email service and products can transparently edit, recall, cancel, and erase the email as well as insert or delete attachments, even after the email has been sent out and opened.  All the subsequent changes by the sender will be completely transparent to the recipient.  In addition, the sender has complete control over the life and duration of the email.  The sender can have the email self-destruct or disappear after a defined number of views or after a certain time period.
 
In June 2007, BigString launched its new email service, BigString 3.0. This service provides, at no cost to its users, advanced spam filters, virus protection and large-storage, web-based email accounts with features similar to those offered by AOL®, Yahoo®, Hotmail®, Google®, Verizon® and Comcast®. In addition to the equivalent features provided by competitors, BigString 3.0 offers erasable, recallable and self destroying applications, non-printable and non-forwardable emails, set time or number of views (including ‘view-once’) and masquerading to protect the sender’s privacy and security. BigString 3.0 also allows a sender to view tracking reports that indicate when emails were opened by the recipient, and how many times they were viewed.  Senders can add, change and/or delete attachments before or after a recipient opened the email.  In addition, BigString 3.0 allows senders to direct emails to disintegrate in front of their recipient’s eyes and allows senders to create, save and send self-destructing video email.
 
BigString has continued to introduce a number of upgrades and features for our email service while increasing penetration into global markets and expanding into adjacent messaging markets:
 
 
·
In July 2007, in response to user demand from its Version 3.0 launch, BigString introduced unlimited email storage.
 
 
·
In August 2007, BigString unveiled Three Layer Secure Email for sensitive correspondence which enables users to send encrypted, password-protected email with BigString’s unique auto-expiration and non-forward features. Also in August 2007, BigString created an email and video alliance program which enables users access to the hottest new videos from partners while providing hosted email services to partners.
 
 
·
In November 2007, BigString launched its first social networking messaging widget, a Facebook application that enables Facebook users to send messages and photos programmed to self-destruct.
 
 
·
In December 2007, BigString launched another social networking application for Facebook which enables Facebook users to send self-destructing videos.
 
 
·
In January 2008, BigString launched email service for the iPhone™ and other next-generation wireless devices to send self-destructing email and pictures. Also in January 2008, as part of our efforts to continue innovation of communications privacy initiatives, we released a new video email platform for the Chinese market.
 
 
·
In February 2008, BigString released an application that enables Facebook users to broadcast their original live video content.
 
 
·
In April 2008, BigString unveiled a new, self destructing instant messaging technology that enables users to send instant messages that self-destruct after being sent.
 
 
·
In May 2008, BigString entered into an international distribution agreement with VIP Connectz USA, Inc. (“VIP Connectz”), an international marketing and sales company, to offer BigString’s self-destructing email and instant messaging (IM) services as a private labeled solution bundled with VoIP service to the VIP Connectz global network.
 
 
·
In July 2008, BigString introduced a new web-based, cross-platform IM application that enables users to send self-destructing or regular IMs across AOL’s AIM, Yahoo’s Messenger, MSN’s Messenger and Google’s Gtalk. In July, BigString also released Spanish and Portuguese email portal with VIP Connectz for the Latin American markets. Additionally, in July 2008, BigString acquired Buddystumbler.com, an IM-based social network that allows users to meet people via free online chats on AOL AIM, Yahoo Messenger, MSN Messenger and Google Talk.
 
3
 
 
·
In August 2008, BigString released its self-destructing SMS text messaging application for BlackBerry phones.
 
 
·
In January 2009, BigString released an easy-to-use universal email tracking service that allows users to know when their emails have been opened and read.
 
Products Offered – BigString currently offers its consumer, business and enterprise customers the following packages:
 
Email
 
 
·
BigString Free Email (No Charge).
 
 
·
BigString Premium Email ($29.95 per year).
 
 
·
BigString Business Email ($149.95+ per year).
 
 
·
BigString Mobile Email (No Charge).
 
Email Hosting
 
 
·
BigString Private Label Email ($5,000.00 development, $500.00 per year + revenue share).
 
 
·
BigString Email Hosting (Enterprise level) ($11,500.00+ per year).
 
Social Network Messaging
 
 
·
BigString Exploding Messages & Pictures (No Charge).
 
 
·
BigString Exploding Video (No Charge).
 
Instant Messaging (IM)
 
 
·
BigString Cross-Platform, Self-Destructing IM (No Charge).
 
SMS Texting
 
 
·
BigString Self-Destructing SMS Text Messaging ($29.95 per license).
 
BigString Free Email provides all the features of BigString Version 3.0, includes unlimited GB email storage and permits the user to send unlimited emails per month.  It is accessed by the user through the web as web-based email, or webmail, and each user is given one address.  Individuals can signup for multiple “disposable” accounts.  Wizards help users import previously saved contacts.  To personalize their email, users can create an alias, create their own font, add signatures, add pictures to both their profile and their contacts’ profiles, create multiple expire messages, and create custom templates with editable fields and then access the saved templates to save time while composing messages.
 
BigString Premium Email offers all the features of the BigString Free Email account, plus vanity domains (yourname@yourdomain.com), POP3 access using any email client (such as Microsoft Outlook®), 30 minute video email and reduced banner advertising.
 
BigString Business Email offers all the features of the BigString Premium account, plus 10 email accounts, global filter notification and advanced email management.  Small and medium sized businesses can customize the number of additional addresses for an additional fee.
 
BigString Mobile Email provides access to a user’s email account from the iPhone™ and other next-generation wireless devices.
 
BigString Private Label Email offers web publishers and content sites BigString’s hosted email platform as a value-added service for their members, and helps generate incremental traffic, page views and ad revenue from their existing members. The private labeled, or white labeled, solution offers a revenue share of advertising and/or premium fees generated by BigString.
 
4
 
BigString Email Hosting offers enterprise level firms all the features of BigString Private Label Email, in a licensed package which can be customized to integrate with the firms’ messaging, networking and video applications.
 
BigString Exploding Messages & Pictures offers social networking members integrated self-destructing messaging applications through their current social network.
 
BigString Exploding Video offers social networking members integrated self-destructing video applications through their current social network.
 
BigString Cross-Platform, Self-Destructing IM provides users with both regular and self-destructing, instant messaging options on a cross-platform application across AOL’s AIM, Yahoo’s Messenger, MSN’s Messenger and Google’s Gtalk.
 
BigString Self-Destructing SMS Text Messaging provides users SMS text messages that self-destruct after a specified time frame for use on mobile devices, such as the BlackBerry phone.
 
Technical and Customer Support – Customer support for BigString’s messaging service and products is available in two different ways:
 
 
·
Email Support.  The ability for customers to contact BigString support through email.
 
 
·
Phone Support.  The ability for customers to contact BigString support via the telephone.
 
Historically, the customers of BigString’s services and products have required very little support.  BigString continuously reviews its support capabilities and updates and enhances such capabilities to meet the needs of the users of its products and services.  In the future, BigString may outsource the support of its products and services to cost effective call centers or service providers.
 
Also available on the BigString website is a Frequently Asked Questions section and a comprehensive BigString User Guide.  We believe that BigString’s Frequently Asked Questions section and User Guide usually can resolve most of a user’s problems.  As our business grows and we introduce new products or enhancements to existing products, we expect our Frequently Asked Questions section and User Guide to be updated on a continuous basis.
 
Interactive Entertainment Portal – In June 2006, BigString, through its wholly-owned subsidiary, BigString Interactive, launched a new interactive entertainment portal built around BigString’s recallable, erasable and self-destructing email platform.  BigString’s entertainment portal contains streaming audio and video programming.
 
BigString began its programming initiative in June 2006 with the debut of OurPrisoner, BigString’s interactive Internet television reality program.  The program featured a volunteer, Mr. Kieran Vogel, who allowed the Internet audience to control every aspect of his life for six months live, on camera, 24 hours a day, seven days a week.  Most aspects of Mr. Vogel’s life in a suburban New Jersey home were streamed in real time and unedited.  Through BigString’s interactive media platform, viewers voted to determine what he wore, what he ate, whom he dated, whom he talked to, what he watched on television, what music he listened to, and much more.  OurPrisoner concluded its six month run in December 2006.  The most popular video clips were archived on www.OurPrisoner.com for viewing after the program ended.
 
In December 2006, BigString launched a beta version of FindItAll, a video and photo search engine which BigString had acquired in May 2006.  FindItAll, in conjunction with the Pixsy Media Search platform, provides Internet users a comprehensive search facility for online viral videos, television programs, news events, movies and movie trailers, music videos and other similar media.  FindItAll’s search function allows its users to search for photos and videos by relevance, category, provider or freshness, with the results provided in the form of thumbnail images.  This differs from traditional search engines which focus entirely on relevance.  The Pixsy Media Search platform provides FindItAll with technology that gives users the ability to search for videos from their favorite web providers including YouTube™, MetaCafe®, Revver®, StupidVideos.com, Addicting Clips™, Fandango®, iFilm®, Grouper®, Reuters®, Entertainment Weekly®, Hollywood.com®, MSNBC®, The New York Times®, and DailyLOL.
 
Also in December 2006, BigString acquired DailyLOL, a viral video website that provides humorous videos, games and pictures.  DailyLOL was launched as part of the company’s interactive entertainment portal.
 

5
 
In June 2008, BigString sold FindItAll.com and its related assets to FindItAll, Inc., a development stage company, and the sale of AmericanMoBlog.com and its related assets to AmericanMoBlog, Inc., a development stage company.
 
In July 2008, BigString acquired Buddystumbler.com, an IM-based social network that allows users to meet people via free online chats on AOL AIM, Yahoo Messenger, MSN Messenger and Google Talk.
 
BigString continues to apply its streaming audio and video experience and technologies into its messaging, email and social network applications.
 
PeopleString - In March 2009, BigString launched PeopleString, an incentive-based social network that pays users to receive regular direct mail as well as for performing a host of internet activities.  Users of PeopleString can generate income through an opt-in direct mail program and their use of email, instant messaging, video email and file storage. In addition, PeopleString’s technology allows users to generate additional income by creating a personal affiliate network by signing up friends and businesses through multiple digital bonds. The user who creates his or her own affiliate network will generate income each time any other user in the affiliate network generates income.  You can access PeopleString at http://www.PeopleString.com.
 
Protection of Proprietary Rights

We rely on a combination of U.S. and foreign patent, copyright, trademark and trade secret laws to establish and protect our proprietary rights.  In particular, we rely upon our patent application for Universal Recallable, Erasable, Secure and Timed Delivery Email, Serial No. 10/827,199; our patent application for Destroyable Instant Messaging (IM), Serial No. 12/060,406; our service mark for the word “BigString,” Serial No. 78/336,856; our service mark for the word “Our Prisoner,” Serial No. 78/751,930; and the protection to our proprietary information afforded by the Lanham Act of 1946, 15 U.S.C. §§ 1051-1127; the Economic Espionage Act of 1996, 18 U.S.C. §1832; the Uniform Trade Secrets Act; as well as by common-law.  If issued by the United States Patent and Trademark Office, the patents for Universal Recallable, Erasable and Timed Delivery Email and Destroyable Instant Messaging (IM) will expire 20 years following the dates our patent applications were filed or on April 18, 2024 and April 1, 2028, respectively.  Our service mark will not expire provided that we continue to make routine filings to keep it current with the United States Patent and Trademark Office.
 
Under the U.S. patent laws, our rights to the intellectual property which is the subject of our patent application may not be infringed upon by a third party.  As we have applied for a patent, we may assert provisional rights as to the intellectual property covered thereby.  BigString may obtain a reasonable royalty from a third party that infringes on an application claim, provided actual notice is given to the third party by BigString and a patent issues from the application with a substantially identical claim.
 
Market

We currently market to Internet users who seek to utilize the Internet as their source for email and messaging services.  Generally, our products and services can be readily accessed through the Internet and thus from virtually anywhere where the Internet is accessible.  Email users can access BigString’s English language site, www.BigString.com, on a global basis, 24 hours a day.  As of March 25, 2009, BigString visitors accessed www.BigString.com from 227 countries/territories, compared to 223, 190 and 60 countries/territories as of December 31, 2008, 2007 and 2006, respectively. The top five countries by visits to www.BigString.com are as follows: United States 57%, United Kingdom 9%, Canada 5%, India 2%, and Peru 2%, followed by Mexico, Australia, Columbia, Germany and Brazil.
 
Competition

We have existing competitors for our businesses that have greater financial, personnel and other resources, longer operating histories, more technological expertise, more recognizable names and more established relationships in industries that we currently serve or may serve in the future.  Increased competition, our inability to compete successfully against current or future competitors, pricing pressures or loss of market share could result in increased costs and reduced operating margins, which could harm our business, operating results, financial condition and future prospects.  Many of these firms are well established, have reputations for success and have significantly greater financial, marketing, distribution, personnel, and other resources than us.  Further, we may experience price
 

6

competition, and this competition may adversely affect our financial position and results of operations or adversely affect our revenues and profitability.
 
The markets for our services are highly competitive.  With limited barriers to entry we believe the competitive landscape will continue to increase both from new entrants to the market as well as from existing players.  We remain focused on delivering better, more advanced and innovative services than our competitors.
 
Employees

We currently have four full-time employees, reduced from five full-time employees as of December 2007. We believe that our relationship with our employees is satisfactory.  We have not suffered any labor problems since our inception.
 
Todd M. Ross and Marc W. Dutton resigned from the board of directors of BigString, effective March 12, 2009.  Darin M. Myman, Adam Kotkin and Robert DeMeulemeester are the remaining members of the board of directors.  At this time, the board of directors does not anticipate filling the vacancies in the board of directors as a result of the resignations of Mr. Ross and Mr. Dutton.
 
Advisory Board

In December 2006, BigString formed an Advisory Board to advise the company on operational matters, the company’s marketing efforts and future business opportunities.  There are currently two members who serve on the Advisory Board, Sidney Braginsky, former President and Chief Operating Officer of Olympus America Inc., Melville, New York; and J. Frederic Kerrest, former Director Business Development & Alliances of Salesforce.com, Inc., San Francisco, California.
 
Government Regulation

We do not currently face direct regulation by any governmental agency, other than laws and regulations generally applicable to businesses.
 
Due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted in the U.S. and abroad with particular applicability to the Internet.  It is possible that governments will enact legislation that may be applicable to us in areas including network security, encryption, data and privacy protection, electronic authentication or “digital” signatures, access charges and retransmission activities.  Moreover, the applicability to the Internet of existing laws governing issues including property ownership, content, taxation, defamation and personal privacy is uncertain.
 
The majority of laws that currently regulate the Internet were adopted before the widespread use and commercialization of the Internet and, as a result, do not contemplate or address the unique issues of the Internet and related technologies.  Any export or import restrictions, new legislation or regulation or governmental enforcement of existing regulations may limit the growth of the Internet, increase our cost of doing business or increase our legal exposure.  Any of these factors could have a material adverse effect on our business, financial condition and results of operations.
 
Violations of local laws may be alleged or charged by state or foreign governments, and we may unintentionally violate local laws.  Local laws may be modified, or new laws enacted, in the future.  Any of these developments could have a material adverse effect on our business, results of operations and financial condition.
 
 
Risk Factors
 
BigString is a smaller reporting company and is therefore not required to provide this information.
 
 
Item 1B. 
Unresolved Staff Comments
 
None.

7
 
Properties
 
We occupy space at 157 Broad Street, Suite 109, Red Bank, New Jersey 07701.  As part of our efforts to reduce expenses, we did not renew the lease for additional space which had been previously occupied by us at 3 Harding Road, Suite E, Red Bank, New Jersey 07701. Our current Red Bank offices have approximately 1,426 square feet of office space.  Our operating lease for this premise expires on March 31, 2010.  The current occupancy rate is $2,300 per month.  In addition, we also keep certain servers off-site at a facility located in Newark, New Jersey.  While we believe that are offices are adequate to meet our current requirements, we continue to evaluate facility needs and requirements for the future.
 
 
Legal Proceedings
 
We are not a party to, and none of our property is the subject of, any pending legal proceedings. To our knowledge, no governmental authority is contemplating any such proceedings.
 
 
Submission of Matters to a Vote of Security Holders
 
None.
 
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PART II
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
 
Market Information
 
Our common stock commenced quotation on the NASDAQ OTC Bulletin Board under the trading symbol “BSGC” on May 2, 2006.  The following table sets forth, for the periods indicated, the high and low sales prices for our common stock as reported on the NASDAQ OTC Bulletin Board.  This information reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
 
Year Ended December 31, 2008
  
High
    
Low
  
First Quarter
   $ 0.27     $ 0.16  
Second Quarter
   $ 0.21     $ 0.11  
Third Quarter
   $ 0.18     $ 0.03  
Fourth Quarter
   $ 0.07     $ 0.02  
                 
Year Ended December 31, 2007
                
First Quarter
   $ 0.75     $ 0.25  
Second Quarter
   $ 0.43     $ 0.26  
Third Quarter
   $ 0.27     $ 0.13  
Fourth Quarter
   $ 0.32     $ 0.06  
                 

 
The NASDAQ OTC Bulletin Board is generally considered to be a less active and efficient market than the NASDAQ Global Market, the NASDAQ Capital Market or any national exchange and will not provide investors with the liquidity that the NASDAQ Global Market, the NASDAQ Capital Market or a national exchange would offer.  As of March 25, 2009, we had over fifteen market makers for our common stock, including:  Archipelago Trading Services, Inc., Automated Trading Desk Financial Services, LLC, D. Weckstein & Co., Inc., Domestic Securities, Inc., Finance 500, Inc., Hudson Securities, Inc., Knight Equity Markets, L.P., LaBranche Financial Services, Inc., Murphy & Durieu, Natexis Bleichroeder Inc., Pershing LLC, The Vertical Trading Group, LLC, UBS Securities LLC, Vandham Securities Corp. and Vfinance Investments, Inc.
 
As of March 27, 2009, the approximate number of registered holders of our common stock was 60, and BigString is aware that the number of non-objecting beneficial owners of our common stock is approximately 1,400.  As of March 27, 2009, the number of outstanding shares of our common stock was 52,244,394; the number of outstanding shares of our Series A Preferred Stock was 400,000 (currently convertible into 4,673,989 shares of our common stock); and there were 10,393,545 shares of common stock subject to outstanding warrants, and 9,550,100 shares of common stock subject to outstanding stock options.
 
Dividends
 
It is anticipated that cash dividends will not be declared on BigString’s common stock in the foreseeable future.  Our dividend policy is subject to the discretion of our board of directors and depends upon a number of factors, including operating results, financial condition and general business conditions.  Holders of common stock are entitled to receive dividends as, if and when declared by our board of directors out of funds legally available therefor.  We may pay cash dividends if net income available to stockholders fully funds the proposed dividends, and the expected rate of earnings retention is consistent with capital needs, asset quality and overall financial condition.
 
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Details of Issuance of Shares of Our Common Stock in Connection With Exercise of Warrants
 
On January 3, 2008, BigString issued 213,333 shares of its common stock upon the exercise of warrants by GEM Funding LLC for $21,333. The exercise price was $0.10 per share. In connection with the issuance of the common stock, BigString relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.
 
Details of Issuance of Shares of Our Common Stock in Connection With Conversion of Notes
 
On February 8, 2008, BigString issued 111,111 shares of its common stock upon the conversion of convertible promissory notes totaling $20,000 by Penn Footwear. The conversion price was $0.18 per share. In connection with the issuance of the common stock, BigString relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.
 
Details of Issuance of Convertible Notes and Grant of Warrants to Subscribers
 
On February 29, 2008, BigString entered into a subscription arrangement with Whalehaven Capital Fund Limited, Alpha Capital Anstalt and Excalibur Small Cap Opportunities LP (collectively, the “2008 Subscribers”), Pursuant to which the 2008 Subscribers purchased convertible notes in the aggregate principal amount of $700,000, which notes are convertible into shares of BigString’s common stock, and warrants to purchase up to 2,333,333 shares of BigString’s common stock.  Each convertible note has a term of three years and accrues interest at a rate of six percent annually.  The holder of a convertible note has the right from and after the issuance thereof until such time as the convertible note is fully paid, to convert any outstanding and unpaid principal portion thereof into shares of common stock at a conversion price of $0.15 per share, as adjusted.  The conversion price and number and kind of shares to be issued upon conversion of the convertible note are subject to adjustment from time to time. Each warrant has an exercise price of $0.15 per share of common stock, as adjusted.   The number of shares of common stock underlying each warrant and the exercise price are subject to certain adjustments.
 
BigString also issued to a warrant to purchase an aggregate 373,333 shares of common stock to the finder in the offering of the convertible notes.  This warrant is similar to and carries the same rights as the warrants issued to the 2008 Subscribers.
 
In connection with the issuance of the convertible notes and warrants to purchase common stock, BigString relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.
 
Details of Issuance of Shares of Our Common Stock in Connection With Accrued Interest
 
On May 1, 2008, BigString issued 291,713 shares of its common stock for accrued interest on convertible promissory notes totaling $43,757. BigString issued 100,000, 28,893, 50,000, 12,820 and 100,000 shares of BigString’s common stock to Alpha Capital Anstalt, Chestnut Ridge Partners LP, Iroquois Master Fund Ltd., Penn Footwear and Whalehaven Capital Fund Limited, respectively. The interest conversion price was $0.15 per share. In connection with the issuance of the common stock, BigString relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.
 
Details of Issuance of Shares of Our Common Stock in Connection With an Acquisition
 
On July 9, 2008, BigString issued 900,000 shares of common stock for the acquisition of certain assets. The market value of BigString’s common stock at July 9, 2008 was $0.13 per share.  In connection with the issuance of the common stock, BigString relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.
 
Details of Issuance of Convertible Notes and Grant of Warrants
 
On August 25, 2008, BigString closed on a financing with Dwight Lane Capital, LLC, a limited liability company in which Todd M. Ross, a former director of BigString, has an interest, and Marc W. Dutton, a former director of BigString.  In connection with such financing, BigString issued non-negotiable convertible promissory

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notes (the “Notes”) in the aggregate principal amount of $250,000, which Notes are convertible under certain circumstances into shares of BigString’s common stock.  BigString also issued common stock purchase warrants  to purchase up to an aggregate 800,000 shares of common stock.   Each Note has a term of five months from the date of issuance and accrued interest at a rate of 12% annually.  The aggregate principal amount of the Notes and accrued interest thereon were to be paid in-full at maturity, unless sooner paid by BigString.    All amounts due under the Notes were paid by BigString in December 2008, including accrued interest of $9,328, and, as a result, the Notes were cancelled.

Each warrant has a term of ten years from the date of issuance and was fully vested on such date.  The warrants are exercisable at $0.08 per share of common stock underlying such Warrants.  The number of shares of Common Stock underlying each Warrant and the exercise price are subject to certain customary adjustments as described therein.  
 
In connection with the issuance of the convertible notes and warrants to purchase common stock, BigString relied on an exemption from registration for a private transaction not involving a public distribution provided by Section 4(2) of the Securities Act.
 
 
Selected Financial Data
 
BigString is a smaller reporting company and is therefore not required to provide this information.
 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
The following discussion and analysis is intended to provide information about BigString’s financial condition and results of operations for the years ended December 31, 2008 and 2007.  This information should be read in conjunction with BigString’s audited consolidated financial statements for the years ended December 31, 2008 and 2007, and the period October 8, 2003 (Date of Formation) through December 31, 2008, including the related notes thereto, which begin on page F-2 of this report.
 
Background

BigString was incorporated in the State of Delaware on October 8, 2003 under the name “Recall Mail Corporation.”  The company’s name was formally changed to BigString Corporation in July 2005.  BigString was formed, together with Email Emissary, incorporated in the State of Oklahoma on August 7, 2003, to develop technology that would allow the user of email services to have comprehensive control, security and privacy relating to the email generated by the user.  Email Emissary was later acquired by BigString in July 2004.  In September 2006, all of Email Emissary’s assets, including its pending patent application, were transferred to BigString. Email Emissary was dissolved on May 17, 2007. BigString Interactive, incorporated in the State of New Jersey on January 20, 2006, and PeopleString, incorporated in the State of Delaware on January 2, 2009, are wholly-owned subsidiaries of BigString.
 
Development Stage Company

BigString is considered a development stage enterprise as defined in the Financial Accounting Standards Board (the “FASB”) Statement No. 7, “Accounting and Reporting for Development Stage Companies.”  BigString has limited revenue to date, continues to raise capital and there is no assurance that ultimately BigString will achieve a profitable level of operations.
 
Overview

BigString is a technology firm with a global client base, focused on providing a superior online communications experience for its users. BigString’s goal is to make Internet communication more efficient, reliable and valuable, while protecting individual privacy and intellectual property.  Our innovations in recallable, erasable
 
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email provide a new level of privacy and security for those who wish to protect their proprietary information and manage their digital rights.
 
We serve four main email markets: free and premium fee email accounts for individuals; professional business email solutions; email marketing services; and email hosting, private label, and co-branded solutions for web publishers and content sites, such as search engines, social networks, online dating sites, ISPs and social media portals.  A few of the key features of our email services include:
 
 
·
Self-destructing video email that can be programmed to self-destruct after a specific number of viewings or a set time;
 
 
·
New tracking tools to enable the sender to know when and how many times their email has been opened and if it has been forwarded;
 
 
·
File storage center that allows users to store up to two GB of files on our servers;
 
 
·
Unlimited email storage; and
 
 
·
Three Layer Secure Email for sensitive correspondence that enables users to send encrypted, password-protected email with BigString’s unique auto-expiration and non-forward features.
 
We continue to build messaging and streaming audio and video products and services focused on security and privacy for Internet communications. In 2007, we released our first social networking applications which address the need for protecting privacy on social network sites, such as Facebook®, MySpace®, Friendster® and LinkedIn®. These applications allow users to easily send and receive messages, notifications, email and videos that self-destruct on command.
 
Our development efforts in 2008 were primarily focused on expanding recallable messaging beyond email. In April, 2008, we introduced a self-destructing IM technology, and in July, 2008, expanded the platform to include other leading IM services, including AOL’s AIM, Yahoo’s Messenger, MSN’s Messenger and Google’s Gtalk. In August, 2008, we introduced self-destructing SMS Text Messaging with service for the BlackBerry phone market.
 
In May, 2008, we entered into an international distribution agreement with VIP Connectz to offer our email and IM services as a private label service to the VIP Connectz network of members. In July, 2008, we augmented our base English and Chinese language services with Spanish and Portuguese language portals.  And also in July, 2008, we acquired Buddystumbler.com, an IM-based social network that allows members to meet people via free online chat on AOL’s AIM, Yahoo’s Messenger, MSN’s Messenger and Google’s Gtalk.
 
In January 2009, we released an easy-to-use universal email tracking service that allows users to know when their emails have been opened and read.
 
In March 2009, through our wholly-owned subsidiary, PeopleString, we launched an incentive-based social network that pays users to receive direct mail and perform a host of internet activities.
 
In order for us to grow our business and increase our revenue, it is critical for us to attract and retain new customers.  For us to increase our revenue, we need to establish a large customer base.  A large customer base of our free email services provides us with more opportunities to sell our premium services, which could result in increased revenue.  In addition, a large customer base may allow us to increase our advertising rates and attract other Internet based advertising and marketing firms to advertise and form marketing affiliations with us, which could result in increased advertising and product fee revenues.
 
Our marketing efforts in 2008 focused on increasing brand awareness and consumer adoption of our email product. Our promotions included email tag lines, organic search, paid search, banners, blogs, social networks, video and other viral tactics, multimedia, print, and radio. Our email hosting, private label, and co-branded solutions were developed for web publishers and content sites that are responsible for marketing to their many existing and new members. We regularly measure and optimize the cost and effectiveness of promotions, advertising and cost per customer acquisition.
 
While slightly over 85% of our members arrived through viral marketing efforts, our marketing promotions and product packages helped us attract visitors from over 200 countries and territories. Notwithstanding our progress in acquiring new members, we significantly reduced our marketing efforts from our marketing plan due to financial constraints. We also reduced expenses in other areas, such as rent and headcount, to better position the company financially.
 
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Certain criteria we review to measure our performance are set forth below:
 
 
·
the number of first time and repeat users of our email services;
 
 
·
the number of pages of our website viewed by a user;
 
 
·
the number of free and/or paid accounts for each service;
 
 
·
the number of users of our free email services who purchase one of our premium product packages;
 
 
·
the length of time between the activation of a free account and the conversion to a paid account;
 
 
·
the retention rate of customers, including the number of account closures and the number of refund requests;
 
 
·
the acquisition cost per user for each of our email services;
 
 
·
the cost and effectiveness for each of our promotional efforts;
 
 
·
the revenue and effectiveness of advertisements we serve; and
 
 
·
the revenue, impressions, clicks and actions per user.
 
Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon BigString’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these consolidated financial statements requires BigString to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, BigString evaluates its estimates, including those related to intangible assets, income taxes and contingencies and litigation.  BigString bases its estimates on historical expenses and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.
 
BigString believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
 
Revenue Recognition.  BigString derives revenue from online services, electronic commerce, advertising and data network services.  BigString also derives revenue from marketing affiliations.  BigString recognizes revenue in accordance with the guidance contained in the SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition in Financial Statements.”
 
Consistent with the provisions of the FASB Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross As A Principal Versus Net As An Agent,” BigString generally recognizes revenue associated with its advertising and marketing affiliation programs on a gross basis due primarily to the following factors:  BigString is the primary obligor; has general inventory risk; has latitude in establishing prices; has discretion in supplier selection; performs part of the service; and determines specifications.  In connection with contracts to provide email services to marketing affiliates, BigString may be obligated to make payments, which may represent a portion of revenue, to its marketing affiliates.
 
Consistent with EITF Issue No. 01-9, “Accounting for Considerations Given by a Vendor to a Customer (Including the Reseller of the Vendor’s Product),” BigString accounts for cash considerations given to customers, for which it does not receive a separately identifiable benefit or cannot reasonable estimate fair value, as a reduction of revenue rather than an expense.  Accordingly, corresponding distributions to active users and distributions of referral fees are recorded as a reduction of gross revenue.
 
BigString records its allowance for doubtful accounts based upon an assessment of various factors, including historical experience, age of the accounts receivable balances, the credit quality of customers, current economic conditions and other factors that may affect customers’ ability to pay.
 
Stock-Based Compensation.    Effective January 1, 2006, BigString accounts for stock-based compensation under Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment.”  BigString adopted SFAS No. 123(R) using the modified prospective method.  Under this method, SFAS No. 123(R) applies to new awards and to awards modified, repurchased, or cancelled after the required effective date of SFAS No. 123(R).
 
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Additionally, compensation costs for the portion of the awards outstanding as of the required effective date of SFAS No. 123(R), for which the requisite service has not been rendered, are being recognized as the requisite service is rendered after the required effective date of SFAS No. 123(R).  The compensation cost for the portion of awards is based on the grant-date fair value of those awards as calculated for either recognition or pro forma disclosures under SFAS No. 123, “Accounting for Stock Based Compensation.”  Changes to the grant-date fair value of equity awards granted before the required effective date of SFAS No. 123(R) are precluded.  The compensation cost for those earlier awards is attributed to periods beginning on or after the required effective date of SFAS No. 123(R) using the attribution method that was used under SFAS No. 123, except that the method of recognizing forfeitures only as they occur was not continued.
 
BigString has one stock-based compensation plan under which incentive and nonqualified stock options or rights to purchase stock may be granted to employees, directors and other eligible participants. BigString issues shares of its common stock, warrants to purchase common stock and non-qualified stock options to non-employees as stock-based compensation.  BigString accounts for the services using the fair market value of the consideration issued.
 
Research and Development.  BigString accounts for research and development costs in accordance with accounting pronouncements, including SFAS No. 2 “Accounting for Research and Development Costs,” and SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.”  BigString has determined that technological feasibility for its software products is reached shortly before the products are released.  Research and development costs incurred between the establishment of technological feasibility and product release have not been material and have accordingly been expensed when incurred.
 
Evaluation of Long-Lived Assets.  BigString reviews property and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.  In accordance with the guidance provided in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” if the carrying value of the long-lived asset exceeds the estimated future undiscounted cash flows to be generated by such asset, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified. Should the impairment loss be significant, the charge to operations could have a material adverse effect on BigString’s results of operations and financial condition.
 
Intangibles.  SFAS No. 142, “Goodwill and other Intangible Assets” specifies the financial accounting and reporting for acquired goodwill and other indefinite life intangible assets. Goodwill and other indefinite-lived intangible assets are no longer amortized, but are reviewed for impairment at least annually.  The valuation of intangible assets has been determined by management after considering a number of factors.
 
Accounting for Derivatives.  BigString evaluates its options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and related interpretations including EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”
 
Results of Operations
 
For the Years Ended December 31, 2008 and 2007
 
Net Loss.  For the year ended December 31, 2008, net loss was $3,748,946, as compared to a net loss of $3,949,184 for the year ended December 31, 2007. The $200,238 decrease in net loss was primarily attributable to an increase in revenues of $20,030, a decrease in Other expense of $176,702 related to reduced financing fees, and an increase in Income tax benefit of $169,283. These revenue gains and expense reductions were partially offset by a net increase in operating expenses of $165,777 primarily due to an increase in impairment charges to intangible assets.
 
Revenues.  For the year ended December 31, 2008, revenues were $61,195, a $20,030 increase over revenues of $41,165 earned in the year ended December 31, 2007.  Of the revenues generated for the year ended December 31, 2008, $42,331 was generated from product and service fees and $18,864 was generated from advertisers, as compared to $23,814 from product and service fees and $17,351 from advertisers for the year ended December 31, 2007.
 
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The 49% increase in net revenues for the year ended December 31, 2008 over the same prior year period was primarily due to increase product and service fees of 78%. This increase was primarily due to the adoption of BigString’s private label email services by other firms and the introduction of new fee based services, such as SMS text services. These increases were partially offset by a 26% decrease in premium upgrades and business solutions, and the decision to stop development and sales on email marketing solutions. As of December 31, 2008, unearned revenue from product fees decreased to $7,104 from $9,288 at December 31, 2007.
 
Advertising revenues are paid based on a mix of impressions, clicks and actions.  Despite industry wide rate decreases for online publishers, BigString increased advertising revenues by 9% for the year ended December 31, 2008 over the same prior year period primarily through an advertising optimization program which was implemented in July 2008 and increased advertising impressions and rates.
 
Operating Expenses.  For the year ended December 31, 2008, operating expenses were $3,776,050, a $165,777 increase over operating expenses of $3,610,273 incurred in the year ended December 31, 2007. Operating expenses, excluding amortization, depreciation, impairment and share-based compensation expenses, for the year ended December 31, 2008, were $1,412,078, a $25,298 increase from the same prior year period.
 
 
·
Cost of revenues: Cost of revenues for the year ended December 31, 2008 were $89,387, as compared to $119,772 for the prior year.  The $30,385 decrease in cost was primarily attributable to reduced staffing and associated overhead expenses.
 
 
·
Research and development: Research and development expenses for the year ended December 31, 2008 were $486,066, as compared to $485,948 for the same prior year period.  The $118 increase in expenses was consistent with prior year period expenses.
 
 
·
Sales and marketing: Sales and marketing expenses for the year ended December 31, 2008 were $178,667, as compared to $390,347 for the prior year.  The $211,680 decrease in expenses was primarily attributable to reduced online marketing expenses of $203,609 and reduced advertising expenses of $53,797, partially offset by increased public relations expenses of $112,407.
 
 
·
General and administrative: General and administrative expenses for the year ended December 31, 2008 were $1,423,984, as compared to $1,115,701 for the prior year.  The $308,283 increase in expenses was primarily attributable to increased stock-based compensation expense recorded net of estimated forfeitures.
 
 
·
Amortization: Amortization expenses for the year ended December 31, 2008, were $970,362, as compared to $1,083,213 for the prior year.  The $112,851 decrease in expenses was primarily attributable to the 2007 impairment of the web sites FindItAll, AmericanMoBlog and DailyLOL.
 
 
·
Impairment of assets: Impairment expenses of intangible assets for the year ended December 31, 2008 were $627,584, as compared to $415,292 for the prior year.  The $212,292 increase in expenses was primarily attributable to increased impairment expenses. Continuing losses associated with the intangible assets indicated that impairment may exist. The recoverability test for the patent application and trademark assets indicated impairment as the weighted future net cash flows were less than the carrying value. The fair market value, based on weighted, discounted cash flows and disposition values, was not material, and an impairment loss of $520,334 for the carrying amount was recognized in 2008. In addition, in 2008, the recoverability test for the logos, websites and source codes, which primarily include the website BuddyStumbler, indicated impairment. The fair market value, based on weighted, discounted cash flows and disposition values, was not material, and an impairment loss of $107,250 for the carrying amount was recognized.
 
Other income (expense).  For the year ended December 31, 2008, other expenses were $462,228, a $176,702 decrease over other expenses of $638,930 incurred in the year ended December 31, 2007.
 
 
·
Interest income: Interest income for the year ended December 31, 2008 was $4,266, as compared to $14,409 for the prior year. The $10,143 decrease in income was primarily due to a decrease in cash balances and interest rates.
 
 
·
Interest expense: Interest expense for the year ended December 31, 2008 was $81,951, as compared to $31,134 for the prior year. The $50,817 increase in expense was primarily due to the full year of interest expense on the convertible promissory notes issued in 2007 and interest expense on the convertible promissory notes issued in 2008.
 
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·
Other, net: Other, net expenses related to the convertible debenture and warrant financing for the year ended December 31, 2008 were $384,543, as compared to $622,205 for the prior year. The $237,662 decrease was primarily due to the reduction of financing fees of $269,094, and the reduction of the amortization of beneficial conversion features of $8,115. These reductions were partially offset by increases to the amortization of the debt issue costs of $21,268 and amortization of the promissory note discount of $18,279. Amortization is accelerated for the proportion of promissory notes which are converted in a period.
 
Income Taxes.  For the year ended December 31, 2008, net income tax benefits were $428,137, as compared to $258,854 for the year ended December 31, 2007.
 
 
·
BigString participated in the State of New Jersey’s Corporation Business Tax Benefit Certificate Transfer program (the “Program”), which allows certain high technology and biotechnology companies to sell unused NOL carryforwards to other New Jersey corporation business taxpayers. The Program requires that the purchaser pay at least 75% of the amount of the surrendered tax benefit. For the year ended December 31, 2008, BigString recorded a net state tax benefit of $428,137 as a result of its sale of $5,007,781 of New Jersey state net operating losses and $31,780 of New Jersey state research and development credits. Gross sales proceeds were $482,480. For the year ended December 31, 2007, BigString recorded a net state tax benefit of $258,854 as a result of its sale of $2,442,561 of New Jersey state net operating losses and $74,359 of New Jersey state research and development credits. Gross sales proceeds were $294,189. BigString may be able to transfer its unused New Jersey net operating losses in future years.
 
 
·
Valuation allowances for the years ending December 31, 2008 and 2007, have been applied to offset the deferred tax assets in recognition of the uncertainty that such tax benefits will be realized as BigString continues to incur losses. At December 31, 2008, BigString has available net operating loss carry forwards of approximately $12.6 million for federal income tax reporting purposes and $5.0 million for state income tax reporting purposes which expire in various years through 2028. The differences between book income and tax income primarily relates to amortization of intangible assets and other expenditures.  Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of a company’s net operating loss and research credit carry forwards may be limited, and, as such, BigString may be restricted in using its net operating loss and research credit carry forwards to offset future federal income tax expense.
 
For the Years Ended December 31, 2007 and 2006

Net Loss.  For the year ended December 31, 2007, net loss was $3,949,184, as compared to a net loss of $3,114,225 for the year ended December 31, 2006. The $834,959 increase in net loss was primarily attributable to an impairment charge to intangible assets of $415,292 relating to the acquired web sites AmericanMoBlog, FindItAll and DailyLOL; a decrease in other income (expense) of $536,280 primarily related to our convertible debt and warrant financing; and a net increase in other expenses of $169,120. These expenses were partially offset by an income tax benefit of $258,854 and increase in revenues of $26,879.
 
Revenues.  For the year ended December 31, 2007, revenues were $41,165, a $26,879 increase over revenues of $14,286 earned in the year ended December 31, 2006.  Of the revenues generated for the year ended December 31, 2007, $23,814 was generated from product and service fees and $17,351 was generated from advertisers, as compared to $7,599 from product and service fees and $6,687 from advertisers for the year ended December 31, 2006.
 
During the year ended December 31, 2007, BigString offered three products for purchase: premium upgrades for individual accounts; professional business email solutions; and email marketing services. Pre-paid purchases are deferred and recognized as revenues as the services are performed. The increase in product and service fees was primarily due to increased business solutions. As of December 31, 2007, unearned revenue from product fees increased to $9,288 from $4,681 at December 31, 2006.
 
Advertising revenues are paid based on a mix of impressions, clicks and actions.  On a normalized impression basis, the average revenue per paid-impression for the year ended December 31, 2007 increased by 64% over our baseline of January 2007.
 
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Operating Expenses.  For the year ended December 31, 2007, operating expenses were $3,610,273, a $584,412 increase over operating expenses of $3,025,861 incurred in the year ended December 31, 2006. Operating expenses, excluding amortization, depreciation, impairment and share-based compensation expenses, for the year ended December 31, 2007 were $1,386,780, a $213,631 decrease from the same prior year period.
 
 
·
Cost of revenues: Cost of revenues for the year ended December 31, 2007 were $119,772, as compared to $218,557 for the prior year.  The $98,785 decrease in cost was primarily attributable to reduced staffing and associated overhead expenses.
 
 
·
Research and development: Research and development expenses for the year ended December 31, 2007 were $485,948, as compared to $572,206 for the prior year.  The $86,258 decrease in expenses was primarily attributable to reduced development staffing and associated overhead costs.
 
 
·
Sales and marketing: Sales and marketing expenses for the year ended December 31, 2007 were $390,347, as compared to $219,304 for the prior year.  The $171,043 increase in expenses was primarily attributable to increased online marketing expenses of $203,282 and increased advertising expenses of $48,937, partially offset by reduced public relations expenses of $48,391.
 
 
·
General and administrative: General and administrative expenses for the year ended December 31, 2007 were $1,115,701, as compared to $979,459 for the same prior year period.  The $136,242 increase in expenses was primarily attributable to increased investor relations and full-year amortization of stock-based business consulting fees.
 
 
·
Amortization: Amortization expenses for the year ended December 31, 2007 were $1,083,213, as compared to $1,036,335 for the prior year.  The $46,878 increase in expenses was primarily attributable to the full-year amortization of intangible assets related to the 2006 website acquisitions of FindItAll, AmericanMoBlog and DailyLOL.
 
 
·
Impairment of assets: Impairment expenses of intangible assets for the year ended December 31, 2007 were $415,292. Continuing losses associated with the intangible assets indicated that impairment may exist. The recoverability test for the patent application and trademark assets indicated that the assets were not impaired; in addition, evaluations of fair market value and weighted, discounted cash flows were greater than the carrying value. The second group of assets included logos, websites and source codes for the web sites FindItAll, AmericanMoBlog and DailyLOL that were acquired in 2006. The recoverability test for these assets indicated impairment as the weighted future net cash flows were less than the carrying value. The fair market value, based on weighted, discounted cash flows and disposition values, was not material, and an impairment loss of $415,292 for the carrying amount was recognized in 2007.
 
Other income (expense).  For the year ended December 31, 2007, other expenses were $638,930, a $536,280 increase over other expenses of $102,650 incurred in the year ended December 31, 2006.
 
 
·
Interest income: Interest income for the year ended December 31, 2007 was $14,409, as compared to $37,350 for the prior year. The $22,941 decrease in income was primarily due to a reduction in cash balances.
 
 
·
Interest expense: Interest expense for the year ended December 31, 2007 was $31,134, as compared to $0 for the same prior year period. The expense is the accrued interest on convertible promissory notes.
 
 
·
Other, net: Other, net expenses for the year ended December 31, 2007, were $622,205, as compared to $140,000 for the same prior year period. The $482,205 increase in expenses was primarily due to the convertible debenture and warrant financing, including increased other financing fees of $129,094, amortization of debt issue costs of $92,839, amortization of promissory note discount of $11,664 and amortization of beneficial conversion features of $248,608. For the year ending December 31, 2007, debt issue costs were $248,939, and are being amortized over the term of the notes, which is three years. Amortization is accelerated for the proportion of promissory notes which are converted in a period. Other financing expenses include $250,000 of stock-based other non-cash compensation for the fair market value of common stock issued for a waiver and release related to the debt financing.
 
Income Taxes.  For the year ended December 31, 2007, net income tax benefits were $258,854, as compared to $0 for the year ended December 31, 2006.
 
17
 
 
·
BigString participated in the State of New Jersey’s Program, which allows certain high technology and biotechnology companies to sell unused NOL carryforwards to other New Jersey corporation business taxpayers. The Program requires that the purchaser pay at least 75% of the amount of the surrendered tax benefit. For the year ended December 31, 2007, BigString recorded a net state tax benefit of $258,854 as a result of its sale of $2,442,561 of New Jersey state net operating losses and $74,359 of New Jersey state research and development credits. Gross sales proceeds were $294,189. Since New Jersey law provides that net operating losses can be carried over for up to seven years, BigString may be able to transfer its unused New Jersey net operating losses in future years. Valuation allowances for the years ending December 31, 2007 and 2006, have been applied to offset the deferred tax assets in recognition of the uncertainty that such tax benefits will be realized as BigString continues to incur losses.
 
 
·
At December 31, 2007, BigString has available net operating loss carry forwards of approximately $8.2 million for federal income tax reporting purposes and $5.7 million for state income tax reporting purposes which expire in various years through 2027. The differences between book income and tax income primarily relates to amortization of intangible assets and other expenditures.  Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of a company’s net operating loss and research credit carry forwards may be limited, and, as such, BigString may be restricted in using its net operating loss and research credit carry forwards to offset future federal income tax expense.
 
Liquidity and Capital Resources

Our operating and capital requirements have exceeded our cash flow from operations as we have been building our business.  Since inception through December 31, 2008, we have expended $5,012,746 for operating and investing activities, which has been primarily funded by investments of $5,191,533 from our stockholders and convertible note holders.  For the year ended December 31, 2008, we expended $840,579 for operating and investing activities, a decrease of $344,712 from the amount expended during the year ended December 31, 2007.
 
Our cash balance as of December 31, 2008 was $178,787, which was a decrease of $119,246 from our cash balance of $298,033 as of December 31, 2007. This decrease to our cash balance related to operating and investment expenses primarily associated with the development of our products and services, marketing, and professional fees.  These cash outlays were partially offset by $721,333 raised by BigString through exercise of warrants and private placement of convertible notes and warrants.
 
Management believes its current cash balance of $35,736 at March 26, 2009 is not sufficient to fund the minimum level of operations for the next twelve months.
 
Our consolidated financial statements beginning on page F-2 have been prepared assuming we will continue as a going concern.  As more fully explained in Note 2 to our consolidated financial statements, we have a working capital deficit and have incurred losses since operations commenced.  Our continued existence is dependent upon our ability to obtain needed working capital through additional equity and/or debt financing and revenue to cover expenses as we continue to incur losses.  These uncertainties raise substantial doubt about our ability to continue as a going concern.  Our consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties should we be unable to continue as a going concern.
 
On February 29, 2008, we entered into a financing arrangement with Whalehaven Capital Fund Limited, Alpha Capital Anstalt and Excalibur Small Cap Opportunities LP, (collectively, the “2008 Subscribers”), pursuant to which the 2008 Subscribers purchased convertible notes in the aggregate principal amount of $700,000, which notes are convertible into shares of BigString’s common stock, and warrants to purchase up to 2,333,333 shares of BigString's common stock. Each convertible note has a term of three years and accrues interest at a rate of six percent annually.  The holder of a convertible note shall have the right from and after the issuance thereof until such time as the convertible note is fully paid, to convert any outstanding and unpaid principal portion thereof into shares of common stock at a conversion price of $0.15 per share, as adjusted.  The conversion price and number and kind of shares to be issued upon conversion of the convertible note are subject to adjustment from time to time. The warrants have an exercise price of $0.15 per share, as adjusted.  The number of shares of common stock underlying each warrant and the exercise price are subject to certain adjustments.
 
On August 25, 2008, BigString closed on a financing with Dwight Lane Capital, LLC, a limited liability company in which Todd M. Ross, a former director of BigString, has an interest, and Marc W. Dutton, a former
 
18

director of BigString. In connection with such financing, BigString issued Notes in the aggregate principal amount of $250,000 and common stock purchase warrants to purchase up to an aggregate 800,000 shares of BigString's common stock. Each Note had a term of five months and accrued interest at a rate of 12% annually. The warrants have an exercise price of $0.08 per share. In December 2008, the all amounts due under the Notes were paid by BigString, including accrued interest of $9,328, and, as a result, the Notes were cancelled.
 
As described herein, BigString participated in the State of New Jersey’s Program, which allows certain high technology and biotechnology companies to sell unused NOL carryforwards to other New Jersey corporation business taxpayers.  On December 19, 2007 and December 16, 2008, BigString received net proceeds of $258,854 and $428,137, respectively. BigString may also be able to transfer its unused New Jersey net operating losses in future years and plans to again participate in 2009.
 
If the revenue from our operations are not adequate to allow us to pay the principal and interest on the outstanding convertible notes, and the convertible notes are not converted into shares of common stock, we will seek additional equity financing and/or debt financing.  It is also possible that we will seek to borrow money from traditional lending institutions, such as banks.
 
We have completed significant development of our email and messaging services and have made adjustments to our cost structure, such as the elimination of expenses associated with the production of OurPrisoner and the reduction of a portion of compensation costs associated with development.  We have also reduced general expenses such as rent and other discretionary expenses. We also reduced our operating and investing cash expenditures by $344,712, or 29%, for the year ended December 31, 2008 as compared to the prior year.
 
We expect to continue development on our messaging, email and related service offerings. We expect to continue development on our social network platform. We also expect sales, marketing and advertising expenses and cost of revenues to increase as we promote and grow our products and services.  However, if our revenue and cash balance are insufficient to fund the continued growth of our business, we will seek additional funds.  There can be no assurance that such funds will be available to us or that adequate funds for our operations, whether from debt or equity financings, will be available when needed or on terms satisfactory to us.  Our failure to obtain adequate additional financing may require us to delay or curtail some or all of our business efforts and could cause us to seek bankruptcy protection. Any additional equity financing may involve substantial dilution to our then-existing stockholders.
 
Our current officers and directors have not, as of the date of this filing, loaned any funds to BigString. There are no formal commitments or arrangements to advance or loan funds to BigString or repay any such advances or loans.
 
 
Quantitative and Qualitative Disclosure About Market Risk
 
BigString is a smaller reporting company and is therefore not required to provide this information.
 
 
Financial Statements and Supplementary Data
 
The consolidated financial statements and supplementary data of BigString called for by this item are submitted under a separate section of this report.  Reference is made to the Index of Financial Statements contained on page F-1 herein.
 
 
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
 
None.
 
 
Controls and Procedures
 
(a) Evaluation of disclosure controls and procedures.
 
19
 
Management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
 
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2008, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
(b) Changes in internal control over financial reporting.
 
We review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
 
There were no changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
(c) Management’s report on internal control over financial reporting.
 
Management is responsible for establishing and maintaining adequate control over financial reporting for BigString.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.  Internal controls over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of BigString; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of BigString are being made only in accordance with authorizations of management and directors of BigString; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of BigString’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management, with the participation of our principal executive officer and principal financial and accounting officer, conducted an evaluation of the effectiveness of BigString’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2008.
 
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K. There have been no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
20
 
Other Information
 
None.
 
21

PART III

 
Item 10. 
Directors, Executive Officers and Corporate Governance
 
The information required under this Item with respect to BigString’s directors and executive officers is contained in BigString’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 29, 2009, under the captions “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Executive Officers” and is incorporated herein by reference.
 
 
Executive Compensation
 
The information required under this Item with respect to executive compensation is contained in BigString’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 29, 2009, under the captions “Executive Compensation” and “Director Compensation” and is incorporated herein by reference.
 
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
 
The information required by Items 201(d) and 403 of Regulation S-B is contained in BigString’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 29, 2009, under the captions “Securities Authorized for Issuance under Equity Compensation Plan” and “Principal Stockholders and Security Ownership of Management” and is incorporated herein by reference.
 
 
Certain Relationships and Related Transactions and Director Independence
 
The information required by this item is contained in BigString’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 29, 2009, under the caption “Certain Relationships and Related Transactions” and “Director Independence” and is incorporated herein by reference.
 
 
Principal Accountant Fees and Services
 
The information required by this item is contained in BigString’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 29, 2009, under the caption “Principal Accountant Fees and Services” and is incorporated herein by reference.
 
 
Exhibits
 
Reference is made to the Index of Exhibits beginning on page E-1 herein.
 
22


In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
BIGSTRING CORPORATION
  
       
       
Date:  March 31, 2009
 By:
/s/ Darin M. Myman
  
   
Darin M. Myman
  
   
President and Chief Executive Officer
  

 
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Darin M. Myman and Adam M. Kotkin and each of them, his true and lawful attorneys-in-fact and agents for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof.
 
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed by the following persons in the capacities and on the dates stated.

Signatures
  
Title
  
Date
         
/s/ Darin M. Myman
  
President and Chief Executive Officer and
  
March 31, 2009
Darin M. Myman
  
Director (Principal Executive Officer)
    
         
/s/ Robert DeMeulemeester
  
Executive Vice President, Chief Financial Officer
  
March 31, 2009
Robert DeMeulemeester
  
and Treasurer and Director (Principal Financial and Accounting Officer)
    
         
/s/ Adam M. Kotkin
  
Chief Operating Officer and Director
  
March 31, 2009
Adam M. Kotkin
        

23
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
BIGSTRING CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
 
 
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets at December 31, 2008 and 2007
F-3
Consolidated Statements of Operations for the years ended December 31, 2008 and 2007, and the period October 8, 2003 (Date of Formation) through December 31, 2008
F-4
Consolidated Statements of Stockholders’ Equity (Deficiency) for the years ended December 31, 2008 and 2007, and the period October 8, 2003 (Date of Formation) through December 31, 2008
F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007, and the period October 8, 2003 (Date of Formation) through December 31, 2008
F-7
Notes to Consolidated Financial Statements
F-8

F-1
 
[LETTERHEAD OF WIENER, GOODMAN & COMPANY, P.C.]
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
BigString Corporation
Red Bank, New Jersey

We have audited the accompanying consolidated balance sheets of BigString Corporation (formerly Recall Mail Corporation) and subsidiaries (collectively, the “Company”) (a development stage company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity (deficiency) and cash flows for the years ended December 31, 2008 and 2007, and for the period October 8, 2003 (Date of Formation) through December 31, 2008.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years ended December 31, 2008 and 2007, and for the period October 8, 2003 (Date of Formation) through December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As more fully explained in Note 2 to the Company’s consolidated financial statements, the Company has a working capital deficit and has incurred losses since operations commenced.  The Company’s continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and revenue to cover expenses as the Company continues to incur losses.  These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern.  The Company’s financial statements do not include any adjustments that might result from the outcome of these uncertainties should the Company be unable to continue as a going concern.
 
/s/ Wiener, Goodman & Company, P.C.
 
WIENER, GOODMAN & COMPANY, P.C.
Eatontown, New Jersey

March 30, 2009
 
F-2

BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(A DEVELOPMENT STAGE COMPANY)

   
December 31,
  
   
2008
    
2007
  
ASSETS
  
Current assets:
            
Cash and cash equivalents
   $ 178,787     $ 298,033  
Accounts receivable - net of allowance of $660 and $90
     15,115       2,609  
Prepaid expenses and other current assets
     17,922       8,039  
Total current assets
     211,824       308,681  
Property and equipment - net
     74,737       162,156  
Intangible assets - net
     -       1,480,946  
Other assets
     155,677       156,100  
TOTAL ASSETS
   $ 442,238     $ 2,107,883  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
  
Current liabilities:
                
Accounts payable
   $ 294,521     $ 282,524  
Accrued expenses
     216,938       52,642  
Unearned revenue
     7,104       9,288  
Accrued interest
     60,000       31,134  
Total current liabilities
     578,563       375,588  
Long term liabilities:
                
Long-term debt
     892,824       207,304  
TOTAL LIABILITIES
     1,471,387       582,892  
                 
Stockholders’ equity (deficiency):
                
Preferred stock, $.0001 par value - authorized 1,000,000 shares; outstanding 400,000 and 400,000 shares, respectively
     40       40  
Common stock, $.0001 par value - authorized 249,000,000 shares; outstanding 52,244,394 and 50,728,237 shares, respectively
     5,224       5,073  
Additional paid in capital
     13,119,632       11,924,977  
Deficit accumulated during the development stage
     (14,154,045 )     (10,405,099 )
Total stockholders' equity (deficiency)
     (1,029,149 )     1,524,991  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
   $ 442,238     $ 2,107,883  
 
See notes to consolidated financial statements.
 
F-3

BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 (A DEVELOPMENT STAGE COMPANY)

               
Period
  
               
October 8, 2003
  
   
For the Years Ended
    
(Date of Formation)
  
   
December 31,
    
Through
  
   
2008
    
2007
    
December 31, 2008
  
Operating revenues
   $ 61,195     $ 41,165     $ 129,154  
Operating expenses:(1)
                        
Cost of revenues
     89,387       119,772       502,241  
Research and development
     486,066       485,948       2,080,794  
Sales and marketing
     178,667       390,347       967,175  
General and administrative
     1,423,984       1,115,701       4,119,370  
Amortization of intangibles
     970,362       1,083,213       4,490,190  
Impairment of assets
     627,584       415,292       1,042,876  
Total operating expenses
     3,776,050       3,610,273       13,202,646  
Loss from operations
     (3,714,855 )     (3,569,108 )     (13,073,492 )
Other income (expense):(1)
                        
Interest income
     4,266       14,409       72,589  
Interest expense
     (81,951 )     (31,134 )     (113,085 )
Other, net
     (384,543 )     (622,205 )     (1,247,048 )
Total other income (expenses)
     (462,228 )     (638,930 )     (1,287,544 )
Loss before income tax benefit
     (4,177,083 )     (4,208,038 )     (14,361,036 )
Income tax benefit
     428,137       258,854       686,991  
Net loss
   $  (3,748,946 )   $  (3,949,184 )   $  (13,674,045 )
Net loss per common share:
                        
Basic and diluted
   $ (0.07 )   $ (0.08 )        
Weighted average common shares outstanding:
                        
Basic and diluted
     51,668,038       47,503,890          
                         
(1)Stock-based and other non-cash compensation by function above:
                        
Cost of revenues
   $ -     $ 903     $ 5,653  
Research and development
     120,590       47,421       190,973  
Sales and marketing
     -       134,786       222,725  
General and administrative
     607,210       489,422       1,566,277  
Other, net
     -       269,094       269,094  
Total stock-based and other non-cash compensation
   $ 727,800     $ 941,626     $ 2,254,722  

See notes to consolidated financial statements.
 
F-4

BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
(A DEVELOPMENT STAGE COMPANY)

         
Preferred Stock
    
Common Stock
    
Additional
              
         
No. of
          
No. of
          
Paid-In
    
Subscription
        
   
Total
    
Shares
    
Amount
    
Shares
    
Amount
    
Capital
    
Receivable
    
Deficit
  
                                                 
Balance, October 8, 2003
   $ -       -     $ -       -     $ -     $ -     $ -     $ -  
Issuance of common stock (at $.0001 per share)
     -       -       -       21,210,000       2,121       (2,121 )     -       -  
Contribution of capital
     45,000       -       -       -       -       45,000       -       -  
Sale of common stock (at $0.25 per share)
     -       -       -       40,000       4       9,996       (10,000 )     -  
Net loss
     (29,567 )     -       -       -       -       -       -       (29,567 )
Balance, December 31, 2003
     15,433       -       -       21,250,000       2,125       52,875       (10,000 )     (29,567 )
Cash received from prior sale of common stock
     10,000       -       -       -       -       -       10,000       -  
Sale of common stock (at $0.25 per share)
     217,500       -       -       870,000       87       217,413       -       -  
Issuance of common stock for services (valued at $0.21 per share)
     39,251       -       -       185,000       19       39,232       -       -  
Issuance of common stock for acquisition (valued at $0.24 per share)
     4,800,000       -       -       20,000,000       2,000       4,798,000       -       -  
Issuance of warrants for services (valued at $0.07 per share)
     3,500       -       -       -       -       3,500       -       -  
Net loss
     (729,536 )     -       -       -       -       -       -       (729,536 )
Balance, December 31, 2004
     4,356,148       -       -       42,305,000       4,231       5,111,020       -       (759,103 )
Sale of common stock (at $0.25 per share)
     230,500       -       -       922,000       92       230,408       -       -  
Exercise of warrants (at $0.25 per share)
     11,250       -       -       45,000       4       11,246       -       -  
Issuance of common stock for services (valued at $0.25 per share)
     12,500       -       -       50,000       5       12,495       -       -  
Sale of common stock (at $0.16 per share)
     1,511,700       -       -       9,448,125       945       1,510,755       -       -  
Issuance of warrants for services (valued at $0.07 per share)
     179,200       -       -       -       -       179,200       -       -  
Net loss
     (2,102,587 )     -       -       -       -       -       -       (2,102,587 )
Balance, December 31, 2005
     4,198,711       -       -       52,770,125       5,277       7,055,124       -       (2,861,690 )
Redemption of shares from stockholders (at $0.05 per share)
     (400,000 )     -       -       (8,000,000 )     (800 )     (399,200 )     -       -  
Issuance of common stock for consulting services (valued at $0.82 per share)
     -       -       -       1,250,000       125       (125 )     -       -  
Stock-based compensation expense
     314,250       -       -       -       -       314,250       -       -  
Issuance of warrants for consulting services (valued at $0.08, $0.18 and $0.42 per share)
     36,595       -       -       -       -       36,595       -       -  
Issuance of common stock for website acquisition (valued at $0.80 per share)
     600,000       -       -       750,000       75       599,925       -       -  
Sale of preferred stock (at $.0001 per share)
     1,860,000       400,000       40       -       -       1,859,960       -       -  
Dividends from allocation of proceeds for the beneficial conversion feature of preferred stock
     -       -       -       -       -       480,000       -       (480,000 )
Exercise of warrants (at $0.16, $0.20 and $0.25 per share)
     18,000       -       -       165,000       17       34,233       (16,250 )     -  
Net loss
     (3,114,225 )     -       -       -       -       -       -       (3,114,225 )
Balance, December 31, 2006
     3,513,331       400,000       40       46,935,125       4,694       9,980,762       (16,250 )     (6,455,915 )
Cash received from prior exercise of warrants
     16,250       -       -       -       -       -       16,250       -  
 
F-5
 
Issuance of common stock for consulting services (valued at $0.50 and $0.33 per share)
     -       -       -       432,000       43       (43 )     -       -  
Allocation to warrants from sale of convertible promissory notes and warrants
     31,320       -       -       -       -       31,320       -       -  
Beneficial conversion feature of convertible promissory notes
     666,648       -       -       -       -       666,648       -       -  
Issuance of common stock for conversion of convertible promissory notes (at $0.18 per share)
     155,000       -       -       861,111       86       154,914       -       -  
Stock-based compensation expense
     672,532       -       -       -       -       672,532       -       -  
Issuance of warrants, net (valued at $0.10 per share)
     19,094       -       -       -               19,094       -       -  
Issuance of common stock for waiver and release (valued at $0.25 per share)
     250,000       -       -       1,000,000       100       249,900       -       -  
Exercise of warrants (at $0.10 per share)
     150,000       -       -       1,500,001       150       149,850       -       -  
Net loss
     (3,949,184 )     -       -       -       -       -       -       (3,949,184 )
Balance, December 31, 2007
     1,524,991       400,000       40       50,728,237       5,073       11,924,977       -       (10,405,099 )
Exercise of warrants (at $0.10 per share)
     21,333       -       -       213,333       21       21,312       -       -  
Issuance of common stock for conversion of convertible promissory notes (at $0.18 per share)
     20,000       -       -       111,111       11       19,989       -       -  
Allocation to warrants from sale of convertible promissory notes and warrants
     76,176       -       -       -       -       76,176       -       -  
Beneficial conversion feature of convertible promissory notes
     188,740       -       -       -       -       188,740       -       -  
Stock-based compensation expense
     727,800       -       -       -       -       727,800       -       -  
Issuance of common stock for accrued interest (at $0.15 per share)
     43,757       -       -       291,713       29       43,728       -       -  
Issuance of common stock for website acquisition (valued at $0.13 per share)
     117,000       -       -       900,000       90       116,910       -       -  
Net loss
     (3,748,946 )     -       -       -       -       -       -       (3, 748,946 )
Balance, December 31, 2008
   $ (1,029,149 )     400,000     $ 40       52,244,394     $ 5,224     $ 13,119,632     $ -     $ (14,154,045 )
 

See notes to consolidated financial statements.

F-6
 
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(A DEVELOPMENT STAGE COMPANY)

               
Period
  
               
October 8, 2003
  
   
For the Years Ended
    
(Date of Formation)
  
   
December 31,
    
Through
  
   
2008
    
2007
    
December 31, 2008
  
Cash flows from operating activities:
                  
Net loss
   $ (3,748,946 )   $ (3,949,184 )   $ (13,674,045 )
Adjustments to reconcile net loss to net cash used in operating activities:
                        
Depreciation and amortization of property and equipment, intangible and other assets
     1,122,695       1,228,508       4,835,496  
Gain on sale of property and equipment
     (1,697 )     -       (1,697 )
Impairment of intangible assets
     627,584       415,292       1,042,876  
Accretion for beneficial conversion feature and discount on notes
     270,436       260,272       530,708  
Stock-based compensation
     727,800       672,532       1,985,628  
Other non-cash compensation
     -       269,094       269,094  
Changes in operating assets and liabilities:
                        
(Increase) in accounts receivable, net
     (12,506 )     (873 )     (15,115 )
(Increase) in prepaid expenses and other assets
     (123,567 )     (243,481 )     (380,545 )
Increase in accounts payable
     11,997       199,345       294,521  
Increase (decrease) in accrued expenses and other liabilities
     236,920       (41,403 )     317,630  
(Decrease) increase in unearned revenue
     (2,184 )     4,607       7,104  
Net cash used in operating activities
     (891,468 )     (1,185,291 )     (4,788,345 )
Cash flows from investing activities:
                        
Purchase of property and equipment
     -       -       (262,290 )
Sale of property and equipment
     50,889       -       50,889  
Acquisitions
     -       -       (13,000 )
Net cash used in investing activities
     50,889       -       (224,401 )
Cash flows from financing activities:
                        
Proceeds from issuance of convertible notes and warrants
     950,000       800,000       1,750,000  
Proceeds from issuance of preferred stock, net
     -       -       1,860,000  
Proceeds from the exercise of common stock warrants and issuance of common stock
     21,333       166,250       2,231,533  
Payments for redemption of notes
     (250,000 )     -       (250,000 )
Payments for redemption of common stock
     -       -       (400,000 )
Net cash provided by financing activities
     721,333       966,250       5,191,533  
Net (decrease) increase in cash
     (119,246 )     (219,041 )     178,787  
Cash and cash equivalents - beginning of period
     298,033       517,074       -  
Cash and cash equivalents - end of period
   $ 178,787     $ 298,033     $ 178,787  
                         
Supplementary information:
                        
Cash paid during the periods for:
                        
Interest
   $ 9,328     $ -     $ 9,328  
Acquisitions
   $ -     $ -     $ 13,000  
Details of acquisitions:
                        
Fair value of assets acquired
   $ -     $ -     $ 2,790  
Fair value of liabilities assumed
     -       -       (5,857 )
Intangibles
     117,000       -       5,533,067  
Common stock issued to effect acquisition
   $ 117,000     $ -     $ 5,517,000  
Non-cash transactions during the periods for:
                        
Conversion of promissory notes
   $ 20,000     $ 155,000     $ 175,000  
Issuance of common stock for accrued interest
   $ 43,757     $ -     $ 43,757  
Common stock issued for services
   $ 341,668     $ 540,666     $ 1,161,862  
Common stock options issued for services
     341,036       86,764       514,273  
Common stock warrants issued for services
     45,096       45,102       309,493  
Total stock-based compensation:
     727,800       672,532       1,985,628  
Issue of warrants, net
     -       19,094       19,094  
Issuance of common stock for waiver and release
     -       250,000       250,000  
Total other non-cash compensation
     -       269,094       269,094  
Total stock-based and other non-cash compensation
   $ 727,800     $ 941,626     $ 2,254,722  
 
See notes to consolidated financial statements.

F-7

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND THE PERIOD OCTOBER 8, 2003 (DATE OF FORMATION) THROUGH DECEMBER 31, 2008
 
NOTE 1.  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
ORGANIZATION
 
BigString was incorporated in the State of Delaware on October 8, 2003 under the name “Recall Mail Corporation.”  The company’s name was formally changed to “BigString Corporation” in July 2005.  BigString was formed to develop technology that would allow the user of email services to have comprehensive control, security and privacy relating to the email generated by the user.  In March 2004, the BigString email service was introduced to the market.
 
BigString Interactive, Inc. (“BigString Interactive”), incorporated in the State of New Jersey, was formed by BigString in early 2006 to develop technology relating to interactive web portals.
 
Email Emissary, Inc. (“Email Emissary”), incorporated in the State of Oklahoma, was acquired by BigString in July 2004; in September 2006, all of Email Emissary’s assets, including its pending patent application, were transferred to BigString.  Email Emissary was dissolved on May 17, 2007.
 
BigString is considered a development stage enterprise as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, “Accounting and Reporting for Development Stage Companies,” issued by the Financial Accounting Standards Board (the “FASB”).  BigString has limited revenue to date, continues to raise capital and there is no assurance that ultimately BigString will achieve a profitable level of operations.
 
PRINCIPLES OF CONSOLIDATION
 
The consolidated financial statements include the accounts of BigString and its subsidiaries, all of which are wholly owned subsidiaries.  All intercompany transactions and balances have been eliminated.
 
USE OF ESTIMATES
 
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates, judgments 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.  On an on-going basis, BigString evaluates its estimates.  Actual results could differ from those estimates.
 
RECLASSIFICATIONS
 
Certain reclassifications have been made to prior period balances in order to conform to the current period’s presentation.
 
CASH EQUIVALENTS
 
Cash equivalents include short-term investments in United States treasury bills and commercial paper with an original maturity of three months or less when purchased.  At December 31, 2008 and December 31, 2007, cash equivalents approximated $179,000 and $296,000, respectively.
 
CERTAIN RISKS AND CONCENTRATION
 
Financial instruments which potentially subject BigString to concentrations of credit risk consist principally of temporary cash investments.  BigString places its temporary cash investments with quality financial institutions and commercial issuers of short term paper.
 
BigString grants credit to customers based on an evaluation of the customer’s financial condition, sometimes without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. BigString controls its exposure to credit risk through credit approvals, credit limits and monitoring procedures and establishes allowances for anticipated losses.
 
F-8

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
REVENUE RECOGNITION
 
BigString derives revenue from online services, electronic commerce, advertising and data network services.  BigString also derives revenue from marketing affiliations.  BigString recognizes revenue in accordance with the guidance contained in the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition in Financial Statements.”
 
Consistent with the provisions of the FASB’s Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal Versus Net as an Agent,” BigString generally recognizes revenue associated with its advertising and marketing affiliation programs on a gross basis due primarily to the following factors:  BigString is the primary obligor; has general inventory risk; has latitude in establishing prices; has discretion in supplier selection; performs part of the service; and determines specifications.  In connection with contracts to provide email services to marketing affiliates, BigString may be obligated to make payments, which may represent a portion of revenue, to its marketing affiliates.
 
Consistent with EITF Issue No. 01-9, “Accounting for Considerations Given by a Vendor to a Customer (Including the Reseller of the Vendor’s Product),” BigString accounts for cash considerations given to customers, for which it does not receive a separately identifiable benefit or cannot reasonable estimate fair value, as a reduction of revenue rather than an expense.  Accordingly, corresponding distributions to active users and distributions of referral fees are recorded as a reduction of gross revenue.
 
BigString records its allowance for doubtful accounts based upon an assessment of various factors, including historical experience, age of the accounts receivable balances, the credit quality of customers, current economic conditions and other factors that may affect customers’ ability to pay.  Allowances for the years ended December 31, 2008 and 2007 were $660 and $90, respectively.
 
DEPRECIATION
 
Property and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization are calculated primarily using the straight-line method over their estimated useful lives of these assets.
 
RESEARCH AND DEVELOPMENT
 
BigString accounts for research and development costs in accordance with accounting pronouncements, including SFAS No. 2, “Accounting for Research and Development Costs,” and SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.”  BigString has determined that technological feasibility for its software products is reached shortly before the products are released.  Research and development costs incurred between the establishment of technological feasibility and product release have not been material and have accordingly been expensed when incurred.
 
All research and development for the years ended December 31, 2008 and 2007 was performed internally for the benefit of BigString.  BigString does not perform such activities for others.
 
EVALUATION OF LONG-LIVED ASSETS
 
BigString reviews property and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.  In accordance with the guidance provided in SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” if the carrying value of the long-lived asset exceeds the estimated future undiscounted cash flows to be generated by such asset, the asset would be adjusted to its fair value and an impairment loss would be charged to operations in the period identified.
 
The impairment analysis of finite-lived intangible assets conducted by BigString indicated that the intangible assets were impaired as of the assessment date. As a result, BigString recorded impairment charges of $627,584 and $415,292 for the years ending December 31, 2008 and 2007, respectfully. See Note 5 of Notes to Consolidated Financial Statements for the detailed information regarding the valuation methods and key assumptions used in coming to this determination.
 
F-9

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
INTANGIBLES
 
SFAS No. 142, “Goodwill and other Intangible Assets,” specifies the financial accounting and reporting for acquired goodwill and other indefinite life intangible assets.  Goodwill and other indefinite-lived intangible assets are no longer amortized, but are reviewed for impairment at least annually.
 
DEFERRED FINANCING COSTS
 
Debt issue costs were deferred and amortized in other income (expense) over the term of the related debt. BigString issued notes in August 2008, February 2008 and May 2007 and incurred issuance costs of $18,977, $91,706 and $248,939, respectively, which are being amortized over the term of the notes. Amortization expense related to these costs is included in other, net in the consolidated statements of operations and was $114,107, $92,839 and $206,946 for the years ended December 31, 2008 and 2007 and the period October 8, 2003 (Date of Formation) through December 31, 2008, respectively.
 
INCOME TAXES
 
BigString accounts for income taxes using an asset and liability approach under which deferred income taxes are recognized by applying enacted tax rates applicable to future years to the differences between the financial statement carrying amounts and the tax basis of reported assets and liabilities. A valuation allowance reduces the deferred tax assets to the amount estimated more likely than not to be realized.
 
The principal items giving rise to deferred taxes are timing differences between book and tax amortization of intangible assets and other expenditures.
 
EARNINGS (LOSS) PER COMMON SHARE
 
Basic earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the specified period and after preferred stock dividend requirements.  Diluted earnings (loss) per common share is computed by dividing net earnings (loss) by the weighted average number of common shares and potential common shares outstanding during the specified period and after preferred stock dividend requirements.  All potentially dilutive securities, which include convertible notes, outstanding preferred stock, warrants and options, have been excluded from the computation, as their effect is antidilutive.
 
STOCK-BASED COMPENSATION
 
Effective January 1, 2006, BigString accounts for stock-based compensation under SFAS No. 123(R), “Share-Based Payment.”  BigString adopted SFAS No. 123(R) using the modified prospective method.  Under this method, SFAS No. 123(R) applies to new awards and to awards modified, repurchased, or cancelled after the required effective date of SFAS No. 123(R).  Additionally, compensation costs for the portion of the awards outstanding as of the required effective date of SFAS No. 123(R), for which the requisite service has not been rendered, are being recognized as the requisite service is rendered after the required effective date of SFAS No. 123(R).  The compensation cost for the portion of awards is based on the grant-date fair value of those awards as calculated for either recognition or pro forma disclosures under SFAS No. 123, “Accounting for Stock Based Compensation.”  Changes to the grant-date fair value of equity awards granted before the required effective date of SFAS No. 123(R) are precluded.  The compensation cost for those earlier awards is attributed to periods beginning on or after the required effective date of SFAS No. 123(R) using the attribution method that was used under SFAS No. 123, except that the method of recognizing forfeitures only as they occur was not continued.
 
BigString issues shares of common stock to non-employees as stock-based compensation.  BigString accounts for the services using the fair market value of the consideration issued, generally measured at the closing price of BigString’s common stock on the date of the agreement.  For the years ended December 31, 2008 and 2007, BigString recorded compensation expense of $341,668 and $540,666, respectively, in connection with the issuance of these shares.  For the period October 8, 2003 (Date of Formation) through December 31, 2008, BigString recorded compensation expense of $1,161,862 in connection with the issuance of these shares. For the year ended December 31, 2007, BigString also recorded $250,000 other non-cash compensation expense for shares of common stock issued to non-employees.
 
F-10

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
BigString issues stock purchase warrants to non-employees as stock-based compensation.  The fair values of the stock purchase warrants are estimated on the date of grant using the Black-Scholes option-pricing model.  For the years ended December 31, 2008 and 2007, BigString recorded compensation expenses of $45,096 and $45,102, respectively, associated with issuances of stock purchase warrants.  For the period October 8, 2003 (Date of Formation) through December 31, 2008, BigString recorded compensation expense of $309,493 in connection with the issuance of stock purchase warrants for services. For the year ended December 31, 2007, BigString also recorded $19,094 other non-cash compensation expense, net for the cancellation and issue of warrants.
 
BigString has one stock-based compensation plan under which incentive and nonqualified stock options or rights to purchase stock may be granted to employees, directors and other eligible participants.  The fair values of the stock options are estimated on the date of grant using the Black-Scholes option-pricing model.  For the years ended December 31, 2008 and 2007, BigString recorded compensation expense of $341,036 and $86,764, respectively.  For the period October 8, 2003 (Date of Formation) through December 31, 2008, BigString recorded compensation expense of $514,273.  BigString did not grant stock options prior to 2006.
 
BUSINESS COMBINATIONS
 
Business combinations which have been accounted for under the purchase method of accounting include the results of operations of the acquired business from the date of acquisition. Net assets of the company acquired are recorded at their fair value at the date of acquisition.
 
ACCOUNTING FOR DERIVATIVES
 
BigString evaluates its options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and related interpretations including EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
For financial instruments, including cash investments, accounts receivable, accounts payable and accrued expenses, the carry amount approximates fair value because of the short maturities of such instruments. Convertible notes are carried at estimated fair value less any unamortized discount.
 
BENEFICIAL CONVERSION FEATURE
 
When debt or equity is issued which is convertible into common stock at a discount from the common stock market price at the date the debt or equity is issued, a beneficial conversion feature for the difference between the closing price and the conversion price multiplied by the number of shares issuable upon conversion is recognized. The beneficial conversion feature is presented as a discount to the related debt, with an offsetting amount increasing additional paid-in capital.
 
NEW FINANCIAL ACCOUNTING STANDARDS
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which enhances existing guidance for measuring assets and liabilities using fair value. This standard provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. In February 2008, the FASB issued FASB Staff Position (“FSP”) SFAS 157-1, “Application of SFAS No. 157 to SFAS No. 13 and Its Related Interpretative Accounting Pronouncements that Address Leasing Transactions” (“FSP SFAS 157-1”) and FASB Staff Position SFAS 157-2, “Effective Date of SFAS No. 157” (“FSP SFAS 157-2”). FSP SFAS 157-1 excludes SFAS No. 13 and its related interpretive accounting pronouncements that address leasing transactions from the requirements of SFAS No. 157, with the exception of fair value measurements of assets and liabilities recorded as a result of a lease transaction but measured pursuant to other pronouncements within the scope of SFAS No. 157. FSP SFAS 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FSP SFAS 157-1 and FSP SFAS 157-2 became effective for BigString upon adoption of SFAS No. 157 on January 1, 2008. BigString will provide the additional disclosures required relating to the fair value measurement of nonfinancial assets and nonfinancial liabilities when it completes its implementation of SFAS No. 157 on January 1, 2009, as required, and does not believe they will have a
 
F-11

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

significant impact on its consolidated financial position, cash flows and results of operations. In October 2008, the FASB issued FASB Staff Position SFAS 157-3, Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active (“FSP 157-3”), to clarify how an entity would determine fair value in an inactive market. FSP 157-3 was effective immediately. The application of the provisions of FSP 157-3 did not materially impact BigString’s consolidated financial position, cash flows and results of operations.
 
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”).  SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States.  This Statement is effective sixty days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.”  BigString is currently evaluating the potential impact, if any, of the adoption of SFAS No. 162 on its consolidated financial position, cash flows and results of operations.
 
In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”).  In determining the useful life of acquired intangible assets, FSP FAS 142-3 removes the requirement to consider whether an intangible asset can be renewed without substantial cost of material modifications to the existing terms and conditions and, instead, requires an entity to consider its own historical experience in renewing similar arrangements. FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives.  FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and may impact any intangible assets BigString acquires.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities - an Amendment of FASB Statement 133” (“SFAS No. 161”), which provides new disclosure requirements for an entity’s derivative and hedging activities. SFAS No. 161 is effective for periods beginning after November 15, 2008. BigString is currently evaluating the impact of adopting SFAS No. 161 on its consolidated financial position, cash flows and results of operations.
 
In December 2007, the FASB issued SFAS 141(R), which replaces SFAS 141 “Business Combinations.” This statement is intended to improve the relevance, completeness and representational faithfulness of the information provided in financial reports about the assets acquired and the liabilities assumed in a business combination. This statement requires an acquiror to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. Under SFAS 141(R), acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces SFAS 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. SFAS 141(R) shall be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual report period beginning on or after December 15, 2008. BigString will adopt SFAS No. 141(R) on January 1, 2009, as required, and does not believe it will have a material impact on its consolidated financial position, cash flows and results of operations.
 
In February 2007, the FASB issued SFAS No. 159 (“SFAS 159”) “The Fair Value Option for Financial Assets and Financial Liabilities,” providing companies with an option to report selected financial assets and liabilities at fair value. The Standard’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. It also requires entities to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the balance sheet.  SFAS 159 is effective for fiscal years beginning after November 15, 2007.  SFAS No. 159 did not have a material impact on BigString’s consolidated financial position, cash flows and results of operations.
 
NOTE 2. GOING CONCERN
 
For the year ended December 31, 2008, BigString’s consolidated financial statements reflect a net loss of $3,748,946, net cash used in operations of $891,468, a working capital deficit of $366,739, a stockholders’ deficit accumulated during the development stage of $14,154,045 and a cumulative net loss of $13,674,045.  These matters raise doubt about the ability of BigString to continue as a going concern.  BigString’s consolidated financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the inability to continue as a going concern.
 

F-12

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The ability of BigString to continue as a going concern is dependent on BigString’s ability to further implement its business plan, raise capital and generate additional revenues.  BigString can give no assurances that it will generate sufficient cash flow from operations or obtain additional financing.
 
The time required for BigString to become profitable is highly uncertain, and BigString can give no assurances that it will achieve or sustain profitability or generate sufficient cash flow from operations to meet planned capital expenditures, planned marketing expenditures and working capital requirements.  If required, the ability to obtain additional financing from other sources also depends on many factors beyond BigString’s control, including the state of the capital markets and the prospects for BigString’s business.  The necessary additional financing may not be available to BigString or may be available only on terms that would result in further dilution to the current stockholders of BigString.
 
NOTE 3. ACQUISITIONS
 
On July 9, 2008, BigString completed the acquisition of the website, BuddyStumbler, pursuant to an asset purchase agreement.  BigString issued 900,000 shares to the sellers. The market value of BigString’s common stock on July 9, 2008 was $0.13 per share. The purchase price of $117,000 has been allocated to intangible assets based on estimated fair value.  The acquisition includes right, title and interest in domain names, customer and member lists and source code.
 
A condensed balance sheet of the major assets and liabilities associated with the acquisition of BuddyStumbler as of the date of the acquisition is as follows:
 
Intangible assets
   $ 117,000  
Net assets acquired
   $ 117,000  
 
The results of operations of the assets acquired were not material, and accordingly, pro forma summary results have not been included.
 
On December 11, 2006, BigString completed the acquisition of the website, DailyLOL, pursuant to an asset purchase agreement.  The cash purchase price of $13,000 has been allocated to intangible assets based on estimated fair value.  The acquisition includes right, title and interest in domain names, customer and member lists and source code. The results of operations of the assets acquired were not material.
 
On May 19, 2006, BigString completed the acquisition of certain assets, including two websites, from a principal of Lifeline Industries, Inc.  In consideration for the assets, BigString issued 750,000 shares of BigString’s common stock.  The market value of BigString’s common stock on May 19, 2006 was $0.80 per share.  In conjunction with this acquisition, BigString acquired an intangible asset for $600,000 based on estimated fair value.  The acquisition included right, title and interest in domain names, customer and member lists and source code. The results of operations of the assets acquired were not material. Lifeline Industries, Inc. previously entered an agreement on May 2, 2006, to provide business consultant services to BigString for three years.
 
On July 16, 2004, BigString completed the acquisition of Email Emissary.  BigString purchased 100% of Email Emissary’s stock for 20,000,000 shares of BigString’s common stock.  BigString acquired Email Emissary to consolidate its marketing and development operations.  The purchase price of $4,800,000 was allocated to both tangible and intangible assets and liabilities based on estimated fair values.  Approximately $4,803,000 of identifiable intangible assets (patent application, trademark and websites) arose from this transaction.  Such intangible assets are being amortized on a straight-line basis over the estimated economic life of five years.
 
This acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations of Email Emissary has been included in BigString’s consolidated financial statements from July 16, 2004, the date of closing.
 
F-13

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 4. PROPERTY AND EQUIPMENT
 
Property and equipment consist of the following:
 
   
December 31,
  
   
2008
    
2007
  
Computer equipment and internal software
   $ 177,326     $ 255,171  
Furniture and fixtures
     5,848       5,969  
      183,174       261,140  
Less accumulated depreciation
     108,437       98,984  
    $ 74,737     $ 162,156  

 
Depreciation expense for the years ended December 31, 2008 and 2007, and for the period October 8, 2003 (Date of Formation) through December 31, 2008, was $38,226, $52,456 and $138,359, respectively.
 
NOTE 5. GOODWILL AND OTHER INTANGIBLES
 
Other intangibles consist of patent application and trademark, logos, source codes and websites.  Amounts assigned to these intangibles have been determined by management.  Management considered a number of factors in determining the allocations, including an independent formal appraisal.  Other intangibles are being amortized over five years.
 
Other intangible assets consist of the following:
 
   
December 31,
  
   
2008
    
2007
  
Patent application and trademark
   $ 4,803,067     $ 4,803,067  
Logos, websites and source codes
     730,000       613,000  
      5,533,067       5,416,067  
Impairment
     (1,042,876 )     (415,292 )
      4,490,191       5,000,775  
Accumulated amortization
     4,490,191       3,519,829  
    $ -     $ 1,480,946  
 
Amortization expense was $970,362, $1,083,213 and $4,490,191 for the years ended December 31, 2008 and 2007, and for the period October 8, 2003 (Date of Formation) through December 31, 2008, respectively.
 
Other intangibles are tested annually for impairment. If events indicate that impairment could exist, a recoverability test is performed comparing future net cash flows from the asset to the carrying value of the asset. If the recoverability test indicates the asset is impaired and the asset carrying amount is greater than fair market value, an impairment charge adjusts the carrying value to fair market value. Continuing losses associated with the assets indicated that impairments may exist.
 
In 2008, the recoverability test for the patent application and trademark assets indicated impairment. The fair market value, based on weighted, discounted cash flows and disposition values, was not material, and an impairment loss of $520,334 for the carrying amount was recognized.
 
In 2008, the recoverability test for the logos, websites and source codes, which primarily include the website BuddyStumbler, indicated impairment. The fair market value, based on weighted, discounted cash flows and disposition values, was not material, and an impairment loss of $107,250 for the carrying amount was recognized.
 
In 2007, the recoverability test for the logos, websites and source codes, which primarily include the websites FindItAll, AmericanMoBlog and DailyLOL, indicated impairment. The fair market value, based on weighted, discounted cash flows and disposition values, was not material, and an impairment loss of $415,292 for the carrying amount was recognized.
 
In June 2008, BigString entered into an asset purchase agreement to sell FindItAll and AmericanMoBlog for a nominal fee and 20,000,000 shares of common stock in FindItAll, Inc. The shares and fee were received in July
 
F-14

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
2008. Fair market value was determined using the cost method of investment because BigString has determined that this is a passive investment in a non-marketable equity and BigString does not have significant influence over the company.
 
Estimated remaining amortization expenses for intangible assets for the next five years is zero. The remaining intangible asset weighted-average useful life is 0 years.
 
NOTE 6. OTHER INCOME (EXPENSE)
 
Other income (expense) consists of interest income, interest expense, and other, net.
 
Interest income was $4,266, $14,409 and $72,589 for the years ended December 31, 2008 and 2007 and the period October 8, 2003 (Date of Formation) through December 31, 2008, respectively.
 
Interest expense consists of interest on convertible debt, generally payable on each anniversary date of the promissory notes, and is included in accrued interest. Interest expense was $81,951, $31,134 and $113,085 for the years ended December 31, 2008 and 2007 and the period October 8, 2003 (Date of Formation) through December 31, 2008, respectively.
 
The components of other, net consist of expenses related to the convertible debenture financing, preferred stock financing and warrant and common stock financings and are as follows:
 
 
Years ended
  
Period
October 8, 2003
(Date of Formation)
  
 
December 31,
  
Through
  
 
2008
  
2007
  
December 31, 2007
  
Amortization of debt issue costs
   $ 114,107     $ 92,839     $ 206,946  
Amortization of promissory note discount
     29,943       11,664       41,607  
Amortization of beneficial conversion feature
     240,493       248,608       489,101  
Investment banking expenses
     -       269,094       509,394  
    $ 384,543     $ 622,205     $ 1,247,048  
 
Debt issue costs for the August 2008, February 2008 and May 2007 financings were $18,977, $91,706 and $248,939, respectively, and are being amortized over the term of each note, which is 5, 36 and 36 months, respectively. Amortization is accelerated for the proportion of promissory notes which are converted in a period.
 
Other financing expenses include $250,000 of stock-based other non-cash compensation for the fair market value of common stock issued for a waiver and release related to the debt financing in 2007.
 
NOTE 7. INCOME TAXES
 
BigString adopted the provisions of the FASB Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007.  As a result of the implementation of FIN 48, BigString recognized no adjustment in the net liability for unrecognized income tax benefits.
 
BigString participated in the State of New Jersey’s Corporation Business Tax Benefit Certificate Transfer program (the “Program”), which allows certain high technology and biotechnology companies to sell unused NOL carryforwards to other New Jersey corporation business taxpayers. The Program requires that the purchaser pay at least 75% of the amount of the surrendered tax benefit. For the years ended December 31, 2008 and 2007 and for the period October 8, 2003 (Date of Formation) through December 31, 2008, BigString recorded a net state tax benefit of $428,137, $258,854 and $686,991, respectively, as a result of its sale of New Jersey state net operating losses and New Jersey state research and development credits. For the years ended December 31, 2008 and 2007 and for the period October 8, 2003 (Date of Formation) through December 31, 2008, proceeds from the sale of the net operating loss were $482,480, $294,189 and $776,669, respectively. Since New Jersey law provides that net operating losses can be carried over for up to seven years, BigString may be able to transfer its unused New Jersey net operating losses in future years.
 
The tax effects of temporary differences that give rise to significant portions of deferred tax assets include net operating loss carry forwards and research and development credits. A valuation allowance is provided when it is
 
F-15

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

more likely than not that some portion or all of the deferred tax assets will not be realized. Valuation allowances for the years ending December 31, 2008 and 2007, and for the period October 8, 2003 (Date of Formation) through December 31, 2008, have been applied to offset the deferred tax assets in recognition of the uncertainty that such tax benefits will be realized as BigString continues to incur losses.
 
At December 31, 2008, BigString has available net operating loss carry forwards of approximately $12.6 million for federal income tax reporting purposes and $5.0 million for state income tax reporting purposes which expire in various years through 2028. The differences between book income and tax income primarily relates to amortization of intangible assets and other expenditures.  Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of a company’s net operating loss and research credit carry forwards may be limited, and, as such, BigString’s net operating loss carry forwards available to offset future federal taxable income may be limited. Similarly, BigString may be restricted in using its research credit carry forwards to offset future federal income tax expense.
 
NOTE 8. SHORT-TERM DEBT
 
On August 25, 2008, BigString closed on a financing. Providing the financing were Dwight Lane Capital, LLC, a limited liability company in which Todd M. Ross, a director of BigString, has an interest, and Marc W. Dutton, a director of BigString. In connection with such financing, BigString issued promissory notes in the aggregate principal amount of $250,000 and common stock purchase warrants to purchase up to an aggregate 800,000 shares of BigString's common stock. Each note has a term of five months and accrued interest at a rate of 12% annually. The warrants have an exercise price of $0.08 per share.
 
BigString incurred transaction fees of approximately $19,000. BigString accounted for the convertible feature of the notes under SFAS No. 133, and related interpretations including EITF Issue No. 00-19.  Due to the conversion rights only upon an event of default, $2,080 was included as additional paid in capital based on a weighted conversion discount. The warrants did not have a conversion discount, and accordingly, no proceeds were allocated to the warrants based on fair value, and included as additional paid in capital.
 
The conversion price for the outstanding convertible notes previously issued by BigString in February 2008 and May 2007 and the conversion price of the shares of outstanding Series A Preferred Stock would be adjusted under anti-dilution provisions, in certain situations, such as an event of default.
 
In December 2008, all amounts due under the notes were paid by BigString, including accrued interest of $9,328, and, as a result, the notes were cancelled.
 
NOTE 9. LONG-TERM DEBT
 
On February 29, 2008, BigString entered into a financing arrangement with several accredited financing parties. Proceeds from the financing will be used to support ongoing operations and the advancement of BigString’s technology, and fund the marketing and the development of its business.
 
Pursuant to the Subscription Agreement entered into by BigString with Whalehaven Capital Fund Limited, Alpha Capital Anstalt and Excalibur Small Cap Opportunities LP (collectively, the “2008 Subscribers”), the 2008 Subscribers purchased convertible notes in the aggregate principal amount of $700,000, which notes are convertible into shares of BigString’s common stock, and warrants to purchase up to 2,333,333 shares of BigString's common stock, resulting in net proceeds of approximately $608,000 after transaction fees of approximately $92,000.  BigString accounted for the convertible notes under SFAS No. 133, and related interpretations including EITF Issue No. 00-19.  Approximately $76,200 of the proceeds was allocated to the warrants based on fair value, and included as additional paid in capital.  Due to the beneficial conversion feature of the convertible notes, $186,660 was included as additional paid in capital based on the conversion discount.
 
Each convertible note has a term of three years and accrues interest at a rate of 6% annually.  The holder of a convertible note shall have the right from and after the issuance thereof until such time as the convertible note is fully paid, to convert any outstanding and unpaid principal portion thereof into shares of common stock at a conversion price of $0.15 per share, as adjusted. The conversion price and number and kind of shares to be issued upon conversion of the convertible notes are subject to adjustment from time to time. The warrants have an exercise price of $0.15 per share, as adjusted.  The number of shares of common stock underlying each warrant and the exercise price are subject to certain adjustments.
 

F-16

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
In connection with the February 29, 2008 financing, BigString paid Gem Funding LLC (the “Finder”) $56,000 and issued a warrant to purchase 373,333 shares of BigString’s common stock to the Finder on February 29, 2008.  The Finder's warrant is similar to and carries the same rights as the warrants issued to the 2008 Subscribers.
 
As a result of this financing, the conversion price for the outstanding convertible notes previously issued by BigString in May 2007 was adjusted from $0.18 to $0.15.  In addition, the conversion price of the shares of outstanding Series A Preferred Stock was adjusted as provided for in the Certificate of Designations with respect to same.
 
On May 1, 2007, BigString entered into a financing arrangement with several accredited financing parties. Pursuant to the Subscription Agreement entered into by BigString with Whalehaven Capital Fund Limited, Alpha Capital Anstalt, Chestnut Ridge Partners LP, Iroquois Master Fund Ltd. and Penn Footwear (collectively, the “2007 Subscribers”), the 2007 Subscribers purchased convertible notes in the aggregate principal amount of $800,000, which notes are convertible into shares of BigString’s common stock, and warrants to purchase up to 1,777,779 shares of BigString's common stock, resulting in net proceeds of approximately $551,000 after transaction fees of approximately $249,000.  BigString accounted for the convertible notes under SFAS No. 133, and related interpretations including EITF Issue No. 00-19.  Approximately $31,300 of the proceeds was allocated to the warrants based on fair value, and included as additional paid in capital.  Due to the beneficial conversion feature of the convertible notes, $666,648 was included as additional paid in capital based on the conversion discount.
 
Each convertible note has a term of three years and accrues interest at a rate of 6% annually.  The holder of a convertible note shall have the right from and after the issuance thereof until such time as the convertible note is fully paid, to convert any outstanding and unpaid principal portion thereof into shares of BigString’s common stock at a conversion price of $0.15 per share, as adjusted.  The conversion price and number and kind of shares to be issued upon conversion of the convertible notes are subject to adjustment from time to time. The warrants have an exercise price of $0.30 per share, as adjusted.  The number of shares of common stock underlying each warrant and the exercise price are subject to certain adjustments.
 
In connection with the May 1, 2007 financing, BigString paid the Finder $64,000 and issued a warrant to purchase 213,333 shares of BigString’s common stock to the Finder on May 1, 2007.  The Finder's warrant is similar to and carries the same rights as the warrants issued to the 2007 Subscribers.
 
On November 30, 2007, BigString and the 2007 Subscribers entered into an Agreement, Waiver and Limited Release. As part of the Agreement, Waiver and Limited Release, the 2007 Subscribers released BigString from liquidated damages relating to the outstanding convertible notes. At the date of the Agreement, Waiver and Limited Release, BigString had accrued $24,267 in liquidated damages. BigString also granted the 2007 Subscribers 1,000,000 restricted shares of BigString’s common stock. BigString recorded $250,000 of stock-based other non-cash compensation expense related to the debt issue.
 
Information regarding the convertible notes outstanding at December 31, 2008 and 2007 is as follows:
 
   
December 31,
  
   
2008
    
2007
  
Convertible note, May 1, 2007
   $ 625,000     $ 645,000  
Beneficial conversion feature
     (231,477 )     (418,040 )
Note Discount
     (10,873 )     (19,656 )
      382,650       207,304  
                 
Convertible note, February 29, 2009
     700,000       -  
Beneficial conversion feature
     (134,810 )     -  
Note Discount
     (55,016 )     -  
      510,174       -  
    $ 892,824     $ 207,304  
 
For the years ending December 31, 2008 and 2007, $20,000 and $155,000 of the convertible notes dated May 1, 2007 were converted resulting in 111,111 and 861,111, respectively, shares of BigString’s common stock being issued to the holders of the convertible notes. For the year ending December 31, 2008, there were no conversions of the convertible notes dated February 29, 2008.
 
F-17
 
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the year ending December 31, 2008, BigString issued 291,713 shares of BigString’s common stock in lieu of $43,757 of accrued interest. Future accrued interest payments, which may include shares of BigString’s common stock in lieu of accrued interest, on the May 1, 2007 and February 29, 2008 convertible notes are currently estimated as follows:
 
   
Accrued
  
Years Ending
  
Interest
  
December 31,
  
Payments
  
2009
     $ 79,500  
2010
       79,500  
2011
       42,000  
      $ 201,000  
 
NOTE 10. COMMON STOCK
 
On July 18, 2005, BigString amended its Certificate of Incorporation to, among other things, (1) change its name from Recall Mail Corporation to BigString Corporation, and (2) increase the number of shares BigString is authorized to issue from 50,000,000 shares to 250,000,000 shares, consisting of 249,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share.  The board of directors has the authority, without action by the stockholders, to designate and issue the shares of preferred stock in one or more series and to designate the rights, preference and privileges of each series, any or all of which may be greater than the rights of BigString’s common stock.  Currently, there are 400,000 shares of preferred stock outstanding.
 
In October 2003, the month of BigString’s formation, BigString issued 21,210,000 shares of its common stock to principals of BigString at no cost to such principals.
 
During 2003, BigString concluded a private placement of securities, pursuant to which it sold 40,000 shares of BigString’s common stock at a per share purchase price of $0.25.  BigString received $10,000 in gross proceeds as a result of this private placement.
 
During 2004, BigString concluded a private placement of securities, pursuant to which it sold 870,000 shares of BigString’s common stock at a per share purchase price of $0.25.  BigString received $217,500 in gross proceeds as a result of this private placement.
 
During 2004, BigString issued 185,000 shares of common stock valued at $0.21 per share in consideration for consulting services provided by two marketing consultants.  BigString recorded consulting expense of $39,251 in connection with the issuance of these shares. Fair market value was based on most recent private placement per share purchase price and an agreed upon per share purchase price discount.
 
During 2004, BigString completed the acquisition of Email Emissary for 20,000,000 shares of BigString’s common stock for a purchase price of $4,800,000. Fair market value of $0.24 per share was based on the weighted average private placement per share purchase prices in 2003 and 2004.
 
During 2005, BigString issued 50,000 shares of common stock valued at $0.25 per share for business advisory services. Fair market value was based on the concurrent private placement per share purchase price.
 
For the year ended December 31, 2005, BigString concluded several private placements pursuant to which it sold 922,000 shares of its common stock at a per share purchase price of $0.25 and 9,448,125 shares of its common stock at a per share purchase price of $0.16.  As a result of these private placements, BigString received $1,742,200 in gross proceeds.
 
On May 2, 2006, BigString issued 1,250,000 shares of common stock in consideration for business consultant services to be provided by Lifeline Industries, Inc.  The market value of BigString’s common stock at May 2, 2006 was $0.82 per share.
 
On May 19, 2006, BigString completed the acquisition of certain assets, including two websites, from a principal of Lifeline Industries, Inc.  In consideration for the assets, BigString issued 750,000 shares of common stock.  The market value of BigString’s common stock at May 19, 2006 was $0.80 per share.
 
F-18

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Additionally, in May 2006, BigString redeemed 2,000,000 shares of its common stock from each of Charles A. Handshy, Jr. and David L. Daniels, former directors of BigString, and 2,000,000 shares of its common stock from each of their spouses, June E. Handshy and Deborah K. Daniels, at a purchase price of $0.05 per share.
 
On February 26, 2007, BigString agreed to issue 140,000 shares of common stock to CEOcast, Inc. in consideration for investor relations services.  The market value of BigString’s common stock at February 26, 2007 was $0.50 per share.
 
Additionally, on February 26, 2007, BigString agreed to issue 192,000 shares of common stock to Howard Greene in consideration for public relations services provided by Greene Inc. Communications.  The market value of BigString’s common stock at February 26, 2007 was $0.50 per share.
 
On May 1, 2007, BigString issued 100,000 shares of common stock to Jonathan Bomser in consideration for online marketing services provided by CAC, Inc.  The market value of BigString’s common stock at May 1, 2007 was $0.33 per share.
 
On November 30, 2007, BigString agreed to issue 1,000,000 shares of its common stock to the 2007 Subscribers as part of the Agreement, Waiver and Limited Release. The market value of BigString’s common stock at November 30, 2007 was $0.25 per share.
 
During November and December 2007, BigString issued an aggregate 861,111 shares of common stock for the conversion of convertible promissory notes totaling $155,000. The conversion price was $0.18 per share.
 
On February 8, 2008, BigString issued 111,111 shares of its common stock for the conversion of convertible promissory notes totaling $20,000. The conversion price was $0.18 per share.
 
On May 1, 2008, BigString issued 291,713 shares of its common stock for accrued interest on convertible promissory notes totaling $43,757. The conversion price was $0.15 per share.
 
On July 9, 2008, BigString completed the acquisition of certain assets and issued 900,000 shares of its common stock.  The market value of BigString’s common stock at July 9, 2008 was $0.13 per share.
 
NOTE 11. PREFERRED STOCK
 
On May 19 2006, BigString issued a total of 400,000 shares of Series A Preferred Stock, par value $0.0001 per share, and warrants to purchase 1,000,000 shares of its common stock to Witches Rock Portfolio Ltd., The Tudor BVI Global Portfolio Ltd. and Tudor Proprietary Trading, L.L.C., for an aggregate purchase price of $2,000,000.  The shares of Series A Preferred Stock are convertible under certain circumstances into shares of BigString’s common stock, and have certain dividend, voting, liquidation and conversion rights.   The warrants are convertible into shares of BigString’s common stock at an exercise price per share of $1.25, as adjusted.  BigString has registered the shares of common stock issuable upon conversion of the shares of Series A Preferred Stock and the shares of common stock underlying the warrants.  In conjunction with this transaction, BigString incurred a fee of $140,000, which is included in additional paid in capital.
 
BigString accounted for the convertible preferred stock under SFAS No. 133, and related interpretations including EITF Issue No. 00-19.  BigString performed calculations allocating the proceeds of the Series A Preferred Stock with detachable warrants to each respective security at their fair values.  The value of the warrants of $400,000 was recorded as a reduction of the Series A Preferred Stock and credited to additional paid-in-capital.  The recorded discount of $480,000 resulting from allocation of proceeds to the beneficial conversion feature is analogous to a dividend and is recognized as a return to the preferred stockholders at the date of issuance of the convertible preferred stock.
 
NOTE 12. SHARE-BASED COMPENSATION
 
On January 1, 2006, BigString adopted SFAS No. 123(R) requiring the recognition of compensation expense in the consolidated statements of operations related to the fair value of its employee and non-employee share-based options and warrants.  SFAS No. 123(R) revises SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”  SFAS No. 123(R) is supplemented by SAB No. 107 and SAB No. 110 which express the SEC staff’s views regarding the interaction between SFAS No. 123(R) and certain SEC positions and regulations including the valuation of share-based payment arrangements.
 

F-19

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Warrants:
 
During 2004, BigString granted warrants as payment for advisory services.  The warrants provided for the purchase of 60,000 shares of BigString’s common stock at an exercise price of $0.25.  Certain of these warrants were exercised in 2005, which resulted in 45,000 shares of BigString’s common stock being issued to the holders thereof.  As a result of these exercises, BigString received $11,250 in gross proceeds.  The remainder of these warrants was exercised in 2006, which resulted in 15,000 shares of BigString’s common stock being issued to the holder thereof.  As a result of this exercise, BigString recorded a subscription receivable of $3,750.  In connection with the grant of these warrants, BigString recorded an expense of $3,500 which is included in BigString’s consolidated statement of operations for the year ended December 31, 2004.  The fair value of the warrants granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 47%; risk free rate of return of 5%; and expected life of 2 years.  The weighted average fair value of these warrants was $0.07 per share.
 
On January 1, 2005, BigString granted warrants to two consultants as payment for advisory services. Each warrant provided for the purchase of 50,000 shares of BigString’s common stock at an exercise price of $0.25 per share.  One of the warrants was exercised in 2006, which resulted in 50,000 shares of BigString’s common stock being issued to the holder thereof.  As a result of this exercise, BigString recorded a subscription receivable of $12,500.  In addition, the other warrant providing for the purchase of 50,000 shares of BigString’s common stock expired on January 1, 2007.  In connection with the grant of these warrants, BigString recorded an expense of $7,400 which is included in BigString’s consolidated statements of operations for the year ended December 31, 2005.  The fair value of the warrants granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 47%; risk free rate of return of 5%; and expected life of 2 years.  The weighted average fair value of these warrants was $0.07 per share.
 
On September 23, 2005, BigString granted warrants to a consultant, as payment for advisory services. One warrant provides for the purchase of 1,246,707 shares of BigString’s common stock with a per share exercise price of $0.16, and the second warrant provides for the purchase of 1,196,838 shares of BigString’s common stock with a per share exercise price of $0.20.  Each of these warrants is due to expire on September 23, 2010 and each grant is non-forfeitable.  A portion of each warrant, representing 50,000 shares of common stock, was assigned to a third party.  The assigned portions of the warrants were exercised in 2006, which resulted in 100,000 shares of BigString’s common stock being issued to the holder thereof.  As a result of these exercises, BigString received $18,000 in gross proceeds.  In connection with the grant of these warrants, BigString recorded an expense of $171,800 which is included in BigString’s consolidated statements of operations for the year ended December 31, 2005.  The fair value of the warrants granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used:  dividend yield of 0%; expected volatility of 47%; risk free rate of return of 5%; and expected life of 2 years.  The weighted average fair value of these warrants was $0.07 per share.
 
On May 2, 2006, BigString granted warrants to purchase shares of BigString’s common stock in consideration for business consultant services to be provided by Lifeline Industries, Inc.  A total of $135,300 of the deferred compensation in connection with the warrants is being expensed over a period of 36 months.  For the years ended December 31, 2008 and 2007, BigString expensed $45,102 and $45,102, respectively, in connection with these services, and the balance of $15,031 of total unrecognized compensation cost is included within paid-in-capital on BigString’s consolidated balance sheet.  The fair value of the warrants granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 47%; risk free rate of return of 5%; and expected life of 2 years.  The weighted average fair value of these warrants was $0.42 and $0.18 per share.
 
On December 1, 2006, BigString granted warrants to two consultants, as payment for advisory services.  Each warrant provides for the purchase of 50,000 shares of BigString’s common stock at an exercise price of $0.50 per share.  Each of these warrants is due to expire on December 1, 2011.  In connection with the grant of these warrants, BigString recorded an expense of $6,530 which is included in BigString’s consolidated statements of operations for the year ended December 31, 2006. The fair value of the warrants granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 47%; risk free rate of return of 4%; and expected life of 3 years.  The weighted average fair value of these warrants was $0.08 per share.
 
As discussed in Note 9, on May 1, 2007, BigString granted warrants to purchase up to 1,991,112 shares of BigString's common stock to the 2007 Subscribers and the Finder.  Each of the warrants has a term of five years
 
F-20

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

from May 1, 2007 and was fully vested on the date of issuance. The warrants are exercisable at $0.30 per share of common stock, as adjusted.  A total of $31,320 of the purchase price for the convertible notes and warrants was allocated to the warrants based on fair value.
 
In November 2007, BigString repriced warrants to purchase 1,713,334 shares of common stock previously issued to the 2007 Subscribers, which warrants were subsequently exercised by the 2007 Subscribers at the reduced exercise price.  The exercise price of the repriced warrants was reduced from $0.30 per share to $0.10 per share.  As a result of this repricing, the warrants with an exercise price of $0.30 per share were deemed cancelled and new warrants with an exercise price of $0.10 per share were deemed issued.  In December 2007, five repriced warrants were exercised at the exercise price of $0.10 per share, which resulted in 1,500,001 shares of BigString’s common stock being issued to the holders thereof.  As a result of these exercises, BigString received $150,000 in gross proceeds. In addition, one repriced warrant was exercised in January 2008 at the exercise price of $0.10 per share, which resulted in 213,333 shares of BigString’s common stock being issued to the holder thereof and $21,333 in gross proceeds to BigString. The fair value of the warrants deemed cancelled and deemed issued was estimated on the date of approval by the board of directors of BigString using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0% and 0%; expected volatility of 69% and 69%; risk free rate of return of 4% and 3%; and expected life of 4 and 0 years for the deemed cancellation and deemed issue of warrants, respectively.  The weighted average fair value of the deemed cancellation and deemed issue of warrants was $0.11 per share and $0.12 per share, respectively. BigString expensed the net fair value of $19,094 for the year ended December 31, 2007.
 
As discussed in Note 9, on February 29, 2008, BigString granted warrants to purchase up to 2,706,666 shares of BigString's common stock to the 2008 Subscribers and Finder.  Each of the warrants has a term of five years from February 29, 2008 and was fully vested on the date of issuance. The warrants are exercisable at $0.15 per share of common stock, as adjusted.  A total of $76,176 of the purchase price for the convertible notes and warrants was allocated to the warrants based on fair value.
 
As discussed in Note 8, on August 25, 2008, BigString granted warrants to purchase up to 800,000 shares of BigString's common stock to Dwight Lane Capital, LLC and Marc W. Dutton.  Each of the warrants has a term of ten years from August 25, 2008 and was fully vested on the date of issuance. The warrants are exercisable at $0.08 per share of common stock.  The warrants did not have a conversion discount, and accordingly, no proceeds for the convertible notes and warrants was allocated to the warrants, based on fair value, and included as additional paid in capital. As a result of this transaction, certain warrants to purchase shares of BigString’s common stock issued to the 2007 Subscribers and 2008 Subscribers and Finder were adjusted; this adjustment was not material.
 
Information regarding the warrants outstanding, all of which are exercisable, for 2008 and 2007 is as follows:
 
   
Shares
    
Weighted Average Exercise Price
    
Weighted Average Remaining Contractual Term
    
Aggregate Intrinsic Value
  
Warrants outstanding at January 1, 2007
     3,943,545     $ 0.52              
Warrants granted
     3,704,446     $ 0.21              
Warrants exercised
     (1,500,001 )   $ 0.10              
Warrants cancelled/forfeited/expired
     (1,763,334 )   $ 0.30              
Warrants outstanding at December 31, 2007
     4,384,656     $ 0.50       4.3     $ 211,916  
Warrants granted
     9,206,666     $ 0.10                  
Warrants exercised
     (213,333 )   $ 0.10                  
Warrants cancelled/forfeited/expired
     (2,984,444 )   $ 0.16                  
Warrants outstanding at December 31, 2008
     10,393,545     $ 0.25       4.2     $ -  
Warrants exercisable at December 31, 2007
     4,384,656     $ 0.50       4.3     $ 211,916  
Warrants exercisable at December 31, 2008
     10,393,545     $ 0.25       4.2     $ -  
 
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock prices of BigString’s common stock on December 31, 2007 and 2008 and the exercise
 
F-21

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
prices for in-the-money warrants) that would have been received by the warrant holders if all in-the-money warrants had been exercised on December 31, 2007 and 2008, respectively.   
 
Warrants granted during the years ended December 31, 2008 and 2007 were 9,206,666 and 3,704,446, respectively.  For the period October 8, 2003 (Date of Formation) through December 31, 2008, warrants to purchase a total of 17,064,657 shares of BigString’s common stock were granted. The weighted average grant date fair value of warrants granted in the years ended December 31, 2008 and 2007 was $0.05 and $0.13, respectively.
 
Warrants exercised during the years ended December 31, 2008 and 2007 were 213,333 and 1,500,001, respectively.  Cash received during the years ended December 31, 2008 and 2007 from the exercise of warrants was $21,333 and $166,250, respectively.  For the period October 8, 2003 (Date of Formation) through December 31, 2008, a total of 1,923,334 shares of BigString’s common stock were purchased upon the exercise of warrants. The total intrinsic value of warrants exercised in the years ended December 31, 2008 and 2007 was $29,867 and $243,556, respectively.
 
During the year ended December 31, 2007 and the period October 8, 2003 (Date of Formation) through December 31, 2008, warrants to purchase a total of 50,000 shares of BigString’s common stock expired with an aggregate intrinsic value of $26,000 at the date of expiration. During the years ended December 31, 2008 and 2007 and the period October 8, 2003 (Date of Formation) through December 31, 2008, warrants to purchase a total of 2,984,444, 1,713,334 and 4,697,778 shares of common stock, respectively, were cancelled with an aggregate intrinsic value of $0 at the date of cancellation. 
 
Equity Incentive Plan and Stock Options Issued to Consultant:
 
At the 2006 annual meeting of stockholders of BigString, the BigString Corporation 2006 Equity Incentive Plan (the “Equity Incentive Plan”) was adopted and approved by a majority of BigString’s stockholders.  Under the Equity Incentive Plan, incentive and nonqualified stock options and rights to purchase BigString’s common stock may be granted to eligible participants.  Options are generally priced to be at least 100% of the fair market value of BigString’s common stock at the date of the grant.  Options are generally granted for a term of five or ten years.  Options granted under the Equity Incentive Plan generally vest between one and five years.
 
On July 11, 2006, BigString approved the grant of a non-qualified stock option to purchase 575,100 shares of BigString’s common stock to a vendor. The non-qualified stock option has a term of five years from July 11, 2006 and an exercise price of $0.32 per share.  For the year ended December 31, 2006, BigString recorded a consulting expense of $47,775 in connection with the contractual relationship between Mr. Vogel and BigString.
 
On July 11, 2006, BigString granted incentive stock options to purchase 2,620,000 shares of BigString’s common stock under its Equity Incentive Plan to certain of BigString’s employees.  Incentive stock options to purchase 1,450,000 shares of BigString’s common stock were granted at an exercise price of $0.32 per underlying share with 25% vesting every three months for one year, and incentive stock options to purchase 1,170,000 shares of BigString’s common stock were granted at an exercise price of $0.50 per underlying share with vesting over periods of three and four years.  In addition, non-qualified stock options to purchase 600,000 shares of BigString’s common stock were granted to two non-employee directors at an exercise price of $0.50 per underlying share with vesting over a period of three years.
 
On September 18, 2006, BigString granted an incentive stock option to purchase 1,800,000 shares of BigString’s common stock under its Equity Incentive Plan to a new BigString officer. When vested, 400,000 shares of BigString’s common stock will be eligible for purchase at the per share price equal to $0.24; 600,000 shares of BigString’s common stock will be eligible for purchase at $0.50 per share; 400,000 shares of BigString’s common stock will be eligible for purchase at $.90 per share; and 400,000 shares of BigString’s common stock will be eligible for purchase at $1.25 per share. The incentive stock option vests quarterly over a three year period, and the shares of BigString’s common stock subject to the incentive stock option will vest in order of exercise price, with the shares with the lower exercise price vesting first.
 
On November 14, 2007, BigString granted incentive stock options to purchase 1,275,000 shares of BigString’s common stock under its Equity Incentive Plan to certain of BigString’s employees.  Incentive stock options were granted at an exercise price of $0.18 per underlying share with 25% vesting every three months for one year.  In addition, non-qualified stock options to purchase 800,000 shares of BigString’s common stock were granted to three non-employee directors at an exercise price of $0.18 per underlying share with 25% vesting every three months for one year.
 
F-22

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
On January 14, 2008, BigString granted incentive stock options to purchase 800,000 shares of BigString’s common stock under its Equity Incentive Plan to a new BigString employee.  Incentive stock options were granted at an exercise price of $0.22 per underlying share with 25% vesting every three months for one year.  These options were forfeited.
 
On April 11, 2008, BigString granted incentive stock options to purchase 2,580,000 shares of BigString’s common stock under its Equity Incentive Plan to certain of BigString’s employees.  Incentive stock options were granted at an exercise price of $0.21 per underlying share with 25% vesting every three months for one year.  In addition, non-qualified stock options to purchase 1,000,000 shares of BigString’s common stock were granted to two non-employee directors at an exercise price of $0.21 per underlying share with 25% vesting every three months for one year.
 
On October 13, 2008, BigString granted incentive stock options to purchase 300,000 shares of BigString’s common stock under its Equity Incentive Plan to a BigString employee.  Incentive stock options were granted at an exercise price of $0.10 per underlying share with 25% vesting every three months for one year.
 
On November 17, 2008, BigString granted non-qualified stock options to purchase 300,000 shares of BigString’s common stock to a BigString vendor under a partnering arrangement.  The stock options were granted at an exercise price of $0.08 per underlying share with 25% vesting every three months for one year.
 
For the years ended December 31, 2008 and 2007 and the period October 8, 2003 (Date of Formation) through December 31, 2008, BigString recorded stock-based option compensation expense of $341,036, $86,764 and $514,273, respectively.  SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.  Stock-based compensation expense was recorded net of estimated forfeitures.
 
Information regarding the stock options outstanding during the years ended December 31, 2008 and 2007 is as follows:
 
   
Shares
    
Weighted Average Exercise Price
    
Weighted Average Remaining Contractual Term
    
Aggregate Intrinsic Value
  
Options outstanding at January 1, 2007
     5,595,100     $ 0.50              
Options granted
     2,075,000     $ 0.18              
Options exercised
     -     $ -              
Options cancelled/forfeited/expired
     (520,000 )   $ 0.43              
Options outstanding at December 31, 2007
     7,150,100     $ 0.41       7.7     $ 221,575  
Options granted
     4,980,000     $ 0.20                  
Options exercised
     -     $ -                  
Options cancelled/forfeited/expired
     (2,180,000 )   $ 0.27                  
Options outstanding at December 31, 2008
     9,950,100     $ 0.33       5.5     $ -  
Options exercisable at December 31, 2007
     3,012,600     $ 0.36       5.5     $ 12,000  
Options exercisable at December 31, 2008
     7,175,100     $ 0.32       5.6     $ -  
 
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock prices of BigString’s common stock on December 31, 2007 and 2008 and the exercise prices for in-the-money options) that would have been received by the option holders if all in-the-money warrants had been exercised on December 31, 2007 and 2008, respectively.
 
Options granted during the years ended December 31, 2008 and 2007 were 4,980,000 and 2,075,000, respectively.  For the period October 8, 2003 (Date of Formation) through December 31, 2008, options to purchase a total of 12,650,100 shares of BigString’s common stock were granted. The weighted average grant date fair value of options granted in the years ended December 31, 2008 and 2007 was $0.07 and $0.05, respectively.
 
No options were exercised, and no cash received from option exercises and purchases of shares for the years ended December 31, 2008 and 2007 and the period October 8, 2003 (Date of Formation) through December 31, 2008. The
 
F-23

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
total tax benefit attributable to options exercised in the years ended December 31, 2008 and 2007 and the period October 8, 2003 (Date of Formation) through December 31, 2008 was $0.
 
During the years ended December 31, 2008 and 2007 and the period October 8, 2003 (Date of Formation) through December 31, 2008, options to purchase a total of 2,180,000, 520,000 and 2,700,000 shares of BigString’s common stock were cancelled, forfeited or expired with an aggregate intrinsic value of $0 at the date of expiration. 
 
The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, consistent with the provisions of SFAS No. 123(R) and SAB No. 107.  Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options.  We have limited relevant historical information to support the expected exercise behavior because our stock has been publicly traded only since May 1, 2006.
 
The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted in the periods presented:
 
   
Years Ended
December 31,
    
Period
October 8, 2003
(Date of Formation)
Through
  
   
2008
    
2007
    
December 31, 2008
  
Risk-free interest rate
     1.79 %     3.61 %     3.52 %
Expected volatility
     99 %     69 %     67 %
Expected life (in years)
     1.5       1.5       2.0  
Dividend yield
     -       -       -  
 
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of the grant.
 
BigString estimates the volatility of its common stock at the date of the grant based on historical volatility, expected volatility and publicly traded peer companies.
 
The expected life of stock options granted under the Equity Incentive Plan is based on management judgment, historical experience and publicly traded peer companies.
 
BigString has no history or expectations of paying cash dividends on its common stock.
 
NOTE 13. COMMITMENTS AND CONTINGENCIES
 
Leases:
 
BigString leases its facilities which require BigString to pay certain executory costs (such as insurance and maintenance). Future minimum lease payments for operating leases are approximately as follows:
 
Years Ending December 31,
  
Minimum Lease Payments
  
2009
   $ 12,247  
    $ 12,247  
 
Rental expense was $36,400, $47,720 and $195,109 for the years ended December 31, 2008 and 2007, and for the period October 8, 2003 (Date of Formation) through December 31, 2008, respectively.
 
Computer co-location, power and Internet access expense was $56,728, $55,583 and $181,882 for the years ended December 31, 2008 and 2007, and for the period October 8, 2003 (Date of Formation) through December 31, 2008, respectively.
 
F-24

BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Consulting Agreements:
 
On January 27, 2004, BigString entered into an agreement with Greene Inc. Communications to provide public relations services.  In consideration for services performed, BigString agreed to issue to Howard Greene 140,000 shares of common stock in April, 2005 and 192,000 shares of common stock in February, 2007.  Total public relation expenses, including the services of Greene Inc. Communications, were $155,351 and $42,944 for the years ended December 31, 2008 and 2007, and $301,799 for the period October 8, 2003 (Date of Formation) through December 31, 2008. Share-based compensation for the year ended December 31, 2007 was $96,000.
 
On May 2, 2006, BigString signed a three-year business consultant services agreement with Lifeline Industries, Inc.  In consideration for the services to be performed under the agreement, BigString issued to Lifeline Industries, Inc. (1) 1,250,000 shares of common stock, (2) a fully vested, five year warrant to purchase 225,000 shares of common stock at a per share purchase price of $0.48, and (3) a fully vested, five year warrant to purchase 225,000 shares of common stock at a per share purchase price of $1.00.  BigString incurred corresponding consulting expenses of $386,764, $386,768 and $1,031,374 for the years ended December 31, 2008 and 2007, and for the period October 8, 2003 (Date of Formation) through December 31, 2008, respectively.
 
On February 28, 2008, BigString signed a three month, renewable, consulting agreement with OTC Financial Network, a division of National Financial Communications Corp., to provide investor relations services. Expenses for the year ended December 31, 2008 were $80,000.
 
On March 18, 2008, BigString signed a month-to-month consulting agreement with Jayson Marketing Group, Inc. to provide public relations and event marketing services. Expenses for the year ended December 31, 2008 were $39,587.
 
On April 1, 2008, BigString signed an agreement with Medialink Worldwide, Inc. to provide media services. Expenses for the year ended December 31, 2008 were $23,000.
 
On April 2, 2008, BigString signed a one month agreement with Coburn Communications, Inc. for Bill Stanton to provide public relations and marketing services. Expenses for the year ended December 31, 2008 were $31,000.
 
On July 1, 2008, BigString signed a one month agreement with Lebed Biz, LLC to provide investor relations services. Expenses for the year ended December 31, 2008 were $20,000.
 
Marketing Affiliate Commitments:
 
In connection with contracts to provide email services to marketing affiliates, BigString may be obligated to make payments, which may represent a portion of net advertising revenues, to its marketing affiliates.  As of December 31, 2008 and 2007, and for the period October 8, 2003 (Date of Formation) through December 31, 2008, these commitments were not material.
 
Other Commitments:
 
In the ordinary course of business, BigString may provide indemnifications to customers, vendors, lessors, marketing affiliates, directors, officers and other parties with respect to certain matters.  It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and unique circumstances involved in each agreement.  Historically, BigString has not incurred material costs as a result of obligation under these agreements and has not accrued any liabilities related to such agreements.
 
As of December 31, 2008, BigString did not have any relationships with unconsolidated entities or financial partnerships, such as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes.  BigString is not exposed to financing, liquidity, market or credit risks that could arise under such relationships.
 
NOTE 14. SUBSEQUENT EVENTS
 
None.
 
F-25

INDEX OF EXHIBITS
 
Exhibit No.
Description of Exhibit
   
3.1.1
Certificate of Incorporation of BigString, placed into effect on October 8, 2003, incorporated by reference to Exhibit 3.1.1 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
3.1.2
Certificate of Amendment to the Certificate of Incorporation of BigString, placed into effect on July 19, 2005, incorporated by reference to Exhibit 3.1.2 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
3.1.3
Certificate of Designations of Series A Preferred Stock, par value $0.0001 per share, of BigString, incorporated by reference to Exhibit 3.1.3 to the Current Report on Form 8-K filed with the SEC on May 22, 2006.
   
3.2
Amended and Restated By-laws of BigString, incorporated by reference to Exhibit 3.2 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
4.1
Specimen certificate representing BigString’s common stock, par value $.0001 per share, incorporated by reference to Exhibit 4.1 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
4.2
Form of Convertible Note, dated May 1, 2007, issued to the following entities and in the following amounts: Whalehaven Capital Fund Limited ($250,000); Alpha Capital Anstalt ($250,000); Chestnut Ridge Partners LP ($125,000); Iroquois Master Fund Ltd. ($125,000); and Penn Footwear ($50,000), incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on May 3, 2007.
   
4.3
Form of Convertible Note, dated February 29, 2008, issued to the following subscribers and in the following amounts: Whalehaven Capital Fund Limited ($250,000); Alpha Capital Anstalt ($250,000); and Excalibur Small Cap Opportunities LP ($200,000), incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed with the SEC on March 6, 2008.
   
4.4
Non-Negotiable Convertible Promissory Note, dated August 25, 2008, issued to Dwight Lane Capital, LLC, in the amount of $175,000, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on August 27, 2008.
   
4.5
Non-Negotiable Convertible Promissory Note, dated August 25, 2008, issued to Marc W. Dutton, in the amount of $75,000, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed with the SEC on August 27, 2008.
   
10.1
Registration Rights Agreement, dated August 10, 2005, between BigString and AJW New Millennium Offshore, Ltd., incorporated by reference to Exhibit 10.1 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.2
Registration Rights Agreement, dated August 10, 2005, between BigString and AJW Partners, LLC, incorporated by reference to Exhibit 10.2 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.

E-1
 
10.3
Registration Rights Agreement, dated August 10, 2005, between BigString and AJW Qualified Partners, LLC, incorporated by reference to Exhibit 10.3 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.4
Registration Rights Agreement, dated June 17, 2005, between BigString and David Matthew Arledge, incorporated by reference to Exhibit 10.4 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.5
Registration Rights Agreement, dated June 17, 2005, between BigString and David A. Arledge, incorporated by reference to Exhibit 10.5 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.6
Registration Rights Agreement, dated July 31, 2005, between BigString and Jeffrey M. Barber and Jo Ann Barber, incorporated by reference to Exhibit 10.6 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.7
Registration Rights Agreement, dated June 17, 2005, between BigString and Nicholas Codispoti, incorporated by reference to Exhibit 10.7 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.8
Registration Rights Agreement, dated June 17, 2005, between BigString and Nicholas Codispoti, IRA Account, incorporated by reference to Exhibit 10.8 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.9
Registration Rights Agreement, dated June 17, 2005, between BigString and Nicholas Codispoti, President, Codispoti Foundation, incorporated by reference to Exhibit 10.9 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.10
Registration Rights Agreement, dated June 17, 2005, between BigString and Jon M. Conahan, incorporated by reference to Exhibit 10.10 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.11
Registration Rights Agreement, dated July 31, 2005, between BigString and Michael Dewhurst, incorporated by reference to Exhibit 10.11 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.12
Registration Rights Agreement, dated June 17, 2005, between BigString and Theodore Fadool, Jr., incorporated by reference to Exhibit 10.12 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005
   
10.13
Registration Rights Agreement, dated June 17, 2005, between BigString and Charles S. Guerrieri, incorporated by reference to Exhibit 10.13 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.14
Registration Rights Agreement, dated August 9, 2005, between BigString and James R. Kauffman and Barbara Kauffman, incorporated by reference to Exhibit 10.14 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.15
Registration Rights Agreement, dated July 31, 2005, between BigString and Joel Marcus, incorporated by reference to Exhibit 10.15 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
 
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10.16
Registration Rights Agreement, dated August 10, 2005, between BigString and New Millennium Capital Partners II, LLC, incorporated by reference to Exhibit 10.16 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.17
Registration Rights Agreement, dated July 31, 2005, between BigString and Richard and Georgia Petrone, incorporated by reference to Exhibit 10.17 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.18
Registration Rights Agreement, dated July 31, 2005, between BigString and David and Kim Prado, incorporated by reference to Exhibit 10.18 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.19
Registration Rights Agreement, dated August 4, 2005, between BigString and Marc Sandusky, incorporated by reference to Exhibit 10.19 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.20
Registration Rights Agreement, dated August 6, 2005, between BigString and Shefts Family LP, incorporated by reference to Exhibit 10.20 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.21
Registration Rights Agreement, dated June 17, 2005, between BigString and Thomas Shields, incorporated by reference to Exhibit 10.21 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on August 29, 2005.
   
10.22
Agreement, dated December 1, 2005, by and among BigString and the following selling stockholders:  AJW New Millennium Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC, David M. Arledge, David A. Arledge, Susan Baran, Jeffrey M. Barber and JoAnn Barber, Nicholas Codispoti, Nicholas Codispoti, IRA, Codispoti Foundation, Jon M. Conahan, Dean G. Corsones, Michael Dewhurst, Marc Dutton, Theodore Fadool, Jr., Howard Greene, Harvey M. Goldfarb, Charles S. Guerrieri, Brenda L. Herd and Glenn A. Herd, Herd Family Partnership, Ronald C. Herd and Michele Herd, Steven Hoffman, James R. Kaufman and Barbara Kaufman, Jeffrey Kay and Lisa Kay, Gerald Kotkin, Paul A. Levis PSP, Joel Marcus, Barbara A. Musco and Barrie E. Bazar, Craig Myman, New Millennium Capital Partners II, LLC, Alfred Pantaleone, Sara R. Pasquarello, Richard P. Petrone and Georgia Petrone, David Prado and Kim Prado, Lee Rosenberg, Todd M. Ross, Marc Sandusky, Adam Schaffer, H. Joseph Sgroi, Shefts Family LP, Thomas Shields, Mark Yuko, Bradley Zelenitz and Shefts Associates, Inc., incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-KSB filed with the SEC on March 31, 2006.
   
10.23
Business Consultant Services Agreement by and between BigString and Shefts Associates, Inc., incorporated by reference to Exhibit 10.30 to Amendment No. 1 to the Registration Statement on Form SB-2 (Registration No. 333-127923) filed with the SEC on October 21, 2005.
   
Lease between BigString, as Tenant, and Walter Zimmerer & Son, as Landlord, dated February 3, 2009, for the premises located at 157 Broad Street, Suite 109, Red Bank, New Jersey 07701.
   
10.25
Business Consultant Services Agreement, dated May 2, 2006, by and between BigString and Lifeline Industries, Inc., incorporated by reference to Exhibit 10.32 to the Current Report on Form 8-K filed with the SEC on May 4, 2006.

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10.26
Securities Purchase Agreement, dated as of May 19, 2006, by and among BigString and Witches Rock Portfolio Ltd., The Tudor BVI Global Portfolio Ltd. and Tudor Proprietary Trading, L.L.C., including Schedule 1 – Schedule of Purchasers, and Exhibit C – Form of Warrant.  Upon the request of the SEC, BigString agrees to furnish copies of each of the following schedules and exhibits:  Schedule 2-3.2(d) – Warrants; Schedule 2-3.3 – Registration Rights; Schedule 2-3.7 – Financial Statements; Schedule 2-3.10 – Broker’s or Finder’s Fees; Schedule 2-3.11 – Litigation; Schedule 2-3.16 – Intellectual Property Claims Against the Company; Schedule 2-3.17 – Subsidiaries; Schedule 2-3.19(a) – Employee Benefit Plans; Schedule 2-3.22 – Material Changes; Exhibit A – Form of Certificate of Designations of the Series A Preferred Stock; Exhibit B – Form of Registration Rights Agreement; Exhibit D – Form of Giordano, Halleran & Ciesla, P.C. Legal Opinion, incorporated by reference to Exhibit 10.33 to the Current Report on Form 8-K filed with the SEC on May 22, 2006.
   
10.27
Registration Rights Agreement, dated as of May 19, 2006, by and among BigString and Witches Rock Portfolio Ltd., The Tudor BVI Global Portfolio Ltd. and Tudor Proprietary Trading, L.L.C., incorporated by reference to Exhibit 10.34 to the Current Report on Form 8-K filed with the SEC on May 22, 2006.
   
10.28
Asset Purchase Agreement, dated as of May 19, 2006, by and between BigString and Robb Knie.  Upon the request of the SEC, BigString agrees to furnish a copy of Exhibit A – Form of Registration Rights Agreement, and Exhibit B – Investor Suitability Questionnaire, incorporated by reference to Exhibit 10.35 to the Current Report on Form 8-K filed with the SEC on May 22, 2006.
   
10.29
Registration Rights Agreement, dated as of May 19, 2006, by and between BigString and Robb Knie, incorporated by reference to Exhibit 10.36 to the Current Report on Form 8-K filed with the SEC on May 22, 2006.
   
10.30
Stock Redemption Agreement, dated May 31, 2006, by and between BigString and David L. Daniels, incorporated by reference to Exhibit 10.37 to the Registration Statement on Form SB-2 (Registration No. 333-135837) filed with the SEC on July 18, 2006.
   
10.31
Stock Redemption Agreement, dated May 31, 2006, by and between BigString and Deborah K. Daniels, incorporated by reference to Exhibit 10.38 to the Registration Statement on Form SB-2 (Registration No. 333-135837) filed with the SEC on July 18, 2006.
   
10.32
Stock Redemption Agreement, dated May 31, 2006, by and between BigString and Charles A. Handshy, Jr., incorporated by reference to Exhibit 10.39 to the Registration Statement on Form SB-2 (Registration No. 333-135837) filed with the SEC on July 18, 2006.
   
10.33
Stock Redemption Agreement, dated May 31, 2006, by and between BigString and June E. Handshy, incorporated by reference to Exhibit 10.40 to the Registration Statement on Form SB-2 (Registration No. 333-135837) filed with the SEC on July 18, 2006.
   
10.34
Letter Agreement, dated September 18, 2006, between BigString and Robert DeMeulemeester, incorporated by reference to Exhibit 10.41 to the Current Report on Form 8-K filed with the SEC on September 21, 2006.
   
10.35
BigString Corporation 2006 Equity Incentive Plan, incorporated by reference to Exhibit 10.42 to the Annual Report on Form 10-KSB filed with the SEC on April 2, 2007.
   
10.35.1
Form of Incentive Option Agreement (Employees), incorporated by reference to Exhibit 10.42.1 to the Annual Report on Form 10-KSB filed with the SEC on April 2, 2007.
 
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10.35.2
Form of Director Option Agreement (Non-employee Directors),  incorporated by reference to Exhibit 10.42.2 to the Annual Report on Form 10-KSB filed with the SEC on April 2, 2007.
   
10.36
Subscription Agreement, dated as of April 30, 2007, by and among BigString and Whalehaven Capital Fund Limited, Alpha Capital Anstalt, Chestnut Ridge Partners LP, Iroquois Master Fund Ltd. and Penn Footwear, including Exhibit B – Form of Common Stock Purchase Warrant.  Upon the request of the Securities and Exchange Commission, BigString agrees to furnish copies of each of the following schedules and exhibits:  Schedule 5(a) – Subsidiaries; Schedule 5(d) – Additional Issuances/Capitalization; Schedule 5(f) – Conflicts; Schedule 5(q) – Undisclosed Liabilities; Schedule 5(v) – Transfer Agent; Schedule 8 – Finder’s Fee; Schedule 9(s) – Lockup Agreement Providers; Schedule 11.1(iv) – Additional Securities to be Included in the Registration Statement; Exhibit A – Form of Convertible Note (included as Exhibit 4.2); Exhibit C – Form of Escrow Agreement; Exhibit D – Form of Giordano, Halleran & Ciesla, P.C. Legal Opinion; Exhibit E – Proposed Public Announcement; and Exhibit F – Form of Lock-Up Agreement, incorporated by reference to Exhibit 10.43 to the Current Report on Form 8-K filed with the SEC on May 3, 2007.
   
10.37
Agreement, Waiver and Limited Release, dated as of November 30, 2007, by and among BigString and the Releasors, incorporated by reference to Exhibit 10.37 to the Current Report on Form 8-K filed with the SEC on December 5, 2007.
   
10.38
Subscription Agreement, dated as of February 29, 2008, by and among BigString and Whalehaven Capital Fund Limited, Alpha Capital Anstalt and Excalibur Small Cap Opportunities LP, including Exhibit B – Form of Common Stock Purchase Warrant.  Upon the request of the Securities and Exchange Commission, BigString agrees to furnish copies of each of the following schedules and exhibits:  Schedule 5(a) – Subsidiaries; Schedule 5(d) – Additional Issuances/Capitalization; Schedule 5(f) – Conflicts; Schedule 5(q) – Undisclosed Liabilities; Schedule 5(v) – Transfer Agent; Schedule 8 – Finder’s Fee; Schedule 9(s) – Lockup Agreement Providers; Exhibit A – Form of Convertible Note (included as Exhibit 4.2); Exhibit C – Form of Escrow Agreement; Exhibit D – Form of Giordano, Halleran & Ciesla, P.C. Legal Opinion; Exhibit E – Proposed Public Announcement; and Exhibit F – Form of Lock-Up Agreement, incorporated by reference to Exhibit 10.44 to the Current Report on Form 8-K filed with the SEC on March 6, 2008.
   
10.39
Common Stock Purchase Warrant, dated August 25, 2008, issued to Dwight Lane Capital, LLC, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on August 27, 2008,
   
10.40
Common Stock Purchase Warrant, dated August 25, 2008, issued to Marc W. Dutton, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on August 27, 2008.
   
Subsidiaries of BigString.
   
Consent of Wiener, Goodman and Company, P.C., independent registered public accountants, as to the report relating to the consolidated financial statements of BigString.
   
Powers of Attorney of officers and directors of BigString, included in the signature page to this report.
   
Section 302 Certification of Chief Executive Officer.
   
Section 302 Certification of Chief Financial Officer.
   
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
 
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
 
 
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