<DOCUMENT>
<TYPE>424B3
<SEQUENCE>1
<FILENAME>form424b3-86960_bsgc.txt
<DESCRIPTION>424B3
<TEXT>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-135837
BigString Corporation
PROSPECTUS SUPPLEMENT
Number 15
to
Prospectus dated August 4, 2006
of
BIGSTRING CORPORATION
7,600,000 Shares of Common Stock
--------------------------------------------
This prospectus supplement supplements the prospectus dated August 4, 2006,
relating to the offer and sale by certain persons who are or may become
stockholders of BigString Corporation of up to 7,600,000 shares of BigString's
common stock. We are not selling any of the shares in this offering and
therefore will not receive any proceeds from the offering.
This prospectus supplement is part of, and should be read in conjunction with,
the prospectus dated August 4, 2006, and the prospectus supplement number 1
dated August 16, 2006, the prospectus supplement number 2 dated September 26,
2006, the prospectus supplement number 3 dated November 17, 2006, the prospectus
supplement number 4 dated December 15, 2006, the prospectus supplement number 5
dated December 20, 2006, the prospectus supplement number 6 dated January 19,
2007, the prospectus supplement number 7 dated January 29, 2007, the prospectus
supplement number 8 dated February 27, 2007, the prospectus supplement number 9
dated March 13, 2007, the prospectus supplement number 10 dated April 5, 2007,
the prospectus supplement number 11 dated May 7, 2007, the prospectus supplement
number 12 dated May 17, 2007, the prospectus supplement number 13 dated June 20,
2007, and the prospectus supplement number 14 dated August 24, 2007 which are to
be delivered with this prospectus supplement. This prospectus supplement is
qualified by reference to the prospectus, as previously amended and
supplemented, except to the extent the information in this prospectus supplement
updates and supersedes the information contained in the prospectus, as
previously amended and supplemented. The primary purpose of this prospectus
supplement is to update certain information with regard to the subscription
agreement entered into by and among BigString Corporation and Whalehaven Capital
Fund Limited, Alpha Capital Anstalt, Chestnut Ridge Partners LP, Iroquois Master
Fund Ltd. and Penn Footwear, and to notify stockholders that BigString
Corporation has updated its consolidated financial statements for the three and
six months ended June 30, 2007, which are included as part of Amendment No. 3 to
BigString Corporation's Registration Statement on Form SB-2 (File No.
333-143793) as filed with the Securities and Exchange Commission on October 12,
2007, by including a note which discusses the ability of BigString Corporation
to continue as a going concern.
This prospectus supplement includes the attached Current Report on Form 8-K,
with exhibit, which was filed with the Securities and Exchange Commission on
October 12, 2007.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities being offered through
the prospectus dated August 4, 2006, as amended and supplemented, or determined
if this prospectus supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus supplement is October 17, 2007
<page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 13, 2007
BIGSTRING CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 000-51661 20-0297832
--------------------------------------------------------------------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
3 Harding Road, Suite E, Red Bank, New Jersey 07701
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (732) 741-2840
-------------------------------------------------------------------
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[_] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2 (b) under the
Exchange Act (17 CFR 240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4 (c) under the
Exchange Act (17 CFR 240.13e-4 (c))
<page>
Section 1 - Registrant's Business and Operations
Item 1.01. Entry into a Material Definitive Agreement.
--------- ------------------------------------------
In May 2007, Whalehaven Capital Fund Limited, Alpha Capital Anstalt,
Chestnut Ridge Partners LP, Iroquois Master Fund Ltd. and Penn Footwear
purchased convertible notes in the aggregate principal amount of $800,000 (the
"Outstanding Notes"), which notes are convertible into shares of our common
stock, and warrants to purchase up to 1,777,779 shares of our common stock. As
provided for in the subscription agreement among these subscribers and BigString
Corporation ("BigString"), Whalehaven Capital Fund Limited, Alpha Capital
Anstalt, Chestnut Ridge Partners LP, Iroquois Master Fund Ltd. and Penn Footwear
agreed to purchase additional convertible notes in the aggregate principal
amount of $800,000 and warrants to purchase up to 1,777,779 shares of our common
stock, for a total subscription of $1,600,000, provided that we registered the
shares of our common stock underlying the additional convertible notes and
warrants by September 13, 2007 and met certain other closing conditions. Because
we were unable to register the shares of our common stock underlying the
additional convertible notes and warrants by September 13, 2007, Whalehaven
Capital Fund Limited, Alpha Capital Anstalt, Chestnut Ridge Partners LP,
Iroquois Master Fund Ltd. and Penn Footwear have not purchased the additional
convertible notes and warrants. Consequently, the total gross proceeds received
by us from this investment amounted to $800,000.
Under the terms of the Outstanding Notes, we are required to pay
liquidated damages equal to two percent of the purchase price of the Outstanding
Notes, or $16,000, for the first thirty days following September 13, 2007, and
one percent of the purchase price of the Outstanding Notes, or $8,000, for each
thirty days thereafter, until the shares of our common stock underlying such
Outstanding Notes are registered. In addition, for so long as the shares of our
common stock underlying the Outstanding Notes remain unregistered, Whalehaven
Capital Fund Limited, Alpha Capital Anstalt, Chestnut Ridge Partners LP,
Iroquois Master Fund Ltd. and Penn Footwear have the right to accelerate payment
of such Outstanding Notes.
Section 2 - Financial Information
Item 2.02. Results of Operations and Financial Condition
---------- ---------------------------------------------
Contemporaneously with the filing of this Current Report on Form 8-K,
BigString is filing Amendment No. 3 to its Registration Statement on Form SB-2
(File No. 333-143793) (the "Registration Statement"). Included as part of the
Registration Statement are BigString's consolidated financial statements for the
three and six months ended June 30, 2007. BigString has updated its consolidated
financial statements for the three and six months ended June 30, 2007 included
as part of the Registration Statement by including a note which discusses the
ability of BigString to continue as a going concern. BigString's consolidated
financial statements for the three and six months ended June 30, 2007, as
updated to include the aforementioned note, are attached hereto as Exhibit 99.1.
------------
<page>
Item 2.04. Triggering Events That Accelerate or Increase a Direct
---------- ----------------------------------------------------------
Financial Obligation or an Obligation under an Off-Balance
----------------------------------------------------------
Sheet Arrangement.
-----------------
Under the terms of the Outstanding Notes, we are required to pay
liquidated damages equal to two percent of the purchase price of the Outstanding
Notes, or $16,000, for the first thirty days following September 13, 2007, and
one percent of the purchase price of the Outstanding Notes, or $8,000, for each
thirty days thereafter, until the shares of our common stock underlying such
Outstanding Notes are registered. In addition, for so long as the shares of our
common stock underlying the Outstanding Notes remain unregistered, Whalehaven
Capital Fund Limited, Alpha Capital Anstalt, Chestnut Ridge Partners LP,
Iroquois Master Fund Ltd. and Penn Footwear have the right to accelerate payment
of such Outstanding Notes.
Section 9 - Financial Statements and Exhibits
Item 9.01. Financial Statements and Exhibits.
--------- ---------------------------------
(d) Exhibits:
Exhibit
Number Description
------ -----------
99.1 BigString Corporation and Subsidiaries Consolidated
Financial Statements for the Three and Six Months
Ended June 30, 2007
Forward Looking Statements
Statements about the future expectations of BigString, and all other
statements in this Current Report on Form 8-K, including Exhibit 99.1 attached
hereto, other than historical facts, are "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and as that term is
defined in the Private Securities Litigation Reform Act of 1995. BigString
intends that such forward-looking statements shall be subject to the safe
harbors created thereby. Since these statements involve certain risks and
uncertainties and are subject to change at any time, BigString's actual results
could differ materially from expected results.
<page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
BIGSTRING CORPORATION
-----------------------------------------
(Registrant)
By: /s/ Darin M. Myman
-------------------------------------
Darin M. Myman
President and Chief Executive Officer
Date: October 12, 2007
<page>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
99.1 BigString Corporation and Subsidiaries Consolidated Financial
Statements for the Three and Six Months Ended June 30, 2007.
<page>
EXHIBIT 99.1
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
<page>
<table>
<caption>
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(A DEVELOPMENT STAGE COMPANY)
June 30, 2007 December 31, 2006
------------- -----------------
(Unaudited)
<s> <c> <c>
ASSETS
Current assets:
Cash and cash equivalents $ 479,719 $ 517,074
Accounts receivable - net of allowance of $90 and $0 1,783 1,736
Prepaid expenses and other current assets 9,500 4,625
------------ ------------
Total current assets 491,002 523,435
Property and equipment - net 188,686 214,612
Intangible assets - net 2,437,845 2,979,451
Other assets 166,218 8,872
------------ ------------
TOTAL ASSETS $ 3,283,751 $ 3,726,370
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 177,828 $ 83,179
Accrued expenses 15,600 125,179
Unearned revenue 14,182 4,681
------------ ------------
Total current liabilities 207,610 213,039
Long-term liabilities:
Long-term debt 148,808 --
------------ ------------
TOTAL LIABILITIES 356,418 213,039
Stockholders' equity:
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 47,367,125 and 46,935,125 shares, respectively 4,737 4,694
Additional paid in capital 11,072,799 9,980,762
Subscription receivable -- (16,250)
Deficit accumulated during the development stage (8,150,243) (6,455,915)
------------ ------------
Total stockholders' equity 2,927,333 3,513,331
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,283,751 $ 3,726,370
============ ============
See notes to unaudited consolidated financial statements.
</table>
<page>
<table>
<caption>
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(A DEVELOPMENT STAGE COMPANY)
(Unaudited)
Period
October 8, 2003
(Date of
Three Months Ended June 30, Six Months Ended June 30, Formation)
---------------------------- ---------------------------- Through
2007 2006 2007 2006 June 30, 2007
------------ ------------ ------------ ------------ -------------
<s> <c> <c> <c> <c> <c>
Net sales $ 9,412 $ 2,887 $ 19,187 $ 6,059 $ 45,982
Costs and expenses(1):
Cost of revenues 25,796 50,713 69,120 73,975 362,201
Research and development 118,290 133,629 257,387 262,803 1,366,168
Sales and marketing 136,793 28,070 203,739 38,882 554,125
General and administrative 329,110 247,408 604,357 405,807 2,472,117
Amortization of intangibles 270,803 250,000 541,606 490,000 2,978,222
------------ ------------ ------------ ------------ ------------
880,792 709,820 1,676,209 1,271,467 7,732,833
------------ ------------ ------------ ------------ ------------
Loss from operations (871,380) (706,933) (1,657,022) (1,265,408) (7,686,851)
------------
(41,462) 10,365 (37,306) 14,853 16,608
------------ ------------ ------------ ------------ ------------
Net loss $ (912,842) $ (696,568) $ (1,694,328) $ (1,250,555) $ (7,670,243)
============ ============ ============ ============ ============
Loss per common share - basic
and diluted $ (0.02) $ (0.02) $ (0.04) $ (0.03)
============ ============ ============ ============
Weighted average common shares
outstanding - basic and diluted 47,334,158 51,264,630 47,198,108 52,013,219
============ ============ ============ ============
(1)Stock-based compensation by
function included above
Cost of revenues $ -- $ -- $ 903 $ -- $ 29,541
Research and development 10,770 -- 21,832 -- 68,681
Sales and marketing 23,023 -- 117,159 -- 157,323
General and administrative 138,554 32,230 254,218 32,230 723,863
------------ ------------ ------------ ------------ ------------
Total stock-based compensation expense $ 172,347 $ 32,230 $ 394,112 $ 32,230 $ 979,408
============ ============ ============ ============ ============
See notes to unaudited consolidated financial statements.
</table>
<page>
<table>
<caption>
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(A DEVELOPMENT STAGE COMPANY)
(Unaudited)
Preferred Stock Common Stock Additional
--------------------- --------------------- Paid-In Subscription Retained
Total No. of Shares Amount No. of Shares Amount Capital Receivable Earnings
---------- ------------- -------- ------------- -------- ------------ ----------- ------------
------------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
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)
------------------------------------------------------------------------------------------------------------------------------------
Sale of common stock
(at $0.25 per share) 227,500 -- -- 870,000 87 217,413 10,000 --
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)
------------------------------------------------------------------------------------------------------------------------------------
</table>
<page>
<table>
<caption>
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(A DEVELOPMENT STAGE COMPANY)
(Continued)
Preferred Stock Common Stock Additional
--------------------- --------------------- Paid-In Subscription Retained
Total No. of Shares Amount No. of Shares Amount Capital Receivable Earnings
---------- ------------- -------- ------------- -------- ------------ ----------- ------------
------------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
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 resulting from
the allocation of
proceeds for the
beneficial conversion
feature of the
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)
------------------------------------------------------------------------------------------------------------------------------------
Exercise of warrants (at
$0.16, $0.20 and $0.25
per share) 16,250 -- -- -- -- -- 16,250 --
Issuance of common stock
for consulting services
(valued at $0.33 and
$0.50 per share) -- -- -- 432,000 43 (43) -- --
Stock-based compensation
expense 394,112 -- -- -- -- 394,112 -- --
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 -- --
Net loss (1,694,328) -- -- -- -- -- -- (1,694,328)
------------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2007 $ 2,927,333 400,000 $ 40 47,367,125 $ 4,737 $ 11,072,799 $ -- $(8,150,243)
------------------------------------------------------------------------------------------------------------------------------------
See notes to unaudited consolidated financial statements.
</table>
<page>
<table>
<caption>
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(A DEVELOPMENT STAGE COMPANY)
(Unaudited)
Period
October 8, 2003
(Date of
Six Months Six Months Formation)
Ended Ended Through
June 30, 2007 June 30, 2006 June 30, 2007
------------- ------------- -------------
<s> <c> <c> <c>
Cash flows from operating activities:
Net loss $(1,694,328) $(1,250,555) $(7,670,243)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation of property and equipment 25,926 12,062 73,603
Amortization of intangibles 541,606 490,000 2,978,222
Amortization of other assets 48,210 -- 48,210
Stock-based compensation 394,112 32,230 979,408
Changes in operating assets and liabilities:
(Increase) in accounts receivable, net (47) (3,157) (1,783)
(Increase) in prepaid expenses and other assets (1,843) (3,958) (15,340)
Increase in accounts payable 94,649 70,252 177,828
(Decrease) increase in accrued expenses and other liabilities (101,579) 3,822 20,534
Increase (decrease) in unearned revenue 9,501 (375) 14,182
----------- ----------- -----------
Net cash used in operating activities (683,793) (649,679) (3,395,379)
----------- ----------- -----------
Cash flows from investment activities:
Purchase of property and equipment -- (164,563) (262,290)
Acquisitions -- -- (13,000)
----------- ----------- -----------
Net cash used in investing activities -- (164,563) (275,290)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of convertible notes and warrants, net 630,188 -- 630,188
Proceeds from issuance of preferred stock, net -- 1,860,000 1,860,000
Proceeds from exercise of common stock warrants and
issuance of common stock 16,250 -- 2,060,200
Payments for redemption of common stock -- (400,000) (400,000)
----------- ----------- -----------
Net cash provided by financing activities 646,438 1,460,000 4,150,388
----------- ----------- -----------
Net (decrease) increase in cash (37,355) 645,758 479,719
Cash - beginning of period 517,074 820,857 --
----------- ----------- -----------
Cash - end of period $ 479,719 $ 1,466,615 $ 479,719
=========== =========== ===========
Supplementary information:
Details of acquisition
Fair value of assets acquired $ -- $ -- $ 2,790
Fair value of liabilities assumed -- -- (5,857)
Intangibles -- 600,000 5,416,067
----------- ----------- -----------
Common stock issued to effect acquisition $ -- $ 600,000 $ 5,400,000
=========== =========== ===========
Cash paid to effect acquisition $ -- $ -- $ 13,000
=========== =========== ===========
Stock-based compensation:
Common stock issued for services $ 331,250 $ 28,472 $ 610,778
Common stock options issued for services 40,314 -- 126,787
Common stock warrants issued for services 22,548 3,758 241,843
----------- ----------- -----------
$ 394,112 $ 32,230 $ 979,408
=========== =========== ===========
See notes to unaudited consolidated financial statements.
</table>
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006 AND THE PERIOD OCTOBER
--------------------------------------------------------------------------------
8, 2003 (DATE OF FORMATION) THROUGH JUNE 30, 2007
-------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
---------------------
The consolidated balance sheet as of June 30, 2007, and the consolidated
statements of operations, stockholders' equity and cash flows for the periods
presented herein have been prepared by BigString and are unaudited. In the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, changes in stockholders' equity and cash flows for all periods
presented have been made. The information for the consolidated balance sheet as
of December 31, 2006 was derived from audited financial statements. The results
of operations for the three and six months ended June 30, 2007 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2007.
These Notes to Unaudited Consolidated Financial Statements should be read in
conjunction with the consolidated financial statements and related notes
included in our Annual Report on Form 10-KSB for the year ended December 31,
2006 which was filed with the SEC on April 2, 2007.
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. BigString Interactive is currently
BigString's only operating subsidiary.
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.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
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 June 30, 2007 and December 31, 2006, cash equivalents approximated
$473,000 and $510,000, 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 established financial institutions.
Online service revenues consist primarily of prepaid electronic commerce and
subscription fees billed and paid in advance.
Accounts receivable are typically unsecured and are primarily derived from
advertising revenues earned from customers in the United States, Canada, Europe
and Asia.
Advertising revenues generated through two advertising services firms accounted
for 21% and 15% of our revenues for the six months ended June 30, 2007. No
advertising services firm or customer generated greater than 10% of our revenues
for the six months ended June 30, 2006.
REVENUE RECOGNITION
-------------------
BigString derives revenue from online services, electronic commerce, advertising
and data network services. BigString also derives revenue from marketing
affiliations. BigString
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
recognizes revenue in accordance with the guidance contained in the SEC Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition in Financial
Statements."
BigString recognizes online service revenue over the period that services are
provided. Other revenues, which consist principally of electronic commerce and
advertising revenues, as well as data network service revenues, are recognized
as the services are performed. BigString recognizes these revenues as such
because the services have been provided, the fees are fixed or determinable, and
collectibility is reasonably assured. Unearned revenue consists primarily of
prepaid electronic commerce and annual prepaid subscription fees billed in
advance.
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 reasonably estimate fair
value, as a reduction of revenue rather than as 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. Reserves
at June 30, 2007 and December, 31 2006 were $90 and $0, 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.
STOCK-BASED COMPENSATION
------------------------
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. 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 modified prospective 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
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
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. For the six months ended June 30, 2007 and 2006,
BigString recorded compensation expense of $331,250 and $28,472, respectively,
in connection with the issuance of these shares. For the period October 8, 2003
(Date of Formation) through June 30, 2007, BigString recorded compensation
expense of $610,778 in connection with the issuance of these shares.
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 six
months ended June 30, 2007 and 2006, BigString did not issue stock purchase
warrants for services and recorded compensation expenses of $22,548 and $3,758,
respectively, associated with prior issuances of stock purchase warrants. For
the period October 8, 2003 (Date of Formation) through June 30, 2007, BigString
recorded compensation expense of $241,843 in connection with the issuance of
stock purchase warrants for services.
BigString also issues stock options to purchase common stock to employees,
directors and vendors as stock-based compensation. The fair values of the stock
options are estimated on the date of grant using the Black-Scholes
option-pricing model. For the six months ended June 30, 2007 and 2006, BigString
recorded compensation expense of $40,314 and $0, respectively. For the period
October 8, 2003 (Date of Formation) through June 30, 2007, BigString recorded
compensation expense of $126,787. BigString did not grant stock options prior to
2006.
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.
The principal items giving rise to deferred taxes are timing differences between
book and tax amortization of intangible assets which are not currently
deductible for income tax purposes and temporary differences of other
expenditures.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
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 six months ended June 30, 2007 and 2006 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.
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 outstanding
preferred stock, warrants and options, have been excluded from the computation,
as their effect is antidilutive.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
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.
INTANGIBLES
-----------
In June 2001, the FASB issued SFAS No. 142, "Goodwill and other Intangible
Assets." SFAS No. 142 specifies the financial accounting and reporting for
acquired goodwill and other intangible assets. Goodwill and other
indefinite-lived intangible assets are no longer amortized, but are reviewed for
impairment at least annually.
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 payable and
accrued expenses, it was assumed that the carry amount approximated fair value
because of the short maturities of such instruments.
NEW FINANCIAL ACCOUNTING STANDARDS
----------------------------------
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities," which permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. SFAS No. 159 will be
effective for BigString on January 1, 2008. BigString is currently evaluating
the impact of adopting SFAS No. 159 on its consolidated financial position, cash
flows and results of operations.
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 new statement 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. SFAS No. 157 also
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement, and sets out a fair value hierarchy with the highest priority being
quoted prices in active markets. Under SFAS No. 157, fair value measurements are
disclosed by level within that hierarchy. While SFAS No. 157 does not add any
new fair value measurements, it does change current practice. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
BigString does not believe that the adoption of SFAS No. 157 will have a
material impact on its consolidated financial position, cash flows or results of
operations.
2. GOING CONCERN
For the six months ended June 30, 2007, BigString's consolidated financial
statements reflect a net loss of $1,694,328, net cash used in operations of
$683,793, working capital of $283,392, a deficit accumulated during the
development stage of $8,150,243 and an accumulated deficit of $7,670,243. 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.
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 cannot assure 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 cannot assure 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.
3. ACQUISITIONS
On December 11, 2006, BigString completed the acquisition of the website,
DailyLOL.com, 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, and
accordingly, pro forma summary results have not been included.
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, and
accordingly, pro forma summary results have not been included.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
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.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30, 2007 December 31, 2006
------------- -----------------
Computer equipment and internal software $ 253,115 $ 253,115
Furniture and fixtures 8,600 8,600
------------ ------------
261,715 261,715
Less accumulated depreciation 73,029 47,103
------------ ------------
$ 188,686 $ 214,612
============ ============
Depreciation expense for the three months ended June 30, 2007 and 2006, was
$12,963 and $7,305, respectively.
Depreciation expense for the six months ended June 30, 2007 and 2006, and for
the period October 8, 2003 (Date of Formation) through June 30, 2007, was
$25,926, $12,062 and $73,603, respectively.
5. GOODWILL AND OTHER INTANGIBLES
Other intangibles consist of patent and trademark fees, 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. Amortization expense was $270,803 and $250,000
for the three months ended June 30, 2007 and 2006, respectively. Amortization
expense was $541,607, $490,000 and $2,978,222 for the six months ended June 30,
2007 and 2006, and for the period October 8, 2003 (Date of Formation) through
June 30, 2007, respectively.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
Other intangible assets consist of the following:
June 30, 2007 December 31, 2006
------------- -----------------
Patent application, trademark,
logos, websites and source codes $ 5,416,067 $ 5,416,067
Accumulated amortization (2,978,222) (2,436,616)
------------- -------------
$ 2,437,845 $ 2,979,451
============= =============
Should the patent for BigString's Universal Recallable, Erasable and Timed
Delivery Email not be issued, BigString will write-off the unamortized amount of
the patent intangible amount. Estimated remaining amortization expenses for
intangible assets for the next five years, are as follows:
Estimated
Remaining
Years Ending Amortization
December 31, Expense
------------ ------------
2007 $ 541,607
2008 1,083,213
2009 642,933
2010 122,600
2011 47,492
6. 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.
At June 30, 2007, BigString has a net operating loss carry-forward of
approximately $7.7 million, which expires in various years through 2028.
Deferred income taxes reflect the impact of net operating carry-forwards. In
recognition of the uncertainty regarding the ultimate amount of income tax
benefits to be derived from BigString's net operating loss carry-forward,
BigString has recorded a valuation allowance for the entire amount of the
deferred tax asset.
7. LONG-TERM DEBT
On May 1, 2007, BigString entered into a financing arrangement with several
accredited financing parties, pursuant to which it will receive an aggregate of
$1,600,000 in financing. Proceeds from the financing will be used to support
ongoing operations and the advancement of BigString's technology, and fund
marketing and the development of its business.
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 "Subscribers"),
the Subscribers purchased convertible promissory notes in the aggregate
principal amount of $800,000, which promissory 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 $630,000
after
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
transaction fees of approximately $170,000. BigString accounted for the
convertible promissory notes 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 Included to,
and Potentially Settled in, a Company's Own Stock." 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
promissory notes, $666,648 was included as additional paid in capital based on
the conversion discount. For the three and six months ended June 30, 2007,
$37,036 and $1,740 were included in interest expense for the amortization of the
beneficial conversion feature and amortization of the promissory note discount,
respectively. An additional $8,000 of accrued debt expense was included in
interest expense.
As provided for in the Subscription Agreement, upon the effectiveness of a
registration statement with respect to the common stock issuable upon conversion
of the promissory notes and exercise of the warrants, in addition to certain
other customary closing conditions, the Subscribers will purchase additional
convertible promissory notes in the aggregate principal amount of $800,000 and
warrants to purchase up to 1,777,779 shares of BigString's common stock (the
"Second Closing"), for a total subscription of $1,600,000.
Each promissory note has a term of three years and accrues interest at a rate of
six percent annually. The holder of a convertible promissory note shall have the
right from and after the issuance thereof until such time as the convertible
promissory note is fully paid, to convert any outstanding and unpaid principal
portion thereof into shares of common stock at a conversion price of $0.18 per
share. The conversion price and number and kind of shares to be issued upon
conversion of the convertible promissory note are subject to adjustment from
time to time.
BigString has also agreed to pay Gem Funding LLC (the "Finder") an aggregate
finder's fee equal to $128,000 and to issue warrants to the Finder to purchase
an aggregate of 426,666 shares of BigString's common stock. BigString paid
$64,000 and issued a warrant to purchase 213,333 shares of common stock to the
Finder on May 1, 2007 and has agreed to pay an additional $64,000 and to issue a
warrant to purchase an additional 213,333 shares of common stock on the date of
the Second Closing. The Finder's warrants shall be similar to and carry the same
rights as the warrants issuable to the Subscribers.
8. COMMON STOCK
On July 18, 2005, BigString amended its Certificate of Incorporation to, among
other things, (i) change its name from Recall Mail Corporation to BigString
Corporation, and (ii) 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.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
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.
During 2005, BigString issued 50,000 shares of common stock valued at $0.25 per
share for business advisory services.
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.
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.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
9. 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
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 common stock. The warrants are convertible into
shares of common stock at an exercise price per share of $1.25 (market price
$0.80 per share). 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,
"Accounting for Derivative Instruments and Hedging Activities," and related
interpretations including EITF Issue No. 00-19, "Accounting for Derivative
Financial Instruments Included to, and Potentially Settled in, a Company's Own
Stock." 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 convertible 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.
10. SHARE-BASED COMPENSATION
On January 1, 2006, BigString adopted SFAS No. 123(R), "Share-Based Payment,"
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, "Share-Based Payment." SAB No. 107 expresses 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.
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 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 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 the consolidated statement of operations for the
year ended December 31, 2004. The fair value of
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
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 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 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 rated 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 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 common stock with a per share
exercise price of $0.20. Each of these warrants is due to expire on September
23, 2010 and the grants are 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 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 rated 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 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 will be expensed over a period of 36 months. For the six
months ended June 30, 2007, BigString expensed $22,548 in connection with these
services, and the balance of $82,687 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
rated 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.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
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 rated return of 4.5%; and expected life of 2.6 years. The
weighted average fair value of these warrants was $0.08 per share.
As discussed in Note 7, on May 1, 2007, BigString granted warrants to purchase
up to 1,991,112 shares of BigString's common stock. Each of the warrants issued
to the Subscribers and the Finder, respectively, have a term of five years 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. A total of $31,320 of the
purchase price for the convertible promissory notes and warrants was allocated
to the warrants based on fair value.
The number of warrants outstanding as of January 1, 2007 and changes to such
number during the six months ended June 30, 2007 is presented below:
<table>
<caption>
Weighted
Weighted Average
Average Remaining
Exercise Contractual Aggregate
Shares Price Term Intrinsic Value
------------ ------------ ------------ ---------------
<s> <c> <c> <c> <c>
Warrants outstanding at January 1, 2007 3,943,545 $ 0.52 5.2 $ 1,501,939
============ ============ ============ ============
Warrants granted 1,991,112 0.30
Warrants exercised -- --
Warrants cancelled/forfeited/expired (50,000) 0.25
------------ ------------
Warrants outstanding at June 30, 2007 5,884,657 $ 0.45 4.8 $ 282,223
============ ============ ============ ============
Warrants exercisable at June 30, 2007 5,884,657 $ 0.45 4.8 $ 282,223
============ ============ ============ ============
</table>
The aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value (the aggregate difference between the closing stock price of
BigString's common stock on June 30, 2007 and the exercise price for
in-the-money warrants) that would have been received by the warrant holders if
all in-the-money warrants had been exercised on June 30, 2007.
No warrants were exercised during the six months ended June 30, 2007 and 2006.
Cash received during the six months ended June 30, 2007 and 2006 from the
exercise of warrants was $16,250 and $0, respectively. For the period October 8,
2003 (Date of Formation) through June 30, 2007,
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
a total of 210,000 shares of BigString's common stock were purchased upon the
exercise of warrants.
Warrants granted in the six months ended June 30, 2007 and 2006 were 1,991,112
and 1,450,000, respectively. For the period October 8, 2003 (Date of Formation)
through June 30, 2007, warrants to purchase a total of 6,144,657 shares of
BigString's common stock were granted.
During the six months ended June 30, 2007 and the period October 8, 2003 (Date
of Formation) through June 30, 2007, 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. No warrants were cancelled, forfeited or
expired during the six months ended June 30, 2006.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
Equity Incentive Plan and Stock Options Issued to Consultant:
At the 2006 Annual Meeting of Stockholders, the BigString Corporation 2006
Equity Incentive Plan (the "Equity Incentive Plan") was approved by a majority
of BigString's stockholders. Under the Equity Incentive Plan, incentive and
nonqualified stock options and rights to purchase 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 common stock to Kieran Vogel in connection with
his participation in OurPrisoner, the interactive Internet television program
available through the entertainment portal being operated by BigString's
wholly-owned subsidiary, BigString Interactive. As of December 16, 2006, Mr.
Vogel completed his obligation in connection with his participation in the
OurPrisoner program and subsequently entered into a contractual relationship
with BigString. 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 common stock under its Equity Incentive Plan to certain of
BigString's employees. Incentive stock options to purchase 1,450,000 shares of
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 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 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 common stock under its Equity Incentive Plan to BigString's
newly appointed Executive Vice President, Chief Financial Officer and Treasurer.
When vested, 400,000 shares of common stock will be eligible for purchase at the
per share price equal to $0.24; 600,000 shares of common stock will be eligible
for purchase at $0.50 per share; 400,000 shares of common stock will be eligible
for purchase at $.90 per share; and 400,000 shares of 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 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.
For the six months ended June 30, 2007 and the period October 8, 2003 (Date of
Formation) through June 30, 2007, BigString recorded stock-based compensation
expense of $40,314 and $126,787, 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.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
The number of stock options outstanding as of January 1, 2007 and changes to
such number during the six months ended June 30, 2007 is presented below:
<table>
<caption>
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Term Value
------------ ------------ ------------ ------------
<s> <c> <c> <c> <c>
Options outstanding at January 1, 2007 5,595,100 $ 0.50 7.8 $ 1,763,195
============ ============ ============ ============
Options granted -- --
Options exercised -- --
Options cancelled/forfeited/expired (245,000) 0.50
------------ ------------
Options outstanding at June 30, 2007 5,350,100 $ 0.50 7.2 $ 24,000
============ ============ ============ ============
Options exercisable at June 30, 2007 2,112,600 $ 0.31 5.1 $ 24,000
============ ============ ============ ============
</table>
The aggregate intrinsic value in the table above represents the total pretax
intrinsic value (the aggregate difference between the closing stock prices of
BigString's common stock on June 30, 2007 and the exercise price for
in-the-money options) that would have been received by the option holders if all
in-the-money options had been exercised on June 30, 2007.
No options were exercised, and no cash received from option exercises and
purchases of shares for the six months ended June 30, 2007 and the period
October 8, 2003 (Date of Formation) through June 30, 2007.
No options were granted in the six months ended June 30, 2007. For the period
October 8, 2003 (Date of Formation) through June 30, 2007, options to purchase a
total of 5,595,100 shares of BigString's common stock were granted.
For the six months ended June 30, 2007 and the period October 8, 2003 (Date of
Formation) through June 30, 2007, options to purchase a total of 245,000 shares
of BigString's common stock 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.
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
11. COMMITMENTS AND CONTINGENCIES
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 $37,449 and $6,323 for the six months ended June 30, 2007
and 2006, and $140,953 for the period October 8, 2003 (Date of Formation)
through June 30, 2007, including $96,000 as share-based compensation.
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 $193,381, $32,230 and $451,223 for the six months ended
June 30, 2007 and 2006 and the period October 8, 2003 (Date of Formation)
through June 30, 2007, respectively.
On February 26, 2007, BigString entered into a six month agreement for
consulting services to be provided by CEOcast, Inc. As payment for these
consulting services, BigString agreed to issue 140,000 shares of common stock to
CEOcast, Inc. Total investor relations expenses, including the services of
CEOcast, Inc., were $92,829 and $148,828 for the six months ended June 30, 2007
and the period October 8, 2003 (Date of Formation) through June 30, 2007,
including $47,917 as share-based compensation.
On April 27, 2007, BigString entered into an agreement with CAC, Inc., effective
May 1, 2007. The minimum term of the agreement is four months. 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. Total
online marketing expenses, including the services of CAC, Inc., were $78,500 for
the six months ended June 30, 2007 and the period October 8, 2003 (Date of
Formation) through June 30, 2007, including $16,500 as share-based compensation.
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 June 30, 2007 and
2006, 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
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007
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 June 30, 2007, 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.
12. SUBSEQUENT EVENTS
On June 15, 2007, BigString filed a registration statement on Form SB-2
(333-143793) with the SEC. BigString filed the registration statement for
purposes of registering shares beneficially held by certain stockholders,
including those shares beneficially held or to be beneficially held by
Whalehaven Capital Fund Limited, Alpha Capital Anstalt, Chestnut Ridge Partners
LP, Iroquois Master Fund Ltd. and Penn Footwear. See Note 7. On July 31, 2007,
BigString amended the registration statement in response to certain SEC comments
and to update the information contained therein. To date, the registration
statement has not been declared effective by the SEC.
</TEXT>
</DOCUMENT>