<DOCUMENT>
<TYPE>424B3
<SEQUENCE>1
<FILENAME>form424b3-86481_bsgc.txt
<DESCRIPTION>424B3
<TEXT>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-135837
BigString Corporation
PROSPECTUS SUPPLEMENT
Number 14
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, and the prospectus supplement number 13 dated June
20, 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 financial information of BigString
Corporation to June 30, 2007, and to notify stockholders that BigString
Corporation will be the back-end provider for the new email offering by
podcastGO to its users.
This prospectus supplement includes the attached Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2007, with exhibits, which was filed with the
Securities and Exchange Commission on August 14, 2007, and the Current Report on
Form 8-K, with exhibit, which was filed with the Securities and Exchange
Commission on August 24, 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 August 24, 2007
<page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2007
[_] TRANSITION REPORT UNDER 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 small business issuer as specified in its charter)
Delaware 20-0297832
-------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3 Harding Road, Suite E, Red Bank, New Jersey 07701
---------------------------------------------------
(Address of principal executive offices)
(732) 741-2840
--------------
(Issuer'stelephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [_] No [X]
As of August 13, 2007, there were 47,367,125 shares of the Issuer's Common
Stock, par value $0.0001 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
<page>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this Quarterly Report on Form 10-QSB
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 Securities and Exchange
Commission (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 Quarterly Report on Form 10-QSB.
<page>
<table>
<caption>
BIGSTRING CORPORATION
INDEX TO FORM 10-QSB
--------------------
PART I. FINANCIAL INFORMATION
------- ---------------------
PAGE
----
<s> <c> <c>
Item 1. Financial Statements............................................................1
Consolidated Balance Sheets as of June 30, 2007 (unaudited)
and December 31, 2006 ..........................................................2
Consolidated Statements of Operations (unaudited)
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 .......3
Consolidated Statements of Stockholders' Equity (unaudited)
for the six months ended June 30, 2007
and the period October 8, 2003 (Date of Formation) through June 30, 2007........4
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 2007 and 2006
and the period October 8, 2003 (Date of Formation) through June 30, 2007........6
Notes to Unaudited Consolidated Financial Statements............................7
Item 2. Management's Discussion and Analysis
or Plan of Operation...........................................................22
Item 3. Controls and Procedures........................................................30
PART II. OTHER INFORMATION
-------- -----------------
Item 1. Legal Proceedings..............................................................31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....................31
Item 3. Defaults Upon Senior Securities................................................31
Item 4. Submission of Matters to a Vote of Security Holders............................31
Item 5. Other Information..............................................................31
Item 6. Exhibits.......................................................................31
Signatures ...............................................................................32
Index of Exhibits...............................................................................E-1
</table>
<page>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Certain information and footnote disclosures required under accounting
principles generally accepted in the United States of America have been
condensed or omitted from the following consolidated financial statements
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC"). It is suggested that the following consolidated financial
statements be read in conjunction with the year-end consolidated financial
statements and notes thereto included in the Annual Report on Form 10-KSB for
the year ended December 31, 2006 of BigString Corporation ("BigString").
The results of operations for the six months ended June 30, 2007 and
2006 are not necessarily indicative of the results of the entire fiscal year or
for any other period.
1
<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.
2
</table>
<page>
<table>
<caption>
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(A DEVELOPMENT STAGE COMPANY)
(Unaudited)
Period
October 8, 2003
(Date of Formation)
Three Months Ended June 30, Six Months Ended June 30, 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)
Interest expense/income (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.
3
</table>
<page>
<table>
<caption>
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(A DEVELOPMENT STAGE COMPANY)
(Unaudited)
Preferred Stock Common Stock
------------------- ------------------------ Additional
No. of No. of Paid-In Subscription Retained
Total Shares Amount 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)
------------------------------------------------------------------------------------------------------------------------------------
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 -- --
4
</table>
<page>
<table>
<caption>
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(A DEVELOPMENT STAGE COMPANY)
(Continued)
Preferred Stock Common Stock
------------------- ------------------------ Additional
No. of No. of Paid-In Subscription Retained
Total Shares Amount Shares Amount Capital Receivable Earnings
------------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
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.
5
</table>
<page>
<table>
<caption>
BIGSTRING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(A DEVELOPMENT STAGE COMPANY)
(Unaudited)
Period
October 8, 2003
Six Months Six Months (Date of 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.
6
</table>
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
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
7
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 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.
8
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 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
9
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
10
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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. 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.
11
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. 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.
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.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<table>
<caption>
June 30, 2007 December, 31, 2006
------------- ------------------
<s> <c> <c>
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
============== ==============
</table>
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.
12
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. 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.
Other intangible assets consist of the following:
<table>
<caption>
June 30, 2007 December, 31, 2006
------------- ------------------
<s> <c> <c>
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
=========== ===========
</table>
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
5. 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.
6. 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.
13
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 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.
7. 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.
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.
14
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
8. 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
15
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
9. 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 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.
16
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
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 6, 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.
17
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 Aggregate
Exercise Contractual Intrinsic
Shares Price Term 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, 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.
18
<page>
BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
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BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
10. 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.
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BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 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.
11. 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 6. 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.
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Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
We have provided below information about BigString's financial
condition and results of operations for the three and six months ended June 30,
2007 and 2006. This information should be read in conjunction with BigString's
consolidated financial statements 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, including the related notes thereto, which are included on pages 1
through 21 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
Development Stage Company
BigString is considered a development stage enterprise as defined in
the Financial Accounting Standards Board 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 our users. Our
innovations in recallable, erasable 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 three main markets: free and paid email accounts
for individuals, professional business email solutions, and email marketing
services.
Our development efforts in 2006 were primarily focused on the redesign
of our email system, which was launched in December 2006 as BigString Beta 2.0.
This release was a significant revision to the application to allow dynamic
scalability, feature upgrades and improved user interfaces. Our development
efforts in 2007 have focused primarily on improving the overall customer
experience with feature upgrades, such as our Triple Layer Secure Email, and
development of advanced user interfaces. We also developed a third core product,
email marketing services, to complement our consumer email services and
professional business email solutions.
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 revenues.
We commenced our online marketing efforts in May 2007, with the hiring
of an experienced online marketing firm, CAC, Inc. Online marketing efforts
include search engine optimization, viral video production, copywriting, online
promotions, and posts of blogs and videos
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to online social networking communities. Most of the initial efforts through
June 30, 2007 were to build a marketing infrastructure base.
During the three months ended June 30, 2007, we decreased advertising
expenditures related to new user sign-ups as we completed our demand market
testing and continued to refine our promotional messages and develop viral
activity. Our growth of new users sign-ups decreased for the three months ended
June 30, 2007, as compared to the three months ended March 31, 2007. During our
market testing during this period, the percentage of traffic from viral activity
(non-promotional) increased by 62% over the three months ended March 31, 2007.
Associated with this viral growth and the refined promotional messages, the
number of customers acquired for every advertising dollar spent increased 302%
for the three months ended June 30, 2007, as compared to the three months ended
March 31, 2007.
While we lowered our traffic acquisition costs for new users, we
increased our advertising revenue per active account. For the three months ended
June 30, 2007, we increased the annualized revenue per active account by 20%
over the three months ended March 31, 2007.
For the three months ended June 30, 2007, the ratio of annualized
revenue per active account to traffic acquisition cost per user increased by
382% over the three months ended March 31, 2007. The following table highlights
the changes over these periods:
Three months ended
March 31, 2007 June 30, 2007
-----------------------------
Annualized revenue per active user $ 3.65 $ 4.37
Traffic acquisition cost per signup $ 0.48 $ 0.12
-----------------------------
Ratio 7.6 36.7
In addition to our online promotions, we enhanced our marketing
affiliation program to include our private label email service; this affiliation
program commenced March 2007. For the three months ended June 30, 2007, client
agreements for private label email services and email marketing services
increased 500% over the three months ended March 31, 2007. We anticipate
expanding our business development and sales efforts and expenses to pursue
accelerated revenue growth.
Other certain criteria we review to measure our performance are set
forth below:
o the number of first time and repeat users of our email services;
o the number of pages of our website viewed by a user;
o the number of free and/or paid accounts for each service;
o the number of users of our free email services who purchase one of our
premium product packages;
o the length of time between the activation of a free account and the
conversion to a paid account;
o the retention rate of customers, including the number of account
closures and the number of refund requests;
o the acquisition cost per user for each of our email services;
o the cost and effectiveness for each of our promotional efforts;
o the revenue and effectiveness of advertisements we serve; and o the
revenue, impressions, clicks and actions per user.
In 2006, we formed BigString Interactive and launched a new interactive
entertainment portal. We began our programming initiative in June 2006 with the
debut of OurPrisoner, BigString's interactive Internet television reality
program. OurPrisoner concluded its six month run
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in December 2006. The most popular video clips were archived and continue to be
accessed at www.OurPrisoner.com. OurPrisoner allowed us to develop core video
technology that has been incorporated into our enterprise email offerings. We
also plan to leverage our experience with OurPrisoner in future BigString
Interactive programs.
In December 2006, BigString launched a beta version of FindItAll.com, a
video and photo search engine which BigString had acquired in May 2006.
FindItAll.com, 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. Also in December 2006, BigString acquired DailyLOL.com, a
viral video website that provides humorous videos, games and pictures.
DailyLOL.com was launched as part of the company's interactive entertainment
portal.
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 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 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
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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. BigString has one stock-based compensation
plan under which incentive and nonqualified stock options and 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 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 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.
Intangible Assets. 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. The valuation of intangible
assets has been determined by management after considering a number of factors.
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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 Three and Six Months Ended June 30, 2007 and 2006
Net Loss. For the three months ended June 30, 2007, our net loss was
$912,842, as compared to a $696,568 net loss for the same period in 2006,
primarily due to a $108,723 increase in sales and marketing expenses related to
online marketing and public relations activities, a $81,702 increase in general
and administrative expenses relating to investor relations and employee
compensation, and a $51,827 change in interest income to interest expense
related to our May 1, 2007 financing of convertible promissory notes and
warrants.
For the six months ended June 30, 2007, our net loss was $1,694,328, as
compared to a $1,250,555 net loss for the same period in 2006, primarily due to
a $198,550 increase in general and administrative expenses relating to investor
relations and employee compensation, a $164,857 increase in sales and marketing
expenses related to online marketing, advertising and public relations
activities, a $51,606 increase in amortization expenses, and a $52,159 change in
interest income to interest expense related to our May 1, 2007 financing of
convertible promissory notes and warrants.
Revenues. For the three months ended June 30, 2007, our total revenues
were $9,412, as compared to $2,887 in total revenues for the same period in
2006. Of the revenues generated for the three months ended June 30, 2007, $5,106
was generated from the purchase of our services and $4,306 was generated from
advertisers, whereas for the three months ended June 30, 2006, $2,498 was
generated from the purchase of our services and $389 was generated from
advertisers.
For the six months ended June 30, 2007, our total revenues were
$19,187, as compared to $6,059 in total revenues for the same period in 2006. Of
the revenues generated for the six months ended June 30, 2007, $10,504 was
generated from the purchase of our services and $8,683 was generated from
advertisers, whereas for the six months ended June 30, 2006, $5,132 was
generated from the purchase of our services and $927 was generated from
advertisers.
Our 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 three months ended June 30, 2007 increased by 42% over
the three months ended March 31, 2007, and increased 128% from January 2007.
During the six months ended June 30, 2007, BigString offered three
services for purchase: premium upgrades for individual accounts; professional
business email solutions; and email marketing services. Purchases increased 292%
for the six months ended June 30, 2007, as compared to the same period in 2006.
During the six months ended June 30, 2007, premium upgrade purchases increased
by 51% from the same prior year period. During the six months ended June 30,
2007, purchased professional business email solutions increased over 5,000% from
the same prior year period. Email marketing services are new services and did
not have sales in the six months ended June 30, 2006. As of June 30, 2007,
unearned revenue from the purchase of our products increased to $14,182 from
$4,689 at June 30, 2006 and $4,681 at December 31, 2006.
Expenses. Operating expenses for the three months ended June 30, 2007
were $880,792, a $170,972 increase over operating expenses of $709,820 incurred
in the same period in 2006.
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Operating expenses, excluding amortization, depreciation and share-based
compensation expenses, increased $4,394 over these periods.
o General and administrative: General and administrative expenses for the
three months ended June 30, 2007 were $329,110, as compared to $247,408
for the same prior year period. The $81,702 increase in expenses was
primarily attributable to investor relations expenses which increased
by $72,412, and employee compensation expenses which increased by
$21,426 due to share-based option expenses.
o Sales and marketing: Sales and marketing expenses for the three months
ended June 30, 2007 were $136,793, as compared to $28,070 for the same
prior year period. The $108,723 increase in expenses was primarily
attributable to online marketing expenses of $78,500, and an increase
in public relations expenses of $18,417.
o Amortization: Amortization expense for the three months ended June 30,
2007 was $270,803, as compared to $250,000 for the same prior year
period. The $20,803 increase in expense was primarily attributable to
the increase in intangible assets related to the 2006 website
acquisitions of FindItAll.com, AmericanMoBlog.com and DailyLOL.com.
o Cost of revenues: Cost of revenues for the three months ended June 30,
2007 was $25,796, as compared to $50,713 for the same prior year
period. The $24,917 decrease in cost was primarily attributable to
reduced staffing and associated overhead expenses.
o Research and development: Research and development expenses for the
three months ended June 30, 2007 were $118,290, as compared to $133,629
for the same prior year period. The $15,339 decrease in expenses was
primarily attributable to reduced development staffing and associated
overhead costs.
Operating expenses for the six months ended June 30, 2007 were
$1,676,209, a $404,742 increase over operating expenses of $1,271,467 incurred
in the same period in 2006.
o General and administrative: General and administrative expenses for the
six months ended June 30, 2007 were $604,357, as compared to $405,807
for the same prior year period. The $198,550 increase in expenses was
primarily attributable investor relations expenses, which increased by
$92,829, and employee compensation expenses, which increased by
$79,052, including $40,314 of share-based option expenses.
o Sales and marketing: Sales and marketing expenses for the six months
ended June 30, 2007 were $203,739, as compared to $38,882 for the same
prior year period. The $164,857 increase in expenses was primarily
attributable to online marketing expenses which increased $78,500,
public relations expenses which increased $31,126, and advertising
expenses which increased $23,341.
o Amortization: Amortization expense for the six months ended June 30,
2007 was $541,606, as compared to $490,000 for the same prior year
period. The $51,606 increase in expense was primarily attributable to
the increase in intangible assets related to the 2006 website
acquisitions of FindItAll.com, AmericanMoBlog.com and DailyLOL.com.
o Cost of revenues: Cost of revenues for the six months ended June 30,
2007 was $69,120, as compared to $73,975 for the same prior year
period. The $4,855 decrease in cost was primarily attributable to
reduced staffing and associated overhead expenses.
o Research and development: Research and development expenses for the six
months ended June 30, 2007 were $257,387, as compared to $262,803 for
the same prior year period. The
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$5,416 decrease in expenses was primarily attributable to reduced
development staffing and associated overhead expenses.
Interest Expense and Income. Net expense was $41,462 for the three
months ended June 30, 2007, as compared to $10,365 of interest income for the
same prior year period. This change from interest income to interest expense was
primarily attributable to non-cash expenses of $37,036 for the accretion for the
beneficial conversion feature of the convertible promissory notes recorded as
additional paid in capital, $8,000 for accrued debt for interest on the
convertible promissory notes, and $1,740 for the amortization of the convertible
promissory note discount. Interest income earned for the three months ended June
30, 2007, was approximately 50% of the amount earned for the three months ended
March 31, 2007 due to smaller cash balances maintained by BigString.
Net expense was $37,306 for the six months ended June 30, 2007, as
compared to $14,853 of interest income for the same prior year period. This
change from interest income to interest expense was primarily attributable to
non-cash expenses discussed above relating to the three months ended June 30,
2007.
Income Taxes. No tax provision has been recorded for the three and six
months ended June 30, 2007 and 2006 as a result of our accumulated operating
losses.
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 June
30, 2007, we have expended $3,670,669 for operating and investing activities,
which has been primarily funded by investments of $4,150,388 from our
stockholders and convertible promissory note holders. For the six months ended
June 30, 2007, we expended $683,793 for operating and investing activities, a
decrease of $130,449 from the amount expended during the six months ended June
30, 2006.
Our cash balance as of June 30, 2007 was $479,719, which was a decrease
of $986,896 from our cash balance of $1,466,615 as of June 30, 2006. This
decrease to our cash balance related to operating and investment expenses of
$1,651,334, which included expenses associated with the development of our
products and services and our interactive promotional show, OurPrisoner, and
professional fees. These expenses were partially offset by $664,438 raised by
BigString through exercise of warrants and private placement of convertible
promissory notes and warrants.
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 a Subscription
Agreement that BigString entered into with 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. 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 at the Second Closing 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, 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.
28
<page>
Management believes its current cash balance of $385,042 at August 13,
2007, together with the aggregate $800,000 to be received at the Second Closing,
is sufficient to fund the minimum level of operations for the next twelve
months.
BigString has completed significant development of its email service
and has made adjustments to its 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. BigString also
expects sales, marketing and advertising expenses and cost of revenues to
increase as we promote and grow our email service. However, if our revenue and
cash balance are insufficient to fund the growth of our business, we may 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 may force us to reduce our
operations. Any additional equity financing may involve substantial dilution to
our then-existing stockholders.
Our 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.
29
<page>
Item 3. Controls and Procedures
-----------------------
As required by Rule 13a-15 under the Exchange Act, as of the end of the
period covered by this Quarterly Report on Form 10-QSB, BigString carried out an
evaluation of the effectiveness of the design and operation of BigString's
disclosure controls and procedures. This evaluation was carried out under the
supervision and with the participation of BigString's management, including
BigString's President and Chief Executive Officer and BigString's Chief
Financial Officer, who concluded that BigString's disclosure controls and
procedures are effective. There has been no significant change in BigString's
internal controls during the last fiscal quarter that has materially affected,
or is reasonably likely to materially affect, BigString's internal control over
financial reporting.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed in
BigString's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in BigString's reports filed under the Exchange Act is
accumulated and communicated to management, including BigString's Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
30
<page>
PART II. OTHER INFORMATION
Item 1. 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
The information required by this Item with respect to sales of
unregistered securities has been previously disclosed by BigString in its
Current Report on Form 8-K which was filed with the SEC on May 3, 2007.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The following matter was submitted to a vote of BigString's
stockholders at BigString's 2007 Annual Meeting of Stockholders held on
May 30, 2007 (the "Annual Meeting"). The number of shares of
BigString's common stock that were present at the Annual Meeting in
person or by proxy was 34,096,067.
Election of Directors
---------------------
At the Annual Meeting, the stockholders elected each of Robert S.
DeMeulemeester, Marc W. Dutton, Adam M. Kotkin, Darin M. Myman, Lee
Rosenberg and Todd M. Ross to serve as a director of BigString. Each
nominee for director was elected for a one year term. The balloting for
election was as follows:
Votes
Name of Director Votes For Percentage Withheld Percentage
---------------- --------- ---------- -------- ----------
Robert S. DeMeulemeester 33,396,067 97.9% 700,000 2.1%
Marc W. Dutton 34,096,067 100% 0 0%
Adam M. Kotkin 34,096,067 100% 0 0%
Darin M. Myman 34,096,067 100% 0 0%
Lee Rosenberg 34,096,067 100% 0 0%
Todd M. Ross 34,096,067 100% 0 0%
Item 5. Other Information
-----------------
Not Applicable.
Item 6. Exhibits
--------
See Index of Exhibits commencing on page E-1.
31
<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, thereunto duly authorized.
BigString Corporation
--------------------------------------------
Registrant
Dated: August 14, 2007 /s/ Darin M. Myman
--------------------------------------------
Darin M. Myman
President and Chief Executive Officer
(Principal Executive Officer)
Dated: August 14, 2007 /s/ Robert S. DeMeulemeester
--------------------------------------------
Robert S. DeMeulemeester
Chief Financial Officer
(Principal Financial and Accounting Officer)
32
<page>
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 persons 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.
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.
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.
E-1
<page>
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.
E-2
<page>
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. Adredge, 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 10.25
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 Association, 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.
E-3
<page>
10.24 Lease between BigString, as Tenant, and Walter Zimmerer &
Son, as Landlord, dated May 8, 2007, for the premises
located at 3 Harding Road, Suite F, Red Bank, New Jersey
07701, incorporated by reference to Exhibit 10.24 to the
Registration Statement on Form SB-2 (Registration No.
333-143793) filed with the SEC on June 15, 2007.
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.
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.
E-4
<page>
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.
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.
14.1 Code of Ethics of BigString, incorporated by reference to
Exhibit 14.1 to the Annual Report on Form 10-KSB filed with
the SEC on March 31, 2006.
31.1 Section 302 Certification of Chief Executive Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350.
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350.
E-5
<page>
EXHIBIT 31.1
CERTIFICATION
I, Darin M. Myman, certify that:
1. I have reviewed this report on Form 10-QSB of BigString Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business issuer's
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Dated: August 14, 2007 /s/ Darin M. Myman
-------------------------------------
Darin M. Myman
President and Chief Executive Officer
<page>
EXHIBIT 31.2
CERTIFICATION
I, Robert S. DeMeulemeester, certify that:
1. I have reviewed this report on Form 10-QSB of BigString Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business issuer's
fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the small business
issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Dated: August 14, 2007 /s/ Robert S. DeMeulemeester
---------------------------------------
Robert S. DeMeulemeester
Chief Financial Officer
<page>
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BigString Corporation (the
"Company") on Form 10-QSB for the period ended June 30, 2007 (the "Report"), I,
Darin M. Myman, President and Chief Executive Officer of the Company, do hereby
certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of ss.13(a) or 15(d) of
the Securities Exchange Act of 1934, 15 U.S.C. ss.78m or 78o(d), and,
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: August 14, 2007 /s/ Darin M. Myman
-------------------------------------
Darin M. Myman
President and Chief Executive Officer
<page>
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of BigString Corporation (the
"Company") on Form 10-QSB for the period ended June 30, 2007 (the "Report"), I,
Robert S. DeMeulemeester, Chief Financial Officer of the Company, do hereby
certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Report fully complies with the requirements of ss.13(a) or 15(d) of
the Securities Exchange Act of 1934, 15 U.S.C. ss.78m or 78o(d), and,
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: August 14, 2007 /s/ Robert S. DeMeulemeester
------------------------------------
Robert S. DeMeulemeester
Chief Financial Officer
<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):
August 23, 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 8 - Other Events
Item 8.01. Other Events.
--------- ------------
On August 23, 2007, BigString Corporation issued a press release
announcing that it will be the back-end provider for the new email offering by
podcastGO to its users. A copy of the press release is attached hereto as
Exhibit 99.1.
------------
Section 9 - Financial Statements and Exhibits
Item 9.01. Financial Statements and Exhibits.
--------- ---------------------------------
(d) Exhibits:
Exhibit
Number Description
------ -----------
99.1 Press Release Re: BigString and podcastGO Form Email
and Video Alliance.
2
<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: August 24, 2007
3
<page>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
99.1 Press Release Re: BigString and podcastGO Form Email and
Video Alliance.
4
<page>
EXHIBIT 99.1
BIGSTRING AND PODCASTGO FORM EMAIL AND VIDEO ALLIANCE
BigString Email Services to be Available to podcastGO's 2.4 Million Users
RED BANK, NJ - August 23, 2007 - BigString Corporation (OTCBB: BSGC)
(www.bigstring.com), which offers a free email service that allows senders to
recall, destroy or change emails after they have been sent, announced today that
it will be the back-end provider for the new email offering by podcastGO
(www.podcastgo.com) to its users.
Beginning September 3rd, podcastGO's 2.4 million users will be able to sign-up
for a free, podcastgo.com email account, offering all the functionalities that
have made BigString a leader in the burgeoning video, recallable, erasable and
self-destructing email industry. Conversely, BigString users will be able to
gain access and view the hottest podcasts from podcastGO, at BigString.com's
BigFun section.
"Our unique private label email solution allows partners such as podcastGO to
offer its users a new email functionality that is not offered by traditional
email services," said Darin Myman, President and CEO, BigString Corporation. "It
is a value add for podcastGO and its users, and is an endorsement of BigString's
ability to create white label solutions for social networking and video content
based companies seeking to connect with their customer base."
"We are constantly looking for innovative ways to provide our consumers with
savvy products that make their lives easier and keep them coming back to
podcastGO.com," said Steven Hearn, President and CEO, podcastGO.com. "BigString
has given podcastGO a niche offering that provides applicable technology, yet is
simple to use, implement and scale."
Users of the new podcastGO private label email will be able to send an embedded
video email (up to 10 minutes in length) without the need for the recipient to
click on the a link or download the video. Providing another way for the users
to interact with each other and share their video podcasts. Another unique email
features allow users to remotely erase or modify emails sent to any recipient,
designate their emails to be non-forwardable, non-printable and/or non-savable,
or opt to have their emails self-destruct after a set amount of time or views.
In addition, users will also have the added security to send secure emails via
an encrypted, password-protected email system that can only be open via a Secure
Socket Layer (SSL).
About podcastGO
---------------
podcastGO is the global, mobile network dedicated to lifestyle based
infotainment. With a platform agnostic approach, podcastGO provides consumers
with easily accessible and informative content when, where and how they want it.
Multiple channels, ranging from health, cooking to fashion, money management and
beyond, provides consumers with valuable information and entertainment in short
format video with added features such as text summary/support.
<page>
About BigString
---------------
BigString Corporation, owner and operator of BigString.com, is a provider of
user-controllable email services. In addition to permitting users to send
recallable, erasable, self-destructing and video emails, BigString's
patent-pending technology allows emails and pictures to be rendered
non-printable or non-savable. This can be done before or after the recipient
reads it, no matter what Internet service provider is being used. BigString's
product offerings include free email accounts for individuals, professional
business email solutions and email marketing services. BigString Interactive,
Inc., a wholly-owned subsidiary of BigString Corporation, operates an
interactive entertainment portal that contains live streaming audio and video
programming.
Forward Looking Statements
--------------------------
Statements about the future expectations of BigString Corporation, and all other
statements in this press release 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 Corporation 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 Corporation's actual results could differ materially from expected
results.
Contact:
Robert Zimmerman
Middleberg Communications
(646) 237-0579
rzimmerman@middlebergcommunications.com
</TEXT>
</DOCUMENT>