10-K 1 form10k-98033_bgsc.htm FORM 10-K form10k-98033_bgsc.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
 
Form 10-K
______________________
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
 
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                  to              .

Commission File Number 000-51661
 
BIGSTRING CORPORATION
(Exact name of registrant as specified in its charter)

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

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


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

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

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ¨ No x
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
At June 30, 2008, the aggregate market value of shares held by non-affiliates of the Registrant (based upon the closing sale price of such shares on The NASDAQ OTC Bulletin Board on June 30, 2008 was $5,104,854.
 
At March 30, 2009, there were 52,244,394 shares of the Registrant’s common stock outstanding.

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


 
 

 
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

 
 

 

BIGSTRING CORPORATION

INDEX TO FORM 10-K

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

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

 


PART I

Business

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

The email industry has migrated from an advertising model to a blended model that includes advertising and subscriptions.  Email service providers now offer premium services and products which include, among other features, value-added services such as advanced spam filters, advanced virus protection, additional storage, multiple email addresses and secure email.  In addition to our free email service product, which includes the aforementioned features plus our proprietary features, we offer premium email services, products and applications such as domain/vanity names, POP3 email client access (a protocol used to retrieve email from a mail server), advanced email management and campaign management tools, which are offered in several different packages at various prices and may be purchased by the users of our BigString email service.
 
BigString includes advertising with its email services.  Advertisements are primarily displayed to users of our free service.  Advertisements customarily include text and banner ads and are paid based on a mix of impressions, clicks and actions.  BigString currently has agreements with a number of firms that provide advertising services.  In the future, we may add additional types of advertisements and additional advertising service firms, as well as direct advertisers and sponsors, as we increase the monetization of our user base.
 
Certain Internet service providers (“ISPs”), portals, social networks and content providers have started to use email as a tool to compete against each other.  This strategy incorporates email as part of their offering because email is one of the most effective web applications in bringing users back to a site, multiple times a day, day after day.  Many service providers have recently launched beta versions.  These beta email developments consist primarily of storage and anti-spam/anti-virus filters.  BigString continuously strives to provide a superior user experience with features that we believe exceed those of other providers.
 
Leveraging the ‘stickiness’ of email and the advantage it can offer an Internet property, we introduced email hosting, private label, and co-branded solutions. These solutions offer BigString’s unique email features under the logos and marks of web publishers and content sites, such as search engines, social networks, online dating sites, ISPs and social media portals. Web publishers and content sites can further their image and differentiate their services from competitors, while increasing incremental traffic, page views and ad revenue from their existing members. Most agreements include a revenue share arrangement, and we may also charge development and
 
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maintenance fees. Web publishers and content sites provide the marketing, which expands awareness of BigString’s unique services beyond BigString’s marketing and can help us grow more quickly.
 
BigString has introduced complementary messaging services to provide a full suite of communications tools for our members. In 2008, BigString introduced a self-destructing instant messaging (“IM”) technology that enables users to send instant messages that self-destruct after being sent; this service continued to develop into a web-based, cross-platform IM application that enables users to send self-destructing or regular IMs across AOL®’s AIM, Yahoo®’s Messenger, MSN®’s Messenger and Google®’s Gtalk. In 2008, we also released a self-destructing, SMS text messaging application; this application was initially configured for BlackBerry® phone users.  In 2009, we released an easy-to-use universal email tracking service that allows users to know when their emails have been opened and read.
 
Through our wholly-owned subsidiary, BigString Interactive, we launched a new interactive entertainment portal in June 2006, built around BigString’s recallable, erasable and self-destructing email platform.  BigString’s entertainment portal contains streaming audio and video programming.
 
Building on the vast popularity of the social networking sites such as Facebook®, MySpace®, Friendster® and LinkedIn®, BigString’s social networking applications allow users to easily send and receive messages, notifications, email and videos that self-destruct on command. These rapidly growing, adjacent markets offer BigString the opportunity to leverage its skills in messaging and streaming audio and video to create complementary messaging applications. Our development efforts are focused to address security and privacy gaps in social networking messaging applications. In 2008, we added the BuddyStumbler social network to the BigString family.
 
Through our wholly-owned subsidiary, PeopleString, we launched an incentive-based social network in March 2009 that pays users to receive direct mail and perform a host of internet activities.
 
Promotion

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

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

BigString offers a web-based, POP3/IMAP server, email service solution.  Our patent pending technology provides a user with the ability to manage and control content sent by email.  The user’s email executes through the BigString server but such execution is transparent to the sender and recipients of the email.
 
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A user of our BigString email services will have his, her or its email transposed from a text-based message through BigString’s server, and an exact, replicated image of the email will be instantaneously streamed to the recipient.  The recipient never actually receives the content, but only receives images of the content.
 
The user of the BigString email service and products can transparently edit, recall, cancel, and erase the email as well as insert or delete attachments, even after the email has been sent out and opened.  All the subsequent changes by the sender will be completely transparent to the recipient.  In addition, the sender has complete control over the life and duration of the email.  The sender can have the email self-destruct or disappear after a defined number of views or after a certain time period.
 
In June 2007, BigString launched its new email service, BigString 3.0. This service provides, at no cost to its users, advanced spam filters, virus protection and large-storage, web-based email accounts with features similar to those offered by AOL®, Yahoo®, Hotmail®, Google®, Verizon® and Comcast®. In addition to the equivalent features provided by competitors, BigString 3.0 offers erasable, recallable and self destroying applications, non-printable and non-forwardable emails, set time or number of views (including ‘view-once’) and masquerading to protect the sender’s privacy and security. BigString 3.0 also allows a sender to view tracking reports that indicate when emails were opened by the recipient, and how many times they were viewed.  Senders can add, change and/or delete attachments before or after a recipient opened the email.  In addition, BigString 3.0 allows senders to direct emails to disintegrate in front of their recipient’s eyes and allows senders to create, save and send self-destructing video email.
 
BigString has continued to introduce a number of upgrades and features for our email service while increasing penetration into global markets and expanding into adjacent messaging markets:
 
 
·
In July 2007, in response to user demand from its Version 3.0 launch, BigString introduced unlimited email storage.
 
 
·
In August 2007, BigString unveiled Three Layer Secure Email for sensitive correspondence which enables users to send encrypted, password-protected email with BigString’s unique auto-expiration and non-forward features. Also in August 2007, BigString created an email and video alliance program which enables users access to the hottest new videos from partners while providing hosted email services to partners.
 
 
·
In November 2007, BigString launched its first social networking messaging widget, a Facebook application that enables Facebook users to send messages and photos programmed to self-destruct.
 
 
·
In December 2007, BigString launched another social networking application for Facebook which enables Facebook users to send self-destructing videos.
 
 
·
In January 2008, BigString launched email service for the iPhone™ and other next-generation wireless devices to send self-destructing email and pictures. Also in January 2008, as part of our efforts to continue innovation of communications privacy initiatives, we released a new video email platform for the Chinese market.
 
 
·
In February 2008, BigString released an application that enables Facebook users to broadcast their original live video content.
 
 
·
In April 2008, BigString unveiled a new, self destructing instant messaging technology that enables users to send instant messages that self-destruct after being sent.
 
 
·
In May 2008, BigString entered into an international distribution agreement with VIP Connectz USA, Inc. (“VIP Connectz”), an international marketing and sales company, to offer BigString’s self-destructing email and instant messaging (IM) services as a private labeled solution bundled with VoIP service to the VIP Connectz global network.
 
 
·
In July 2008, BigString introduced a new web-based, cross-platform IM application that enables users to send self-destructing or regular IMs across AOL’s AIM, Yahoo’s Messenger, MSN’s Messenger and Google’s Gtalk. In July, BigString also released Spanish and Portuguese email portal with VIP Connectz for the Latin American markets. Additionally, in July 2008, BigString acquired Buddystumbler.com, an IM-based social network that allows users to meet people via free online chats on AOL AIM, Yahoo Messenger, MSN Messenger and Google Talk.
 
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·
In August 2008, BigString released its self-destructing SMS text messaging application for BlackBerry phones.
 
 
·
In January 2009, BigString released an easy-to-use universal email tracking service that allows users to know when their emails have been opened and read.
 
Products Offered – BigString currently offers its consumer, business and enterprise customers the following packages:
 
Email
 
 
·
BigString Free Email (No Charge).
 
 
·
BigString Premium Email ($29.95 per year).
 
 
·
BigString Business Email ($149.95+ per year).
 
 
·
BigString Mobile Email (No Charge).
 
Email Hosting
 
 
·
BigString Private Label Email ($5,000.00 development, $500.00 per year + revenue share).
 
 
·
BigString Email Hosting (Enterprise level) ($11,500.00+ per year).
 
Social Network Messaging
 
 
·
BigString Exploding Messages & Pictures (No Charge).
 
 
·
BigString Exploding Video (No Charge).
 
Instant Messaging (IM)
 
 
·
BigString Cross-Platform, Self-Destructing IM (No Charge).
 
SMS Texting
 
 
·
BigString Self-Destructing SMS Text Messaging ($29.95 per license).
 
BigString Free Email provides all the features of BigString Version 3.0, includes unlimited GB email storage and permits the user to send unlimited emails per month.  It is accessed by the user through the web as web-based email, or webmail, and each user is given one address.  Individuals can signup for multiple “disposable” accounts.  Wizards help users import previously saved contacts.  To personalize their email, users can create an alias, create their own font, add signatures, add pictures to both their profile and their contacts’ profiles, create multiple expire messages, and create custom templates with editable fields and then access the saved templates to save time while composing messages.
 
BigString Premium Email offers all the features of the BigString Free Email account, plus vanity domains (yourname@yourdomain.com), POP3 access using any email client (such as Microsoft Outlook®), 30 minute video email and reduced banner advertising.
 
BigString Business Email offers all the features of the BigString Premium account, plus 10 email accounts, global filter notification and advanced email management.  Small and medium sized businesses can customize the number of additional addresses for an additional fee.
 
BigString Mobile Email provides access to a user’s email account from the iPhone™ and other next-generation wireless devices.
 
BigString Private Label Email offers web publishers and content sites BigStrings hosted email platform as a value-added service for their members, and helps generate incremental traffic, page views and ad revenue from their existing members. The private labeled, or white labeled, solution offers a revenue share of advertising and/or premium fees generated by BigString.
 
4

 
BigString Email Hosting offers enterprise level firms all the features of BigString Private Label Email, in a licensed package which can be customized to integrate with the firms’ messaging, networking and video applications.
 
BigString Exploding Messages & Pictures offers social networking members integrated self-destructing messaging applications through their current social network.
 
BigString Exploding Video offers social networking members integrated self-destructing video applications through their current social network.
 
BigString Cross-Platform, Self-Destructing IM provides users with both regular and self-destructing, instant messaging options on a cross-platform application across AOL’s AIM, Yahoo’s Messenger, MSN’s Messenger and Google’s Gtalk.
 
BigString Self-Destructing SMS Text Messaging provides users SMS text messages that self-destruct after a specified time frame for use on mobile devices, such as the BlackBerry phone.
 
Technical and Customer Support – Customer support for BigString’s messaging service and products is available in two different ways:
 
 
·
Email Support.  The ability for customers to contact BigString support through email.
 
 
·
Phone Support.  The ability for customers to contact BigString support via the telephone.
 
Historically, the customers of BigString’s services and products have required very little support.  BigString continuously reviews its support capabilities and updates and enhances such capabilities to meet the needs of the users of its products and services.  In the future, BigString may outsource the support of its products and services to cost effective call centers or service providers.
 
Also available on the BigString website is a Frequently Asked Questions section and a comprehensive BigString User Guide.  We believe that BigString’s Frequently Asked Questions section and User Guide usually can resolve most of a user’s problems.  As our business grows and we introduce new products or enhancements to existing products, we expect our Frequently Asked Questions section and User Guide to be updated on a continuous basis.
 
Interactive Entertainment Portal – In June 2006, BigString, through its wholly-owned subsidiary, BigString Interactive, launched a new interactive entertainment portal built around BigString’s recallable, erasable and self-destructing email platform.  BigString’s entertainment portal contains streaming audio and video programming.
 
BigString began its programming initiative in June 2006 with the debut of OurPrisoner, BigString’s interactive Internet television reality program.  The program featured a volunteer, Mr. Kieran Vogel, who allowed the Internet audience to control every aspect of his life for six months live, on camera, 24 hours a day, seven days a week.  Most aspects of Mr. Vogel’s life in a suburban New Jersey home were streamed in real time and unedited.  Through BigString’s interactive media platform, viewers voted to determine what he wore, what he ate, whom he dated, whom he talked to, what he watched on television, what music he listened to, and much more.  OurPrisoner concluded its six month run in December 2006.  The most popular video clips were archived on www.OurPrisoner.com for viewing after the program ended.
 
In December 2006, BigString launched a beta version of FindItAll, a video and photo search engine which BigString had acquired in May 2006.  FindItAll, in conjunction with the Pixsy Media Search platform, provides Internet users a comprehensive search facility for online viral videos, television programs, news events, movies and movie trailers, music videos and other similar media.  FindItAll’s search function allows its users to search for photos and videos by relevance, category, provider or freshness, with the results provided in the form of thumbnail images.  This differs from traditional search engines which focus entirely on relevance.  The Pixsy Media Search platform provides FindItAll with technology that gives users the ability to search for videos from their favorite web providers including YouTube™, MetaCafe®, Revver®, StupidVideos.com, Addicting Clips™, Fandango®, iFilm®, Grouper®, Reuters®, Entertainment Weekly®, Hollywood.com®, MSNBC®, The New York Times®, and DailyLOL.
 
Also in December 2006, BigString acquired DailyLOL, a viral video website that provides humorous videos, games and pictures.  DailyLOL was launched as part of the company’s interactive entertainment portal.
 

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

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

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

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

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

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

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

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

7

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

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

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

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

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

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

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

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

Net Loss.  For the year ended December 31, 2007, net loss was $3,949,184, as compared to a net loss of $3,114,225 for the year ended December 31, 2006. The $834,959 increase in net loss was primarily attributable to an impairment charge to intangible assets of $415,292 relating to the acquired web sites AmericanMoBlog, FindItAll and DailyLOL; a decrease in other income (expense) of $536,280 primarily related to our convertible debt and warrant financing; and a net increase in other expenses of $169,120. These expenses were partially offset by an income tax benefit of $258,854 and increase in revenues of $26,879.
 
Revenues.  For the year ended December 31, 2007, revenues were $41,165, a $26,879 increase over revenues of $14,286 earned in the year ended December 31, 2006.  Of the revenues generated for the year ended December 31, 2007, $23,814 was generated from product and service fees and $17,351 was generated from advertisers, as compared to $7,599 from product and service fees and $6,687 from advertisers for the year ended December 31, 2006.
 
During the year ended December 31, 2007, BigString offered three products for purchase: premium upgrades for individual accounts; professional business email solutions; and email marketing services. Pre-paid purchases are deferred and recognized as revenues as the services are performed. The increase in product and service fees was primarily due to increased business solutions. As of December 31, 2007, unearned revenue from product fees increased to $9,288 from $4,681 at December 31, 2006.
 
Advertising revenues are paid based on a mix of impressions, clicks and actions.  On a normalized impression basis, the average revenue per paid-impression for the year ended December 31, 2007 increased by 64% over our baseline of January 2007.
 
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Operating Expenses.  For the year ended December 31, 2007, operating expenses were $3,610,273, a $584,412 increase over operating expenses of $3,025,861 incurred in the year ended December 31, 2006. Operating expenses, excluding amortization, depreciation, impairment and share-based compensation expenses, for the year ended December 31, 2007 were $1,386,780, a $213,631 decrease from the same prior year period.
 
 
·
Cost of revenues: Cost of revenues for the year ended December 31, 2007 were $119,772, as compared to $218,557 for the prior year.  The $98,785 decrease in cost was primarily attributable to reduced staffing and associated overhead expenses.
 
 
·
Research and development: Research and development expenses for the year ended December 31, 2007 were $485,948, as compared to $572,206 for the prior year.  The $86,258 decrease in expenses was primarily attributable to reduced development staffing and associated overhead costs.
 
 
·
Sales and marketing: Sales and marketing expenses for the year ended December 31, 2007 were $390,347, as compared to $219,304 for the prior year.  The $171,043 increase in expenses was primarily attributable to increased online marketing expenses of $203,282 and increased advertising expenses of $48,937, partially offset by reduced public relations expenses of $48,391.
 
 
·
General and administrative: General and administrative expenses for the year ended December 31, 2007 were $1,115,701, as compared to $979,459 for the same prior year period.  The $136,242 increase in expenses was primarily attributable to increased investor relations and full-year amortization of stock-based business consulting fees.
 
 
·
Amortization: Amortization expenses for the year ended December 31, 2007 were $1,083,213, as compared to $1,036,335 for the prior year.  The $46,878 increase in expenses was primarily attributable to the full-year amortization of intangible assets related to the 2006 website acquisitions of FindItAll, AmericanMoBlog and DailyLOL.
 
 
·
Impairment of assets: Impairment expenses of intangible assets for the year ended December 31, 2007 were $415,292. Continuing losses associated with the intangible assets indicated that impairment may exist. The recoverability test for the patent application and trademark assets indicated that the assets were not impaired; in addition, evaluations of fair market value and weighted, discounted cash flows were greater than the carrying value. The second group of assets included logos, websites and source codes for the web sites FindItAll, AmericanMoBlog and DailyLOL that were acquired in 2006. The recoverability test for these assets indicated impairment as the weighted future net cash flows were less than the carrying value. The fair market value, based on weighted, discounted cash flows and disposition values, was not material, and an impairment loss of $415,292 for the carrying amount was recognized in 2007.
 
Other income (expense).  For the year ended December 31, 2007, other expenses were $638,930, a $536,280 increase over other expenses of $102,650 incurred in the year ended December 31, 2006.
 
 
·
Interest income: Interest income for the year ended December 31, 2007 was $14,409, as compared to $37,350 for the prior year. The $22,941 decrease in income was primarily due to a reduction in cash balances.
 
 
·
Interest expense: Interest expense for the year ended December 31, 2007 was $31,134, as compared to $0 for the same prior year period. The expense is the accrued interest on convertible promissory notes.
 
 
·
Other, net: Other, net expenses for the year ended December 31, 2007, were $622,205, as compared to $140,000 for the same prior year period. The $482,205 increase in expenses was primarily due to the convertible debenture and warrant financing, including increased other financing fees of $129,094, amortization of debt issue costs of $92,839, amortization of promissory note discount of $11,664 and amortization of beneficial conversion features of $248,608. For the year ending December 31, 2007, debt issue costs were $248,939, and are being amortized over the term of the notes, which is three years. Amortization is accelerated for the proportion of promissory notes which are converted in a period. Other financing expenses include $250,000 of stock-based other non-cash compensation for the fair market value of common stock issued for a waiver and release related to the debt financing.
 
Income Taxes.  For the year ended December 31, 2007, net income tax benefits were $258,854, as compared to $0 for the year ended December 31, 2006.
 
17

 
 
·
BigString participated in the State of New Jersey’s Program, which allows certain high technology and biotechnology companies to sell unused NOL carryforwards to other New Jersey corporation business taxpayers. The Program requires that the purchaser pay at least 75% of the amount of the surrendered tax benefit. For the year ended December 31, 2007, BigString recorded a net state tax benefit of $258,854 as a result of its sale of $2,442,561 of New Jersey state net operating losses and $74,359 of New Jersey state research and development credits. Gross sales proceeds were $294,189. Since New Jersey law provides that net operating losses can be carried over for up to seven years, BigString may be able to transfer its unused New Jersey net operating losses in future years. Valuation allowances for the years ending December 31, 2007 and 2006, have been applied to offset the deferred tax assets in recognition of the uncertainty that such tax benefits will be realized as BigString continues to incur losses.
 
 
·
At December 31, 2007, BigString has available net operating loss carry forwards of approximately $8.2 million for federal income tax reporting purposes and $5.7 million for state income tax reporting purposes which expire in various years through 2027. The differences between book income and tax income primarily relates to amortization of intangible assets and other expenditures.  Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of a company’s net operating loss and research credit carry forwards may be limited, and, as such, BigString may be restricted in using its net operating loss and research credit carry forwards to offset future federal income tax expense.
 
Liquidity and Capital Resources

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


director of BigString. In connection with such financing, BigString issued Notes in the aggregate principal amount of $250,000 and common stock purchase warrants to purchase up to an aggregate 800,000 shares of BigString's common stock. Each Note had a term of five months and accrued interest at a rate of 12% annually. The warrants have an exercise price of $0.08 per share. In December 2008, the all amounts due under the Notes were paid by BigString, including accrued interest of $9,328, and, as a result, the Notes were cancelled.
 
As described herein, BigString participated in the State of New Jersey’s Program, which allows certain high technology and biotechnology companies to sell unused NOL carryforwards to other New Jersey corporation business taxpayers.  On December 19, 2007 and December 16, 2008, BigString received net proceeds of $258,854 and $428,137, respectively. BigString may also be able to transfer its unused New Jersey net operating losses in future years and plans to again participate in 2009.
 
If the revenue from our operations are not adequate to allow us to pay the principal and interest on the outstanding convertible notes, and the convertible notes are not converted into shares of common stock, we will seek additional equity financing and/or debt financing.  It is also possible that we will seek to borrow money from traditional lending institutions, such as banks.
 
We have completed significant development of our email and messaging services and have made adjustments to our cost structure, such as the elimination of expenses associated with the production of OurPrisoner and the reduction of a portion of compensation costs associated with development.  We have also reduced general expenses such as rent and other discretionary expenses. We also reduced our operating and investing cash expenditures by $344,712, or 29%, for the year ended December 31, 2008 as compared to the prior year.
 
We expect to continue development on our messaging, email and related service offerings. We expect to continue development on our social network platform. We also expect sales, marketing and advertising expenses and cost of revenues to increase as we promote and grow our products and services.  However, if our revenue and cash balance are insufficient to fund the continued growth of our business, we will seek additional funds.  There can be no assurance that such funds will be available to us or that adequate funds for our operations, whether from debt or equity financings, will be available when needed or on terms satisfactory to us.  Our failure to obtain adequate additional financing may require us to delay or curtail some or all of our business efforts and could cause us to seek bankruptcy protection. Any additional equity financing may involve substantial dilution to our then-existing stockholders.
 
Our current officers and directors have not, as of the date of this filing, loaned any funds to BigString. There are no formal commitments or arrangements to advance or loan funds to BigString or repay any such advances or loans.
 
 
Quantitative and Qualitative Disclosure About Market Risk
 
BigString is a smaller reporting company and is therefore not required to provide this information.
 
 
Financial Statements and Supplementary Data
 
The consolidated financial statements and supplementary data of BigString called for by this item are submitted under a separate section of this report.  Reference is made to the Index of Financial Statements contained on page F-1 herein.
 
 
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
 
None.
 
 
Controls and Procedures
 
(a) Evaluation of disclosure controls and procedures.
 
19

 
Management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
 
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2008, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
(b) Changes in internal control over financial reporting.
 
We review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
 
There were no changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
(c) Management’s report on internal control over financial reporting.
 
Management is responsible for establishing and maintaining adequate control over financial reporting for BigString.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.  Internal controls over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of BigString; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of BigString are being made only in accordance with authorizations of management and directors of BigString; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of BigString’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management, with the participation of our principal executive officer and principal financial and accounting officer, conducted an evaluation of the effectiveness of BigString’s internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2008.
 
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K. There have been no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
20

 
Other Information
 
None.
 
21


PART III

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



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

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

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

23

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

F-1

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

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

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

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

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

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

March 30, 2009
 
F-2


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

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


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

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

See notes to consolidated financial statements.
 
F-4


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

         
Preferred Stock
   
Common Stock
   
Additional
             
         
No. of
         
No. of
         
Paid-In
   
Subscription
       
   
Total
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Receivable
   
Deficit
 
                                                 
Balance, October 8, 2003
  $ -       -     $ -       -     $ -     $ -     $ -     $ -  
Issuance of common stock (at $.0001 per share)
    -       -       -       21,210,000       2,121       (2,121 )     -       -  
Contribution of capital
    45,000       -       -       -       -       45,000       -       -  
Sale of common stock (at $0.25 per share)
    -       -       -       40,000       4       9,996       (10,000 )     -  
Net loss
    (29,567 )     -       -       -       -       -       -       (29,567 )
Balance, December 31, 2003
    15,433       -       -       21,250,000       2,125       52,875       (10,000 )     (29,567 )
Cash received from prior sale of common stock
    10,000       -       -       -       -       -       10,000       -  
Sale of common stock (at $0.25 per share)
    217,500       -       -       870,000       87       217,413       -       -  
Issuance of common stock for services (valued at $0.21 per share)
    39,251       -       -       185,000       19       39,232       -       -  
Issuance of common stock for acquisition (valued at $0.24 per share)
    4,800,000       -       -       20,000,000       2,000       4,798,000       -       -  
Issuance of warrants for services (valued at $0.07 per share)
    3,500       -       -       -       -       3,500       -       -  
Net loss
    (729,536 )     -       -       -       -       -       -       (729,536 )
Balance, December 31, 2004
    4,356,148       -       -       42,305,000       4,231       5,111,020       -       (759,103 )
Sale of common stock (at $0.25 per share)
    230,500       -       -       922,000       92       230,408       -       -  
Exercise of warrants (at $0.25 per share)
    11,250       -       -       45,000       4       11,246       -       -  
Issuance of common stock for services (valued at $0.25 per share)
    12,500       -       -       50,000       5       12,495       -       -  
Sale of common stock (at $0.16 per share)
    1,511,700       -       -       9,448,125       945       1,510,755       -       -  
Issuance of warrants for services (valued at $0.07 per share)
    179,200       -       -       -       -       179,200       -       -  
Net loss
    (2,102,587 )     -       -       -       -       -       -       (2,102,587 )
Balance, December 31, 2005
    4,198,711       -       -       52,770,125       5,277       7,055,124       -       (2,861,690 )
Redemption of shares from stockholders (at $0.05 per share)
    (400,000 )     -       -       (8,000,000 )     (800 )     (399,200 )     -       -  
Issuance of common stock for consulting services (valued at $0.82 per share)
    -       -       -       1,250,000       125       (125 )     -       -  
Stock-based compensation expense
    314,250       -       -       -       -       314,250       -       -  
Issuance of warrants for consulting services (valued at $0.08, $0.18 and $0.42 per share)
    36,595       -       -       -       -       36,595       -       -  
Issuance of common stock for website acquisition (valued at $0.80 per share)
    600,000       -       -       750,000       75       599,925       -       -  
Sale of preferred stock (at $.0001 per share)
    1,860,000       400,000       40       -       -       1,859,960       -       -  
Dividends from allocation of proceeds for the beneficial conversion feature of preferred stock
    -       -       -       -       -       480,000       -       (480,000 )
Exercise of warrants (at $0.16, $0.20 and $0.25 per share)
    18,000       -       -       165,000       17       34,233       (16,250 )     -  
Net loss
    (3,114,225 )     -       -       -       -       -       -       (3,114,225 )
Balance, December 31, 2006
    3,513,331       400,000       40       46,935,125       4,694       9,980,762       (16,250 )     (6,455,915 )
Cash received from prior exercise of warrants
    16,250       -       -       -       -       -       16,250       -  
 
F-5

 
Issuance of common stock for consulting services (valued at $0.50 and $0.33 per share)
    -       -       -       432,000       43       (43 )     -       -  
Allocation to warrants from sale of convertible promissory notes and warrants
    31,320       -       -       -       -       31,320       -       -  
Beneficial conversion feature of convertible promissory notes
    666,648       -       -       -       -       666,648       -       -  
Issuance of common stock for conversion of convertible promissory notes (at $0.18 per share)
    155,000       -       -       861,111       86       154,914       -       -  
Stock-based compensation expense
    672,532       -       -       -       -       672,532       -       -  
Issuance of warrants, net (valued at $0.10 per share)
    19,094       -       -       -               19,094       -       -  
Issuance of common stock for waiver and release (valued at $0.25 per share)
    250,000       -       -       1,000,000       100       249,900       -       -  
Exercise of warrants (at $0.10 per share)
    150,000       -       -       1,500,001       150       149,850       -       -  
Net loss
    (3,949,184 )     -       -       -       -       -       -       (3,949,184 )
Balance, December 31, 2007
    1,524,991       400,000       40       50,728,237       5,073       11,924,977       -       (10,405,099 )
Exercise of warrants (at $0.10 per share)
    21,333       -       -       213,333       21       21,312       -       -  
Issuance of common stock for conversion of convertible promissory notes (at $0.18 per share)
    20,000       -       -       111,111       11       19,989       -       -  
Allocation to warrants from sale of convertible promissory notes and warrants
    76,176       -       -       -       -       76,176       -       -  
Beneficial conversion feature of convertible promissory notes
    188,740       -       -       -       -       188,740       -       -  
Stock-based compensation expense
    727,800       -       -       -       -       727,800       -       -  
Issuance of common stock for accrued interest (at $0.15 per share)
    43,757       -       -       291,713       29       43,728       -       -  
Issuance of common stock for website acquisition (valued at $0.13 per share)
    117,000       -       -       900,000       90       116,910       -       -  
Net loss
    (3,748,946 )     -       -       -       -       -       -       (3, 748,946 )
Balance, December 31, 2008
  $ (1,029,149 )     400,000     $ 40       52,244,394     $ 5,224     $ 13,119,632     $ -     $ (14,154,045 )
 

See notes to consolidated financial statements.

F-6

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

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

F-7


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


BIGSTRING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
REVENUE RECOGNITION
 
BigString derives revenue from online services, electronic commerce, advertising and data network services.  BigString also derives revenue from marketing affiliations.  BigString recognizes revenue in accordance with the guidance contained in the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition in Financial Statements.”
 
Consistent with the provisions of the FASB’s Emerging Issues Task Force (“EITF”) Issue No. 99-19, “Reporting Revenue Gross as a Principal Versus Net as an Agent,” BigString generally recognizes revenue associated with its advertising and marketing affiliation programs on a gross basis due primarily to the following factors:  BigString is the primary obligor; has general inventory risk; has latitude in establishing prices; has discretion in supplier selection; performs part of the service; and determines specifications.  In connection with contracts to provide email services to marketing affiliates, BigString may be obligated to make payments, which may represent a portion of revenue, to its marketing affiliates.
 
Consistent with EITF Issue No. 01-9, “Accounting for Considerations Given by a Vendor to a Customer (Including the Reseller of the Vendor’s Product),” BigString accounts for cash considerations given to customers, for which it does not receive a separately identifiable benefit or cannot reasonable estimate fair value, as a reduction of revenue rather than an expense.  Accordingly, corresponding