SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 11. SHARE-BASED COMPENSATION

Warrants:

On September 23, 2005, BigString granted warrants to a consultant as payment for advisory services. One warrant provides for the purchase of 1,246,707 shares of BigString’s common stock with a per share exercise price of $0.16, and the second warrant provides for the purchase of 1,196,838 shares of BigString’s common stock with a per share exercise price of $0.20. A portion of each warrant, each representing 50,000 shares of common stock, was assigned to a third party. The assigned portions of the warrants were exercised in 2006, which resulted in 100,000 shares of BigString’s common stock being issued to the holder thereof. As a result of these exercises, BigString received $18,000 in gross proceeds. The remainder of each of these warrants expired on September 23, 2010. In connection with the grant of these warrants, BigString recorded an expense of $171,800, which is included in BigString’s consolidated statements of operations for the year ended December 31, 2005. The fair value of the warrants granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 47%; risk free rate of return of 5%; and expected life of 2 years. The weighted average fair value of these warrants was $0.07 per share.

On May 2, 2006, BigString granted warrants to purchase shares of BigString’s common stock in consideration for business consultant services to be provided by Lifeline Industries, Inc. A total of $135,300 of the deferred compensation in connection with the warrants has been expensed over a period of 36 months. The warrants expired on May 1, 2011. The fair value of the warrants granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 47%; risk free rate of return of 5%; and expected life of 2 years. The weighted average fair value of these warrants was $0.42 and $0.18 per share.

On December 1, 2006, BigString granted warrants to two consultants as payment for advisory services. Each warrant provides for the purchase of 50,000 shares of BigString’s common stock at an exercise price of $0.50 per share. Each of these warrants is due to expire on December 1, 2011. In connection with the grant of these warrants, BigString recorded an expense of $6,530 which is included in BigString’s consolidated statements of operations for the year ended December 31, 2006. The fair value of the warrants granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0%; expected volatility of 47%; risk free rate of return of 4%; and expected life of 3 years. The weighted average fair value of these warrants was $0.08 per share.

As discussed in Note 8, on May 1, 2007, BigString granted warrants to purchase up to 1,991,112 shares of BigString's common stock to the 2007 Subscribers and Gem Funding LLC. Each of the warrants has a term of five years from May 1, 2007 and was fully vested on the date of issuance. The warrants are exercisable at $0.30 per share of common stock, as adjusted. A total of $31,320 of the purchase price for the convertible notes and warrants was allocated to the warrants based on fair value.

In November 2007, BigString repriced warrants to purchase 1,713,334 shares of common stock previously issued to the 2007 Subscribers, which warrants were subsequently exercised by the 2007 Subscribers at the reduced exercise price. The exercise price of the repriced warrants was reduced from $0.30 per share to $0.10 per share. As a result of this repricing, the warrants with an exercise price of $0.30 per share were deemed cancelled and new warrants with an exercise price of $0.10 per share were deemed issued. In December 2007, five repriced warrants were exercised at the exercise price of $0.10 per share, which resulted in 1,500,001 shares of BigString’s common stock being issued to the holders thereof. As a result of these exercises, BigString received $150,000 in gross proceeds. In addition, one repriced warrant was exercised in January 2008 at the exercise price of $0.10 per share, which resulted in 213,333 shares of BigString’s common stock being issued to the holder thereof and $21,333 in gross proceeds to BigString. The fair value of the warrants deemed cancelled and deemed issued was estimated on the date of approval by the board of directors of BigString using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 0% and 0%; expected volatility of 69% and 69%; risk free rate of return of 4% and 3%; and expected life of 4 and 0 years for the deemed cancellation and deemed issue of warrants, respectively. The weighted average fair value of the deemed cancellation and deemed issue of warrants was $0.11 per share and $0.12 per share, respectively. BigString expensed the net fair value of $19,094 for the year ended December 31, 2007.

As discussed in Note 8, on February 29, 2008, BigString granted warrants to purchase up to 2,706,666 shares of BigString's common stock to the 2008 Subscribers and Gem Funding LLC. Each of the warrants has a term of five years from February 29, 2008 and was fully vested on the date of issuance. The warrants are exercisable at $0.15 per share of common stock, as adjusted. A total of $76,176 of the purchase price for the warrants and related convertible notes was allocated to the warrants based on fair value. As a result of this transaction, certain warrants to purchase shares of BigString’s common stock issued to the 2007 Subscribers and Gem Funding LLC were adjusted.

As discussed in Note 8, on August 25, 2008, BigString granted warrants to purchase up to 800,000 shares of BigString's common stock to Dwight Lane Capital, LLC and Marc W. Dutton. Each of the warrants has a term of ten years from August 25, 2008 and was fully vested on the date of issuance. The warrants are exercisable at $0.08 per share of common stock. The warrants did not have a conversion discount, and accordingly, no portion of the purchase price for the warrants and related convertible notes was allocated to the warrants, based on fair value, nor included as additional paid in capital. As a result of this transaction, certain warrants to purchase shares of BigString’s common stock issued to the 2007 Subscribers, the 2008 Subscribers and Gem Funding LLC were adjusted.

As discussed in Note 8, on June 23, 2009, BigString granted warrants to purchase up to 6,000,000 shares of BigString's common stock to the 2009 Subscribers. Each of the warrants has a term of five years from June 23, 2009 and was fully vested on the date of issuance. The warrants are exercisable at $0.015 per share of common stock, as adjusted. A total of $34,992 of the purchase price for the warrants and related convertible notes was allocated to the warrants based on fair value. As a result of this transaction, certain warrants to purchase shares of BigString’s common stock issued to the 2007 Subscribers, the 2008 Subscribers and Gem Funding LLC were adjusted.

As discussed in Note 8, on January 31, 2011, BigString entered into a separate Agreement and Release with each of the Releasors. Pursuant to the terms of each Agreement and Release, the Releasors have each agreed to forfeit the Warrants held by each of them to BigString for cancellation. Warrants to purchase 8,125,000 shares of BigString’s common stock, exercisable at $0.015 per share of common stock, were cancelled, resulting in a reduction of additional paid in capital of $203,349.

The number of warrants outstanding as of January 1, 2011 and changes to such number during the nine months ended September 30, 2011 are as follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Warrants outstanding at January 1, 2011		14,050,000		$	0.13		3.2	$	175,500
Warrants granted		-		$	-
Warrants exercised		-		$	-
Warrants cancelled/forfeited/expired		(8,575,000	)	$	0.05
Warrants outstanding at September 30, 2011		5,475,000		$	0.26		2.9	$	-
Warrants exercisable at September 30, 2011		5,475,000		$	0.26		2.9	$	-

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock prices of BigString’s common stock at the specified dates and the exercise prices for in-the-money warrants) that would have been received by the warrant holders if all in-the-money warrants had been exercised on the specified dates.

No warrants were granted during the nine months ended September 30, 2011 and 2010.

No warrants were exercised and no cash received during the nine months ended September 30, 2011 and 2010.

During the nine months ended September 30, 2011 and 2010, 8,125,000 and 0 warrants were cancelled, respectively, with an aggregate intrinsic value of $121,875 and $0, respectively, at the date of cancellation. During the nine months ended September 30, 2011 and 2010, 450,000 and 2,343,545 warrants were forfeited or expired, respectively, with an aggregate intrinsic value of $0 and $0, respectively, at the date of forfeit or expiration.

Equity Incentive Plan and Stock Options Issued to Consultant:

At the 2006 annual meeting of stockholders of BigString, the BigString Corporation 2006 Equity Incentive Plan (the “Equity Incentive Plan”) was adopted and approved by a majority of BigString’s stockholders. Under the Equity Incentive Plan, incentive and nonqualified stock options and rights to purchase BigString’s common stock may be granted to eligible participants. Options are generally priced to be at least 100% of the fair market value of BigString’s common stock at the date of the grant. Options are generally granted for a term of five or ten years. Options granted under the Equity Incentive Plan generally vest between one and five years.

On July 11, 2006, BigString approved the grant of a non-qualified stock option to purchase 575,100 shares of BigString’s common stock to a vendor. The non-qualified stock option had a term of five years from July 11, 2006 and an exercise price of $0.32 per share. For the year ended December 31, 2006, BigString recorded a consulting expense of $47,775 in connection with the contractual relationship between Kieran Vogel and BigString related to Mr. Vogel’s participation in BigString’s OurPrisoner program. The stock option was granted outside of the Equity Incentive Plan. The option has expired.

On July 11, 2006, BigString granted incentive stock options to purchase 2,620,000 shares of BigString’s common stock under its Equity Incentive Plan to certain of BigString’s employees. Incentive stock options to purchase 1,450,000 shares of BigString’s common stock were granted at an exercise price of $0.32 per underlying share with 25% vesting every three months for one year; these incentive options expired. Incentive stock options to purchase 1,170,000 shares of BigString’s common stock were granted at an exercise price of $0.50 per underlying share with vesting over periods of three and four years. In addition, non-qualified stock options to purchase 600,000 shares of BigString’s common stock were granted to two non-employee directors at an exercise price of $0.50 per underlying share with vesting over a period of three years; these options also expired.

On September 18, 2006, BigString granted an incentive stock option to purchase 1,800,000 shares of BigString’s common stock under its Equity Incentive Plan to a new BigString officer. Four hundred thousand shares of BigString’s common stock are eligible for purchase at the per share price equal to $0.24; 600,000 shares of BigString’s common stock are eligible for purchase at $0.50 per share; 400,000 shares of BigString’s common stock are eligible for purchase at $.90 per share; and 400,000 shares of BigString’s common stock are eligible for purchase at $1.25 per share. The incentive stock option is fully vested.

On November 14, 2007, BigString granted incentive stock options to purchase 1,275,000 shares of BigString’s common stock under its Equity Incentive Plan to certain of BigString’s employees. Incentive stock options were granted at an exercise price of $0.18 per underlying share with 25% vesting every three months for one year. In addition, non-qualified stock options to purchase 800,000 shares of BigString’s common stock were granted to three non-employee directors at an exercise price of $0.18 per underlying share with 25% vesting every three months for one year; these options were forfeited.

On April 11, 2008, BigString granted incentive stock options to purchase 2,580,000 shares of BigString’s common stock under its Equity Incentive Plan to certain of BigString’s employees. Incentive stock options were granted at an exercise price of $0.21 per underlying share with 25% vesting every three months for one year. In addition, non-qualified stock options to purchase 1,000,000 shares of BigString’s common stock were granted to two non-employee directors at an exercise price of $0.21 per underlying share with 25% vesting every three months for one year; these options were forfeited.

On November 17, 2008, BigString granted non-qualified stock options to purchase 300,000 shares of BigString’s common stock to a BigString vendor under a partnering arrangement. The stock options were granted at an exercise price of $0.08 per underlying share with 25% vesting every three months for one year. These stock options were granted outside of the Equity Incentive Plan.

For the three months ended September 30, 2011 and 2010, BigString recorded stock-based option compensation expense of $0 and $0, respectively. For the nine months ended September 30, 2011 and 2010, BigString recorded stock-based option compensation expense of $0 and $361, respectively. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Stock-based compensation expense was recorded net of estimated forfeitures.

The number of stock options outstanding as of January 1, 2011 and changes to such number during the nine months ended September 30, 2011 are as follows:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Options outstanding at January 1, 2011		6,950,100		$	0.36		3.4	$	-
Options granted		-		$	-
Options exercised		-		$	-
Options cancelled/forfeited/expired		(1,825,100	)	$	0.32
Options outstanding at September 30, 2011		5,125,000		$	0.37		3.9	$	-
Options exercisable at September 30, 2011		5,125,000		$	0.37		3.9	$	-

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock prices of BigString’s common stock at the specified dates and the exercise prices for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on the specified dates.

No options were granted during the nine months ended September 30, 2011 and 2010.

No options were exercised and consequently no cash was received from, and no tax benefit was attributable to, option exercises and no cash was received from purchases of shares for the nine months ended September 30, 2011 and 2010.

During the nine months ended September 30, 2011 and 2010, options to purchase a total of 1,825,100 and 2,200,000 shares of BigString’s common stock, respectively, were cancelled, forfeited or expired with an aggregate intrinsic value of $0 and $0, respectively, at the date of expiration.

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, consistent with the provisions of ASC 718. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. BigString has limited relevant historical information to support the expected exercise behavior because no exercises have taken place.

The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted in the periods presented:

	For the Nine Months Ended
	September 30,
	2011			2010
Risk-free interest rate		-	%		-	%
Expected volatility		-	%		-	%
Expected life (in years)		-			-
Dividend yield		-			-

The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of the grant. BigString estimates the volatility of its common stock at the date of the grant based on historical volatility, expected volatility and publicly traded peer companies. The expected life of stock options granted under the Equity Incentive Plan is based on management judgment, historical experience and publicly traded peer companies. BigString has no history or expectations of paying cash dividends on its common stock.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

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+ Details

BigString CORP 10-Q