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EX-32.1 - Kiwibox.Com, Inc.v178881_ex32-1.htm
EX-31.1 - Kiwibox.Com, Inc.v178881_ex31-1.htm
EX-31.2 - Kiwibox.Com, Inc.v178881_ex31-2.htm
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31, 2009

OR

¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE OF 1934

For the Transition Period   From            to

Commission File No. 33-20432

KIWIBOX.COM, INC.
(formerly known as Magnitude Information Systems, Inc.)
Exact Name of Registrant as Specified in its Charter

DELAWARE
 
75-2228828
State or Other Jurisdiction of
 
IRS Employer
Incorporation or Organization
 
Identification Number

330 W. 38th Street, #1602, New York,  New York 10018
Address of Principal Executive Offices            Zip Code

(212) 239-8210
Registrants Telephone Number, Including Area Code

Securities Registered Pursuant to Section 12(b) of the Act:
NONE

Title of Each Class
 
Name of Each Exchange on Which Registered
NONE
 
NONE

Securities Registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.0001

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of 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 is not contained herein, and will not be contained, to the best of 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. ¨

The Registrant’s revenues for the fiscal year ended December 31, 2009 were $50,450.

Common stock, par value $.0001 per share (“Common Stock”), was the only class of voting stock of the Registrant outstanding on March 1, 2010. Based on the closing price of the Common Stock on the OTC Electronic Bulletin Board as reported on March 1, 2010, ($0.01), the aggregate market value of the 402,234,607 shares of the Common Stock held by persons other than officers, directors and persons known to the Registrant to be the beneficial owners (as the term is defined under the rules of the Securities and Exchange Commission) of more than five percent of the Common Stock on March 1, 2010, was approximately $4,022,346. By the foregoing statements, the Registrant does not intend to imply that any of the officers, directors, or beneficial owners are affiliates of the registrant or that the aggregate market value, as computed pursuant to rules of the Securities and Exchange Commission, is in any way indicative of the amount which could be obtained for such shares of Common Stock.

As of March 1, 2010, 491,293,060 shares of Common Stock, $.0001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX

 
 

 

KIWIBOX.COM, INC.

CONTENTS

   
Page
PART I.
   
     
Item  1.
Business
3
Item 1A.
Risk Factors
7
Item  2.
Properties
10
Item  3.
Legal Proceedings
10
Item  4.
Submission of Matters to a Vote of Security Holders
10
     
PART II.
   
     
Item  5.
Market for Registrant's Common Equity and Related Shareholder Matters
11
Item 6.
Selected Financial Data
12
Item  7.
Management’s' Discussion and Analysis of Financial Condition and Results of Operations
13
Item 7A.
Quantitative and Qualitative Disclosures about Market Risks
16
Item 8.
Financial Statements
17
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
Item 9A.
Control and Procedures
17
Item 9B.
Other Information
17
     
PART III.
   
     
Item 10.
Directors and Executive Officers of the Registrant
18
Item 11.
Executive Compensation
21
Item 12.
Security Ownership of Certain Beneficial Owners and Management
25
Item 13.
Certain Relationships and Related Transactions
28
Item 14.
Principal Accountant Fees and Services
29
     
PART IV.
   
     
Item 15.
Exhibits
30
     
 
Signatures
31
     
 
Exhibit Index
32

 
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PART I
ITEM 1:           BUSINESS
 
Section 1.1      The Company

Kiwibox.Com, Inc. (the “Company”) was incorporated as a Delaware corporation on April 19, 1988 under the name Fortunistics, Inc. On November 18, 1998, the Company changed its name to Magnitude Information Systems, Inc. On December 31, 2009, the Company changed its name to Kiwibox.Com, Inc.

On August 16, 2007 the Company acquired all outstanding shares of Kiwibox Media, Inc.

The Company, its subsidiary Magnitude, Inc. and Kiwibox Media Inc. were separate legal entities until December 31, 2009, with Kiwibox Media, Inc. being a wholly owned subsidiary. The 1% of Magnitude, Inc. not owned by the Company constituted a minority interest which was valued at $0. On December 31, 2009, the two subsidiaries Magnitude, Inc. and Kiwibox Media, Inc.  merged into the Company.

Prior to the implementation of its strategic business plan in 2007, the Company’s primary product was an integrated suite of proprietary software modules previously marketed under the name ErgoEnterprise™. During the latter half of fiscal year 2006, Company management concluded that the marketplace for the Company’s ergonomic software products was not developing, and would not develop to the material extent necessary in the next 12 to 24 months, to support and sustain the Company’s sales efforts. Accordingly, management determined that it would be in the best interests of the Company and its shareholders to identify another business opportunity and pursue it for the benefit of our shareholders. On February 19, 2007, the Company, pursuant to its strategic plan to seek another business opportunity, signed an Agreement and Plan of Reorganization with the owners of a social networking website, to acquire their Kiwibox.com website and business, represented by Kiwibox Media, Inc. Pursuant to that certain Agreement and Plan of Reorganization, in August, 2007, Kiwibox Media, Inc. merged with and into Magnitude Operations, Inc., a wholly owned subsidiary of Magnitude Information Systems, Inc., in a “reverse merger” transaction. The three shareholders of Kiwibox Media, Inc. transferred and delivered all of the outstanding stock of Kiwibox Media, Inc. to Magnitude Operations, Inc. for cancellation and received in exchange shares of Magnitude Information Systems, Inc. at closing. Also at closing and as a result of the merger, the separate legal existence of Magnitude Operations, Inc. ceased and Kiwibox Media, Inc. became the surviving corporation of the merger and a wholly owned subsidiary of Magnitude Information Systems, Inc.

The Company is currently subject to the reporting requirements of Section 15(d) of the Securities Exchange Act of 1934.  The Company has the authority to issue an aggregate of One Billion Four Hundred Million (1,400,000,000) Common Shares, par value $.0001, following an increase from 700,000,000 shares, authorized by the shareholders of the Company on January 29, 2009, and Three Million (3,000,000) Preferred Shares, par value $.001, of which at December 31, 2009, Two Thousand Five Hundred (2,500) were designated as Cumulative Preferred Shares, par value $.001; Three Hundred Thousand (300,000) were designated as Series A Senior Convertible Preferred Stock, par value $0.001; Three Hundred Fifty Thousand (350,000) were designated as Series B Senior Convertible Preferred Stock, par value $0.001; One Hundred Twenty Thousand (120,000) were designated as Series C Senior Convertible Preferred Stock, par value $0.001; Five Hundred Thousand (500,000) were designated as Series D Senior Convertible Preferred Stock, par value $0.001; Five Hundred Thousand (500,000) were designated as Series E Senior Convertible Preferred Stock, par value $0.001, and Forty-Three Thousand Six Hundred Ten (43,610) were designated Series G Senior Convertible Preferred Stock

As of December 31, 2009, there were outstanding 478,168,060 Common Shares, 1 Cumulative Preferred Share, and 85,890 Convertible Preferred Shares.

 
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Description of Business

Overview

Prior to the implementation of its strategic business plan in 2007, the Company’s primary product was an integrated suite of proprietary software modules previously marketed under the name ErgoEnterprise™. During the latter half of fiscal year 2006, Company management concluded that the marketplace for the Company’s ergonomic software products was not developing, and would not develop to the material extent necessary in the next 12 to 24 months, to support and sustain the Company’s sales efforts. Accordingly, management determined that it would be in the best interests of the Company and its shareholders to identify another business opportunity and pursue it for the benefit of our shareholders. On February 19, 2007, the Company, pursuant to its strategic plan to seek another business opportunity, signed an Agreement and Plan of Reorganization with the owners of a social networking website, to acquire their Kiwibox.com website and business, represented by Kiwibox Media, Inc. Pursuant to that certain Agreement and Plan of Reorganization, in August, 2007, Kiwibox Media, Inc. merged with and into Magnitude Operations, Inc., a wholly owned subsidiary of Magnitude Information Systems, Inc., in a “reverse merger” transaction. The three shareholders of Kiwibox Media, Inc. transferred and delivered all of the outstanding stock of Kiwibox Media, Inc. to Magnitude Operations, Inc. for cancellation and received in exchange shares of Magnitude Information Systems, Inc. at closing. Also at closing and as a result of the merger, the separate legal existence of Magnitude Operations, Inc. ceased and Kiwibox Media, Inc. became the surviving corporation of the merger and a wholly owned subsidiary of Magnitude Information Systems, Inc. On December 31, 2009 Magnitude Information Systems, Inc. changed its name to Kiwibox.Com, Inc.

We own and operate “Kiwibox.com”, a social networking website. Initially launched in 1999, Kiwibox.com is an online social networking website dedicated to teen users and young adults. The Kiwibox website provides online content in several categories produced by users. We have formed a user-based contingent of contributors that submit, review and comment upon content and articles from all over the world, 24 hours a day, seven days a week.  Kiwibox has a regional-based advertising-system that allows target-group-optimized ads for advertisers and sponsors.

History

Kiwibox.com was founded in 1999 by three students attending Carnegie Mellon University. Kiwibox.com was built as an online destination for teens, combining editorial content with interactive community features.  Kiwibox.com produces a “For Teen by Teens” Online Magazine, and currently has over one-thousand (1,000) active member contributors and editors. This user generated entertainment content is managed though a proprietary Kiwibox.com editorial system that is unique to Kiwibox.com, and is highly acclaimed by the user base.  Acceptance of this model was demonstrated through exponential membership growth during the first two years of operations. This membership growth required better access to entertainment and content sources, advertisers, and business partners, thus in 2000 the Kiwibox operations relocated from Pittsburgh to New York City.  When the 2001 “dot-com” bubble burst in 2001 many Internet advertising agencies as well as Kiwibox competitors were forced out of business.  In response Kiwibox.com reduced its operations and focused on maintaining and growing its membership community, while establishing itself as  a highly trusted and safe website ..

Kiwibox Operations

In the United States alone the teenage population is approximately 44 Million, as estimated by the US Census Bureau, and they spent over $189 billion in 2006 according to eMarketer. Spending by and on teens is projected to grow to $208 billion by 2011.  To reach teens online, marketers will increasingly look to social networks. According to eMarketer, advertising on social networking websites is projected to be over $2 billion for 2008 and to grow to over $4 billion by 2011.  Today’s teenagers are the first generation to grow up with social networks where the new focus is to be always online and connected with your friends. In fact, according to the Pew Internet and American Life Project, 83 percent of U.S. teenagers are online. And although there are a number of websites that have targeted this large marketplace no one site has yet to dominate it. We will strive through technology and content enhancements to make the Kiwibox.com website one of the most exciting social networks in the United States

 
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In mid-year 2009 we started a review process to identify new user preferences and trends in the market, partially driven by the growing presence of social websites such as facebook, mySpace, and Twitter. We also started to investigate the newest web technologies and to actively look for potential strategic partners.

In October 2009 we began trials and test runs of our web site on a new platform based on most recent web technologies.   This project encompasses the utilization of modern user tools including integrated mail systems and a proprietary messaging system, all designed to significantly increase average on-line times of users which should project favorably on our revenue profile.  Concurrently, we improved Web 2.0 Technology user friendliness and usability of web site features by means of AJAX-Technology.  In addition, we integrated features found in other social networks such as Blogging, Messaging, Live-Tickers, Chat, Photo tagging, and Event Submission. Inclusion of regional events calendars with participant listings and „Kiwi-Shots“ are intended to motivate users to frequent log-ins and interactive use of the website.

Overall, we equipped the entire website with the newest state-of-the-art advertising features which enable sponsors to self-direct their message to specific target audiences based on gender, age, geographic region, education, and interests. That also included a Google optimization with privacy options which improves Google search results.  Special attention was given to end up with a scaleable and highly redundant system that can accommodate future growth.  One of the most important features of a social network website is the Search and „be found“ function. Here we completely updated our member search function to facilitate friends searches and establish networks of users on a global basis.

Potential Revenue Streams and Marketing Strategy

Currently we generate the majority of our revenue from advertising/sponsorships.  Although we anticipate average web advertising CPM (click per thousand) rates to decrease in 2010, revenue growth is expected as the revitalized site is launched, membership activity increases and new planned marketing strategies are implemented.
With the integration of target-group optimized advertising we seek to accommodate potential advertisers, recognizing and responding to the importance of a contact-price in relation to the internet target “cloud”. It is getting more and more important to get access to the right target group and know how to direct advertising – and this is only possible in social networks.

Community means social network – and this lives from networking. Our new website is based on the latest web technology which makes it easier for users to stay connected and to interact with each other.  In addition, our website features and contents spectrum are designed to enlarge our potential user audience through inclusion of the “Young Adults” segment.

Safety

Kiwibox.com has developed a proprietary monitoring model which assists in maintaining a safe site for our member base, combining both technology based systems and user moderation.  Over the last 9 years our team has selected trusted long term members to become “Helpers” known on the Kiwibox.com site as “Guides”. These Guides utilize internal Kiwibox provided tools to remove inappropriate content as needed, guide and warn users, and continually scan the site for unsafe content or user activity. These helpers have an icon next to their username denoting that they are a KiwiHelper, thus users who believe they are not being treated respectfully, or otherwise feel uncomfortable, may easily find and reach a Guide to gain their assistance.  If a Guide deems that a user or site issue requires further escalation, they in turn immediately contact Kiwibox personnel, which then evaluate and resolve the issue.

 
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In order to counter inherent problems in this area, our Kiwibox website already benefits from various safety features built right into the technology platform. This involves the private sphere configuration of users, contact blocks in case of larger age differentials, and anti-spam protection, as well as an intelligent self-learning user-scoring feature.

Competition

Our primary competitors are other youth targeted online social networks, including Facebook.com, MyYearbook.com, and MySpace.com. MySpace and Facebook are widely considered the industry leaders, however, recently statistics and strategic announcements from both companies has indicated a shift in the target audience from teens and college students to a much broader and more adult demographic, because of their international focus.   We plan to distinguish ourselves by targeting the US-market and by combining the social-network advantages with user generated content – from users to users.

Intellectual Property

We currently do not own any patents, trademarks, or licenses of any kind. However, the copyright on the Kiwibox.com web and mobile software and other related intellectual property rights are important assets.  We hold the Internet domain names Kiwibox.com, Kiwibox.net, Kiwibox.org, Kiwibox.info, Kiwibox.us, Kiwibox.mobi, Kiwiboxinc.com, and 4kiwi.com.

Governmental Regulations

Our Kiwibox website operations are subject to state, federal and international laws, rules and regulations that cover on-line business, privacy policies, consumer protection and product marketing. The Kiwibox website business is subject to state, federal and international laws, rules and regulations applicable to online commerce, including user privacy policies, product pricing policies, website content and general consumer protection laws.  Various laws, rules and regulations have been adopted, and probably will be adopted in the future, that apply to the Internet, including available online content, privacy concerns, online marketing, “spam” and unsolicited commercial email, taxation issues, and regulations that effect and monitor the quality of products and services.
 
A portion of these laws, rules and regulations that concern the Internet and its uses have been only recently adopted. Courts and administrative agencies have not yet fully interpreted these legal requirements as to their application and scope. Accordingly, our Kiwibox website business is subject to the uncertainties of future interpretations and application of these legal requirements. The application and interpretation of these legal requirements or the passage of new and/or revised laws, rules and regulations could reduce the demand for Kiwibox website services, increase its operational costs, and expose it to potential liability. Any such events, could have a material adverse effect upon our Kiwibox website business and financial condition. Our failure, or that of our business partners, to accurately predict and anticipate the interpretation or application of these laws, rules and regulations, whether now in force or adopted in the future, could have  a detrimental impact on our operations, create negative publicity for us and expose us to potential liability.
 
State and federal agencies are applying consumer protection laws to regulate the on-line use, collection and dissemination of personal information and website content. These laws require us to implement programs to notify our website users of our privacy and security programs. Consumer protection laws will require us to obtain the consent of our website users if we want to collect and use certain portions of their personal information.

 
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The Federal Trade Commission (“FTC”) is the lead federal agency monitoring Internet websites and their content. State attorneys general have become active monitors of the Internet at the local State level. These governmental bodies may investigate or bring enforcement actions against website operators they deem in violation of applicable consumer protection laws. We believe that our Kiwibox website’s collection and dissemination of information programs, including our privacy policies, do and will continue to comply with existing laws. However, a decision by a federal or state agency that any of our Kiwibox website’s business practices do not meet applicable legal standards could result in liability and have a material adverse effect on our business and financial condition.

Employees

Currently, we have 4 full-time and 3 part-time employees. Our plans for hiring additional personnel during 2010 are not yet firmed up.

ITEM 1.A:      RISKS RELATED TO OUR BUSINESS

Early Stage Company; Generation of Revenues

Kiwibox.Com, Inc.  (“Kiwibox” or “the Company”) can be considered an early stage company and investors can not reasonably assume that we will ever be profitable. As an early stage company, we are likely to continue to have financial difficulties for the foreseeable future. We may successfully re-develop our website operations and generate additional revenues but still be unable to achieve profitability. Kiwibox had devoted substantial funds to develop its website, but investors should be aware that there can be no assurance that Kiwibox will ever achieve revenues that exceed its operational costs. We may not obtain the funding necessary to provide Kiwibox with the working capital necessary to continue to develop and market its website. Moreover, the Kiwibox.com website may not receive sufficient internet traffic to increase revenues or achieve profitability.
 
Doubt Raised About our Ability to Continue as a Going Concern.

Our financial statements have been presented on the basis that we will remain a going concern and that our assets will increase and that we will satisfy our liabilities in the normal course of our business. Kiwibox has had minimal revenues and has incurred operating losses during the fiscal years ended December 31, 2007, 2008 and 2009. Our independent auditors have concluded that these factors create an uncertainty about our ability to continue as a going concern. Our ability to continue as a going concern is dependent, among other factors, on our continued success in raising capital.   

Need for Additional Capital; Short-Term Viability of Company
 
Our operations require immediate investment of equity capital or loans to continue to operate. If we can not secure funds in the short-term, we will be required to close our entire business operations and our website. Assuming we can receive a current investment or loans to fund our immediate operational needs, our Kiwibox website business’s future capital requirements will depend on many factors, including the degree to which teenagers use the kiwibox.com Website and the degree to which Kiwibox is able to generate revenues from users of its site. We expect to require additional financing before we achieve a profitable level of operations, however, there is no assurance that such funding will be available on acceptable terms, or at all.  If we elect to sell equity to raise additional funds, there is no assurance that additional equity can be sold on terms favorable to the Company and to its existing shareholders, with the result that existing shareholders may incur substantial dilution. Without the necessary funding, we may be required to delay, reduce or terminate some or all of our Kiwibox website business or our efforts to obtain additional funding.
 
No Formal Feasibility and Market Research Plan
 
We have collected data and statistics concerning the potential market for the Kiwibox.com website and the costs of marketing our services. We have relied principally on the judgment and conclusions of our management, based on their respective knowledge and experiences. We have not performed any formal marketing study that confirms any absolute demand for the services we are providing on our Kiwibox.com website.

 
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Unpredictability of Future Revenues; Potential Downturns in Operating Results
 
Due to Kiwibox’s minimal revenues since inception and the uncertainty of revenues that may be generated through potential partners and alliances, we are currently unable to forecast our future revenues with accuracy.  Our current and future operational costs are based primarily on our marketing and website development plans and our estimates of future revenues. Our potential advertising and joint marketing sales results are difficult to forecast at this stage.  It will be difficult for us to realign our operational expenses should future revenue forecasts not materialize which would require that we curtail or cease certain aspects of our operations. Accordingly, if our future revenues are insufficient to fund our planned operations, such a shortfall could have an immediate adverse effect on our business, prospects, financial condition and results of operations.
 
We may experience cyclical downturns in our future operating results due to various factors, many of which are beyond our control. Some of the factors that could impact our operating results include: (a) our ability to attract and retain new members to our Kiwibox.com website; (b) new developments by our competitor websites; (c) advertising and product price competition; (d) our ability to develop enhancements to our website, upgrade its internet functionality and services; (e) our ability to attract and retain necessary personnel; (f) difficulties with our software or hardware equipment, including any interruptions in the development and maintenance of our internet equipment and related infrastructure systems related to our Kiwibox.com website; (g) the future impact of governmental rules, regulations and laws, and; (h) general economic conditions.

Website and Service Development Risks
 
The continuing development of our Kiwibox.com website is a highly complex technical process. We are presently in the process of designing and implementing a wide array of feature and contents enhancements in order to remain competitive in our teen marketplace. If we are unable to develop and introduce new services or enhancements to our website in a timely manner in response to changing market conditions or customer requirements, our business, prospects, operating results and financial condition could be materially adversely affected.  
 
Limited Senior Management Team; Potential Problems with Expanding Personnel
 
We have a limited number of senior management personnel, planning, developing and managing our website business. We are in the process of expanding our website operations to accommodate potential growth in our membership and marketplace. We will experience significant pressure on our financial resources and management personnel as a result of the current expansion. In order to manage this expansion, we may be required to adopt new operating procedures, develop new advertising and marketing plans, financial controls and procedures and policies to supervise a growing employee population. We will also be required to attract, retain and properly administer the expansion of our employee population. Investors should be aware that we may not be able to adequately manage all of these new developments in our expansion, in which case our operations, business prospects, operating results and financial condition could be materially adversely affected.
 
Competition
 
Our website business in the teen marketplace is highly competitive. We can give no assurances that our website business will effectively compete with the more established teen websites currently operating in this marketplace.

 
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Many of our competitors have significantly greater financial resources, established brand names and significantly larger membership and customer bases and we expect our competition to only intensify.

Dependence on Management
 
The Kiwibox.com website’s success will be substantially dependent on the continued services and on the performance of our current senior management. We will also be dependent upon our ability to retain and provide incentives for our management team. The loss of services of any one or more of our senior management team could have a material adverse affect on our operating results, business prospects and financial condition.

Our success will be dependent, in large part, on the services of our principal officers and employees.  The loss of any of these individuals could have a material adverse effect on our business or results of operations.  We do not maintain “key-man” life insurance policies on the lives of our officers to compensate us in the event of their deaths.
  
Except for issues that require shareholder approval, investors should be aware that they will have no vote on our operations, business developments or any management issues, including expansion, website enhancements or personnel decisions. You should not invest in our company unless you understand that all business and operational decisions are made by our management.
 
Creation of Brand Awareness
 
It will be crucial to the economic success of our Kiwibox.com website that we promote and establish brand awareness. A successful brand awareness campaign will tend to decrease our marketing expenses over time. If we are not able to adequately establish our brand in our marketplace, our operating results, market growth and financial condition could be materially adversely affected.

Potential for Defects in our Products and Services
 
Our Kiwibox.com website, its functionality, product offerings and services may contain defects or problems yet undetected.  Such defects or problems could delay the launch of our new Kiwibox.com website, generate negative public comment and inhibit marketplace acceptance, any one or more of which could have a material adverse affect on our operating results and financial condition.

Penny Stock Regulation
 
Our common shares are subject to the “penny stock rules” that require broker-dealers who sell our shares to make specific disclosures before selling to certain persons. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risk associated therewith as well as the written consent of the purchaser of such security prior to engaging in a penny stock transaction. These penny stock restrictions will continue to apply as long as the Company’s common stock continues to trade at market prices below $5.00. Investors should be aware that the regulations on penny stocks may significantly restrict the ability of any purchaser of our common shares to sell his or her Company common shares in the market.

Absence of Dividends
 
We have not paid any dividends on our common stock and we are not likely to do so in the foreseeable future. We presently intend to retain earnings for use in growing our business. We may pay for some of our future expansion through debt financing, in which case lenders traditionally prohibit the payment of any such dividends. We also are prohibited from paying dividends on our common stock before we have paid all dividends accrued on our preferred stock, which accruals amounted to $479,339 at December 31, 2009. Investors should be aware, therefore, that the Company intends to re-invest any earnings back into our business for the foreseeable future and that they should have no expectations of receiving any dividends on the common shares they may purchase.

 
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ITEM 2:             DESCRIPTION OF PROPERTIES

We maintain offices for our Kiwibox operations at 330 W. 38th Street, New York, New York 10018, for approximately 1,400 square feet. The lease expires with the end of 2010 and we pay minimum monthly rentals of $3,769 plus tenants’ share of utility/cam/property tax charges which average approximately $800 per month.

ITEM 3:             LEGAL PROCEEDINGS

At the time of this report, the Company is not a party in any material legal proceedings.

ITEM 4:             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the security holders during the fourth quarter of this fiscal period.
At the beginning of 2009 we engaged in a proxy vote solicitation and on January 29, 2009, shareholders of a total 244,725,773 common shares, out of the 436,242,570 shares outstanding, voted to increase our authorized common shares to 1,400,000,000 shares and voted to ratify the appointment of Rosenberg Rich Baker Berman and Company to serve as our independent auditors for the fiscal year ending December 31, 2009, as follows:

Proposition No. 1: to increase the authorized common shares to 1,400,000,000 shares –

FOR
AGAINST
ABSTAIN
241,941,210
2,357,063
427,500

Proposition No. 2: to ratify the appointment of Rosenberg Rich Baker Berman & Company to serve as the Company’s auditors for the fiscal year ending December 31, 2009 –

FOR
AGAINST
ABSTAIN
244,552,663
66,565
106,545

 
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PART II

ITEM 5:
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATEDSHAREHOLDER MATTERS

(a)  Market Information

The Company’s common stock currently trades on the Electronic Bulletin Board of the OTC market, under the symbol KIWB.  The following table sets forth, for the calendar quarters indicated, and for the last three years, the high and low sales prices for the Company’s common stock.

   
OTC-BB
 
   
Low/Bid
   
High/Ask
 
2007
           
First Quarter
  $ 0.03     $ 0.06  
Second Quarter
    0.04       0.08  
Third Quarter
    0.04       0.07  
Fourth Quarter
    0.02       0.05  
2008
               
First Quarter
  $ 0.01     $ 0.04  
Second Quarter
    0.02       0.03  
Third Quarter
    0.01       0.03  
Fourth Quarter
    0.01       0.03  
2009
               
First Quarter
  $ 0.01     $ 0.03  
Second Quarter
    0.01       0.02  
Third Quarter
    0.01       0.01  
Fourth Quarter
    0.01       0.04  

(b)  Shareholders

As of March 1, 2010, there were approximately 400 shareholders of record for the Company’s Common Stock.  The number of record holders does not include shareholders whose securities are held in street names.

(c)  Dividends

The Company has not declared or paid, nor has it any present intention to pay, cash dividends on its Common stock. The Company is obliged to pay cash dividends on its outstanding convertible preferred stock and, under certain circumstances, on its outstanding cumulative preferred stock. See "DESCRIPTION OF CAPITAL STOCK" - "The Series A Stock", "The Series B Stock", "The Series C Stock", "The Series D Stock", the “Series E Stock”, and "The Series G Stock", below.

Recent Issues of  Unregistered Securities

During the fourth quarter of 2009 the Company issued the following unregistered securities:

We issued 35,000,000 Units pursuant to subscription agreements with four accredited investors and received subscription proceeds of $875,000, less $60,000 paid to a finder in connection with such investment, during the fourth quarter. The subscription price for each Unit was $.025, with each Unit comprised of one restricted common share and one fourth common stock purchase warrant. Each warrant is exercisable during a five year period at the exercise price of $.05 per warrant and contains a cashless exercise provision.

 
11

 

All of the above offerings and sales were made in reliance upon the exemption from registration under Rule 506 of Regulation D promulgated under the Securities Act and/or Section 4(2) of the Securities Act, based on the following: (a) the investors confirmed to us that they were “accredited investors,” as defined in Rule 501 of Regulation D promulgated under the Securities Act; (b) the investors were all shareholders of or prior investors in, the Company, had pre-existing relationships with the Company and the Company did not engage in any general solicitation with respect to the offerings; (c) the investors acknowledged that all securities being purchased were “restricted securities” as defined under applicable securities laws, and agreed to transfer such securities only in a transaction registered under the Securities Act or pursuant to available exemptions from such registration requirements; and (d) a legend was placed on the certificates representing each such security, disclosing that such securities are deemed restricted securities and could only be sold or otherwise transferred if registered under the Securities Act or pursuant to exemptions from such registration requirements.

ITEM 6:             SELECTED FINANCIAL DATA

Except for historical information, the Company's reports to the Securities and Exchange Commission on Form 10-K and Form 10-Q and periodic press releases, as well as other public documents and statements, contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the statements. These risks and uncertainties include general economic and business conditions, development and market acceptance of the Company’s products, current dependence on the willingness of investors to continue to fund operations of the Company and other risks and uncertainties identified in the Company's reports to the Securities and Exchange Commission, periodic press releases, or other public documents or statements.

Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.
 
The selected financial information presented below under the captions "Statement of Operations" and "Balance Sheet" for the years ended December 31, 2005 through 2009 is derived from the financial statements of the Company and should be read in conjunction with the financial statements and notes thereto.

The financial data are those of Kiwibox.Com, Inc. (f/k/a Magnitude Information Systems, Inc.) including the operations of Magnitude, Inc and, starting with August 16, 2007, the date of acquisition, the operations of KiwiBox Media, Inc. All inter-company accounts and transactions have been eliminated in consolidation.

Balance Sheet
   
December 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
Total assets
  $ 141,415     $ 130,672     $ 3,221,336     $ 169,128     $ 515,629  
Current liabilities
    2,311,386       5,179,293       6,316,912       2,674,613       1,180,010  
Long-term debt
    -       -       -       -       -  
Working capital
    (2,226,345 )     (5,148,331 )     (5,826,532 )     (2,553,451 )     (1,016,230 )
                                         
Shareholders’ equity (deficit)
  $ (2,169,971 )   $ (5,048,621 )     (3,095,576 )     (2,505,485 )     (664,381 )

 
12

 

Statement of Operations
   
For the Year Ended December 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
Total revenues
  $ 50,450     $ 59,421     $ 29,745     $ 47,701     $ 189,552  
Operating income (loss)
    (1,609,956 )     (6,206,870 )     (2,447,832 )     (3,716,867 )     (2,410,670 )
Net (loss)
    (2,440,465 )     (5,493,764 )     (3,881,652 )     (3,895,262 )     (2,218,257 )
Net (loss) after dividends on preferred shares
    (2,491,728 )     (5,545,096 )     (3,935,133 )     (4,473,726 )     (2,341,492 )
Net loss per common share
  $ (0.006 )   $ (0.015 )   $ (0.016 )   $ (0.026 )   $ (0.017 )
Number of shares used in computing per share data
    447,090,174       373,156,459       243,609,819       170,692,731       138,097,577  

ITEM 7:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934

The information in this annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their businesses so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than those statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.
 
The following discussion and analysis should be read in conjunction with the consolidated financial statements of Kiwibox.Com, Inc., included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Description of Business

In mid-year 2009 we started a review process to identify new user preferences and trends in the market, partially driven by the growing presence of social websites such as Facebook, MySpace, and Twitter. We also started to investigate the newest web technologies and to actively look for potential strategic partners.

In October 2009 we began trials and test runs of our web site on a new platform based on most recent web technologies.   This project encompasses the utilization of modern user tools including integrated mail systems and a proprietary messaging system, all designed to significantly increase average on-line times of users which should project favorably on our revenue profile.  Concurrently, we improved Web 2.0 Technology user firendliness and usability of web site features by means of AJAX-Technology.

 
13

 

In addition, we integrated features found in other social networks such as Blogging, Messaging, Live-Tickers, Chat, Photo tagging, and Event Submission. Inclusion of regional events calendars with participant listings and Kiwi-Shots are intended to motivate users to frequent log-ins and interactive use of the website. Overall, we equipped the entire website with the newest state-of-the-art advertising features which enable sponsors to self-direct their message to specific target audiences based on gender, age, geographic region, education, and interests. That also included a Google optimization with privacy options which improves Google search results.  Special attention was given to end up with a scaleable and highly redundant system that can accommodate future growth.

Currently we generate the majority of our revenue from advertising/sponsorships.  Although we anticipate  average web advertising CPM (click per thousand) rates to  decrease in 2010, revenue growth is expected as the revitalized site is launched, membership activity increases and new planned marketing strategies are implemented.
With the integration of target-group optimized advertising we seek to accommodate potential advertisers , recognizing and responding to the importance of a contact-price in relation to the internet target “cloud”. It is getting more and more important to get access to the right target group and know how to direct advertising – and this is only possible in social networks.

Results of Operations for the Twelve Months Ended December 31, 2009 Compared to the Twelve Months Ended December 31, 2008

The Company had no material revenues during 2009 and 2008.  Our website presence is not yet supported by a volume of active members-users that would provide a basis for significant growth in advertising revenues. For the year ended December 31, 2009, total revenues amounted to $50,450 compared to $59,421 in 2008. Revenues were derived entirely from the Kiwibox operations.

Gross profits amounted to $11,683 after considering $38,767 in website hosting expenses.  After deducting selling, research, and general and administrative expenses of $1,621,639 compared to the $6,229,283 recorded in 2008, the Company realized an operating loss of $1,609,956 compared to an operating loss of $6,206,870 in 2008.  Included in SG&A expenses for 2008 was a position of $3,138,751 attributable to the impairment of goodwill previously capitalized in connection with the acquisition of the Kiwibox business. Excluding this charge the 2008 operating expenses would have been $3,090,532. On this basis, management’s efforts to reduce costs and streamline operations clearly showed the desired effect even though some cost savings measures such as a reduction in staffing and non-essential expenditures took effect only during the course of the year. For the year 2010 management expects a further reduction in total operating expenses which, coupled with an expected increase in revenues, will start a process of putting the company on a path towards eventually eliminating the erosion of shareholder value.
 
The major item included in non-operating income and expenses was a charge of $600,000 accounting for the intrinsic value of the beneficial conversion feature associated with convertible debt. In addition, the Company arrived at a settlement with a former principal of its Kiwibox subsidiary which among other, entailed the write off of a $131,262 loan to that shareholder, transacted during the time before the Company acquired Kiwibox Media Inc. We also incurred a charge of $77,806 in connection with changes in the valuation of derivative liabilities, and income of $114,597 from the extinguishment of debt, consisting of $76,855 owed to a director and $37,742 from extinguishments of other company obligations.  The year concluded with a net loss of $2,440,465. After accounting for dividends accrued on outstanding preferred stock which totaled $51,263 the net loss applicable to common shareholders was $2,491,728 or $0.006 per share, compared to a loss of $5,545,096 or $0.015 per share for the previous year.

 
14

 

Liquidity and Capital Resources

We have financed our business with new debt and equity capital since our cash flow is insufficient to provide the working capital necessary to fund our operations. We recorded $815,000 in cash from subscriptions for new equity capital from accredited private investors during 2009. In addition, we received $1,540,000 from short-term loans. We also retired $730,000 of short term debt. We have an urgent need for working capital to fund our operations. If we are unable to immediately receive new equity investments or obtain loans, we will not be able to fund our operations and we will be required to close our business.

Our deficit in working capital amounted to $2,226,345 at December 31, 2009, as compared to $5,148,331 at December 31, 2008.  Stockholders’ equity showed an impairment of $2,169,971 at the end of the year, compared to an impairment of $5,048,621 at the beginning of the year. The relative improvement stems primarily from the elimination of $3,408,618 in derivative liabilities associated with the conversion of our Series G Convertible Preferred Stock in February 2009 which reflected directly in the equity column. The negative cash flow from operations totaled $1,586,512 and was substantially financed by new debt and equity which was obtained through private placements. The new equity placements were consummated by issuance of common stock and warrants to accredited investors. Details of such transactions can be found in the “Changes and Issuance of Securities” sections in the Company’s quarterly reports on Forms 10-Q during the year, as well as in the pertinent section of this report.
 
We have no bank debt and aside from trade payables and accruals, our indebtedness at December 31, 2009, consisted of certain notes and loans aggregating $1,130,000. The position “Obligations to be settled in stock” of $132,900 includes $76,900 for common shares and options accrued for certain officers and directors pursuant to their respective employment and remuneration agreements, and $56,000 for stock and warrants due under consulting agreements. Current liabilities also include $479,339 accrued unpaid dividends on outstanding preferred stock. Such dividends will be paid only if and when capital surplus and cash-flow from operations are sufficient to cover the outstanding amounts without thereby unduly impacting the Company’s ability to continue operating and growing its business.
 
Our current cash reserves and net cash flow from operations expected during the near future will be insufficient to fund our operations and website development and marketing plan over the next twelve months. We expect to fund these requirements with further investments in form of debt or equity capital and are in discussions with potential investors. There can be no assurance, however, that we will be able to identify a financing source or sources and if we do, whether the terms of such financing will be acceptable or commercially reasonable.

Absent the receipt of immediate equity investment or loans, we will be compelled to close our business operations. Absent the receipt of sufficient funds, our website development, results of operations and financial condition could be subject to material adverse consequences. There can be no assurance that we will find alternative funding for the working capital required to finance on-going operations.

Subsequent Events – Fiscal Year 2010

During February 2010 we received an aggregate $125,000 in equity capital from subscriptions for “units’ consisting of common stock shares and stock purchase warrants (see “Recent Issues of Unregistered Securities” above).

 
15

 

ITEM 7A:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to certain market risks, for changes in financial market conditions. The Company does not undertake any special actions to limit those exposures. We do not have a significant interest rate risk because the interest on all our debt obligations is based on fixed rates in accordance with the terms of such indebtedness.

 
16

 

ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Financial Statements and Notes to Financial Statements are attached hereto as Exhibit A and incorporated herein by reference.
 
ITEM 9:
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 
There have been no changes in or disagreements with the Registrant’s independent auditors during the last two years.

ITEM 9A:
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Item 9A(T).  Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-K for the Year ended December 31, 2009, an evaluation was undertaken, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) of the Exchange Act; and; based upon that evaluation, Company management, including the Chief Executive Officer and the Chief Financial Officer, has concluded that the design of the Company’s disclosure controls and procedures are effective and ensure that all material information required to be disclosed by the Company in the reports that it files or submits under the Act, are recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms; in addition, the evaluation confirmed that the Company’s disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to Company management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management Report on Internal Control Over Financial Reporting
 
The Company maintains a system of internal controls designed to provide reasonable assurance that:  (i) the Company’s transactions are properly authorized; (ii) the Company’s assets are protected against unauthorized or improper use, and (iii) the Company’s transactions are properly recorded and reported, all to permit the preparation of complete and accurate financial statements in conformity with generally accepted accounting principles.

Changes in Internal Control over Financial Reporting
 
Since the date of the most recent evaluation of the Company’s internal controls by the Chief Executive Officer and Chief Financial Officer, there have not been any significant changes in the Company’s internal controls or other factors for the period covered by the subject Form 10-K that materially affected or were likely to materially affect the Company’s internal control over financial reporting.

ITEM 9B:  OTHER INFORMATION
 
None.

 
17

 

PART III

ITEM 10:
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROLPERSONS

The names of all directors and executive officers of the Company are as follows:

Name
 
Positions
 
Term  Served (Expires)
         
Edward L. Marney
 
Director
   
   
President, Chief Executive
 
May 5, 2006 to August 1, 2008*
   
Officer
   
         
Rudolf Hauke
 
Director
   
   
President, Chief Executive Officer
 
July 14, 2008 to present
         
   
Director
 
Dec. 2, 2005 to present
Joerg H. Klaube
 
Sr. Vice President, Secretary,
 
July 31, 1997 to present
   
Chief Financial Officer
   
         
Steven L. Gray
 
Director
   
   
Chairman of the Board
 
May 18, 2000 to July 18, 2008*
         
Joseph J. Tomasek
 
Director
 
Feb. 11, 1999  to present
         
Quentin Kelly
 
Director
 
July 14, 2008 to March 24, 2009*
         
Joerg Otzen
 
Director
 
July 14, 2008 to present
         
Andre Scholz  
Director
   
   
Chief Technology Officer
 
May 13, 2009 to present

* Mr. Marney resigned as an officer and director on August 1, 2008; Mr. Gray resigned as a director on July 18, 2008, and Mr. Kelly resigned as a director on March 24, 2009. All Directors of the Company hold office until the next annual meeting of the shareholders and until successors have been elected and qualified. Executive Officers of the Company are appointed by the Board of Directors at meetings of the Company's directors and hold office until they resign or are removed from office.
 
Rudolf Hauke, Age 62 – Director, President and Chief Executive Officer. Mr. Hauke joined the Company in July 2008. He also currently serves as the President and Chief Executive Officer of ATG Advanced US Technology Group Inc, located in Clearwater, Florida an organization engaged in the development of image classification technologies with a principal focus on the protection of children over the internet, which he founded in 2006. Prior to establishing ATG, Dr. Hauke was a senior executive with TBS North America Inc, a biometrics company headquartered in Herndon VA, where he managed to receive a $3 million government fund from NIJ. A business executive and research scientist with more than 25 years experience, Dr. Hauke managed high-tech research initiatives at both business units within large corporations and as privately funded start-up companies. Dr. Hauke holds a PhD in Applied Physics from the University of Tubingen, Germany and began his career in 1978 as the head of R&D for CGR Koch & Sterzel where he oversaw the research, design and development of medical diagnostic systems. He became the European Marketing Manager for Toshiba Medical Systems in 1982 and significantly grew Toshiba's European market share. In 1984, he co-developed ultrasound technology for Phillips/Dornier . In 1993 he worked for Kaba Systems Switzerland - a leading provider in access control systems- building distribution networks within US . He holds more than 65 patents or patents pending.

 
18

 
 
Andre Scholz, Age 32 – Director, Chief Technology Officer. Andre Scholz has more than 15 years business experience in Internet, telecommunication technology and IT security. He holds an advanced degree from the University of Stuttgart and Konstanz in electronic engineering. Mr. Scholz is a consultant and well known technical expert for numerous social networks, communities and high-traffic sites, active around the world. He brings a wealth of social network and internet knowledge to Kiwibox. Mr. Scholz was co-founder of various internet exchange points and manages them until now. Since 1996 he is Managing Director of a carrier and Internet Service Provider in Stuttgart, Germany and since 2002 he is CEO of the Interscholz company group, Leonberg, Germany, which places private investments in and is managing and operating various companies.

Joerg H. Klaube, Age 68 – Director and Chief Financial Officer, Senior Vice President. He joined the Company in December 1994.  His business career covers a broad range of appointments in corporate financial management, treasury and administrative functions, in a variety of business environments including publicly held companies. He served as chief financial officer for software design and computer marketing firms Unitronix Corporation and Comar Technologies Inc., and the telecommunications holding company E. Oliver Capital Group. Prior to that, he was employed for sixteen years with the U.S. subsidiary of Siemens AG, where lastly he served as Director of Business Administration for its Telecommunications Division.  He graduated from the Banking School in Berlin, Germany, and holds a Masters Degree in Business Administration from Rutgers University.
 
Joseph J. Tomasek, Age 63 - Director. Mr. Tomasek was appointed a director in February 2000.  Mr. Tomasek also serves as our General Counsel and coordinates our legal affairs in such role. In addition to serving in these Company positions, Mr. Tomasek represents U.S. and international clients in corporate and securities law matters. Mr. Tomasek received his Juris Doctor and Bachelor of Arts Degrees from Seton Hall University and a Certificate d'Etudes in European Studies from the University of Strasbourg, France. Mr. Tomasek is a member of the Bars of the States of New Jersey, New York and Illinois. Mr. Tomasek is married to Victoria Mitchell Tomasek, Phd., and has two children.
 
Joerg Otzen, Age 44 – Director. Mr. Otzen was elected to serve on the Board effective July 14, 2008. He is an executive manager of the engineering company Meteor AG, , located in Zurich, Switzerland. As well, Dr. Otzen currently serves as a member of the Boards of Directors of UBL Corporate Financial Services S.A. (Switzerland) and Bullion River Corp. (U.S.A.), an SEC reporting company. Prior to his current engagement, he was a senior manager at of UBL Corporate Financial Services AG, where he managed numerous financial transactions including fundraising, investment review, interim management of companies in external portfolios and private equity funds for different clients. Dr. Otzen began his professional career with SBC Warburg in 1995, as a vice president of equity research. In 2000, he became head of corporate development at the industrial group Ascom (Switzerland) and was in charge of the numerous group's divestments during Ascom's a 4 year period of financial distress. He lead the team which managed projects in international corporate finance, merger and acquisitions, corporate lending, and, in urgent cases, the establishment of new management in distressed subsidiaries. Dr. Otzen holds a Masters and Ph.D.degrees in Mechanical Engineering from RWTH Aachen (Germany) and a Masters Degree in Business Administration from the Harvard Business School.

Family Relationships
 
There are no family relationships between any of the directors or executive officers.

 
19

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

The Company knows of no person, who at any time during the period from the date at which it filed its annual report on Form 10-K for the year ended December 31, 2009 to the present, was a director, officer, beneficial owner of more than ten percent of any class of equity securities of the Company (a "Reporting Person"), that failed to file on a timely basis any reports required to be  furnished  pursuant to Section 16(a).

 
20

 

ITEM 11:
EXECUTIVE COMPENSATION

2009 SUMMARY COMPENSATION TABLE

The following table sets forth certain compensation information for: (i) the person who served as the Chief Executive Officer of the Company during the year ended December 31, 2009, regardless of the compensation level, and (ii) each of our other executive officers, serving as an executive officer at any time during 2009, as well as the most highly compensated employees who did not serve as executive officers during 2008. Compensation information is shown for the fiscal years ended December 31, 2009, 2008 and 2007:

                                               
(1)
 
Name and
Principal Position
(a)
   
Year
(b)
   
Salary
($)
(c)
   
Bonus
($)
(d)
   
Stock
Awards
($)
(e)
   
Option
Awards
($)
(f)
   
Non-
Equity
Incentive
Plan
Compensation
($)
(g)
   
Non-
Qualified
Deferred
Compensation
Earnings
($)
(h)
   
All
Other
Compensation
($)
(i)
   
Total
($)
 
Rudolf Hauke
   
2009
      36,000       -       -       23,790       -       -       48,000       107,790  
Chief Executive
   
2008
      48,000       -       -       19,200       -       -       52,000       119,200  
Officer, President,
   
2007
      -       -       -       -       -       -       -       -  
Director
                                                                       
                                                                         
Andre Scholz
   
2009
      140,000       -       25,000       -       -       -       20,000       185,000  
Chief Technology
   
2008
      -       -       -       -       -       -       -       -  
Officer, Director
   
2007
      -       -       -       -       -       -       -       -  
                                                                         
Joerg H. Klaube
   
2009
      60,885       -       -       -       -       -       -       60,885  
Chief Financial
   
2008
      62,500       -       -       4,750       -       -       2,410       69,660  
Officer, Director
   
2007
      62,500       -       -       -       -       -       2,825       65,325  
                                                                         
Joseph J. Tomasek,
   
2009
      -       -       -       8,910       -       -       185,000       193,910  
Esq., Director and
   
2008
      -       -       -       19,000       -       -       256,800       275,800  
General Legal Counsel
   
2007
      -       -       -       -       -       -       127,000       127,000  
Legal Fees:
                                                                       
                                                                         
Quentin Kelly
   
2009
      --       -                                               -  
Director
   
2008
      -       -                                               -  
     
2007
      -       -                                               -  
                                                                         
Joerg Otzen
   
2009
      -       -                                               -  
Director
   
2008
      -       -                                               -  
     
2007
      -       -                                               -  
                                                                         
Edward L. Marney    
2008
     
108,173
     
25,000
             
9,500
                     
8,863
     
151,536
 
Chief Executive
   
2007
     
128,907
     
15,000
                                     
12,884
     
156,791
 
Officer, President
                                                                       
                                                                         
Steven Gray
   
2008
     
30,000
               -      
14,250
                             
44,250
 
Director    
2007
     
20,000
               111,000                              
3,481
     
134,481
 
                                                                         
Lin Dai
   
2008
       126,923        20,000        231,831                              
123,785
     
502,539
 
Employee of Subsidiary
   
2007
       57,692                472,186        223,501                      
91,536
     
844,915
 
Director                                                                        
                                                                         
Ivan Tumanov
   
2008
     
103,846
             
202,205
                             
50,000
     
356,051
 
Employee of
   
2007
      57,692               385,528       223,501                       80,426       747,147  
Subsidiary
                                                                       
                                                                         
Michael Howard
   
2009
      75,866       -       -       -                       -       75,866  
Employee of
   
2008
      150,000       20,000       177,165       -                       161,285       508,450  
Subsidiary
   
2007
      57,692               312,286       223,501                       71,037       664,516  
                                                                         
All executive officers
   
2009
      312,751       -       25,000       32,700       -               253,000       623,451  
and named significant
   
2008
      629,442       65,000       611,201       66,700       -       -       655,143       2,027,486  
employees and
   
2007
      384,483       15,000       1,281,000       670,503                       389,189       2,740,175  
directors as a group
                                                                       
 
 
21

 

Rudolf Hauke 2009-2008: Rudolf Hauke joined the Company in July 2008 as a consultant, acting in the capacity of President and Chief Executive Officer, and as a director. During 2009 we paid him $36,000 in salary and $27,000 remuneration for services performed, and $21,000 in flat-fee expense allowances. In addition, Mr. Hauke has earned 1,200,000 non-qualified 4-year stock options, exercisable at $0.10 per common share, valued at $23,790 pursuant to the Black-Scholes valuation formula.  During 2008 we paid him $48,000 in salary and $52,000 as travel and living expense allowances. In addition, Mr. Hauke has earned 1,000,000 non-qualified stock options, 500,000 of which are 2-year options, exercisable at $.05 per common share, and 500,000 of which are 4-year options, exercisable at $.10 per common share, such options valued at $19,200 pursuant to the Black-Scholes valuation formula.

Andre Scholz  2009: Andre Scholz joined the Company in May 2009, as our Chief Technology Officer and as a director. During 2009, we paid Mr. Scholz $140,000 as salary and $20,000 in consulting fees prior to his entry into the Company.  He also has accrued 500,000 common shares as a signing bonus and is earning 100,000 common shares every month, beginning with May 15, 2009. The shares had not been issued at December 31, 2009, however, were accrued for and valued at $25,000.

Joerg H. Klaube 2009-2007:  During the years 2009, 2009, and 2007 we paid Mr. Klaube $60,855, $62,500, and $62,500, respectively, in salary.  We also made life insurance premium payments during 2008 and 2007 on his behalf in the amounts of $2,410 and 2,825, respectively. In 2008 Mr. Klaube also received options for 250,000 restricted shares, valued at $4,750 pursuant to the Black-Scholes valuation formula.
 
Joseph J. Tomasek 2009-2007: During fiscal years 2009, 2008 and 2007, the Company incurred or paid $185,000, $256,800 and $ 127,000, respectively, to Mr. Tomasek for legal services rendered to the Company. In 2009 Mr. Tomasek earned options for 900,000 restricted shares, valued at $8,910 pursuant to the Black-Scholes valuation formula. These options are earned at the rate of 100,000 options per month, beginning with April 2009. In 2008 Mr. Tomasek also received options for 1,000,000 restricted shares, valued at $19,000 pursuant to the Black-Scholes valuation formula.
 
Edward L. Marney 2008-2006: Edward Marney joined the Company in May, 2006, becoming first our Chief Executive Officer, then our President and a director. He resigned these positions on August 1, 2008. During 2008, we paid Mr. Marney $108,173 as salary, a bonus of $25,000 and $8,863 for medical expenses. During 2007, we paid Mr. Marney a cash salary of $128,907, a bonus of $15,000  and $12,884 for medical expenses, and in 2006 we paid Mr. Marney $86,538 salary and reimbursed $5,950 of healthcare payments. In 2008 Mr. Marney also received options for 500,000 restricted shares, valued at $9,500 pursuant to the Black-Scholes valuation formula.

Steven Gray 2008-2006. Mr. Gray served as a Director of the Company from May, 2000 through July 18, 2009, when he resigned. During 2008 we paid Mr. Gray $30,000 and issued options for 750,000 restricted shares, valued at $14,250. During fiscal year 2007 we paid Mr. Gray $20,000 and issued 1,850,000 restricted shares to him and an assignee, and 500,000 common stock purchase options for services rendered to the Company. We also issued 74,031 shares for interest on loans to the Company. During fiscal year 2006, we issued an aggregate 1,550,000 restricted common shares and 500,000 common stock purchase options to Mr. Gray for services rendered to the Company. As set forth in the column “All Other Compensation” in the above table for 2007, we valued the restricted common shares issued in the subject years based upon their average public market trading price as of the dates we issued these shares

Lin Dai 2008-2007: Lin Dai served as an employee of the Kiwibox Media, Inc., the Company’s subsidiary, and as a Director of the Company from August, 2008 through December 8, 2008 when he resigned.  During 2008, we paid Mr. Dai a salary of $126,923 and a bonus of $20,000; furthermore, we paid an aggregate $120,333 and issued 11,591,544 restricted shares valued at $231,831, in accordance with the terms of the Kiwibox acquisition agreement, as amended. We also paid him $3,452 in interest on promissory notes issued in connection with the consummation of the Kiwibox agreement.  During fiscal year 2007 we paid Mr. Dai a salary of $57,697 and, in connection with the acquisition of Kiwibox Media Inc. by Magnitude and in exchange against their ownership interest in Kiwibox Media Inc, paid a cash amount of $91,536 and issued 11,804,632 restricted common shares (listed under “Stock Awards”) and options for 7,500,000 shares, vesting over a 24-months period, exercisable at $0.057 per share. In addition to the options listed above Mr. Dai was issued performance stock options for 3,000,000 shares, further detailed below. As set forth in the column “All Other Compensation” in the above table for 2007, we valued the restricted common shares issued based upon their average public market trading price as of the dates we issued these shares; we valued the stock options  pursuant to the Black-Scholes valuation formula. Mr. Dai separated from the Company on October 30, 2008, terminating his employment agreement and surrendering all of his outstanding 10,500,000 stock options for cancellation at that time.

Ivan Tumanov 2008-2007: Mr. Tumanov served as an employee of Kiwibox Media, Inc. During 2008, we paid Mr. Tumanov a salary of $103,846; furthermore, we paid $50,000 and issued 10,110,231 restricted shares valued at $202,205, in accordance with the terms of the Kiwibox acquisition agreement, as amended. During fiscal year 2007 we paid Mr. Tumanov a salary of $57,697 and, in connection with the acquisition of Kiwibox Media Inc. by Magnitude and in exchange against their ownership interest in Kiwibox Media Inc, paid a cash amount of $80,426 and issued 9,638,213 restricted common shares (listed under “Stock Awards”) and options for 7,500,000 shares, vesting over a 24-months period, exercisable at $0.057 per share. In addition to the options listed above Mr. Tumanov was issued performance stock options for 3,000,000 shares, further detailed below. As set forth in the column “All Other Compensation” in the above table for 2007, we valued the restricted common shares issued based upon their average public market trading price as of the dates we issued these shares; we valued the stock options  pursuant to the Black-Scholes valuation formula. On September 8, 2008, Mr. Tumanov resigned as an employee of the Company, surrendering all of his outstanding 10,500,000 stock options for cancellation and his employment agreement was terminated.
 
Michael Howard 2009-2007: During 2009, we paid Mr. Howard $75,866 in salary. During 2008, we paid Mr. Howard a salary of $150,000 and a bonus of $20,000; furthermore, we paid an aggregate $157,833 and issued 8,858,225 restricted shares valued at $177,154, in accordance with the terms of the Kiwibox acquisition agreement, as amended. We also paid him $3,452 in interest on promissory notes issued in connection with the consummation of the Kiwibox agreement. During fiscal year 2007 we paid Mr. Howard a salary of $57,697 and, in connection with the acquisition of Kiwibox Media Inc. by Magnitude and in exchange against their ownership interest in Kiwibox Media Inc, paid a cash amount of $71,037 and issued 7,807,155 restricted common shares (listed under “Stock Awards”) and options for 7,500,000 shares, vesting over a 24-months period, exercisable at $0.057 per share. In addition to the options listed above Mr. Howard was issued performance stock options for 3,000,000 shares, further detailed below. As set forth in the column “All Other Compensation” in the above table for 2007, we valued the restricted common shares issued based upon their average public market trading price as of the dates we issued these shares; we valued the stock options  pursuant to the Black-Scholes valuation formula. During 2009 the Company and Mr. Howard reached an agreement whereby he returned to the Company for cancellation, the 8,858,725 shares issued in 2008 and 4,766,272 shares issued in 2007, against a newly issued contingent of 2,192,845 restricted common shares. The agreement furthermore called for cancellation of all previously issued stock options.  By mutual agreement, Mr. Howard left the employ of the Company in October 2009.

Employment Agreements

Rudolf Hauke – 2009-2008.   The terms of his consulting /employment agreement are included in our filing on Form 8-K of July 18, 2008 which is incorporated herein by reference to that filing. During 2009, the Company and Mr. Hauke reached an agreement pursuant to which the monthly cash compensation called for in his employment agreement ceased with the end of April 2009. However, the agreement stipulated that for future services Mr. Hauke would be remunerated from time to time, at management’s discretion, at rates mutually agreed upon.

 
22

 

Andre Scholz – 2009.  The terms of his consulting /employment agreement are included in our filing on Form 8-K of May 22, 2009 which is incorporated herein by reference to that filing.

Joerg Klaube – 2009-2007.  Mr. Klaube’s employment agreement, originally entered into on April 15, 2002, was amended on November 19, 2009.  The terms of the amended agreement call for a monthly salary of $4,000.  The agreement terminates on October 31, 2010 unless extended by mutual agreement.

Stock Options :

No stock options were granted during 2007, 2008 or 2009 pursuant to the Company’s 1997 Stock Option Plan and 2000 Stock Incentive Plan, to any executive officers, directors, employees or to any beneficial owners of more than 10 percent of any class of equity securities of the Company. In addition, there were no stock options or warrants exercised by any officer, director, employee or any beneficial owners of more than 10 percent of any class of equity securities of the Company during 2007, 2008 or 2009.

1997 Stock Option Plan:

The Company’s 1997 Stock Option Plan, as filed with Information Statement pursuant to Section 14(c) with the Commission on July 1, 1997, and with Registration Statement on Form S-8 with the Commission on September 8, 1997, is hereby incorporated by reference.

2000 Stock Incentive Plan:

The Company’s 2000 Stock Incentive Plan, as filed with the Commission as an exhibit to the quarterly report on Form 10-QSB for the period ended March 31, 2000, is hereby incorporated by reference.

Options Granted Outside of Stock Option Plans:

On August 16, 2007, the Company closed on its acquisition of Kiwibox Media Inc. and issued to each of the three Kiwibox Shareholder stock options provided for under their employment agreements. Each Kiwibox Shareholder received a stock option to purchase up to 7,500,000 shares of our common stock at an exercise price of $.05 per share which vests and is exercisable by the Kiwibox Shareholders, 50% on the first anniversary date of the Closing, August 16, 2008, 25% 18 months after the Closing and 25% on the second anniversary of the Closing. Each Kiwibox Shareholder was also issued a performance stock option to purchase up to an additional 3,000,000 shares of our common stock, 1,500,000 of which options vest and are exercisable following the first anniversary date of the Closing if the Kiwi Business has received no less than an average 215,000 Unique Visitors during either the 10th, 11th or 12th month of the first year of the term or achieved $316,000 in gross revenues during the first year, and the balance, or 1,500,000 options vest and are exercisable by the Kiwibox Shareholders after the second anniversary date of the Closing, provided the Kiwi Business has received at least an average 550,000 Unique Visitors during either the 22nd, 23rd or 24th month of the second year of the term or achieved $1,961,000 in gross revenues during the second year of the agreements. All of these stock options are non-qualified and are exercisable at $.05 per share. During 2008, 15,000,000 of the initially granted stock options and 6,000,000 of the performance stock options were cancelled upon termination of the employment agreements with two of the original Kiwibox Shareholders. During 2009, 7,500,000 of the initially granted stock options and 3,000,000 of the performance stock options were cancelled upon termination of the employment agreements with the third original Kiwibox Shareholder

 
23

 

During 2009, The Chief Executive Officer earned 1,200,000 four-years stock options, exercisable at $0.10 per common share, pursuant to his employment agreement. Also during 2009, one director who also serves as the Company’s general counsel, earned 900,000 five-years stock options, exercisable at $0.05 per common share.

Outstanding Equity Awards at Fiscal Year-End Table

The following table provides certain information regarding unexercised options to purchase common stock, stock options that have not vested, and equity-incentive plan awards outstanding at December 31, 2009, for each of the persons covered under our Summary Compensation Table.

Name and
Principal
Position
 
Number of
Securities
Underlying
Unexercised
Options
Exercisable
 
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
 
Equity
Incentive
Plan Awards
No. of
Underlying
Unexercised
Unearned
Options
 
Option
Exercise
Price
 
Option
Expiration
Date
 
No. of
Shares or
Units of
Stock that
have not
vested
 
Market
Value of
Shares or
Units of
Stock that
have not
vested
 
Equity
Incentive
Awards,
Shares,
Units
Or other
Rights that
have not
vested
 
Equity
Incentive
Plan
Awards:
Market or
Payout
value of
Unearned
Shares,Units
or other
rights that
have not
vested
 
Rudolf Hauke,
    500,000     -     -   $ 0.05  
7/14/ 2010
 
-
    -     -     -  
CEO and
    1,700,000     -         $ 0.10  
8/14/2012 to
                       
President
                         
1/14/2014
                       
Joerg H.
    250,000     -     -   $ 0.025  
6/26/13
    -     -     -     -  
Klaube,
                                                     
CFO
                                                     
Joseph J.
    1,000,000     -     -   $ 0.025  
6/26/13
    -     -     -    
-
 
Tomasek,
    900,000     -     -   $ 0.05  
4/30/14 to
                         
Director and General
                         
12/31/14
                         
Legal Counsel
                                                     
Quentin Kelly,
          -     -               -     -     -     -  
director           -     -               -     -     -     -  
Joerg Otzen,
          -     -               -     -     -     -  
director           -     -               -     -     -     -  

Option Exercises and Stock Vested Table: None

Pension Benefits Table: None

Nonqualified Deferred Compensation Table: None

Pre-requisites Table: None

Compensation of Directors:

We have not paid any compensation to any of our directors for services rendered as directors during fiscal years 2009, 2008 and 2007.

 
24

 

During 2009, 2008 and 2007, one outside director of the Company who also serves as the Company’s general and securities counsel, incurred or was paid an aggregate $185,000, $256,800 and $127,000, respectively, for legal services. During 2008 and 2007, another outside director of the Company was paid $30,000 and $20,000, respectively, for business advisory services.

CORPORATE GOVERNANCE AND CODE OF ETHICS

The Company has always been committed to good corporate governance. In furtherance of this commitment, during 2002 the Board of Directors expanded the duties of the Company’s Audit Committee by increasing the Committee's duties specifically to include responsibility and oversight of corporate governance matters and adherence to the Company’s Code of Ethics. A copy of the Corporate Code of Ethics and Conduct had been included as an exhibit to the Company’s report on Form 10-KSB for the year ended December 31, 2002.
 
Our Board of Directors has determined that one of its current members, Joerg Otzen, is independent under applicable securities laws.

Board Committees

AUDIT COMMITTEE

The Company has appointed an Audit Committee in accordance with the provisions of the Sarbanes-Oxley Act of 2002. The Audit Committee is currently comprised of the entire board of directors. Mr. Otzen and Mr. Klaube are financial experts with knowledge of financial statements, generally accepted accounting principles and accounting procedures and disclosure rules. Mr. Klaube is not “independent” as defined in Section10A-3(b)(1)(iv)(A) of the Securities Exchange Act.

COMPENSATION AND NOMINATING COMMITTEES

Our board of directors intends to appoint such persons and form such committees as are required to meet the corporate governance requirements imposed by the national securities exchanges. Therefore, we intend that a majority of our directors will eventually be independent directors. Additionally, our board of directors is expected to appoint a nominating committee and a compensation committee, and to adopt charters relative to each such committee. Until further determination by the Board, the full Board of Directors will undertake the duties of the compensation committee and nominating committee.

ITEM 12:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 1, 2010, the record and beneficial ownership of common stock of the Company by each executive officer, director and the three most highly compensated employees, all executive officers, directors and the three most highly compensated employees as a group, and each person known to the Company to own beneficially, or of record, five percent or more of the outstanding shares of the Company:

 
25

 

Title of Class* 
 
Name and Address of 
Beneficial Owner
 
Amount and Nature of 
Beneficial Ownership(1)
   
Percent 
of Class
 
Common Stock
 
Rudolf Hauke
 
12,400,000
(2)
   
 2.51
%
   
Pres./CEO/Director
             
   
Andre Scholz
 
24,846,176
(3)
   
    5.04
%
   
CTO /Director
             
   
Joerg Otzen
 
-0-
     
-0-
 
   
Director
             
   
Joerg Klaube
 
1,650,000
(4)
   
    0.34
%
   
CFO/Director
             
   
Joseph Tomasek
 
4, 613,833
(5)
   
0.94
%
   
Director
             

Address of all persons above: c/o the Company.

All Directors and Officers as a Group:
 
43,510,009
     
8.75
%
as a Group (5 persons)
             
                   
   
 Ulrich Schuerch
             
   
Tell Capital AG
 
53,500,000
(6)
   
10.04
%
   
Tellstrasse 21, CH-9000
             
   
St. Gallen, Switzerland
             
                   
   
Discover Advisory Company
 
51,238,213
(7)
   
9.99
%
   
c/o Horymor Trust Corp. Ltd.
             
   
50 Shirley Street / P.O.Box N-341,
             
   
Nassau