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EX-32.2 - Kiwibox.Com, Inc.v185449_ex32-2.htm
EX-31.2 - Kiwibox.Com, Inc.v185449_ex31-2.htm
EX-32.1 - Kiwibox.Com, Inc.v185449_ex32-1.htm
EX-31.1 - Kiwibox.Com, Inc.v185449_ex31-1.htm
FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549


x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For Quarter Ended March 31, 2010

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from _______ to _______

Commission file number  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
Incorporation or Organization)
 
(IRS Employer Identification No.)
 
 
(212) 239-8210
(Address of Principal Executive Office)  (Zip Code)
 
(Registrant’s telephone number including area code)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.:  Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    
Yes o No x

The number of shares of Registrant’s Common Stock, $0.0001 par value, outstanding as of April 30, 2010, was 497,743,060 shares.
 

 
KIWIBOX.COM, INC.
 
INDEX

   
Page
 
   
Number
 
PART 1 - FINANCIAL INFORMATION
     
       
Item 1 Financial Statements
     
       
Condensed Balance Sheets March 31, 2010 (unaudited) and December 31, 2009
    3  
         
Condensed Statements of Operations Three months ended March 31, 2010 and 2009 (unaudited)
    4  
         
Condensed Statements of Cash Flows Three months ended March 31, 2010 and 2009 (unaudited)
    5 – 6  
         
Notes to Condensed Financial Statements
    7 – 15  
         
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
    16 – 17  
         
Item 3. Quantitative and Qualitative Disclosures About Market Risk
    18  
         
Item 4 Controls and Procedures
    18  
         
PART II - OTHER INFORMATION
    19 – 20  
         
Item 1. Legal Proceedings
 
19
 
         
Item 1A. Risk Factors
 
19
 
         
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   
19
 
         
Item 3. Defaults Upon Senior Securities
 
19
 
         
Item 4T. Submission of Matters to a Vote of Security Holders
 
19
 
         
Item 5. Other information
 
19
 
         
Item 6. Exhibits
 
20
 
         
SIGNATURES
    21  
 
2

 
PART I  - Item 1   Financial Statements

KIWIBOX.COM, INC.
CONDENSED BALANCE SHEETS

   
March 31,
2010
   
December 31,
2009
 
   
(Unaudited)
       
Assets
           
Current Assets
           
Cash
  $ 21,010     $ 2,518  
Accounts receivable, net of allowance for doubtful accounts of $0
    1,148       2,000  
Prepaid expenses and other current assets
    84,156       80,523  
Total Current Assets
    106,314       85,041  
Property and equipment, net of accumulated depreciation of $80,466 and $85,841
    15,461       18,705  
Website development cost, net of accumulated amortization of $3,832 and $1,813
    25,327       19,945  
Other assets .
    17,724       17,724  
Total Assets
    164,826       141,415  
                 
Liabilities and Stockholders’ Equity (Impairment)
               
                 
Current Liabilities
               
Accounts payable and accrued expenses
    557,451       535,618  
Obligations to be settled in stock
    125,840       132,900  
Dividends payable
    492,155       479,339  
Loans and notes payable – related parties
    1,140,000       990,000  
Loans and notes payable - other
    140,000       140,000  
Current maturities of long-term debt
    33,529       33,529  
Total Current Liabilities
    2,488,975       2,311,386  
Long-term Debt
    -       -  
Total Liabilities
    2,488,975       2,311,386  
                 
Stockholders’ Equity (Impairment)
               
Preferred Stock, $0.001 par value, non-voting, 3,000,000 shares authorized; 85,890 and 85,890 shares issued and outstanding
    86       86  
Common Stock, $0.0001 par value, 1,400,000,000 shares authorized; issued and outstanding 497,743,060 and 478,168,060 shares
    49,774       47,817  
Common Stock subscribed
    -       500  
Additional paid-in capital
    45,546,918       45,519,375  
Stock subscription receivable
    -       (125,000 )
Accumulated (deficit)
    (47,920,927 )     (47,612,749 )
                 
Total Stockholders’ Equity (Impairment)
    (2,324,149 )     (2,169,971 )
 
               
Total Liabilities and Equity (Impairment)
  $ 164,826     $ 141,415  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
3


KIWIBOX.COM, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months Ended
March 31,
 
   
2010
   
2009
 
Total Revenues
  $ 734     $ 17,885  
                 
Cost of Goods Sold
    -       9,234  
                 
Gross Profit
    734       8,651  
                 
Selling expenses
    25,131       88,796  
General and administrative expenses
    240,929       585,515  
                 
Loss from Operations
    (265,326 )     (665,660 )
                 
Other Income (Expense)
               
Misc. non-operating expenses
    (3,185 )     -  
Change in fair value –derivative liability
    -       (77,806 )
Amortization of deferred financing cost
    -       (4,000 )
Gain on disposition of assets
    2,285       -  
Interest expense
    (29,136 )     (615,187 )
Total Other Income (Expense)
    (30,036 )     (696,993 )
                 
Loss before Benefit for Income Taxes
    (295,362 )     (1,362,653 )
                 
Benefit from Income Taxes
    -       -  
                 
Net Loss
  $ (295,362 )   $ (1,362,653 )
                 
Dividends on Preferred Shares
    (12,816 )     (12,816 )
                 
Net Loss applicable to Common Shareholders, basic and diluted
  $ (308,178 )   $ (1,375,469 )
Net Loss per Common Share, basic and diluted
  $ (0.001 )   $ (0.003 )
Weighted Average Number of Common Shares Outstanding
    490,180,560       445,171,141  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
4

 
KIWIBOX.COM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Three Months Ended
March 31,
 
   
2010
   
2009
 
Cash Flows from Operating Activities
           
Net Loss
  $ (295,362 )   $ (1,362,653 )
Adjustments to Reconcile Net Loss to Net Cash Used by Operations
               
Depreciation and amortization
    5,232       18,224  
Change in fair value – derivative liabilities
    -       77,806  
Gain on disposal of assets
    (2,285 )     -  
Intrinsic value of beneficial conversion rights
    -       600,000  
Decreases (Increases) in Assets
               
Accounts receivable
    852       (6,110 )
Prepaid expenses
    (3,633 )     (15,962 )
Increases (decreases) in Liabilities
               
Liabilities to be settled in stock
    21,940       -  
Accounts payable and accrued expenses
    21,833       184,845  
Net Cash Used by Operating Activities
    (251,424 )     (503,850 )
                 
Cash Flows from Investing Activities
               
Proceeds from sale of assets
    4,520       -  
Cash outlay - website development costs
    (7,401 )     -  
Purchases of property and equipment
    (2,204 )     -  
Net Cash Used by Investing Activities
    (5,085 )     -  
                 
Cash Flows from Financing Activities
               
Proceeds from loans and notes
    150,000       500,000  
Proceeds from stock subscriptions receivable
    125,000       -  
Net Cash Provided by Financing Activities
    275,000       500,000  
                 
Net Increase (Decrease) in Cash
    18,492       (3,850 )
Cash at Beginning of Period
    2,518       5,000  
Cash at End of Period
  $ 21,010     $ 1,150  

The accompanying notes are an integral part of the consolidated financial statements.
 
5

 
KIWIBOX.COM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
     
       
Three Months Ended March 31, 2010
     
       
Cashless exercise of warrants
  $ 1,312  
         
Settlement of obligations with common stock and common stock options
  $ 29,000  
         
Three Months Ended March 31, 2009
       
         
Reclassification of derivative liabilities to Additional Paid-in capital
  $ 3,408,618  

6

 
KIWIBOX.COM
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2010

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Organization

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, Magnitude, Inc. and Kiwibox Media Inc. were separate legal entities until December 31, 2009, with Kiwibox Media, Inc. being a wholly owned subsidiary. 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.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s annual report on Form 10-K for the year ended December 31, 2009.

In the opinion of the Company’s management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of March 31, 2010, the results of operations for the three months ended March 31, 2010 and 2009, and the cash flows for the three months ended March 31, 2010 and 2009, have been included.

Principles of Consolidation

The financial statements for the period ended March 31, 2009 included the accounts of Magnitude Information Systems, Inc. and its subsidiaries Magnitude, Inc. and Kiwibox Media, Inc. All significant inter-company balances and transactions have been eliminated.

7

 
KIWIBOX.COM, INC
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2010

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Depreciation and Amortization

Property and equipment are recorded at cost.  Depreciation on equipment, furniture and fixtures and leasehold improvements is computed on the straight-line method over the estimated useful lives of such assets between 3-10 years, or lease term for leasehold improvements, if for a shorter period.  Maintenance and repairs are charged to operations as incurred.

Evaluation of Long Lived Assets
 
Long-lived assets are assessed for recoverability on an ongoing basis.   In evaluating the fair value and future benefits of long-lived assets, their carrying value would be reduced by the excess, if any, of the long-lived asset over management’s estimate of the anticipated undiscounted future net cash flows of the related long-lived asset.

Fair Value Measurements
 
The Company adopted the provisions of ASC 820, Fair Value Measurements and Disclosures, which is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Under ASC 820, a framework was established for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. Since the number of shares issuable under the Company’s Series G convertible preferred stock was indeterminable during the year ended December 31, 2008, the Company had measured the fair value of warrants and options outstanding at December 31, 2008, which was determined to be $3,330,812, measured using significant unobservable inputs (Level 3) under a Black-Scholes valuation method. On February 19, 2009, all outstanding shares of the Series G stock automatically converted into 17,857,142 common shares, thereby removing the indeterminable factor and giving rise to a reclassification of the entire position of $3,408,618 into additional paid-in capital, which included a further $77,806 loss incurred during the first quarter 2009, reported in the Statement of Operations under Other Income (Expense).

Securities Issued for Services

The Company accounts for stock, stock options and stock warrants issued for services and compensation by employees under the fair value method.  For non-employees, the fair market value of the Company’s stock on the date of stock issuance or option/grant is used.  The Company has determined the fair market value of the warrants/options issued under the Black-Scholes Pricing Model. The Company has adopted the provisions of ASC 718, “Compensation – Stock Compensation”, which establishes accounting for equity instruments exchanged for employee services. Under the provisions of ASC 718, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity grant).

Reclassification of certain securities under ASC 815-15

Pursuant to ASC 815-15, “Contracts in Entity’s own Equity”, if a company has more than one contract subject to this Issue, and partial reclassification is required, there may be different methods that could be used to determine which contracts, or portions of contracts, should be reclassified.  The Company's method for reclassification of such contracts is reclassification of contracts with the latest maturity date first. During the first quarter of 2009, we reclassified a position of $3,408,618 from liabilities for derivative securities to additional paid-in capital after the indeterminate factor in connection with the conversion clause of certain convertible preferred shares was removed.

Capitalization of Software /Website development costs
 
The Company capitalizes outside-contracted development work in accordance with the guidelines published under ASC 350-50, “Website Development Costs”.  Under ASC 350-50, costs incurred during the planning stage are expensed, while costs relating to software used to operate a web site or for developing initial graphics should be  accounted for under ASC 350-50, Accounting for the Costs of Computer Software Developed or Obtained for  Internal Use, unless a plan exists or is being developed to market the software externally. Under ASC 350-50,  internal and external costs incurred to develop internal-use computer software during the application development   stage should be capitalized. Costs to develop or obtain software that allows for access or conversion of old data by   new systems should also be capitalized, excluding training costs.
 
8

 
KIWIBOX.COM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2010

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

    Capitalization of Software /Website development costs (continued)

Fees incurred for web site hosting, which involve the payment of a specified, periodic fee to an Internet service provider in return for hosting the web site on its server(s) connected to the Internet, are expensed over the period of benefit, and included in cost of sales in the accompanying financial statements. A total of $7,401 and $21,758 was capitalized for web-site development work during the three months ended March 31, 2010 and the year ended December 31, 2009, respectively. During 2009, a new software platform was placed into service. The old capitalized cost of $64,650, including the remaining unamortized balance from  2008 totaling $30,771 was written off as they were deemed to be impaired.

The Company adopted the provisions of "The Fair Value Option for Financial Assets and Financial  Liabilities" under ASC 820, which included and amendment with respect to improvement of financial  reporting of certain  investments  in debt and  equity  securities.  This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The implementation of this new standard did not have a material impact on the Company's financial position, results of operations and cash flows for the three months ended March 31, 2010 and 2009, and at December 31, 2009.

Income Taxes

The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expenses are expected to be settled in the Company’s income tax return.  Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes.  Deferred taxes are also recognized for operating losses that are available to offset future taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset.

Net Loss Per Share

Net loss per share, in accordance with the provisions of ASC 260, “Earnings Per Share” is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period.  Common Stock equivalents have not been included in this computation since the effect would be anti-dilutive. Such common stock equivalents totaled 193,854,852 common shares at March 31, 2010, comprised of 159,731,315 shares issuable upon exercise of stock purchase warrants, 7,050,000 shares issuable upon exercise of stock options, 729,537 shares exercisable upon conversion of convertible preferred shares, and 26,344,000 shares potentially issuable upon conversion of convertible debt. Such debt, presently convertible at the option of two holders at a price of $0.01 per share, totals $1,140,000 which would yield 114,000,000 shares if fully exercised, however, the respective notes, all of which were issued to these two investors, carry a stipulation whereby the number of all shares issued pursuant to a conversion, may in the aggregate not exceed a number that would increase the total share holdings beneficially owned by such investor to a level above 9.99%. At the end of the quarter, this clause limits any conversion to the aforementioned number of shares. All of the aforementioned conversions or exercises, as the case may be, are at the option of the holders.
 
9



KIWIBOX.COM, INC
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 2010

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
 
Revenue Recognition
 
The Company’s revenue is derived from advertising on the Kiwibox.Com website. Most contracts require the Company to deliver the customer impressions, click-throughs or new customers, or some combination thereof. Accordingly, advertising revenue is estimated and recognized for the period in which customer impressions, click through or new customers are delivered. Licensing or hosting revenue consists of an annual contract with clients to provide web-site hosting and assistance.

Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

2. GOING CONCERN

The ability of the Company to continue its operations is dependent on increasing sales and obtaining additional capital and financing. Our revenues during the foreseeable future are insufficient to finance our business and we are entirely dependent on the willingness of existing investors to continue supporting the Company with working capital loans and equity investments, and our ability to find new investors should the financial support from existing investors prove to be insufficient. If we were unable to obtain a steady flow of new debt or equity-based working capital we would be forced to cease operations.  In their report for the fiscal year ended December 31, 2009, our auditors had expressed an opinion that, as a result of the losses incurred, there was substantial doubt regarding our ability to continue as a going concern.  The accompanying financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. Management’s plans are to continue seeking equity and debt capital until cash flow from operations cover funding needs.

3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK

The Company maintains cash balances in a financial institution which is insured by the Federal Deposit Insurance Corporation up to $250,000.  Balances in these accounts may, at times, exceed the federally insured limits. At March 31, 2010, cash balances in bank accounts did not exceed this limit. The Company provides credit in the normal course of business to customers located throughout the U.S. and overseas.  The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.

4. PREPAID EXPENSES

Prepaid Expenses at the end of the quarter consisted of $8,081 in prepaid business insurance costs, $69,138 in prepayments on promotional supplies inventory, and $6,937 made up of several smaller positions.

5. PROPERTY AND EQUIPMENT
 
Property and equipment consist of the following at

   
March 31,
 2010
   
December 31,
 2009
 
 Furniture
  $ 8,334     $ 6,646  
 Leasehold Improvements
    24,130       24,131  
 Equipment
    63,463       73,770  
      95,927       104,546  
 Less accumulated depreciation
    80,466       85,841  
 Total
  $ 15,461     $ 18,705  

      Depreciation expense charged to operations was $3,213 and $8,836  in the first three months of 2010 and 2009,
      respectively.
 
10

 
KIWIBOX.COM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2010

6.  INTANGIBLE ASSETS

Intangible assets consisted of software for website development costs as follows:
 
   
March 31,
2010
   
December 31,
 2009
 
 Website development costs
  $ 29,159     $ 21,758  
 Less accumulated amortization
    3,832       1,813  
 Total
  $ 25,327     $ 19,945  

During 2009, a new software platform developed by a third party was adapted for use by the Company and placed into service. The developmental costs associated with this adaptation, amounting to $21,758 were capitalized and the remaining unamortized balance of the 2008 capitalized costs, totaling $30,771 were written off as they were deemed to be impaired. Amortization expense for the three months ending March 31, 2010 and 2009 was $2,019 and $5,387, respectively.

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at                 

   
March 31,
2010
   
December 31,
2009
 
 Accounts payable
  $ 232,099     $ 208,792  
 Accrued interest
    198,596       170,860  
 Accrued payroll, payroll taxes and commissions
    8,621       15,331  
 Accrued professional fees
    94,400       116,900  
 Miscellaneous accruals
    23,735       23,735  
 Total
  $ 557,451     $ 535,618  
 
8.  OBLIGATIONS TO BE SETTLED IN STOCK

Obligations to be settled in stock consisted of the following at

   
March 31,
2010
   
December 31,
2009
 
Obligation for warrants granted for compensation
  $ 30,000     $ 20,000  
600,000 common shares issuable to a consultant who was a director of the company, for services rendered.
      36,000         36,000  
100,000 (2010) and 1,250,000 (2009) common shares, and 2,500,000 (2010) and 2,200,000 (2009) stock options issuable to two officers of the Company pursuant to their respective employment agreements
        47,960           67,990  
1,200,000 (2010) and 900,000 (2009) stock options issuable to one director who also serves as the Company’s general counsel
      11,880         8,910  
    $ 125,840     $ 132,900  

11



KIWIBOX.COM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2010
 
9. LOANS PAYABLE

The Company had borrowings under short term loan agreements with the following terms and conditions at March 31, 2010 and December 31, 2009:

On December 4, 1996, the company repurchased 500,000 shares of its common stock and retired same against issuance of a promissory note maturing twelve months thereafter accruing interest at 5% per annum and due December 4, 1998.  This note is overdue as of September 30, 2005 and no demand for payment has been made.
  $ 75,000  
Total
  $ 75,000  
 
10. NOTES PAYABLE
 
   
March 31,
2010
   
December 31,
2009
 
Balance of non-converted notes outstanding. Attempts to  locate the holder of this note, to settle this liability, have been unsuccessful.
  $ 25,000     $ 25,000  
                 
In January 2008 a shareholder loaned the Company $40,000 pursuant to which the Company issued a demand note bearing interest at the rate of 5% per year.
        40,000           40,000  
                 
In September 2008 and December 2008 a shareholder loaned the Company $50,000 and $100,000, repayable under convertible promissory notes bearing interest at 10% per annum and payable on demand.
          150,000             150,000  
                 
In January and February 2009 a shareholder loaned the Company $350,000 and $150,000, repayable under convertible promissory notes bearing interest at 10% per annum and payable on demand. On March 31, 2009, these notes and $100,000 of notes listed above were amended to include an option for the holder to convert the debt into common stock at $0.01 per share. The intrinsic value of the beneficial conversion feature was valued at $600,000 resulting in a charge to interest and a credit to additional paid-in capital in the same amount.
    500,000       500,000  
                 
During March 2009, the same shareholder loaned the Company $50,000 under the same terms as the earlier notes issued in the first quarter. The note (and the notes above) was subsequently amended to include the stipulation that the shares to be issued if the holder elected a conversion, together with other shares held by this shareholder, may not result in an ownership interest exceeding 9.9%.
    50,000       50,000  
                 
During April, May and June 2009, the same shareholder loaned the Company an aggregate $250,000 under the same terms as the earlier notes issued in the first quarter. All of the notes were subsequently amended to include the stipulation that the shares to be issued if the holder elected a conversion, together with other shares held by this shareholder, may not result in an ownership interest exceeding 9.9%.
    250,000       250,000  
                 
During June 2009 through December 2009, another shareholder loaned the Company an aggregate $640,000 under the same terms as the earlier investor who had extended loans during the first two quarters in 2009 as mentioned above. In December 2009, the Company repaid $600,000 against such notes, leaving a balance of $40,000 open at year-end.
    40,000       40,000  
                 
During January and February 2010, a shareholder loaned the Company $150,000 under the same terms as the earlier notes issued in 2009.
    150,000       -  
                 
Total
  $ 1,205,000     $ 1,055,000  
 
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11. LONG-TERM DEBT

Long-term debt as of March 31, 2010 and December 31, 2009 is comprised of the following:

Discounted present value of a non-interest bearing $70,000 settlement with a former investor of Magnitude, Inc. to be paid in 24 equal monthly payments commencing July 1, 1997.  The imputed interest rate used to discount the note is 8% per annum.  This obligation is in default.
    33,529  
Total
    33,529  
Less current maturities
    33,529  
Long-term debt, net of current maturities
  $ -  

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KIWIBOX.COM
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2010

12. COMMITMENTS AND CONTINGENCIES

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

Our total rent expenses were $12,143 and $32,434 during the three months ended March 31, 2010 and 2009, respectively.

During the second quarter in 2009 we entered into an agreement with a consultant to serve as the Company’s Chief Technology Officer. The agreement has a term of twelve months and may be extended by mutual consent. It provides for remuneration for services and expenses at the rate of $20,000 and 100,000 restricted shares per month, and a signing bonus of 500,000 restricted shares. During the first quarter in 2010, the Company issued the 500,000 shares for the signing bonus and 950,000 shares towards the accrued monthly allowance.

During the third quarter in 2009 we entered into an engagement agreement with a consultant to assist the Company in the liaison to the Company’s shareholders and investors, to promote the Company and its website to the public markets, and to identify potential strategic partners, acquisition opportunities, and joint venture partners for the Company’s social networking website business. The agreement is deemed to have commenced on January 1, 2009 and extends through December 31, 2011, and calls for compensation to the consultant in the form of 2,000,000 five years warrants for the purchase of common shares, exercisable at $ 0.025 per share with a cashless exercise provision, for every six months period during the term of the agreement, and the payment in cash of unspecified amounts, the latter at the sole discretion of the Company.  The agreement furthermore recognizes that the same consultant had previously provided similar services to the Company for which he received a one-time payment in form of 15,000,000 five years warrants, exercisable at $0.0025 per share. The 15,000,000 warrants were exercised during the three months ended March 31, 2010 pursuant to a cashless exercise into 13,125,000 shares of common stock.

13. RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2010 and 2009 one outside director of the Company who also serves as the Company’s general and securities counsel, was paid an aggregate $ 15,000 and $30,000, respectively, for legal services.
The director also received 300,000 common stock options during the three months ended March 31, 2010, valued at $2,970.

14. FAIR VALUE
 

We have determined that it is not practical to estimate the fair value of our notes payable because of their unique nature and the costs that would be incurred to obtain an independent valuation. We do not have comparable outstanding debt on which to base an estimated current borrowing rate or other discount rate for purposes of estimating the fair value of the notes payable and we have not been able to develop a valuation model that can be applied consistently in a cost efficient manner. These factors all contribute to the impracticability of estimating the fair value of the notes payable. At March 31, 2010, the carrying value of the notes payable and accrued interest was $1,478,596.

14

 
KIWIBOX.COM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2010
 
15. SUBSEQUENT EVENTS
 
On April 25, 2010 the company was able negotiate a lease termination agreement with its landlord Hudson Holdings, LLC on a second office it held at 330 West 38 St. New York, NY. 10018. This resulted in no early termination payments due from the Company and will reduce operating costs over the remainder of 2010 by $15,000.
 
On May 3, 2010, the Company filed a report on Form 8-K, advising that Joerg H. Klaube resigned as the Chief Financial Officer and as a member of the Company’s Board of Directors and that effective as of May 4, 2010, the Company promoted  Craig S. Cody to serve as Chief financial Officer. Mr. Cody, a licensed Certified Public Accountant, had  been serving as  the Comptroller of the Company during the past year.
 
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Item 2.
 
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., contained herein and in the Company’s annual report for the year ended December 31, 2009 as filed on Form 10-K. 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

The Company is currently in the process of completing the final stages of platform integration and the completed site will  include all of the technologically advanced features found in current leading social networks. We will continue to improve the technology of our site in order to increase the competitive status of the Company, and these improvements will put Kiwibox.Com on a pedestal as a trendsetter for online communities. In the first quarter of 2010, Kiwibox.Com improved on its efforts to target old teens and young adults, as part of The Company’s marketing strategy.

This effort goes hand to hand with a continued drive to reduce overhead costs. Our operating expenses, not including stock-based compensation, for current operations have been reduced to a level of approximately $60,000 to $80,000 per month. We are currently receiving funding at these levels from existing investors (see sections “Loans and Notes Payable”).

Results of Operations for the Three Months Ended March 31, 2010 Compared to the Three  Months Ended March 31, 2009

For the quarter ended March 31, 2010, total revenues amounted to $734, compared to $17,885 recorded in the first quarter in 2009.

Gross profits for the quarter ended March 31, 2010 amounted to $734.  After deducting selling and general and administrative expenses of $266,060 for the first quarter  ended March 31, 2010 compared to $674,311 recorded in the same period in 2009, the Company realized operating losses of $265,326 for the first quarter of 2010 compared to an  operating loss of $665,660 in the same period of 2009. The significant decline in operating expenses was the result of severe cost cutting measures initiated in the course of current restructuring efforts. In particular, outlays for salaries and consulting expenses were sharply reduced due to cut-backs in staffing and curtailment of consultant retentions.
 
The quarter concluded with a net loss of $295,362. After accounting for dividends accrued on outstanding preferred stock which totaled $12,816 , the net loss applicable to common shareholders was $308,178 or $0.001 per share compared to a loss of $1,375,469 or $0.003 per share for the first quarter in the previous year.
 
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Liquidity and Capital Resources

We have financed our business with new debt since our cash flow is insufficient to provide the working capital necessary to fund our operations. We received $150,000 in cash from short-term loans and $125,000 in cash for common stock subscriptions from accredited private investors during the quarter. We have an ongoing and urgent need for working capital to fund our operations. If we are unable to continue to 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 $2,382,661 at March 31, 2010, as compared to $2,226,345 at December 31, 2019.  The change is primarily attributable the losses incurred in the first quarter of  2010, and the receipt by the company of an aggregate $150,000 in short term loans during 2010.  Stockholders’ equity showed an impairment of $2,324,149 at the end of the period, compared to an impairment of $2,169,971 at the beginning of the year. The negative cash flow from operations during the three months totaled $251,424 and was financed by new debt and $125,000 in equity capital from subscriptions for “units” consisting of common stock shares and stock purchase warrants.
 
We have no bank debt and aside from trade payables and accruals, our indebtedness at March 31, 2010, consisted of certain notes and loans aggregating $1,280,000. The position “Obligations to be settled in stock” of $125,840 accounts for common shares due under consulting agreements, and for services to be settled in common stock options and warrants, where the underlying securities had not yet been issued. Current liabilities also include $492,155 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 ongoing discussions with existing investors to secure funding. There can be no assurance, however, that we will be able to secure needed financing in the future and 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 needed equity investment or loans, we will be compelled to severely curtail operations and possibly, close our business operations. Assuming we can receive current funds to continue to operate our businesses, we may need additional funding for marketing and website development, absent of which our website development, results of operations and financial condition could be subject to material adverse consequences.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4T. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

As of the end of the period covered by this Form 10-Q for the quarter ended March 31, 2010, 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.

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.

(b) 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-Q that materially affected or were likely to materially affect the Company’s internal control over financial reporting.

 
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PART  II   OTHER INFORMATION

Item 1 LEGAL PROCEEDINGS
 
At the time of this report, the Company is not a party in any pending material legal proceedings.

Item 1A. RISK FACTORS

A smaller reporting company is not required to provide the information required by this Item.

Item 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

a) 
Issuance of unregistered securities

During the first quarter in 2010 the Company issued the following unregistered securities:

(i)  5,000,000 common shares and 1,250,000 stock purchase warrants, exercisable during three years at $0.05 per share, to two investors pursuant to private placement subscriptions, resulting in the receipt by the Company of $125,000.
 
(ii) 1,450,000 common shares to an officer of the Company pursuant to the terms of his employment agreement (see “Commitments and Contingencies”).
 
(iii) 13,125,000 common shares to a consultant pursuant to his cashless exercise of stock purchase warrants for 15,000,000 shares (see “Commitments and Contingencies”).

The Company relied upon the private placement exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), provided by Section 4(2) thereof in connection with the issuance of the above identified securities. The Company had a pre-existing relationships with the recipients of above securities and no general solicitation was involved; the certificates representing the common shares issued contained restrictive legends, designated them as restricted securities and stating that any transfer or other disposition of such shares can only be made in compliance with the registration requirements of the Securities Act or pursuant to exemptions there from.
 
(b)
Not applicable
 
(c) 
None
 
Item 3 DEFAULTS UPON SENIOR SECURITIES

The Company, as of the date of this filing, is in arrears on the payment of certain dividends on its Series A, C, and D Senior Convertible Preferred Stock. Such arrears total approximately $492,000.  These dividends have been accrued, however, the Company’s management has refrained from making payments at this time because of the absence of positive equity and/or surplus funds.

Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

-  None

Item 5 OTHER INFORMATION

-  None
 
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Item 6 EXHIBITS AND REPORTS ON FORM 8-K

(a) 
Exhibits
 
(3)(i) - Articles of Incorporation and Amendments thereto, incorporated herein by reference to Exhibits of previous filings with the Commission.

(3)(ii) - By-laws of the Company, incorporated herein by reference to Exhibits of previous filings with the Commission.

(31.1) -  Certification of Rudolf Hauke, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(31.2) -  Certification of Craig S. Cody, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32.1)  -  Certification of Rudolf Hauke, Chief Executive Officer, pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350

(32.2)  -  Certification of Craig S. Cody, Chief Financial Officer, pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
     
 
(b)
Reports on Form 8-K:
 
On May 4, 2010, the Company filed a report on 8K, disclosing the resignation of the Chief Financial Officer and appointment of a new Chief Financial Officer .

On March 2, 2010, the Company filed a current report on Form 8-K, disclosing its receipt of the final tranche from an accredited investor in connection with its private placement.

On February 19, 2010, the Company filed a current report on Form 8-K, disclosing that that the Financial Industry Regulatory Agency (“FINRA”) approved the Company’s corporate name change and assigned a new trading symbol to the Company’s common stock.

20

 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
 
  Kiwibox.Com, INC.  
       
Date:   May 14, 2010
By:
craig  
    Craig S. Cody  
    Chief Financial Officer  
       
 
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