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EX-31.1 - Kiwibox.Com, Inc.v194081_ex31-1.htm
EX-32.1 - Kiwibox.Com, Inc.v194081_ex32-1.htm
EX-31.2 - Kiwibox.Com, Inc.v194081_ex31-2.htm
EX-32.2 - Kiwibox.Com, Inc.v194081_ex32-2.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 June 30, 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
(IRS Employer Identification No.)
Incorporation or Organization)
 



330 West 38 St. Suite 1602 New York, NY 10018
(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       xNo _____
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 
Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  x
 

 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x


The number of shares of Registrant’s Common Stock, $0.0001 par value, outstanding as of August 12, 2010, was 497,743,060 shares.

 


 
KIWIBOX.COM, INC.

INDEX
 
   
Page Number
PART  1  -  FINANCIAL INFORMATION
   
     
Item 1   Financial Statements
 
     
  Condensed Balance Sheets
 
   - June 30, 2010 (unaudited) and December 31, 2009
             3
     
  Condensed Statements of Operations
 
   - Three  and six months ended June 30, 2010 and 2009 (unaudited)
4
     
  Condensed Statements of Cash Flows
 
   - Six  months ended June 30, 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 4T.Controls and Procedures
 
              18
     
PART II  -  OTHER INFORMATION
 
19 - 20
     
Item 1. Legal Proceedings
 
     
Item 1A. Risk Factors
 
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
20
     
Item 3. Defaults Upon Senior Securities
 
     
Item 4. Submission of Matters to a Vote of Security Holders
 
     
Item 5. Other information
 
     
Item 6.  Exhibits
 
     
SIGNATURES
 
21-25

2


PART I  - Item 1   Financial Statements

KIWIBOX.COM, INC.
CONDENSED BALANCE SHEETS
 
                                                                                                                         
  June 30, 2010 (Unaudited)     December 31, 2009  
Assets
           
Current Assets
           
Cash  
  $ 5,869     $ 2,518  
Accounts receivable, net of allowance for
               
   doubtful accounts of $0
    0       2,000  
Prepaid expenses and other current assets
    67,135       80,523  
Total Current Assets
    73,004       85,041  
Property and equipment, net of accumulated
               
   depreciation of $83,115 and $85,841
    20,713       18,705  
   Website development costs, net of accumulated
               
   amortization of $8,758 and $1,813
    71,987       19,945  
Other assets
    20,679        17,724  
Total Assets
    186,383        141,415  
                 
Liabilities and Stockholders’ Equity (Impairment)
               
                 
Current Liabilities
               
Accounts payable and accrued expenses
    584,607       535,618  
Obligations to be settled in stock
    153,726       132,900  
Dividends payable
    504,970       479,339  
Loans and notes payable – related parties
    1,460,000        990,000  
Loans and notes payable - other
    140,000       140,000  
Current maturities of long-term debt
    33,529       33,529  
Total Current Liabilities
    2,876,832       2,311,386  
   Long-term Debt
    -          
Total Liabilities
    2,876,832       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)
    (48,287,227 )     (47,612,749 )
Total Stockholders’ Equity (Impairment)
    (2,690,449 )      (2,169,971 )
                 
Total Liabilities and Equity (Impairment)
  $ 186,383     $ 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
 
 
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Total Revenues
  $ 670       20,959     $ 1,403     $ 38,844  
                                 
Cost of Goods Sold
    785       2,263       785       11,497  
                                 
Gross Profit (Loss)
    (115 )     18,696       618       27,347  
                                 
Selling expenses
    47,063       12,769       72,194       101,565  
General and administrative expenses
    268,995       260,261       509,923       845,776  
                                 
Loss from Operations
    (316,173 )     (254,334 )     (581,499 )     (919,994 )
                                 
Other Income (Expense)
                               
Miscellaneous income
    11,377       -       11,377       0  
Misc. non-operating expenses
    (3,346 )     0       (6,531 )     0  
Foreign currency transaction loss
    (5,585 )     0       (5,585 )     0  
Change in fair value –derivative liability
    -       0       -       (77,806 )
Amortization of deferred financing cost
    -       0       -       (4,000 )
Gain on extinguishment of debt
    -       32,416       -       32,416  
       Gain on disposition of assets                                                     
    -       -       2,285       -  
Interest income
    -       5       -       5  
Interest expense
    (39,758 )     (20,623 )     (68,894 )     (635,810 )
    Total Other Income (Expense)
    (37,312 )     11,798       ( 67,348 )     (685,195 )
                                 
Loss from Operations before Provision
                               
     for Income Taxes
    (353,485 )     (242,536 )     (648,847 )     (1,605,189 )
                                 
Provision for income taxes
    -       -       -       -  
                                 
Net Loss
  $ (353,485 )   $ (242,536 )   $ (648,847 )   $ (1,605,189 )
 
                               
                                 
Dividends on Preferred Stock
    (12,815 )     (12,816 )     (25,631 )     (25,632 )
                                 
Net Loss applicable to
                               
     Common Shareholders
  $ (366,300 )   $ (255,352 )   $ (674,478 )   $ (1,630,821 )
 
                               
Loss per Common Share
  $ (0.001 )   $ ( 0.001 )   $ (0.001 )   $ (0.004 )
 
                               
Weighted Average Number of
                               
Common Shares Outstanding
    497,743,060       454,099,712       494,544,563       449,635,427  
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
4

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


   
Six Months Ended
 
   
June 30,
 
   
2010
   
 2009
 
Cash Flows from Operating Activities
           
Net Loss
  $ (648,847 )   $ (1,605,189 )
Adjustments to Reconcile Net Loss
               
to Net Cash Used by Operations
               
   Depreciation and amortization
    12,807       32,447  
   Change in fair value – derivative liabilities
    -       77,806  
   Loss (gain) on disposal of assets
    (2,285 )     5,940  
   Intrinsic value of beneficial conversion rights
    -       600,000  
Decreases (Increases) in Assets
               
   Accounts receivable
    2,000       4,426  
   Prepaid expenses
    13,388       11,272  
   Increases (decreases) in Liabilities
               
   Obligations to be settled in stock
    49,826       13,000  
   Accounts payable and accrued expenses
    48,989       65,376  
Net Cash Used by Operating Activities
    (524,122 )     (794,922 )
                 
Cash Flows from Investing Activities
               
Other assets
    (2,955 )     (14,500 )
Proceeds from sale of assets
    4,520       -  
Cash outlay - website development costs
    (58,987 )     -  
Purchases of property and equipment
    (10,105 )     -  
Net Cash Used by Investing Activities
    (67,527 )     (14,500 )
                 
Cash Flows from Financing Activities
               
Proceeds from loans and notes
    470,000       850,000  
Issuance of common stock
    125,000       -  
Net Cash Provided by Financing Activities
    595,000       850,000  
                 
Net Increase (Decrease) in Cash
    3,351       40,578  
Cash at Beginning of Period
    2,518       5,000  
Cash at End of Period
  $ 5,869     $ 45,578  
 
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:
     
       
Six Months Ended June 30, 2010
     
       
       
Cashless exercise of warrants
  $ 1,312  
         
Settlement of obligations with common stock and common stock options
  $ 29,000  
         
         
Six Months Ended June 30, 2009
       
         
Reclassification of derivative liabilities to Additional Paid-in capital
  $ 3,408,618  
         
Foregiveness of debt by related party
  $ 213,570  
         




6


 


      KIWIBOX.COM
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 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 June 30, 2010, the results of operations for the three and six months ended June 30, 2010 and 2009, and the cash flows for the six months ended June 30, 2010 and 2009, have been included.

Principles of Consolidation

The consolidated financial statements for the period ended December 31, 2009  include 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 CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 Companys 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
 
8

 
KIWIBOX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

    Capitalization of Software /Website development costs (continued)
            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.

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 $58,987 and $21,658 was capitalized for web-site development work during the six months ended June 30, 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.


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 180,054,852 common shares at June 30, 2010, comprised of 144,731,315 shares issuable upon exercise of stock purchase warrants, 8,250,000 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 and the related accrued interest, presently convertible at the option of two holders at a price of $0.01 per share, totals $1,621,118 which would yield 162,111,800 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
JUNE 30, 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 June 30, 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 $1,267 in prepaid business insurance costs, $60,455 in prepayments on promotional supplies inventory, and $5,413 made up of several smaller positions.

5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at          
                                                                                                                       
       June 30, 2010       December 31, 2009  
          Furniture
  $ 14,322     $ 6,646  
          Leasehold Improvements
    24,130       24,131  
          Equipment
    65,376       73,770  
      103,828       104,546  
          Less accumulated depreciation
    83,115       85,841  
          Total
  $ 20,713     $ 18,705  

      Depreciation expense charged to operations was $5,862 and $17,672 in the first six months of 2010 and 2009, respectively.
 
 
10

 
KIWIBOX.COM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2010

6.  INTANGIBLE ASSETS

Intangible assets consisted of software for website development costs as follows:
                                 
      June 30, 2010        December 31, 2009  
        Website development costs
  $ 80,745     $ 21,758  
        Less accumulated amortization
    8,758       1,813  
        Total
  $ 71,987     $ 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 six months ending June 30, 2010 and 2009 was $6,944 and $10,775, respectively. Additional amortization and accumulated amortization over the next 5 years will be as follows:
 
   
Amortization expense
 
December 31, 2010
  $ 13,457  
December 31, 2011
    26,915  
December 31, 2012
    25,102  
December 31, 2013
    6,513  
December 31, 2014
    -  
 
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at:                   

      June30, 2010        December 31, 2009  
       Accounts payable
  $ 217,631     $ 208,792  
       Accrued interest
    235,787       170,860  
       Accrued payroll, payroll taxes and commissions
    5,244       15,331  
       Accrued professional fees
    123,840       116,900  
       Miscellaneous accruals
    2,105       23,735  
       Total
  $ 584,607     $ 535,618  

8.  OBLIGATIONS TO BE SETTLED IN STOCK

Obligations to be settled in stock consisted of the following at
                                                                                                                     & ;amp ;#16 0;                                   
     
June 30,
2010
     
 December 31,
2009
 
         Obligation for warrants granted for compensation
  $ 40,000     $ 20,000  
                 
         900,000 common shares issuable to a consultant
         who was a director of the company, for services
         rendered.
      36,000         36,000  
 
        400,000 (2010) and 1,250,000 (2009) common
        shares, and 2,800,000 (2010) and 2,200,000 (2009)
        stock options issuable to two officers of the
        Company pursuant to their respective employment
        Agreements
        62,876           67,990  
 
 
11

 
 
KIWIBOX.COM, INC.
NOTES TO CONSDENSED FINANCIALSTATEMENTS
JUNE 30, 2010
8. OBLIGATIONS TO BE SETTLED IN STOCK
    (continued)
 
 
        1,500,000 (2010) and 900,000 (2009) stock options
        issuable to one director who also serves as the
        Company’s general counsel
                        4,850                           8,910  
                 
    $ 153,726     $ 132,900  
 
9. LOANS PAYABLE

The Company (Formerly  Magnitude, Inc.) had borrowings under short term loan agreements with the following terms and conditions at June 30, 2010 and December 31, 2009:

 
On December 4, 1996, The company (Formerly Magnitude, Inc.) 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

   
June 30,
   
December 31,
 
   
2010
   
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
    500,000       500,000  
 
12

 
KIWIBOX.COM
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 31, 2010
 
11.  NOTES PAYABLE (continued)
 
       charge   to interest and a credit to additional paid-in capital in the same amount.
                 
                 
                 
       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            
                 
      During May 2010 a shareholder loaned the Company $100,000
      under the same terms as earlier notes issued in 2009.
    100,000           
                 
     During April through June a shareholder loaned the Company
     $220,000  under the same terms as earlier notes issued in 2009.
    220,000            
 
       Total
  $ 1,525,000     $ 1,055,000  

 

13


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


11. LONG-TERM DEBT

Long-term debt as of June 30, 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
  $ -  

12. COMMITMENTS AND CONTINGENCIES

We maintain offices for our operations at 330 W. 38th Street, New York, New York 10018, for approximately 900 square feet. This lease expires at the end of 2010 and requires minimum monthly rentals of $2,199 plus tenants’ share of utility/cam/property tax charges which average approximately $400 per month. During the 1st quarter of 2010 the Company successfully negotiated with the landlord to give up a lease of an office located at the same address consisting of approximately 500 square feet.

In May 2010 the Company negotiated a lease of an apartment in New York City for the CEO in order to reduce travel costs. The lease is for 12 months at $2,775 per month.

Our total rent expenses were $24,302 and $32,434 during the six months ended June 30, 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 and six months ended June 30, 2010 and 2009 one outside director of the Company who also serves as the Company’s general and securities counsel, was paid an aggregate $30,000 and $60,000, respectively, for each period for legal services. The director also received 100,000 common stock options per month during the three and six months ended June 30, 2010, valued at $5,940 and $11,880, respectively.
 
 
14


 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     JUNE 30, 2010

13. RELATED PARTY TRANSACTIONS – Continued

During the three and six months ended June 30, 2009 we paid our Chief Executive Officer $12,000 and $12,000, respectively, for outside consulting services performed.

During the three and six months ended June 30, 2010, we incurred an aggregate $40,155 and $127,277, respectively, to companies controlled by the Chief Technology Officer of the Company for website expenses and software development ($35,153 for three months and $119,692 for six months) and Company promotional and marketing expenses ($2,000 for three months and $7,585 for six months). During the three and six months ended June 30, 2009 we incurred an aggregate $3,003 and $3,003, respectively, to these companies, for server hosting expenses.

Through June 30, 2010, the beneficial ownership in the Company’s securities held respectively, by Tell Capital AG of Switzerland and its principal, Ulrich Schuerch on a consolidated basis, was approximately 10.4%, and approximately 9.9% for Discovery Advisory Company, located in the Bahamas, and Cambridge Services Inc. of Switzerland, of the voting stock. Both Discovery Advisory Company and Cambridge Services Inc. are major creditors, having advanced operating capital against issuance by the Company of convertible promissory notes to during 2009 and 2010. During the three and six months ended June 30, 2010, Cambridge Services, Inc. advanced an additional $350,000 and $470,000, respectively.  At June 30, 2010, $950,000 and $510,000 of such notes were outstanding and owed to Discovery Advisory Company and Cambridge Services Inc., respectively. The terms of the related debentures were modified subsequent to June 30, 2010 (see Note 15, SUBSEQUENT EVENTS).

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 June 30, 2010, the carrying value of the notes payable and accrued interest was $1,835,787.

15. SUBSEQUENT EVENTS

On July 30, 2010, the Company filed a report on Form 8-K, advising that Rudolf  Hauke resigned as the Chief Executive  Officer and as a member of the Company’s Board of Directors and that. effective as of August 1, 2010, the Company appointed Andre Scholz to serve as President and Chief Executive Officer. Mr. Scholz previously served as the Company’s Chief Technology Officer.

15

 
KIWIBOX.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATE.99%MENTS
JUNE 30, 2010

15. SUBSEQUENT EVENTS-Continued.

On July 27, 2010, the Company issued two Class A Senior Convertible Revolving Promissory Notes, one to Cambridge Services, Inc., in the principal amount of $543,996, consolidating the series of loans made to the Company since June 26, 2009 through June 30, 2010, and one to Discover Advisory Company, in the principal amount of $1,080,984, consolidating the series of loans made to the Company since September 19, 2008 through June 30, 2010. Each of these promissory notes are due on demand, accrue interest at the rate of 10%, per annum, are convertible at the option of each lender into Common Stock of the Company at 50% of the averaged ten closing prices for the Company's Common Stock for the ten (10) trading days immediately preceding the Conversion Date but in no event less than $0.001 (the "Conversion Price"). Both promissory notes contain conversion caps, limiting conversions under these notes to a maximum beneficial ownership position of Company common stock to 9.99% for each lender. Each of these notes contains Company covenants, requiring the lenders’ prior written consent in order for the Company to merge, issue any common or preferred stock or any convertible debt instruments, declare a stock split or dividends, increase any compensation to its officers or directors by more than five (5%) during any calendar year,
Use any of the proceeds of the notes to pay any accrued salaries or past due accounts, payables or debts, and prohibits the use of a Form S-8 registration statement except under specific circumstances.


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 has finished the integration of the Kiwibox 3.5 platform. With these improvements the company has caught up to the level of other big social network communities on the market. Kiwibox has developed multiple mobile applications for cell phones to follow the mobile usage of its members. The company has developed multiple technololgy  connection applications for facebook and twitter to show up public and show activity across  social  networks. Kiwibox is following up its effort to target old teens and young adults by capturing their interest and   allowing them to discover how to integrate the usage of social networking in to their lives now and in the future.
 
16


 
      The company has increased its efforts in active street and event marketing as well the  technology developments by 25% per month. Our operating expenses, not including stock-based compensation reached a level of approximately $80,000 to $100,000 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 and Six Months Ended June 30, 2010 Compared to the Three  and Six Months Ended June 30, 2009

For the three and six months ended June 30, 2010, total revenues amounted to $670 and $1,403, respectively, compared to $20,959 and $38,844 recorded in the same periods in 2009.

Gross profits for the six months ended June 30, 2010 amounted to $618 after accounting for $785 in cost of sales.  After deducting selling - and general and administrative expenses of $316,058 and $582,117 for the three and six months ended June 30 2010, compared to $273,030 and $947,341 recorded in the same period in 2009, the Company realized operating losses of $316,173 and $581,499 for the three and six months ended June 30, 2010 compared to operating losses of $254,334 and $919,994 in the same periods in 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 $353,485 for the quarter and a loss of $648,847 for the first six months of 2010. After accounting for dividends accrued on outstanding preferred stock which totaled $12,815 and $25,631, respectively,  the net loss applicable to common shareholders was $366,300 or $0.001 per share and $674,478 or $0.001 per share for the quarter and six months ended June 30, 2010, compared to a loss of $255,352 or $0.001 per share and $1,630,821 or $0.004 per share for the same periods in 2009.

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 $320,000 in cash from short-term loans 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 $2,803,828 at June 30, 2010, as compared to $2,226,345 at December 31, 2009.  The change is primarily attributable the losses incurred in the first quarter of 2010, and the receipt by the company of an aggregate $470,000 in short term loans during 2010.  Stockholders’ equity showed an impairment of $2,690,449 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 six months totaled $524,122 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 June 30, 2010, consisted of certain notes and loans aggregating $1,600,000. The position “Obligations to be settled in stock” of $153,726 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 $504,970 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.
 
17

 
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.


18



 
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 June 30, 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.

19


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 six months of 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 $504,970.  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
 
20


 
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 Andre Scholz, 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 Andre Scholz, 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.

                         On July 30, 2010, the Company filed a report on Form 8-K, advising that Rudolf  Hauke resigned as the Chief Executive  Officer and as a member of the Company’s Board of Directors and that. effective as of August 1, 2010, the Company appointed Andre Scholz to serve as Chief Executive Officer. Mr. Scholz previously served as the Company’s  Chief Technology Officer.


21


 

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:   August 16, 2010     
By:
/s/ Craig S. Cody  
   
Craig S. Cody
 
   
Chief Financial Officer
 
       
         

22