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EX-31.2 - Kiwibox.Com, Inc.v218525_ex31-2.htm
EX-31.1 - Kiwibox.Com, Inc.v218525_ex31-1.htm
EX-32.01 - Kiwibox.Com, Inc.v218525_ex32-01.htm
EX-32.02 - Kiwibox.Com, Inc.v218525_ex32-02.htm

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year ended December 31, 2010

OR

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

For the Transition Period   From            to

Commission File No. 33-20432

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

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

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x     No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

The Registrant’s revenues for the fiscal year ended December 31, 2010 were $2,039.

Common stock, par value $.0001 per share (“Common Stock”), was the only class of voting stock of the Registrant outstanding on April 5, 2011. Based on the closing price of the Common Stock on the OTC Electronic Bulletin Board as reported on April 5, 2011the aggregate market value of the shares of the Common Stock held by persons other than officers, directors and persons known to the Registrant to be the beneficial owners (as the term is defined under the rules of the Securities and Exchange Commission) of more than five percent of the Common Stock on April 5, 2011, was approximately $9,375,661. By the foregoing statements, the Registrant does not intend to imply that any of the officers, directors, or beneficial owners are affiliates of the registrant or that the aggregate market value, as computed pursuant to rules of the Securities and Exchange Commission, is in any way indicative of the amount which could be obtained for such shares of Common Stock.

As of April 5, 2011 498,243,060 shares of Common Stock, $.0001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX

 
 

 

KIWIBOX.COM, INC.

CONTENTS

     
Page
       
PART I.
   
       
 
Item  1.
Business
3
 
Item 1A.  
Risk Factors
7
 
Item  2.
Properties
9
 
Item  3.
Legal Proceedings
9
 
Item  4.
Submission of Matters to a Vote of Security Holders
9
       
PART II.
   
       
 
Item  5.
Market for Registrant's Common Equity and Related Shareholder Matters
10
 
Item 6.
Selected Financial Data
10
 
Item  7.
Management’s' Discussion and Analysis of Financial Condition and Results of Operations
12
 
Item 7A.
Quantitative and Qualitative Disclosures about Market Risks
14
 
Item 8.
Financial Statements
14
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
14
 
Item 9A.
Control and Procedures
14
 
Item 9B.
Other Information
15
       
PART III.
   
       
 
Item 10.
Directors and Executive Officers of the Registrant
16
 
Item 11.
Executive Compensation
18
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management
22
 
Item 13.
Certain Relationships and Related Transactions
24
 
Item 14.
Principal Accountant Fees and Services
24
       
PART IV.
   
       
 
Item 15.
Exhibits
26
       
   
Signatures
27
       
   
Exhibit Index
28

 
2

 

PART I
ITEM 1:
BUSINESS
 
Section 1.1
The Company
 
Kiwibox.Com, Inc. (the “Company”) was incorporated as a Delaware corporation on April 19, 1988 under the name Fortunistics, Inc. On November 18, 1998, the Company changed its name to Magnitude Information Systems, Inc. On December 31, 2009, the Company changed its name to Kiwibox.Com, Inc.

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

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

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

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

As of December 31, 2010, there were outstanding 498,243,060 Common Shares, 1 Cumulative Preferred Share, and 85,890 Convertible Preferred Shares.

 
3

 

Description of Business

Overview

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

We own and operate “Kiwibox.com”, a social networking website. Initially launched in 1999, Kiwibox.com is an online social networking website for old teens and young adults. Kiwibox has a regional-based advertising-system that allows target-group-optimized ads for advertisers and sponsors.

Kiwibox Operations
 
In the United States alone the teenage population is approximately 44 million, as estimated by the US Census Bureau, which spent over $189 billion in 2006,  according to eMarketer. Spending by and on teens is projected to reach $208 billion by the end of 2011, with $91 billion of that coming from teens themselves. To reach teens online, marketers are aggressively increasing resource allocation to social networks. According to eMarketer, advertising on social networking websites is projected to be over $6 billion during 2011. Today’s teenagers continue the growing advancement of social network connectivity and the overall enhancement of the digital age as they represent the driving force in the marketplace.  The focus in the millennial generation has shifted from connecting with one’s friends to living a digitally integrated lifestyle. In fact, according to Pew Internet and The American Life Project, 3 out of every four teens and young adults use a social network. With a myopia of social networks fighting to retain and grow their user base (as 90% of young adults use a computer at home or work), diversification of one’s offerings will remain the constant that divides market share. As Kiwibox.com continues to increase operating capabilities, offer cutting edge technologies and enhance the lives of users through connecting to all aspects of life, the network will continue to grow through diversity.
 
In mid-year 2009 we started a review process to identify new user preferences and trends in the market, partially driven by the growing presence of social websites such as Facebook, MySpace, and Twitter™. We also started to investigate the newest web technologies and to actively look for potential strategic partners.

 
4

 

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

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

Potential Revenue Streams and Marketing Strategy

Currently we generate the majority of our revenue from advertising/sponsorships.  We are currently in the midst of cementing partnerships with various event marketers in our core user area. Revenue growth is expected as the revitalized site continues to lead to increased membership activity and new planned marketing strategies are implemented.

With the integration of target-group optimized advertising we seek to accommodate potential advertisers, recognizing and responding to the importance of a contact-price in relation to the internet target “cloud”. It is becoming more and more important to get access to the right target group and know how to direct advertising – and this is only possible in social networks.

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

Safety

Kiwibox.com has developed an effective monitoring model which assists in maintaining a safe site for our member
 base, combining both technology based systems and user moderation.  Users communicate and share information
in an environment where they feel both secure and at ease.  Members of the Kiwibox team monitor forums and
groups daily to ensure the content is appropriate and harmless.

Besides employee moderation, the Kiwibox.com platform is equipped with advanced technology safety features. This includes the private sphere configuration of users, contact blocs for larger age differentials, anti-spam protection and intelligent self-learning user-scoring feature. In addition to this, Kiwibox.com has recently implemented state of the art security features such as former Attorney General Andrew M. Cuomo’s hash value database in order to block images of children being sexually abused. With the combination of human moderation and advanced technology, users are afforded a safe and secure site.

Competition

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

 
5

 

Intellectual Property

We currently do not own any patents, trademarks, or licenses of any kind. However, the Kiwibox.com  web and mobile software and other related intellectual property rights are important assets.  We hold the Internet domain names Kiwibox.com, Kiwibox.net, Kiwibox.org, as well as other country-code top level domains (e.g. kiwibox.cn) and feature-based domains like 4kiwi.com.

Governmental Regulations

Our Kiwibox website operations are subject to state, federal and international laws, rules and regulations that cover on-line business, privacy policies, consumer protection and product marketing. The Kiwibox website business is subject to state, federal and international laws, rules and regulations applicable to online commerce, including user privacy policies, product pricing policies, website content and general consumer protection laws.  Various laws, rules and regulations have been adopted, and probably will be adopted in the future, that apply to the Internet, including available online content, privacy concerns, online marketing, “spam” and unsolicited commercial email, taxation issues, and regulations that effect and monitor the quality of products and services.

A portion of these laws, rules and regulations that concern the Internet and its uses have been only recently adopted. Courts and administrative agencies have not yet fully interpreted these legal requirements as to their application and scope. Accordingly, our Kiwibox website business is subject to the uncertainties of future interpretations and application of these legal requirements. The application and interpretation of these legal requirements or the passage of new and/or revised laws, rules and regulations could reduce the demand for Kiwibox website services, increase its operational costs, and expose it to potential liability. Any such events could have a material adverse effect upon our Kiwibox website business and financial condition. Our failure, or that of our business partners, to accurately predict and anticipate the interpretation or application of these laws, rules and regulations, whether now in force or adopted in the future, could have  a detrimental impact on our operations, create negative publicity for us and expose us to potential liability.

State and federal agencies are applying consumer protection laws to regulate the on-line use, collection and dissemination of personal information and website content. These laws require us to implement programs to notify our website users of our privacy and security programs. Consumer protection laws will require us to obtain the consent of our website users if we want to collect and use certain portions of their personal information. We are currently voluntarily working in partnership with the New York State Attorney General’s office and have incorporated hash value technology into our website.

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

Employees

Currently, we have 3 full-time and 4 part-time employees.

 
6

 

ITEM 1.A: 
RISKS RELATED TO OUR BUSINESS

Early Stage Company; Generation of Revenues

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

Doubt Raised About our Ability to Continue as a Going Concern.

Our financial statements have been presented on the basis that we will remain a going concern and that our assets will increase and that we will satisfy our liabilities in the normal course of our business. Kiwibox has had minimal revenues and has incurred operating losses during the fiscal years ended December 31, 2007, 2008, 2009 and 2010. Our independent auditors have concluded that these factors create an uncertainty about our ability to continue as a going concern. Our ability to continue as a going concern is dependent, among other factors, on our continued success in raising capital.

Need for Additional Capital; Short-Term Viability of Company

Our operations require immediate investment of equity capital or loans to continue to operate. If we can not secure funds in the short-term, we will be required to close our entire business operations and our website. Assuming we can receive a current investment or loans to fund our immediate operational needs, our Kiwibox website business’s future capital requirements will depend on many factors, including the degree to which teenagers use the kiwibox.com Website and the degree to which Kiwibox is able to generate revenues from users of its site. We expect to require additional financing before we achieve a profitable level of operations, however, there is no assurance that such funding will be available on acceptable terms, or at all.  If we elect to sell equity to raise additional funds, there is no assurance that additional equity can be sold on terms favorable to the Company and to its existing shareholders, with the result that existing shareholders may incur substantial dilution. Without the necessary funding, we may be required to delay, reduce or terminate some or all of our Kiwibox website business or our efforts to obtain additional funding.

No Formal Feasibility and Market Research Plan

We have collected data and statistics concerning the potential market for the Kiwibox.com website and the costs of marketing our services. We have relied principally on the judgment and conclusions of our management, based on their respective knowledge and experiences. We have not performed any formal marketing study that confirms any absolute demand for the services we are providing on our Kiwibox.com website.

Unpredictability of Future Revenues; Potential Downturns in Operating Results

Due to Kiwibox’s minimal revenues since inception and the uncertainty of revenues that may be generated through potential partners and alliances, we are currently unable to forecast our future revenues with accuracy.  Our current and future operational costs are based primarily on our marketing and website development plans and our estimates of future revenues. Our potential advertising and joint marketing sales results are difficult to forecast at this stage.  It will be difficult for us to realign our operational expenses should future revenue forecasts not materialize which would require that we curtail or cease certain aspects of our operations. Accordingly, if our future revenues are insufficient to fund our planned operations, such a shortfall could have an immediate adverse effect on our business, prospects, financial condition and results of operations.

 
7

 

We may experience cyclical downturns in our future operating results due to various factors, many of which are beyond our control. Some of the factors that could impact our operating results include: (a) our ability to attract and retain new members to our Kiwibox.com website; (b) new developments by our competitor websites; (c) advertising and product price competition; (d) our ability to develop enhancements to our website, upgrade its internet functionality and services; (e) our ability to attract and retain necessary personnel; (f) difficulties with our software or hardware equipment, including any interruptions in the development and maintenance of our internet equipment and related infrastructure systems related to our Kiwibox.com website; (g) the future impact of governmental rules, regulations and laws, and; (h) general economic conditions.

Website and Service Development Risks

The continuing development of our Kiwibox.com website is a highly complex technical process. We are presently in the process of designing and implementing a wide array of feature and contents enhancements in order to remain competitive in our teen marketplace. If we are unable to develop and introduce new services or enhancements to our website in a timely manner in response to changing market conditions or customer requirements, our business, prospects, operating results and financial condition could be materially adversely affected.

Limited Senior Management Team; Potential Problems with Expanding Personnel

We have a limited number of senior management personnel, planning, developing and managing our website business. We have  expanded our website operations to accommodate potential growth in our membership and marketplace. We could experience significant pressure on our financial resources and management personnel as a result of the current expansion. In order to manage this expansion, we may be required to adopt new operating procedures, develop new advertising and marketing plans, financial controls and procedures and policies to supervise a growing employee population. We will also be required to attract, retain and properly administer the expansion of our employee population. Investors should be aware that we may not be able to adequately manage all of these new developments in our expansion, in which case our operations, business prospects, operating results and financial condition could be materially adversely affected.

Competition

Our website business in the young adult and teen marketplace is highly competitive. We can give no assurances that our website business will effectively compete with the more established teen websites currently operating in this marketplace.

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

Dependence on Management

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

Our success will be dependent, in large part, on the services of our principal officers and employees.  The loss of any of these individuals could have a material adverse effect on our business or results of operations.  We do not maintain “key-man” life insurance policies on the lives of our officers to compensate us in the event of their deaths.

Except for issues that require shareholder approval, investors should be aware that they will have no vote on our operations, business developments or any management issues, including expansion, website enhancements or personnel decisions. You should not invest in our company unless you understand that all business and operational decisions are made by our management.

 
8

 

Creation of Brand Awareness

It will be crucial to the economic success of our Kiwibox.com website that we promote and establish brand awareness. A successful brand awareness campaign will tend to decrease our marketing expenses over time. If we are not able to adequately establish our brand in our marketplace, our operating results, market growth and financial condition could be materially adversely affected.

Potential for Defects in our Products and Services

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

Penny Stock Regulation

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

Absence of Dividends

We have not paid any dividends on our common stock and we are not likely to do so in the foreseeable future. We presently intend to retain earnings for use in growing our business. We may pay for some of our future expansion through debt financing, in which case lenders traditionally prohibit the payment of any such dividends. We also are prohibited from paying dividends on our common stock before we have paid all dividends accrued on our preferred stock, which accruals amounted to $530,602 at December 31, 2010. Investors should be aware, therefore, that the Company intends to re-invest any earnings back into our business for the foreseeable future and that they should have no expectations of receiving any dividends on the common shares they may purchase.

ITEM 2:
DESCRIPTION OF PROPERTIES

We maintain offices for our Kiwibox operations at 330 W. 38th Street, New York, New York 10018, for approximately 733 square feet. The lease expired at the end of 2010 and was subsequently extended until April 2011 under the same terms. We pay minimum monthly rentals of $2,200 plus tenants’ share of utility/cam/property tax charges which average approximately $550 per month.

ITEM 3:
LEGAL PROCEEDINGS

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

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

No matters were submitted to a vote of the security holders during the 2010 fiscal period.

 
9

 

PART II

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

(a)  Market Information

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

   
OTC-BB
 
    
Low/Bid
   
High/Ask
 
2008
           
First Quarter
  $ 0.01     $ 0.04  
Second Quarter
    0.02       0.03  
Third Quarter
    0.01       0.03  
Fourth Quarter
    0.01       0.03  
2009
               
First Quarter
  $ 0.01     $ 0.03  
Second Quarter
    0.01       0.02  
Third Quarter
    0.01       0.01  
Fourth Quarter
    0.01       0.04  
2010
               
First Quarter
  $ 0.01     $ 0.02  
Second Quarter
    0.01       0.02  
Third Quarter
    0.01       0.01  
Fourth Quarter
    0.01       0.02  

(b)  Shareholders

As of April 5, 2011, there were approximately 356 shareholders of record for the Company’s Common Stock.  The number of record holders does not include shareholders whose securities are held in street names.

(c)  Dividends

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

Recent Issues of  Unregistered Securities

There were no sales of unregistered securities during the fourth quarter of 2010.

ITEM 6:
SELECTED FINANCIAL DATA

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

 
10

 

Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events.
 
The selected financial information presented below under the captions "Statement of Operations" and "Balance Sheet" for the years ended December 31, 2006 through 2010 is derived from the financial statements of the Company and should be read in conjunction with the financial statements and notes thereto.

The financial data are those of Kiwibox.Com, Inc. (f/k/a Magnitude Information Systems, Inc.) including the operations of Magnitude, Inc. and, starting with August 16, 2007, the date of acquisition, the operations of KiwiBox Media, Inc through December 31, 2009, the date these entities were merged into Kiwibox.Com, Inc. All inter-company accounts and transactions have been eliminated in consolidation through December 31, 2009.

Balance Sheet
   
December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
Total assets
  $ 166,436     $ 141,415     $ 130,672     $ 3,221,336     $ 169,128  
Current liabilities
    6,181,044       2,311,386       5,179,293       6,316,912       2,674,613  
Long-term debt
    -       -       -       -       -  
Working capital
    (6,145,931 )     (2,226,345 )     (5,148,331 )     (5,826,532 )     (2,553,451 )
                                         
Shareholders’ equity (deficit)
  $ (6,014,608 )   $ (2,169,971 )   $ (5,048,621 )     (3,095,576 )     (2,505,485 )

Statement of Operations
   
For the Year Ended December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
Total revenues
  $ 2,039     $ 50,450     $ 59,421     $ 29,745     $ 47,701  
Operating income (loss)
    (1,181,626 )     (1,609,956 )     (6,206,870 )     (2,447,832 )     (3,716,867 )
Net (loss)
    (3,972,372 )     (2,440,465 )     (5,493,764 )     (3,881,652 )     (3,895,262 )
Net (loss) after dividends on preferred shares
    (4,023,635 )     (2,491,728 )     (5,545,096 )     (3,935,133 )     (4,473,726 )
Net loss per common share
  $ (0.008 )   $ (0.006 )   $ (0.015 )   $ (0.016 )   $ (0.026 )
Number of shares used in computing per share data
    494,315,316       447,090,174       373,156,459       243,609,819       170,692,731  
 
 
11

 

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

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

The information in this annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about their businesses so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than those statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

The following discussion and analysis should be read in conjunction with the consolidated financial statements of Kiwibox.Com, Inc., included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Description of Business

Based on its market surveys, the Company’s business plan focused on increasing its regional membership during 2010. These efforts in the New York City membership market have resulted in an approximate 125% increase in this region’s membership growth during 2010. The Company intends to continue its marketing efforts in this region through a series of street promotion and event organizing in 2011. The Company has developed a number of partnerships with event organizers and businesses along the east coast of the United States and plans further expansion of these types of market alliances.

In continuing its efforts to exploit other available revenue sources in addition to its current efforts focused on organic membership growth, the Company implemented a strategic marketing plan to identify potential acquisition candidates in 2010. Pursuant to this endeavor, the Company identified a strategic international social network operation with whom the Company signed a confidential letter of intent in 2010. The Company completed its due diligence review of this candidate and, subject to the successful negotiation of a definitive agreement and other requirements, believes that its acquisition would significantly enhance the Company’s competitive market position.

The Company attaches great importance to its technology developments and continues to follow the top social network market leaders with technology upgrades, providing its users with an alternative social networking opportunity.

The operating expenses, not including stock-based compensation, remained at a level of approximately $65,000 to $80,000 per month. We are currently receiving funding at these levels from existing investors (see sections
“Loans and Notes Payable”).

 
12

 

Results of Operations for the Twelve Months Ended December 31, 2010 Compared to the Twelve Months Ended December 31, 2009

The Company had no material revenues during 2010 and 2009.  Our website presence is not yet supported by a volume of active members-users that would provide a basis for significant growth in advertising revenues. For the year ended December 31, 2010, total revenues amounted to $2,039 compared to $50,450 in 2009. Revenues were derived entirely from the Kiwibox operations.

Gross Profit (Loss) amounted to $(1,756) after considering $3,795 in website hosting expenses.  After deducting selling, research, and general and administrative expenses of $1,179,870 compared to the $1,621,638 recorded in 2009, the Company realized an operating loss of $1,181,626 compared to an operating loss of $1,609,956 in 2009.  Management’s efforts to reduce costs and streamline operations  by reducing salaries and costs associated with consultants clearly showed the desired effect during the course of the year. For the year 2011 management expects a reduction in operating expenses which, coupled with an expected increase in revenues, will start a process of putting the company on a path towards eventually eliminating the erosion of shareholder value.
 
The major item included in non-operating income and expenses was a charge of $2,083,716 accounting for the intrinsic value of the beneficial conversion feature associated with convertible debt. We also incurred a charge of $538,692 in connection with changes in the valuation of derivative liabilities. In 2009, the major item included in non-operating income and expenses was a charge of $600,000 accounting for the intrinsic value of the beneficial conversion feature associated with convertible debt. In addition, the Company arrived at a settlement with a former principal of its Kiwibox subsidiary which among other, entailed the write off of a $131,262 loan to that shareholder, transacted during the time before the Company acquired Kiwibox Media Inc. We also incurred a charge of $77,806 in connection with changes in the valuation of derivative liabilities, and income of $114,597 from the extinguishment of debt, consisting of $76,855 owed to a director and $37,742 from extinguishments of other company obligations.    In 2009 The year concluded with a net loss of $3,972,372. After accounting for dividends accrued on outstanding preferred stock which totaled $51,263 the net loss applicable to common shareholders was $4,023,635 or $0.008 per share, compared to a loss of $2,491,728 or $0.006 per share for the previous year.
 
Liquidity and Capital Resources

We have financed our business with new debt and equity capital since our cash flow is insufficient to provide the working capital necessary to fund our operations. We recorded $125,000 in cash from subscriptions for new equity capital from accredited private investors during 2010. In addition, we received $980,000 from short-term loans. We have an urgent need for working capital to fund our operations. If we are unable to immediately receive new equity investments or obtain loans, we will not be able to fund our operations and we will be required to close our business.

Our deficit in working capital amounted to $6,145,931 at December 31, 2010, as compared to $2,226,345 at December 31, 2009.  Stockholders’ equity showed an impairment of $6,014,608 at the end of the year, compared to an impairment of $2,169,971 at the beginning of the year. The negative cash flow from operations totaled $972,327 and was substantially financed by new debt and equity which was obtained through private placements. The new equity placements were consummated by issuance of common stock and warrants to accredited investors. Details of such transactions can be found in the “Changes and Issuance of Securities” sections in the Company’s quarterly reports on Forms 10-Q during the year, as well as in the pertinent section of this report.
 
We have no bank debt and our indebtedness at December 31, 2010, excluding the other current liabilities described below, consisted of certain notes and loans aggregating $2,274,980. The position “Obligations to be settled in stock” of $183,648  includes $87,648 for common shares and options accrued for certain officers and directors pursuant to their respective employment and remuneration agreements, and $96,000 for stock and warrants due under consulting agreements. Current liabilities also include $530,602 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.

 
13

 

Our current cash reserves and net cash flow from operations expected during the near future will be insufficient to fund our operations and website development and marketing plan over the next twelve months. We expect to fund these requirements with further investments in form of debt or equity capital and are in discussions with potential investors. There can be no assurance, however, that we will be able to identify financing sources, or if we do, whether the terms of such financing will be acceptable or commercially reasonable.

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

ITEM 7 A:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Financial Statements and Notes to Financial Statements are attached hereto as Exhibit A and incorporated herein by reference.

ITEM 9:
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

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

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

In connection with the preparation of the Company’s Annual Report on Form 10-K, an evaluation was carried out by our management, with participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of December 31, 2010.  Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified, and that such information is accumulated and communicated to  management, included the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

During our evaluation of disclosure controls and procedures as of December 31, 2010, conducted as part of the Company’s annual audit and preparation of our annual financial statements, several deficiencies were identified which viewed in the aggregate, represent a material weakness.  As a result of this material weakness, described more fully below, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2010, the Company’s disclosure controls and procedures were ineffective.

 The Company instituted and is continuing to implement corrective actions with respect to the deficiencies in our disclosure controls and procedures.

Management’s Annual Report on Internal Control over Financial Reporting

 Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 
14

 

 Management has conducted, with the participation of the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010.  Management’s assessment of internal control over financial reporting was conducted using the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments.

 A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.  Based on management’s assessment over financial reporting, management believes as of December 31, 2010, the Company’s internal control over financial reporting was not effective due to the following deficiencies:

1. The Company’s control environment did not have adequate segregation of duties and lacked adequate accounting resources to address non routine and complex transactions and financial reporting matters on a timely basis, primarily due to a lack of resources.

2. The Company had only a part time chief financial officer performing all accounting related duties on site, presenting the risk that the reporting of these non routine and complex transactions during the preparation of our future financial statements and disclosures may not be accomplished in a timely manner.

Company management believes that notwithstanding the above identified deficiencies that constitute our material weakness, that the consolidated financial statements fairly present, in all material respects, the Company’s consolidated balance sheets as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2010 and 2009, in conformity with generally accepted accounting principles.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

 Remediation of Material Weaknesses in Internal Control over Financial Reporting

 The Company commenced efforts to address the material weakness in its internal control over financial reporting and its control environment through the following actions:

- We will continue to seek qualified fulltime or part-time employees and third party consultants to supplement our financial personnel when and if additional resources become available;

- We will continue to institute a more stringent approval process for financial transactions, and

- We will continue to perform additional procedures and analysis for significant transactions as a mitigating control in the control environment due to segregation of duties issues.

 Changes in Internal Control over Financial Reporting

 Other than described above, there have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal year ended December 31, 2010, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

ITEM 9B:
OTHER INFORMATION

None.

 
15

 

PART III

ITEM 10:
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

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

Name
 
Positions
 
Term  Served (Expires)
         
Andre Scholz
 
Director
 
May 13, 2009 to present
   
President, Chief Executive Officer
 
August 1, 2010 to present
   
Chief Technology Officer
 
May 13, 2009 to present
         
Joseph J. Tomasek
 
Director
 
Feb. 11, 1999  to present
         
Joerg Otzen
 
Director
 
July 14, 2008 to present
         
Craig S. Cody
 
Chief Financial Officer
 
May 1, 2010 to present
         
Rudolf Hauke
 
Director
   
   
President, Chief Executive Officer
 
July 14, 2008 to August 1, 2010*
         
   
Director
 
Dec. 2, 2005 to May 1, 2010*
Joerg H. Klaube
 
Sr. Vice President, Secretary,
 
July 31, 1997 to May 1, 2010*
   
Chief Financial Officer
   

* Mr. Hauke resigned as an officer and Director on August 1, 2010. Mr. Klaube resigned as a director and Chief Financial officer on May 1, 2010. All Directors of the Company hold office until the next annual meeting of the shareholders and until successors have been elected and qualified. Executive Officers of the Company are appointed by the Board of Directors at meetings of the Company's directors and hold office until they resign or are removed from office.

 
16

 

Andre Scholz, Age 33 – Director, Chief Technology Officer. Andre Scholz has more than 15 years business experience in Internet, telecommunication technology and IT security. He holds an advanced degree from the University of Stuttgart and Konstanz in electronic engineering. Mr. Scholz is a consultant and well known technical expert for numerous social networks, communities and high-traffic sites, active around the world. He brings a wealth of social network and internet knowledge to Kiwibox. Mr. Scholz was co-founder of various internet exchange points and manages them until now. Since 1996 he is Managing Director of a carrier and Internet Service Provider in Stuttgart, Germany and since 2002 he is CEO of the Interscholz company group, Leonberg, Germany, which places private investments in and is managing and operating various companies.
 
Craig S. Cody, Age 48 – Chief Financial Officer. Effective as of May 4, 2010, Registrant promoted Craig S. Cody to serve  as its Chief Financial Officer. Mr. Cody, a licensed Certified Public Accountant, had previously served as the Comptroller for the Registrant during the past year. In addition to managing an independent accounting and financial services business in New York for a diverse group of  clients, he brings extensive management experience derived in the public sector. Mr. Cody holds a B.S. Degree in Accounting from the State University of New York.
 
Joseph J. Tomasek, Age 64 - Director. Mr. Tomasek was appointed a director in February 2000.  Mr. Tomasek also serves as our General Counsel and coordinates our legal affairs in such role. In addition to serving in these Company positions, Mr. Tomasek represents U.S. and international clients in corporate and securities law matters. Mr. Tomasek received his Juris Doctor and Bachelor of Arts Degrees from Seton Hall University and a Certificate d'Etudes in European Studies from the University of Strasbourg, France. Mr. Tomasek is a member of the Bars of the States of New Jersey, New York and Illinois. Mr. Tomasek is married to Victoria Mitchell Tomasek, Phd., and has two children.
 
Joerg Otzen, Age 45 – Director. Mr. Otzen was elected to serve on the Board effective July 14, 2008. He is an executive manager of the engineering company Meteor AG, located in Zurich, Switzerland. As well, Dr. Otzen currently serves as a member of the Boards of Directors of UBL Corporate Financial Services S.A. (Switzerland) and Bullion River Corp. (U.S.A.), an SEC reporting company. Prior to his current engagement, he was a senior manager at of UBL Corporate Financial Services AG, where he managed numerous financial transactions including fundraising, investment review, interim management of companies in external portfolios and private equity funds for different clients. Dr. Otzen began his professional career with SBC Warburg in 1995, as a vice president of equity research. In 2000, he became head of corporate development at the industrial group Ascom (Switzerland) and was in charge of the numerous groups’ divestments during Ascom's a 4 year period of financial distress. He lead the team which managed projects in international corporate finance, merger and acquisitions, corporate lending, and, in urgent cases, the establishment of new management in distressed subsidiaries. Dr. Otzen holds a Masters and Ph.D.degrees in Mechanical Engineering from RWTH Aachen (Germany) and a Masters Degree in Business Administration from the Harvard Business School.
 
Family Relationships

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

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

The Company knows of no person, who at any time during the period from the date at which it filed its annual report on Form 10-K for the year ended December 31, 2010 to the present, was a director, officer, beneficial owner of more than ten percent of any class of equity securities of the Company (a "Reporting Person"), that failed to file on a timely basis any reports required to be furnished  pursuant to Section 16(a).

 
17

 

ITEM 11:
EXECUTIVE COMPENSATION

2010 SUMMARY COMPENSATION TABLE

The following table sets forth certain compensation information for: (i) the person who served as the Chief Executive Officer of the Company during the year ended December 31, 2010, regardless of the compensation level, and (ii) each of our other executive officers, serving as an executive officer at any time during 2009, as well as the most highly compensated employees who did not serve as executive officers during 2008. Compensation information is shown for the fiscal years ended December 31, 2010, 2009 and 2008:

                                            
(1)
 
Name and
Principal Position
 
Year
 
Salary
($)
   
Bonus
($)
   
Stock
Awards
($)
   
Option
Awards
($)
   
Non-
Equity
Incentive
Plan
Compensation
($)
   
Non-
Qualified
Deferred
Compensation
Earnings
($)
   
All
Other
Compensation
($)
   
Total
($)
 
(a)
 
(b)
 
(c)
   
(d)
   
(e)
   
(f)
   
(g)
   
(h)
   
(i)
       
                                                     
Andre Scholz
 
2010
    230,000       -       24,000       -       -       -       -       254,000  
Chief Executive
 
2009
    140,000       -       25,000       -       -       -       20,000       185,000  
Officer, President,
 
2008
    -       -       -       -       -       -       -       -  
Director
                                                                   
                                                                     
Joseph J. Tomasek,
 
2010
    -       -       -       11,880       -       -       65,000       76,880  
Esq., Director and
 
2009
    -       -       -       8,910       -       -       185,000       193,910  
General Legal Counsel
 
2008
    -       -       -       19,000       -       -       256,800       275,800  
                                                                     
Joerg Otzen
 
2010
    -       -       -       -       -       -       5,000       5,000  
Director
 
2009
    -       -       -       -       -       -       -       -  
   
2008
    -       -       -       -       -       -       -       -  
                                                                     
Craig S Cody
 
2010
    59,750       -       -       -       -       -       27,462       87,212  
Chief Financial Officer
 
2009
    -       -       -       -       -       -       18,450       18,450  
   
2008
    -       -       -       -       -       -       -       -  
                                                                     
Rudolf Hauke
 
2010
    -       -               13,867       -       -       -       13,867  
Chief Executive
 
2009
    36,000       -       23,790       -       -       -       48,000       107,790  
Officer, President,
 
2008
    48,000       -       19,200       -       -       -       52,000       119,200  
Director
                                                        -          
                                                                     
Joerg H. Klaube
 
2010
    30,763       -       -       -       -       -       -       30,763  
Chief Financial
 
2009
    60,885       -       -       -       -       -       -       60,885  
Officer, Director
 
2008
    62,500       -       -       4,750       -       -       2,410       69,660  
                                                                     
Michael Howard
 
2010
    -       -       -       -       -       -       -       -  
Employee of
 
2009
    75,866                       -       -       -       -       75,866  
Subsidiary
 
2008
    150,000       20,000       177,165       -       -       -       161,285       508,450  
                                                                     
All executive officers
 
2010
    320,513       -       24,000       25,747       -       -       97,462       467,722  
and named significant
 
2009
    312,751       -       25,000       32,700       -       -       253,000       623,451  
employees and
 
2008
    629,442       65,000       611,201       90,450                       655,143       2,051,236  
directors as a group
                                                                   

 
18

 

Andre Scholz  2009-2010: Andre Scholz joined the Company in May 2009, as our Chief Technology Officer and as a director. On August 1, 2010 Mr. Scholz took over as President and Chief Executive Officer. During 2010, we paid Mr. Scholz $230,000 as salary.  He also has accrued 1,200,000 common shares earning 100,000 common shares every month. These shares were accrued for and valued at $24,000.  During the first quarter of 2010, the company issued the 500,000 shares for the signing bonus and 950,000 shares towards the accrued monthly allowance. In the third quarter the company issued an additional 500,000 shares   towards the accrued monthly allowance. During 2009, we paid Mr. Scholz $140,000 as salary and $20,000 in consulting fees prior to his entry into the Company.  He also has accrued 500,000 common shares as a signing bonus and is earning 100,000 common shares every month, beginning with May 15, 2009. The shares had not been issued at December 31, 2009, however, were accrued for and valued at $25,000.

Rudolf Hauke 2010-2008: Rudolf Hauke resigned effective August 1, 2010. He had joined the Company in July 2008 as a consultant, acting in the capacity of President and Chief Executive Officer, and as a director.  In 2010, Mr. Hauke has earned 700,000 non-qualified 4-year stock options, exercisable at $0.10 per common share, valued at $13,867 pursuant to the Black-Scholes valuation formula.  During 2009 we paid him $36,000 in salary and $27,000 remuneration for services performed, and $21,000 in flat-fee expense allowances. In addition, Mr. Hauke earned 1,200,000 non-qualified 4-year stock options, exercisable at $0.10 per common share, valued at $23,790 pursuant to the Black-Scholes valuation formula.  During 2008 we paid him $48,000 in salary and $52,000 as travel and living expense allowances. In addition, Mr. Hauke earned 1,000,000 non-qualified stock options, 500,000 of which are 2-year options, exercisable at $.05 per common share, and 500,000 of which are 4-year options, exercisable at $.10 per common share, such options valued at $19,200 pursuant to the Black-Scholes valuation formula.

Joseph J. Tomasek 2010-2008: During fiscal years 2010, 2009 and 2008, the Company incurred or paid $65,000, $185,000 and $ 256, 800, respectively, to Mr. Tomasek for legal services rendered to the Company.  In 2010 Mr. Tomasek earned options for 1,200,000 restricted shares, valued at $11,880 pursuant to the Black-Scholes valuation formula. In addition, Mr. Tomasek was granted 500,000 stock warrants, valued at $5,000 pursuant to the Black-Scholes valuation formula. In 2009 Mr. Tomasek earned options for 900,000 restricted shares, valued at $8,910 pursuant to the Black-Scholes valuation formula. These options are earned at the rate of 100,000 options per month, beginning with April 2009. In 2008 Mr. Tomasek also received options for 1,000,000 restricted shares, valued at $19,000 pursuant to the Black-Scholes valuation formula.

Joerg Otzen 2010-2008: During 2010 Mr. Otzen earned 500,000 stock warrants, valued at $5,000 pursuant to the Black-Scholes valuation formula.

Craig S Cody 2010: During the year 2010, Mr. Cody earned $82,212 and 500,000 stock warrants, valued at $5,000 pursuant to the Black-Scholes valuation formula. In 2009, Mr Cody earned $18,450.

Joerg H. Klaube 2010-2008:  On May 1, 2010 Mr. Klaube resigned. During the years 2010, 2009, and 2008, we paid Mr. Klaube $30,763, $60,885, $62,500, respectively, in salary.  We also made life insurance premium payments during 2008 on his behalf in the amount of $2,410. In 2008 Mr. Klaube also received options for 250,000 restricted shares, valued at $4,750 pursuant to the Black-Scholes valuation formula.

Michael Howard 2009-2008: During 2009, we paid Mr. Howard $75,866 in salary. During 2008, we paid Mr. Howard a salary of $150,000 and a bonus of $20,000; furthermore, we paid an aggregate $157,833 and issued 8,858,225 restricted shares valued at $177,154, in accordance with the terms of the Kiwibox acquisition agreement, as amended. We also paid him $3,452 in interest on promissory notes issued in connection with the consummation of the Kiwibox agreement. During 2009 the Company and Mr. Howard reached an agreement whereby he returned to the Company for cancellation, the 8,858,725 shares issued in 2008 and 4,766,272 shares issued in 2007, against a newly issued contingent of 2,192,845 restricted common shares. The agreement furthermore called for cancellation of all previously issued stock options.  By mutual agreement, Mr. Howard left the employ of the Company in October 2009.

 
19

 

Employment Agreements

Rudolf Hauke – 2010-2008.   The terms of his consulting /employment agreement are included in our filing on Form 8-K of July 18, 2008 which is incorporated herein by reference to that filing. During 2009, the Company and Mr. Hauke reached an agreement pursuant to which the monthly cash compensation called for in his employment agreement ceased with the end of April 2009. However, the agreement stipulated that for future services Mr. Hauke would be remunerated from time to time, at management’s discretion, at rates mutually agreed upon.

Andre Scholz – 2010-2009.  The terms of his consulting /employment agreement are included in our filing on Form 8-K of May 22, 2009 which is incorporated herein by reference to that filing.

Joerg Klaube – 2009-2008.  Mr. Klaube’s employment agreement, originally entered into on April 15, 2002, was amended on November 19, 2009.  The terms of the amended agreement call for a monthly salary of $4,000.  The agreement was terminated on May 1, 2010 when Mr. Klaube resigned.

Stock Options:

No stock options were granted during  2008,  2009 or 2010 pursuant to the Company’s 1997 Stock Option Plan and 2000 Stock Incentive Plan, to any executive officers, directors, employees or to any beneficial owners of more than 10 percent of any class of equity securities of the Company. In addition, there were no stock options or warrants exercised by any officer, director, employee or any beneficial owners of more than 10 percent of any class of equity securities of the Company during 2008, 2009 or 2010.

1997 Stock Option Plan:

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

2000 Stock Incentive Plan:

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

Options Granted Outside of Stock Option Plans:

During 2010, Rudolf Hauke, the former Chief Executive Officer earned 700,000 four-year stock options, exercisable at $0.10 per common share, pursuant to his employment agreement. Also during 2010, one director who also serves as the Company’s general counsel earned 1,200,000 five-year stock options, exercisable at $0.05 per common share.

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

Outstanding Equity Awards at Fiscal Year-End Table

The following table provides certain information regarding unexercised options to purchase common stock, stock options that have not vested, and equity-incentive plan awards outstanding at December 31, 2010, for each of the persons covered under our Summary Compensation Table.

 
20

 


Name and
Principal
Position
 
Number of
Securities
Underlying
Unexercised
Options
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
   
Equity
Incentive
Plan Awards
No. of
Underlying
Unexercised
Unearned
Options
   
Option
Exercise
Price
 
Option
Expiration
Date
 
No. of
Shares or
Units of
Stock that
have not
vested
   
Market
Value of
Shares or
Units of
Stock that
have not
vested
   
Equity
Incentive
Awards,
Shares,
Units
Or other
Rights that
have not
vested
   
Equity
Incentive
Plan
Awards:
Market or
Payout
value of
Unearned
Shares,Units
or other
rights that
have not
vested
 
Rudolf Hauke,
CEO and President
    2,400,000       -       -     $ 0.10  
8/14/2012 to 1/14/2014
    -       -       -       -  
Joerg H. Klaube, CFO
    250,000       -       -     $ 0.025  
6/26/13
    -       -       -       -  
Joseph J. Tomasek, Director and General Legal Counsel
    1,000,000 2,100,000      
-
-
     
-
-
   
$
$
0.025
0.05
 
6/26/13
4/30/14 to
12/31/14
    -       -       -       -  
                                                                   
              -       -                 -       -       -       -  
              -       -                 -       -       -       -  

Option Exercises and Stock Vested Table: None

Pension Benefits Table: None

Nonqualified Deferred Compensation Table: None

Pre-requisites Table: None

Compensation of Directors:

During 2010, we granted 2 directors 500,000 warrants each exercisable at $0.025 for 5 years in recognition of the services provided as directors of the company.

We did not pay any compensation to any of our directors for services rendered as directors during fiscal years 2009 and 2008.

During 2010, 2009 and 2008, one outside director of the Company who also serves as the Company’s general and securities counsel, incurred or was paid an aggregate $65,000, $185,000 and $256,800, respectively, for legal services. During 2008, another outside director of the Company was paid $30,000, for business advisory services.

CORPORATE GOVERNANCE AND CODE OF ETHICS

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

 
21

 

Our Board of Directors has determined that one of its current members, Joerg Otzen, is independent under applicable securities laws.

Board Committees

AUDIT COMMITTEE

The Company has appointed an Audit Committee in accordance with the provisions of the Sarbanes-Oxley Act of 2002. The Audit Committee is currently comprised of the entire board of directors. Mr. Otzen is a financial expert with knowledge of financial statements, generally accepted accounting principles and accounting procedures and disclosure rules.

COMPENSATION AND NOMINATING COMMITTEES

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

ITEM 12:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

Title of Class*
 
Name and Address of
Beneficial Owner
 
Amount and Nature of
Beneficial Ownership(1)
   
Percent
of Class
 
Common Stock
   
Andre Scholz
    27,546,176 (2)     5.53 %
   
Pres./CEO/Director
               
   
Joseph Tomasek
    6,413,833 (3)     1.29 %
   
Director
               
   
Joerg Otzen
    500,000 (4)     0.10 %
   
Director
               
   
Craig Cody
    500,000 (5)     0.10 %
   
Chief Financial Officer
               
 
 
22

 

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

All Directors and Officers as a Group:
    34,960,009       7.02 %
as a Group (4 persons)
               
                 
Ulrich Schuerch
               
Tell Capital AG
    55,510,000 (6)     11.14 %
Tellstrasse 21, CH-9000
               
St. Gallen, Switzerland
               
                 
Discover Advisory Company
    49,774,482 (7)     9.99 %
c/o Horymor Trust Corp. Ltd.
               
50 Shirley Street / P.O.Box N-341,
               
Nassau
               
                 
Cambridge Services Inc.
    49,774,482 (8)     9.99 %
c/o TSZ Treuhandgesellschaft Sauter & Co.
               
Suedstr. 11, CH-8034 Zurich, Switzerland
               

* The Company also has issued and outstanding as of December 31, 2010, 85,890 shares of its Senior Convertible Preferred Stock, with concentrations in excess of 10% for one or more of the holders of such stock, however, none of such shares bear any voting rights.
 

 
(1)
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of Common Stock which such person has the right to acquire within 60 days of March 31, 2011. For purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any security which such person or persons has or have the right to acquire within such date is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnote to this table and pursuant to applicable community property laws, the Company believes based on information supplied by such persons, that the persons named in this table have sole voting and investment power with respect to all shares of Common Stock which they beneficially own.
(2) Consists of 23,396,176 shares held by Interscholz Beteiligungs GmbH, a company over which Andre Scholz has control, and 800,000 shares accrued but not yet issued.
(3) Includes 3,400,000 stock options and 500,000 warrants.
(4) Includes 500,000 warrants.
(5) Includes 500,000 warrants.
(6) Includes 2,800,000 shares accrued but not yet issued, and 3,500,000 warrants owned by Ulrich Schuerch who has investment and voting control of Tell Capital AG, 22,500,000 5-year warrants, exercisable at $0.07 per share, and 12,700,000 4-year warrants, exercisable at $0.05 per share.
(7) Includes 49,774,482 shares issuable upon conversion of convertible debt. Karen Buehler has investment and voting control of Discover Advisory Company.
(8) Includes 8,780,116 shares issuable upon conversion of convertible debt, and 25,000,000 stock purchase warrants, exercisable at $0.05 per Warrant. Victor Sauter has investment control of Cambridge Services Inc.

All Directors of the Company hold office until the next annual meeting of the shareholders and until successors have been elected and qualified. Executive Officers of the Company are appointed by the Board of Directors at meetings of the Company 's Directors and hold office until they resign or are removed from office.

Family Relationships

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

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

The Company knows of no person, who at any time during the period from the date at which it filed its annual report on Form 10-K for the year ended December 31, 2008 to the present, was a director, officer, beneficial owner of more than ten percent of any class of equity securities of the Company (a "Reporting Person"), that failed to file on a timely basis any reports required to be furnished pursuant to Section 16(a).

 
23

 

ITEM 13:
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 2010 and 2009, one outside director of the Company who also serves as the Company’s general and securities counsel, was paid or incurred an aggregate $65,000 and $185,000, respectively, for legal services. We also granted options for 1,200,000 and 900,000 shares, exercisable at $0.05 during four years, to this director during 2010 and 2009, respectively. In addition, we granted 500,000 stock warrants to this director, valued at $5,000 pursuant to the Black-Scholes valuation formula.

During 2010, we paid or incurred an aggregate $252,412 to companies controlled by the Chief Executive Office (and former Chief Technology Officer) of the Company, for website hosting, website development and technical advisory services, and server farm installations, and $7,585 for promotional materials. Of these costs, $121,179 was capitalized as website development costs. In addition, these companies reimbursed the Company for $20,642 in rent incurred for the corporate apartment utilized by the Chief Executive Officer.

During 2009, we paid or incurred an aggregate $56,308 to companies controlled by the Chief Technology Officer of the Company, for website hosting, website development and technical advisory services, and server farm installations, and $69,839 for promotional materials.

During 2010 and 2009, 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, as well as by Discover Advisory Company, located in the Bahamas, and Cambridge Services Inc. of Switzerland, in each case amounted to approximately 10% of the voting stock.  Both Discover Advisory Company and Cambridge Services Inc. are major creditors, having advanced operating capital against issuance by the Company of convertible promissory notes to during 2010 and 2009. At December 31, 2010, $1,080,984 and $813,996 of such notes were outstanding and owed to Discover Advisory Company and Cambridge Services Inc, respectively. At December 31, 2009, $950,000 and $40,000 of such notes were outstanding and owed to Discover Advisory Company and Cambridge Services Inc, respectively (see section “Notes” in the Notes to Financial Statements, attached hereto).  An amount of $240,000 was also advanced by Ulrich Schuerch during 2010 under a promissory note. Tell Capital AG was the lead investor in a $1 Million private placement transaction consummated in late 2009. In the process, Tell Capital AG was issued a finder’s fee payment of $60,000.

ITEM 14:
PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

Rosenberg Rich Baker Berman & Company ("Rosenberg") billed us in the aggregate amount of $38,500 and $62,000 for  professional  services  rendered  for  their  audit of our  annual financial  statements and their reviews of  the financial  statements included in our Forms 10-K and 10-Q for the years ended December  31, 2010, and December 31, 2009, respectively.

AUDIT-RELATED FEES

Rosenberg did not bill us for, nor perform  professional services  rendered for  assurance  and related  services  that were  reasonably related to the performance  of  audit or  review  of the  Company's  financial statements for the fiscal years ended December 31, 2010, and December 31, 2009.

TAX FEES

Rosenberg billed us in the aggregate amount of $5,300, and $1,500 for professional services rendered for tax related services for the fiscal years ended December 31, 2010 and December 31, 2009, respectively.

 
24

 

ALL OTHER FEES

The aggregate fees billed by Rosenberg for services rendered to the Company during the last two fiscal years, other than as reported above, were $0 and $0, respectively.

TRANSFER AGENT

The transfer agent for the Company is Securities Transfer Corporation, located at 2591 Dallas Parkway, Suite 102, Frisco, Texas 75034.

ANNUAL REPORT

The Company intends to continue its practice of furnishing annual reports to its shareholders containing financial statements audited by independent certified public accountants.

 
25

 

PART IV

ITEM 15:
EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

The Exhibits that are filed with this report or that are incorporated by reference are set forth in the Exhibit Index attached hereto.

(b)      Reports on Form 8-K

During the fourth quarter in 2010, the Company filed the following reports on Form 8-K:

On October 28, 2010, the Company filed a report on Form 8-K, announcing the implementation of a K-OpenAPI Interface for developers to create and manufacture their own interactive applications adapted to the Kiwibox social network and its members.

On November 15, 2010, the Company filed a report on Form 8-K, announcing the implementation of certain advanced security and privacy features into its social network as recommended by Attorney General Andrew M. Cuomo in his hash value database in order to block images of children being sexually abused.

On November 30, 2010, the Company filed a report on Form 8-K, announcing that it signed a confidential Letter of Intent to potentially acquire a privately held, international social network enterprise.

 
26

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

KIWIBOX.COM, INC.
       
By: 
/s/ Andre Scholz
 
Date:     April 14, 2011
 
Andre Scholz
   
 
President and Chief Executive Officer
   
 
(Principal Executive Officer),
   
 
Director
   
       
By:
/s/ Craig Cody
 
Date:      April 14, 2011
 
Craig S. Cody
   
 
Secretary, Chief Financial Officer
   
 
(Principal Financial Officer)
   

In accordance with the requirements of the Securities Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Name
 
Date
     
   
 
Joerg Otzen, Director
   
     
/s/ Joseph J. Tomasek
 
April  14, 2011
Joseph J. Tomasek, Director
   
     
/s/ Andre Scholz
 
April  14, 2011
Andre Scholz, Director
   
 
 
27

 

EXHIBIT INDEX

(A)
 
Financial Statements and Notes to Financial Statements
     
(3) (i)
 
Articles of Incorporation and Amendments thereto, incorporated herein by reference to Exhibits of previous filings with the Commission.
     
(3) (ii)
 
Bylaws of the Company, incorporated herein by reference to Exhibits of previous filings with the Commission.
     
10.25*
 
Copy of Agreement and Plan of Reorganization, Dated February 19, 2007, between the Company, Kiwibox Media, Inc. and the Kiwibox Shareholders, and Form of Employment Agreement for the Three Kiwibox Shareholders,
     
10.27*
 
Amendment No. 3 to Agreement and Plan of Reorganization, dated July 31, 2007 and Effective August 2, 2007.
     
10.28*
 
Preliminary Employment Agreement with Paul Farris, Dated September 19, 2007
     
10.29*
 
Amendment No. 4 to Agreement and Plan of Reorganization, dated as of December 3, 2007.
     
10.30*
 
Amendment No. 5 to Agreement and Plan of Reorganization, dated as of December 31, 2007.
     
10.31*
 
Standstill Letter Agreement, dated as of January 30, 2008.
     
10.32*
 
Standstill Letter Agreement, dated as of February 11, 2008.
     
10.33*
 
Amendment No. 6 to Agreement and Plan of Reorganization, dated as of February 28, 2008.
     
10.34*
 
Engagement Agreement, Dated June 27, 2008, between Tell Capital AG and the Company.
     
10.35*
 
Resignation Agreement, Dated August 19, 2008, between Ivan Tumanov and the Company.
     
10.36*
 
Form of Demand Notes issued by the Company to Lender, Discover Advisory Company.
     
10.36-1*
 
Form of corrected Demand Notes issued by the Company to Lender, Discover Advisory Company.
     
10.36-2
 
Form of Registrant’s Master Corporate Promissory Note, dated June 4, 2009, delivered and accepted by Discover Advisory Company, attached as an exhibit to Registrant’s Form 8-K filed with the Commission on June 12, 2009.
     
10.37
 
Copy of Stock Pledge Agreement, dated June 4, 2009, by and between Registrant and Discover Advisory Company- attached as an exhibit to Registrant’s  Form 8-K filed with the Commission on June  12, 2009.
     
10.38
 
Copy of Consulting Agreement, dated June 1, 2009, between the Registrant, Kiwibox Media, Inc. and Andre Scholz attached as an exhibit to Registrant’s  Form 8-K filed with the Commission on June  12, 2009.
     
10.39
 
Form of Registrant’s Securities Purchase Agreement, with Warrant as an Exhibit: attached as an exhibit to Registrant’s Form 8-K filed with the Commission on December 31, 2009.

 
28

 

10.40
 
Certificate of Ownership and Merger of Kiwibox Media, Inc. with and into Magnitude Information Systems, Inc., including Corporate Name Change, dated December 15, 2009 and as filed with the Secretary of State of Delaware on December 17, 2009. attached as an exhibit to Registrant’s  Form 8-K filed with the Commission on December 31, 2009
     
31.01A.
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 14, 2011..
     
31.02A.
 
Certification of Acting Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated April 14, 2011.
     
32.01A.
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated April 14, 2011.
     
32.02A.
  
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated April 14, 2011.

*
Documents filed as exhibits to Registrant’s current reports, quarterly reports, annual reports and registration statements and amendments thereto with the U.S. Securities and Exchange Commission.

OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE

(a)
The Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, 2010, June 30, 2010, and September 30, 2010.

(b)
All other reports filed by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act since the Company’s fiscal year ended December 31, 2009

 
29

 

Kiwibox.Com, Inc.

Financial Statements

December 31, 2010 and 2009

 
 

 

Kiwibox.Com, Inc.
 
Index to the Financial Statements
 
December 31, 2010 and 2009

 
Page
   
Report of Independent Registered Public Accounting Firm
2
   
Financial Statements
 
   
Balance Sheets
3
   
Statements of Operations
4
   
Statements of Stockholders Equity (Deficit)
5-6
   
Statements of Cash Flows
7-8
   
Notes to the Financial Statements
9-34

 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Kiwibox.Com, Inc.

We have audited the accompanying balance sheets of Kiwibox.Com, Inc. as of December 31, 2010 and 2009, and the related statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2010.  Kiwibox.Com’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kiwibox.Com, Inc. as of December 31, 2010, and 2009, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 2 to the financial statements, the Company has suffered losses from operations and has a working capital deficiency as of December 31, 2010. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Rosenberg Rich Baker Berman & Company

Somerset, New Jersey
April 14, 2011

 
2

 

Kiwibox.Com, Inc.
 
Balance Sheets

   
December 31,
 
 
 
2010
   
2009
 
Assets
           
Current Assets
           
Cash
  $ 377     $ 2,518  
Accounts receivable, net of allowance for doubtful accounts of $0
    295       2,000  
Prepaid expenses and other current assets
    34,441       80,523  
Total Current Assets
    35,113       85,041  
Property and equipment, net of accumulated depreciation of $88,505 and $85,841
    15,323       18,705  
Website development cost, net of accumulated amortization of $32,864 and $1,813
    106,244       19,945  
Other Assets
    9,756       17,724  
Total Assets
    166,436       141,415  
Liabilities and Stockholders’ Equity (Impairment)
               
Current Liabilities
               
Accounts payable and accrued expenses
    535,877       535,618  
Dividends payable
    530,602       479,339  
Obligations to be settled in stock
    183,648       132,900  
Loans and notes payable
    140,000       140,000  
Promissory notes payable – related parties
    240,000       -  
Convertible notes payable – related parties
    1,894,980       990,000  
Current maturities of long-term debt
    33,529       33,529  
Liability for derivative conversion feature – related parties
    2,622,408       -  
Total Current Liabilities
    6,181,044       2,311,386  
                 
Commitments and Contingencies
    -       -  
                 
Stockholders’ Equity (Impairment)
               
Preferred stock, $.001 par value, non-voting, 3,000,000 shares authorized; 85,890 shares issued and outstanding
    86       86  
Common stock, $.0001 par value, 1,400,000,000 shares authorized; 498,243,060 and 478,168,060 shares issued and outstanding at December 31, 2010 and 2009
    49,824       47,817  
Common stock subscribed
    -       500  
Additional paid in capital
    45,571,867       45,519,375  
Stock subscription receivable
    -       (125,000 )
Accumulated (deficit)
    (51,636,385 )     (47,612,749 )
Total Stockholders’ Equity (Impairment)
    (6,014,608 )     (2,169,971 )
Total Liabilities and Stockholders’ Equity (Impairment)
  $ 166,436     $ 141,415  

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

 
3

 

Kiwibox.Com, Inc.
 
Statements of Operations
 
   
Year Ended December 31,
 
   
2010
   
2009
 
Net Sales
           
Advertising
  $ 2,039     $ 50,450  
Total Net Sales
    2,039       50,450  
Cost of Goods Sold
               
Website hosting expenses
    3,795       38,767  
Total Cost of Goods Sold
    3,795       38,767  
                 
Gross Profit (Loss)
    (1,756 )     11,683  
                 
Selling expenses
    189,320       73,517  
Stock-based compensation (see below)
    15,000       121,929  
General and administrative expenses
    975,550       1,426,192  
                 
Loss From Operations
    (1,181,626 )     (1,609,956 )
                 
Other Income (Expense)
               
Miscellaneous income
    8,834       2,591  
Interest expense
    (167,167 )     (106,541 )
Gain on extinguishment of debt
    -       114,597  
Gain on disposal of assets, net
    2,285       2,683  
Impairment loans receivable and software assets
    (11,880 )     (162,033 )
Interest expense-derivative conversion features
    (2,083,716 )     (600,000 )
Amortization deferred  financing costs
    -       (4,000 )
Change in fair value – derivative liabilities
    (538,692 )     (77,806 )
                 
Total Other Income (Expense)
    (2,790,336 )     (830,509 )
                 
Loss Before Provision for Income Taxes
    (3,971,962 )     (2,440,465 )
                 
Provision for Income Taxes
    410       -  
                 
Net Loss
  $ (3,972,372 )   $ (2,440,465 )
                 
Dividends on Preferred Shares
    (51,263 )     (51,263 )
                 
Net Loss Applicable to Common Shareholders, basic and diluted
  $ (4,023,635 )   $ (2,491,728 )
                 
Net Loss Per Common Share, basic and diluted
    (0.008 )     (0.006 )
                 
Weighted Average of Common Shares Outstanding
    494,315,316       447,090,174  

All of the stock-based compensation relates to selling, general and administrative expenses.

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

 
4

 

Kiwibox.Com, Inc.
Statement of Stockholders’ Equity (Deficit)
Year Ended December 31, 2009

    
Convertible Preferred
Shares
   
Cumulative Preferred
Shares
   
Common Stock
   
Stock
Subscriptions
   
Additional Paid in
   
Accumulated
   
Loans
Receivable -
   
Total
Stockholders’
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Receivable
   
Capital
   
Deficit
   
Stockholders
   
(Deficit)
 
                                                                   
Balances, January 1, 2008
    129,500     $ 129       1     $ -       436,242,570     $ 43,624     $ -     $ 40,159,909     $ (45,121,021 )   $ (131,262 )   $ (5,048,621 )
                                                                                         
Issuance of common stock pursuant  to stock subscriptions )*
    -       -       -       -       35,000,000       3,500       (124,500 )     996,000       -       -       875,000  
                                                                                         
Issuance of  stock purchase warrants for services performed
    -       -       -       -       -       -               170,000       -       -       170,000  
                                                                                         
Finder’s fee paid on private placement
                                                            (60,000 )                     (60,000 )
                                                                                         
Issuance of common stock for loan origination fees
    -       -       -       -       500,000       50               9,950       -       -       10,000  
                                                                                         
Cancellation of common stock, net of re-issuance of 2,192,845 common shares and impairment of loans, pursuant to settlement agreement with former officers of Kiwibox
                                    (11,431,652 )     (1,143 )             23,072               131,262       153,191  
                                                                                         
Forgiveness of debt owed to director
    -       -       -       -       -       -               213,569       -       -       213,569  
                                                                                         
Conversion of preferred shares to common shares
    (43,610 )     (43 )     -       -       17,857,142       1,786               (1,743 )     -       -       -  
                                                                                         
Expiration  of derivative liabilities
    -       -       -       -       -       -               3,408,618       -       -       3,408,618  
                                                                                         
Intrinsic value of beneficial conversion rights of convertible debt
                                                            600,000                       600,000  
                                                                                         
Dividends on conv. preferred stock
    -       -       -       -       -       -               -       (51,263 )     -       (51,263 )
                                                                                         
Net loss, year ended December 31, 2008
    -       -       -       -       -       -               -       (2,440,465 )     -       (2,440,465 )
                                                                                         
Balances, December 31, 2009
    85,890     $ 86       1     $ -       478,168,060     $ 47,817     $ (124,500 )   $ 45,519,375     $ (47,612,749 )   $ -     $ (2,169,971 )

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

 

Kiwibox.Com, Inc.
Statement of Stockholders’ Equity (Deficit)
Year Ended December 31, 2010

    
Convertible Preferred
Shares
   
Cumulative Preferred
Shares
   
Common Stock
   
Stock
Subscriptions
   
Additional
Paid in
   
Accumulated
   
Loans
Receivable
   
Total Stockholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Receivable
   
Capital
   
Deficit
   
- Stockholders
   
Equity (Deficit)
 
                                                                   
Balances, January 1, 2010
    85,890     $ 86       1     $ -       478,168,060     $ 47,817     $ (124,500 )   $ 45,519,375     $ (47,612,749 )   $ -     $ (2,169,971 )
                                                                                         
Issuance of stock – cash received for stock subscriptions
    -       -       -       -       5,000,000       500       124,500       -       -       -       125,000  
                                                                                         
Issuance of  stock purchase warrants for services performed
    -       -       -       -       -       -               15,000       -       -       15,000