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EX-32.01 - EXHIBIT 32.01 - Kiwibox.Com, Inc.v379154_ex32-01.htm
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EX-31.02 - EXHIBIT 31.02 - Kiwibox.Com, Inc.v379154_ex31-02.htm
EX-31.01 - EXHIBIT 31.01 - Kiwibox.Com, Inc.v379154_ex31-01.htm

 

FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, DC 20549

 

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

For Quarter Ended March 31, 2014

 

OR

 

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

For the Transition Period from _______ to _______

 

Commission file number 33-20432

 

KIWIBOX.COM, INC.

Formerly known as Magnitude Information Systems, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware 75-2228828
(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)  

 

330 West 42ND Street,#3210 New York, NY 10036 (347) 836-4727
(Address of Principal Executive Office)  (Zip Code) (Registrant’s telephone number including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.: Yes x  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  x

 

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

 

The number of shares of Registrant’s Common Stock, $0.0001 par value, outstanding as of May 14, 2014, was 683,693,060 shares.

 

 
 

 

KIWIBOX.COM, INC.

 

INDEX

 

  Page
  Number
PART  1  -  FINANCIAL INFORMATION  
   
Item 1 Financial Statements  
   
Consolidated Balance Sheets
- March 31, 2014 (unaudited) and December 31, 2013
3
   
Consolidated Condensed Statements of Operations
- Three months ended March 31, 2014 and 2013 (unaudited)
4
   
Consolidated Statements of Cash Flows
- Three months ended March 31, 2014 and 2013 (unaudited)
5 - 6
   
Notes to Consolidated  Financial Statements 7 - 18
   
Item 2  Management’s Discussion and Analysis of Financial Condition and Results of Operations 19 - 21
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
   
Item 4 Controls and Procedures 21
   
PART II  -  OTHER INFORMATION 23
   
Item 1. Legal Proceedings 23
   
Item 1A. Risk Factors 23
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 23
   
Item 3. Defaults Upon Senior Securities 23
   
Item 4T. Submission of Matters to a Vote of Security Holders 23
   
Item 5. Other information 24
   
Item 6.  Exhibits 24
   
SIGNATURES 25

 

2
 

 

PART I - Item 1 Financial Statements

 

Kiwibox.Com, Inc.

Balance Sheets

 

   March 31, 2014   December 31, 2013 
   (Unaudited)     
Assets          
Current Assets          
Cash and cash equivalents  $-   $3,659 
Due from related parties   10,914    - 
Other receivables   5,248    5,248 
Prepaid expenses and other current assets   66,960    121,168 
Total Current Assets   83,122    130,075 
Property and equipment, net of accumulated depreciation of $106,825 and $105,795, respectively   4,765    5,795 
Website development costs, net of accumulated amortization of $253,234 and $251,688, respectively   1,030    2,576 
           
Other assets .   18,920    18,920 
Total Assets  $107,837   $157,366 
Liabilities and Stockholders’ Equity (Impairment)          
           
Current Liabilities          
Bank overdraft   2,261    - 
Accounts payable   211,803    253,347 
Accrued expenses   2,577,994    2,326,283 
Due to related parties   36,710    33,612 
Obligations to be settled in stock   263,608    259,288 
Dividends payable   697,208    684,392 
Loans and notes payable - other   100,000    100,000 
Loans and notes payable – related parties   340,000    340,000 
Convertible notes payable-related parties   10,143,699    9,918,699 
Current maturities of long-term debt   33,529    33,529 
Liability for derivative conversion feature –related parties   12,505,899    12,068,233 
Total Current Liabilities   26,912,711    26,017,383 
           
Commitments and contingencies   -    - 
           
Stockholders’ Equity (Impairment)          
Preferred Stock, $0.001 par value, non-voting, 3,000,000 shares authorized; 85,890 shares issued and outstanding   86    86 
Common Stock, $0.0001 par value, 1,400,000,000 shares authorized; issued and outstanding 683,693,060 and 683,693,060 shares respectively..   68,367    68,367 
Additional paid-in capital   52,726,105    52,726,105 
Accumulated deficit   (79,599,432)   (78,654,575)
Total Stockholders’ Equity (Impairment)   (26,804,874)   (25,860,017)
Total Liabilities and Stockholders’ Equity (Impairment)  $107,837   $157,366 

 

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

 

3
 

 

Kiwibox.Com, Inc.

Condensed Statements of Operations (Unaudited)

 

   Three Months Ended 
   March 31, 
   2014   2013 
Net Sales          
Advertising  $-   $268,253 
Advertising - affiliate   10,914      
Other   -    48,547 
Total Net Sales   10,914    316,800 
Cost of Goods Sold          
Website hosting expenses   -    232,706 
Total Cost of Goods Sold   -    232,706 
           
Gross Profit (Loss)   10,914    84,094 
           
Selling expenses   70,199    158,435 
General and administrative expenses   178,607    285,213 
           
Loss From Operations   (237,892)   (359,554)
           
Other Income (Expense)          
Miscellaneous income   -    5,263 
Interest expense   (256,483)   (229,085)
Interest expense-derivative conversion features   (483,452)   (512,411)
           
Loss on extinguishment of debt   -    (40,000)
Amortization – debt discount   -    (8,333)
Change in fair value – derivative liabilities   45,786    614 
           
Total Other Income (Expense)   (694,149)   (783,952)
           
Loss Before Benefit (Provision) for Income Taxes   (932,041)   (1,143,506)
Benefit (Provision) for Income Taxes   -    (650)
Net Loss  $(932,041)  $(1,144,156)
Dividends on Preferred Shares   (12,816)   (12,816)
Net Loss Applicable to Common Shareholders, basic and diluted  $(944,857)  $(1,156,972)
Net Loss Per Common Share, basic and diluted  $(0.001)  $(0.002)
Weighted Average of Common Shares Outstanding   683,693,060    679,941,393 
           
Comprehensive Income (Loss):          
Net Income (Loss)  $(932,041)  $(1,144,156)
Foreign currency translation adjustment   -    62,777 
Total Comprehensive Income (Loss)  $(932,041)  $(1,081,379)

 

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

 

4
 

 

Kiwibox.Com, Inc.

Statements of Cash Flows (Unaudited)

 

   Three Months Ended
March 31,
 
   2014   2013 
Cash Flows From Operating Activities          
Net Loss  $(932,041)  $(1,144,156)
Adjustments to Reconcile Net Loss to Net Cash Used by Operations          
Depreciation and amortization   2,576    66,774 
Value of stock for services   -    - 
Change in fair value – derivative liabilities   (45,786)   (614)
Intrinsic value of  beneficial conversion feature   483,452    512,411 
Deferred tax expense   -    - 
Loss on extinguishment of debt   -    40,000 
Decreases (Increases) in Assets          
Accounts receivable   -    (4,801)
Due from related party   (10,914)   - 
Other receivables   -    2,469 
Prepaid expenses   54,208    52,376 
           
Increases (Decreases) in Liabilities          
Bank overdraft   2,261    (49,300)
Liabilities to be settled in stock   4,320    10,620 
Accounts payable   (41,544)   47,118 
Accrued expenses   251,711    239,490 
Net Cash Used by Operating Activities   (231,757)   (227,613)
           
Cash Flows From Investing Activities          
Cash outlay – website development costs   -    (892)
Cash proceeds (outlay) – other assets   -    (7,025)
Purchases of property and equipment   -    - 
Net Cash Provided (Used) by Investing Activities   -    (7,917)
           
Cash Flows From Financing Activities          
Proceeds from loans/notes payable   225,000    145,000 
Net  proceeds (repayments) to related parties   3,098    66,845 
Payments on acquisition indebtedness   -    - 
Net Cash Provided by Financing Activities   228,098    211,845 
           
Net Increase (Decrease) in Cash   (3,659)   (23,685)
Effect of exchange rates on cash   -    1,650 
           
Cash at beginning of period   3,659    56,751 
Cash at end of period  $-   $34,716 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Interest Paid  $1,511   $1,486 
Income Taxes Paid  $-   $650 

 

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

 

5
 

 

Kiwibox.Com, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:    
     
Three Months Ended March 31, 2014     
      
Quarter to date dividend accruals  $12,816 
      
Three Months Ended March 31, 2013     
      
Settlement of obligations with common stock  $10,500 
      
Quarter to date dividend accruals  $12,816 
      
Settlement of bank debt with short term loan  $115,344 

 

6
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Organization

 

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

 

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

 

The Company, Magnitude, Inc. and Kiwibox Media Inc. were separate legal entities until December 31, 2009, with Kiwibox Media, Inc. being a wholly owned subsidiary. On December 31, 2009, the two subsidiaries, Magnitude, Inc. and Kiwibox Media, Inc. merged into the Company.

 

On September 30, 2011, Kiwibox.com acquired the German based social network Kwick! Community GmbH & Co. KG (“Kwick”), a wholly-owned subsidiary.

 

On September 24, 2013, Kwick Community GmbH & Co. KG signed an equity purchase agreement to acquire Interscholtz Internet Services GmbH and Co KG, a German limited liability company, and all the equity of its general partner, Interscholtz Beteiligungs GmbH. As of the balance sheet date, and pursuant to the terms of the contract, since full payment was not made for the purchase price of Interscholz Internet Services GmbH & Co KG, ownership does not transfer to Kwick Community GmbH & Co KG. Full payment must be made for ownership to transfer to Kwick. As of December 31, 2013 only $515,037 of the total purchase price of $1,352,000 was made. On December 9,2013 the acquisition of Intersholz Internet Services GmbH and Co KG by Kwick was rescinded due to non compliance with the terms of the addendum to the contract, calling for the full purchase price to have been paid.. However, Kwick did acquire all the equity of the general partner, Interscholz Beteiligungs GmbH, as full payment was not a requirement for transfer of ownership of that entity.

 

On December 10, 2013, the Company signed an Equity Purchase Agreement with Marcus Winkler to sell to him eighty (80%) percent of the equity of its German subsidiary, KWICK! Community GmbH & Co. KG, a German limited liability company, and Kwick! Beteiligungs GmbH, its general partner (collectively, “Kwick”). The sale was approved on December 18, 2013. Due to the fact that the parent company ceased to have a controlling financial interest in Kwick, the subsidiary was deconsolidated from that date forward.

 

Cash and Cash Equivalents

 

The Company accounts for cash and other highly liquid investments with original maturities of three months or less as cash and cash equivalents.

 

Principles of Consolidation

 

The financial statements for the three months ended March 31, 2013 include the accounts of Kiwibox.com, Inc. and the activities of its former subsidiary, KWICK! Community GmbH & Co. KG (“Kwick”). Any significant inter-company balances and transactions were eliminated.

 

Depreciation and Amortization

 

Property and equipment are recorded at cost. Depreciation on equipment, furniture and fixtures and leasehold improvements is computed on the straight-line method over the estimated useful lives of such assets between 3-10 years, or lease term for leasehold improvements, if for a shorter period. Maintenance and repairs are charged to operations as incurred. Software costs are amortized using the straight line method and amortized over their estimated useful lives. Amortization begins when the related software is ready for its intended use in accordance with Accounting Standards Codification (“ASC”) 350-40, Internal-Use Software, Subsequent Measurement.

 

7
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

 

Foreign Currency Translation

 

Income and expense items of the Company’s former foreign subsidiary operations were translated at the weighted average exchange rates prevailing during the three months ended March 31, 2013. Gains and losses, if any, resulting from foreign currency transactions are included in the results of operations during that period.

 

Advertising Costs

 

Advertising costs are charged to operations when incurred. Advertising expense was $0 and $42,177 for the three months ended March 31, 2014 and 2013, respectively.

 

Evaluation of Long Lived Assets

 

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

 

Any impairment of the Company’s internally-developed software is recognized and measured in accordance with the provisions of ASC 360-10-35, Intangibles-Goodwill and Other, Internal-Use Software, Subsequent Measurement, which requires that assets be grouped at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. The guidance is applicable, for example, when one of the following events or changes in circumstances occurs related to computer software being developed or currently in use indicating that the carrying amount may not be recoverable:

 

a. Internal-use computer software is not expected to provide substantive service potential.

 

b. A significant change occurs in the extent or manner in which the software is used or is expected to be used.

 

c. A significant change is made or will be made to the software program.

 

d. Costs of developing or modifying internal-use computer software significantly exceed the amount originally expected to develop or modify the software.

 

Fair Value Measurements

 

The Company adopted the provisions of ASC 820, Fair Value Measurements and Disclosures, which is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Under ASC 820, a framework was established for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The Company accounted for certain convertible debentures issued in the year ended December 31, 2013 and the three months ended March 31, 2014 as derivative liabilities required to be bifurcated from the host contract in accordance with ASC 815-40, Contracts in Entity’s Own Equity, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares (see Note 13).

 

Securities Issued for Services

 

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

 

8
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

  

Reclassification of Certain Securities under ASC 815-15

 

Pursuant to ASC 815-15, “Contracts in Entity’s own Equity”, if a company has more than one contract subject to this Issue, and partial reclassification is required, there may be different methods that could be used to determine which contracts, or portions of contracts, should be reclassified. The Company's method for reclassification of such contracts is reclassification of contracts with the latest maturity date first.

 

Capitalization of Software /Website development costs

 

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

 

Fees incurred for web site hosting, which involve the payment of a specified, periodic fee to an Internet service provider in return for hosting the web site on its server(s) connected to the Internet, are expensed over the period of benefit, and included in cost of sales in the accompanying financial statements.

 

A total of $0 and $0 was capitalized for web-site development work during the three months ended March 31, 2014 and 2013, respectively.

 

Income Taxes

 

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

 

9
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

 

Net Loss Per Share

 

Net loss per share, in accordance with the provisions of ASC 260, “Earnings Per Share” is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. Common Stock equivalents have not been included in this computation since the effect would be anti-dilutive. Such common stock equivalents totaled 102,603,240 common shares at March 31, 2014, comprised of 24,500,000 shares issuable upon exercise of stock purchase warrants, 4,600,000 shares issuable upon exercise of stock options, 729,537 shares exercisable upon conversion of convertible preferred shares, and 72,773,703 shares potentially issuable upon conversion of convertible debt. Such debt and the related accrued interest with principal totaling $10,143,699, convertible at the option of five debt holders at a price of 50% of the average closing price for the preceding 10 days, would yield in excess of 4.4 billion shares if fully converted at March 31, 2014. However, the respective notes, all of which were issued to these investors, carry a stipulation whereby the number of all shares issued pursuant to a conversion, may in the aggregate not exceed a number that would increase the total share holdings beneficially owned by such investor to a level above 9.99%. At the end of the year, this clause limits any conversion to the aforementioned number of shares. All of the aforementioned conversions or exercises, as the case may be, are at the option of the holders.

 

Revenue Recognition

 

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

 

Use of Estimates

 

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

 

2. GOING CONCERN

 

The ability of the Company to continue its operations is dependent on increasing sales and obtaining additional capital and financing. Our revenues during the foreseeable future are insufficient to finance our business and we are entirely dependent on the willingness of existing investors to continue supporting the Company with working capital loans and equity investments, and our ability to find new investors should the financial support from existing investors prove to be insufficient. If we were unable to obtain a steady flow of new debt or equity-based working capital we would be forced to cease operations. In their report for the fiscal year ended December 31, 2013, our auditors had expressed an opinion that, as a result of the losses incurred, there was substantial doubt regarding our ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. Management’s plans are to continue seeking equity and debt capital until cash flow from operations cover funding needs.

 

3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK

 

The Company maintains cash balances in a financial institution which is insured by the Federal Deposit Insurance Corporation up to $250,000. Balances in these accounts may, at times, exceed the federally insured limits. At March 31, 2014, cash balances in bank accounts did not exceed this limit. The Company provides credit in the normal course of business to customers located throughout the U.S. and overseas. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.

 

10
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

4. PREPAID EXPENSES

 

Prepaid expenses consist of the following at:  March 31, 2014   December 31, 2013 
Consulting fees  $55,000   $110,000 
Business insurance   11,412    10,620 
Other   548    548 
   $66,960   $121,168 

 

5. PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following at:  March 31, 2014   December 31, 2013 
Furniture  $14,322   $14,322 
Leasehold Improvements   24,130    24,130 
Equipment   73,138    73,138 
    111,590    111,590 
Less accumulated depreciation   106,825    105,795 
Total  $4,765   $5,795 

 

Depreciation expense charged to operations was $1,030 and $32,388 in the first three months of 2014 and 2013, respectively.

 

6. INTANGIBLE ASSETS

 

Intangible assets consisted of software for website development costs as follows:

 

   March 31, 2014   December 31, 2013 
Website development costs  $254,264   $254,264 
Less accumulated amortization   253,234    251,688 
Total  $1,030   $2,576 

 

Amortization expense for the three months ended March 31, 2014 and 2013 was $1,546 and $26,052, respectively. Additional amortization over the next 5 years is estimated to be as follows:

 

   Amortization expense 
December 31, 2014  $1,030 
December 31, 2015   - 
December 31, 2016   - 
December 31, 2017   - 
December 31, 2018   - 
Thereafter   - 

 

7. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

 

On December 10, 2013, the company signed an equity purchase agreement with Marcus Winkler to sell to him eighty (80%) percent of the equity of its German subsidiary, Kwick. Pursuant to the terms of the agreement, the purchaser paid 36,000 Euros as the purchase price and the company was required to obtain shareholder approval of the sale as required under applicable Delaware Law. The majority shareholder approval was obtained on December 18, 2013. In addition, the Company and Mr. Winkler signed a Lock-Up and Standstill Agreement pursuant to the general terms of which the Company agreed not to participate in the management, operations or finances of Kwick, which shall be exclusively managed and under control of the purchaser. Accordingly, the Company’s minority ownership position shall be subject, in all respects, to the exclusive control of the purchaser. Mr, Winkler also has investment and voting control over Kreuzfeld Ltd., a major creditor of the company, which holds a Class AA convertible promissory note with an outstanding balance (including accrued interest) of $4,355,737 as of March 31, 2014.

 

11
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

7. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (continued)

 

Due to the significant reduction in the Company’s percentage of controlling interest in Kwick (down to 20%), coupled with the contract restrictions over voting rights and management of the operations of Kwick subsequent to December 18, 2013, the Company recognized the deconsolidation of Kwick as of that date, resulting in a loss on deconsolidation of $253,557, and now carries the investment in Kwick under the cost method of accounting. Due to the significant reductions in fair value of this reporting unit that were considered other than temporary, and impairment of the related goodwill, the carrying value of this cost method investment was zero at December 31, 2013 and March 31, 2014.

 

8. ACCRUED EXPENSES

 

Accrued expenses consisted of the following at:

 

   March 31, 2014   December 31, 2013 
Accrued interest  $2,413,246   $2,158,274 
Accrued payroll, payroll taxes and commissions   -    18,585 
Accrued professional fees   152,742    116,900 
Accrued rent/deferred rent obligation   12,006    11,789 
Miscellaneous accruals   -    20,735 
Total  $2,577,994   $2,326,283 

 

9. OBLIGATIONS TO BE SETTLED IN STOCK

 

Obligations to be settled in stock consisted of the following at

 

   March 31,   December 31, 
   2014   2013 
Obligation for warrants granted for compensation  $100,000   $100,000 
           
600,000 common shares issuable to a consultant who was a director of the company, for services rendered.   36,000    36,000 
           
300,000 (2014) and 0 (2013) common shares, and 2,900,000 (2014) and 2,900,000 (2013) stock options  issuable to two officers of the Company pursuant to their respective employment Agreements   58,208    56,858 
           
5,700,000 (2014) and 5,400,000 (2013) stock options issuable to one director who also serves as the Company’s general counsel   59,400    56,430 
           
1,000,000 warrants granted on the Pixunity.de asset Purchase (see Note 13)   10,000    10,000 
           
   $263,608   $259,288 

 

12
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

10. LOANS PAYABLE

 

The Company (formerly Magnitude, Inc.) had borrowings under short term loan agreements with the following terms and conditions at March 31, 2014 and December 31, 2013:

 

On December 4, 1996, the company (formerly Magnitude, Inc.) repurchased 500,000 shares of its common stock and retired same against issuance of a promissory note maturing twelve months thereafter accruing interest at 5% per annum and due December 4, 1998.  This note is overdue as of September 30, 2005 and no demand for payment has been made.  $75,000 
      
Total  $75,000 

 

11. NOTES PAYABLE

 

   March 31,   December 31, 
   2014   2013 
Balance of non-converted notes outstanding. Attempts to locate the holder of this note, to settle this liability, have been unsuccessful.  $25,000   $25,000 
           
From September 2008 through March 2014 five creditors loaned the Company funds under the terms of the convertible notes issued, as modified in March 2009 and July 2010 and April 2011 and August 2012(see Note 12).   10,143,699    9,918,699 
           
During 2011, a shareholder loaned the Company $340,000 under demand notes at 10%.   340,000    340,000 
           
Total  $10,508,699   $10,283,699 

 

13
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

12. LONG-TERM DEBT

 

Long-term debt as of March 31, 2014 and December 31, 2013 is comprised of the following:

 

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

 

13. DERIVATIVE CONVERSION FEATURES

 

On July 27, 2010, the Company issued two Class A Senior Convertible Revolving Promissory Notes (“Class A Notes”), one to Cambridge Services, Inc., in the principal amount of $683,996, consolidating the series of loans (and related accrued interest) made to the Company since June 26, 2009, and one to Discover Advisory Company, in the principal amount of $1,160,984, consolidating the series of loans (and related accrued interest) made to the Company since September 19, 2008 and including advances through September 30, 2010. Each of these promissory notes are due on demand, accrue interest at the rate of 10%, per annum, are convertible (including accrued interest) at the option of each lender into Common Stock of the Company at 50% of the averaged ten closing prices for the Company's Common Stock for the ten (10) trading days immediately preceding the Conversion Date but in no event less than $0.001 (the "Conversion Price"). Both promissory notes contain conversion caps, limiting conversions under these notes to a maximum beneficial ownership position of Company common stock to 9.99% for each lender. Each of these notes contains Company covenants, requiring the lenders’ prior written consent in order for the Company to merge, issue any common or preferred stock or any convertible debt instruments, declare a stock split or dividends, increase any compensation to its officers or directors by more than five (5%) during any calendar year.During the three months ended March 31, 2014 no debt was converted. During the three months ended March 31, 2013 no debt was converted.

 

The Company renegotiated certain outstanding promissory notes with its four major creditors, Discover Advisory Company of the Bahamas (“DAC”), Kreuzfeld Ltd. of Switzerland (“Kreuzfeld”), Cambridge Services, Inc. of Panama (“CSI”) and Vermoegensverwaltungs-Gesellschaft Zurich LTD of Switzerland (“VGZ”). As of August 1, 2012, the Company authorized the issue of a new series of corporate notes, the Class AA Senior Secured Convertible Revolving Promissory Notes, dated as of August 1, 2012 (the New Note(s)”) and issued New Notes: (1) to DAC, with a maximum credit facility of $5,000,000 which replaced the Company’s outstanding Class A Senior Convertible Revolving Promissory Note, dated July 27, 2010, in the original principal amount of $1,080,984, now cancelled, which had an outstanding balance due (including accrued interest) of $3,952,008 as of December 31, 2013 and $4,031,448 at March 31, 2014; (2) to Kreuzfeld, with a maximum credit facility of $5,000,000 which replaced the Company’s outstanding Class A Senior Convertible Revolving Promissory Note, dated September 16, 2011, in the original principal amount of $2,000,000, now cancelled, which had an outstanding balance due (including accrued interest) of $4,267,834 at December 31, 2013 and $4,355,737 at March 31, 2014; (3) to CSI, with a maximum credit facility of $2,000,000 which replaced the Company’s outstanding Class A Senior Convertible Revolving Promissory Note, dated August 1, 2011, in the original principal amount of $1,303,996, now cancelled, with an outstanding balance due (including accrued interest) of $2,729,435 as of December 31, 2013, and $3,014,646 at March 31, 2014 and; (4) to VGZ, with a maximum credit facility of $2,000,000 which replaced the Company’s outstanding Class A Senior Convertible Revolving Promissory Note, dated September 30, 2010, in the original principal amount of $2,000,000, now cancelled, with an outstanding balance due (including accrued interest) of $955,159 as of December 31, 2013 and $974,194 at March 31, 2014. All of the New Notes accrue interest at the rate of 10%, are convertible into common shares at the conversion rate equal to 50% of the averaged ten closing prices for the Company's Common Stock for the ten (10) trading days immediately preceding the Conversion Date but in no event less than $0.001, and are due on demand.. Pursuant to an Equity and Stock Pledge Agreement, also negotiated and executed as of August 1, 2012, the repayment of the outstanding indebtedness of the New Notes is secured by all of the limited partnership interests of the Company’s partly-owned(now deconsolidated) German subsidiary, KWICK! Community GmbH & Co. KG, a private German limited partnership (“KG”), and all of its shares of the sole general partner of KG, KWICK! Community Beteiligungs GmbH.

 

14
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

13. DERIVATIVE CONVERSION FEATURES (continued)

  

On February 28, 2012 the Company signed a convertible note with Michael Pisani. This was a 1 year note that was convertible at $0.025 per share in the amount of $50,000. In the event that any portion of any outstanding Company promissory note, preferred share, warrant or stock option held of record by a non-affiliate of the Company is converted, exercised or exchanged for common shares of the Company at a conversion price or conversion rate less than $0.025 per one (1) common share anytime any part of the outstanding principal amount of this note is outstanding, the conversion rate of this note shall automatically be adjusted to such lower conversion rate. The Company evaluated this conversion contingency under the guidance at ASC 815-40-15 and determined that this conversion feature should be bifurcated from the host contract and measured at fair value. The Company valued this conversion feature utilizing a Black-Scholes valuation model and a probability analysis with regard to the reset provision of the conversion price. The Company determined the initial value to be $55,241, with $50,000 recorded as a debt discount and the remainder as interest expense-derivative conversion features. The discount was amortized over the life of the note. A total of $8,333 in amortization expense was recorded during the three months ended March 31, 2013. As of December 31, 2013 this debt plus accrued interest was paid in full.

 

The Company accounted for the conversion features underlying these convertible debentures in accordance with ASC 815-40, Contract in Entity’s Own Equity, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares. The Company determined the value of the derivate conversion features of new debentures issued to these holders plus accrued interest during the three months ended March 31, 2014 under these terms at the relevant commitment dates to be $483,452 utilizing a Black-Scholes valuation model. The change in fair value of the liability for the conversion feature resulted in income of $45,786 for the three months ended March 31, 2014, which is included in Other Income (Expense) in the accompanying financial statements. The fair value of these derivative conversion features was determined to be $12,505,899 at March 31, 2014.

 

14. COMMITMENTS AND CONTINGENCIES

 

We maintain offices for our operations at 330 W. 42th Street, New York, New York 10036, for approximately 990 square feet. This lease requires initial minimum monthly rentals of $3,833 plus tenants’ share of utility/cam/property tax charges which average approximately $291 per month. During 2013 the Company successfully negotiated a 5 year lease, with future minimum rentals as follows:

 

2014  $34,960 
2015   47,854 
2016   49,289 
2017   50,768 
2018   47,847 

 

In May 2010 the Company negotiated a lease of an apartment in New York City for the CEO in order to reduce travel costs. The lease was for 12 months at $2,775 per month through May 31, 2011. In May 2011 the lease was extended through August 31, 2011 at the rate of $2,837. In August 2011 the lease was extended through December 31, 2011 at the rate of $2,837 per month. In December 2011 the lease was again extended through May 31, 2012 with no change in the base rent. In May 2012 the lease was extended through December 31, 2012 at a monthly rate of $2,943, this lease was then extended through December 31, 2013 at the same terms. In December 2013 the lease was extended through May 31, 2014.

 

Our total rent expenses were $17,722 and $27,740 during the three months ended March 31, 2014 and 2013, respectively.

 

15
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

14. COMMITMENTS AND CONTINGENCIES (continued)

 

During the third quarter of 2010 the Chief Technology Officer took over the position of Chief Executive Officer with no changes to the above terms, running through July 30, 2011. On October 6, 2010, the terms of the consulting agreement were modified. The new terms called for a reduced monthly consulting fee of $16,667, and for $100,000 to be prepaid on January 1, 2011 thru June 30, 2011. During the fourth quarter of 2011 this agreement was extended through December 31, 2012. During the fourth quarter of 2012 this agreement was again extended through December 31, 2013 with the same prepayment provision. During the fourth quarter of 2013 the terms of this agreement were modified. The new terms called for an increased monthly consulting fee to $18,333 effective January 1, 2014 through December 31, 2014. There were no changes to the stock compensation portion of any earlier agreement.

.

In the three months ended March 31, 2014 and March 31, 2013 this officer was granted 300,000 shares.

 

On March 7, 2011 the Company announced its acquisition of the assets of Pixunity.DE a German photo book community. We purchased the internet domain name, the software codes for capturing, uploading and sharing images and the list of its approximate 15,000 members. The principal reason for this purchase was to acquire the source code and technology for image sharing which could have cost us up to $100,000 to develop this technology in house. We are currently integrating the image sharing software into our Kiwibox website and do not intend to market or rely upon the pixunity brand for our business.

 

15. RELATED PARTY TRANSACTIONS

 

During the three months ended March 31, 2014, the Company sold advertising space on its Kiwibox.com website to Kwick totaling $10,914, which is the balance due from Kwick at March 31, 2014. Kwick is majority-owned by Mr. Winkler, who in turn is a related party of the Company (see Note 7).

 

During the three months ended March 31, 2014 and 2013 one outside director of the Company who also serves as the Company’s general and securities counsel, was paid an aggregate $9,927 and $12,927 respectively, for legal services. The director also received 300,000 common stock options during the three month periods ending March 31, 2014 and 2013, valued at $2,970 and $2,970 respectively.

 

During the three months ended March 31, 2014 and 2013 we incurred aggregate expenses of $69,316 and $63,442, respectively, to companies controlled by the Chief Executive Officer, for website hosting, website development, server farm installations and technical advisory services.

 

Through March 31. 2014, approximately 9.99% of the voting stock was beneficially held by Discovery Advisory Company, located in the Bahamas, and Cambridge Services Inc., Kreuzfeld, LTD and Vermoegensverwaltungs-Gesellschaft Zurich LTD. (VGZ) of Switzerland. Discovery Advisory Company, Cambridge Services Inc., Kreuzfeld, LTD and VGZ are major creditors, having advanced operating capital against issuance by the Company of convertible promissory notes during 2014, 2013and 2012 . During the three months ended March 31, 2014 Cambridge Services, Inc advanced an additional $225,000. At March 31, 2014, $3,221,722 and $2,585,060 of such notes were outstanding and owed to Discovery Advisory Company and Cambridge Services Inc, respectively and $3,564,959 and $771,958 owed to Kreuzfeld, Ltd. and VGZ, respectively.

 

16
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

16. FAIR VALUE

 

Some of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature, such as cash and cash equivalents, receivables and payables.

 

Effective July 1, 2009, the Company adopted ASC 820, Fair Value Measurements and Disclosures. This topic defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance supersedes all other accounting pronouncements that require or permit fair value measurements. The Company accounted for the conversion features underlying certain convertible debentures in accordance with ASC 815-40, Contracts in Entity’s Own Equity, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares.

 

Effective July 1, 2009, the Company adopted ASC 820-10-55-23A, Scope Application to Certain Non-Financial Assets and Certain Non-Financial Liabilities, delaying application for non-financial assets and non-financial liabilities as permitted. ASC 820 establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

 

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange- traded securities and exchange-based derivatives.

 

Level 2 — inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.

 

Level 3 — unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently- traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models. The company values the conversion liabilities using the Black- Scholes model and the assumptions are updated using independent data such as the risk free rate, volatility and expected life for each valuation date based on changes over time.

 

The following table reconciles, for the three months ended March 31, 2014, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements:

 

Conversion Liability at January 1, 2014  $12,068,233 
Value of beneficial conversion features of new debentures   483,452 
Change in value of beneficial conversion features during period   (45,786)
Reductions in fair value due to principal conversions   - 
Conversion Liability at March 31, 2014  $12,505,899 

 

The fair value of the conversion features are calculated at the time of issuance and the Company records a conversion liability for the calculated value. The Company recognizes interest expense for the recognition of the conversion liability.

 

17
 

 

Kiwibox.Com, Inc.

Notes to Financial Statements

 

17. SUBSEQUENT EVENTS

 

During April 2014 and through May 14, 2014 we received $80,000 of working capital from accredited investors, which are covered by convertible promissory notes.

 

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Item 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

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

 

The following discussion and analysis should be read in conjunction with the consolidated financial statements of Kiwibox.Com, Inc., contained herein and in the Company’s annual report for the year ended December 31, 2013 as filed on Form 10-K. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

 

Description of Business

 

Overview

 

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 community. Kiwibox has a regional-based advertising-system that allows target-group-optimized ads for advertisers and sponsors.

 

The company successfully acquired the German social network  Kwick! in the third quarter 2011. On December 18, 2013 the company sold 80% of its ownership in Kwick!

 

Kiwibox Operations

 

Kiwibox was one of the first social networks integrated for social mobile advertising in its mobile-apps, to account for the movement to mobile applications from fixed site usage We are continuing to optimize this website and develop mobile applications to keep these users engaged across multiple platforms.

 

In 2013, the company, had between 1,000 and 2,000 new users sign up per day, effectively doubling its membership base to 1.5 million active users on Kiwibox.com and up to 3 million active users worldwide (logging in at least once a year). Through this increase and the enhanced functions on the website, the page impressions and online advertisements have increased by 400%. The Company intends to continue its marketing efforts through cross marketing and cooperation with other networks in combination with event activities to gain new users in 2014...

 

Kiwiboxs’ former subsidiary Kwick has negotiated in its name with Triple Double U (TDU) – a German exclusive online advertisement company – an exclusive online advertisement agreement for the Kiwibox network for web und mobile advertisements. The Ads-Delivery has been transferred and integrated in January 2014. This has resulted in an increase in advertising revenue as evidenced in this first quarter 2014. 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.

 

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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.

 

Potential Revenue Streams and Marketing Strategy

 

Currently we generate the majority of our revenue from advertising/sponsorships. We anticipate revenue growth from increased membership activity and our revitalized website as we continue to implement new marketing strategies. Our software and networking technologies we incorporated during 2013 now permit our mobile devices to accept and receive direct advertising Through our exclusive online advertising agreement, Kiwibox is able to enhance the income on mobile devices through exclusive content based editorial content, supported with the new advertisement-profiles.

 

Community means social network – and thrives on membership 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. Most importantly, our website features permit our community members to stay informed in “real” time about events and parties in areas we are targeting through our promotional teams.

 

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.

 

In addition to our monitoring system, 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 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 illegal sexual content.. With the combination of human moderation and advanced technology, users are afforded a safe and secure site.

 

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

 

The operating expenses, not including stock-based compensation, are at a level of approximately $60,000 per month.

 

Results of Operations for the Three Months Ended March 31, 2014 Compared to the Three Months Ended March 31, 2013

 

For the quarter ended March 31, 2014, total revenues amounted to $10,914 compared to $316,800 recorded in the first quarter in 2013. The decrease is solely due to the deconsolidation of Kwick!.

 

Gross profit (loss) for the quarter ended March 31, 2014 amounted to $10,914 as compared to $84,094 for the corresponding interim period in 2013. The decrease is solely due to the deconsolidation of Kwick!.

 

After deducting selling and general and administrative expenses of $248,806 for the first quarter ended March 31, 2014 compared to $443,648 recorded in the same period in 2013, the Company realized an operating loss of $237,892 for the first quarter of 2014 as compared to an operating loss of $359,554 for the same period in 2013. The decrease in operating expenses was the result of the deconsolidation of Kwick!.

 

The quarter concluded with a net loss of $932,041. After accounting for dividends accrued on outstanding preferred stock which totaled $12,816, the net loss applicable to common shareholders was $944,857 or $0.001 per share compared to a net loss applicable to common shareholders of $1,156,972 or $0.002 per share for the first quarter in the previous year.

 

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Liquidity and Capital Resources

 

We have financed our business with new debt since our cash flow is insufficient to provide the working capital necessary to fund our operations. We received $225,000 in cash from short-term loans from accredited private investors during the quarter. We have an ongoing and urgent need for working capital to fund our operations. If we are unable to continue to receive new equity investments or obtain loans, we will not be able to fund our operations and we will be required to close our business.

 

Our deficit in working capital amounted to $26,829,589 at March 31, 2014, as compared to $25,887,308 at December 31, 2013. The change is primarily attributable the losses incurred in the first quarter of 2014. Stockholders’ equity showed an impairment of $26,804,874 at the end of the period, compared to an impairment of $25,860,017 at the beginning of the year. The negative cash flow from operations during the three months totaled $231,757 and was financed by new debt.

 

The Company had $2,261 of bank debt as of March 31, 2014. Aside from trade payables and accruals, our remaining indebtedness at March 31, 2014 consisted of certain notes and loans aggregating $10,583,699 and the following obligations. Amounts due to related parties were $36,710. The liabilities from derivative conversion features were $12,505,899. The position “Obligations to be settled in stock” of $263,608 accounts for common shares due under consulting agreements, and for services to be settled in common stock options and warrants, where the underlying securities had not yet been issued. Current liabilities also include $697,208 accrued unpaid dividends on outstanding preferred stock. Such dividends will be paid only if and when capital surplus and cash-flow from operations are sufficient to cover the outstanding amounts without thereby unduly impacting the Company’s ability to continue operating and growing its business.

 

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

 

Absent the receipt of needed equity investment or loans, we will be compelled to severely curtail operations and possibly, close our business operations. Assuming we can receive current funds to continue to operate our businesses, we may need additional funding for marketing and website development, absent of which our website development, results of operations and financial condition could be subject to material adverse consequences.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

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

 

Item 4T. CONTROLS AND PROCEDURES

 

(a)Evaluation of Disclosure Controls and Procedures.

 

The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal period ended March 31, 2014 covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

 

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As of March 31, 2014, management assessed, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments.  Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective as more fully described below.  Based on management’s assessment over financial reporting, management believes as of March 31, 2014, 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.

 

2. The Company had 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. Additionally in September 2012 the Company hired a comptroller to assist the Chief Financial Officer.

 

Company management believes that notwithstanding the above identified deficiencies that constitute our material weakness, that the financial statements fairly present, in all material respects, the Company’s consolidated balance sheets as of March 31, 2014 and December 31,2013 and the related statements of operations, stockholders’ equity, and cash flows for the quarters ended March 31, 2014 and 2013, in conformity with generally accepted accounting principles.

 

Management’s Remediation Initiatives

 

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

- When available, we will devote additional resources to supplement, where necessary, existing resources with additional qualified third party consultants;

 

- We are continuing to institute more stringent approval processes for financial transactions, and

 

- We are continuing to perform additional procedures and analyses for significant transactions as a mitigating control in the control environment due to segregation of duties issues.

 

Changes in Internal Controls over Financial Reporting

 

Other than as stated above, during the quarter ended March 31, 2014, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1     LEGAL PROCEEDINGS

 

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

 

Item 1A. RISK FACTORS

 

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

 

Item 2     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

a)     Issuance of unregistered securities

 

During the first quarter in 2014 the Company did sell any unregistered securities.

 

(b)Not applicable

 

(c)None

 

Item 3     DEFAULTS UPON SENIOR SECURITIES

 

The Company, as of the date of this filing, is in arrears on the payment of certain dividends on its Series A, C, and D Senior Convertible Preferred Stock. Such arrears total approximately $697,000. These dividends have been accrued, however, the Company’s management has refrained from making payments at this time because of the absence of positive equity and/or surplus funds.

 

Item 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

- None

 

23
 

 

Item 5     OTHER INFORMATION

 

- None

  

Item 6     EXHIBITS AND REPORTS ON FORM 8-K

 

(a)Exhibits

 

31.01. 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 May 16, 2013.
   
31.02. Certification of 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 May 16, 2013.
   
32.01. Certification of Chief Executive Officer and 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 May 16, 2013.

  

(b)Reports on Form 8-K:

 

The company had no reports filed on form 8K with the commission during the period

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Kiwibox.Com, Inc.
   
Date:  May 19, 2014 By: /s/ Craig S. Cody
  Craig S. Cody
  Chief Financial Officer

 

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