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EX-32.01 - EXHIBIT 32_01 - Kiwibox.Com, Inc.kiwb063016exh32_01.htm
EX-31.02 - EXHIBIT 31_02 - Kiwibox.Com, Inc.kiwb063016exh31_02.htm
EX-31.01 - EXHIBIT 31_01 - Kiwibox.Com, Inc.kiwb063016exh31_01.htm

 

 

FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, DC 20549

 

 

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

For Quarter Ended June 30, 2016

  

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 St. Suite 3210 New York, NY 10036 (212) 239-8210
(Address of Principal Executive Office)  (Zip Code) (Registrant’s telephone number including area code)

 

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

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

 The number of shares of Registrant’s Common Stock, $0.0001 par value, outstanding as of August 13, 2016, was 688,493,060 shares.

1 
 

 

 

KIWIBOX.COM, INC.

 

INDEX

 

  Page
  Number
PART  1  -  FINANCIAL INFORMATION  
   
Item 1 Financial Statements  
   
Condensed Balance Sheets - June 30, 2016 (unaudited) and December 31, 2015 3
   
Condensed Statements of Operations - Three and six months ended June 30, 2016 and 2015 (unaudited) 4
   
Statements of Cash Flows - Six months ended June 30, 2016 and 2015 (unaudited) 5 - 6
   
Notes to Financial Statements 7 - 20
   
Item 2  Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
   
Item 4 Controls and Procedures 25
   
PART II  -  OTHER INFORMATION 26
   
Item 1. Legal Proceedings 26
   
Item 1A. Risk Factors 26
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 26
   
Item 3. Defaults Upon Senior Securities 26
   
Item 4T. Submission of Matters to a Vote of Security Holders 26
   
Item 5. Other information 26
   
Item 6.  Exhibits 27
   
SIGNATURES 28

 

2 
 

 PART I - Item 1 Financial Statements

 

KIWIBOX.COM, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

  

June 30,

2016

  December 31, 2015
Assets          
Current Assets          
Cash  $6,841   $—   
Account receivable - affiliate, net of allowance for     doubtful accounts of $0   57,598    51,898 
           
Prepaid expenses and other current assets   115,369    229,038 
Total Current Assets   179,808    280,936 
Property and equipment, net of accumulated depreciation of $115,124 and $114,225   2,147    3,046 

Website development costs, net of accumulated

Amortization of $254,264 and $254,264

   —      —   
           
Other assets   12,007    12,007 
Total Assets  $193,962   $295,989 
Liabilities and Stockholders’ Equity (Impairment)          
           
Current Liabilities          
Accounts payable   227,626    284,912 
Accrued expenses   5,280,633    4,634,763 
Due to related parties   112,668    116,474 
Obligations to be settled in stock   288,597    284,368 
Dividends payable   812,550    786,919 
Loans and notes payable - other   100,000    100,000 
Loans and notes payable – related parties   340,000    340,000 
Convertible notes payable-related parties   12,893,700    12,353,700 
Current maturities of long-term debt   33,529    33,529 
Liability for derivative conversion feature –related parties   17,933,836    16,596,381 
Total Current Liabilities   38,023,139    33,531,046 
           
Stockholders’ Equity (Impairment)          
Preferred Stock, $0.001 par value, non-voting, 3,000,000 shares authorized; 85,890 and 85,890 shares issued and outstanding   86    86 
Common Stock, $0.0001 par value, 1,400,000,000 shares authorized; issued and outstanding 688,493,060 and 686,093,060 shares respectively   68,847    68,607 
Additional paid-in capital   52,733,065    52,728,745 
Accumulated deficit   (90,631,175)   (88,032,495)
Total Stockholders’ Equity (Impairment)   (37,829,177)   (35,235,057)
Total Liabilities and Equity (Impairment)  $193,962   $295,989 

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

 

3 
 

 

KIWIBOX.COM, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

  

Three Months Ended

June 30,

 

Six Months Ended

June 30,

   2016  2015  2016  2015
Advertising - affiliate  $3,363    5,341    5,700    14,296 
Total Revenues   3,363    5,341    5,700    14,296 
Cost of Goods Sold                    
Website hosting expenses   1,000    2,482    2,650    5,315 
Total Cost of Goods Sold   1,000    2,482    2,650    5,315 
                     
Gross Profit (Loss)   2,363    2,859    3,050    8,981 
                     
Selling expenses   120,827    77,389    256,490    228,130 
Stock-based compensation   —      —      2,280    —   
General and administrative expenses   160,318    162,332    333,962    341,924 
                     
Loss From Operations  $(278,782)  $(236,862)  $(589,682)  $(561,073)
                     
Other Income (Expense)                    
Miscellaneous income/(expense)   —      —      (960)   —   
                     
Change in fair value–derivative liability   (36,810)   14,372    (97,529)   151,110 
Interest expense-derivative conversion features   (676,437)   (589,007)   (1,239,926)   (1,151,137)
                     
                     
Interest expense   (325,284)   (297,082)   (644,952)   (583,791)
                     
Total Other Income (Expense)   (1,038,531)   (871,717)   (1,983,367)   (1,583,818)
                     
Loss Before Benefit (Provision) for Income Taxes   (1,317,313)   (1,108,579)   (2,573,049)   (2,144,891)
Benefit (Provision) for Income Taxes   0    0    0    0 
Net Income (Loss)  $(1,317,313)  $(1,108,579)  $(2,573,049)  $(2,144,891)
Dividends on Preferred Stock   (12,816)   (12,816)   (25,632)   (25,632)
Net Income (Loss) Applicable to Common Shareholders, basic and diluted  $(1,330,129)  $(1,121,395)  $(2,598,681)  $(2,170,523)
Net Loss Per Common Share, basic and diluted  $(0.002)  $(0.002)  $(0.004)  $(0)
Weighted Average of Common Shares Outstanding   687,688,664     683,693,060    687,688,664    683,693,060 

 

 

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

4 
 

KIWIBOX.COM, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Six Months Ended

June 30,

   2016  2015
Cash Flows From Operating Activities          
Net Income/(Loss)  $(2,573,049)  $(2,144,891)
Adjustments to Reconcile Net Loss          
to Net Cash Used by Operations          
Depreciation and amortization   899    2,242 
Securities Issued for services   2,280    —   
Loss on debt extinguishment   960    —   
Change in fair value – derivative liabilities   97,529    (151,110)
Intrinsic value of  beneficial conversion feature   1,239,926    1,151,137 
Decreases (Increases) in Assets          
Accounts receivable - affiliate   (5,700)   (14,296)
Prepaid expenses   113,669    115,743 
           
Increases (Decreases) in Liabilities          
Liabilities to be settled in stock   5,549      
Accounts payable   (57,286)   (38,463)
Accrued expenses   645,870    586,746 
Net Cash Used by Operating Activities   (529,353)   (484,972)
           
Cash Flows From Investing Activities          
Cash proceeds (outlay) – other assets   —      4,972 
Loans to affiliate   —      (60,074)
Purchases of property and equipment   —      (999)
Net Cash Provided (Used) by Investing Activities   —      (56,101)
           
Cash Flows From Financing Activities          
Proceeds from loans/notes   540,000    545,000 
Net  proceeds (repayments) to related parties   (3,806)   (2,616)
Net Cash Provided by Financing Activities   536,194    542,384 
           
Net Increase (Decrease) in Cash  6,841    1,311 
           
Cash at beginning of period   —      299 
Cash at end of period  $6,841   $1,610 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Interest Paid  $—     $—   
Income Taxes Paid  $31   $300 

 

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

5 
 

 

 KIWIBOX.COM, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:     
      
Six Months Ended June 30, 2016     
      
Year to date dividend accruals  $25,632 
      
Six Months Ended June 30, 2015     
      
Year to date dividend accruals  $25,632 

 

 

6 
 

 

Notes to Financial Statements

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The condensed balance sheet at December 31, 2015 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2015.  

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 Interscholz Internet Services GmbH and Co KG, a German limited liability company, and all the equity of its general partner, Interscholz 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 Interscholz 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.

7 
 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

 

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. On December 30, 2013 a total of 15% of the remaining 20% of the equity of Kwick was transferred to the Chief Executive Officer of Kwick (the “Kwick CEO”), in consideration for the Kwick CEO pledging to the bank 5,000 Euros as collateral, on behalf of Kiwibox, for bank overdrafts incurred by “Kwick’s” wholly-owned subsidiary Interscholz Beteiligungs GmbH, as general partner (managing partner) for Interscholz Internet Services GmbH & Co KG; as it is the duty of the general/managing partner to secure liquidity for the partnership. Since Kiwibox owned 20% of Kwick they were required, under German law, as managing partner of Interscholz Beteiligungs GmbH to secure liquidity for Interscholz Internet Services GmbH & Co KG. Therefore, 15% of Kiwibox’s 20% of Kwick was given to the Kwick CEO in exchange for the CEO pledging the necessary collateral. In addition to the collateral given by the Kwick CEO, as new 15% shareholder of Kwick, the Kwick CEO also agreed to keep the Interscholz Beteiligungs GmbH business going. This transfer was unanimously approved with written consent of the Board of Directors. Since the fair value of Kiwibox’s interest in Kwick is zero, this transaction had no material impact on the financial statements.

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.

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.

Advertising Costs

Advertising costs are charged to operations when incurred. Advertising expense was $1,000 and $ 2,500 for the three and six months ended June 30, 2016 and $1,000 and $1,100 for the same periods in 2015, 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.

8 
 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

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, 2015 and the six months ended June 30, 2016 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).

9 
 

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. 

Income Taxes

The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expenses are expected to be settled in the Company’s income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset.

Net Loss Per Share

Net loss per share, in accordance with the provisions of ASC 260, “Earnings Per Share” is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period. Common Stock equivalents have not been included in this computation since the effect would be anti-dilutive. Such common stock equivalents totaled 83,141,799 common shares at June 30, 2016, comprised of 5,000,000 shares issuable upon exercise of stock purchase warrants, 3,200,000 shares issuable upon exercise of stock options, 729,537 shares exercisable upon conversion of convertible preferred shares, and 74,212,262 shares potentially issuable upon conversion of convertible debt. Such debt and the related accrued interest is presently convertible at the option of four debt holders at a price of 50% of the ten day trailing market price. The total principal due under these notes of $12,893,700 would yield in excess of 26 billion shares if fully converted at June 30, 2016. 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 period, 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.

10 
 

Revenue Recognition

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

Use of Estimates

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

2. GOING CONCERN

 

The ability of the Company to continue its operations is dependent on increasing sales and obtaining additional capital and financing. Our revenues during the foreseeable future are insufficient to finance our business and we are entirely dependent on the willingness of existing investors to continue supporting the Company with working capital loans and equity investments, and our ability to find new investors should the financial support from existing investors prove to be insufficient. If we were unable to obtain a steady flow of new debt or equity-based working capital we would be forced to cease operations. In their report for the fiscal year ended December 31, 2015, our auditors had expressed an opinion that, as a result of the above, there was substantial doubt regarding our ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. Management’s plans are to continue seeking equity and debt capital until cash flow from operations cover funding needs.

 3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK

The Company maintains cash balances in a financial institution which is insured by the Federal Deposit Insurance Corporation up to $250,000. Balances in these accounts may, at times, exceed the federally insured limits. At June 30, 2016 and December 31, 2015, 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.

11 
 

4. PREPAID EXPENSES

Prepaid expenses consist of the following at:

  

June 30,

2016

  December 31, 2015
Consulting Fees  $110,000   $220,000 
Business/Health insurance   5,369    9,038 

  $115,369   $229,038 

 

 

5. PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following at:

  

June 30,

2016

  December 31, 2015
          Furniture  $15,040   $15,040 
          Leasehold Improvements   24,130    24,130 
          Equipment    78,101    78,101 
    117,271    117,271 
          Less accumulated depreciation   115,124    114,225 
          Total  $2,147   $3,046 

 

Depreciation expense charged to operations was $899 and $2,242 in the first six months of 2016 and 2015, respectively. 

6. INTANGIBLE ASSETS

 

  

June 30,

2016

  December 31, 2015
        Website development costs  $254,264   $254,264 
        Less accumulated amortization   254,264    254,264 
        Total  $0   $0 

 

Amortization expense for the six months ended June 30, 2016 and 2015 was $0 and $0, respectively.

12 
 

 

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 $5,932,027 as of June 30, 2016. On June 22, 2015 a Class A Senior Revolving Promissory Note with a principal amount of $340,000 was assigned from Ulrich Schuerch to Mr. Winkler.

On December 30, 2013 a total of 15% of the remaining 20% of the equity of Kwick was transferred to the Chief Executive Officer of Kwick (the “Kwick CEO”), in consideration for the Kwick CEO pledging to the bank 5,000 Euros as collateral, on behalf of Kiwibox, for bank overdrafts incurred by “Kwick’s” wholly-owned subsidiary Interscholz Beteiligungs GmbH, as general partner (managing partner) for Interscholz Internet Services GmbH & Co KG: as it is the duty of the general partner/managing partner to secure liquidity for the partnership. Since Kiwibox owned 20% of Kwick they were required, under German law, as managing partner of Interscholz Beteiligungs GmbH to secure liquidity for Interscholz Internet Services GmbH & Co KG. Therefore, 15% of Kiwibox’s 20% was given to the Kwick CEO in exchange for the CEO pledging the necessary collateral. In addition to the collateral given by the Kwick CEO, as new 15% shareholder of Kwick, the Kwick CEO also agreed to keep the Interscholz Beteiligungs GmbH business going. This transfer was unanimously approved with written consent of the Board of Directors. Since the fair value of Kiwibox’s interest in Kwick is zero, this transaction had no material impact on the financial statements. 

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, 2015 and June 30, 2016.

13 
 

8. ACCRUED EXPENSES

 

Accrued expenses consisted of the following at:

   June 30, 2016  December 31, 2015
       Accrued interest  $5,088,130   $4,443,178 
       Accrued payroll, payroll taxes and commissions   46,426    41,541 
       Accrued professional fees   111,900    114,900 
       Accrued rent/deferred rent obligation   10,242    11,209 
       Miscellaneous accruals   23,935    23,935 
       Total  $5,280,633   $4,634,763 

 

 

9. OBLIGATIONS TO BE SETTLED IN STOCK

 

Obligations to be settled in stock consisted of the following at June 30, 2016 and December 31, 2015

 

    June 30, 2016   December 31, 2015
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  
600,000 (2016) and 1,200,000 shares (2015) common
Shares, and 2,900,000 (2016) and 2,900,000 (2015)
Stock options issuable to two officers of the Company
Pursuant to their respective employment agreements
    57,457       58,178  
8,600,000 (2016) and 8,100,000 (2015) stock options issuable to one director who also serves as the Company’s general counsel     85,140       80,190  
1,000,000 warrants granted on Pixunity.de asset Purchase (see Note 13)     10,000     10,000  
    $ 288,597     $ 284,368  

 

10. LOANS PAYABLE

 

The Company (Formerly Magnitude, Inc.) had borrowings under short term loan agreements with the following terms and conditions at June 30, 2016 and December 31, 2015:

 

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 

 

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11. NOTES PAYABLE

 

   June 30,  December 31,
   2016  2015
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 June 2016 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).   12,893,700    12,353,700 
During 2011, a shareholder loaned the company $340,000 under demand notes at 10%. On June 22, 2015 this shareholder assigned all of his right, title and interest in this note to Mr. Marcus Winkler. Mr. Winkler has an investment and voting control over two of the company’s lenders.   340,000    340,000 
 Total  $13,528,700   $12,718,700 

 

12. LONG-TERM DEBT

 

Long-term debt as of June 30, 2016 and December 31, 2015 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 and six months ended June 30, 2016 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 $5,915,726 as of December 31, 2015 and $6,451,925 at June 30, 2016; (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 

15 
 

13. DERIVATIVE CONVERSION FEATURES (Continued)

 

September 16, 2011, in the original principal amount of $2,000,000, now cancelled, which had an outstanding balance due (including accrued interest) of $5,490,657 at December 31, 2015 and $5,932,027 at June 30, 2016; (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 $4,040,407 as of December 31, 2015, and $4,192,495 at June 30, 2016 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 $1,109,550 as of December 31, 2015 and $1,147,938 at June 30,2016. 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.

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 six months ended June 30, 2016 under these terms at the relevant commitment dates to be $1,239,926 utilizing a Black-Scholes valuation model. The change in fair value of the liability for the conversion feature resulted in expense of $97,529 for the six months ended June 30, 2016, which is included in Other Income (Expense) in the accompanying financial statements. The fair value of these derivative conversion features was determined to be $17,933,836 at June 30, 2016.  

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. The property is subject to a five year lease, with future minimum rentals as follows:

2016 24,889
2017 50,768
2018 47,847

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14. COMMITMENTS AND CONTINGENCIES (Continued)

 

In May 2010 the Company negotiated a lease of an apartment in New York City for the CEO in order to reduce travel costs. In December 2013 the lease was extended through May 31, 2015 at a monthly rate of $2,943. In March of 2015 the lease was again extended through May 31, 2016 at the same terms. In April 2016 the lease was extended through May 31, 2017 at a monthly rate of $3,154.

 

Our total rent expenses were $40,863 and $43,655 during the six months ended June 30, 2016 and 2015, respectively.

The Company is party to a consulting agreement with its Chief Executive Officer for monthly cash compensation of $18,333, or $220,000 per year. Payment for January 1, 2015 through December 31, 2015 was made on November 20, 2014 in accordance with the terms of this new agreement. Payment for the period January 1, 2016 through December 31, 2016 was made on December 1, 2015 in accordance with the terms of this extended agreement.

 

In the six months ended June 30, 2016 and June 30, 2015 this officer was also granted 600,000 shares. 

 

15. RELATED PARTY TRANSACTIONS

 

During the six months ended June 30, 2016, the Company sold advertising space on its Kiwibox.com website to Kwick totaling $5,700, which is included in the Accounts Receivable balance due from Kwick of $57,598 at June 30, 2016. Kwick is majority-owned by Mr. Winkler, who in turn is a related party of the Company (see Note 7).

 

During the six months ended June 30, 2016 and 2015 one outside director of the Company who also serves as the Company’s general and securities counsel, was paid an aggregate $22,549 and $21,750 respectively, for legal services. The director also received 100,000 common stock options per month, ending in May 2016, as this outside director is no longer a director of the company effective July 31, 2016 and, as part of his resignation as director, he cancelled his rights to continue to receive options effective June 1, 2016. During the three and six month periods ended June 30, 2016, the common stock options were valued at $1,980 and $4,950 respectively and during the three and six month periods ended June 30, 2015, the common stock options were valued at $2,970 and $5,940 respectively.

 

During the three and six months ended June 30, 2016 and 2015 we incurred aggregate expenses of $101,699 and $219,144 and $110,283 and $194,764 respectively, to companies controlled by the Chief Executive Officer, for website hosting, website development and technical advisory services, server farm installations and IT equipment purchases. The officer also earned 100,000 common shares per month during the six months ended June 30, 2016 and 2015 under a consulting agreement, valued at $600 and $660 respectively. The officer also received $220,000 in December 2015 for prepaid consulting fees toward 2016 under the terms of a consulting agreement. 

 

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15. RELATED PARTY TRANSACTIONS (continued)

 

Through June 30, 2016, approximately 10% 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. Discover 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 2016 and 2015.

 

During the three months and six months ended June 30, 2016 Discover Advisory Company advanced an additional $310,000 and $310,000, respectively. During the three months and six months ended June 30, 2016 Kreuzfeld, LTD advanced an additional $0 and $230,000. At June 30, 2016, $4,761,722 and $3,080,060 of such notes were outstanding and owed to Discovery Advisory Company and Cambridge Services Inc, respectively and $4,279,959 and $771,958 owed to Kreuzfeld, Ltd. and VGZ, respectively.

 

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.

 

18 
 

16. FAIR VALUE (continued)

 

The following table reconciles, for the six months ended June 30, 2016, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements:

 

Balance of Conversion Liability at January 1, 2016  $16,596,381 
Present value of beneficial conversion features of new debentures   1,239,926 
Present Change in value of beneficial conversion features during period   97,529 
      Reductions in fair value due to principal conversions   —   
                                                         Conversion Liability at June 30, 2016  $17,933,836 

 

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. SUBSEQUENT EVENTS

 

During July 2016 and through August 12, 2016, we received $90,000 of working capital from accredited investors, which are covered by convertible promissory notes.

 

On July 31, 2016 the outside director of the company who also serves as the company’s general and legal securities counsel resigned as director. This resignation is not prompted by any disagreement with the company with regard to any of its policies, operations or practices.

  

18 . RECENTLY ISSUED AND NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year to the first quarter of 2018 to provide companies sufficient time to implement the standards. Early adoption will be permitted, but not before the first quarter of 2017. Adoption can occur using one of two prescribed transition methods. In March and April 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” and ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” which provide supplemental adoption guidance and clarification to ASC 2014-09. ASU 2016-08 and ASU 2016-10 must be adopted concurrently with the adoption of ASU 2014-09. The Company is currently evaluating the impact of these new standards.

 

In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-12 Compensation - Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718, Compensation - Stock Compensation. As a result, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the performance condition will be achieved. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. Early adoption is permitted. The Company adopted the provisions of this standard, but it did not have a material effect on its results of operations.

19 
 

 

On August 2014, FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements - Going Concerns (Subtopic 205-40): Disclosures of Uncertainties about an Entity’s Ability to continue as a Going Concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our financial position or results of operations.

 

In April 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-05, “Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the license consistent with its accounting of other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. This ASU is effective for annual reporting periods beginning after December 15, 2015, and interim periods within those years. The Company adopted the provisions of this standard, but it did not have a material effect on its results of operations.

 

During February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU 2016-02”). The standard requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of the new standard.

 

In March 2016, FASB issued ASU No. 2016-09, “Improvements to Employee Share-based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the standard and the impact on its consolidated financial statements and footnote disclosures.

 

We have reviewed all FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

 

Management does not believe there would have been a material effect on the accompanying consolidated financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.

 

20 
 

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 quarterly 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, 2015 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

  

We own and operate “Kiwibox.com”, a social networking website. Initially launched in 1999, Kiwibox.com is a social network.

 

Kiwibox Operations

 

Kiwibox.com is a social network for young adults all around the world for web and mobile usage, a community to find new friends and to meet new people online and in the real world. Unlike traditional social networking sites such as Facebook, Kiwibox combines its own "magazine" content and social networking technology in its website, creating attractive topics for its membership to peruse and enjoy.

 

Our operating expenses, not including stock-based compensation, are at a level of approximately $100,000 per month (see sections “Loans and Notes Payable”).

 

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 that we incorporated during the last 3 years now permit our mobile devices to accept and receive direct advertising. Our social networks permit us to work with potential advertisers to identify the right member groups for direct target advertising, a marketing channel that is readily accessible to our social media community.

 

21 
 

 

Our continuing membership growth is fueled by infiltrating our users into local event venues where they participate and simultaneously communicate with our social network via the regular deployment of our cutting-edge App updates. As a result, the Kiwibox network enjoys continuing user sign-ups and continuing loyalty of users to our social network. Due to our long-time experience with our German affiliate, the KWICK! Community (“Kwick”), we were able to fulfill the front-end and back-end needs for this remarkable growth.

 

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.

 

The results of our marketing efforts clearly show the following positive trends in the growth of our community at June 30, 2016:

 

Active Members – Our Kiwibox.com website has 4.83 Million Active Members as of June 30, 2016, an increase of approximately 1.5 % over the first quarter, 2016. Active users are those which have logged in to Kiwibox.com during the last 30 days.
Unique Visitors- – For the quarter ended June 30, 2016, we had 6.2 Million Unique Visitors to our Kiwibox.com website, an increase of approximately 16.9% over first quarter 2016 results.
Page Impressions – We had 350.2 Million Page Impressions during the second quarter of 2016, an increase of approximately 7.8 % over the prior quarter.
Guestbook Entries – For the quarter ended June 30, 2016, Kiwibox.com had 159.4 Million Guestbook Entries, an increase of approximately .7% from the previous quarter.

Blog Entries – Our Kiwibox.com website members and visitors entered 114.8 Million Blog Entries during the second quarter of 2016, an approximate .4% increase over the prior quarter.

 

Market Position

Our social media’s market penetration continues to rely upon our innovations where we strive to enhance our member’s experiences with our community. Our members enjoy our interactive platforms where we blog, play games, chat and share pictures. As a social media company Kiwibox strives to deploy the tools necessary for our members to readily connect, communicate and party; whether in the U.S.A. or worldwide.

The Kiwibox Network is in a unique position because it combines the excitement of a dating community with the benefits and accessibility of a real social network. The Kiwibox Network encourages members to explore local events in their area, connect with other members and enjoy the additional member exclusive benefits the social network is offering, such as games, blogging, chatting, picture-sharing and online-flirting. This community behavior binds users to the platform and is the base for our viral marketing.

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.

 

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Competition

 

Our primary competitors are other online social networks, including Facebook, Instagram, and Tumbler. Facebook is widely considered as the industry leaders, however, recently statistics and strategic announcements have 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.

Technology Development 

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.

The Kiwibox Network is focusing on the fast growing mobile usage phenomenon, being online with friend’s every time and everywhere. At present, more than 750,000 company Apps are installed worldwide.

New Kiwibox “Meet and Date” App

 

In addition to our free platform, Kiwibox introduced, and is to release, a membership based flirting dating platform in the next few months.

 

Intellectual Property

 

The Kiwibox.com web and mobile software and other related intellectual property rights are important assets. Most of our software is unique and individual and developed internally.

 

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.

23 
 

 

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.

 

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 2 employees.

 

Results of Operations for the Three and Six Months Ended June 30, 2016 Compared to the Three and Six Months Ended June 30, 2015

 

For the three and six months ended June 30, 2016, total revenues amounted to $3,363 and $5,700, respectively compared to $5,341 and $14,296 recorded in the same periods in 2015. All revenue was received from our affiliate Kwick. 

 

Gross Profit (Loss) for the three and six months ended June 30, 2016 amounted to $2,363 and $3,050, respectively, after accounting for $1,000 and $2,650 respectively, in cost of sales. After deducting selling and general and administrative expenses of $281,145 and $590,452 for the three and six months ended June 30, 2016, compared to $239,721 and $570,054 recorded in the same period in 2015, the Company realized operating losses of $278,782 and $589,682 for the three and six months ended June 30, 2016 compared to operating losses of $236,862 and $561,073 in the same periods in 2015. These operating expenses went up due to the following reasons.

Development costs went up due to the company’s increased focus on global and viral activity.

The major item included in non-operating income and expenses for the three and six months ended June 30, 2016 was a charge of $676,437 and $1,239,926 respectively, accounting for the intrinsic value of the beneficial conversion feature associated with convertible debt. We also had a loss for the three and six months ended June 30, 2016 of $36,810 and $97,529 respectively, in connection with changes in the valuation of derivative liabilities.

The quarter concluded with a net loss of $1,317,313 for the quarter and net loss of $2,573,049 for the first six months of 2016. After accounting for dividends accrued on outstanding preferred stock which totaled $25,632, the net loss applicable to common shareholders for the six months ended June 30, 2016 was $2,598,681 or $0.004 per share compared to a net loss applicable to common shareholders of $2,170,523 or $0.003 per share for the same period in 2015.

 

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 $540,000 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.

 

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Our deficit in working capital amounted to $37,843,331 at June 30, 2016, as compared to $32,772,389 at December 31, 2015. Stockholders’ equity showed an impairment of $37,829,177 at the end of the period, compared to an impairment of $32,775,830 at the beginning of the year. The negative cash flow from operations during the six months totaled $529,353 and was financed by new debt.

 

The Company had $0 of bank debt as of June 30, 2016. Aside from trade payables and accruals, our remaining indebtedness at June 30, 2016 consisted of certain notes and loans aggregating $13,333,700, liabilities for derivative conversion features of $17,933,836 amounts due to related parties of $112,668, and the following obligations. The position “Obligations to be settled in stock” of $288,597 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 $812,550 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 June 30, 2016 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.

 

As of June 30, 2016, 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 June 30, 2016, 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 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. Additionally in September 2012 the Company hired a comptroller to assist the Chief Financial Officer.   Effective May 31, 2015 the chief financial officer resigned and the CEO Andre Scholz took over the position as chief financial officer while comptroller that was assisting the previous part time chief financial officer assumed the day to day transactional activity.

 

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 June 30, 2016 and December 31, 2015 and the related statements of operations, and cash flows for the three and six months ended June 30, 2016 and 2015, 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 June 30, 2016, 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 three and six months in 2016 the Company did not 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 $803,550. These dividends have been accrued, however, the Company’s management has refrained from making payments at this time because of the absence of positive equity and/or surplus funds.

 

Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None

 

Item 5 OTHER INFORMATION

 

None

 

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Item 6 EXHIBITS AND REPORTS ON FORM 8-K

 

(a) Exhibits

 

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 15,2013.
   
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:

 

On February 2, 2016 the company filed a report on 8K disclosing fourth quarter 2015 operational highlights.

 

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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.

 

 

Date: August 15, 2016   Kiwibox.Com, Inc.
     
  By: /s/ Andre Scholz
    Andre Scholz
   

Chief Executive Officer

Chief Financial Officer

 

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