SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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





For the
Fiscal Year ended December 31, 2008





OR





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





For the
Transition
Period   From            to





Commission
File No. 33-20432





MAGNITUDE INFORMATION
SYSTEMS, INC.


Exact
Name of Registrant as Specified in its Charter





DELAWARE
              
              75-2228828State
      or Other Jurisdiction of
              
              IRS
      EmployerIncorporation
      or Organization
              
              Identification
      Number1250 State Route 28, Ste. 309,
      Branchburg,
              
              New Jersey 08876Address
      of Principal Executive Offices
              
              Zip
      Code





(908)
879-2722


Registrants
Telephone Number, Including Area Code




Securities
Registered Pursuant to Section 12(b) of the Exchange Act: None
 
 Securities
Registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par
value $0.0001




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 Yes £ No R
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
 Yes £ No R
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 Yes R  No
£
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o










Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the 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 (Do not check if a smaller reporting company)   £                Smaller
reporting company R
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act):Yes £ No R
  
 The
Registrant’s revenues for the fiscal year ended December 31, 2008 were
$59,421.
 
 Common
stock, par value $.0001 per share (“Common Stock”), was the only class of voting
stock of the Registrant outstanding on March 6, 2009. Based on the closing price
of the Common Stock on the OTC Electronic Bulletin Board as reported on March 6,
2009, ($0.019), the aggregate market value of the 329,432,561 shares of the
Common Stock held by persons other than officers, directors and persons known to
the Registrant to be the beneficial owners (as the term is defined under the
rules of the Securities and Exchange Commission) of more than five percent of
the Common Stock on March 6, 2009, was approximately $6,259,219. By the
foregoing statements, the Registrant does not intend to imply that any of the
officers, directors, or beneficial owners are affiliates of the registrant or
that the aggregate market value, as computed pursuant to rules of the Securities
and Exchange Commission, is in any way indicative of the amount which could be
obtained for such shares of Common Stock.
 
 As of
March 6, 2009, 436,242,570 shares of Common Stock, $.0001 par value, were
outstanding.
 
 DOCUMENTS
INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX





2





MAGNITUDE
INFORMATION SYSTEMS, INC.





CONTENTS





PagePART
      I.Item 1.
                    Business
                    
                    4Item
      1A.
                    Risk
      Factors
                    
                    10Item 2.
                    Properties
                    
                    12Item 3.
                    Legal
      Proceedings
                    
                    13Item 4.
                    Submission
      of Matters to a Vote of Security Holders
                    
                    13PART
      II.Item 5.
                    Market
      for Registrant's Common Equity and Related Shareholder
    Matters
                    
                    14Item
      6.
                    Selected
      Financial Data
                    
                    15Item 7.
                    Management’s'
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    
                    16Item
      7A.
                    Quantitative
      and Qualitative Disclosures about Market Risks
                    
                    19Item
      8.
                    Financial
      Statements
                    
                    20Item
      9.
                    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                    
                    20Item
      9A.
                    Control
      and Procedures
                    
                    20Item
      9B.
                    Other
      Information
                    
                    21PART
      III.Item
      10.
                    Directors
      and Executive Officers of the Registrant
                    
                    22Item
      11.
                    Executive
      Compensation
                    
                    25Item
      12.
                    Security
      Ownership of Certain Beneficial Owners and Management
                    
                    31Item
      13.
                    Certain
      Relationships and Related Transactions
                    
                    34Item
      14.
                    Principal
      Accountant Fees and Services
                    
                    34PART
      IV.Item
      15.
                    Exhibits
                    
                    36Signatures
                    
                    37Exhibit
      Index
                    
                    38




3





PART I


ITEM
      1:
            BUSINESS





Section
      1.1
            The
      Company





Magnitude
Information Systems, 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 August
16, 2007 the Company acquired all outstanding shares of Kiwibox Media,
Inc.





The
Company, its subsidiary Magnitude, Inc. and Kiwibox Media Inc. are separate
legal entities, with Kiwibox Media, Inc. being a wholly owned subsidiary. The 1%
of Magnitude, Inc. not owned by the Company constitutes a minority interest
which is valued at $0. The operations of the combined entity are currently
comprised almost exclusively of the operations of Kiwibox Media,
Inc.





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





The
Company is currently subject to the reporting requirements of Section 15(d) of
the Securities Exchange Act of 1934.  The Company has the authority to
issue an aggregate of One Billion Four Hundred Million (1,400,000,000) Common
Shares, par value $.0001, following an increase from 700,000,000 shares,
authorized by the shareholders of the Company on January 29, 2009, and Three
Million (3,000,000) Preferred Shares, par value $.001, of which at December 31,
2008, Two Thousand Five Hundred (2,500) were designated as Cumulative Preferred
Shares, par value $.001; Three Hundred Thousand (300,000) were designated as
Series A Senior Convertible Preferred Stock, par value $0.001; Three Hundred
Fifty Thousand (350,000) were designated as Series B Senior Convertible
Preferred Stock, par value $0.001; One Hundred Twenty Thousand (120,000) were
designated as Series C Senior Convertible Preferred Stock, par value $0.001;
Five Hundred Thousand (500,000) were designated as Series D Senior Convertible
Preferred Stock, par value $0.001; Five Hundred Thousand (500,000) were
designated as Series E Senior Convertible Preferred Stock, par value $0.001, and
Forty-Three Thousand Six Hundred Ten (43,610) were designated Series G Senior
Convertible Preferred Stock





As of
December 31, 2008, there were outstanding 436,242,570 Common Shares, 1
Cumulative Preferred Share, and 129,500 Convertible Preferred
Shares.





4





Description
of Business





Overview





Through
our subsidiary, we own and operate “Kiwibox.com”, a social networking website
for teens.Initially launched in
1999, Kiwibox.com is an online social networking website dedicated to teen
users. The Kiwibox website provides online content in several categories,
dedicated to teens, including entertainment, fashion and games. We have formed a
user-based contingent of contributors that submit, review and comment upon
content and articles from all over the world, 24 hours a day, seven days a week.
Kiwibox.com uses a “points” reward system for users, where a user may acquire
elevated peer status and/or earn prizes which in many cases are provided by
advertiser and/or sponsors. In August 2008 we had re-launched our website with
increased functions.





The
Kiwibox Acquisition





On August
16, 2007, we acquired Kiwibox Media, Inc. through a reverse merger between
Kiwibox and our wholly owned acquisition subsidiary. As a result of the merger,
Kiwibox became our wholly owned subsidiary.





At the
Kiwibox closing, we (1) issued an aggregate 30,000,000 restricted common shares
to the three Kiwibox shareholders,  (2) issued an aggregate 43,610 shares
of our Senior Convertible Series G Preferred stock to these principals, (3) paid
an aggregate $150,000 in cash to these Kiwibox principals, less a $7,000
investment banking fee paid to Southridge Investment Group, and (4) signed
two-year employment agreements with Messrs. Lin Dai, Ivan Tumanov and Michael
Howard, the three Kiwibox shareholders, all pursuant to the terms and provisions
of the Agreement and Plan of Reorganization, dated February 19, 2007, and
amendments thereto, and as most recently modified by Amendment No. 6 between the
parties on February 28, 2009. The 43,610 Series G Preferred Shares issued to the
Kiwibox principals at closing have an aggregate conversion value of $500,000
(the “Conversion Value”), which $500,000 Conversion Value is convertible into
our common shares by dividing it by the “Market Price”, representing the average
price of our common stock during the twenty (20) successive trading days
immediately preceding the second anniversary of the agreement. At the closing,
the Company agreed to issue 750,000 of the Kiwibox shareholders’ restricted
common shares to Southridge Investment Group, LLC as part of its
fee.




As
previously reported on our prior Form 8-K current report of August 2, 2007, the
Swiss investment firm, Tell Capital AG, issued its commitment to subscribe to
purchase an aggregate $3,000,000 of Company equity securities. This commitment
provided us with the funds to close the Kiwibox acquisition.





Based
upon our original Agreement and Plan of Reorganization of February 2007, we
committed to invest $3.5 Million in the Kiwibox business. This commitment was
based upon our communications with a Swiss based shareholder and investor in our
Company, Tell Capital AG, who on July 26, 2007, sent us a commitment to invest
$3 million of equity in our Company. Based upon Tell Capital’s commitment, we
executed Amendment No. 3 to our original February, 2007 agreement with Kiwibox,
committing to invest $3.5 million in various tranches, corresponding to the
investment schedule set forth in the Tell Capital commitment, as well as
agreeing to pay 60,000 restricted common shares for each day any of our
scheduled investment tranches were late. Because of the delays in the receipt of
the equity investments from Tell Capital, scheduled through November 1, 2007,
our corresponding investment commitments to the Kiwibox business were also late.
The continuing lateness of our investment commitments to the Kiwibox business
resulted in further amendments to our Kiwibox agreement and required us to make
a $100,000 penalty payment to the Kiwibox shareholders in 2007. The final
modification to our original agreement, Amendment No. 6, executed on February
28, 2008, provided that if we raised $1.5 million in equity on or before March
7, 2008 and dedicated $700,000 of that amount to the Kiwibox business, made
another penalty payment of $150,000 and delivered our corporate note in the
principal amount of $225,000 to the Kiwibox shareholders, all rescission rights
held by the Kiwibox shareholders and any further obligations to invest in the
Kiwibox business would terminate. On March 7, 2008, we received $1.5 Million in
subscription proceeds from investors, from which proceeds we dedicated $700,000
to the Kiwibox business, made the $150,000 penalty payment to the Kiwibox
shareholders and delivered to them our $225,000 corporate note. Accordingly, the
Kiwibox shareholders’ rights of rescission and our obligation to invest further
funds in the Kiwibox business terminated. We have paid the Kiwibox shareholders
$250,000 in cash, delivered to them our $225,000 corporate note, due June 15,
2008, and issued to them 30,560,000 restricted common shares resulting from the
series of delays in meeting our commitments to invest funds into the Kiwibox
business, as follows. We issued the 20,000,000 reset shares and 10,560,000
penalty shares to the Kiwibox shareholders and settled the $225,000 corporate
note. During the fourth quarter in 2008 we received a total of $736,000 in
subscription funds against which we issued 29,440,000 restricted common
shares.





5





We signed
and delivered two-year employment agreements with the three Kiwibox Shareholders
at the closing. These employment agreements pay each Kiwibox Shareholder an
annual base salary of $150,000 and an annual bonus if certain business goals are
met. Each Kiwibox Shareholder received a stock option to purchase up to
7,500,000 shares of our common stock which vests over time as well as a
performance stock option to purchase up to an additional 3,000,000 shares of our
common stock, vesting upon the attainment of certain business goals. All of
these stock options are exercisable at $.05 per share.  During the
third quarter , we entered into a termination agreement with Ivan Tumanov, one
of the Kiwibox shareholders, pursuant to which Mr. Tumanov resigned his
position, terminated his employment agreement and returned his 10,500,000 stock
options for cancellation, all as reported in our current report filed on Form
8-K with the Commission on September 24, 2008. We also issued to Paul Farris,
the Director of Business Development for the Kiwibox operation, 500,000
non-qualified stock options, vesting one-third each on the three successive
anniversary dates of his employment and 500,000 performance stock options,
vesting upon attainment of certain performance goals, one-half each on the first
and second employment anniversary dates, pursuant to the terms of his employment
agreement. On October 30, 2008, the Company terminated its employment agreement
with Lin Dai for cause and cancelled his stock options pursuant to the terms of
that agreement. On December 8, 2008, Mr. Dai resigned his position as a member
of the Company's Board of Directors. Since this resignation, the Company has
been in negotiations with Lin Dai to acquire all of Mr. Dai's Company securities
and resolve all potential claims of the parties. Although these negotiations
have ceased, neither the Company nor Mr. Dai have formally instituted any claims
against the other and it is not possible to determine whether any claims will be
instigated, or if commenced, what the outcomes of any such litigation may
be.





History





Kiwibox.com
was founded in 1999 by three students attending Carnegie Mellon University.
Kiwibox.com was built as an online destination for teens, combining editorial
content with interactive community features.  Kiwibox.com produces a
“For Teen by Teens” Online Magazine, and currently has over one-thousand (1,000)
active member contributors and editors. This user generated entertainment
content is managed though a proprietary Kiwibox.com editorial system that is
unique to Kiwibox.com, and is highly acclaimed by the user
base.  Acceptance of this model was demonstrated through exponential
membership growth during the first two years of operations. This membership
growth required better access to entertainment and content sources, advertisers,
and business partners, thus in 2000 Kiwibox relocated from Pittsburgh to New
York City.  When the 2001 “dot-com” bubble burst in 2001 many Internet
advertising agencies as well as Kiwibox competitors were forced out of
business.  In response Kiwibox.com reduced its operations and focused
on maintaining and growing its membership community, while establishing itself
as  a highly trusted and safe teen destination..  As the
Internet Advertising industry recovered over the next 6 years, Kiwibox.com
steadily grew its registered membership base to 1.8 million.





Kiwibox
Operations





In the
United States alone the teenage population is approximately 44 Million, as
estimated by the US Census Bureau, and they spent over $189 billion in 2006
according to eMarketer.
Spending by and on teens is projected to grow to $208 billion by
2011.  To reach teens online, marketers will increasingly look to
social networks. According to eMarketer, advertising on
social networking websites is projected to be over $2 billion for 2008 and to
grow to over $4 billion by 2011.  Today’s teenagers are the first
generation to grow up using the Internet for everything from entertainment and
information, to shopping and communication. In fact, according to the Pew
Internet and American Life Project, 83 percent of U.S. teenagers are online. And
although there are a number of websites that have targeted this large
marketplace no one site has yet to dominate it. We will strive through
technology and content enhancements to make the Kiwibox.com website one of the
most exciting teenage, multimedia sites available.





6




Re-launch
of our Website “2.0”





Since our
acquisition of Kiwibox, we have been developing a new version of our website, as
well as extending our offerings into different mobile platforms. The mobile WAP
version of the Kiwibox.com site has been launched, as well as our new Kiwibox
2.0 website. In August, 2008, we launched our new Web 2.0 site, which contains
significant enhancements over the original website, expanding our operations
that includes the following new features:


·
                Dynamic
      new profile pages — New profiles feature drag and drop customization,
      enhanced privacy settings, and personal sub-domains for every member.
      Kiwibox members can add widgets for Facebook, MySpace, YouTube, Flickr,
      and all of their favorite Kiwibox
content.
 ·
              Revamped
      Points and Prizes — Members have more ways to earn KiwiPoints by
      participating in the social network and contributing editorial content.
      Members can redeem these KiwiPoints for an expanded selection of real
      world KiwiPrizes from iPods(TM) to Nintendo Wii(TM) and much
      more.
 ·
              New
      KiwiGames — New KiwiGames section offers members double the amount of
      cool, fun games to play while connecting and competing with
      friends.
 ·
              KiwiboxTV
      — Exclusive on camera interviews with artists and celebrities by Kiwibox
      teen Video Journalists, as well video coverage of red carpet events brings
      members one step closer to their favorite
  celebrities.
 ·
                Enhanced
      weekly and daily content — Weekly online magazine is supplemented by daily
      and up-to-the-minute entertainment news contributed by members from around
      the world.


Search Engine Optimization –Kiwibox restructured article, news, journal, qbook, and postboard pages
to optimize them for search engines. The changes resulted in growth of organic
search engine traffic by 129% from July 2008 to September
2008.


Membership Growth –Through
organic growth, new partnerships, and increased marketing efforts, new
membership increased by 147% from the previous quarter.
 Improved Referral Tools – In
September, Kiwibox launched the eFriendFinder application. The application
allows members to use their email address books from AOL, Yahoo!, Gmail,
Hotmail, and other services to find their friends on Kiwibox and invite friends
that aren't already members of Kiwibox.com. The service generates on average
over 10,000 invitations to join Kiwibox, per day. We expect the number of friend
invitations sent to increase as we increase new member registration, and promote
the tool to current members of the Kiwibox community.
 Universal Music Video Partnership –Kiwibox and Universal Music Group entered into an agreement that will
provide the Kiwibox users access to thousands of videos from the world's most
popular artists. UMG's music video catalog will be interwoven into Kiwibox's
exclusive teen editorial content under the title of "Kiwibox Music Videos." The
video content will be advertising supported and Kiwibox, artists, labels and
copyright holders will all receive a share of revenue from the ads displayed
next to their music video content.





Potential
Revenue Streams





Currently
we generate the majority of our revenue from
advertising/sponsorships.  Although we anticipate  average
web advertising CPM (click per thousand) rates to remain steady in 2009, revenue
growth is expected as the revitalized site is launched, membership activity
increases, launch of Kiwibox Mobile website, launch of 4KIWI platform, and the
launch of the Kiwibox Virtual Economy..  Kiwibox Mobile, including
both text messaging services (SMS) and a Kiwibox mobile internet experience
(WAP)  Mobile services, garner higher advertising revenue rates
(CPM’s) than traditional website CPM’s, thus we expect Mobile and Virtual
Economy revenues to increasingly contribute to Kiwibox.com’s overall revenue
stream.





7




Marketing
Strategy





Our
website is being constructed to promote safe and easy interactivity between the
teen audience while providing a quality teen magazine. To date, we have devoted
our resources to developing our teen magazine. Our new website will provide a
platform for simple social interaction and connectivity among our teen members
who will be able to share information and provide a portal for their social
communication. The 2006 Nielsen Net Ratings have calculated that the top ten
networking sites have grown approximately 47% and are expected to continue to
grow at that rate for some time. The sites serve an estimated audience of
approximately 68.8 million people, a large segment of the United States
population.





A
teenager wants to connect and share information with his or her friends on an
easy-to-use website. Our new website will provide easy access and
inter-activity, etc.





Safety





Kiwibox.com
has developed a proprietary monitoring model which assists in maintaining a safe
site for our member base, combining both technology based systems and user
moderation.  Over the last 8 years our team has selected trusted long
term members to become “site monitors” known on the Kiwibox.com site as
“KiwiHelpers”. These KiwiHelpers utilize internal Kiwibox provided tools to
remove inappropriate content as needed, guide and warn users, and continually
scan the site for unsafe content or user activity. These helpers have an icon
next to their username denoting that they are a KiwiHelper, thus users who
believe they are not being treated respectfully, or otherwise feel
uncomfortable, may easily find and reach a KiwiHelper to gain their
assistance.  If a KiwiHelper deems that a user or site issue requires
further escalation, they in turn immediately contact Kiwibox personnel, which
then evaluates and resolves the issue.





Kiwibox
is constantly learning new and improved techniques to further our tools and
methods, keeping Kiwibox.com one of the safest social networking destinations on
the internet. We pride ourselves on our member involvement, and their ability to
interact in an open yet safe environment, monitored by their peers.





We have
spent over $100,000 on marketing in Q3 and Q4 of 2008, focusing on both web user
acquisition as well as mobile user acquisition.  Furthermore, the
strategic placement of widgets and web apps on major competitor websites will
further drive potential members to Kiwibox.com.  Once potential new
users reach Kiwibox via designated landing pages, they will be greeted with
customized content, contests and features of their preference, along with points
and incentives for them to join.  New viral tools will be available to
existing members to increase referrals and generate significant membership
growth via word-of-mouth.





We will
also pursue partnerships with smaller web sites with similar or complementary
demographic and establish an affiliate network.  Through co-marketing
programs and revenue share advertising deals, we look to increase our brand
exposure to potential members on affiliate sites, as well as further identifying
potential web sites as acquisition targets.





Competition





Our
primary competitors are other youth targeted online social networks, including
Facebook.com, MyYearbook.com, and MySpace.com. MySpace and Facebook are widely
considered the industry leaders, however, recently statistics and strategic
announcements from both companies has indicated a shift in the target audience
from teens and college students to a much broader and more adult
demographic.  We plan to distinguish ourselves by focusing on the teen
users and offering superior and exclusive content for this
audience.





8





Secondary
competitors include teen content providers and entertainment bloggers such as
Seventeen.com, PerezHilton.com, etc.  These sites generate unique and
engaging content that the teen audience enjoys and attracts a dedicated
following.  However, these teen content provider sites offer none or
very limited social networking features.  We plan on establishing
partnerships and co-marketing agreements with certain strategic companies in
this category, as well as utilizing our technology tools to aggregate content
found on other popular teen sites.





Intellectual
Property





Except
for our patent covering covering our ErgoSentry software product, we currently
do not own any other patents, trademarks, or licenses of any kind. However, the
copyright on the Kiwibox.com web and mobile software and other related
intellectual property rights are important assets.  We hold the
Internet domain names Kiwibox.com, Kiwibox.net, Kiwibox.org, Kiwibox.info,
Kiwibox.tv, Kiwibox.us, Kiwibox.mobi, Kiwibox.cn, and
Kiwibox.com.cn.  Furthermore, for our mobile offerings, we hold the
SMS short code 45494 (4KIWI) and related Internet domain names 4Kiwi.com,
ForKiwi.com, and FourKiwi.com.





Governmental
Regulations





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




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




State and
federal agencies are applying consumer protection laws to regulate the on-line
use, collection and dissemination of personal information and website content.
These laws require us to implement programs to notify our website users of our
privacy and security programs.  One of the anticipated features of our
new Kiwibox website, scheduled for launch in April, 2008, will permit our
members to post their personal information on their membership pages and
exchange this information with others. These new website networking functions
require that we also provide our members with direct access to their personal
information and the ability to edit, correct or delete part or all of their
personal information. 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.





9





Employees





Currently,
we have 12 full-time 3 and part-time employees. We do not expect to hire
additional full-time persons during 2009.





ITEM
      1.A:
            RISKS
      RELATED TO OUR BUSINESS





Early
Stage Company; Generation of Revenues





Kiwibox
can be considered an early stage company and investors can not reasonably assume
that we will ever be profitable. As an early stage company, we are likely to
continue to have financial difficulties for the foreseeable future. We may
successfully re-develop our website operations and generate additional revenues
but still be unable to achieve profitability. Kiwibox has devoted substantial
funds to develop its new website, launched in August, 2008, but investors should
be aware that there can be no assurance that Kiwibox will ever achieve revenues
that exceed its operational costs. We may not obtain the funding necessary to
provide Kiwibox with the working capital necessary to continue to develop and
market its website. Moreover, the Kiwibox.com website may not receive sufficient
internet traffic to increase revenues or achieve profitability.




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





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





Need
for Additional Capital; Short-Term Viability of Company




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




No
Formal Feasibility and Market Research Plan




We have
collected data and statistics concerning the potential market for the
Kiwibox.com website and the costs of marketing our services. We have relied
principally on the judgment and conclusions of our management, based on their
respective knowledge and experiences. We have not performed any formal marketing
study that confirms any absolute demand for the services we are providing on our
new Kiwibox.com website, launched in August, 2008.





10




Unpredictability
of Future Revenues; Potential Downturns in Operating Results




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




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





Website
and Service Development Risks




The
continuing development of our Kiwibox.com website is a highly complex technical
process. We had launched our latest enhanced version in August 2008. However,
since that time, and ongoing in the future, we are required to add enhancements
and services in the future to remain competitive in our teen marketplace. If we
are unable to develop and introduce new services or enhancements to our website
in a timely manner in response to changing market conditions or customer
requirements, our business, prospects, operating results and financial condition
could be materially adversely affected.




Limited
Senior Management Team; Potential Problems with Expanding Personnel




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




Competition




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


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





Dependence
on Management




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





11





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


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




Creation
of Brand Awareness




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





Potential
for Defects in our Products and Services




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





Penny
Stock Regulation




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





Absence
of Dividends




We have
not paid any dividends on our common stock and we are not likely to do so in the
foreseeable future. We presently intend to retain earnings for use in growing
our business. We may pay for some of our future expansion through debt
financing, in which case lenders traditionally prohibit the payment of any such
dividends. Investors should be aware, therefore, that the Company intends to
re-invest any earnings back into our business for the foreseeable future and
that they should have no expectations of receiving any dividends on the common
shares they may purchase.




ITEM
      2:
            DESCRIPTION
      OF PROPERTIES





We
maintain offices for our Kiwibox operations at 330 W. 38th Street,
Suite #1602, New York, New York 10018, consisting of approximately 1,600 square
feet. We have a two-year lease expiring in August 2009, covering these offices
and pay monthly rent of $5,136.





12





ITEM
      3:
            LEGAL
      PROCEEDINGS





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





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





No
matters were submitted to a vote of the security holders during the fourth
quarter of this fiscal period.


Subsequent  to
December 31, 2008, we engaged in a proxy vote solicitation and on January 29,
2009, shareholders of a total 244,725,773 common shares, out of the 436,242,570
shares outstanding, voted to increase our authorized common shares to
1,400,000,000 shares and voted to ratify the appointment of Rosenberg Rich Baker
Berman and Company to serve as our independent auditors for the fiscal year
ending December 31, 2009, as follows:





Proposition
No. 1: to increase the authorized common shares to 1,400,000,000 shares
–





FOR
                  
                  AGAINST
                  
                  
                  ABSTAIN241,941,210
                  
                  
                  2,357,063
                  
                  
                  
                  427,500





Proposition
No. 2: to ratify the appointment of Rosenberg Rich Baker Berman & Company to
serve as the Company’s auditors for the fiscal year ending December 31, 2009
–





FOR
                  
                  AGAINST
                  
                  
                  ABSTAIN244,552,663
                  
                  
                  66,565
                  
                  
                  
                  106,545




13





PART II





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





(a)  Market
Information





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





OTC-BBLow/Bid
                        
                        
                        High/Ask2006First
      Quarter
                        
                        $
                        0.06
                        
                        
                        $
                        0.12Second
      Quarter
                        
                        
                        0.05
                        
                        
                        
                        0.09Third
      Quarter
                        
                        
                        0.03
                        
                        
                        
                        0.06Fourth
      Quarter
                        
                        
                        0.03
                        
                        
                        
                        0.042007First
      Quarter
                        
                        $
                        0.03
                        
                        
                        $
                        0.06Second
      Quarter
                        
                        
                        0.04
                        
                        
                        
                        0.08Third
      Quarter
                        
                        
                        0.04
                        
                        
                        
                        0.07Fourth
      Quarter
                        
                        
                        0.02
                        
                        
                        
                        0.052008First
      Quarter
                        
                        $
                        0.04
                        
                        
                        $
                        0.01Second
      Quarter
                        
                        
                        0.03
                        
                        
                        
                        0.02Third
      Quarter
                        
                        
                        0.03
                        
                        
                        
                        0.01Fourth
      Quarter
                        
                        
                        0.03
                        
                        
                        
                        0.01





(b)  Shareholders





As of
March 6, 2009, there were approximately 400 shareholders of record for the
Company’s Common Stock.  The number of record holders does not include
shareholders whose securities are held in street names.





(c)  Dividends





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





Recent Issues
of  Unregistered Securities





During
the fourth quarter of 2008 the Company issued the following unregistered
securities:





1. We
committed to issue 29,440,000Units pursuant to
subscription agreements with six accredited investors and received subscription
proceeds of $736,000 during the fourth quarter. The subscription price for each
Unit was $.025, with each Unit comprised of one restricted common share and one
common stock purchase warrant. Each warrant is exercisable during a five year
period at the exercise price of $.05 per warrant and contains a cashless
exercise provision. Pursuant to these subscriptions, we had issued the
29,440,000 common shares.  The warrants had not yet been issued at
December 31, 2008.





14





2. We
also issued 2,000,000 warrants, exercisable during three years at prices between
$0.06 and $0.085 to a consultant for services rendered.





3. We
committed to issue 500,000 restricted common shares to an investor as loan
origination fee in connection with the placement of a promissory note for
$30,000 which funds were received during the fourth quarter.





All of
the above offerings, sales and conversions were made in reliance upon the
exemption from registration under Rule 506 of Regulation D promulgated under the
Securities Act and/or Section 4(2) of the Securities Act, based on the
following: (a) the investors confirmed to us that they were “accredited
investors,” as defined in Rule 501 of Regulation D promulgated under the
Securities Act; (b) the investors were all shareholders of or prior investors
in, the Company, had pre-existing relationships with the Company and the Company
did not engage in any general solicitation with respect to the offerings; (c)
the investors acknowledged that all securities being purchased were “restricted
securities” as defined under applicable securities laws, and agreed to transfer
such securities only in a transaction registered under the Securities Act or
pursuant to available exemptions from such registration requirements; and (d) a
legend was placed on the certificates representing each such security,
disclosing that such securities are deemed restricted securities and could only
be sold or otherwise transferred if registered under the Securities Act or
pursuant to exemptions from such registration requirements.





ITEM
      6:
            SELECTED
      FINANCIAL DATA





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





Readers
are cautioned not to place undue reliance on forward-looking statements. The
Company undertakes no obligation to republish or revise forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrences of unanticipated events.




The
selected financial information presented below under the captions "Statement of
Operations" and "Balance Sheet" for the years ended December 31, 2004 through
2008 is derived from the financial statements of the Company and should be read
in conjunction with the financial statements and notes thereto.





The
financial data are those of Magnitude Information Systems, Inc. including the
operations of Magnitude, Inc and, starting with August 16, 2007, the date of
acquisition, the operations of KiwiBox Media, Inc. All inter-company accounts
and transactions have been eliminated in consolidation.





Balance
Sheet


December
      31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Total
      assets
                  
                  $
                  130,672
                  
                  
                  $
                  3,221,336
                  
                  
                  $
                  169,128
                  
                  
                  $
                  515,629
                  
                  
                  $
                  646,162Current
      liabilities
                  
                  
                  5,179,293
                  
                  
                  
                  6,316,912
                  
                  
                  
                  2,674,613
                  
                  
                  
                  1,180,010
                  
                  
                  
                  1,158,952Long-term
      debt
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  256Working
      capital
                  
                  
                  (5,148,331
                  )
                  
                  
                  (5,826,532
                  )
                  
                  
                  (2,553,451
                  )
                  
                  
                  (1,016,230
                  )
                  
                  
                  (1,010,649
                  )Shareholders’
      equity (deficit)
                  
                  $
                  (5,048,621
                  )
                  
                  $
                  (3,095,576
                  )
                  
                  
                  (2,505,485
                  )
                  
                  
                  (664,381
                  )
                  
                  
                  (513,046
                  )




15





Statement
of Operations


For
      the Year Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006
                      
                      
                      2005
                      
                      
                      2004Total
      revenues
                      
                      $
                      59,421
                      
                      
                      $
                      29,745
                      
                      
                      $
                      47,701
                      
                      
                      $
                      189,552
                      
                      
                      $
                      121,886Operating
      income (loss)
                      
                      
                      (6,206,870
                      )
                      
                      
                      (2,447,832
                      )
                      
                      
                      (3,716,867
                      )
                      
                      
                      (2,410,670
                      )
                      
                      
                      (2,687,402
                      )Net
      (loss)
                      
                      
                      (5,493,764
                      )
                      
                      
                      (3,881,652
                      )
                      
                      
                      (3,895,262
                      )
                      
                      
                      (2,218,257
                      )
                      
                      
                      (2,308,948
                      )Net
      (loss) after dividends preferredon preferred
      shares
                      
                      
                      (5,545,096
                      )
                      
                      
                      (3,935,133
                      )
                      
                      
                      (4,473,726
                      )
                      
                      
                      (2,341,492
                      )
                      
                      
                      (4,509,167
                      )Net
      loss per common share
                      
                      $
                      (0.015
                      )
                      
                      $
                      (0.016
                      )
                      
                      $
                      (0.026
                      )
                      
                      $
                      (0.017
                      )
                      
                      $
                      (0.047
                      )Number
      of shares used incomputing per share
      data
                      
                      
                      373,156,459
                      
                      
                      
                      243,609,819
                      
                      
                      
                      170,692,731
                      
                      
                      
                      138,097,577
                      
                      
                      
                      96,968,697





ITEM
      7:
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
      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 Magnitude Information Systems, Inc.,
included herewith. This discussion should not be construed to imply that the
results discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment of our management.





Description of
Business





During
2008, we achieved the following milestones:





-
            Complete
      Re-Launch Kiwibox 2.0 - In August, 2008, we launched our new Web 2.0 site,
      which contains significant enhancements over the original website,
      expanding our operations that includes the following new features: Dynamic
      Profile Pages, Revamped Points and Prizes, Custom Backgrounds and Layouts
      for users, Kiwibox TV, Enhanced Games Area, Increased Weekly and Daily
      Content, Photo Albums, Friends List
Manager.





-
            Launch
      Kiwibox Mobile WAP Site – Partnering with Quattro Wireless, Kiwibox
      designed a mobile version of Kiwibox.com delivering up to the minute
      articles and news to our users mobile phones. Users can login, check
      messages, leave profile comments, read KiwiNotes, update their status and
      many other social networking
activities.





16





-
            Development
      of SMS platform (Actually Launched 4/2/09) - Kiwibox members and their
      friends will be able to use their mobile phones to receive the latest
      updates from Kiwibox.com. These SMS services will work on any mobile phone
      with text-messaging capabilities and are free of charge to our members
      (regular text messaging rates may apply). To receive the alerts, teens opt
      into the service through their profile on Kiwibox.com. Users can manage
      the content they receive based on personal preference (type of content,
      quantity per day, time of delivery, etc.) allowing users very granular
      control of their SMS experience on
Kiwibox.





-
            Kiwibox
      Accepted Into YouTube Partner Program (1/20/09) - Kiwibox was accepted
      into the YouTube Partner Program. Kiwibox will be able to share in
      advertising revenue from the over 500 Kiwibox exclusive videos appearing
      on YouTube. The videos appearing on YouTube's Kiwibox Channel
      (http://youtube.com/KiwiboxMedia) feature exclusive interviews with
      musicians and celebrities such as: Alicia Keys, Katy Perry, Lauren Conrad,
      Mark Wahlberg.





-
            UMG
      partnership gives Kiwibox users free access to 5,000+ music videos, full
      screen, streaming through Kiwibox.com - The videos, a result of the
      partnership struck between UMG and Kiwibox, bring high quality
      entertainment to Kiwibox's 2.4 million teen members while providing them
      the opportunity to connect and interact about their favorite artists. The
      launch of Kiwibox Music Videos creates a branded and sponsor friendly
      environment where advertisers can interact with the Kiwibox teen audience
      around high quality video content.





-
            Built
      a custom Video Player to integrate with BrightCove for UMG, as well as
      future partners using the BrightCove
system.





-
            Kiwibox
      COO Mike Howard Speaks at Ad-Tech conference on Panel “Mobile Social
      Networking: Now Is The Time for
Innovation”





-
            Kiwibox
      covered in the following media outlets, LA Times, USA Today, Cnet, ADOTAS,
      Mobile Marketer, Ypulse, Media Post, Mashable, 901am,
      VentureBeat





-
            eFriendFinder
      service launched on Kiwibox to allow members to find their friends on
      Kiwibox, and also invite their other friends over to
    Kiwibox.





-
            Launch
      of Kiwibox Teen Network –The network has now expanded to reach more than
      17 million U.S.-based unique visitors per month and is comprised of 80+
      teen-focused websites that offer brand advertisers and marketers a
      targeted method for reaching this key consumer demographic. For
      advertisers, the Kiwibox Teen Network represents an efficient way to reach
      a highly valued audience in a fully transparent, youth-safe environment.
      For publishers, it enables them to monetize their inventory more
      effectively with access to larger brand campaigns as well as participate
      in other partnership opportunities, providing additional revenue
      streams.





Results of Operations for
the Twelve Months Ended December 31, 2008 Compared to the Twelve Months Ended
December 31, 2007





The
Company had no material revenues during 2008 and 2007.  Its former
ergonomic software – based business had been discontinued and the acquisition of
Kiwibox Media Inc. had not yet matured to a stage where significant revenues
could be generated. For the year ended December 31, 2008, total revenues
amounted to $59,421 compared to $29,745 in 2007. Revenues were derived entirely
from the Kiwibox operations.





Gross
profits amounted to $22,413, after considering $37,008 in website hosting
expenses.  After deducting selling -, research -, and general and
administrative expenses of $6,229,283 compared to the $2,477,577 recorded in
2007, the Company realized an operating loss of $6,206,870 compared to an
operating loss of $2,447,832 in 2007.  Included in SG&A expenses
is a position of $3,138,751 attributable to the impairment of goodwill
previously capitalized in connection with the acquisition of the Kiwibox
business.





17




Management
projected the discounted cash flow for the operations of the Company’s Kiwibox
Media Inc. subsidiary, including the costs incurred by the Company’s Magnitude,
Inc. subsidiary which has no own revenue basis but provides management,
accounting, and investor relations and other professional services for the
combined entity, over a period of five years. This analysis showed that the
reliance on outside investors to provide needed additional funding to augment
cash flow from operations would likely persist for a period in excess of one
year. Management decided to write off the entire goodwill position because the
willingness of outside investors to continue funding operations until positive
cashflow can be realized, cannot be assured. A fair value of the Kiwibox
subsidiary cannot be determined due to the fact that at this time this is
essentially a start-up business with minimal revenues.
  The major
item included in non-operating income and expenses was a gain of $633,856
realized when certain promissory notes were converted into equity by the
holders. In addition, we incurred a charge of approximately $76,000 in
connection with the amortization of deferred financing costs and income of
approximately $128,000 from the change in fair value of derivative
liabilities.  The year concluded with a net loss of $5,493,764. After
accounting for dividends accrued and discounts on outstanding preferred stock
which totaled $51,332 the net loss applicable to common shareholders was
$5,545,096 or $0.015 per share, compared to a loss of $3,935,133 or $0.016 per
share for the previous year.


Liquidity and Capital
Resources





We have
financed our business with new debt and equity capital since our cash flow is
insufficient to provide the working capital necessary to fund our operations. We
recorded $2,346,000 in cash from subscriptions for new equity capital from
accredited private investors during 2008. In addition, we received $220,000 from
short-term loans. We have an urgent need for working capital to fund our
operations. If we are unable to immediately receive new equity investments or
obtain loans, we will not be able to fund our operations and we will be required
to close our business.





Our
deficit in working capital amounted to $5,148,331 at December 31, 2008, as
compared to $5,826,532 at December 31, 2007.  Stockholders’ equity
showed an impairment of $5,048,621 at the end of the year, compared to an
impairment of $3,095,576 at the beginning of the year. The negative cash flow
from operations totaled $2,799,214 and was substantially financed by new debt
and equity which was obtained through private placements. The new equity
placements were consummated by issuance of common stock and warrants to
primarily foreign investors. Details of such transactions can be found in the
“Changes and Issuance of Securities” sections in the Company’s quarterly reports
on Forms 10-Q during the year, as well as in the pertinent section of this
report.




We have
no bank debt and aside from trade payables and accruals, our indebtedness at
December 31, 2008, consisted of certain notes and loans aggregating
approximately $320,000. The position “Obligations to be settled in stock” of
$135,200 includes $106,000 for common shares due under consulting agreements,
finance costs of $10,000 to be settled in common shares and $19,200 for services
to be settled in common stock warrants, where the underlying securities had not
yet been issued by year-end. Current liabilities also include $428,076 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
discussions with potential investors. There can be no assurance, however, that
we will be able to 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 immediate equity investment or loans, we will be compelled to
close our business operations. Assuming we can receive current funds to continue
to operate our businesses, absent the receipt of this additional $3 million
funding, our website development, results of operations and financial condition
could be subject to material adverse consequences. There can be no assurance in
such a case that we could find alternative funding for the working capital
required to finance on-going operations. If we failed in these efforts, either
by not receiving theinvestment
commitments from Tell Capital AG or an alternative source, or we do not receive
such funds in a timely manner, our management may be forced to effect severe
cut-backs in our operations.





18





Subsequent Events – Fiscal
Year 2009





During
January and February 2009 we received an aggregate $500,000 working capital
loans from an accredited investor, covered by convertible promissory notes
carrying interest at 10% per year.





On
January 29, 2009 the holders of a total 244,725,773 common shares, out of the
436,242,570 shares outstanding, in response to the Company’s Consent
Solicitation, approved the following propositions:





Proposition
No. 1: to increase the authorized common shares to 1,400,000,000 shares
–


FOR:
      241,941,210
              AGAINST:  2,357,063
              ABSTAIN:  427,500





Proposition
No. 2: to ratify the appointment of Rosenberg Rich Baker Berman & Company to
serve as the Company’s auditors for the fiscal year ending December 31, 2009
–


FOR:  244,552,663
              AGAINST:  66,565
              ABSTAIN:  106,545




ITEM
      7 A:
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





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




19




ITEM
      8:
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





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




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




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





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





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





Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) (the Company’s principal financial and accounting
officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report.  Based upon that evaluation,
the Company’s CEO and CFO concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and
CFO, as appropriate, to allow timely decisions regarding required
disclosure.





Management
Report on Internal Control Over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation, our
management concluded that our internal control over financial reporting was
effective as of December 31, 2008. This report does not include an attestation
report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to
attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the SEC that permit the company to provide only management’s
report in this annual report.





Changes
in Internal Control over Financial Reporting




There
have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act)
during the fiscal period to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.




The
Company’s management, including the Company’s CEO and CFO, does not expect that
the Company’s internal control over financial reporting will prevent all errors
and all fraud. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree or compliance with the policies or procedures may
deteriorate.





20





ITEM
9B:  OTHER INFORMATION




None.





21





PART III





ITEM
      10:
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROLPERSONS





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





Name
              
              Positions
              
              Term  Served
      (Expires)Edward
      L. Marney
              
              DirectorPresident,
      Chief Executive
              
              May
      5, 2006 to August 1, 2008*OfficerRudolf
      Hauke
              
              DirectorPresident,
      Chief Executive Officer
              
              July
      14, 2008 to presentDirectorJoerg
      H. Klaube
              
              Sr.
      Vice President, Secretary,
              
              July
      31, 1997  (2008)Chief
      Financial OfficerSteven
      L. Gray
              
              DirectorChairman
      of the Board
              
              May
      18, 2000 to July 18, 2008*Joseph
      J. Tomasek
              
              Director
              
              Feb.
      11, 1999 (2008)Quentin
      Kelly
              
              Director
              
              July
      14, 2008 to March 24, 2009*Joerg
      Otzen
              
              Director
              
              July
      14, 2008 to present





* Mr.
Marney resigned as an officer and director on August 1, 2008; Mr. Gray resigned
as a director on July 18, 2008, and Mr. Kelly resigned as a director on March
24, 2009. All Directors of the Company hold office until the next annual meeting
of the shareholders and until successors have been elected and qualified.
Executive Officers of the Company are appointed by the Board of Directors at
meetings of the Company's directors and hold office until they resign or are
removed from office.




Rudolf
Hauke, Age 61 – Director, President and Chief Executive Officer. Mr.
Hauke joined Magnitude in July 2008. He also currently serves as the President
and Chief Executive Officer of ATG Advanced US Technology Group Inc, located in
Clearwater, Florida an organization engaged in the development of image
classification technologies with a principal focus on the protection of children
over the internet, which he founded in 2006. Prior to establishing ATG, Dr.
Hauke was a senior executive with TBS North America Inc, a biometrics company
headquartered in Herndon VA, where he managed to receive a $3 million government
fund from NIJ. A business executive and research scientist with more than 25
years experience, Dr. Hauke managed high-tech research initiatives at both
business units within large corporations and as privately funded start-up
companies. Dr. Hauke holds a PhD in Applied Physics from the University of
Tubingen, Germany and began his career in 1978 as the head of R&D for CGR
Koch & Sterzel where he oversaw the research, design and development of
medical diagnostic systems. He became the European Marketing Manager for Toshiba
Medical Systems in 1982 and significantly grew Toshiba's European market share.
In 1984, he co-developed ultrasound technology for Phillips/Dornier . In 1993 he
worked for Kaba Systems Switzerland - a leading provider in access control
systems- building distribution networks within US . He holds more than 65
patents or patents pending.





22





Joerg H.
Klaube, Age 67 – Director and Chief Financial Officer, Senior Vice
President. He joined Magnitude, Inc. in December 1994.  His business
career covers a broad range of appointments in corporate financial management,
treasury and administrative functions, in a variety of business environments
including publicly held companies. He served as chief financial officer for
software design and computer marketing firms Unitronix Corporation and Comar
Technologies Inc., and the telecommunications holding company E. Oliver Capital
Group. Prior to that, he was employed for sixteen years with the U.S. subsidiary
of Siemens AG, where lastly he served as Director of Business Administration for
its Telecommunications Division.  He graduated from the Banking School
in Berlin, Germany, and holds a Masters Degree in Business Administration from
Rutgers University.




Joseph J.
Tomasek, Age 62 - Director. Mr. Tomasek was appointed a director in
February 2000.  Mr. Tomasek also serves as our General Counsel and
coordinates our legal affairs in such role. In addition to serving in these
Company positions, Mr. Tomasek represents U.S. and international clients in
corporate and securities law matters. Mr. Tomasek received his Juris Doctor and
Bachelor of Arts Degrees from Seton Hall University and a Certificate d'Etudes
in European Studies from the University of Strasbourg, France. Mr. Tomasek is a
member of the Bars of the States of New Jersey, New York and Illinois. Mr.
Tomasek is married to Victoria Mitchell Tomasek, Phd., and has two
children.




Quentin
Kelly, Age 73 – Director. Mr. Kelly was elected to serve on the Board
effective July 14, 2008. Mr. Kelly founded Worldwater & Solar Technologies,
Inc. in 1984 as a consulting and R&D company and currently serves as its
non-executive Chairman. Worldwater has a class of securities registered under
Section 12 of the Exchange Act and is an SEC reporting company. Mr. Kelly also
served as CEO from 1984 to January 2006, and resumed his role as CEO in January
2007. Mr. Kelly was previously Director of Information Services and Assistant to
the President of Westinghouse Electric Corporation from 1965 to 1971, and
subsequently became President of Kelly-Jordan Enterprises, Inc., a leisure
products company from 1971 to 1975, and then President of Pressurized Products,
Inc., manufacturers and international marketers of specialized water systems and
products, from 1976 to 1984. Mr. Kelly is an alumnus of Kenyon College and holds
three U.S. patents relating to water systems. He has many years of experience in
business relating to water and power needs in the U.S. and the developing world.
He has worked on water supply and solar power projects in the U.S. and with more
than a dozen governments and private contractors throughout the world. Mr.
Quentin resigned from the board of directors on March 24, 2009.




Joerg
Otzen, Age 43 – Director. Mr. Otzen was elected to serve on the Board
effective July 14, 2008. He is an executive manager of the engineering company
Meteor AG, , located in Zurich, Switzerland. As well, Dr. Otzen currently serves
as a member of the Boards of Directors of UBL Corporate Financial Services S.A.
(Switzerland) and Bullion River Corp. (U.S.A.), an SEC reporting company. Prior
to his current engagement, he was a senior manager at of UBL Corporate Financial
Services AG, where he managed numerous financial transactions including
fundraising, investment review, interim management of companies in external
portfolios and private equity funds for different clients. Dr. Otzen began his
professional career with SBC Warburg in 1995, as a vice president of equity
research. In 2000, he became head of corporate development at the industrial
group Ascom (Switzerland) and was in charge of the numerous group's divestments
during Ascom's a 4 year period of financial distress. He lead the team which
managed projects in international corporate finance, merger and acquisitions,
corporate lending, and, in urgent cases, the establishment of new management in
distressed subsidiaries. Dr. Otzen holds a Masters and Ph.D.degrees in
Mechanical Engineering from RWTH Aachen (Germany) and a Masters Degree in
Business Administration from the Harvard Business School.




23





Family
Relationships




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





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





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





24





ITEM
      11:
            EXECUTIVE
      COMPENSATION





2008
SUMMARY COMPENSATION TABLE





The
following table sets forth certain compensation information for: (i) the person
who served as the Chief Executive Officer of Magnitude during the year ended
December 31, 2008, regardless of the compensation level, and (ii) each of our
other executive officers, serving as an executive officer at any time during
2008, as well as the most highly compensated employees who did not serve as
executive officers during 2008. Compensation information is shown for the fiscal
years ended December 31, 2007 and 2006:





(1)Name and
                                                                                                    Principal Position
                                                                                                  
                                                                                                  Year
                                                                                                  
                                                                                                  Salary
                                                                                                    ($)
                                                                                                  
                                                                                                  
                                                                                                  Bonus
                                                                                                    ($)
                                                                                                  
                                                                                                  
                                                                                                  Stock
                                                                                                    Awards
                                                                                                    ($)
                                                                                                  
                                                                                                  
                                                                                                  Option
                                                                                                    Awards
                                                                                                    ($)
                                                                                                  
                                                                                                  
                                                                                                  Non-
                                                                                                    Equity
                                                                                                    Incentive
                                                                                                    Plan
                                                                                                    Compens
                                                                                                    ation
                                                                                                    ($)
                                                                                                  
                                                                                                  Non-
                                                                                                    Qualified
                                                                                                    Deferred
                                                                                                    Compensation
                                                                                                    Earnings
                                                                                                    ($)
                                                                                                  
                                                                                                  All
                                                                                                    Other
                                                                                                    Compen
                                                                                                    sation
                                                                                                    ($)
                                                                                                  
                                                                                                  
                                                                                                  Total
                                                                                                    ($)(a)
                                                                                                  
                                                                                                  (b)
                                                                                                  
                                                                                                  (c)
                                                                                                  
                                                                                                  
                                                                                                  (d)
                                                                                                  
                                                                                                  
                                                                                                  (e)
                                                                                                  
                                                                                                  
                                                                                                  (f)
                                                                                                  
                                                                                                  
                                                                                                  (g)
                                                                                                  
                                                                                                  (h)
                                                                                                  
                                                                                                  (i)Rudolf
      Hauke
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  48,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  19,200
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  52,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  119,200Chief
      Executive
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Officer,
      President
                                                                                                  
                                                                                                  2006
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Edward
      L. Marney
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  108,173
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  25,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  9,500
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  8,863
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  151,536Chief
      Executive
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  128,907
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  15,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  12,884
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  156,791Officer,
      President
                                                                                                  
                                                                                                  2006
                                                                                                  
                                                                                                  
                                                                                                  86,538
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5,950
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  92,488Joerg
      H. Klaube
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  62,500
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4,750
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,410
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  69,660Chief
      Financial
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  62,500
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,825
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  65,325Officer,
      Director
                                                                                                  
                                                                                                  2006
                                                                                                  
                                                                                                  
                                                                                                  61,376
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,626
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  64,002Joseph
      J. Tomasek,
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  19,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  256,800
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  275,800Esq.,
      Director and
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  127,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  127,000General
      Legal Counsel
                                                                                                  
                                                                                                  2006
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  96,121
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  96,121Legal
      Fees:Steven
      Gray
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  30,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  14,250
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  44,250Director
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  20,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  111,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,481
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  134,4812006
                                                                                                  
                                                                                                  
                                                                                                  30,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  107,450
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  137,450Quentin
      Kelly
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Director
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -2006
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Joerg
      Otzen
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Director
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -2006
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -Lin
      Dai
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  126,923
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  20,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  231,831
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  123,785
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  502,539Employee
      of Subsidiary
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  57,692
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  472,186
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  223,501
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  91,536
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  844,915Michael
      Howard
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  150,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  20,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  177,165
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  161,285
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  508,450Employee
      of
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  57,692
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  312,286
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  223,501
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  71,037
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  664,516SubsidiaryIvan
      Tumanov
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  103,846
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  202,205
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  50,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  356,051Employee
      of
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  57,692
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  385,528
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  223,501
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  80,426
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  747,147SubsidiaryAll
      executive officers
                                                                                                  
                                                                                                  2008
                                                                                                  
                                                                                                  
                                                                                                  629,442
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  65,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  611,201
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  90,450
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  655,143
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,051,236and
      named significant
                                                                                                  
                                                                                                  2007
                                                                                                  
                                                                                                  
                                                                                                  384,483
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  15,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,281,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  670,503
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  389,189
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  2,740,175employees
      and
                                                                                                  
                                                                                                  2006
                                                                                                  
                                                                                                  
                                                                                                  177,914
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  107,450
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  104,697
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  390,061directors
      as a group




25





Explanation: Except
for Michael Howard, no current Company officer or employee has an employment
agreement with the Company. All of the items of compensation paid to the
officers, directors and employees listed in the above Summary Compensation Table
are discussed in the following paragraphs, under the individual’s
name.





Rudolf Hauke 2008:
Rudolf Hauke joined the Company in July 2008 as a consultant, acting in the
capacity of President and Chief Executive Officer, and as a director. During
2008 we paid him $48,000 in salary and $52,000 as travel and living expense
allowances. In addition, Mr. Hauke has earned 1,000,000 non-qualified stock
options, 500,000 of which are 2-year options, exercisable at $.05 per common
share, and 500,000 of which are 4-year options, exercisable at $.10 per common
share, such options valued at $19,200 pursuant to the Black-Scholes valuation
formula.





Edward L. Marney
2008-2006: Edward Marney joined the Company in May, 2006, becoming first
our Chief Executive Officer, then our President and a director. He resigned
these positions on August 1, 2008. During 2008, we paid Mr. Marney $108,173 as
salary, a bonus of $25,000 and $8,863 for medical expenses. During 2007, we paid
Mr. Marney a cash salary of $128,907, a bonus of $15,000  and $12,884
for medical expenses, and in 2006 we paid Mr. Marney $86,538 salary and
reimbursed $5,950 of healthcare payments. In 2008 Mr. Marney also received
options for 500,000 restricted shares, valued at $9,500 pursuant to the
Black-Scholes valuation formula.





Joerg H. Klaube
2008-2006:  During 2008 and 2007, we paid Mr. Klaube $62,500 in
salary, and in 2006 $61,376.  We also madelife insurance premium
payments on this his behalf in the amounts of $2,410, $2,825, and $2,626,
respectively, during these three years. In 2008 Mr. Klaube also received options
for 250,000 restricted shares, valued at $4,750 pursuant to the Black-Scholes
valuation formula.


.


Joseph J. Tomasek 2008-2006:During fiscal years 2008, 2007 and 2006, the Company paid $256,800,
$127,000 and $ 96,121, respectively, to Mr. Tomasek for legal services rendered
to the Company. In 2008 Mr. Tomasek also received options for 1,000,000
restricted shares, valued at $19,000 pursuant to the Black-Scholes valuation
formula.





Steven Gray
2008-2006. During 2008 we paid Mr. Gray $30,000 and issued options for
750,000 restricted shares, valued at $14,250. During fiscal year 2007 we paid
Mr. Gray $20,000 and issued 1,850,000 restricted shares to him and an assignee,
and 500,000 common stock purchase options for services rendered to the Company.
We also issued 74,031 shares for interest on loans to the Company. During fiscal
year 2006, we issued an aggregate 1,550,000 restricted common shares and 500,000
common stock purchase options to Mr. Gray for services rendered to the Company.
During 2006, Mr. Gray assisted the Company in its change of management,
providing day-to-day assistance in operations, customer relations including,
interviewing potentialcandidates for
management positions and coordinating the various audit schedule and management
review projects. As set forth in the column “All Other Compensation” in the
above table for 2007 and 2006, we valued the restricted common shares issued in
the subject years based upon their average public market trading price as of the
dates we issued these shares; we valued the 500,000 options granted in 2006
pursuant to the Black-Scholes valuation formula.





Lin Dai 2008-2007:
During 2008, we paid Mr. Dai a salary of $126,923 and a bonus of $20,000;
furthermore, we paid an aggregate $120,333 and issued 11,591,544 restricted
shares valued at $231,831, in accordance with the terms of the Kiwibox
acquisition agreement, as amended. We also paid him $3,452 in interest on
promissory notes issued in connection with the consummation of the Kiwibox
agreement.  During fiscal year 2007 we paid Mr. Dai a salary of
$57,697 and, in connection with the acquisition of Kiwibox Media Inc. by
Magnitude and in exchange against their ownership interest in Kiwibox Media Inc,
paid a cash amount of $91,536 and issued 11,804,632 restricted common shares
(listed under “Stock Awards”) and options for 7,500,000 shares, vesting over a
24-months period, exercisable at $0.057 per share. In addition to the options
listed above Mr. Dai was issued performance stock options for 3,000,000 shares,
further detailed below. As set forth in the column “All Other Compensation” in
the above table for 2007, we valued the restricted common shares issued based
upon their average public market trading price as of the dates we issued these
shares; we valued the stock options  pursuant to the Black-Scholes
valuation formula. Mr. Dai separated from the Company on October 30, 2008,
terminating his employment agreement, and resigned as a director on December 8,
2008.


26





Michael Howard
2008-2007: During 2008, we paid Mr. Howard a salary of $150,000 and a
bonus of $20,000; furthermore, we paid an aggregate $157,833 and issued
8,858,225 restricted shares valued at $177,154, in accordance with the terms of
the Kiwibox acquisition agreement, as amended. We also paid him $3,452 in
interest on promissory notes issued in connection with the consummation of the
Kiwibox agreement. During fiscal year 2007 we paid Mr. Howard a salary of
$57,697 and, in connection with the acquisition of Kiwibox Media Inc. by
Magnitude and in exchange against their ownership interest in Kiwibox Media Inc,
paid a cash amount of $71,037 and issued 7,807,155 restricted common shares
(listed under “Stock Awards”) and options for 7,500,000 shares, vesting over a
24-months period, exercisable at $0.057 per share. In addition to the options
listed above Mr. Howard was issued performance stock options for 3,000,000
shares, further detailed below. As set forth in the column “All Other
Compensation” in the above table for 2007, we valued the restricted common
shares issued based upon their average public market trading price as of the
dates we issued these shares; we valued the stock options  pursuant to
the Black-Scholes valuation formula.





Ivan Tumanov
2008-2007: During 2008, we paid Mr. Tumanov a salary of $103,846;
furthermore, we paid $50,000 and issued 10,110,231 restricted shares valued at
$202,205, in accordance with the terms of the Kiwibox acquisition agreement, as
amended. During fiscal year 2007 we paid Mr. Tumanov a salary of $57,697 and, in
connection with the acquisition of Kiwibox Media Inc. by Magnitude and in
exchange against their ownership interest in Kiwibox Media Inc, paid a cash
amount of $80,426 and issued 9,638,213 restricted common shares (listed under
“Stock Awards”) and options for 7,500,000 shares, vesting over a 24-months
period, exercisable at $0.057 per share. In addition to the options listed above
Mr. Tumanov was issued performance stock options for 3,000,000 shares, further
detailed below. As set forth in the column “All Other Compensation” in the above
table for 2007, we valued the restricted common shares issued based upon their
average public market trading price as of the dates we issued these shares; we
valued the stock options  pursuant to the Black-Scholes valuation
formula. On September 8, 2008, Mr. Tumanov resigned as an employee of the
Company and his employment agreement was terminated.





Employment
Agreements





Rudolf Hauke –
2008.   The terms of his consulting /employment agreement
are included in our filing on Form 8-K of July 18, 2008 which is incorporated
herein by reference to that filing.





Lin Dai, Michael Howard and
Ivan Tumanov – 2008-2007.  As part of our acquisition of
Kiwibox, on August 16, 2007, we entered into employment agreements with each
these three principals of Kiwibox. an annual base salary of $150,000. In
addition, we agreed to pay each an annual bonus if certain business goals are
met: a $100,000 bonus if the Kiwi Business has received no less than an average
215,000 “Unique Visitors” during either the 10th, 11th or 12th month of the
first year of the term or achieved no less than $316,000 in gross revenues
within the 12 moth period following the Closing. Alternatively, we agreed to pay
each a $50,000 bonus if the Kiwi Business has received at least an average
175,000 but less than an average 215,000 “Unique Visitors” during either the
10th, 11th or 12th month of the first year of the term or at least $237,000 in
gross revenues but less than $316,000 within the 12 moth period following the
Closing. A “Unique Visitor” is a person who visits a Kiwibox website during any
month during the term. For the second year of their employment agreements, we
agreed to pay each a $100,000 bonus if the Kiwi Business has received no less
than an average 550,000 Unique Visitors during either the 22nd, 23rd or 24th
month of the second year of the term or attained $1,961,000 in gross revenues,
or a bonus of $50,000 each if the Kiwi Business has received at least an average
415,000 but less than an average 550,000 Unique Visitors during either the 22nd,
23rd or 24th month of the second year of the term or attained at least
$1,500,000 in gross revenues but less than $1,961,000. Each Kiwibox Shareholder
received a stock option to purchase up to 7,500,000 shares of our common stock
at an exercise price of $.05 per share which shall vest and be exercisable by
the Kiwibox Shareholders, 50% on the first anniversary date of the Closing, 25%
18 months after the Closing and 25% on the second anniversary of the Closing.
Each was issued, as well, under the terms of their employment agreements, a
performance stock option to purchase up to an additional 3,000,000 shares of our
common stock, 1,500,000 of which options shall vest and be exercisable by the
Kiwibox Shareholders after the first anniversary date of the Closing if the Kiwi
Business has received no less than an average 215,000 Unique Visitors during
either the 10th, 11th or 12th month
of the first year of the term or achieved $316,000 in gross revenues during the
first year, and the balance, or 1,500,000 options shall vest and be exercisable
by the Kiwibox Shareholders after the second anniversary date of the Closing if
the Kiwi Business has received at least an average 550,000 Unique Visitors
during either the 22nd, 23rd or 24th month of the second year of the term or
achieved $1,961,000 in gross revenues during the second year of the agreements.
The exercise price for these stock options is $.05 per share. As set forth in
their respective biographical paragraphs above, Messrs. Tumanov and Dai are no
longer employees and their employment agreements have been
terminated.


27





Paul Farris –
2008-2007. On October 8, 2007, we hired Paul Farris as the Director of
Business Development for our Kiwibox.com operations and executed a two-year
employment agreement with him. We pay Mr. Farris an annual base salary of
$90,000 and made two stock option grants to him for an aggregate 1,000,000
common shares: a stock option grant  for 500,000 shares, exercisable
at $.05 per share, vesting 1/3 each on the first, second and third anniversary
dates of his employment, and; a performance stock option for a second 500,000
shares, also exercisable at $.05 per share, and vesting based upon the
attainment of certain business goals: on the first anniversary date of his
employment: (i) 250,000 Performance Stock Options shall fully vest provided that
a Kiwi website has received no less than an average 645,000 Unique Visitors
(defined below) during either the 10th, 11thor
12thmonth
of the first year of the term, or; (ii) 125,000 Performance Stock Options shall
vest provided that the Kiwibox.com website has received no less than an average
430,000 Unique Visitors during either the 10th, 11th or 12thmonth
of the first year of the term; or (iii) 62,500 Performance Stock Options shall
vest provided that the Kiwibox.com website has received no less than an average
215,000 Unique Visitors during either the 10th, 11thor
12thmonth
of the first year of the term; on the second anniversary date of his employment:
(i) all 250,000 Performance Stock Options shall fully vest provided that a Kiwi
website has received no less than an average 1,650,000 Unique Visitors during
either the 10th, 11th  or 12thmonth
of the second year of the term, or; (ii) 125,000 Performance Stock Options shall
vest provided that the Kiwibox.corn website has received no less than an average
1,100,000 Unique Visitors during either the 10th, 11th or 12th month
of the second year of the term; or (iii) 62,500 Performance Stock Options shall
vest provided that the Kiwibox.com website has received no less than an average
550,000 Unique Visitors during either the l0th, 11th or 12thmonth
of the second year of the term. The term "Unique Visitor" is a person who visits
a Kiwibox website during the specific month identified above. The determination
of the actual number of Unique Visitors visiting a Kiwibox website during any
specific month for purposes of this section shall be calculated based upon
"Google Analytics". Mr. Farris left the Company in January, 2009, when his
employment agreement was terminated.




Stock
Options :





No stock
options were granted during 2007 or 2008 pursuant to the Company’s 1997 Stock
Option Plan and 2000 Stock Incentive Plan, to any executive officers, directors,
employees or to any beneficial owners of more than 10 percent of any class of
equity securities of the Company. In addition, there were no stock options or
warrants exercised by any officer, director, employee or any beneficial owners
of more than 10 percent of any class of equity securities of the Company during
2007 or 2008.





1997 Stock Option
Plan:





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


28


2000 Stock Incentive
Plan:





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





Options Granted Outside of
Stock Option Plans:





On August
16, 2007, the Company closed on its acquisition of Kiwibox Media Inc. and issued
to each of the three Kiwibox Shareholder stock options provided for under their
employment agreements. Each Kiwibox Shareholder received a stock option to
purchase up to 7,500,000 shares of our common stock at an exercise price of $.05
per share which vests and is exercisable by the Kiwibox Shareholders, 50% on the
first anniversary date of the Closing, August 16, 2008, 25% 18 months after the
Closing and 25% on the second anniversary of the Closing. Each Kiwibox
Shareholder was also issued a performance stock option to purchase up to an
additional 3,000,000 shares of our common stock, 1,500,000 of which options vest
and are exercisable following the first anniversary date of the Closing if the
Kiwi Business has received no less than an average 215,000 Unique Visitors
during either the 10th, 11th or 12th month
of the first year of the term or achieved $316,000 in gross revenues during the
first year, and the balance, or 1,500,000 options vest and are exercisable by
the Kiwibox Shareholders after the second anniversary date of the Closing,
provided the Kiwi Business has received at least an average 550,000 Unique
Visitors during either the 22nd, 23rd or 24th month of the second year of the
term or achieved $1,961,000 in gross revenues during the second year of the
agreements. All of these stock options are non-qualified and are exercisable at
$.05 per share.During
2008, 15,000,000 of the initially granted stock options and 6,000,000 of the
performance stock options were cancelled upon termination of the employment
agreements with two of the original Kiwibox Shareholders.





Outstanding
Equity Awards at Fiscal Year-End Table





The
following table provides certain information regarding unexercised options to
purchase common stock, stock options that have not vested, and equity-incentive
plan awards outstanding at December 31, 2008, for each of the persons covered
under our Summary Compensation Table.




29





Name and
                                    Principal
                                    Position
                                  
                                  Number of
                                    Securities
                                    Underlying
                                    Unexercised
                                    Options
                                    Exercisable
                                  
                                  
                                  Number of
                                    Securities
                                    Underlying
                                    Unexercised
                                    Options
                                    Unexercisable
                                  
                                  
                                  Equity
                                    Incentive
                                    Plan Awards
                                    No. of
                                    Underlying
                                    Unexercised
                                    Unearned
                                    Options
                                  
                                  
                                  Option
                                    Exercise
                                    Price
                                  
                                  Option
                                    Expiration
                                    Date
                                  
                                  No. of
                                    Shares or
                                    Units of
                                    Stock that
                                    have not
                                    vested
                                  
                                  
                                  Market
                                    Value of
                                    Shares or
                                    Units of
                                    Stock that
                                    have not
                                    vested
                                  
                                  
                                  Equity
                                    Incentive
                                    Awards,
                                    Shares,
                                    Units
                                    Or other
                                    Rights that
                                    have not
                                    vested
                                  
                                  
                                  Equity
                                    Incentive
                                    Plan
                                    Awards:
                                    Market or
                                    Payout
                                    valueof
                                    Unearned
                                    Shares,Units
                                    or other
                                    rights that
                                    have not
                                    vestedRudolf
      Hauke, CEO and President
                                  
                                  
                                  500,000
                                    500,000
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                    $
                                  .05
                                    .10
                                  
                                  7/14/2010
                                    8/14/2012to
                                    1/14/2013
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Edward
      L. Marney, Former CEO and President
                                  
                                  
                                  500,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  0.025
                                  
                                  6/26/13
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Joerg
      H. Klaube, CFO
                                  
                                  
                                  250,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  0.025
                                  
                                  6/26/13
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Joseph
      J. Tomasek, Director and General Legal Counsel
                                  
                                  
                                  1,000,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  0.025
                                  
                                  6/26/13
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Steven
      Gray, Former director
                                  
                                  
                                  500,000
                                    500,000
                                    750,000
                                  
                                  
                                  
                                  -
                                    -
                                    -
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  $
                                    $
                                    $
                                  0.15
                                    0.15
                                    0.025
                                  
                                  1/1/09
                                    1/1/10
                                    6/26/13
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Quentin
      Kelly, director
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  -
                                    -Joerg
      Otzen, director
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  -
                                    -
                                  
                                  
                                  
                                  -
                                    -Lin
      Dai Employee of Subsidiary
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  -Michael
      Howard Employee of Subsidiary
                                  
                                  
                                  3,750,000
                                  
                                  
                                  
                                  6,750,000
                                    -
                                    -
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  .05
                                  
                                  8/16/10
                                  
                                  
                                  6,750,000
                                  
                                  
                                  
                                  -Ivan
      Tumanov Employee of Subsidiary




Option Exercises and Stock
Vested Table: None





Pension Benefits
Table: None





Nonqualified Deferred
Compensation Table: None





Pre-requisites Table:None





Compensation of
Directors:





We have
not paid any compensation to any of our directors for services rendered as
directors during fiscal years 2008 and 2007.




During
2008 and 2007, one outside director of the Company who also serves as the
Company’s general and securities counsel, was paid an aggregate $256,800 and
$127,000, respectively, for legal services. During 2008 and 2007, another
outside director of the Company was paid $30,000 and $20,000, respectively, for
business advisory services.




CORPORATE GOVERNANCE AND
CODE OF ETHICS





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




30




Our Board
of Directors has determined that two of its current members, Quentin Kelly and
Joerg Otzen are independent under applicable securities laws.





Board
Committees





AUDIT
COMMITTEE





The
Company has appointed an Audit Committee in accordance with the provisions of
the Sarbanes-Oxley Act of 2002. The Audit Committee is currently comprised of
the entire board of directors. Mr. Otzen and Mr. Klaube are financial experts
with knowledge of financial statements, generally accepted accounting principles
and accounting procedures and disclosure rules. Mr. Klaube is not “independent”
as defined in Section10A-3(b)(1)(iv)(A) of the Securities Exchange
Act.





COMPENSATION AND NOMINATING
COMMITTEES





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





ITEM
      12:
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT





The
following table sets forth, as of March 28, 2009, the record and beneficial
ownership of common stock of the Company by each executive officer, director and
the three most highly compensated employees, all executive officers, directors
and the three most highly compensated employees as a group, and each person
known to the Company to own beneficially, or of record, five percent or more of
the outstanding shares of the Company:




Title of Class*
                                                    
                                                    Name and Address of
                                                      Beneficial Owner
                                                    
                                                    Amount and Nature of
                                                      Beneficial Ownership(1)
                                                    
                                                    
                                                    Percent
                                                      of ClassCommon
      Stock
                                                    
                                                    Rudolf
      Hauke
                                                    
                                                    
                                                    1,000,000
                                                    (2)
                                                    
                                                    
                                                    0.23
                                                    %Pres./CEO/DirectorJoerg
      Otzen
                                                    
                                                    
                                                    -0-
                                                    
                                                    
                                                    
                                                    -0-DirectorQuentin
      Kelly
                                                    
                                                    
                                                    -0-
                                                    
                                                    
                                                    
                                                    -0-DirectorJoerg
      Klaube
                                                    
                                                    
                                                    1,650,000
                                                    (3)
                                                    
                                                    
                                                    0.38
                                                    %CFO/DirectorJoseph
      Tomasek
                                                    
                                                    
                                                    3,
      513, 833
                                                    (4)
                                                    
                                                    
                                                    0.80
                                                    %Director




31




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





All
      Directors and Officers as a Group:
                                                            
                                                            
                                                            6,497,166
                                                            
                                                            
                                                            
                                                            1.48
                                                            %as
      a Group (5 persons)Lin
      Dai
                                                            
                                                            
                                                            23,396,176
                                                            (6)
                                                            
                                                            
                                                            5.36
                                                            %Michael
      Howard
                                                            
                                                            
                                                            27,056,451
                                                            (5)
                                                            
                                                            
                                                            6.12
                                                            %Ulrich
      Schuerch
                                                            
                                                            
                                                            52,010,000
                                                            (7)
                                                            
                                                            
                                                            11.39
                                                            %Tell
      Capital AGTellstrasse
      21, CH-9000St.
      Gallen, SwitzerlandDiscover
      Advisory Company
                                                            
                                                            
                                                            30,000,000
                                                            (8)
                                                            
                                                            
                                                            6.88
                                                            %c/o
      Horymor Trust Corp. Ltd.50
      Shirley Street / P.O.Box N-341,NassauMonarich
      International, Inc.
                                                            
                                                            
                                                            25,000,000
                                                            (9)
                                                            
                                                            
                                                            5.73
                                                            %E
      53rd Street, Marbella,El
      Dorado, PanamaCambridge
      Services Inc.
                                                            
                                                            
                                                            25,000,000
                                                            (10)
                                                            
                                                            
                                                            5.42
                                                            %c/o
      TSZ Treuhandgesellschaft Sauter & Co.Suedstr.
      11, CH-8034 Zurich, SwitzerlandV G
      Z
                                                            
                                                            
                                                            25,000,000
                                                            (10)
                                                            
                                                            
                                                            5.42
                                                            %Freiestrasse
      178, CH-8032 Zurich, Switzerland




* The
Company also has issued and outstanding as of December 29, 2008, 109,857 shares
of its Senior Convertible Preferred Stock, with concentrations in excess of 10%
for one or more of the holders of such stock, however, none of such shares bear
any voting rights.







(1)
            For purposes of this table, a
      person or group of persons is deemed to have “beneficial ownership” of any
      shares of Common Stock which such person has the right to acquire within
      60 days of December 29, 2008. For purposes of computing the percentage of
      outstanding shares of Common Stock held by each person or group of persons
      named above, any security which such person or persons has or have the
      right to acquire within such date is deemed to be outstanding but is not
      deemed to be outstanding for the purpose of computing the percentage
      ownership of any other person. Except as indicated in the footnote to this
      table and pursuant to applicable community property laws, the Company
      believes based on information supplied by such persons, that the persons
      named in this table have sole voting and investment power with respect to
      all shares of Common Stock which they beneficially
    own.


(2)
Consist of stock options.


(3)
Includes 250,000 stock options.


(4)
Includes 1,000,000 stock options.


(5)
Includes options for 5,625,000 shares and 4,766,071 common shares issuable upon
conversion of 11,640 preferred shares.


(6)Does
not include 10,500,000 stock options that have not vested nor does it include
7,207,143 common shares issuable upon conversion of 17,600 convertible preferred
shares.


(7)
Includes 5,000,000 warrants owned by Ulrich Schuerch who has investment and
voting control of Tell Capital AG, and 22,500,000 5-year Warrants, exercisable
at $.07 per Warrant.


(8) Karen
Buehler has investment and voting control of Discover Advisory
Company.


(9)
Miguel Sanchez Lopez and Javier Rivera Fernandez have investment control of
Monarich International Inc.


(10)
Consist of stock purchase warrants, exercisable at $0.05 per Warrant. Victor
Sauter and Marcus Winkler have investment
control, respectively, of Cambridge Services Inc. and VGZ.




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


32





Family
Relationships




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




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





The
Company knows of no person, who at any time during the period from the date at
which it filed its annual report on Form 10-KSB for the year ended December 31,
2007 to the present, was a director, officer, beneficial owner of more than ten
percent of any class of equity securities of the Company (a "Reporting Person"),
that failed to file on a timely basis any reports required to be furnished
pursuant to Section 16(a).


33


ITEM
      13:
            CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS





On
January 2, 2007, the Company and a former employee, Steven W. Jagels settled a
lawsuit commenced by Mr. Jagels against the Company based upon claims which
included breach of his employment agreement. We agreed to make a payment of
$20,040 to Mr. Jagels and to issue 3,000,000 common shares to him by January 7,
2007. We also agreed to include these shares in a registration statement and
when declared effective by the SEC, to cause a buyer to purchase these shares
from Mr. Jagels for $75,000 prior to February 28, 2007. The Company facilitated
this payment and the lawsuit was dismissed with prejudice.





In
January 2007 we issued warrants for 3,125,000 shares, exercisable at $0.05 per
share, to the former president and chief executive officer, in connection with a
settlement agreement reached during the fourth quarter in 2006





In May
2007 the Company reached agreement with the former president and chief executive
officer to the effect that, in return for issuance of 2,000,000 shares, he would
issue a waiver with respect to the Company’s obligation for filing a
registration statement for certain securities previously issued to him by the
Company.





During
2008 and 2007, one outside director of the Company who also serves as the
Company’s general and securities counsel, was paid an aggregate $256,800 and
$127,000, respectively, for legal services. A former director was paid $30,000
and $20,000, respectively, during 2008 and 2007, for business consulting
services.





During
the second quarter in 2008, we paid $24,000 to a major shareholder for investor
relations services.





In June
2008, we granted options for 2,500,000 shares, exercisable at $0.025 during five
years, to four officers and directors of the Company.





In
August, 2008, we issued an aggregate 30,560,000 restricted common shares to the
three Kiwibox principals pursuant to our Agreement and Plan of Reorganization,
dated February 19, 2007, and subsequent amendments,   as
disclosed in our report and exhibit, filed on Form 8-K with the U.S. Securities
and Exchange Commission on March 4, 2008.





On August
17, 2008, one of the three Kiwibox Shareholders resigned his employment. As part
of this agreement, his outstanding stock options were cancelled and the
consultant entered into an agreement that provided for his future services to
the Company as an independent consultant for six months at $12,500 per month. On
September 5, 2008, the Company reached a Settlement Agreement with the
consultant whereby the Company forgave the balance of loans due from the former
shareholder in the balance of $155,459 for $75,000 in cash and by offsetting of
$75,000 of notes payable due to the former shareholder. The difference of $5,459
was treated as additional compensation. On October 30, 2008, the Company
terminated its the employment agreement with Lin Dai for cause. In the process,
his 10,300,000 stock options were cancelled. On December 8, 2008, Mr. Dai
resigned his position as a member of the Company's Board of Directors. Since
this resignation, the Company has been in negotiations with Lin Dai to acquire
all of Mr. Dai's Company securities and resolve all potential claims of the
parties. Although these negotiations have ceased, neither the Company nor Mr.
Dai have formally instituted any claims against the other and it is not possible
to determine whether any claims will be instigated, or if commenced, what the
outcomes of any such litigation may be.





ITEM
      14:
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





AUDIT
FEES





Rosenberg
Rich Baker Berman & Company ("Rosenberg") billed us in the aggregate amount
of $62,000
and  $79,373  for  professional  services  rendered  for  their  audit
of our  annual financial  statements and their reviews
of  the financial  statements included in our Forms 10-K,
10-KSB, 10-Q and 10-QSB for the years ended December  31, 2008
and  December 31, 2007, respectively.


34




AUDIT-RELATED
FEES





Rosenberg
did not bill us for, nor perform  professional
services  rendered for  assurance  and
related  services  that were  reasonably related
to the performance  of  audit
or  review  of the  Company's  financial
statements for the fiscal years ended December 31, 2008 and December 31,
2007.





TAX
FEES





Rosenberg
billed us in the aggregate amount of $1,500 and $5,416 for
professional  services  rendered  for tax related
services for the fiscal years ended December 31, 2008 and December 31, 2007,
respectively.





ALL OTHER
FEES





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





TRANSFER
AGENT





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





ANNUAL
REPORT





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


35





PART IV





ITEM
      15:
            EXHIBITS
      AND REPORTS ON FORM 8-K





(a) Exhibits





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





(b) Reports
on Form 8-K





During
the fourth quarter in 2008, the Company filed the following reports on Form
8-K:





On
October 8, 2008 the Company filed a report on Form 8-K announcing a press
release informing about the conclusion of a partnership agreement with Universal
Music Group.





On
December 2, 2008 the Company filed a report on Form 8-K announcing the
termination of L. Dai’s employment as CEO of its Kiwibox Media Inc.
subsidiary.





On
December 10, 2008 the Company filed a report on Form 8-K announcing a press
release informing about the conclusion of a Marketing agreement with Burst
Media.


.


On
December 12, 2008 the Company filed a report on Form 8-K announcing the
resignation of L. Dai from the board of directors of the Company.





On
December 19, 2008 the Company filed a report on Form 8-K announcing the receipt
of $661,000 for equity investments and pending issue of securities.





On
December 30, 2008 the Company filed a report on Form 8-K announcing a press
release informing about current membership trends in its Kiwibox
business.


36





SIGNATURES





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





MAGNITUDE
      INFORMATION SYSTEMS, INC.By:
                /s/
      Rudolf Hauke
                
                Date:   
      April 14, 2009Rudolf
      HaukePresident
      and Chief Executive Officer(Principal
      Executive Officer),DirectorBy:
                /s/
      Joerg H. Klaube
                
                Date:   
      April 14, 2009Joerg
      H. KlaubeSecretary,
      Chief Financial Officer(Principal
      Financial Officer)Director





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





Name
                    Date/s/ Joerg Otzen
                    
                    April 14, 2009Joerg
      Otzen/s/ Joseph J. Tomasek
                    
                    April
      14, 2009Joseph
      J. Tomasek, Director




37




EXHIBIT
INDEX





(A)
                Financial
      Statements and Notes to Financial Statements(3)
      (i)
                Articles
      of Incorporation and Amendments thereto, incorporated herein by reference
      to Exhibits of previous filings with the Commission.(3)
      (ii)
                Bylaws
      of the Company, incorporated herein by reference to Exhibits of previous
      filings with the Commission.10.10*
                Employment
      Agreement, dated April 15, 2003 between the Company and Steven
      Jagels10.11*
                Brokerage
      Placement Assistance Agreement, Dated January 2, 2004, between the Company
      and vFinance Investments, Inc.10.12
      *
                Consulting
      Agreement, dated December 1, 2003, by and between the Company and Alan
      Cohen.10.13
      *
                Consulting
      Agreement, dated February 12, 2003, by and between Jackson-Hewitt
      Investment Services, Inc. and the Company.10.14
      *
                Consulting
      Agreement, dated September 25, 2003, by and Between James W. Morton and
      the Company.10.15
      *
                Consulting
      Agreement, dated September 15, 2003, by and between Premium Strategy
      Partners AG and the Company.10.16
      *
                Consulting
      Agreement, dated September 25, 2003, by and between Ulrich Schuerch and
      the Company.10.17
      *
                Consulting
      Agreement, dated December 1, 2003, by and between Murray Zaroff and the
      Company.10.18
      *
                Consulting
      Agreement, dated November 28, 2003, by and between The Research Works Inc.
      and the Company.10.19
      *
                Stock
      Purchase Agreement, dated August 18, 2006, by and between 33 Group, LLC
      and the Company.10.20
      *
                Stock
      Purchase Agreement, dated August 18, 2006, by and between Azzurri Group,
      LLC and the Company.10.21
      *
                Form
      of Company Warrant to be issued in connection with the Stock Purchase
      Agreements, Exhibits 10.19 and 10.20, respectively.10.22
      *
                Settlement
      Agreement, dated August 8, 2006, between the Company and Steven D.
      Rudnik.10.23
      *
                Settlement
      Agreement, dated December 13, 2006, between the Company and Steven D.
      Rudnik.10.24
      *
                Settlement
      Agreement, dated January 2, 2007, between the Company And Steven W.
      Jagels.10.25*Copy
      of Agreement and Plan of Reorganization, Dated February 19, 2007, between
      the Company, Kiwibox Media, Inc. and the Kiwibox Shareholders, and Form of
      Employment Agreement for the Three Kiwibox Shareholders,10.26*
                Preliminary
      Employment Agreement with Paul
Farris




38




10.27*
                    Commitment
      from Tell Capital AG, dated July 26, 2007 and effective August 2,
      200710.27*
                    Amendment
      No. 3 to Agreement and Plan of Reorganization, dated July 31, 2007 and
      Effective August 2, 2007.10.28*
                    Preliminary
      Employment Agreement with Paul Farris, Dated September 19,
      200710.29*
                    Amendment
      No. 4 to Agreement and Plan of Reorganization, dated as of December 3,
      2007.10.30*
                    Amendment
      No. 5 to Agreement and Plan of Reorganization, dated as of December 31,
      2007.10.31*
                    Standstill
      Letter Agreement, dated as of January 30, 2008.10.32*
                    Standstill
      Letter Agreement, dated as of February 11, 2008.10.33*
                    Amendment
      No. 6 to Agreement and Plan of Reorganization, dated as of February
      28, 2008.10.34*
                    Engagement
      Agreement, Dated June 27, 2008, between Tell Capital AG and the
      Company.10.35*
                    Resignation
      Agreement, Dated August 19, 2008, between Ivan Tumanov and the
      Company.10.36*
                    Form
      of Demand Notes issued by the Company to Lender, Discover Advisory
      Company.10.36-1*
      Form of corrected Demand Notes issued by the Company to Lender, Discover
      Advisory Company.21.
                    Subsidiaries
      of the Company:(i)
                    Magnitude,
      Inc. and Kiwibox Media, Inc. are corporations formed under the laws of the
      State of Delaware and and are the names under which they conduct
      business.(31.1)
                    Certification
      of Rudolf Hauke, Chief Executive Officer, pursuant to Section 302 of
      Sarbanes-Oxley Act of 2002.(31.2)
                    Certification
      of Joerg H. Klaube, Chief Financial Officer, pursuant to Section 302 of
      Sarbanes-Oxley Act of
2002.





(99.1)Certifications pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350


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





OTHER
DOCUMENTS INCORPORATED HEREIN BY REFERENCE





(a)
            The
      Company’s Quarterly Reports on Form 10-Q for the periods ended March 31,
      2008, June 30, 2008, and September 30, 2008.(b)
            All
      other reports filed by the Company pursuant to Section 13(a) or 15(d)
      of  the Exchange Act since the Company’s fiscal year ended
      December 31, 2007




39




Magnitude
Information Systems, Inc. and Subsidiaries





Consolidated
Financial Statements





December
31, 2008





40




Magnitude
Information Systems, Inc. and Subsidiaries


Index
to the Consolidated Financial Statements


December
31, 2008





PageReport
      of Independent Registered Public Accounting Firm
              42Financial
      StatementsConsolidated
      Balance Sheet
              43Consolidated
      Statements of Operations
              44Consolidated
      Statements of Stockholders Equity (Deficit)
              45-46Consolidated
      Statements of Cash Flows
              47-49Notes
      to the Consolidated Financial Statements
              50-73





41





[letterhead
of


Rosenberg
Rich Baker Berman & Company


380
Foothill Road, Bridgewater, New Jersey]







Report
of Independent Registered Public Accounting Firm
 
 
 To the
Board of Directors and Stockholders of
 Magnitude
Information Systems, Inc. and Subsidiaries
 
 
 We have
audited the accompanying consolidated balance sheets of Magnitude Information
Systems, Inc. and Subsidiaries as of December 31, 2008 and 2007 and the related
consolidated statements of operations, stockholders’ equity (deficit), and cash
flows for the years ended December 31, 2008 and 2007.   These
financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Magnitude Information
Systems, Inc. and Subsidiaries as of December 31, 2008 and 2007 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2008 and 2007, in conformity with U.S. generally accepted
accounting principles.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in the notes to the
financial statements, the Company’s significant operating losses and significant
working capital deficiency raise substantial doubt about its ability to continue
as a going concern.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 
 /s/ Rosenberg Rich Baker
Berman & Company
 Rosenberg
Rich Baker Berman & Company
 
 Bridgewater,
New Jersey
 April 14,
2009




42


Magnitude
Information Systems, Inc. and Subsidiaries


Consolidated
Balance Sheets





December 31,2008
                        
                        
                        2007AssetsCurrent
      AssetsCash
                        
                        $
                        5,000
                        
                        
                        $
                        470,148Accounts
      receivable, net of allowance for doubtful accounts of $0
                        
                        
                        9,800
                        
                        
                        
                        7,893Prepaid
      expenses
                        
                        
                        16,162
                        
                        
                        
                        12,339Total
      Current Assets
                        
                        
                        30,962
                        
                        
                        
                        490,380Property
      and equipment, net of accumulated depreciation of $63,722 and
      $81,965
                        
                        
                        40,165
                        
                        
                        
                        20,788Website
      development cost, net of accumulated amortization of
    $12,329
                        
                        
                        52,321
                        
                        
                        
                        -Deferred
      financing costs, net of accumulated amortization of $6,000 and
      $539,597
                        
                        
                        4,000
                        
                        
                        
                        35,303Goodwill,
      net
                        
                        
                        -
                        
                        
                        
                        2,663,751Other
      Assets
                        
                        
                        3,224
                        
                        
                        
                        11,114Total
      Assets
                        
                        
                        130,672
                        
                        
                        
                        3,221,336Liabilities
      and Stockholders’ Equity (Impairment)Current
      LiabilitiesAccounts
      payable and accrued expenses
                        
                        
                        931,676
                        
                        
                        
                        907,799Deferred
      revenues
                        
                        
                        -
                        
                        
                        
                        100,000Dividends
      payable
                        
                        
                        428,076
                        
                        
                        
                        376,743Obligations
      to be settled in stock
                        
                        
                        135,200
                        
                        
                        
                        1,622,921Loans
      and notes payable
                        
                        
                        320,000
                        
                        
                        
                        450,000Current
      maturities of long-term debt
                        
                        
                        33,529
                        
                        
                        
                        33,529Derivative
      liability for warrants and options
                        
                        
                        3,330,812
                        
                        
                        
                        2,825,920Total
      Current Liabilities
                        
                        
                        5,179,293
                        
                        
                        
                        6,316,912Commitments
      and Contingencies
                        
                        
                        -
                        
                        
                        
                        -Stockholders’
      Equity (Impairment)Preferred
      stock, $.001 par value, non-voting, 3,000,000 shares authorized; 129,500
      shares issued and outstanding
                        
                        
                        129
                        
                        
                        
                        129Common
      stock, $.0001 par value, 700,000,000 shares authorized; 436,242,570 and
      276,709,237 shares issued and outstanding at December 31, 2008 and
      2007
                        
                        
                        43,624
                        
                        
                        
                        27,671Additional
      paid in capital
                        
                        
                        40,159,909
                        
                        
                        
                        36,739,270Loans
      receivable – stockholders
                        
                        
                        (131,262
                        )
                        
                        
                        (286,721
                        )Accumulated
      (deficit)
                        
                        
                        (45,121,021
                        )
                        
                        
                        (39,575,925
                        )Total
      Stockholders’ Equity (Impairment)
                        
                        
                        (5,048,621
                        )
                        
                        
                        (3,095,576
                        )Total
      Liabilities and Stockholders’ Equity (Impairment)
                        
                        $
                        130,672
                        
                        
                        $
                        3,221,336




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




43




Magnitude
Information Systems, Inc. and Subsidiaries


Consolidated
Statements of Operations





Year Ended December 31,2008
                      
                      
                      2007Net
      SalesSoftware
      licensing and maintenance
                      
                      $
                      -
                      
                      
                      $
                      4,252Advertising
                      
                      
                      59,421
                      
                      
                      
                      25,493Total
      Net Sales
                      
                      
                      59,421
                      
                      
                      
                      29,745Cost
      of Goods SoldWebsite
      hosting expenses
                      
                      
                      37,008
                      
                      
                      
                      -Total
      Cost of Goods Sold
                      
                      
                      37,008
                      
                      
                      
                      -Gross
      Profit
                      
                      
                      22,413
                      
                      
                      
                      29,745Selling
      Expenses
                      
                      
                      184,959
                      
                      
                      
                      80,914Impairment
      of goodwill
                      
                      
                      3,138,751
                      
                      
                      
                      -Research
      and development costs
                      
                      
                      7,200
                      
                      
                      
                      735Stock-based
      compensation (see below)
                      
                      
                      178,659
                      
                      
                      
                      890,504General
      and administrative expenses
                      
                      
                      2,719,714
                      
                      
                      
                      1,505,424Loss
      From Operations
                      
                      
                      (6,206,870
                      )
                      
                      
                      (2,447,832
                      )Other
      Income (Expense)Miscellaneous
      income
                      
                      
                      28,491
                      
                      
                      
                      -Interest
      income
                      
                      
                      1,362
                      
                      
                      
                      2,551Interest
      expense
                      
                      
                      (15,965
                      )
                      
                      
                      (357,385
                      )Gain
      on extinguishment of debt
                      
                      
                      657,805
                      
                      
                      
                      49,678Other
      expenses
                      
                      
                      (2,553
                      )
                      
                      
                      (156
                      )Amortization
      of intangible asset
                      
                      
                      (7,890
                      )
                      
                      
                      (30,000
                      )Amortization
      deferred  financing costs
                      
                      
                      (76,303
                      )
                      
                      
                      (539,597
                      )Change
      in fair value of options and warrants
                      
                      
                      128,159
                      
                      
                      
                      (558,911
                      )Total
      Other Income (Expense)
                      
                      
                      713,106
                      
                      
                      
                      (1,433,820
                      )Loss
      Before Benefit from Income Taxes
                      
                      
                      (5,493,764
                      )
                      
                      
                      (3,881,652
                      )Benefit
      from Income Taxes
                      
                      
                      -
                      
                      
                      
                      -Net
      Loss
                      
                      $
                      (5,493,764
                      )
                      
                      $
                      (3,881,652
                      )Dividends
      on Preferred Shares
                      
                      $
                      (51,332
                      )
                      
                      $
                      (53,481
                      )Net
      Loss Applicable to Common Shareholders, basic and diluted
                      
                      $
                      (5,545,096
                      )
                      
                      $
                      (3,935,133
                      )Net
      Loss Per Common Share, basic and diluted
                      
                      
                      (0.015
                      )
                      
                      
                      (0.016
                      )Weighted
      Average of Common Shares Outstanding
                      
                      
                      373,156,459
                      
                      
                      
                      243,609,819


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


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





44




Magnitude
Information Systems, Inc. and Subsidiaries


Consolidated
Statement of Stockholders’ Equity (Deficit)


Year
Ended December 31, 2007





TotalConvertible
                      
                      
                      Cumulative
                      
                      
                      
                      
                      
                      
                      
                      
                      Additional
                      
                      
                      
                      
                      
                      Loans
                      
                      
                      Stockholders’Preferred Shares
                      
                      
                      Preferred Shares
                      
                      
                      Common Stock
                      
                      
                      Paid in
                      
                      
                      Accumulated
                      
                      
                      Receivable -
                      
                      
                      EquityShares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Deficit
                      
                      
                      Stockholders
                      
                      
                      (Deficit)Balances,
      January 1, 2007
                      
                      
                      109,857
                      
                      
                      $
                      110
                      
                      
                      
                      1
                      
                      
                      $
                      -
                      
                      
                      
                      224,235,472
                      
                      
                      $
                      22,424
                      
                      
                      $
                      33,112,773
                      
                      
                      $
                      (35,640,792
                      )
                      
                      $
                      -
                      
                      
                      $
                      (2,505,485
                      )Issuance
      of common stock pursuant  to exercise of option
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      600,000
                      
                      
                      
                      60
                      
                      
                      
                      5,940
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      6,000Issuance
      of common stock for accrued sales commissions
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      143,542
                      
                      
                      
                      14
                      
                      
                      
                      5,727
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5,741Conversion
      of convertible preferred stock and accrued dividends into common
      stock
                      
                      
                      (23,967
                      )
                      
                      
                      (24
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,207,658
                      
                      
                      
                      221
                      
                      
                      
                      17,710
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      17,907Issuance
      of common stock pursuant to severance agreements with former
      officers
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5,150,000
                      
                      
                      
                      515
                      
                      
                      
                      291,485
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      292,000Issuance
      of equity securities to former officers of Kiwibox pursuant to merger
      agreement
                      
                      
                      43,610
                      
                      
                      
                      43
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      30,000,000
                      
                      
                      
                      3,000
                      
                      
                      
                      1,996,957
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,000,000Loans
      acquired from Kiwibox in connection with merger
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (286,721
                      )
                      
                      
                      (286,721
                      )Issuance
      of common stock for services performed
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,281,250
                      
                      
                      
                      328
                      
                      
                      
                      156,608
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      156,936Issuance
      of common stock for interest and financing costs
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,802,315
                      
                      
                      
                      380
                      
                      
                      
                      194,736
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      195,116Recognition
      of intrinsic value of BCF on convertible debt instruments
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      152,046
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      152,046Issuance
      of common stock pursuant to conversion of promissory notes
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      7,289,000
                      
                      
                      
                      729
                      
                      
                      
                      363,721
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      364,450Recognition
      of stock-based compensation for common stock options granted to
      employees
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      441,567
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      441,567Dividends
      on conv. preferred stock
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (53,481
                      )
                      
                      
                      -
                      
                      
                      
                      (53,481
                      )Net
      loss, year ended December 31, 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (3,881,652
                      )
                      
                      
                      -
                      
                      
                      
                      (3,881,652
                      )Balances,
      December 31, 2007
                      
                      
                      129,500
                      
                      
                      $
                      129
                      
                      
                      
                      1
                      
                      
                      $
                      -
                      
                      
                      
                      276,709,237
                      
                      
                      $
                      27,671
                      
                      
                      $
                      36,739,270
                      
                      
                      $
                      (39,575,925
                      )
                      
                      $
                      (286,721
                      )
                      
                      $
                      (3,095,576
                      )


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





45




Magnitude
Information Systems, Inc. and Subsidiaries


Consolidated
Statement of Stockholders’ Equity (Deficit)


Year
Ended December 31, 2008





TotalConvertible
                  
                  
                  Cumulative
                  
                  
                  
                  
                  
                  
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  Loans
                  
                  
                  Stockholders’Preferred Shares
                  
                  
                  Preferred Shares
                  
                  
                  Common Stock
                  
                  
                  Paid in
                  
                  
                  Accumulated
                  
                  
                  Receivable -
                  
                  
                  EquityShares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  Stockholders
                  
                  
                  (Deficit)Balances,
      January 1, 2008
                  
                  
                  129,500
                  
                  
                  $
                  129
                  
                  
                  
                  1
                  
                  
                  $
                  -
                  
                  
                  
                  276,709,237
                  
                  
                  $
                  27,671
                  
                  
                  $
                  36,739,270
                  
                  
                  $
                  (39,575,925
                  )
                  
                  $
                  (286,721
                  )
                  
                  $
                  (3,095,576
                  )Issuance
      of common stock pursuant  to stock subscriptions
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  81,640,000
                  
                  
                  
                  8,164
                  
                  
                  
                  1,837,836
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,846,000Issuance
      of common stock in settlement of obligations to be settled in
      stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  36,000,000
                  
                  
                  
                  3,600
                  
                  
                  
                  870,548
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  874,148Issuance
      of common stock pursuant to conversion of deferred income
      position
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,000,000
                  
                  
                  
                  200
                  
                  
                  
                  39,800
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  40,000Issuance
      of equity securities to former officers of Kiwibox pursuant to merger
      agreement
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  30,560,000
                  
                  
                  
                  3,056
                  
                  
                  
                  492,744
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  495,800Liquidation
      of loans acquired from Kiwibox in connection with merger
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  155,459
                  
                  
                  
                  155,459Issuance
      of common stock pursuant to conversion of promissory notes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  9,333,333
                  
                  
                  
                  933
                  
                  
                  
                  122,711
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  123,644Recognition
      of stock-based compensation for common stock options granted to employees,
      directors and consultants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  57,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  57,000Dividends
      on conv. preferred stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (51,332
                  )
                  
                  
                  -
                  
                  
                  
                  (51,332
                  )Net
      loss, year ended December 31, 2008
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (5,493,764
                  )
                  
                  
                  -
                  
                  
                  
                  (5,493,764
                  )Balances,
      December 31, 2008
                  
                  
                  129,500
                  
                  
                  $
                  129
                  
                  
                  
                  1
                  
                  
                  $
                  -
                  
                  
                  
                  436,242,570
                  
                  
                  $
                  43,624
                  
                  
                  $
                  40,159,909
                  
                  
                  $
                  (45,121,021
                  )
                  
                  $
                  (131,262
                  )
                  
                  $
                  (5,048,621
                  )




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


46


Magnitude
Information Systems, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows





Year Ended December 31,2008
                      
                      
                      2007Cash
      Flows From Operating ActivitiesNet
      Loss
                      
                      $
                      (5,493,764
                      )
                      
                      $
                      (3,881,652
                      )Adjustments
      to Reconcile Net Loss to Net Cash Used by OperationsDepreciation
      and amortization
                      
                      
                      116,876
                      
                      
                      
                      577,671Securities
      issued for various expenses
                      
                      
                      178,659
                      
                      
                      
                      890,504Amortization
      of debt discounts - beneficial conversion feature
                      
                      
                      -
                      
                      
                      
                      152,046Amortization
      of debt discount – warrants issued with debt
                      
                      
                      -
                      
                      
                      
                      150,712Impairment
      of goodwill
                      
                      
                      (3,138,751
                      )
                      
                      
                      -Debt
      forgiveness income
                      
                      
                      (28,401
                      )
                      
                      
                      -Loss
      on disposition of assets
                      
                      
                      2,553
                      
                      
                      
                      -Gain
      on extinguishment of debt
                      
                      
                      (657,805
                      )
                      
                      
                      (49,678
                      )Change
      in value of derivative liabilities
                      
                      
                      (128,159
                      )
                      
                      
                      558,904Bad
      debt provision
                      
                      
                      -
                      
                      
                      
                      66Decreases
      (Increases) in AssetsAccounts
      receivable
                      
                      
                      (1,907
                      )
                      
                      
                      4,131Prepaid
      expenses
                      
                      
                      (3,823
                      )
                      
                      
                      27,450Increases
      (Decreases) in LiabilitiesAccounts
      payable and accrued expenses
                      
                      
                      77,804
                      
                      
                      
                      276,892Deferred
      revenue
                      
                      
                      -
                      
                      
                      
                      (2,829
                      )Obligations
      to be settled in stock
                      
                      
                      -
                      
                      
                      
                      34,000Net
      Cash Used by Operating Activities
                      
                      
                      (2,799,214
                      )
                      
                      
                      (1,261,783
                      )Cash
      Flows From Investing ActivitiesCash
      outlay - KiwiBox Media acquisition
                      
                      
                      (50,000
                      )
                      
                      
                      (508,000
                      )Cash
      outlay – website development costs
                      
                      
                      (64,650
                      )
                      
                      
                      -Purchases
      of equipment, fixtures, and software
                      
                      
                      (42,284
                      )
                      
                      
                      (13,376
                      )Net
      Cash Used by Investing Activities
                      
                      
                      (156,934
                      )
                      
                      
                      (521,376
                      )Cash
      Flows From Financing ActivitiesRepayment
      of capital lease obligations
                      
                      
                      -
                      
                      
                      
                      -Proceeds
      from loans payable
                      
                      
                      220,000
                      
                      
                      
                      472,000Repayment
      of loans payable
                      
                      
                      (150,000
                      )
                      
                      
                      (100,000
                      )Cash
      received for subscriptions
                      
                      
                      -
                      
                      
                      
                      1,800,000Repayment
      of shareholder loan
                      
                      
                      75,000
                      
                      
                      
                      -Proceeds
      from issuance of common and preferred stock and warrants
                      
                      
                      2,346,000
                      
                      
                      
                      -Net
      Cash Provided by Financing Activities
                      
                      
                      2,491,000
                      
                      
                      
                      2,172,000Net
      Increase (Decrease) in Cash
                      
                      
                      (465,148
                      )
                      
                      
                      388,841Cash
      at beginning of period
                      
                      
                      470,148
                      
                      
                      
                      81,307Cash
      at end of period
                      
                      $
                      5,000
                      
                      
                      $
                      470,148SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      Paid
                      
                      $
                      6,904
                      
                      
                      $
                      86Taxes
      Paid
                      
                      $
                      -
                      
                      
                      $
                      -


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




47





Magnitude
Information Systems, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


Year
Ended December 31, 2008




Schedule
      of non-cash investing and financing activitiesAdditional
      deferred finance costs incurred by obligation to be settled in common
      stock
                            
                            $
                            45,000Additional
      goodwill incurred by obligation to be settled in stock for 20 million
      penalty shares
                            
                            $
                            200,000Additional
      goodwill incurred via promissory note
                            
                            $
                            225,000Issuance
      of stock and warrants for prior subscription obligations
                            
                            $
                            1,800,000In
      connection with the conversion of a liability for deferred revenues,
      2,000,000  common shares were issued
                            
                            $
                            40,000In
      connection with the conversion of promissory notes, 9,333,333 common
      shares were issued
                            
                            $
                            123,644Value
      of 30,560,000 common shares issued to former principals of Kiwibox Media
      Inc pursuant to merger agreement
                            
                            $
                            495,800Offsetting
      of note payable to shareholder loan receivable
                            
                            $
                            75,000




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


48


Magnitude
Information Systems, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


Year
Ended December 31, 2007





Schedule
      of non-cash investing and financing activitiesIn
      connection with the issuance of notes payable, the Company incurred
      deferred finance costs payable in common stock
                    
                    $
                    574,900In
      connection with the redemption of the Company’s Series A and F preferred
      stock and accrued dividends, 2,207,658 common shares were
      issued
                    
                    $
                    17,907Sales
      commissions payable in the form of 143,542 shares of common
      stock
                    
                    $
                    12,719In
      connection with the conversion of promissory notes, 7,289,000 common
      shares were issued
                    
                    $
                    364,450Value
      of 3,802,315 common shares issued for interest and financing
      costs
                    
                    $
                    195,116Value
      of 43,610 preferred shares and 30,000,000 common shares issued to former
      principals of Kiwibox Media Inc pursuant to merger
    agreement
                    
                    $
                    2,000,000Recognition
      of intrinsic value of beneficial conversion features on convertible debt,
      credited to additional paid-in capital
                    
                    $
                    152,046





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





49





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





1. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature of
Organization


Magnitude
Information Systems, 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 August
16, 2007 the Company acquired all outstanding shares of Kiwibox Media,
Inc.





The
Company, its subsidiary Magnitude, Inc. and Kiwibox Media Inc. are separate
legal entities, with Kiwibox Media, Inc. being a wholly owned subsidiary. The 1%
of Magnitude, Inc. not owned by the Company constitutes a minority interest
which is valued at $0. The operations of the combined entity are currently
comprised almost exclusively of the operations of Kiwibox Media,
Inc.





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





Through
our subsidiary, we own and operate “Kiwibox.com”, a social networking website
for teens.Initially launched in
1999, Kiwibox.com is an online social networking website dedicated to teen
users. The Kiwibox website provides online content in several categories,
dedicated to teens, including entertainment, fashion and games. We have formed a
user-based contingent of contributors that submit, review and comment upon
content and articles from all over the world, 24 hours a day, seven days a week.
Kiwibox.com uses a “points” reward system for users, where a user may acquire
elevated peer status and/or earn prizes which in many cases are provided by
advertiser and/or sponsors. In August 2008 we had re-launched our website with
increased functions.





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
consolidated financial statements include the accounts of Magnitude Information
Systems, Inc. and its subsidiaries Magnitude, Inc. and Kiwibox Media, Inc. All
significant inter-company balances and transactions have been
eliminated.


50





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)





Depreciation


Property,
plant and equipment are recorded at cost.  Depreciation on equipment,
furniture and fixtures and leasehold improvements is computed on thestraight line method
over the estimated useful lives of such assets between 5-10 years or over the
lease term, if shorter.  Maintenance and repairs are charged to
operations as incurred.  Repairs and maintenance which do not extend
the useful lives of the related assets are expensed as incurred.





Advertising
Costs


Advertising
costs are charged to operations when incurred.  Advertising expense
was $74,073 and $6,717 for the years ended December 31, 2008 and 2007,
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.





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 Statement of Financial
Accounting Standards (SFAS) 123(R), SHARE-BASED PAYMENT, which establishes
accounting for equity instruments exchanged for employee services. Under the
provisions of SFAS 123(R), share-based compensation cost is measured at the
grant date, based on the fair value of the award, and is recognized as an
expense over the employee's requisite service period (generally the vesting
period of the equity grant).




Reclassification
of certain securities under EITF 00-19


Pursuant
to Emerging Issues Task Force (EITF) Issue 00-19, 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 capitalized outside-contracted development work in accordance with the
guidelines published under EITF 00-2, Accounting for Web Site Development Costs,
adopted during the quarter ended March 31, 2008.  Under EITF 00-2,
costs incurred during the planning stage are expensed, whilecosts
relating to software used to operate a web site or for developing initial
graphics should be accounted for under SOP 98-1, 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 SOP 98-1,
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 $64,650
was capitalized for web-site development work during the twelve months ended
December 31, 2008.


51





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)





Fair
Value Measurements


The
Company adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value
Measurements, which is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Under FASB
Statement No. 157, a framework was established for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. Since the number of shares issuable under the Company’s
Series G convertible preferred stock was indeterminable during the twelve months
ended December 31, 2008, the Company measured the fair value of the obligation
for warrants and options granted to non-employees during the year ended December
31, 2008 and outstanding at December 31, 2008. The value at December 31, 2008
was determined to be $3,330,812, measured using significant unobservable inputs
(Level 3) under a Black-Scholes valuation method. The change in value during the
twelve months period was $128,159 reported in the Statement of Operations under
Other Income (Expense).





The
Company adopted the provisions of
Statement  of  Financial  Accounting  Standards  (SFAS)
No. 159,  "The Fair Value Option for Financial Assets and
Financial  Liabilities", which included and amendment of FASB
Statement No. 115 with respect to improvement of financial  reporting
of certain  investments  in debt
and  equity  securities.  This Statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. The implementation of this new standard did not have a material
impact on the Company's financial position, results of operations and cash flows
for the twelve months ended December 31, 2008.





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- 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 Financial Accounting Standards
Board No. 128, “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.





Revenue Recognition


The
Company’s revenue recognition policy for software sales is in accordance with
Accounting Statement of Position (SOP) 97-2 “Software Revenue Recognition” and
SOP 98-9 “Software Revenue recognition” which modifies SOP 97-2. Revenue is
recognized at the time of licensing provided that the resulting receivable is
deemed probable of collection and is fixed or determinable. Revenue from
software maintenance contracts is recognized ratably as earned. When a sales
contract includes multiple elements, revenues are allocated to the various
elements based on Company-specific objective evidence of fair value, regardless
of any separate prices for each element that may be stated within the
contract.


52





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)





The
Company’s revenue from its KiwiBox Media, Inc. subsidiary derives from
advertising on the KiwiBox 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.





Goodwill and Intangible
Assets


The
Company accounts for its goodwill and intangible assets pursuant to SFAS No.
142, "Goodwill and Other Intangible Assets".  Under SFAS 142,
intangibles with definite lives continue to be amortized on a straight-line
basis over the lesser of their estimated useful lives or contractual
terms.  Goodwill and intangibles
with  indefinite  lives  are  evaluated  at
least  annually  for  impairment  by
comparing the asset's  estimated  fair value with its
carrying  value,  based on cash flow
methodology.





The
Company’s intangible assets including goodwill are subject to impairment testing
in the event of certain indicators.  Impairment in the carrying value
of an asset is recognized whenever anticipated future cash flows (undiscounted)
from an asset are estimated to be less than its carrying value.  The
amount of the impairment recognized is the difference between the carrying value
of the asset and its fair value.





Use of
Estimates


The
preparation of financial statements in conformity with generally accepted
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. In their report for the
fiscal year ended December 31, 2008, our auditors have made reference to the
fact 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 December
31, 2008, 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.


53


Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





4.
            PROPERTY
      AND EQUIPMENT





Property
and equipment consist of the following at December 31,





2008
                    
                    
                    2007Furniture
      and fixtures
                    
                    $
                    2,014
                    
                    
                    $
                    2,014Office
      and computer equipment
                    
                    
                    77,743
                    
                    
                    
                    100,739Leasehold
      improvements
                    
                    
                    24,130
                    
                    
                    
                    -Total
                    
                    $
                    103,887
                    
                    
                    $
                    102,753Less:
      accumulated depreciation
                    
                    
                    63,722
                    
                    
                    
                    81,965$
                    40,165
                    
                    
                    $
                    20,788





Depreciation expense charged to
operations was $20,354 and $8,074 in 2008 and 2007, respectively.





5.
            INTANGIBLE
      ASSETS





Intangible
assets at December 31, 2008 included web site development costs and deferred
finance costs.





Website development costs, at December
31, 2008, consisted of:


Costs
      incurred
                  
                  $
                  64,650Less
      accumulated amortization
                  
                  
                  12,329Total
                  
                  $
                  52,321





During
2007 and 2008 the Company incurred finance costs in connection with the Kiwibox
acquisition and other financing transactions. Financing costs incurred and
amortization of deferred financing costs were $45,000 and $76,303, respectively,
for the year ended December 31, 2008, resulting in net deferred financing costs
of $4,000 at December 31, 2008. Amortization of deferred financing costs was
$539,597 for the year ended December 31, 2007.





6.
            GOODWILL





On August
16, 2007, the Company completed its acquisition of 100% of the outstanding
capital stock of KiwiBox Media, Inc. The total initial purchase price of
$2,850,273 was calculated as follows: we issued 30,000,000 restricted common
shares based on a total value of $1,500,000 determined by the lower of $0.05 per
share and the average sales price of the Company’s common stock for the ten (10)
successive trading days immediately preceding the closing, 43,610 shares of our
Series G Preferred Stock worth $500,000, paid $450,000 in cash to the three
KiwiBox owners, and incurred $57,500 in acquisition fees. In addition, based on
the initial Agreement and Plan of Reorganization from February 2007, the Company
committed to investing $3.5 million for the operations of Kiwibox. Based on an
amendment in July 2007, in the event that certain investment tranches were not
made by their respective due dates, the Company agreed to issue 60,000
restricted shares to the former shareholders of Kiwibox for each day that the
funds were in arrears. The Company estimated the fair value of this
pre-acquisition contingency as of the acquisition date based on the present
value of the total expected liability at a discount rate of 5%, with an accreted
value of $295,800 at June 30, 2008 (current period value of $3,027 was charged
to operations, so net increase in purchase price was $292,773). In February
2008, the Company entered into another amendment that superseded the provisions
of amendments in December 2007, whereby the Company agreed to issue 20 million
reset shares, valued at $200,000, and a promissory note for $225,000, and
$250,000 cash penalties ($100,000 paid in 2007, $150,000 paid in 2008) as
additional consideration due to the delays in financing, which increased the
value of Goodwill at March 31, 2008. This additional consideration eliminated
the requirement for penalty shares to continue accruing, as long as the Company
received $1.5 million in financing by March 7, 2008, and invested $700,000 in
Kiwibox operations. This financing was received in a timely fashion. The
amendment also provided the former shareholders of Kiwibox the option to receive
the value of the reset shares in common stock options of equivalent value. To
date, all of the penalty shares have been issued. The promissory note for
$225,000 had subsequently been reduced by $75,000 in connection with a
settlement agreement reached with one
of the former shareholders of Kiwibox (see Note 13), and the remaining $150,000
was paid during the last quarter of 2008.




54





Magnitude Information Systems, Inc.
and Subsidiaries


Notes
to the Consolidated Financial Statements





GOODWILL
(continued)





The
excess of the purchase price over the net assets acquired had been previously
recognized as Goodwill in the amount of $3,138,751.




Management
projected the discounted cash flow for the operations of the Company’s Kiwibox
Media Inc. subsidiary, including the costs incurred by the Company’s Magnitude,
Inc. subsidiary which has no own revenue basis but provides management,
accounting, and investor relations and other professional services for the
combined entity, over a period of five years. This analysis showed that the
reliance on outside investors to provide needed additional funding to augment
cash flow from operations would likely persist for a period in excess of one
year. Management decided to write off the entire goodwill position because the
willingness of outside investors to continue funding operations until positive
cash flow can be realized, cannot be assured. A fair value of the Kiwibox
subsidiary cannot be determined due to the fact that at this time this is
essentially a start-up business with minimal revenues.





7.
            OTHER
      ASSETS





Other
assets consist of deposits of $3,224.





8.
            ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES





Accounts
payable and accrued expenses consisted of the following at December
31,





2008
                  
                  
                  2007Accounts
      payable
                  
                  $
                  474,315
                  
                  
                  $
                  489,782Accrued
      interest
                  
                  
                  65,872
                  
                  
                  
                  85,212Accrued
      professional and consulting fees
                  
                  
                  324,636
                  
                  
                  
                  183,309Accrued
      payroll and commissions
                  
                  
                  24,839
                  
                  
                  
                  19,466Penalty
      payments due to KiwiBox former shareholders
                  
                  
                  -
                  
                  
                  
                  100,000Accrued
      finance costs
                  
                  
                  -
                  
                  
                  
                  22,500Miscellaneous
      accruals
                  
                  
                  42,014
                  
                  
                  
                  7,530$
                  931,676
                  
                  
                  $
                  907,799





Accrued
commissions are due to a consultant who was retained in the capacity of Senior
Vice President of Business Development.





9.
            OBLIGATIONS
      TO BE SETTLED IN STOCK





Obligations
to be settled in stock consisted of the following at December 31,





2008
                  
                  
                  2007Subscriptions
      for 36,000,000 units comprised of one common share and one warrant each,
      exercisable during 5 years at $0.07 /share
                  
                  $
                  -
                  
                  
                  $
                  874,148Estimated
      fair value of common shares issuable to former principals of Kiwibox
      Media, Inc. pursuant to acquisition agreement
                  
                  
                  -
                  
                  
                  
                  292,773Deferred
      financing costs settleable in stock
                  
                  
                  -
                  
                  
                  
                  350,000Obligation
      for warrants granted for compensation
                  
                  
                  19,200
                  
                  
                  
                  -500,000
      common shares issuable to a creditor as loan origination
    fee
                  
                  
                  10,000
                  
                  
                  
                  -1,025,000
      common shares issuable to two consultants for services rendered, one of
      who was a director of the Company
                  
                  
                  106,000
                  
                  
                  
                  106,000$
                  135,200
                  
                  
                  $
                  1,622,921


55





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





10.
            LOANS
      PAYABLE





The
Company and Magnitude, Inc. had borrowings under short term loan agreements with
the following terms and conditions at December 31, 2008 and 2007:





On
      December 4, 1996, 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 at December 31, 2008 and
      no demand for payment has been made.
                      
                      $
                      75,000Total
                      
                      $
                      75,000





11.
            NOTES
      PAYABLE


On
February 28, 2008, two debtholders agreed to convert their outstanding notes of
$350,000, finance cost obligations to be settled in stock of $385,000 and
finance cost obligations that could be settled in stock or cash of $22,500 into
a total of 9,333,333 common shares and 3,500,000 five-year common stock warrants
with an exercise price of $0.07 per share, resulting in a gain on extinguishment
of $633,856. The warrants were valued at $30,311 using a Black-Scholes model,
with the following assumptions: volatility - 169%, dividends – none, risk-free
rate – 2.1%. In addition, in January 2008, the Company converted the $100,000
deposit recorded previously as deferred revenue into equity on behalf of the
depositor by issuing 2,000,000 restricted common shares and 2,000,000 five-year
common stock warrants with an exercise price of $0.07 per share. The warrants
were valued at $36,051 using a Black-Scholes model, with the following
assumptions: volatility - 169%, dividends – none, risk-free rate – 2.6%. This
issuance resulted in a gain on extinguishment of this liability of $23,949 based
on the fair value of the shares delivered in settlement.





2008
                          
                          
                          2007Balance
      of non-converted notes outstanding.  Attempts to locate the
      holder of this note, to settle this liability, have been
      unsuccessful.
                          
                          
                          25,000
                          
                          
                          
                          25,000Ninety-day
      promissory notes bearing interest at 12% per year
                          
                          
                          -
                          
                          
                          
                          350,000In
      January 2008 a shareholders loaned the Company $40,000 pursuant to which
      the Company issued a demand note bearing interest at the rate of 5% per
      year.
                          
                          
                          40,000
                          
                          
                          
                          -In
      September 2008 and December 2008 a shareholder loaned the Company $50,000
      and $100,000, repayable under convertible promissory notes bearing
      interest at 10% per annum and payable on demand.
                          
                          
                          150,000
                          
                          
                          
                          -In
      December 2008 an investor loaned the Company $30,000 repayable on January
      15, 2009, bearing interest at 6.5% per year. The Company promised to issue
      500,000 restricted common shares as loan origination fee.
                          
                          
                          30,000
                          
                          
                          
                          -Total
                          
                          $
                          245,000
                          
                          
                          $
                          375,000


56





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





12.
            LONG-TERM
      DEBT





Long-term
debt as of December 31, 2008 and 2007 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.
                  
                  
                  33,529Total
                  
                  
                  33,529Less
      current maturities
                  
                  
                  33,529Long-term
      debt, net of current maturities
                  
                  $
                  -





13.
            COMMITMENTS
      AND CONTINGENCIES





On
September 1, 2006, the Company entered a three year lease (which can be
terminated by either party after 12 months) for approximately 850 square feet of
office space at 1250 Route 28, Suite 309, Branchburg, New Jersey. This lease
agreement currently calls for a base rental payment of $1,137 per month plus
utility/cam/property tax charges of approximately $900 per month through August
31, 2008, with a nominal increase for year three ending August 31,
2009.





In
addition, we maintain offices for our Kiwibox operations at 330 W. 38th Street,
New York, New York 10018, consisting of approximately 1,600 square feet. We have
a two-year lease covering these offices and pay minimum monthly rentals of
$3,908 plus tenants’ share of 0.86% of utility/cam/property tax charges through
August 31, 2008, and minimum monthly rentals of $4,013 plus additional rentals
for the twelve months ending August 31, 2009. On August 19, 2008, we amended the
lease to include additional 600 square feet office space, at an added cost of
$1,569 /month and an increase in the tenants’ share to 1.18%. The amended lease
runs through August 2009.









On
September 23, 2008, Kiwibox joined with UMG Recordings, Inc. to sign a one-year,
Video Syndication Agreement, pursuant to which UMG supplies its video archive to
the Kiwibox website in exchange for advertising space on our
website.





In March
2008 we entered into an agreement with a public relations firm whereby that
company renders general publicity services to Kiwibox, at a fixed monthly fee of
$8,500/month.  The agreement is effective through August 2009, and was
amended in early 2009 to reduce the monthly fee by $2,000.





In
December 2008 we entered into a Lead Architect Services agreement with a
specialized software consulting firm to assist in the development of software
and website applications, during the time January 1, 2009 to December 31, 2009,
for a monthly fee of $16,000.





14.
            LOANS
      RECEIVABLE - STOCKHOLDERS





Loans
Receivable – Stockholders consists of $286,721 in total loans extended by
Kiwibox Media, Inc. to its principals during fiscal years 2001 to 2006 and prior
to the acquisition by the Company. During 2008, $75,000 was repaid to the
Company, $75,000 was offset against the note payable due to the shareholders
pursuant to a Kiwibox acquisition amendment and $5,459 was forgiven and treated
as additional compensation pursuant to a separation agreement with one of the
principals. The remaining loans bear interest at the rate of 4.58% per year, and
are evidenced by a promissory note which foresees repayment over a ten year
period. The Company intends to negotiate a specific repayment schedule with the
issuer through amendment to this note.


57


Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





15.
            PREFERRED
      STOCK





Preferred
stock is non-voting, $.001 par value per share with 3,000,000 shares
authorized.





Cumulative
Preferred Stock has 2,500 shares designated of which 1 share is issued and
outstanding.  The total Cumulative Preferred Stock at December 31,
2006 is $0 with a liquidation price of $100,000.  As of December 31,
2008, there was $9,000 of cumulative preferred dividends in arrears representing
$9,000 per cumulative preferred share.





Series A
of the Senior Convertible Preferred Stock series which was issued in 2000 has
300,000 shares designated, 22,000 shares issued and outstanding.  The
total outstanding Series A Senior Convertible Preferred Stock at December 31,
2008 is $22 with a liquidation price of $110,000.  The following is a
description of the Series A convertible preferred stock:





(1)
            The
      holders of said shares of Series A Senior Preferred shall be entitledto receive
      cumulative dividends at the rate of seven percent (7%) per annum during
      the first annual period after issuance, increasing by increments of one
      half of one percent for every year thereafter until the rate reaches ten
      percent (10%) per annum at which time it will remain at 10% payable
      semi-annually when declared by the Board of Directors, before any dividend
      shall be declared, set apart for, or paid upon the Common Stock of the
      Company.  The Dividend Rate shall accrue on the Liquidation
      Price of each share of the Series A Senior Preferred.  The
      dividends on the Series A Senior Preferred, payable in cash, shall be
      cumulative, so that if the Company fails in any fiscal year to pay such
      dividends on all the issued and outstanding Series A Senior Preferred,
      such deficiency in the dividends shall be fully paid, but without
      interest, before any dividends shall be paid on or set apart for the
      Cumulative Preferred Stock or the Common
Stock.





(2)
            The
      Series A Senior Preferred shall with respect to dividend rights and
      liquidation rights rank prior to all classes and series of Common Stock
      and the Cumulative Preferred Stock, and on a par with the Series B, C and
      D Senior Convertible Preferred
Stock.





(3)
            In
      the event of any liquidation, of the Company, whether voluntary or
      otherwise, after payment or provision for payment of the debts and other
      liabilities of the Company, the holders of the Series A Senior Preferred
      shall be entitled to receive, out of the remaining net assets of the
      Company, the amount of Five ($5.00) dollars for each share of Series A
      Senior Preferred (the "Liquidation Price") held of record by such holder,
      payable in cash or in shares of stock, securities or other consideration,
      the value of which stock, securities or other consideration shall be fixed
      by the Board of Directors, plus the amount of all dividends in arrears on
      each such share up to the date fixed for distribution, provided, however,
      that such remaining net assets are sufficient to cover all the before
      mentioned payments and also like payments to holders of Series B and C
      Senior Preferred, before any distribution shall be made to the holders of
      Common Stock or Cumulative Preferred Stock of the Company.  In
      case such remaining net assets are insufficient to cover all such payments
      to holders of Series A, B, C and D Senior Preferred, the holders of these
      series shall receive payments on a pro rata
  basis.





(4)
            The
      Company shall have the right to redeem pro rata any or all of its Series A
      Senior Preferred issued and outstanding at any time, with the Board of
      Directors of the Company in its sole discretion deciding how many shares
      to redeem, provided, however, that any such shares called for redemption
      have been issued and outstanding for a minimum of three (3) years at the
      time of notice of redemption to the holders of such shares, by paying to
      the holders thereof the Liquidation Price for each share of Series A
      Senior Preferred held by such holder plus a "call premium" of 15% of the
      Liquidation Price, together with the amount of any accrued and unpaid
      dividends as may have accumulated thereon at the time of redemption (the
      "Redemption Price").


58


Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





(5)
            Each
      share of Series A Senior Preferred shall be convertible at any time prior
      to the Redemption Date, at the holder’s option, into such number (the
      "Conversion Ratio") of shares of the Common Stock of the Company as
      arrived at by dividing the Liquidation Price by one hundred fifty (150)
      percent of the market price of the Common Stock of the Corporation
      ("Market Price") on the earlier of the dates such share of Series A Senior
      Preferred is subscribed for or issued (the "Effective
    Date").





During
the year ended December 31, 2007, a holder of 7,300 shares agreed to exchange
the preferred shares and outstanding accrued dividends of $17,906 into common
shares at $0.10 per shares on the nominal value of both components, or 540,991
common shares. As of December 31, 2008 there were $88,665 Series A Senior
Convertible Preferred share dividends accrued and unpaid representing $4.03 per
share.





Series B
of the Senior Convertible Preferred Stock series which was issued in 2000 has
350,000 shares designated, no shares issued and outstanding.  The
total outstanding Series B Senior Convertible Preferred Stock at December 31,
2008 is $0.  The following is a description of the Series B Senior
Convertible Stock:





(1)
            The
      holders of said shares of Series B Senior Preferred shall be entitled to
      receive cumulative dividends thereon at the rate of seven percent (7%) per
      annum, payable semi-annually when declared by the Board of Directors,
      before any dividend shall be declared, set apart for, or paid upon the
      Common Stock of the Company.  The Dividend Rate shall accrue on
      the Liquidation Price of each share of the Series B Senior
      Preferred.  The dividends on the Series B Senior Preferred,
      payable in cash, shall be cumulative, so that if the Company fails in any
      fiscal year to pay such dividends on all the issued and outstanding Series
      B Senior Preferred, such deficiency in the dividends shall be fully paid,
      but without interest, before any dividends shall be paid on or set apart
      for the Cumulative Preferred Stock or the Common
  Stock.





(2)
            The
      Series B Senior Preferred shall, with respect to dividend rights and
      liquidation rights, rank prior to all classes and series of Common Stock
      and the Cumulative Preferred Stock, and on a par with the Series A, C and
      D Senior Convertible Preferred
Stock.





(3)
            In
      the event of any liquidation of the Company, whether voluntary or
      otherwise, after payment or providing for payment of the debts and other
      liabilities of the Company, the holders of the Series B Senior Preferred
      shall be entitled to receive, out of the remaining net assets of the
      Company, the amount of nine ($9.00) dollars for each share of Series B
      Senior Preferred (the "Liquidation Price") held of record by such holder,
      payable in cash or in shares of stock, securities or
      other  consideration, the value of which stock, securities or
      other consideration shall be fixed by the Board of Directors, plus the
      amount of all dividends in arrears on each such share up to the date fixed
      for distribution, provided however, that such remaining net assets are
      sufficient to cover all the before mentioned payments and also like
      payments to holders of Series A and C Senior Preferred, before any
      distribution shall be made to the holders of Common Stock or Cumulative
      Preferred Stock of the Company.  In case such remaining net
      assets are insufficient to cover all such payments to holders of Series A,
      B, C and D Senior Preferred, the holders of these series shall receive
      payments on a pro rata basis.


59


Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





(4)
            The
      Company shall have the right to redeem pro rata any or all of its Series B
      Senior Preferred issued and outstanding at any time, with the Board of
      Directors of the Company in its sole discretion deciding how many shares
      to redeem, provided, however, that any such shares called for redemption
      have been issued and outstanding for a minimum of three (3) years at the
      time of notice of redemption of the holders of such shares, by paying to
      the holders thereof the Liquidation Price for each share of Series B
      Senior Preferred held by such holder plus a "call premium" of 10% of the
      Liquidation Price, together with the amount of any accrued and unpaid
      dividends as may have accumulated thereon at the time of redemption (the
      "Redemption Price").





(5)
            Each
      share of Series B Senior Preferred shall be convertible at any time prior
      to the Redemption Date, at the holder’s option, into shares of Common
      Stock of the Company on the basis of ten (10) shares of Common Stock for 1
      share of Series B Senior Preferred.





As of
December 31, 2008 there were no Series B Senior Convertible Preferred share
dividends accrued and unpaid.





Series C
of the Senior Convertible Preferred Stock series which was issued in 2000 has
120,000 shares designated.  There were no shares of Series C Senior
Convertible Preferred Stock outstanding at December 31, 2008.  The
following is a description of the Series C Senior Convertible
Stock:





(1)
            The
      holders of said shares of Series C Senior Preferred shall be entitled to
      receive cumulative dividends thereon at the rate of seven percent (7%) per
      annum, payable monthly, before any dividend shall be declared, set apart
      for, or paid upon the Common Stock of the Company.  The Dividend
      Rate shall accrue on the Liquidation Price (as hereinafter defined) of
      each share of the Series C Senior Preferred.  The dividends on
      the Series C Senior Preferred, payable in cash, shall be cumulative, so
      that if the Company fails in any fiscal year to pay such dividends on all
      the issued and outstanding Series C Senior Preferred, such deficiency in
      the dividends shall be fully paid, but without interest, before any
      dividends shall be paid on or set apart for the Cumulative Preferred Stock
      or the Common Stock.





(2)
            The
      Series C Senior Preferred shall with respect to dividend rights and
      liquidation rights rank prior to all classes and series of Common Stock
      and the Cumulative Preferred Stock, and on a par with the Series A, B and
      D Senior Convertible Preferred
Stock.





(3)
            In
      the event of any liquidation of the Company, whether voluntary or
      otherwise, after payment or provision for payment of the debts and other
      liabilities of the Company, the holders of the Series C Senior Preferred
      shall be entitled to receive, out of the remaining net assets of the
      Company, the amount of nine ($9.00) dollars for each share of Series C
      Senior Preferred (the "Liquidation Price") held of record by such holder,
      payable in cash or in shares of stock, securities or other consideration,
      the value of which stock, securities or other consideration shall be fixed
      by the Board of Directors, plus the amount of all dividends in arrears on
      each such share up to the date fixed for distribution, provided, however,
      that such remaining net assets are sufficient to cover all the before
      mentioned payments and also like payments to holders of Series A and B
      Senior Preferred, before any distribution shall be made to the holders of
      Common Stock or Cumulative Preferred Stock of the Company.  In
      case such remaining net assets are insufficient to cover all such payments
      to holders of Series A, B, C and D Senior Preferred, the holders of these
      series shall receive payments on a pro rata
  basis.


60


Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





(4)
            The
      Company shall have the right to redeem pro rata any or all of its Series C
      Senior Preferred issued and outstanding at any time, with the Board of
      Directors of the Company in its sole discretion deciding how many shares
      to redeem, provided, however, that any such shares called for redemption
      have been issued and outstanding for a minimum of three (3) years at the
      time of notice of redemption to the holders of such shares, by paying to
      the holders thereof the Liquidation Price for each share of Series C
      Senior Preferred held by such holder plus a "call premium" of 10% of the
      Liquidation Price together with the amount of any accrued and unpaid
      dividends as may have accumulated thereon at the time of redemption (the
      "Redemption Price").





(5)
            Each
      share of Series C Senior Preferred shall be convertible at any time prior
      to the Redemption Date, at the holder’s option, into shares of Common
      Stock of the Company on the basis of ten (10) shares of Common Stock for 1
      share of Series C Senior Preferred.





As of
December 31, 2008 there were no Series C Senior Convertible Preferred share
dividends accrued and unpaid.





Series D
of the Senior Convertible Preferred Stock series which was issued in 2000 has
500,000 shares designated, 63,890 shares issued and outstanding. The total
outstanding Series D Senior Convertible Preferred Stock at December 31, 2008 is
$64 with a liquidation price of $575,010.  The following is a
description of the Series D Senior Convertible Stock:





(1)
            The
      holders of said shares of Series D Senior Preferred shall be entitled to
      receive cumulative dividends thereon at the rate of seven percent (7%) per
      annum, payable semi-annually when declared by the Board of Directors
      before any dividend shall be declared, set apart for, or paid upon the
      Common Stock of the Company.  The Dividend Rate shall accrue on
      the Stated Value (the "Stated Value"), which Stated Value shall be noted
      on the certificate issued to the holder, of each share of the Series D
      Senior Preferred.  The dividends on the Series D Senior
      Preferred, payable in cash, shall be cumulative, so that if the Company
      fails in any fiscal year to pay such dividends on all the issued and
      outstanding Series D Senior Preferred, such deficiency in the dividends
      shall be fully paid, but without interest, before any dividends shall be
      paid on or set apart for the Cumulative Preferred Stock or the Common
      Stock.





(2)
            The
      Series D Senior Preferred shall with respect to dividend rights and
      liquidation rights rank prior to all classes and series of Common Stock
      and the Cumulative Preferred Stock, and on a par with the Series A, B and
      C Senior Convertible Preferred
Stock.





(3)
            In
      the event of any liquidation of the Company, whether voluntary or
      otherwise, after payment or provision for payment of the debts and other
      liabilities of the Company, the holders of the Series D Senior Preferred
      shall be entitled to receive, out of the remaining net assets of the
      Company, an amount equal to the Stated Value of each share of Series D
      Senior Preferred held of record by such holder, payable in cash or in
      shares of stock, securities or other consideration, the value of which
      stock, securities or other consideration shall be fixed by the Board of
      Directors, plus the amount of all dividends in arrears on each such share
      up to the date fixed for distribution, provided, however, that such
      remaining net assets are sufficient to cover all the before mentioned
      payments and also like payments to holders of Series A, B and C Senior
      Preferred, before any distribution shall be made to the holders of Common
      Stock or Cumulative Preferred Stock of the Company.  In case
      such remaining net assets are insufficient to cover all such payments to
      holders of Series A, B, C and D Senior Preferred, the holders of these
      series shall receive payments on a pro rata
  basis.


61





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





(4)
            The
      Company shall have the right to redeem pro rata any or all of its Series D
      Senior Preferred issued and outstanding at anytime, with the Board of
      Directors of the Company in its sole discretion deciding how many shares
      to redeem, provided, however, that any such shares called for redemption
      have been outstanding for a minimum of three (3) years at the time of
      notice of redemption to the holders of such shares, by paying to the
      holders thereof the Stated Value for each share of Series D Senior
      Preferred held by such holder plus a "call premium" of 10% of the Stated
      Value, together with the amount of any accrued and unpaid dividends as may
      have accumulated thereon at the time of redemption (the "Redemption
      Price").





(5)
            Each
      share of Series D Senior Preferred shall be convertible at any time prior
      to the Redemption Date, at the holder’s option, into shares of Common
      Stock of the corporation on the basis of ten (10) shares of Common Stock
      for 1 share of Series D Senior
Preferred.





As of
December 31, 2008 there were $330,411 Series D Senior Convertible Preferred
share dividends accrued and unpaid representing $5.17 per share.





Series E
of the Senior Convertible Preferred Stock series which was issued in 2005 has
500,000 shares designated, with no shares issued and outstanding.





(1) The
holders of said shares of Series E Senior Preferred shall be entitled to receive
cumulative dividends at the rate of six percent (6%) per annum, payable at the
time said shares are converted into shares of common stock of the Company and
when declared by the board of Directors, before any dividend shall be declared,
set apart for, or paid upon the Common Stock and any other Preferred Stock of
the Company.  The Dividend Rate shall accrue on the Stated Value,
which Stated Value shall be noted on the certificate issued to the holder of
each share of the Series E Senior Preferred.  The dividends on the
Series E Senior Preferred, payable in cash, shall be cumulative, so that if the
company fails in any fiscal year to pay such dividends on all the issued and
outstanding Series E Senior Preferred, such deficiency in the dividends shall be
fully paid, but without interest, before any dividends shall be paid on or set
apart for any other class of Preferred Stock or the Common Stock. The holders of
the currently outstanding shares of Series E Senior Convertible Stock have
waived their right for dividends, consequently, no dividends have been accrued
on this stock.





(2) The
Series E Senior Preferred shall with respect to dividend rights rank prior to
all classes and series of Common Stock, Cumulative Preferred Stock, and the
Series A, B, C, and D Senior Convertible Preferred Stock and, with respect to
liquidation rights rank prior to all classes and series of Common Stock, the
Cumulative Preferred Stock, and be on a par with the Series A, B, C and D Senior
Convertible Preferred Stock.





(3) In the
event of any liquidation, dissolution, or winding up of the affairs of the
Company, whether voluntary or otherwise, after payment or provision for payment
of the debts and other liabilities of the Company, the holders of the Series E
Senior Preferred shall be entitled to receive, out of the remaining net assets
of the Company, an amount equal to the Stated Value of each share of Series E
Senior Preferred held of record by such holder, payable in cash or in shares of
stock, securities or other consideration, the value of which stock, securities
or other consideration shall be fixed by the Board of Directors, plus the amount
of all dividends in arrears on each such share up to the date fixed for
distribution, provided, however, that such remaining net assets are sufficient
to cover all the before mentioned payments and also like payments to holders of
Series A, B, C and D Senior Preferred, before any distribution shall be made to
the holders of Common Stock or Cumulative Preferred Stock of the
Company.  In case such remaining net assets are insufficient to cover
all such payments to holders of Series A, B, C, D and E Senior Preferred, the
holders of these series shall receive payments on a pro rata
basis.


62





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





(4) The
holders of said shares of Series E Senior Preferred shall not be entitled to any
voting rights.





(5) Shares of
Series E Senior Preferred which have been issued and reacquired in any manner,
including shares purchased or converted into Common Stock exchanged or redeemed,
shall be canceled on the books of the Company and shall not be considered
outstanding for any purpose.





(6) During
such time as there exist unpaid cumulative dividends due on the Series E Senior
Preferred, no reclassification of the shares of the Company or capital
reorganization of the Company in any manner provided by law shall be valid
unless (a) the holders of a majority of all the Series E Senior Preferred
approve, and (b) provision is made for the payment of the aggregate unpaid
cumulative dividends then in arrears.





(7) Each
share of Series E Senior Preferred shall automatically convert, on the date six
months after the date of issuance (the “Conversion Date”) which Conversion Date
shall be noted on the certificate issued to the holder of each share of the
Series E Senior Preferred, into shares of Common Stock of the Company on the
basis of one hundred (100) shares of Common Stock for 1 share of Series E Senior
Preferred.  The holder of any shares of Series E Senior Preferred
shall surrender, as soon as practicable on or after the Conversion Date, at the
principal office of the Company or at such other office or agency maintained by
the Company for that purpose, the certificate or certificates representing the
shares of Series E Senior Preferred due for conversion.  As promptly
as practicable, and in any event within ten business days after surrender of
such certificates, the Company shall deliver or cause to be delivered
certificates representing the number of validly issued, fully paid and
non-assessable shares of Common Stock of the Company to which such holder of
Series E Senior Preferred so converted shall be entitled.  Such
conversion shall be deemed to have been made at the close of business on the
Conversion Date, so that the rights of the holders of the Series E Senior
Preferred shall thereafter cease except for the right to receive Common Stock of
the Company in accordance herewith, and such converting holder of Series E
Senior Preferred shall be treated for all purposes as having become the record
holder of such Common Stock of the Company at such time.





(8) In the
event that, prior to the conversion of the Series E Senior Preferred Stock by
the holder thereof into Common Stock of the company, there shall occur any
change in the outstanding shares of Common Stock of the Company by reason of the
declaration of stock dividends, or through a re-capitalization resulting from
stock splits or combinations, without the receipt by the Company of fair
consideration therefore in the form of cash, services or property, the
conversion ratio of the Series E Senior Preferred Stock into Common Stock of the
Company shall be adjusted such that any holder of Series E Senior Preferred
Stock converting such stock into Common Stock subsequent to such change in the
outstanding shares of Common Stock of the Company be entitled to receive, upon
such conversion, a number of shares of Common Stock of the Company representing
the same percentage of common shares outstanding as presented by the shares that
he would have received had he converted his Series E Senior Preferred Stock to
Common Stock prior to such change in the outstanding shares of Common Stock of
the Company.





During
the year ended December 31, 2007, 16,667 Series E preferred shares were
automatically converted into 1,666,667 common shares. As of December 31, 2008
there were no Series E Senior Convertible Preferred share dividends
accrued.


63





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





Series G
of the Senior Convertible Preferred Stock series which was issued in 2007 has
43,610 shares designated and issued and outstanding at December 31,
2008.





(1) The
holders of said shares of Series G Senior Convertible Preferred shall not be
entitled to receive dividends.





(2) The
Series G Senior Preferred shall with respect to dividend rights rank junior to
all classes and series of Common Stock, Cumulative Preferred Stock, and the
Series A, B, C, D, E and F Senior Convertible Preferred Stock and, with respect
to liquidation rights rank prior to all classes and series of Common Stock, the
Cumulative Preferred Stock, and be on a par with the Series A, B, C, D, E and F
Senior Convertible Preferred Stock.





(3) In the
event of any liquidation, dissolution, or winding up of the affairs of the
Company, whether voluntary or otherwise, after payment or provision for payment
of the debts and other liabilities of the Company, the holders of the Series E
Senior Preferred shall be entitled to receive, out of the remaining net assets
of the Company, an amount equal to the Stated Value of $11.46526 for each share
of Series G Senior Preferred held of record by such holder, payable in cash or
in shares of stock, securities or other consideration, the value of which stock,
securities or other consideration shall be fixed by the Board of Directors, plus
the amount of all dividends in arrears on each such share up to the date fixed
for distribution, provided, however, that such remaining net assets are
sufficient to cover all the before mentioned payments and also like payments to
holders of Series A, B, C, D, E and F Senior Preferred, before any distribution
shall be made to the holders of Common Stock or Cumulative Preferred Stock of
the Company.  In case such remaining net assets are insufficient to
cover all such payments to holders of Series A, B, C, D, E and F Senior
Preferred, the holders of these series shall receive payments on a pro rata
basis.





(4) The
holders of said shares of Series G Senior Preferred shall not be entitled to any
voting rights.





(5) Shares of
Series G Senior Preferred which have been issued and reacquired in any manner,
including shares purchased or converted into Common Stock exchanged or redeemed,
shall be canceled on the books of the Company and shall not be considered
outstanding for any purpose.





(6) No
cumulative dividends shall be payable on Series G Senior
Preferred.





(7) Upon the
second anniversary of the Agreement and Plan of Reorganization, dated February
19, 2007, all the issued and outstanding shares of Series G Senior Preferred
automatically converted into shares of common stock based on the “Market Price”,
which was determined by dividing the conversion value of $500,000 by the average
sales price of a common share for the twenty successive trading days preceding
the second anniversary date of the agreement, subject to a minimum of 10 million
common shares. The outstanding 43,610 preferred shares converted into 17,857,142
common shares on February 19, 2009: based the average sales price for our common
shares during the twenty trading days period immediately preceding February 19,
2009, of $.028. Stock certificates for the new common shares will be issued upon
surrender of the original preferred stock certificates.


64





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





(8) In the
event that, prior to the conversion of the Series G Senior Preferred Stock by
the holder thereof into Common Stock of the company, there shall occur any
change in the outstanding shares of Common Stock of the Company by reason of the
declaration of stock dividends, or through a re-capitalization resulting from
stock splits or combinations, without the receipt by the Company of fair
consideration therefore in the form of cash, services or property, the
conversion ratio of the Series G Senior Preferred Stock into Common Stock of the
Company shall be adjusted such that any holder of Series G Senior Preferred
Stock converting such stock into Common Stock subsequent to such change in the
outstanding shares of Common Stock of the Company be entitled to receive, upon
such conversion, a number of shares of Common Stock of the Company representing
the same percentage of common shares outstanding as presented by the shares that
he would have received had he converted his Series G Senior Preferred Stock to
Common Stock prior to such change in the outstanding shares of Common Stock of
the Company.





16.
            INCOME
      TAXES





The
income tax provision (benefit) is comprised of the following:


Year Ended December 31,2008
                  
                  
                  2007State
      current provision (benefit)
                  
                  $
                  -
                  
                  
                  $
                  -State
      deferred provision (benefit)
                  
                  
                  -
                  
                  
                  
                  -$
                  -
                  
                  
                  $
                  -





The
Company’s total deferred tax asset and valuation allowance are as
follows:





December 31,2008
                    
                    
                    2007Total
      deferred tax asset, noncurrent
                    
                    $
                    13,300,000
                    
                    
                    $
                    11,500,000Less
      valuation allowance
                    
                    
                    (13,300,000
                    )
                    
                    
                    (11,500,000
                    )Net
      deferred tax asset, noncurrent
                    
                    $
                    -
                    
                    
                    $
                    -





The
differences between income tax benefits in the financial statements and the tax
benefit computed at the combined state and U.S. Federal statutory rate of 40%
are as follows:





Year Ended December 31,2008
                  
                  
                  2007Tax
      benefit
                  
                  
                  40
                  %
                  
                  
                  40
                  %Valuation
      allowance
                  
                  
                  (40
                  )%
                  
                  
                  (40
                  )%Effective
      tax rate
                  
                  
                  -
                  
                  
                  
                  -





At
December 31, 2008, the Company has available approximately $35,350,000 of net
operating losses to carry-forward and which may be used to reduce future federal
taxable income and expire between December 31, 2011 and 2028.





At
December 31, 2008, the Company has available approximately $21,600,000 of net
operating losses to carry-forward and which may be used to reduce future state
taxable income which expire December 31, 2015.





65





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





17.
            401(k)
      PLAN





The
Company adopted the qualified Magnitude, Inc. sponsored 401(k) plan covering
substantially all full time employees under which eligible employees may elect
to contribute, within statutory limits, a percentage of their annual
compensation.  The Company matches up to 50% of the employee’s
contribution of which the match may not exceed 3% of the employee’s total
compensation for the plan year.  Contributions to the plan were $1,875
and $6,895 for the years ended December 31, 2008 and 2007,
respectively.





18.
            STOCK
      BASED COMPENSATION





During
2008 and 2007 the Company issued the following securities to officers,
directors, and non-employees as part of their compensation and, in the case of
the former principals of Kiwibox Media Inc., pursuant to the Kiwibox acquisition
agreement, as amended.





Rudolf
Hauke (president and chief executive officer): In 2008 Mr. Hauke has earned
1,000,000 non-qualified stock options, 500,000 of which are 2-year options,
exercisable at $.05 per common share, and 500,000 of which are 4-year options,
exercisable at $.10 per common share, such options valued at $19,200 pursuant to
the Black-Scholes valuation formula. In computing the Black Scholes values we
used a volatility of 283% and a risk-free interest rates of 2.6% and
3.3%





Edward L.
Marney (former president and chief executive officer): In 2008 Mr. Marney
received options for 500,000 restricted shares, valued at $9,500 pursuant to the
Black-Scholes valuation formula.





Joerg H.
Klaube (chief financial officer): In 2008 Mr. Klaube received options for
250,000 restricted shares, valued at $4,750 pursuant to the Black-Scholes
valuation formula.




Joseph J.
Tomasek (director): In 2008 Mr. Tomasek received options for 1,000,000
restricted shares, valued at $19,000 pursuant to the Black-Scholes valuation
formula.





Steven
Gray (former director): During 2008 Mr. Gray received options for 750,000
restricted shares, valued at $14,250. During 2007 we issued 1,850,000 restricted
shares to him and an assignee, and 500,000 common stock purchase options for
services rendered to the Company. We also issued 74,031 shares for interest on
loans to the Company.





We also
granted 500,000 options to a Consultant, exercisable at $0.15 during 2 years,
valued at $9,500 pursuant to the Black-Scholes valuation formula. In computing
the Black Scholes values we used a volatility of 169% and a risk-free interest
rate of 3.5%.





We also
granted a total of 2,000,000 warrants to a Consultant, exercisable at prices
between $0.06 and $0.085 during 4 years, valued at $97,000 pursuant to the
Black-Scholes valuation formula. In computing the Black Scholes values we used a
volatility of 150% and a risk-free interest rate of 5.0%.





Lin Dai
(former Kiwibox principal): During 2007, Mr. Dai was granted options for
7,500,000 shares, vesting over a 24-months period, exercisable at $0.05 per
share. In addition Mr. Dai was issued performance-based stock options for
3,000,000 shares. All of such options were cancelled upon Mr. Dai’s separation
from the Company on October 30, 2008.





Michael
Howard (former Kiwibox principal): During 2007, Mr. Howard was granted options
for 7,500,000 shares, vesting over a 24-months period, exercisable at $0.05 per
share. In addition Mr. Howard was granted performance-based stock options for
3,000,000 shares.


66





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





STOCK
BASED COMPENSATION (continued)





Ivan
Tumanov (former Kiwibox principal): During 2008, Mr. Tumanov was granted options
for 7,500,000 shares, vesting over a 24-months period, exercisable at $0.05 per
share. In addition Mr. Tumanov was issued performance-based stock options for
3,000,000 shares. On September 8, 2008, Mr. Tumanov resigned as an employee of
the Company and his all of the above options were cancelled.





Compensation
expense recognized during 2007 on the above grants was $706,567.




The
Company also issued 3,281,250 shares of common stock for services to
non-employees during 2007 totaling $156,937.





19.
            STOCK
      OPTION PLANS





In April
1996, Magnitude, Inc. adopted its 1996 Stock Incentive Plan (“the 1996
Plan”).  The 1996 Plan provides that certain options granted
thereunder are intended to qualify as “incentive stock options” (ISO) within the
meaning of Section 422A of the United States Internal Revenue Code of 1986,
while non-qualified options may also be granted under the Plan.  The
initial plan and subsequent amendments provided for authorization of up to
480,000 shares.  Pursuant to the above described stock exchange offer
on July 2, 1997, all options under the 1996 Plan were converted into shares of
the Company at a rate of 3.4676 shares of Magnitude, Inc. to 1 share of the
Company.





In
September 1997, the Company adopted its 1997 Stock Incentive Plan (“the 1997
Plan”).  The 1997 Plan provides that certain options granted
thereunder are intended to qualify as “incentive stock options” (ISO) within the
meaning of Section 422A of the United States Internal Revenue Code of 1986,
while non-qualified options may also be granted under the Plan.  The
initial plan and subsequent amendments provided for the grant of options for up
to 1,000,000 shares.  The purchase price per share of common stock
deliverable upon exercise of each ISO shall not be less than 100% of the fair
market value of the common stock on the date such option is
granted.  If an ISO is issued to an individual who owns, at the time
of grant, more than 10% of the total combined voting power of all classes of the
Company’s common stock, the exercise price of such option shall be at least 110%
of the fair market value of the common stock on the date of grant and the term
of the option shall not exceed five years from the date of grant.  The
purchase price of shares subject to non-qualified stock options shall be
determined by a committee established by the Board of Directors with the
condition that such prices shall not be less than 85% of the fair market value
of the common stock at the time of grant.





In May
2000 the Company adopted its 2000 Stock Incentive Plan (“the 2000
Plan”).  The 2000 Plan provides that certain options granted
thereunder are intended to qualify as “incentive stock options” (ISO) within the
meaning of Section 422A of the United States Internal Revenue Code of 1986,
while nonqualified options may also be granted under the Plan.  The
initial Plan provides for the grant of options for up to 5,000,000
shares.  The purchase price per share of common stock deliverable upon
exercise of each ISO shall not be less than 100% of the fair market value of the
common stock on the date such option is granted.  If an ISO is issued
to an individual who owns, at the time of grant, more than 10% of the total
combined voting power of all classes of the Company’s common stock, the exercise
price of such option shall be at least 110% of the fair market value of the
common stock on the date of the grant, and the term of the option shall not
exceed five years from the date of grant.  The purchase price of
shares subject to non-qualified stock options shall be determined by a
compensation committee established by the Board of Directors.


67


Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





STOCK
OPTION PLANS - (Continued)





Qualified and Non-Qualified
                      Shares Under Option Pursuant
                      to the 1997 Plan
                      December 31,2008
                    
                    
                    2007Outstanding,
      beginning of year
                    
                    
                    -
                    
                    
                    
                    -Granted
      during the year
                    
                    
                    -
                    
                    
                    
                    -Expired
      during the year
                    
                    
                    -
                    
                    
                    
                    -Surrendered
      during the year
                    
                    
                    -
                    
                    
                    
                    -Outstanding,
      end of year
                    
                    
                    -
                    
                    
                    
                    -Eligible,
      end of year for exercise
                    
                    
                    -
                    
                    
                    
                    -





At
December 31, 2008 and 2007, no options were outstanding.





At
December 31, 2008, there were 1,000,000 shares reserved for future option
grants.





Qualified and Non-Qualified
                    Shares Under Option Pursuant
                    to the 2000 Plan
                    December 31,2008
                  
                  
                  2007Outstanding,
      beginning of year
                  
                  
                  5,000
                  
                  
                  
                  331,500Granted
      during the year
                  
                  
                  -
                  
                  
                  
                  -Exercised
      during the year
                  
                  
                  -
                  
                  
                  
                  -Surrendered
      during the year
                  
                  
                  -
                  
                  
                  
                  -Expired
      during the year
                  
                  
                  (5,000
                  )
                  
                  
                  (326,500
                  )Outstanding,
      end of year (at a price of $0.20)
                  
                  
                  -
                  
                  
                  
                  5,000Eligible,
      end of year for exercise (at a price of $0.20)
                  
                  
                  -
                  
                  
                  
                  5,000





At
December 31, 2008 and 2007 the weighted average exercise price and weighted
average remaining contractual life is $0 and $0.20 per share and 0 months and 8
months, respectively.





At
December 31, 2008, there were 5,000,000 shares reserved for future option
grants.





At
December 31, 2008 the company has two stock-based employee compensation
plans, which are described more fully above. The company accounts for those
plans under the recognition and measurement principles of Statement of Financial
Accounting Standards (SFAS) 123(R), Share-Based Payment, and
related Interpretations. The Company has not granted any options under these
plans to employees during 2008 or 2007.


68


Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





STOCK
OPTION PLANS - (Continued)





The
Company also issues options outside of the Stock Incentive Plans which are
comprised as follows:


December 31,2008
                  
                  
                  2007Outstanding,
      beginning of year
                  
                  
                  32,720,908
                  
                  
                  
                  12,025,908Granted
      during the year
                  
                  
                  4,000,000
                  
                  
                  
                  23,500,000Exercised
      during the year
                  
                  
                  -
                  
                  
                  
                  (600,000
                  )Surrendered
      or cancelled during the year
                  
                  
                  (15,000,000
                  )
                  
                  
                  -Expired
      during the year
                  
                  
                  (3,367,366
                  )
                  
                  
                  (2,205,000
                  )Outstanding,
      end of year (at prices ranging from $0.01 to $0.15)
                  
                  
                  18,353,542
                  
                  
                  
                  32,720,908Eligible
      for exercise, end of year (at prices ranging from $0.01 to
      $0.15)
                  
                  
                  14,270,208
                  
                  
                  
                  9,720,908





At
December 31, 2008 and 2007 the weighted average exercise price and weighted
average remaining contractual life is $0.06 and $0.10 per share, and 2 years 4
months and 2 years 3 months, respectively.





During
2008, the Company granted options for 6,000,000 shares, exercisable at $0.05
during a three years period, beginning one year after grant for 50% and two
years after grant for the remaining 50%, to the former principals of Kiwibox
Media, Inc. under the terms of the acquisition agreement. Furthermore, the
Company granted options for 500,000 shares to a newly hired employee which
options are exercisable at $0.05 during three years periods beginning October 8,
2008, 2009 and 2010 for one third each of those options. The Company also
granted 1,750,000 options to three officers and directors of the Company and
500,000 options to a consultant, all of which are exercisable at $0.025 during a
five years period, and 1,350,000 options to a former director of the Company for
consulting services, 750,000 of which are exercisable at $0.025 during a five
years period, with the remaining 600,000 options exercisable at $0.15 during a
three years period.





20.
            WARRANTS





The
Company granted common stock purchase warrants between January 1, 2007 and
December 31, 2008 which are comprised as follows:.


December
      31,2008
                  
                  
                  2007Outstanding,
      beginning of year
                  
                  
                  95,864,000
                  
                  
                  
                  71,734,667Granted
      during the year
                  
                  
                  89,942,315
                  
                  
                  
                  55,789,000Exercised
      during the year
                  
                  
                  -
                  
                  
                  
                  -Surrendered
      /cancelled during the year
                  
                  
                  -
                  
                  
                  
                  (12,500,000
                  )Expired
      during the year
                  
                  
                  (17,583,334
                  )
                  
                  
                  (19,159,667
                  )Outstanding,
      end of year (at prices ranging from $.05 to $.15)
                  
                  
                  168,222,981
                  
                  
                  
                  95,864,000Eligible,
      end of year (at prices ranging from $.05 to $.15)
                  
                  
                  168,222,981
                  
                  
                  
                  47,364,000








At
December 31, 2008 and 2007, the weighted average exercise price and weighted
average remaining contractual life is $0.06 and $0.08 per share and 3 year 4
months and 2 years 11 months, respectively.


69





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





21.
            RELATED
      PARTY TRANSACTIONS





On
January 2, 2007, the Company and a former employee, Steven W. Jagels settled a
lawsuit commenced by Mr. Jagels against the Company based upon claims which
included breach of his employment agreement. We agreed to make a payment of
$20,040 to Mr. Jagels and to issue 3,000,000 common shares to him by January 7,
2007. We also agreed to include these shares in a registration statement and
when declared effective by the SEC, to cause a buyer to purchase these shares
from Mr. Jagels for $75,000 prior to February 28, 2007. At the time of this
report, the law suit has been settled.





In
January 2007 we issued warrants for 3,125,000 shares, exercisable at $0.05 per
share, to the former president and chief executive officer, in connection with a
settlement agreement reached during the fourth quarter in 2006.





In May
2007 the Company reached agreement with the former president and chief executive
officer to the effect that, in return for issuance of 2,000,000 shares, he would
issue a waiver with respect to the Company’s obligation for filing a
registration statement for certain securities previously issued to him by the
Company.





During
the year ended December 31, 2008 one outside director of the Company who also
serves as the Company’s general and securities counsel, was paid an aggregate
$256,800 for legal services. At December 31, 2008, the Company owed this
director $313,570.  Another outside director was paid $30,000 during
the second quarter in 2008, for business consulting services.





During
the second quarter in 2008, we paid $24,000 to a major shareholder for investor
relations services.





In
August, 2008, we issued an aggregate 30,560,000 restricted common shares to the
three Kiwibox principals pursuant to our Agreement and Plan of Reorganization,
dated February 19, 2007, and subsequent amendments, as disclosed in our report
and exhibit, filed on Form 8-K with the U.S. Securities and Exchange Commission
on March 4, 2008.





On August
17, 2008, one of the three Kiwibox Shareholders resigned his employment. As part
of this agreement, his outstanding stock options were cancelled and the
consultant entered into an agreement that provided for his future services to
the Company as an independent consultant for six months at $12,500 per month. On
September 5, 2008, the Company reached a Settlement Agreement with the
consultant whereby the Company forgave the balance of loans due from the former
shareholder in the balance of $155,459 for $75,000 in cash and by offsetting of
$75,000 of notes payable due to the former shareholder. The difference of $5,459
was treated as additional compensation.





On
October 30, 2008, the Company terminated its the employment agreement with Lin
Dai for cause. On December 8, 2008, Mr. Dai resigned his position as a member of
the Company's Board of Directors. Since this resignation, the Company has been
in negotiations with Lin Dai to acquire all of Mr. Dai's Company securities and
resolve all potential claims of the parties. Although these negotiations have
ceased, neither the Company nor Mr. Dai have formally instituted any claims
against the other and it is not possible to determine whether any claims will be
instigated, or if commenced, what the outcomes of any such litigation may
be.


70





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





22.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





Cash,
accounts receivable, accounts payable, accrued expenses, notes payable,
long-term debt and capitalized lease obligations: The carrying amount
approximates fair value because of the short term maturity of these
instruments.





Limitations


Fair
value estimates are made at a specific point in time, based on relevant
information and information about the financial instrument.  These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision.  Changes in assumptions could significantly affect the
estimates


71





Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





23.
            NEW
      ACCOUNTING PRONOUNCEMENTS




In
September 2006, the FASB released SFAS No. 157, Fair Value Measurements ("SFAS
157"), which defines fair value and establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. Although SFAS 157 applies to (and amends) the
provisions of existing authoritative literature, it does not, of itself, require
any new fair value measurements or establish valuation standards. SFAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Adoption of
SFAS 157 did have a material impact on our Consolidated Financial
Statements.




In
February, 2007, the FASB issued FASB Statement No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities ("SFAS 159"), which creates an
alternative measurement treatment for certain financial assets and financial
liabilities. SFAS 159 permits fair value to be used for both the initial and
subsequent measurements on an instrument by instrument basis, with changes in
the fair value to be recognized in earnings as those changes occur. This
election is referred to as the fair value option. SFAS 159 also requires
additional disclosures to compensate for the lack of comparability that will
arise from the use of the fair value option. SFAS 159 is effective for fiscal
years beginning after November 15, 2007. The fair value option has not been
elected for any financial assets or liabilities at December 31,
2008.




In
December 2007, the FASB issued SFAS No. 141R, Business Combinations ("SFAS
141R"), which replaced FASB Statement 141, Business Combination, which changes
the accounting for business combinations and non-controlling interests. Among
other things, when compared to the predecessor guidance SFAS 141R will require
(i) more assets acquired and liabilities assumed to be measured at fair value as
of the acquisition date, (ii) liabilities related to contingent consideration to
be remeasured to fair value each subsequent reporting period, and (iii) acquirer
in preacquisition periods to expense all acquisition-related costs. SFAS 141R
must be applied prospectively for fiscal years beginning after December 15,
2008. We do not expect adoption of SFAS 141R to have a material impact on our
Consolidated Financial Statements.




In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements - an Amendment of ARB No. 51 ("SFAS 160"),
which changes the accounting and reporting for minority interests, which will be
recharacterized as non-controlling interests and classified as a component of
equity. SFAS 160 must be adopted no later than January 1, 2009. We do not expect
adoption of SFAS 160 to have a material impact on our Consolidated Financial
Statements.




In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities - an Amendment of FASB Statement No. 133 ("SFAS 161"), which
requires enhanced disclosures about (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended ("SFAS 133") and its related interpretations and
(iii) how derivative instruments and related hedged items affect an entity's
financial position, financial performance and cash flows. SFAS 161 will be
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008. We do not expect adoption of SFAS 161 to have
a material impact on our Consolidated Financial Statements.




In June
2008, the Emerging Issues Task Force ("EITF") issued No. 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities ("EITF 03-6-1"), which addresses whether instruments
granted in share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in the earnings allocation in
computing earnings per share ("EPS") under the two-class method. EITF
03-6-1 will be effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those years. All
prior-period EPS data presented will be adjusted retrospectively to conform to
the provisions of EITF 03-6-1. We are evaluating the expected impact of adoption
of EITF 03-6-1.




72


Magnitude
Information Systems, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements





NEW
ACCOUNTING PRONOUNCEMENTS (continued)




In
December 2008, the FASB issued FSP No. FAS 132 R-1, Employers' Disclosures about
Postretirement Benefit Plan Assets ("FAS 132R-1"), which provides guidance on an
employer's disclosures about plan assets of a defined benefit pension or other
postretirement plan and requires employers to provide more transparency about
the assets held by retirement plan and the concentrations of risk in those
plans. FAS 132 R-1 will be effective for fiscal years beginning after December
15, 2009. We do not expect the adoption of FAS 132 R-1 to have a material impact
on our Consolidated Financial Statements.





24.
            LITIGATION





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





25.
            BUSINESS
      SEGMENTS





The
Company operates in only one business segment - youth targeted online social
networks - through its dedicated proprietary internet website.





26.
            SUBSEQUENT
      EVENTS


During
January and February 2009 we received an aggregate $500,000 working capital
loans from an accredited investor, covered by convertible promissory notes
carrying interest at 10% per year.





On
January 29, 2009 the holders of a total 244,725,773 common shares, out of the
436,242,570 shares outstanding, in response to the Company’s Consent
Solicitation, approved the following propositions:





Proposition
No. 1: to increase the authorized common shares to 1,400,000,000 shares
–


FOR:
      241,941,210
              AGAINST:  2,357,063
              ABSTAIN:  427,500





Proposition
No. 2: to ratify the appointment of Rosenberg Rich Baker Berman & Company to
serve as the Company’s auditors for the fiscal year ending December 31, 2009
–


FOR:  244,552,663
              AGAINST:  66,565
              ABSTAIN:  106,545


73