SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



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



For the Fiscal Year ended December 31,
2011



OR



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



For the Transition Period   From            to



Commission File No. 33-20432



KIWIBOX.COM, INC.

(formerly known as Magnitude Information
Systems, Inc.)

Exact Name of Registrant as Specified in
its Charter



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



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



(212) 239-8210

Registrants Telephone Number, Including
Area Code



Securities Registered Pursuant to Section
12(b) of the Act:

NONE



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



Securities Registered pursuant to Section
12(g) of the Exchange Act:

Common Stock, par value $0.0001



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



YesxNo ̈



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



The Registrant’s revenues for the
fiscal year ended December 31, 2011 were $599,615.



Common stock, par value $.0001
per share (“Common Stock”), was the only class of voting stock of the Registrant outstanding on April 5, 2012.
Based on the closing price of the Common Stock on the OTC Electronic Bulletin Board as reported on April 5, 2012 the aggregate
market value of the shares of the Common Stock held by persons other than officers, directors and persons known to the Registrant
to be the beneficial owners (as the term is defined under the rules of the Securities and Exchange Commission) of more than five
percent of the Common Stock on April 5, 2012, was approximately $9,375,661. By the foregoing statements, the Registrant
does not intend to imply that any of the officers, directors, or beneficial owners are affiliates of the registrant or that the
aggregate market value, as computed pursuant to rules of the Securities and Exchange Commission, is in any way indicative of the
amount which could be obtained for such shares of Common Stock.



As of April 5, 2012 612,793,060 shares
of Common Stock, $.0001 par value, were outstanding.



DOCUMENTS INCORPORATED BY REFERENCE: SEE
EXHIBIT INDEX











KIWIBOX.COM, INC.



CONTENTS



|          |  |                                                                                        |  | Page
|--------- |  | -------------------------------------------------------------------------------------- |  | ----
|PART I.   |  |                                                                                        |  |     
|Item  1.  |  | Business                                                                               |  | 3   
|Item 1A.  |  | Risk Factors                                                                           |  | 6   
|Item  2.  |  | Properties                                                                             |  | 9   
|Item  3.  |  | Legal Proceedings                                                                      |  | 9   
|Item  4.  |  | Submission of Matters to a Vote of Security Holders                                    |  | 9   
|          |  |                                                                                        |  |     
|PART II.  |  |                                                                                        |  |     
|          |  |                                                                                        |  |     
|Item  5.  |  | Market for Registrant's Common Equity and Related Shareholder Matters                  |  | 10  
|Item 6.   |  | Selected Financial Data                                                                |  | 10  
|Item  7.  |  | Management’s' Discussion and Analysis of Financial Condition and Results of Operations |  | 12  
|Item 7A.  |  | Quantitative and Qualitative Disclosures about Market Risks                            |  | 14  
|Item 8.   |  | Financial Statements                                                                   |  | 14  
|Item 9.   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   |  | 14  
|Item 9A.  |  | Control and Procedures                                                                 |  | 14  
|Item 9B.  |  | Other Information                                                                      |  | 15  
|          |  |                                                                                        |  |     
|PART III. |  |                                                                                        |  |     
|          |  |                                                                                        |  |     
|Item 10.  |  | Directors and Executive Officers of the Registrant                                     |  | 16  
|Item 11.  |  | Executive Compensation                                                                 |  | 18  
|Item 12.  |  | Security Ownership of Certain Beneficial Owners and Management                         |  | 22  
|Item 13.  |  | Certain Relationships and Related Transactions                                         |  | 25  
|Item 14.  |  | Principal Accountant Fees and Services                                                 |  | 25  
|          |  |                                                                                        |  |     
|PART IV.  |  |                                                                                        |  |     
|          |  |                                                                                        |  |     
|Item 15.  |  | Exhibits                                                                               |  | 27  
|          |  |                                                                                        |  |     
|          |  | Signatures                                                                             |  | 28  
|          |  |                                                                                        |  |     
|          |  | Exhibit Index                                                                          |  | 29  



2







PART I



| | ITEM 1: | BUSINESS
| | ------- | --------



| | Section 1.1 | The Company
| | ----------- | -----------

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



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



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



On September 30, 2011, Kiwibox.com
acquired the German based social network Kwick! (see Note 21 of the Financial Statements).



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



As of December 31, 2011, there
were outstanding 586,168,060 Common Shares, 1 Cumulative Preferred Share, and 85,890 Convertible Preferred
Shares.



3







Description of Business



Overview



On December 31, 2009 Magnitude
Information Systems, Inc. changed its name to Kiwibox.Com, Inc.



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



Kiwibox Operations



The company successfully acquired
the German social network Kwick! in the third quarter 2011. This acquisition adds more than 1 million members with over 2 billion
page impressions a month to the Kiwibox network. This community has been online since 1999 and has been cash flow positive since
inception. We are continuing to optimize this website and develop mobile applications to keep these users engaged across multiple
platforms. We are presently increasing the number of events sponsored in Germany as a way to bind our German members to our website.



The Company has successfully
integrated Pixunity to the US market and will continue to add impressive features throughout the year. At the same time we continue
to increase our market presence. Our promotional teams, both inside and outside of New York City, continue to develop  partnerships
with event organizers and businesses along the East Coast of the United States and plan further expansion of these types of market
alliances throughout 2012.



The Company will continue focusing
on growth through acquisition and expects to start another due diligence process in the next three months.



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



The operating expenses, not
including stock-based compensation, are at a level of approximately $100,000 per month. We expect income received
as a result of the recent acquisition to decrease the funding needed from existing investors (see sections “Loans and Notes
Payable”).



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



Potential Revenue Streams and Marketing Strategy



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



4







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



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



Safety



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



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



Competition



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



Intellectual Property



We currently own trademarks
on Kwick (European) , kwickanddirty (Germany), deinefreundeunddu (Germany) and Kwick (Switzerland). However, the Kiwibox.com
web and mobile software and other related intellectual property rights are important assets. We hold the Internet domain names
Kiwibox.com, Kiwibox.net, Kiwibox.org, Kwick.de as well as other country-code top level domains (e.g.
kiwibox.cn) and feature-based domains like 4kiwi.com.



Governmental Regulations



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



5







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



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



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



Employees



Currently, we have 16 full-time
and 6 part-time, of which 12 full-time and 1 part-time employee are part of Kwick! employees.



| | ITEM 1.A: | Risks
                                                                                         Related to Our Business
| | --------- | ----------------------------------------------------------------------------------------------------------------------



Early Stage Company; Generation of Revenues



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



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



Our financial statements have
been presented on the basis that we will remain a going concern and that our assets will increase and that we will satisfy our
liabilities in the normal course of our business. Kiwibox has had minimal revenues and has incurred operating losses during the
fiscal years ended December 31, 2008, 2009, 2010 and 2011. 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.



6







Need for Additional Capital; Short-Term Viability
of Company



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



No Formal Feasibility and Market Research Plan



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



Unpredictability of Future Revenues; Potential
Downturns in Operating Results



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



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



Website and Service Development Risks



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



7







Limited Senior Management Team; Potential Problems
with Expanding Personnel



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



Competition



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



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



Dependence on Management



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



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



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



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.



8







Penny Stock Regulation



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



Absence of Dividends



We have not paid any dividends
on our common stock and we are not likely to do so in the foreseeable future. We presently intend to retain earnings for use in
growing our business. We may pay for some of our future expansion through debt financing, in which case lenders traditionally
prohibit the payment of any such dividends. We also are prohibited from paying dividends on our common stock before we have paid
all dividends accrued on our preferred stock, which accruals amounted to $581,865 at December 31, 2011. Investors should be aware,
therefore, that the Company intends to re-invest any earnings back into our business for the foreseeable future and that they
should have no expectations of receiving any dividends on the common shares they may purchase.



| | ITEM 2: | Description
                                                                                                                                      of
                                                                                                                                      Properties
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------









We maintain offices for
our Kiwibox operations at 330 W. 38th Street, New York, New York 10018, for approximately 733 square feet. The lease expired
at the end of 2011 and was subsequently extended until December 2012 under the same terms. We pay minimum monthly rentals of
$2,200 plus tenants’ share of utility/cam/property tax charges which average approximately $623 per month. Kwick!
Maintains an office at Werkstrasse 24, 71384 Weinstadt Germany.







| | ITEM 3: | LEGAL
                                                                                       PROCEEDINGS
| | ------- | --------------------------------------------------------------------------------------------------------



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



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



No matters were submitted to
a vote of the security holders during the 2011 fiscal period.



9







PART II



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



(a)  Market Information



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



|               |  | OTC-BB  |     
|-------------- |  | ------- | ----
|               |  | Low/Bid |     
|2009           |  |         |     
|First Quarter  |  | $       | 0.01
|Second Quarter |  |         | 0.01
|Third Quarter  |  |         | 0.01
|Fourth Quarter |  |         | 0.01
|2010           |  |         |     
|First Quarter  |  | $       | 0.01
|Second Quarter |  |         | 0.01
|Third Quarter  |  |         | 0.01
|Fourth Quarter |  |         | 0.01
|2011           |  |         |     
|First Quarter  |  | $       | 0.01
|Second Quarter |  |         | 0.02
|Third Quarter  |  |         | 0.04
|Fourth Quarter |  |         | 0.02



(b)  Shareholders



As of April 5, 2012, there
were approximately 356 shareholders of record for the Company’s Common Stock. The number of record holders does not include
shareholders whose securities are held in street names.



(c)  Dividends



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



Recent Issues of Unregistered
Securities



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



| | ITEM 6: | Selected
                                                                                                                                      Financial
                                                                                                                                      Data
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



10







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



The selected financial information
presented below under the captions "Statement of Operations" and "Balance Sheet" for the years ended December
31, 2006 through 2010 is derived from the financial statements of the Company and should be read in conjunction with the financial
statements and notes thereto.



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



Balance Sheet





|                               |  | December 31, |            
|------------------------------ |  | ------------ | -----------
|                               |  | 2011         |            
|Total assets                   |  | $            | 8,352,619  
|Current liabilities            |  |              | 16,326,319 
|Long-term debt                 |  |              | -          
|Working capital                |  |              | (15,396,872
|                               |  |              |            
|Shareholders’ equity (deficit) |  | $            | (7,973,700 







Statement of Operations





|                                                  |  | For the Year Ended December 31, |            
|------------------------------------------------- |  | ------------------------------- | -----------
|                                                  |  | 2011                            |            
|Total revenues                                    |  | $                               | 599,615    
|Operating loss                                    |  |                                 | (1,500,610 
|Net loss                                          |  |                                 | (5,900,537 
|Net loss after dividends on preferred shares      |  |                                 | (5,951,800 
|Net loss per common share                         |  | $                               | (0.011     
|Number of shares used in computing per share data |  |                                 | 522,090,046







11







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



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



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



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



Description
of Business



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



In continuing its efforts to
exploit other available revenue sources in addition to its current efforts focused on organic membership growth, the Company acquired
the German social network Kwick! on September 30, 2011. Management believes that this acquisition will significantly enhance the
Company’s competitive market position during 2012.



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





The operating expenses, not
including stock-based compensation, remained at a level of approximately $100,000 per month. We are currently receiving funding
at these levels from existing investors (see sections “Loans and Notes Payable”).





Results of
Operations for the Twelve Months Ended December 31, 2011 Compared to the Twelve Months Ended December 31, 2010



The Companies acquisition of its subsidiary Kwick! has significantly increased revenue. Our website presence
is not yet supported by a volume of active members-users that would provide a basis for significant growth in advertising revenues.
For the year ended December 31, 2011, total revenues amounted to $599,615 compared to $2,039 in 2010. Revenues were derived almost
entirely from the Kwick! operations.



12







Gross Profit (Loss) amounted
to $102,505 after considering $497,110 costs of goods sold. After deducting selling, research, and general and administrative
expenses of $1,606,353 compared to the $1,179,870 recorded in 2010, the Company realized an operating loss of $1,500,610 compared
to an operating loss of $1,181,626 in 2010. For the year 2012 management expects a reduction in operating expenses which, coupled
with an expected increase in revenues, due to the acquisition of Kwick! will start a process of putting the company on a path towards
eventually eliminating the erosion of shareholder value.



The major item included in non-operating income and expenses was a charge of $3,659,670 accounting for
the intrinsic value of the beneficial conversion feature associated with convertible debt. We also incurred a charge of $476,281
in connection with changes in the valuation of derivative liabilities. In 2010, the major item included in non-operating income
and expenses was a charge of $2,083,716 accounting for the intrinsic value of the beneficial conversion feature associated with
convertible debt and a charge of $476,281 in connection with changes in the valuation of derivative liabilities In 2011, The year
concluded with a net loss of $5,900,537. After accounting for dividends accrued on outstanding preferred stock which totaled $51,263
the net loss applicable to common shareholders was $5,951,800 or $0.011 per share, compared to a loss of $4,023,635 or $0.008 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 parent
operations. In addition, we received $845,000 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 $15,396,872 at December 31, 2011, as compared to $6,145,931 at December 31, 2010. Stockholders’ equity showed
an impairment of $7,973,700 at the end of the year, compared to an impairment of $6,014,608 at the beginning of the year. The cash
flow from operations totaled $(960,023) and was brought about primarily due to our acquisition of Kwick!. We have no bank debt
and our indebtedness at December 31, 2011, excluding the other current liabilities described below, consisted of certain notes
and loans aggregating $4,487,950. The position “Obligations to be settled in stock” of $249,275 includes $113,275 for
common shares and options accrued for certain officers and directors pursuant to their respective employment and remuneration agreements,
and $136,000 for stock and warrants due under consulting agreements. Current liabilities also include $581,865 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 financing sources, or if we do, whether the terms of such financing will be acceptable or commercially reasonable.



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



13







| | ITEM 7 A: | Quantitative
                                                                                                                                        and
                                                                                                                                        Qualitative
                                                                                                                                        Disclosures
                                                                                                                                        about
                                                                                                                                        Market
                                                                                                                                        Risk
| | --------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | ITEM 8: | FINANCIAL
                                                                                       STATEMENTS AND SUPPLEMENTARY DATA
| | ------- | ----------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



In connection with the preparation of
the Company’s Annual Report on Form 10-K, an evaluation was carried out by our management, with participation of our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”) as of December 31, 2011.  Disclosure
controls and procedures are designed to ensure that information required to be disclosed in reports filed and submitted under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified, and that such information
is accumulated and communicated to  management, included the Chief Executive Officer and Chief Financial Officer, to
allow timely decisions regarding required disclosure.



During our evaluation of disclosure controls
and procedures as of December 31, 2011, conducted as part of the Company’s annual audit and preparation of our annual financial
statements, several deficiencies were identified which viewed in the aggregate, represent a material weakness.  As a
result of this material weakness, described more fully below, our Chief Executive Officer and Chief Financial Officer concluded
that, as of December 31, 2011, the Company’s disclosure controls and procedures were ineffective.



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



Management’s Annual Report on
Internal Control over Financial Reporting



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



Management has conducted, with the
participation of the Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2011.  Management’s assessment of internal control
over financial reporting was conducted using the criteria set forth in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such
assessments.



A material weakness is a deficiency,
or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that
a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely
basis.  Based on management’s assessment over financial reporting, management believes as of December 31, 2011,
the Company’s internal control over financial reporting was not effective due to the following deficiencies:



14







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



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



Company management believes that notwithstanding
the above identified deficiencies that constitute our material weakness, that the consolidated financial statements fairly present,
in all material respects, the Company’s consolidated balance sheets as of December 31, 2011 and 2010 and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2011 and 2010, in conformity
with generally accepted accounting principles.



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



Remediation of Material Weaknesses
in Internal Control over Financial Reporting



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



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



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



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



Changes in Internal Control over Financial Reporting



Other than described above, there
have been no changes in the Company’s internal control over financial reporting during the most recently completed fiscal
year ended December 31, 2011, that have materially affected or are reasonably likely to materially affect the Company’s
internal control over financial reporting.



ITEM 9B: OTHER INFORMATION



None.



15







PART III



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



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



|Name              |  | Positions                          |  | Term  Served (Expires)           
|----------------- |  | ---------------------------------- |  | ---------------------------------
|                  |  |                                    |  |                                  
|Andre Scholz      |  | Director                           |  | May 13, 2009 to present          
|                  |  | President, Chief Executive Officer |  | August 1, 2010 to present        
|                  |  | Chief Technology Officer           |  | May 13, 2009 to present          
|                  |  |                                    |  |                                  
|Joseph J. Tomasek |  | Director                           |  | Feb. 11, 1999  to present        
|                  |  |                                    |  |                                  
|Craig S. Cody     |  | Chief Financial Officer            |  | May 1, 2010 to present           
|                  |  |                                    |  |                                  
|Joerg Otzen       |  | Director                           |  |                                  
|                  |  |                                    |  | July 14, 2008 to October 5, 2011*
|                  |  |                                    |  |                                  
|Rudolf Hauke      |  | Director                           |  |                                  
|                  |  | President, Chief Executive Officer |  | July 14, 2008 to August 1, 2010* 
|                  |  |                                    |  |                                  
|Joerg H. Klaube   |  | Director                           |  | Dec. 2, 2005 to May 1, 2010*     
|                  |  | Sr. Vice President, Secretary,     |  | July 31, 1997 to May 1, 2010*    
|                  |  | Chief Financial Officer            |  |                                  



* Mr. Otzen resigned as a director
on October 5, 2011 Mr. Hauke resigned as an officer and Director on August 1, 2010. Mr. Klaube resigned as a director and Chief
Financial officer on May 1, 2010. All Directors of the Company hold office until the next annual meeting of the shareholders and
until successors have been elected and qualified. Executive Officers of the Company are appointed by the Board of Directors at
meetings of the Company's directors and hold office until they resign or are removed from office.



16







Andre Scholz,
Age 34 – Director, Chief Technology Officer.Andre Scholz has more than 15 years business experience
in Internet, telecommunication technology and IT security. He holds an advanced degree from the University of Stuttgart and Konstanz
in electronicengineering. Mr. Scholz is a consultant and
well known technical expert for numerous social networks, communities and high-traffic sites, active around the world. He brings
a wealth of social network and internet knowledge to Kiwibox. Mr. Scholz was co-founder of various internet exchange points and
manages them until now. Since 1996 he is Managing Director of a carrier and Internet Service Provider in Stuttgart, Germany and
since 2002 he is CEO of the Interscholz company group, Leonberg, Germany, which places private investments in and is managing
and operating various companies.



Craig S. Cody, Age 49 – Chief
Financial Officer. Effective as of May 4, 2010, Registrant promoted Craig S. Cody to serve as its Chief Financial Officer. Mr.
Cody, a licensed Certified Public Accountant, had previously served as the Comptroller for the Registrant. In addition to managing
an independent accounting and financial services business in New York for a diverse group of clients, he brings extensive management
experience derived in the public sector. Mr. Cody holds a B.S. Degree in Accounting from the State University of New York.





Joseph J. Tomasek,
Age 65 - 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, and New York.







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,
2011 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), except for the annual statements of beneficial ownership of securities on Form 5 for the officers and directors
of the Company which were filed late.







17











| | ITEM 11: | EXECUTIVE COMPENSATION
| | -------- | ----------------------



2010 SUMMARY COMPENSATION TABLE



The following table sets forth
certain compensation information for: (i) the person who served as the Chief Executive Officer of the Company during the year
ended December 31, 2011, regardless of the compensation level, and (ii) each of our other executive officers, serving as an executive
officer at any time during 2009, as well as the most highly compensated employees who did not serve as executive officers during
2009. Compensation information is shown for the fiscal years ended December 31, 2011, 2010 and 2009:





|                                    |  |  |          |  |  |  |                |  |  |  |               |  |  |  |                      |  |  |  |                       |  |  |  |                                                 |  |  |  |                                                       |  |  |  | (1)                             |  |  |  |           | 
|----------------------------------- |  |  | -------- |  |  |  | -------------- |  |  |  | ------------- |  |  |  | -------------------- |  |  |  | --------------------- |  |  |  | ----------------------------------------------- |  |  |  | ----------------------------------------------------- |  |  |  | ------------------------------- |  |  |  | --------- | 
|Name and
    Principal Position (a) |  |  | Year (b) |  |  |  | Salary ($) (c) |  |  |  | Bonus ($) (d) |  |  |  | Stock Awards ($) (e) |  |  |  | Option Awards ($) (f) |  |  |  | Non- Equity Incentive Plan Compensation ($) (g) |  |  |  | Non- Qualified Deferred Compensation Earnings ($) (h) |  |  |  | All Other Compen sation ($) (i) |  |  |  | Total ($) | 
|                                    |  |  |          |  |  |  |                |  |  |  |               |  |  |  |                      |  |  |  |                       |  |  |  |                                                 |  |  |  |                                                       |  |  |  |                                 |  |  |  |           | 
|Andre Scholz                        |  |  | 2011     |  |  |  | 200,000        |  |  |  | -             |  |  |  | 28,950               |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | 228,950   | 
|Chief Executive                     |  |  | 2010     |  |  |  | 230,000        |  |  |  | -             |  |  |  | 24,000               |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | 254,000   | 
|Officer, President, Director        |  |  | 2009     |  |  |  | 140,000        |  |  |  | -             |  |  |  | 25,000               |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 20,000                          |  |  |  | 185,000   | 
|                                    |  |  |          |  |  |  |                |  |  |  |               |  |  |  |                      |  |  |  |                       |  |  |  |                                                 |  |  |  |                                                       |  |  |  |                                 |  |  |  |           | 
|Joseph J. Tomasek,                  |  |  | 2011     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | 11,880                |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 60,000                          |  |  |  | 71,880    | 
|Esq., Director and                  |  |  | 2010     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | 11,880                |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 65,000                          |  |  |  | 76,880    | 
|General Legal Counsel               |  |  | 2009     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | 8,910                 |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 185,000                         |  |  |  | 193,910   | 
|                                    |  |  |          |  |  |  |                |  |  |  |               |  |  |  |                      |  |  |  |                       |  |  |  |                                                 |  |  |  |                                                       |  |  |  |                                 |  |  |  |           | 
|Joerg Otzen                         |  |  | 2011     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | -         | 
|Director                            |  |  | 2010     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 5,000                           |  |  |  | 5,000     | 
|                                    |  |  | 2009     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | -         | 
|                                    |  |  |          |  |  |  |                |  |  |  |               |  |  |  |                      |  |  |  |                       |  |  |  |                                                 |  |  |  |                                                       |  |  |  |                                 |  |  |  |           | 
|Craig S Cody                        |  |  | 2011     |  |  |  | 91,000         |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 3,500                           |  |  |  | 94,500    | 
|Chief Financial Officer             |  |  | 2010     |  |  |  | 59,750         |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 27,462                          |  |  |  | 87,212    | 
|                                    |  |  | 2009     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 18,450                          |  |  |  | 18,450    | 
|                                    |  |  |          |  |  |  |                |  |  |  |               |  |  |  |                      |  |  |  |                       |  |  |  |                                                 |  |  |  |                                                       |  |  |  |                                 |  |  |  |           | 
|Rudolf Hauke                        |  |  | 2011     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | -         | 
|Chief Executive                     |  |  | 2010     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | 13,867                |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | 13,867    | 
|Officer, President, Director        |  |  | 2009     |  |  |  | 36,000         |  |  |  | -             |  |  |  | 23,790               |  |  |  | -                     |  |  |  | -                                               |  |  |  |                                                       |  |  |  | 48,000                          |  |  |  | 107,790   | 
|                                    |  |  |          |  |  |  |                |  |  |  |               |  |  |  |                      |  |  |  |                       |  |  |  |                                                 |  |  |  |                                                       |  |  |  |                                 |  |  |  |           | 
|Joerg H. Klaube                     |  |  | 2011     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | -         | 
|Chief Financial                     |  |  | 2010     |  |  |  | 30,763         |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | 30,763    | 
|Officer, Director                   |  |  | 2009     |  |  |  | 60,885         |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | 60,885    | 
|                                    |  |  |          |  |  |  |                |  |  |  |               |  |  |  |                      |  |  |  |                       |  |  |  |                                                 |  |  |  |                                                       |  |  |  |                                 |  |  |  |           | 
|Michael Howard                      |  |  | 2011     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | -         | 
|Employee of                         |  |  | 2010     |  |  |  | -              |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | -         | 
|Subsidiary                          |  |  | 2009     |  |  |  | 75,866         |  |  |  | -             |  |  |  | -                    |  |  |  | -                     |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | -                               |  |  |  | 75,866    | 
|                                    |  |  |          |  |  |  |                |  |  |  |               |  |  |  |                      |  |  |  |                       |  |  |  |                                                 |  |  |  |                                                       |  |  |  |                                 |  |  |  |           | 
|All executive officers              |  |  | 2011     |  |  |  | 291,000        |  |  |  | -             |  |  |  | 28,950               |  |  |  | 11,880                |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 63,500                          |  |  |  | 395,380   | 
|and named significant employees     |  |  | 2010     |  |  |  | 320,513        |  |  |  | -             |  |  |  | 24,000               |  |  |  | 25,747                |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 97,462                          |  |  |  | 467,722   | 
|and directors as a group            |  |  | 2009     |  |  |  | 312,751        |  |  |  | -             |  |  |  | 25,000               |  |  |  | 32,700                |  |  |  | -                                               |  |  |  | -                                                     |  |  |  | 253,000                         |  |  |  | 623,451   | 









18







Andre Scholz 2009-2011:
Andre Scholz joined the Company in May 2009, as our Chief Technology Officer and as a director. On August 1, 2010 Mr. Scholz took
over as President and Chief Executive Officer. During 2011, we paid Mr. Scholz $200,000 as salary. He also has accrued 1,200,000
common shares earning 100,000 common shares every month. These shares were accrued for and valued at $28,950. During the first
quarter of 2010, the company issued the 500,000 shares for the signing bonus and 950,000 shares towards the accrued monthly allowance.
In the third quarter the company issued an additional 500,000 shares towards the accrued monthly allowance. During 2010, we paid
Mr. Scholz $230,000 as salary and $20,000 in consulting fees prior to his entry into the Company. During 2009, we paid Mr. Scholz
$140,000 as salary and $20,000 in consulting fees prior to his entry into the Company He also has accrued 500,000 common shares
as a signing bonus and is earning 100,000 common shares every month, beginning with May 15, 2009. All but 500,000 of these shares
have been issued through December 31, 2011.



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



Joseph J. Tomasek 2011-2009: During fiscal years 2011, 2010 and 2009, the Company incurred or paid $60,000, $65,000 and $ 185,0000, respectively, to Mr.
Tomasek for legal services rendered to the Company. In 2011 Mr. Tomasek earned options for 1,200,000 restricted shares, valued
at $11,880 pursuant to the Black-Scholes valuation formula. In 2010 Mr. Tomasek earned options for 1,200,000 restricted shares,
valued at $11,880 pursuant to the Black-Scholes valuation formula. In addition, Mr. Tomasek was granted 500,000 stock warrants,
valued at $5,000 pursuant to the Black-Scholes valuation formula. In 2009 Mr. Tomasek earned options for 900,000 restricted shares,
valued at $8,910 pursuant to the Black-Scholes valuation formula. These options are earned at the rate of 100,000 options per
month, beginning with April 2009.



Joerg Otzen 2011-2009:During
2010 Mr. Otzen earned 500,000 stock warrants, valued at $5,000 pursuant to the Black-Scholes valuation formula.



Craig S Cody 2010: During
the year 2011, Mr. Cody earned $94,500. During the year 2010, Mr. Cody earned $82,212 and 500,000 stock warrants, valued at $5,000
pursuant to the Black-Scholes valuation formula. In 2009, Mr. Cody earned $18,450.



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



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



19







Employment Agreements



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



Andre Scholz – 2011-2009.
The terms of his consulting /employment agreement are included in our filing on Form 8-K of May 22, 2009 which is incorporated
herein by reference to that filing.



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



Stock Options:



No stock options were granted
during 2008, 2009 or 2010 pursuant to the Company’s 1997 Stock Option Plan and 2000 Stock Incentive Plan, to any executive
officers, directors, employees or to any beneficial owners of more than 10 percent of any class of equity securities of the Company.
In addition, there were no stock options or warrants exercised by any officer, director, employee or any beneficial owners of
more than 10 percent of any class of equity securities of the Company during 2009, 2010 or 2011.



1997 Stock Option Plan:



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



2000 Stock Incentive Plan:



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



Options Granted Outside
of Stock Option Plans:



During 2011, one director who
also serves as the Company’s general counsel earned 1,200,000 five-year stock options, exercisable at $0.05 per common share.



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



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



20







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, 2011, for each of the persons covered under our Summary Compensation Table.







|Name
    and Principal Position                           |  | Number
                                                                                                                         of Securities Underlying Unexercised Options Exercisable |                     |  | Number
                                                                                                                         of Securities Underlying Unexercised Options Unexercisable |  |     | Equity
    Incentive Plan Awards No. of Underlying Unexercised Unearned Options |  |  | Option
    Exercise Price |  |  | Option
    Expiration Date |              |  | No.
    of Shares or Units of Stock that have not vested |  |                                                                                                                                                                                                                                                                                                                                        | Market
    Value of Shares or Units of Stock that have not vested |  |  | Equity
    Incentive Awards, Shares, Units Or other Rights that have not vested |  |  | Equity
    Incentive Plan Awards: Market or Payout value of Unearned Shares,Units or other rights that have not vested |  
|--------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --- | ------------------------------------------------------------------------------- |  |  | ------------------------- |  |  | -------------------------- | ------------ |  | -------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------- |  |  | ---------------------------------------------------------------------------------------------------------------------- | -
|Rudolf
    Hauke, CEO and President                       |  |                                                                                                                                                                                          | 2,400,000           |  |                                                                                                                                                                                            |  | -   |                                                                                 |  |  | -                         |  |  |                            | $0.10        |  |                                                          |  | 8/14/2012
                                                                                              to 1/14/2014                                                                                                                                                                                                                   |                                                                   |  |  | -                                                                               |  |  |                                                                                                                        | -
|                                                          |  |                                                                                                                                                                                          |                     |  |                                                                                                                                                                                            |  |     |                                                                                 |  |  |                           |  |  |                            |              |  |                                                          |  |                                                                                                                                                                                                                                                                                                                                        |                                                                   |  |  |                                                                                 |  |  |                                                                                                                        |  
|Joseph
    J. Tomasek, Director and General Legal Counsel |  |                                                                                                                                                                                          | 1,000,000 3,300,000 |  |                                                                                                                                                                                            |  | - - |                                                                                 |  |  | - -                       |  |  |                            | $0.025 $0.05 |  |                                                          |  | 6/26/13 4/30/14
                                                                                                                                                                                                                                                                                                           to 12/31/14 |                                                                   |  |  | -                                                                               |  |  |                                                                                                                        | -





Option Exercises and Stock
Vested Table: None



Pension Benefits Table:None



Nonqualified Deferred Compensation
Table: None



Pre-requisites Table:None



Compensation of Directors:



We did not pay any compensation
to any of our directors for services rendered as directors during fiscal years 2011, 2010 and 2009



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



During 2011, 2010 and 2009,
one outside director of the Company who also serves as the Company’s general and securities counsel, incurred or was paid
an aggregate $60,000, $65,000 and $185,000, respectively, for legal services.



21







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.



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.



COMPENSATION AND NOMINATING
COMMITTEES



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



| | ITEM 12: | SECURITY OWNERSHIP
                                                                          OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
| | -------- | ----------------------------------------------------------------------------------------------------------------------------------------



The following table sets forth,
as of March 31, 2012, the record and beneficial ownership of common stock of the Company by each executive officer, director and
the three most highly compensated employees, all executive officers, directors and the three most highly compensated employees
as a group, and each person known to the Company to own beneficially, or of record, five percent or more of the outstanding shares
of the Company:





|Title of Class* |  | Name and Address of
    Beneficial Owner |  | Amount and Nature of
    Beneficial Ownership(1) |     | Percent of Class |  
|--------------- |  | ---------------------------------------- |  | ------------------------------------------------ | --- | ---------------- | -
|Common Stock    |  | Andre Scholz                             |  | 28,746,176                                       | (2) | 5.53             | %
|                |  | Pres./CEO/Director                       |  |                                                  |     |                  |  
|                |  | Joseph Tomasek                           |  | 7,280,500                                        | (3) | 1.29             | %
|                |  | Director                                 |  |                                                  |     |                  |  
|                |  | Craig Cody                               |  | 500,000                                          | (5) | 0.10             | %
|                |  | Chief Financial Officer                  |  |                                                  |     |                  |  





22







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





|All Directors and Officers as a Group: |                                                                   |  | 36,526,676 |            |     | 6.92 | %   
|-------------------------------------- | ----------------------------------------------------------------- |  | ---------- | ---------- | --- | ---- | ----
|as a Group (3 persons)                 |                                                                   |  |            |            |     |      |     
|                                       |                                                                   |  |            |            |     |      |     
|                                       | Ulrich Schuerch                                                   |  |            |            |     |      |     
|                                       | Tell Capital AG                                                   |  |            | 53,510,000 | (6) |      | 8.73
|                                       | Tellstrasse 21, CH-9000                                           |  |            |            |     |      |     
|                                       | St. Gallen, Switzerland                                           |  |            |            |     |      |     
|                                       |                                                                   |  |            |            |     |      |     
|                                       | Discover Advisory Company                                         |  |            | 61,218,026 | (7) |      | 9.99
|                                       | c/o Horymor Trust Corp. Ltd.                                      |  |            |            |     |      |     
|                                       | 50 Shirley Street / P.O.Box N-341,                                |  |            |            |     |      |     
|                                       | Nassau                                                            |  |            |            |     |      |     
|                                       |                                                                   |  |            |            |     |      |     
|                                       | Cambridge Services Inc.                                           |  |            | 61,218,026 | (8) |      | 9.99
|                                       | c/o TSZ Treuhandgesellschaft Sauter & Co.                         |  |            |            |     |      |     
|                                       | Suedstr. 11, CH-8034                                              |  |            |            |     |      |     
|                                       | Zurich, Switzerland                                               |  |            |            |     |      |     
|                                       |                                                                   |  |            |            |     |      |     
|                                       | Markus Winkler
        Frelestrasse 178
        CH-8032 Zuerich 7 |  |            | 61,218,026 | (9) |      | 9.99







* The Company also has issued and outstanding as of December
31, 2011, 85,890 shares of its Senior Convertible Preferred Stock, with concentrations in excess of 10% for one or more of the
holders of such stock, however, none of such shares bear any voting rights.












| | (1) | For purposes
                                                                                                             of this table, a
                                                                                                             person or group of
                                                                                                             persons is deemed
                                                                                                             to have “beneficial
                                                                                                             ownership”
                                                                                                             of any shares of
                                                                                                             Common Stock which
                                                                                                             such person has the
                                                                                                             right to acquire
                                                                                                             within 60 days of
                                                                                                             March 1, 2012. For
                                                                                                             purposes of computing
                                                                                                             the percentage of
                                                                                                             outstanding shares
                                                                                                             of Common Stock held
                                                                                                             by each person or
                                                                                                             group of persons
                                                                                                             named above, any
                                                                                                             security which such
                                                                                                             person or persons
                                                                                                             has or have the right
                                                                                                             to acquire within
                                                                                                             such date is deemed
                                                                                                             to be outstanding
                                                                                                             but is not deemed
                                                                                                             to be outstanding
                                                                                                             for the purpose of
                                                                                                             computing the percentage
                                                                                                             ownership of any
                                                                                                             other person. Except
                                                                                                             as indicated in the
                                                                                                             footnote to this
                                                                                                             table and pursuant
                                                                                                             to applicable community
                                                                                                             property laws, the
                                                                                                             Company believes
                                                                                                             based on information
                                                                                                             supplied by such
                                                                                                             persons, that the
                                                                                                             persons named in
                                                                                                             this table have sole
                                                                                                             voting and investment
                                                                                                             power with respect
                                                                                                             to all shares of
                                                                                                             Common Stock which
                                                                                                             they beneficially
                                                                                                             own.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(2) Consists of 23,396,176 shares held by Interscholz
Beteiligungs GmbH, a company over which Andre Scholz has control, and 200,000 shares accrued but not yet issued.







(3) Includes 3,400,000 stock options and 500,000 warrants.

(4) Includes 500,000 warrants.

(5) Includes 500,000 warrants.

(6) Includes 2,800,000 shares accrued but
not yet issued, and 3,500,000 warrants owned by Ulrich Schuerch who has investment and voting control of Tell Capital AG, 22,500,000
5-year warrants, exercisable at $0.07 per share, and 12,700,000 4-year warrants, exercisable at $0.05 per share.

(7) Includes 45,539,976 shares issuable upon conversion of convertible
debt. Karen Buehler has investment and voting control of Discover Advisory Company.

(8) Includes 8,447,958 shares issuable upon conversion of convertible
debt, and 25,000,000 stock purchase warrants, exercisable at $0.05 per Warrant. Victor Sauter has investment control of Cambridge
Services Inc.

(9) Includes 41,218,026 shares issuable upon conversion of convertible
debt of Kreuzfeld, LTd and VGZ-Vermoegenssverwaltungsgesellschaft both of which Markus Winkler has investment and voting control.





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



Family Relationships



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



23







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 13: | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
| | -------- | ----------------------------------------------



During 2011 and 2010, one outside
director of the Company who also serves as the Company’s general and securities counsel, was paid or incurred an aggregate
$60,000 and $65,000, respectively, for legal services. We also granted options for 1,200,000 and 1,200,000 shares, exercisable
at $0.05 during four years, to this director during 2011 and 2010, respectively. In addition, we granted 500,000 stock warrants
to this director, valued at $5,000 pursuant to the Black-Scholes valuation formula.



During 2011 and 2010, we paid
or incurred an aggregate $444,390 and $252,412 respectively to companies controlled by the Chief Executive Office (and former Chief
Technology Officer) of the Company, for website hosting, website development and technical advisory services, and server farm
installations, and $7,585 in 2010 for promotional materials. Of these costs, 32,622 and $121,179 was capitalized as website development
costs in 2011 and 2010, respectively. In addition, in 2010 these companies reimbursed the Company for $20,642 in rent incurred
for the corporate apartment utilized by the Chief Executive Officer.



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





During 2011 and 2010, the beneficial
ownership in the Company’s securities held respectively, by Tell Capital AG of Switzerland and its principal, Ulrich Schuerch
on a consolidated basis, was approximately 11.4% and approximately 9.9% of the voting stock was beneficially held by Discovery
Advisory Company, located in the Bahamas, and Cambridge Services Inc., Kreuzfeld, LTD and Vermoegensverwaltungs-Gesellschaft Zurich
LTD. (VGZ) of Switzerland. Discovery Advisory Company, Cambridge Services Inc., Kreuzfeld, LTD and VGZ are major creditors, having
advanced operating capital against issuance by the Company of convertible promissory notes during 2011 and 2010.During the year
ended December 31, 2011, Cambridge Services, Inc reassigned $503,760 to a third investor Kreuzfeld, Ltd and converted $377,820.
During the same periods Discovery Advisory Services converted $1,160,700 and Kreuzfeld, Ltd. converted $492,760. To complete the
acquisition of Kwick!, Discovery Advisory Services, Kreuzfeld, Ltd and VGZ advanced $679,850, $1,903,580 and $815,820, respectively.
During the year ended December 31, 2011, Cambridge Services, Inc. advanced an additional $745,000. At December 31, 2011, $785,134
and $492,416 of such notes were outstanding and owed to Discovery Advisory Company and Cambridge Services Inc, respectively and
$1,914,580 and $815,820 owed to Kreuzfeld, Ltd. and VGZ, respectively. Additionally, Ulrich Schuerch advanced the Company $100,000
in the year ended December 31, 2011, and holds $340,000 of demand notes issued at a rate of interest of 10%.







| | ITEM 14: | PRINCIPAL ACCOUNTANT FEES AND SERVICES
| | -------- | --------------------------------------



AUDIT FEES



Rosenberg Rich Baker Berman
& Company ("Rosenberg") billed us in the aggregate amount of $41,262 and $38,500 for professional services rendered
for their audit of our annual financial statements and their reviews of the financial statements included in our Forms 10-K and
10-Q for the years ended December 31, 2011, and December 31, 2010, respectively.



AUDIT-RELATED FEES



Rosenberg did not bill us for,
nor perform professional services rendered for assurance and related services that were reasonably related to the performance
of audit or review of the Company's financial statements for the fiscal years ended December 31, 2011, and December 31, 2010.



25







TAX FEES



Rosenberg billed us in the
aggregate amount of $0, and $3,500 for professional services rendered for tax related services for the fiscal years ended December
31, 2011 and December 31, 2010, 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.



26







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
2011, the Company filed the following reports on Form 8-K:





On October 4, 2011, the Company
filed a report on Form 8-K, announcing the acquisition of Kwick! KG and GmBH a German social network



On October 5, 2011, the Registrant accepted the
resignation of Joerg Otzen from his position as a member of the Board of Directors of Registrant. Mr. Otzen’s resignation
was not the result of any disagreement with the Registrant in relation to any of Registrant’s operations, policies or practices.



On October 25, 211 the company
filed a Form 8-K, announcing skyrocketing growth.



On November 7, 2011, the Company
filed a report on Form 8-K, announcing that KWICK! Ranks second in social media sites and Android dating apps!



On November 29, 2011, the Company
filed a report on Form 8-K, announcing that announced Harbinger Research has recently issued an updated research report on Kiwibox.com.



On December 14, 2011, the company
filed a report on Form 8-K, poviding (1) the audited financial statements of Kwick for the fiscal years ended December 31, 2009
and 2010, (2) the unaudited financial statements of Kwick for the nine months ended September 30, 2011 and 2010, and (3) the unaudited
pro forma condensed consolidated statements of operations of Kwick for the nine months ended September 30, 2011.



27







SIGNATURES



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



|KIWIBOX.COM, INC.
|-----------------
|                 
|By:              
|                 
|                 
|                 
|                 
|                 
|By:              
|                 
|                 
|                 



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/ Joseph J. Tomasek      |  |     
|Joseph J. Tomasek, Director |  |     
|                            |  |     
|/s/ Andre Scholz            |  |     
|Andre Scholz, Director      |  |     



28









EXHIBIT INDEX



| | (A) | Financial Statements and Notes to Financial Statements
| | --- | ------------------------------------------------------



| | (3) (i) | Articles of
                                                                                  Incorporation and Amendments thereto, incorporated
                                                                                  herein by reference to Exhibits of previous
                                                                                  filings with the Commission.
| | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) (ii) | Bylaws of the
                                                                                   Company, incorporated herein by reference to
                                                                                   Exhibits of previous filings with the Commission.
| | -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.25* | Copy of Agreement and Plan of Reorganization, Dated February 19, 2007, between the Company, Kiwibox Media, Inc. and the Kiwibox
Shareholders, and Form of Employment Agreement for the Three Kiwibox Shareholders,
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.27* | Amendment No. 3 to Agreement and Plan of Reorganization, dated
                                                              July 31, 2007 and Effective August 2, 2007.
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.28* | Preliminary Employment Agreement with Paul Farris, Dated September
                                                              19, 2007
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------



| | 10.29* | Amendment No. 4 to Agreement and Plan of Reorganization, dated
                                                              as of December 3, 2007.
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.30* | Amendment No. 5 to Agreement and Plan of Reorganization, dated
                                                              as of December 31, 2007.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.31* | Standstill Letter Agreement, dated as of January 30, 2008.
| | ------ | ----------------------------------------------------------



| | 10.32* | Standstill Letter Agreement, dated as of February 11, 2008.
| | ------ | -----------------------------------------------------------



| | 10.33* | Amendment No. 6 to Agreement and Plan of Reorganization, dated
                                                              as of February 28, 2008.
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.34* | Engagement Agreement, Dated June 27, 2008, between Tell Capital
                                                              AG and the Company.
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.35* | Resignation Agreement, Dated August 19, 2008, between Ivan Tumanov
                                                              and the Company.
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.36* | Form of Demand Notes issued by the Company to Lender, Discover
                                                              Advisory Company.
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------



| | 10.36-1* | Form of corrected Demand Notes issued by the Company to Lender,
                                                                Discover Advisory Company.
| | -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.36-2 | Form of Registrant’s Master Corporate Promissory Note,
                                                               dated June 4, 2009, delivered and accepted by Discover Advisory
                                                               Company, attached as an exhibit to Registrant’s Form 8-K
                                                               filed with the Commission on June 12, 2009.
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.37 | Copy of Stock Pledge Agreement, dated June 4, 2009, by and between
                                                             Registrant and Discover Advisory Company- attached as an exhibit
                                                             to Registrant’s Form 8-K filed with the Commission on June
                                                             12, 2009.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.38 | Copy of Consulting Agreement, dated June 1, 2009, between the
                                                             Registrant, Kiwibox Media, Inc. and Andre Scholz attached as an exhibit
                                                             to Registrant’s Form 8-K filed with the Commission on June
                                                             12, 2009.
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.39 | Form of Registrant’s Securities Purchase Agreement, with
                                                             Warrant as an Exhibit: attached as an exhibit to Registrant’s
                                                             Form 8-K filed with the Commission on December 31, 2009.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.40 | Certificate of Ownership and Merger of Kiwibox Media, Inc. with
                                                             and into Magnitude Information Systems, Inc., including Corporate
                                                             Name Change, dated December 15, 2009 and as filed with the Secretary
                                                             of State of Delaware on December 17, 2009. attached as an exhibit
                                                             to Registrant’s Form 8-K filed with the Commission on December
                                                             31, 2009
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





29









| | 31.01A. | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
                                                               and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley
                                                               Act of 2002, dated April 14, 2011.
| | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.02A. | Certification of Acting Chief Financial Officer pursuant to
                                                               Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302
                                                               of the Sarbanes-Oxley Act of 2002, dated April 14, 2011.
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.01A. | Certification of Chief Executive Officer pursuant to 18 U.S.C.
                                                               Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                                                               Act of 2002, dated April 14, 2011.
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.02A. | Certification of Chief Financial Officer pursuant to 18 U.S.C.
                                                               Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                                                               Act of 2002, dated April 14, 2011.
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE



| | (a) | The Company’s Quarterly Reports on Form 10-Q for the periods
                                                           ended March 31, 2011, June 30, 2011, and September 30, 2011.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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, 2010
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30







Kiwibox.Com, Inc.



Financial Statements



December 31, 2011 and 2010











Kiwibox.Com,
Inc.



Index to the Financial Statements



December 31, 2011 and 2010



|                                                        | Page
|------------------------------------------------------- | ----
|                                                        |     
|Report of Independent Registered Public Accounting Firm | 2   
|                                                        |     
|Financial Statements                                    |     
|                                                        |     
|Balance Sheets                                          | 3   
|                                                        |     
|Statements of Operations                                | 4   
|                                                        |     
|Statements of Stockholders Equity (Impairment)          | 5-6 
|                                                        |     
|Statements of Cash Flows                                | 7-8 
|                                                        |     
|Notes to the Financial Statements                       | 9-36





















REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM



To the Board of Directors and

Stockholders of Kiwibox.Com, Inc.



We have audited the accompanying
balance sheets of Kiwibox.Com, Inc. and Subsidiary as of December 31, 2011 and 2010, and the related statements
of operations, stockholders’ equity (impairment) and cash flows for each of the years in the two-year period
ended December 31, 2011. Kiwibox.Com’s management is responsible for these financial statements. Our responsibility is
to express an opinion on these financial statements based on our audits.



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



In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of Kiwibox.Com, Inc. and
Subsidiary as of December 31, 2011, and 2010, and the results of its operations and its cash flows for each of the years in
the two-year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States
of America.



The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 2 to the financial
statements, the Company has suffered losses from operations and has a working capital deficiency as of December 31, 2011. These
conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.



/s/ Rosenberg Rich Baker Berman & Company



Somerset, New Jersey

April 16, 2011











2







Kiwibox.Com,
Inc. and Subsidiary

Consolidated Balance Sheets



|                                                                                                                                         |  | December 31, 2011 |             |   | December 31, 2010 |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|Assets                                                                                                                                   |  |                   |             |   |                   |  
|Current Assets                                                                                                                           |  |                   |             |   |                   |  
|Cash and cash equivalents                                                                                                                |  | $                 | 195,613     |   |                   | $
|Accounts receivable, net of allowance for doubtful accounts of $0 and $0, respectively                                                   |  |                   | 492,430     |   |                   |  
|Due from related parties                                                                                                                 |  |                   | 17,582      |   |                   |  
|Other receivables                                                                                                                        |  |                   | 91,443      |   |                   |  
|Income taxes receivable                                                                                                                  |  |                   | 90,138      |   |                   |  
|Prepaid expenses and other current assets                                                                                                |  |                   | 42,241      |   |                   |  
|Total Current Assets                                                                                                                     |  |                   | 929,447     |   |                   |  
|Property and equipment, net of accumulated depreciation of $605,112 and $88,505                                                          |  |                   | 244,314     |   |                   |  
|Website development costs, net of accumulated amortization of $187,128 and $32,864                                                       |  |                   | 145,211     |   |                   |  
|Excess of purchase price over net assets acquired                                                                                        |  |                   | 5,937,378   |   |                   |  
|Deferred tax Asset                                                                                                                       |  |                   | 1,052,454   |   |                   |  
|Other assets                                                                                                                             |  |                   | 43,815      |   |                   |  
|Total Assets                                                                                                                             |  |                   | 8,352,619   |   |                   |  
|                                                                                                                                         |  |                   |             |   |                   |  
|Liabilities and Stockholders’ Equity (Impairment)                                                                                        |  |                   |             |   |                   |  
|                                                                                                                                         |  |                   |             |   |                   |  
|Current Liabilities                                                                                                                      |  |                   |             |   |                   |  
|Accounts payable                                                                                                                         |  |                   | 228,555     |   |                   |  
|Accrued Expenses                                                                                                                         |  |                   | 761,191     |   |                   |  
|Due to related parties                                                                                                                   |  |                   | 57,874      |   |                   |  
|Obligations to be settled in stock                                                                                                       |  |                   | 249,275     |   |                   |  
|Dividends payable                                                                                                                        |  |                   | 581,865     |   |                   |  
|Kwick! acquisition indebtedness                                                                                                          |  |                   | 5,221,093   |   |                   |  
|Loans and notes payable - other                                                                                                          |  |                   | 140,000     |   |                   |  
|Loans and notes payable – related parties                                                                                                |  |                   | 340,000     |   |                   |  
|Convertible notes payable-related parties                                                                                                |  |                   | 4,007,950   |   |                   |  
|Current maturities of long-term debt                                                                                                     |  |                   | 33,529      |   |                   |  
|Liability for derivative conversion feature –related parties                                                                             |  |                   | 4,704,987   |   |                   |  
|Total Current Liabilities                                                                                                                |  |                   | 16,326,319  |   |                   |  
|                                                                                                                                         |  |                   |             |   |                   |  
|Stockholders’ Equity (Impairment)                                                                                                        |  |                   |             |   |                   |  
|Preferred Stock, $0.001 par value, non-voting, 3,000,000 shares authorized; 85,890 shares issued and outstanding                         |  |                   | 86          |   |                   |  
|Common Stock, $0.0001 par value, 1,400,000,000 shares authorized; issued and outstanding 586,168,060 and 498,243,060 shares respectively |  |                   | 58,618      |   |                   |  
|Additional paid-in capital                                                                                                               |  |                   | 49,700,653  |   |                   |  
|Accumulated deficit                                                                                                                      |  |                   | (57,588,185 | ) |                   |  
|Accumulated other comprehensive loss                                                                                                     |  |                   | (144,872    | ) |                   |  
|Total Stockholders’ Equity (Impairment)                                                                                                  |  |                   | (7,973,700  | ) |                   |  
|Total Liabilities and Equity (Impairment)                                                                                                |  | $                 | 8,352,619   |   |                   | $



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



3









Kiwibox.Com,
Inc. and Subsidiary

Condensed Consolidated Statements of
Operations



|                                                              |  | Year Ended December 31, |            
|------------------------------------------------------------- |  | ----------------------- | -----------
|                                                              |  | 2011                    |            
|Net Sales                                                     |  |                         |            
|Advertising                                                   |  | $                       | 515,775    
|Other                                                         |  |                         | 83,840     
|Total Net Sales                                               |  |                         | 599,615    
|Cost of Goods Sold                                            |  |                         |            
|Website hosting expenses                                      |  |                         | 497,110    
|Total Cost of Goods Sold                                      |  |                         | 497,110    
|                                                              |  |                         |            
|Gross Profit (Loss)                                           |  |                         | 102,505    
|                                                              |  |                         |            
|Selling expenses                                              |  |                         | 401,434    
|Stock-based compensation (see below)                          |  |                         | 28,298     
|General and administrative expenses                           |  |                         | 1,173,383  
|                                                              |  |                         |            
|Loss From Operations                                          |  |                         | (1,500,610 
|                                                              |  |                         |            
|Other Income (Expense)                                        |  |                         |            
|Miscellaneous income                                          |  |                         | 47,553     
|Interest expense                                              |  |                         | (297,456   
|Interest expense-derivative conversion features               |  |                         | (3,659,670 
|Foreign Currency Transaction Loss                             |  |                         | (53,086    
|Change in fair value – derivative liabilities                 |  |                         | (476,281   
|                                                              |  |                         |            
|Total Other Income (Expense)                                  |  |                         | (4,438,940 
|                                                              |  |                         |            
|Loss Before Benefit (Provision) for Income Taxes              |  |                         | (5,939,550 
|                                                              |  |                         |            
|Benefit (Provision) for Income Taxes                          |  |                         | 39,013     
|                                                              |  |                         |            
|Net Loss                                                      |  | $                       | (5,900,537 
|                                                              |  |                         |            
|Dividends on Preferred Shares                                 |  |                         | (51,263    
|                                                              |  |                         |            
|Net Loss Applicable to Common Shareholders, basic and diluted |  | $                       | (5,951,800 
|                                                              |  |                         |            
|Net Loss Per Common Share, basic and diluted                  |  |                         | (0.011     
|                                                              |  |                         |            
|Weighted Average of Common Shares Outstanding                 |  |                         | 522,090,046



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



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



4









Kiwibox.Com, Inc. and Subsidiary

Statement of Stockholders’ Equity
(Deficit)

Year Ended December 31, 2010



|                                                           |  | Convertible Preferred
    Shares |        |  | Cumulative Preferred
    Shares |   |    | Common Stock |  |  | Stock Subscriptions |  |  | Additional Paid in |   |  | Accumulated |  |             | Loans Receivable |  |   | Total Stockholders’ | 
|---------------------------------------------------------- |  | -------------------------------- | ------ |  | ------------------------------- | - | -- | ------------ |  |  | ------------------- |  |  | ------------------ | - |  | ----------- |  | ----------- | ---------------- |  | - | ------------------- | 
|                                                           |  | Shares                           |        |  | Amount                          |   |    | Shares       |  |  | Amount              |  |  | Shares             |   |  | Amount      |  |             | Receivable       |  |   | Capital             | 
|                                                           |  |                                  |        |  |                                 |   |    |              |  |  |                     |  |  |                    |   |  |             |  |             |                  |  |   |                     | 
|Balances, January 1, 2010                                  |  |                                  | 85,890 |  |                                 | $ | 86 |              |  |  | 1                   |  |  | $                  | - |  |             |  | 478,168,060 |                  |  | $ | 47,817              | 
|                                                           |  |                                  |        |  |                                 |   |    |              |  |  |                     |  |  |                    |   |  |             |  |             |                  |  |   |                     | 
|Issuance of stock – cash received for stock subscriptions  |  |                                  | -      |  |                                 |   | -  |              |  |  | -                   |  |  |                    | - |  |             |  | 5,000,000   |                  |  |   | 500                 | 
|                                                           |  |                                  |        |  |                                 |   |    |              |  |  |                     |  |  |                    |   |  |             |  |             |                  |  |   |                     | 
|Issuance of stock purchase warrants for services performed |  |                                  | -      |  |                                 |   | -  |              |  |  | -                   |  |  |                    | - |  |             |  | -           |                  |  |   | -                   | 
|                                                           |  |                                  |        |  |                                 |   |    |              |  |  |                     |  |  |                    |   |  |             |  |             |                  |  |   |                     | 
|Cashless exercise of stock warrants Issuance               |  |                                  | -      |  |                                 |   | -  |              |  |  | -                   |  |  |                    |   |  |             |  | 13,125,000  |                  |  |   | 1,313               | 
|                                                           |  |                                  |        |  |                                 |   |    |              |  |  |                     |  |  |                    |   |  |             |  |             |                  |  |   |                     | 
|Partial settlements of obligation to be settled in stock   |  |                                  | -      |  |                                 |   | -  |              |  |  | -                   |  |  |                    | - |  |             |  | 1,950,000   |                  |  |   | 195                 | 
|                                                           |  |                                  |        |  |                                 |   |    |              |  |  |                     |  |  |                    |   |  |             |  |             |                  |  |   |                     | 
|Dividends on conv. preferred stock                         |  |                                  | -      |  |                                 |   | -  |              |  |  | -                   |  |  |                    | - |  |             |  | -           |                  |  |   | -                   | 
|                                                           |  |                                  |        |  |                                 |   |    |              |  |  |                     |  |  |                    |   |  |             |  |             |                  |  |   |                     | 
|Net loss, year ended December 31, 2010                     |  |                                  | -      |  |                                 |   | -  |              |  |  | -                   |  |  |                    | - |  |             |  | -           |                  |  |   | -                   | 
|                                                           |  |                                  |        |  |                                 |   |    |              |  |  |                     |  |  |                    |   |  |             |  |             |                  |  |   |                     | 
|Balances, December 31, 2010                                |  |                                  | 85,890 |  |                                 | $ | 86 |              |  |  | 1                   |  |  | $                  | - |  |             |  | 498,243,060 |                  |  | $ | 49,824              | 



5









Kiwibox.Com, Inc. and Subsidiary

Statement of Stockholders’ Equity
(Deficit)

Year Ended December 31, 2011



|                                                                 |  | Convertible Preferred 
    Shares |        |  | Cumulative Preferred 
    Shares |   |    | Common Stock |  |  | Additional Paid in |  |  | Accumulated |   |  | Accumulated Other
Comprehensive |  |             | Total Stockholders’ | 
|---------------------------------------------------------------- |  | --------------------------------- | ------ |  | -------------------------------- | - | -- | ------------ |  |  | ------------------ |  |  | ----------- | - |  | ------------------------------- |  | ----------- | ------------------- | 
|                                                                 |  | Shares                            |        |  | Amount                           |   |    | Shares       |  |  | Amount             |  |  | Shares      |   |  | Amount                          |  |             | Capital             | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Balances, January 1, 2011                                        |  |                                   | 85,890 |  |                                  | $ | 86 |              |  |  | 1                  |  |  | $           | - |  |                                 |  | 498,243,060 |                     | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Issuance of stock for services performed                         |  |                                   | -      |  |                                  |   | -  |              |  |  | -                  |  |  |             | - |  |                                 |  | 725,000     |                     | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Shares issued upon conversions of debt                           |  |                                   | -      |  |                                  |   | -  |              |  |  | -                  |  |  |             |   |  |                                 |  | 86,000,000  |                     | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Recognition of capital from conversion of derivative liabilities |  |                                   | -      |  |                                  |   | -  |              |  |  | -                  |  |  |             | - |  |                                 |  | -           |                     | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Partial settlements of obligation to be settled in stock         |  |                                   | -      |  |                                  |   | -  |              |  |  | -                  |  |  |             | - |  |                                 |  | 1,200,000   |                     | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Dividends on conv. preferred stock                               |  |                                   | -      |  |                                  |   | -  |              |  |  | -                  |  |  |             | - |  |                                 |  | -           |                     | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Net loss, year ended December 31, 2011                           |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Other comprehensive income:                                      |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Foreign currency translation loss                                |  |                                   | -      |  |                                  |   | -  |              |  |  | -                  |  |  |             | - |  |                                 |  | -           |                     | 
|                                                                 |  |                                   |        |  |                                  |   |    |              |  |  |                    |  |  |             |   |  |                                 |  |             |                     | 
|Balances, December 31, 2011                                      |  |                                   | 85,890 |  |                                  | $ | 86 |              |  |  | 1                  |  |  | $           | - |  |                                 |  | 586,168,060 |                     | 



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



6







Kiwibox.Com, Inc. and Subsidiary

Statements of Cash Flows



|                                                                  |  | Year Ended December 31, |           
|----------------------------------------------------------------- |  | ----------------------- | ----------
|                                                                  |  | 2011                    |           
|Cash Flows From Operating Activities                              |  |                         |           
|Net Loss                                                          |  | $                       | (5,900,537
|Adjustments to Reconcile Net Loss to Net Cash                     |  |                         |           
|Used by Operations                                                |  |                         |           
|Depreciation and amortization                                     |  |                         | 150,093   
|Securities issued for services                                    |  |                         | 28,928    
|Intrinsic value of beneficial conversion feature                  |  |                         | 3,659,670 
|Change in fair value – conversion features                        |  |                         | 476,281   
|Change in deferred taxes                                          |  |                         | 53,593    
|Impairment of software assets                                     |  |                         | -         
|(Gain) loss on disposition of assets                              |  |                         | 13,084    
|Foreign transaction loss                                          |  |                         | 53,086    
|Decreases (Increases) in Assets                                   |  |                         |           
|Accounts receivable                                               |  |                         | 151,269   
|Income taxes receivable                                           |  |                         | (168,990  
|Other receivables                                                 |  |                         | 28,909    
|Prepaid expenses                                                  |  |                         | 35,548    
|Increases (Decreases) in Liabilities                              |  |                         |           
|Obligations to be settled in stock                                |  |                         | 79,627    
|Accounts payable                                                  |  |                         | 46,733    
|Accrued expenses                                                  |  |                         | 332,681   
|Net Cash Used by Operating Activities                             |  |                         | (960,023  
|Cash Flows From Investing Activities                              |  |                         |           
|Proceeds from sale of assets                                      |  |                         | 49,144    
|Cash outlay – website development costs                           |  |                         | (41,024   
|Cash outlay – other assets                                        |  |                         | (9,572    
|Cash acquired – business combination                              |  |                         | 339,198   
|Purchases of property and equipment                               |  |                         | (35,261   
|Net Cash Provided (Used) by Investing Activities                  |  |                         | 302,485   
|                                                                  |  |                         |           
|Cash Flows From Financing Activities                              |  |                         |           
|Proceeds from loans payable                                       |  |                         | 845,000   
|Net proceeds from related parties                                 |  |                         | 56,517    
|Proceeds from issuance of common and preferred stock and warrants |  |                         | -         
|Net Cash Provided by Financing Activities                         |  |                         | 901,517   
|                                                                  |  |                         |           
|Net Increase (Decrease) in Cash                                   |  |                         | 243,979   
|Effect of exchange rates on cash                                  |  |                         | (48,743   
|Cash at beginning of period                                       |  |                         | 377       
|Cash at end of period                                             |  | $                       | 195,613   
|                                                                  |  |                         |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                  |  |                         |           
|Interest Paid                                                     |  | $                       | 4,016     
|Income Taxes Paid                                                 |  | $                       | 124,299   



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





7







Kiwibox.Com, Inc. and Subsidiary

Statements of Cash Flows

Year Ended December 31, 2010



|NON-CASH INVESTING AND FINANCING ACTIVITIES:                                    |  |   |           | 
|------------------------------------------------------------------------------- |  | - | --------- | 
|                                                                                |  |   |           | 
|The Year Ended December 31, 2011                                                |  |   |           | 
|                                                                                |  |   |           | 
|Settlement of obligations with common stock                                     |  | $ | 24,000    | 
|                                                                                |  |   |           | 
|Acquisition of subsidiary via acquisition indebtedness and affiliate debentures |  | $ | 8,567,843 | 
|                                                                                |  |   |           | 
|Conversion of debt and related derivative liabilities                           |  | $ | 2,031,280 | 
|                                                                                |  |   |           | 
|Warrants granted in acquisition of other assets                                 |  | $ |           | 
|                                                                                |  |   |           | 
|Year to date dividend accruals                                                  |  | $ | 51,263    | 
|                                                                                |  |   |           | 
|Reduction of derivatives from conversion of debt                                |  | $ | 2,053,372 | 
|                                                                                |  |   |           | 
|The Year Ended December 31, 2010                                                |  |   |           | 
|                                                                                |  |   |           | 
|Cashless exercise of warrants                                                   |  | $ | 1,313     | 
|                                                                                |  |   |           | 
|Settlement of obligations with common stock and common stock options            |  | $ | 39,000    | 
|                                                                                |  |   |           | 
|Reclassification of accrued interest to debt principal                          |  | $ | 164,980   | 
|                                                                                |  |   |           | 
|Offset of security deposits against accrued rent                                |  | $ | 7,968     | 



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



8







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature of Organization



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



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



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



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



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
as of and for the year ended December 31, 2011 include the accounts of Kiwibox.com, Inc. and its subsidiary, KWICK! Community GmbH
& Co. KG. The activities of the Company’s newly acquired subsidiary KWICK!! Community GmbH & Co. KG. are included
in the financial statements from September 30, 2011 (date of acquisition) through December 31, 2011. Any significant inter-company
balances and transactions have been eliminated.



Depreciation and Amortization



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



Foreign
Currency Translation



Assets and liabilities of foreign
operations are translated into U.S. dollars at the rates of exchange in effect at the balance sheet date. Income and expense items
are translated at the weighted average exchange rates prevailing during each period presented. Gains and losses resulting from
foreign currency transactions are included in the results of operations. Gains and losses resulting from translation of financial
statements of our foreign subsidiary operating in a non-hyperinflationary economy are recorded as a component of accumulated other
comprehensive loss until either sale or upon complete or substantially complete liquidation by the Company of its investment in
the foreign entity. Accumulated gain or (loss) on foreign currency translation adjustment was$(144,872) for the year ended December 31, 2011.



Advertising Costs



Advertising costs are charged
to operations when incurred. Advertising expense was $92,049 and $1,909 for the years ended December 31, 2011 and 2010, respectively.



9







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements



1.	SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, Continued



Evaluation of Long Lived Assets



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



Fair Value Measurements



The Company adopted the provisions
of ASC 820, Fair Value Measurements and Disclosures, which is effective for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years. UnderASC 820, a framework was established for
measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.The Company accounted for certain convertible debentures modified in the years ended December 31, 2011 and 2010 as derivative
liabilities required to be bifurcated from the host contract in accordance with ASC 815-40, Contracts in Entity’s Own
Equity, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued
interest being converted to a variable number of the Company’s common shares (see Note 12).



Securities Issued for Services



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



Reclassification of Certain
Securities Under ASC 815-15



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



Capitalization of Software /Website
Development Costs



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



10







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements



1.	SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, Continued



Capitalization of Software /Website
Development Costs (continued)



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 $57,622 and $117,350
was capitalized for web-site development work during the years ended December 31, 2011 and 2010, respectively. During 2010, software
costs of $11,880 were determined to be impaired and were written off during the year then ended.



Income Taxes



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



Net Loss Per Share



Net loss per share, in accordance
with the provisions of ASC 260, “Earnings Per Share” is computed by dividing net loss by the weighted average number
of shares of Common Stock outstanding during the period. Common Stock equivalents have not been included in this computation since
the effect would be anti-dilutive. Such common stock equivalents totaled 259,656,975 common shares at December 31, 2011, comprised
of 157,731,315 shares issuable upon exercise of stock purchase warrants, 8,650,000 shares issuable upon exercise of stock options,
729,537 shares exercisable upon conversion of convertible preferred shares, and 92,546,123 shares potentially issuable upon conversion
of convertible debt. Such debt and the related accrued interest, presently convertible at the option of four holders at a conversion
price of 50% of the ten day trailing market price, totals $4,361,034 which would yield in excess of 230,000,000 shares if fully
exercised, however, the respective notes, all of which were issued to these four investors, carry a stipulation whereby the number
of all shares issued pursuant to a conversion, may in the aggregate not exceed a number that would increase the total share holdings
beneficially owned by such investor to a level above 9.99%. At the end of the quarter, this clause limits any conversion to the
aforementioned number of shares. All of the aforementioned conversions or exercises, as the case may be, are at the option of the
holders.



Revenue Recognition



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



11













Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements



1.    SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, Continued



Use of Estimates

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



2. GOING CONCERN



The ability of the Company
to continue its operations is dependent on increasing sales and obtaining additional capital and financing. Our revenues during
the foreseeable future are insufficient to finance our business and we are entirely dependent on the willingness of existing investors
to continue supporting the Company with working capital loans and equity investments, and our ability to find new investors should
the financial support from existing investors prove to be insufficient. If we were unable to obtain a steady flow of new debt
or equity-based working capital we would be forced to cease operations. In their report for the fiscal year ended December 31,
2011, our auditors have expressed an opinion that, as a result of the losses incurred, there is 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, 2011, cash balances in bank accounts did not
exceed this limit. The Company provides credit in the normal course of business to customers located throughout the U.S. and overseas.
The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends, and other information.



4. PREPAID EXPENSES



|Prepaid expenses consist of the following at: |  | December 31, 2011 |        |  | December 31, 2010 |  
|--------------------------------------------- |  | ----------------- | ------ |  | ----------------- | -
|Rent                                          |  | $                 | 20,512 |  |                   | $
|Promotional supplies inventory                |  |                   | 10,302 |  |                   |  
|Business insurance                            |  |                   | 9,237  |  |                   |  
|Other                                         |  |                   | 2,190  |  |                   |  
|                                              |  |                   | 42,241 |  |                   |  



5. PROPERTY AND EQUIPMENT



|Property and equipment consist of the following at: |  | December 31, 2011 |         |  | December 31, 2010 |  
|--------------------------------------------------- |  | ----------------- | ------- |  | ----------------- | -
|Furniture                                           |  | $                 | 14,322  |  |                   | $
|Leasehold Improvements                              |  |                   | 24,130  |  |                   |  
|Computer Equipment                                  |  |                   | 620,746 |  |                   |  
|Office Equipment                                    |  |                   | 190,227 |  |                   |  
|                                                    |  |                   | 849,424 |  |                   |  
|Less accumulated depreciation                       |  |                   | 605,111 |  |                   |  
|Total                                               |  | $                 | 244,314 |  |                   | $



Depreciation expense charged
to operations was $58,513 and $11,251 for the years ended December 31, 2011 and 2010, respectively.



12







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements



6. INTANGIBLE ASSETS



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

|                              |  | December 31, 2011 |         |  | December 31, 2010 |  
|----------------------------- |  | ----------------- | ------- |  | ----------------- | -
|Website development costs     |  | $                 | 332,339 |  |                   | $
|Less accumulated amortization |  |                   | 187,128 |  |                   |  
|Total                         |  | $                 | 145,211 |  |                   | $



During 2010, software costs
of $11,880 were determined to be impaired and were written off during the year then ended. Amortization expense for the year ended
December 31, 2011 and 2010 was $91,570 and $31,051, respectively. Additional amortization over the next 5 years is estimated to
be as follows:



|                   |  |  | Amortization expense |       
|------------------ |  |  | -------------------- | ------
|December 31,  2012 |  |  | $                    | 71,831
|December 31, 2013  |  |  |                      | 28,646
|December 31, 2014  |  |  |                      | 8,235 
|December 31, 2014  |  |  |                      | 1,920 
|December 31, 2016  |  |  |                      | 1,154 
|Thereafter         |  |  |                      | 2,819 
|                   |  |  |                      |       

7. ACCRUED EXPENSES



Accrued expenses consisted
of the following at:



|                                               |  | December 31, 2011 |         |  | December 31, 2010 |  
|---------------------------------------------- |  | ----------------- | ------- |  | ----------------- | -
|                                               |  |                   |         |  |                   |  
|Accrued interest                               |  | $                 | 462,020 |  |                   | $
|Accrued payroll, payroll taxes and commissions |  |                   | 85,756  |  |                   |  
|Accrued professional fees                      |  |                   | 151,862 |  |                   |  
|Accrued rent                                   |  |                   | 15,158  |  |                   |  
|Miscellaneous accruals                         |  |                   | 46,395  |  |                   |  
|Total                                          |  | $                 | 761,191 |  |                   | $



8. OBLIGATIONS TO BE SETTLED IN STOCK



Obligations to be
settled in stock consisted of the following at





|                                                                                                                                                                                                        |  | December 31, |         |  | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- |  | ------------ | -
|                                                                                                                                                                                                        |  | 2011         |         |  | 2010         |  
|Obligation for warrants granted for compensation                                                                                                                                                        |  | $            | 100,000 |  |              | $
|                                                                                                                                                                                                        |  |              |         |  |              |  
|600,000 common shares issuable to a consultant who was a director of the company, for services
    rendered.                                                                                            |  |              | 36,000  |  |              |  
|                                                                                                                                                                                                        |  |              |         |  |              |  
|500,000 (2011) and 500,000 (2010) common shares, and 2,900,000 (2011) and 2,900,000 (2010) stock
    options issuable to two officers of the Company pursuant to their respective employment Agreements |  |              | 70,605  |  |              |  
|                                                                                                                                                                                                        |  |              |         |  |              |  
|3,300,000 (2011) and 2,100,000 (2010 stock options issuable to one director who also serves as
    the Company’s general counsel                                                                        |  |              | 32,670  |  |              |  
|                                                                                                                                                                                                        |  |              |         |  |              |  
|1,000,000 warrants granted on the Pixunity.de asset purchase                                                                                                                                            |  |              | 10,000  |  |              |  
|                                                                                                                                                                                                        |  |              |         |  |              |  
|                                                                                                                                                                                                        |  | $            | 249,275 |  |              | $





13







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements





9. LOANS PAYABLE



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



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



10. NOTES PAYABLE



|                                                                                                                                                                                                                |  | December 31, |           |  | December 31, |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- |  | ------------ | -
|                                                                                                                                                                                                                |  | 2011         |           |  | 2010         |  
|Balance of non-converted notes outstanding. Attempts to locate the holder of this
    note, to settle this liability, have been unsuccessful.                                                                   |  | $            | 25,000    |  |              | $
|                                                                                                                                                                                                                |  |              |           |  |              |  
|In January 2008 a shareholder loaned the Company $40,000 pursuant to which the Company issued
    a demand note bearing interest at the rate of 5% per year.                                                    |  |              | 40,000    |  |              |  
|                                                                                                                                                                                                                |  |              |           |  |              |  
|From September 2008 through December 2011 four shareholders loaned the Company funds under the
    terms of the convertible notes issued, as modified in March 2009 and July 2010 and April 2011 (see Note 12). |  |              | 4,347,950 |  |              |  
|                                                                                                                                                                                                                |  |              |           |  |              |  
|In January 2011 and again in February 2011, a shareholder loaned the Company
    $50,000 under a demand note at 10%. In 2010, this shareholder loaned the Company $240,000 under a demand note at 10%.          |  |              | 340,000   |  |              |  
|                                                                                                                                                                                                                |  |              |           |  |              |  
|Total                                                                                                                                                                                                           |  | $            | 4,752,950 |  |              | $



14







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements



11. LONG-TERM DEBT



|Long-term debt as of December 31, 2011 and 2010 is comprised of the following:                                                                                                                                                                                                               |  |   |       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ------
|                                                                                                                                                                                                                                                                                             |  |   |       
|Discounted present value of a non-interest bearing $70,000
    settlement with a former investor of Magnitude, Inc. to be paid in 24 equal monthly payments commencing July 1, 1997. The
    imputed interest rate used to discount the note is 8% per annum. This obligation is in default. |  | $ | 33,529
|                                                                                                                                                                                                                                                                                             |  |   |       
|Total                                                                                                                                                                                                                                                                                        |  |   | 33,529
|Less current maturities                                                                                                                                                                                                                                                                      |  |   | 33,529
|Long-term debt, net of current maturities                                                                                                                                                                                                                                                    |  | $ | -     





12. DERIVATIVE CONVERSION FEATURES



On July
27, 2010, the Company issued two Class A Senior Convertible Revolving Promissory Notes (“Class A Notes”), one to Cambridge
Services, Inc., in the principal amount of $683,996, consolidating the series of loans (and related accrued interest) made to
the Company since June 26, 2009, and one to Discover Advisory Company, in the principal amount of $1,160,984, consolidating the
series of loans (and related accrued interest) made to the Company since September 19, 2008 and including advances through September
30, 2010. Each of these promissory notes are due on demand, accrue interest at the rate of 10%, per annum, are convertible (including
accrued interest) at the option of each lender into Common Stock of the Company at 50% of the averaged ten closing prices for
the Company's Common Stock for the ten (10) trading days immediately preceding the Conversion Date but in no event less than $0.001
(the "Conversion Price"). Both promissory notes contain conversion caps, limiting conversions under these notes to a
maximum beneficial ownership position of Company common stock to 9.99% for each lender. Each of these notes contains Company covenants,
requiring the lenders’ prior written consent in order for the Company to merge, issue any common or preferred stock or any
convertible debt instruments, declare a stock split or dividends, increase any compensation to its officers or directors by more
than five (5%) during any calendar year. During the year ended December 31, 2011, Cambridge Services, Inc reassigned $503,760
to a third investor Kreuzfeld, Ltd and converted $816,720. During the same period Discovery Advisory Company converted $1,160,700
and Kreuzfeld, Ltd converted $492,760. To complete the acquisition of Kwick!!, Discovery Advisory Company, Kreuzfeld, Ltd and
Vermoegensverwaltungs-Gesellschaft Zurich LTD (“VGZ”) advanced $679,850, $1,903,580 and $815,820, respectively.



The Company accounted for
the conversion features underlying these convertible debentures modified in the year ended December 31, 2011 in accordance with
ASC 815-40, Contract in Entity’s Own Equity, as the conversion feature embedded in the convertible debentures could
result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares.
The Company determined the value of the derivate conversion features of these debentures and subsequent debentures issued to these
holders under these terms at the relevant commitment dates to be $3,659,670 utilizing a Black-Scholes valuation model. The Company
also recognized $2,053,371 in reductions of fair value to capital for conversions during the year. The fair value of the derivative
conversion features was determined to be $4,704,987 at December 31, 2011. The change in fair value of the liability for the conversion
feature resulted in a cost of $476,281 for the year ended December 31, 2011, which is included in Other Income (Expense) in the
accompanying financial statements.



15







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements





13. COMMITMENTS AND CONTINGENCIES



We maintain offices for our
operations at 330 W. 38th Street, New York, New York 10018, for approximately 900 square feet. This lease requires minimum monthly
rentals of $2,199 plus tenants’ share of utility/cam/property tax charges which average approximately $400 per month. During
the 1st quarter of 2010 the Company successfully negotiated with the landlord to give up a lease of an office located
at the same address consisting of approximately 500 square feet. This lease was extended in December 2010 and again in April 30,
2011 through December 31, 2012 with no changes to the monthly rent.



In May 2010 the Company negotiated
a lease of an apartment in New York City for the CEO in order to reduce travel costs. The lease was for 12 months at $2,775 per
month through May 31, 2011. In May 2011 the lease was extended through August 31, 2011 at the rate of $2,837. In August 2011 the
lease was extended through December 31, 2011 at the rate of $2,837 per month. In December 2011 the lease was again extended through
May 31, 2012 with no change in the base rent. In December 2010 the CEO through a company that he controls reimbursed Kiwibox.com
$20,642 for his use of the Company apartment. There were no reimbursements in 2011 by the CEO and none are expected.



Kwick! has operating leases relate to office space
in Weinstadt, Germany along with vehicle leases.The office lease is for a term of one year. All operating lease contracts over
5 years contain clauses for yearly market rental reviews. The Company does not have an option to purchase the leased office at
the expiration of the lease period. These operating leases call for minimum monthly payments of $10,387 per month.



Our total rent expenses were $92,049 and $33,506
during the year ended December 31, 2011 and 2010, respectively.



During the second quarter in
2009 we entered into an agreement with a consultant to serve as the Company’s Chief Technology Officer. The agreement had
a term of twelve months and could be extended by mutual consent. It provided for remuneration for services and expenses at the
rate of $20,000 and 100,000 restricted shares per month, and a signing bonus of 500,000 restricted shares. During the first quarter
in 2010, the Company issued the 500,000 shares for the signing bonus and 950,000 shares towards the accrued monthly allowance.
In the third quarter the company issued an additional 500,000 shares towards the accrued monthly allowance.



During the third quarter of
2010 the Chief Technology Officer took over the position of Chief Executive Officer with no changes to the above terms, running
through July 30, 2011. On October 6, 2010 the terms of the consulting agreement were modified. The new terms called for a reduced
monthly consulting fee of $16,667 to be prepaid in the amount of $50,000 on October 1, 2010 covering the period October 1, 2010
through December 31, 2010, and for $100,000 to be prepaid on January 1, 2011 covering the period January 1, 2011 thru June 30,
2011 During the fourth quarter of 2011 this agreement was extended through December 31, 2012. There were no changes to the stock
compensation portion of any earlier agreement.



During the third quarter in
2009 we entered into an engagement agreement with a consultant to assist the Company as the liaison to the Company’s shareholders
and investors, to promote the Company and its website to the public markets, and to identify potential strategic partners, acquisition
opportunities, and joint venture partners for the Company’s social networking website business. The agreement is deemed
to have commenced on January 1, 2009 and extends through December 31, 2011, and calls for compensation to the consultant in the
form of 2,000,000 five year warrants for the purchase of common shares, exercisable at $ 0.025 per share with a cashless exercise
provision, for every six months period during the term of the agreement, and the payment in cash of unspecified amounts, the latter
at the sole discretion of the Company. This agreement was amended during the second quarter of 2011 so that the options earned
in 2011 would be exercisable at $0.075 per share. This amendment did not change the value per warrant and total compensation is
unchanged. The original agreement furthermore recognizes that the same consultant had previously provided similar services to
the Company for which he received a one-time payment in form of 15,000,000 five year warrants, exercisable at $0.0025 per share.
The 15,000,000 warrants were exercised during the three months ended March 31, 2010 pursuant to a cashless exercise into 13,125,000
shares of common stock.



16







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements



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



14. FAIR VALUE



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



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



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



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



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



Level 3 — unobservable inputs for the asset
or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial
assets and liabilities utilizing Level 3 inputs include infrequently- traded, non-exchange-based derivatives and commingled investment
funds, and are measured using present value pricing models.



17







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements





14. FAIR VALUE (continued)



The following table reconciles, for the year ended
December 31, 2011, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated
financial statements:



|Conversion Liability at January 1, 2010                         |  | $ | -          |  
|--------------------------------------------------------------- |  | - | ---------- | -
|Value of beneficial conversion features of new debentures       |  |   | 2,083,716  |  
|Change in value of beneficial conversion features during period |  |   | 538,692    |  
|Reductions in fair value due to principal conversions           |  |   | -          |  
|                                                                |  |   |            |  
|Conversion Liability at December 31, 2010                       |  |   | 2,622,408  |  
|Value of beneficial conversion features of new debentures       |  |   | 3,659,669  |  
|Change in value of beneficial conversion features during period |  |   | 476,281    |  
|Reductions in fair value due to principal conversions           |  |   | (2,053,371 | )
|Conversion Liability at December 31, 2011                       |  | $ | 4,704,987  |  



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



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, 2011, there was $9,000 of cumulative preferred dividends in arrears
representing $9,000 per cumulative preferred share.



18







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



15. PREFERRED STOCK (continued)



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, 2011 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").
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



15. 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").
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2011 there
were $121,665 Series A Senior Convertible Preferred share dividends accrued and unpaid representing $5.03 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, 2011 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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



15. 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, 2011 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, 2011. 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.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



15. 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, 2011 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, 2011 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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



15. 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, 2011 there
were $451,201 Series D Senior Convertible Preferred share dividends accrued and unpaid representing $6.43 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.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



15. 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.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2011 there
were no Series E Senior Convertible Preferred share dividends accrued.



24











Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



15. PREFERRED STOCK - (Continued)



Series G of the Senior Convertible
Preferred Stock series which was issued in 2007 has 43,610 shares designated. All such shares were issued and outstanding at December
31, 2008. In February 2009, these shares automatically converted into 17,857,142 common shares, leaving no Series G preferred
shares outstanding at December 31, 2011.



| | (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 were issued upon surrender
                                                            of the original preferred stock certificates.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



25







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



15. 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, |        
|--------------------------------------------- |  | ----------------------- | -------
|                                              |  | 2011                    |        
|State current provision (benefit)             |  | $                       | 1,125  
|Foreign (German) deferred provision (benefit) |  |                         | (40,138
|                                              |  | $                       | (39,013



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



|                                     |  | December 31, |            
|------------------------------------ |  | ------------ | -----------
|                                     |  | 2011         |            
|Total deferred tax asset, noncurrent |  | $            | 13,852,454 
|Less valuation allowance             |  |              | (12,800,000
|Net deferred tax asset, noncurrent   |  | $            | 1,052,454  



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, |    
|------------------- |  | ----------------------- | ---
|                    |  | 2011                    |    
|Tax benefit         |  |                         | 40 
|Valuation allowance |  |                         | (40
|Effective tax rate  |  |                         | -  



At December 31, 2011, the
Company has available approximately $34,000,000 of net operating losses to carry-forward and which may be used to reduce future
federal taxable income and expire between December 31, 2012 and 2031.



At December 31, 2011, the
Company has available approximately $13,615,000 of net operating losses to carry-forward and which may be used to reduce future
state taxable income which expire between December 31, 2011 and 2017.



The net deferred tax benefit
at December 31, 2011 relates to a tax asset created from the excess purchase price in the acquisition of the German subsidiary
under tax rules of the foreign government. It derives from the future deductibility of the amortization of this asset over 15
years out of future profits.



26







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements





17. STOCK BASED COMPENSATION



During 2011 and 2010 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.



Andre Scholz (president and Chief
Executive Officer): During 2011 and 2010 earned 1,200,000 restricted shares (100,000 per month) valued at $28,950 and $24,000,
respectively, based on the commitment date fair value of the shares granted. 1,200,000 and 1,950,000 of these shares were issued
in 2011 and 2010,respectively.



Joseph J. Tomasek (Director):
In each of the years ended December 31, 2011 and 2010 Mr. Tomasek earned options for 1,200,000 restricted shares, valued at $11,880.
In addition, as additional compensation, Mr. Tomasek was granted 500,000 warrants exercisable at $0.025 during 5 years, with a
cashless exercise option, such warrants are valued at $5,000 pursuant to the Black-Scholes valuation formula.



Joerg Otzen (former Director):
in 2010, Mr. Otzen was granted 500,000 warrants exercisable at $0.025 during 5 years, with a cashless exercise option. Such warrants
are valued at $5,000 pursuant to the Black-Scholes valuation formula.



Craig S Cody (Chief Financial
Officer): In 2010, Mr. Cody was granted 500,000 warrants exercisable at $0.025 during 5 years, with a cashless exercise option,
such warrants are valued at $5,000 pursuant to the Black-Scholes valuation formula.



In computing the Black Scholes
values for the previous three warrant grants above, we used a volatility of 296% and a risk-free interest rate of 1.6%.



Rudolf Hauke (former President
and Chief Executive Officer): During 2010, Mr. Hauke earned 700,000 non-qualified 4-year stock options, exercisable at $0.10 per
common share, valued at $13,867 pursuant to the Black-Scholes valuation formula. In computing the Black Scholes values we used
a volatility of 283% and risk-free interest rates of 2.6% and 3.3%.



27







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



STOCK BASED COMPENSATION
(continued)



In 2011, we granted 4,000,000
warrants to a consultant. 2,000,000 exercisable at $.025 and 2,000,000 excercisable at $.075, during 5 years, with a cashless
exercise option, such warrants were valued at $40,000 pursuant to a Black-Scholes valuation formula. In 2010, we granted 4,000,000
warrants to a consultant exercisable at $0.025, during 5 years, with a cashless exercise option, such warrants valued at $40,000
pursuant to the Black-Scholes valuation formula. In computing the Black Scholes values we used a volatility of 273% and a risk-free
interest rate of 2.33%.



18. 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.





28









Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



STOCK
OPTION PLANS - (Continued)



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.



|                                   |  |  | Qualified
                                                                                                                                                      and
                                                                                                                                                      Non-Qualified
                                                                                                                                                      Shares
                                                                                                                                                      Under
                                                                                                                                                      Option
                                                                                                                                                      Pursuant
                                                                                                                                                      to
                                                                                                                                                      the
                                                                                                                                                      1997
                                                                                                                                                      Plan
                                                                                                                                                      December
                                                                                                                                                      31, | 
|---------------------------------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                   |  |  | 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 
|Outstanding, 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, 2011 and 2010,
no options were outstanding.

At December 31, 2011,
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, | 
|---------------------------------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                   |  |  | 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 
|Outstanding, beginning of year     |  |  | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|Granted during the year            |  |  | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|Exercised during the year          |  |  | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|Surrendered during the year        |  |  | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|Expired during the year            |  |  | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|Outstanding, end of year           |  |  | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 
|Eligible, end of year for exercise |  |  | -                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 



At December 31, 2011 and 2010,
no options were outstanding.

At December 31,
2011, there were 5,000,000 shares reserved for future option grants.



At
December 31, 2011 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 ofStatement 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 2011 or 2010.



29









Kiwibox.Com, Inc.

Notes to the Financial Statements



STOCK OPTION PLANS - (Continued)



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

|                                                                               |  | December 31, |          
|------------------------------------------------------------------------------ |  | ------------ | ---------
|                                                                               |  | 2011         |          
|Outstanding, beginning of year                                                 |  |              | 8,450,000
|Granted during the year                                                        |  |              | 1,200,000
|Exercised during the year                                                      |  |              | -        
|Surrendered or cancelled during the year                                       |  |              | (250,000 
|Expired during the year                                                        |  |              | (750,000 
|Outstanding, end of year (at prices ranging from $0.01 to $0.10)               |  |              | 8,650,000
|                                                                               |  |              |          
|Eligible for exercise, end of year (at prices ranging
    from $0.01 to $0.10) |  |              | 8,650,000





At December 31, 2011 and 2010
the weighted average exercise price and weighted average remaining contractual life were $0.06 and $0.06 per share, and 1 year
1 month and 2 year 11 months, respectively.



During
2011, the Company granted 1,200,000 to a director of the Company, exercisable at $0.05 during a four-year period. During 2010,
the Company granted 1,900,000 options to two officers and directors of the Company, 700,000 of which are exercisable at $0.10 during
a four-year period, and 1,200,000 of which are exercisable at $0.05 during a four-year period.





The weighted average exercise
price for options granted during the years ended December 31, 2011 and 2010 were $0.05 and $0.07, respectively. The weighted average
exercise price for options expired during the years ended December 31, 2010 were $0.10. The weighted average conversion price for
cancelled options in 2011 was $0.025. The weighted average grant date fair value of options granted during the years ended December
31, 2011 and 2010 was $0.01 and $0.01.







19. WARRANTS



The Company granted common
stock purchase warrants between January 1, 2010 and December 31, 2011 which are comprised as follows:





|                                                                 |  | December 31, |            
|---------------------------------------------------------------- |  | ------------ | -----------
|                                                                 |  | 2011         |            
|Outstanding, beginning of year                                   |  |              | 152,731,315
|Granted during the year                                          |  |              | 5,000,000  
|Exercised during the year                                        |  |              | -          
|Surrendered /cancelled during the year                           |  |              | -          
|Expired during the year                                          |  |              | -          
|Outstanding, end of year (at prices ranging from $.025 to $.085) |  |              | 157,731,315
|                                                                 |  |              |            
|Eligible, end of year (at prices ranging from $.025 to $.085)    |  |              | 157,731,315



At December 31, 2011 and 2010, the weighted average exercise price and weighted average remaining contractual
life is $0.05 and $0.05 per share and 1 year 8 months and 3 years 6 months, respectively.



30







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



20. RELATED PARTY TRANSACTIONS



During the year ended December
31, 2011 and 2010 one outside director of the Company who also serves as the Company’s general and securities counsel, was
paid an aggregate $60,000 and $60,000, respectively, for each period for legal services. The director also received 100,000 common
stock options per month during the year ended December 30, 2011, valued at $11,880. The director also received 100,000 common
stock options per month during the year ended December 30, 2010, valued at $11,880, and $500,000 warrants in December 2010 valued
at $5,000. The balance due to this director at December 31, 2011 and 2010 was $5,000 and $0, respectively.



For the year ended December
31, 2011 and 2010 we incurred an aggregate $444,390 and $252,412, respectively, to companies controlled by the Chief Technology
Officer of the Company, for website hosting, website development and technical advisory services, and server farm installations,
and paid $7,585 in 2010, for promotional materials.



During 2011 and 2010, the beneficial
ownership in the Company’s securities held respectively, by Tell Capital AG of Switzerland and its principal, Ulrich Schuerch
on a consolidated basis, was approximately 10.4% and approximately 9.9% of the voting stock was beneficially held by Discovery
Advisory Company, located in the Bahamas, and Cambridge Services Inc., Kreuzfeld, LTD and Vermoegensverwaltungs-Gesellschaft Zurich
LTD. (VGZ) of Switzerland. Discovery Advisory Company, Cambridge Services Inc., Kreuzfeld, LTD and VGZ are major creditors, having
advanced operating capital against issuance by the Company of convertible promissory notes during 2011 and 2010.During 2011 Cambridge
Services, Inc reassigned $503,760 to a third investor Kreuzfeld, Ltd and converted $377,820. During the same periods Discovery
Advisory Services converted $721,800 and Kreuzfeld, Ltd. converted $492,760. To complete the acquisition of Kwick!!, Discovery
Advisory Services, Kreuzfeld, Ltd and VGZ advanced $679,850, $1,903,580 and $815,820, respectively. During the year ended December
31, 2011, Cambridge Services, Inc. advanced an additional $560,000 and Discovery Advisory Services another $185,000. At December
31, 2011, $785,13434 and $492,416 of such notes were outstanding and owed to Discovery Advisory Company and Cambridge Services
Inc, respectively and $1,914,580 and $815,820 owed to Kreuzfeld, Ltd. and VGZ, respectively. At December 31, 2010, $1,080,984
and $813,996 of such notes were outstanding and owed to Discover Advisory Company and Cambridge Services Inc, respectively. Aditionally,
Ulrich Schuerch advanced the Company $100,000 in the year ended December 31, 2011, and holds $340,000 of demand notes issued at
a rate of interest of 10%. At December 31, 2010 $240,000 of such notes were outstanding.

.



31







Kiwibox.Com, Inc.

Notes
to Financial Statements



21. ACQUISITION OF KWICK!



On September 30, 2011 Kiwibox.com acquired 100% of the limited partner’s interests inthe social network, KWICK!! Community GmbH & Co. KG, a private German Limited Partnership and all of the shares of its General
Partner, Kwick!! Community Beteiligungs GMBH for 7,100,000 Euros, payable as follows: 2,500,000 euros at the closing on September
30, 2011. On March 14, 2012 payment arrangements were changed to reflect the following: 2,300,000 Euros by April 13, 2012 and a
third payment on or before April 26, 2012 of 1,600,000. This converts using the conversion rate in effect on September 30, 2011
to $8,567,343. The original agreement also called for 700,000 Euros, contingent on certain earnings goals (“original bonus
payment”).The original payment was amended by mutual consent of both parties and the original bonus payment possibly due
Kwick! were eliminated.



Kwick! is a leading Social network Community
in Europe focused on the German speaking market, with more than 1 million members and more than 2.5 Million unique users a month
generating 2 Billion page impressions per month.



The following table
represents the fair values of the assets acquired and liabilities assumed as of the date of the acquisition:



|Cash                                      |  | $ | 339,198   |  
|----------------------------------------- |  | - | --------- | -
|Accounts receivable, net                  |  |   | 643,403   |  
|Related party receivables                 |  |   | 16,225    |  
|Other receivables                         |  |   | 120,352   |  
|Prepaid expenses and other current assets |  |   | 43,348    |  
|Fixed assets                              |  |   | 314,479   |  
|Software                                  |  |   | 80,101    |  
|Deferred tax asset                        |  |   | 1,106,047 |  
|Other assets                              |  |   | 24,486    |  
|Income tax payable                        |  |   | (78,852   | )
|Accounts payable                          |  |   | (8,061    | )
|Accrued expenses                          |  |   | (171,093  | )
|                                          |  |   |           |  
|Net assets acquired with acquisition      |  | $ | 2,429,633 |  





The excess of purchase price over tangible
net assets acquired at September 30, 2011 was initially allocated to goodwill in the amount of $6,138,210. Due to exchange rate
fluctuations, the Company recorded an unrealized loss of $200,832 against the foreign currency translation gain (loss), reducing
the carrying value to $5,937,378.





The goodwill is the residual value after
identified assets are separately valued and represents the acquired workforce and expected future cash flows. Goodwill is not
expected to be deductible for tax purposes. The Company will obtain a valuation to determine if there are any identifiable intangible
assets and the final allocation of the purchase price within the measurement period.



The following unaudited pro forma
financial information for the year ended December 31, 2011 and 2010 combines the historical results of the company
Kiwibox.com and its acquired subsidiary Kwick! as if the acquisition occurred on January 1, 2010, as follows:



|2011                      |  | Year Ended December 31, 2011 |           
|------------------------- |  | ---------------------------- | ----------
|                          |  |                              |           
|Revenues                  |  | $                            | 3,426,181 
|                          |  |                              |           
|Net Operating (Loss)      |  |                              | (883,298  
|                          |  |                              |           
|Net (Loss)                |  |                              | (5,113,049
|                          |  |                              |           
|Net (loss) per share 2011 |  |                              | (0.010    



32







Kiwibox.Com, Inc.

Notes to Financial Statements



21. ACQUISITION OF KWICK! (Continued)







|2010                 |  | Year Ended December 31, 2010 |           
|-------------------- |  | ---------------------------- | ----------
|                     |  |                              |           
|Revenues             |  | $                            | 5,320,008 
|                     |  |                              |           
|Net Operating (Loss) |  |                              | 687,581   
|                     |  |                              |           
|Net (Loss)           |  |                              | (2,936,143
|                     |  |                              |           
|Net (loss) per share |  |                              | (0.006    



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



33







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



23. FUTURE IMPACT OF RECENTLY
ISSUED ACCOUNTING STANDARDS



In September 2011, the FASB amended the guidance
on testing for goodwill impairment that allows an entity to elect to qualitatively assess whether it is necessary to perform the
current two-step goodwill impairment test. If the qualitative assessment determines that it is not more-likely-than-not that the
fair value of a reporting unit is less than its carrying amount, then performing the two-step test is unnecessary. If the entity
elects to bypass the qualitative assessment for any reporting unit and proceed directly to Step One of the test and validate the
conclusion by measuring fair value, it can resume performing the qualitative assessment in any subsequent period. The amendments
are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The
adoption of ASU 2011-08 did not have a material impact on the Company’s results of operations or financial condition.



In May 2011, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (ASU) 2011-04, “Fair Value Measurement (Topic 820) Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 is intended to
improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with
U.S. GAAP and IFRSs, by ensuring that fair value has the same meaning in U.S. GAAP and IFRSs and that their respective disclosure
requirements are the same except for inconsequential differences in wording and style. The amendments in ASU No. 2011-04 apply
to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an
instrument classified in a reporting entity’s shareholders’ equity in the financial statements. Some of the disclosures
required by ASU No. 2011-04 are not required for nonpublic entities. These amendments change the wording used to describe many
of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many
of the requirements, the Board does not intend for the amendments to result in a change in the application of the requirements
in ASC Topic 820. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement
requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information
about fair value measurements. The adoption of ASU 2011-04 did not have a material impact on the Company’s results of operations
or financial condition.



In December 2010, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2010-29, “Business Combinations (ASC Topic 805):
Disclosure of Supplementary Pro Forma Information for Business Combinations.” The amendments in this ASU affect any public
entity as defined by ASC Topic 805 that enters into business combinations that are material on an individual or aggregate basis.
The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose
revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred
as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma
disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable
to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively
for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2010. Early adoption is permitted. The Company does not expect adoption of ASU 2010-29 to have a
material impact on the Company’s results of operations or financial condition.



34







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements



23. FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (continued)



In December 2010, the FASB
issued ASU 2010-28, “Intangibles — Goodwill and Other (ASC Topic 350): When to Perform Step 2 of the Goodwill
Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The amendments in this ASU modify Step
1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity
is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists.
In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are
any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing
guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
For public entities, the amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning
after December 15, 2010. Early adoption is not permitted. The Company does not expect the adoption of ASU 2010-28 to have
a material impact on the Company’s results of operations or financial condition.



In April 2010, the FASB issued
ASU 2010-17, Revenue Recognition — Milestone Method(“ASU 2010-17”). ASU 2010-17 provides guidance
on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor
can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which
the milestone is achieved only if the milestone meets all criteria to be considered substantive. The following criteria must be
met for a milestone to be considered substantive. The consideration earned by achieving the milestone should (i) be commensurate
with either the level of effort required to achieve the milestone or the enhancement of the value of the item delivered as a result
of a specific outcome resulting from the vendor’s performance to achieve the milestone; (ii) be related solely to past
performance; and (iii) be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of
an individual milestone is allowed and there can be more than one milestone in an arrangement. Accordingly, an arrangement may
contain both substantive and non-substantive milestones. ASU 2010-17 is effective on a prospective basis for milestones achieved
in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Management evaluated the potential
impact of ASU 2010-17 and does not expect its adoption to have a material effect on the Company’s results of operations
or financial condition.



In January 2010, the FASB
issued ASU 2010-06, Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC 820 to require a
number of additional disclosures regarding fair value measurements. The amended guidance requires entities to disclose the
amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these
transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring
Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The ASU also clarifies the
requirements for entities to disclose information about both the valuation techniques and inputs used in estimating
Level 2 and Level 3 fair value measurements. The amended guidance is effective for interim and annual financial
periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a significant effect on the
Company’s financial statements.



In October 2009, the FASB issued
ASU 2009-13, Multiple-Deliverable Revenue Arrangements,(amendments to FASB ASC Topic 605, Revenue Recognition)
(“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices
of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue
allocation and require revenue to be allocated using
the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into
or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does
not expect adoption of ASU 2009-13 to have a material impact on the Company’s results of operations or financial condition.



35







Kiwibox.Com, Inc. and Subsidiary

Notes to the Financial Statements





23. FUTURE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (continued)



In October 2009, the FASB issued
ASU 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing, (“ASU-2009-15”), which provides guidance for accounting and reporting for own-share lending arrangements issued
in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s
own shares should be measured at fair value in accordance with Topic 820 and recognized as an issuance cost, with an offset to
additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending
arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and
the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending
arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal
years beginning on or after December 15, 2009. The adoption of ASU 209-15 did not have a material impact on the Company’s
results of operations or financial condition.



Management does not believe
that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect
on the accompanying 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, February and
March 2012 we received an aggregate $240,000 working capital loans from two accredited investors, which are covered by convertible
promissory notes carrying interest at 10% per year.



On February 2, 2012 Cambridge
Services Inc. converted $581,269 of debt into 26,000,000 shares of common stock.



On March 21, 2012 Cambridge
Services, Inc provided $684,251 under an open promissory note for Kiwibox.com to make a partial payment on the Kwick! acquisition.



Effective March 14, 2012 the
terms of the original purchase agreement with Kwick! were modified as noted in Note 21. The second payment was due and paid on
April 13, 2012 and the third and final payment is now due on April 26, 2012. The possibility of additional bonus payments to the
former owners has been eliminated.





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