SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





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





For the
Fiscal Year ended December 31, 2009





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
                    
                    75-2228828State
      or Other Jurisdiction of
                    
                    IRS
      EmployerIncorporation
      or Organization
                    
                    Identification
      Number





330 W. 38thStreet, #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
      RegisteredNONE
                
                NONE





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


Common
Stock, par value $0.0001





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





Yes x     No
 ̈





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





The
Registrant’s revenues for the fiscal year ended December 31, 2009 were
$50,450.





Common
stock, par value $.0001 per share (“Common Stock”), was the only class of voting
stock of the Registrant outstanding on March 1, 2010. Based on the closing price
of the Common Stock on the OTC Electronic Bulletin Board as reported on March 1,
2010, ($0.01), the aggregate market value of the 402,234,607 shares of the
Common Stock held by persons other than officers, directors and persons known to
the Registrant to be the beneficial owners (as the term is defined under the
rules of the Securities and Exchange Commission) of more than five percent of
the Common Stock on March 1, 2010, was approximately $4,022,346. By the
foregoing statements, the Registrant does not intend to imply that any of the
officers, directors, or beneficial owners are affiliates of the registrant or
that the aggregate market value, as computed pursuant to rules of the Securities
and Exchange Commission, is in any way indicative of the amount which could be
obtained for such shares of Common Stock.





As of
March 1, 2010, 491,293,060 shares of Common Stock, $.0001 par value, were
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX





KIWIBOX.COM,
INC.





CONTENTS





PagePART
      I.Item  1.
              Business
              3Item
      1A.
              Risk
      Factors
              7Item  2.
              Properties
              10Item  3.
              Legal
      Proceedings
              10Item  4.
              Submission
      of Matters to a Vote of Security Holders
              10PART
      II.Item  5.
              Market
      for Registrant's Common Equity and Related Shareholder
    Matters
              11Item
      6.
              Selected
      Financial Data
              12Item  7.
              Management’s'
      Discussion and Analysis of Financial Condition and Results of
      Operations
              13Item
      7A.
              Quantitative
      and Qualitative Disclosures about Market Risks
              16Item
      8.
              Financial
      Statements
              17Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      DisclosureItem
      9A.
              Control
      and Procedures
              17Item
      9B.
              Other
      Information
              17PART
      III.Item
      10.
              Directors
      and Executive Officers of the Registrant
              18Item
      11.
              Executive
      Compensation
              21Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management
              25Item
      13.
              Certain
      Relationships and Related Transactions
              28Item
      14.
              Principal
      Accountant Fees and Services
              29PART
      IV.Item
      15.
              Exhibits
              30Signatures
              31Exhibit
      Index
              32


2


PART I


ITEM
1:       
   BUSINESS




Section
1.1      The Company





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





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





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





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





The
Company is currently subject to the reporting requirements of Section 15(d) of
the Securities Exchange Act of 1934.  The Company has the authority to
issue an aggregate of One Billion Four Hundred Million (1,400,000,000) Common
Shares, par value $.0001, following an increase from 700,000,000 shares,
authorized by the shareholders of the Company on January 29, 2009, and Three
Million (3,000,000) Preferred Shares, par value $.001, of which at December 31,
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, 2009, there were outstanding 478,168,060 Common Shares, 1
Cumulative Preferred Share, and 85,890 Convertible Preferred
Shares.


3





Description
of Business





Overview





Prior to
the implementation of its strategic business plan in 2007, the Company’s primary
product was an integrated suite of proprietary software modules previously
marketed under the name ErgoEnterpriseTM. During the latter half of fiscal
year 2006, Company management concluded that the marketplace for the Company’s
ergonomic software products was not developing, and would not develop to the
material extent necessary in the next 12 to 24 months, to support and sustain
the Company’s sales efforts. Accordingly, management determined that it would be
in the best interests of the Company and its shareholders to identify another
business opportunity and pursue it for the benefit of our shareholders. On
February 19, 2007, the Company, pursuant to its strategic plan to seek another
business opportunity, signed an Agreement and Plan of Reorganization with the
owners of a social networking website, to acquire their Kiwibox.com website and
business, represented by Kiwibox Media, Inc. Pursuant to that certain Agreement
and Plan of Reorganization, in August, 2007, Kiwibox Media, Inc. merged with and
into Magnitude Operations, Inc., a wholly owned subsidiary of Magnitude
Information Systems, Inc., in a “reverse merger” transaction. The three
shareholders of Kiwibox Media, Inc. transferred and delivered all of the
outstanding stock of Kiwibox Media, Inc. to Magnitude Operations, Inc. for
cancellationand
received in exchange shares of Magnitude Information Systems, Inc. at closing.
Also at closing and as a result of the merger, the separate legal existence of
Magnitude Operations, Inc. ceased and Kiwibox Media, Inc. became the surviving
corporation of the merger and a wholly owned subsidiary of Magnitude Information
Systems, Inc. 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 dedicated to teen users
and young adults. The Kiwibox website provides online content in several
categories produced by users. We have formed a user-based contingent of
contributors that submit, review and comment upon content and articles from all
over the world, 24 hours a day, seven days a week.  Kiwibox has a
regional-based advertising-system that allows target-group-optimized ads for
advertisers and sponsors.





History





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





Kiwibox
Operations





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


4


In
mid-year 2009 we started a review process to identify new user preferences and
trends in the market, partially driven by the growing presence of social
websites such as facebook, mySpace, and Twitter. We also started to investigate
the newest web technologies and to actively look for potential strategic
partners.





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





Overall,
we 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.  Although we anticipate average web
advertising CPM (click per thousand) rates to decrease in 2010, revenue growth
is expected as the revitalized site is launched, membership activity increases
and new planned marketing strategies are implemented.


With the
integration of target-group optimized advertising we seek to accommodate
potential advertisers, recognizing and responding to the importance of a
contact-price in relation to the internet target “cloud”. It is getting 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 a proprietary monitoring model which assists in maintaining a safe
site for our member base, combining both technology based systems and user
moderation.  Over the last 9 years our team has selected trusted long
term members to become “Helpers” known on the Kiwibox.com site as “Guides”.
These Guides utilize internal Kiwibox provided tools to remove inappropriate
content as needed, guide and warn users, and continually scan the site for
unsafe content or user activity. These helpers have an icon next to their
username denoting that they are a KiwiHelper, thus users who believe they are
not being treated respectfully, or otherwise feel uncomfortable, may easily find
and reach a Guide to gain their assistance.  If a Guide deems that a
user or site issue requires further escalation, they in turn immediately contact
Kiwibox personnel, which then evaluate and resolve the issue.


5


In order
to counter inherent problems in this area, our Kiwibox website already benefits
from various safety features built right into the technology platform. This
involves the private sphere configuration of users, contact blocks in case of
larger age differentials, and anti-spam protection, as well as an intelligent
self-learning user-scoring feature.





Competition





Our
primary competitors are other youth targeted online social networks, including
Facebook.com, MyYearbook.com, and MySpace.com. MySpace and Facebook are widely
considered the industry leaders, however, recently statistics and strategic
announcements from both companies has indicated a shift in the target audience
from teens and college students to a much broader and more adult demographic,
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.





Intellectual
Property





We
currently do not own any patents, trademarks, or licenses of any kind. However,
the copyright on the Kiwibox.com web and mobile software and other related
intellectual property rights are important assets.  We hold the
Internet domain names Kiwibox.com, Kiwibox.net, Kiwibox.org, Kiwibox.info,
Kiwibox.us, Kiwibox.mobi, Kiwiboxinc.com, and 4kiwi.com.





Governmental
Regulations





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




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




State and
federal agencies are applying consumer protection laws to regulate the on-line
use, collection and dissemination of personal information and website content.
These laws require us to implement programs to notify our website users of our
privacy and security programs. Consumer protection laws will require us to
obtain the consent of our website users if we want to collect and use certain
portions of their personal information.


6


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 4 full-time and 3 part-time employees. Our plans for hiring additional
personnel during 2010 are not yet firmed up.





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




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





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





Need
for Additional Capital; Short-Term Viability of Company




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




No
Formal Feasibility and Market Research Plan




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


7


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




Limited
Senior Management Team; Potential Problems with Expanding Personnel




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




Competition




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


8


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.





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 $479,339 at December 31, 2009. 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.


9


ITEM
2:        
    DESCRIPTION OF PROPERTIES





We
maintain offices for our Kiwibox operations at 330 W. 38th Street, New York, New
York 10018, for approximately 1,400 square feet. The lease expires with the end
of 2010 and we pay minimum monthly rentals of $3,769 plus tenants’ share of
utility/cam/property tax charges which average approximately $800 per
month.





ITEM
3:             LEGAL
PROCEEDINGS





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





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





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


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





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





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





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





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


10


PART II





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





(a)  Market
Information





The Company’s common stock currently
trades on the Electronic Bulletin Board of the OTC market, under the symbol
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-BBLow/Bid
                        
                        
                        High/Ask2007First
      Quarter
                        
                        $
                        0.03
                        
                        
                        $
                        0.06Second
      Quarter
                        
                        
                        0.04
                        
                        
                        
                        0.08Third
      Quarter
                        
                        
                        0.04
                        
                        
                        
                        0.07Fourth
      Quarter
                        
                        
                        0.02
                        
                        
                        
                        0.052008First
      Quarter
                        
                        $
                        0.01
                        
                        
                        $
                        0.04Second
      Quarter
                        
                        
                        0.02
                        
                        
                        
                        0.03Third
      Quarter
                        
                        
                        0.01
                        
                        
                        
                        0.03Fourth
      Quarter
                        
                        
                        0.01
                        
                        
                        
                        0.032009First
      Quarter
                        
                        $
                        0.01
                        
                        
                        $
                        0.03Second
      Quarter
                        
                        
                        0.01
                        
                        
                        
                        0.02Third
      Quarter
                        
                        
                        0.01
                        
                        
                        
                        0.01Fourth
      Quarter
                        
                        
                        0.01
                        
                        
                        
                        0.04





(b)  Shareholders





As of
March 1, 2010, there were approximately 400 shareholders of record for the
Company’s Common Stock.  The number of record holders does not include
shareholders whose securities are held in street names.





(c)  Dividends





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





Recent Issues
of  Unregistered Securities





During
the fourth quarter of 2009 the Company issued the following unregistered
securities:





We issued
35,000,000Units
pursuant to subscription agreements with four accredited investors and received
subscription proceeds of $875,000, less $60,000 paid to a finder in connection
with such investment, during the fourth quarter. The subscription price for each
Unit was $.025, with each Unit comprised of one restricted common share and one
fourth common stock purchase warrant. Each warrant is exercisable during a five
year period at the exercise price of $.05 per warrant and contains a cashless
exercise provision.


11


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





ITEM
6:             SELECTED
FINANCIAL DATA





Except
for historical information, the Company's reports to the Securities and Exchange
Commission on Form 10-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.





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, 2005 through
2009 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.
All inter-company accounts and transactions have been eliminated in
consolidation.





Balance
Sheet


December
      31,2009
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005Total
      assets
                    
                    $
                    141,415
                    
                    
                    $
                    130,672
                    
                    
                    $
                    3,221,336
                    
                    
                    $
                    169,128
                    
                    
                    $
                    515,629Current
      liabilities
                    
                    
                    2,311,386
                    
                    
                    
                    5,179,293
                    
                    
                    
                    6,316,912
                    
                    
                    
                    2,674,613
                    
                    
                    
                    1,180,010Long-term
      debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Working
      capital
                    
                    
                    (2,226,345
                    )
                    
                    
                    (5,148,331
                    )
                    
                    
                    (5,826,532
                    )
                    
                    
                    (2,553,451
                    )
                    
                    
                    (1,016,230
                    )Shareholders’
      equity (deficit)
                    
                    $
                    (2,169,971
                    )
                    
                    $
                    (5,048,621
                    )
                    
                    
                    (3,095,576
                    )
                    
                    
                    (2,505,485
                    )
                    
                    
                    (664,381
                    )


12


Statement
of Operations


For
      the Year Ended December 31,2009
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005Total
      revenues
                    
                    $
                    50,450
                    
                    
                    $
                    59,421
                    
                    
                    $
                    29,745
                    
                    
                    $
                    47,701
                    
                    
                    $
                    189,552Operating
      income (loss)
                    
                    
                    (1,609,956
                    )
                    
                    
                    (6,206,870
                    )
                    
                    
                    (2,447,832
                    )
                    
                    
                    (3,716,867
                    )
                    
                    
                    (2,410,670
                    )Net
      (loss)
                    
                    
                    (2,440,465
                    )
                    
                    
                    (5,493,764
                    )
                    
                    
                    (3,881,652
                    )
                    
                    
                    (3,895,262
                    )
                    
                    
                    (2,218,257
                    )Net
      (loss) after dividends on preferred shares
                    
                    
                    (2,491,728
                    )
                    
                    
                    (5,545,096
                    )
                    
                    
                    (3,935,133
                    )
                    
                    
                    (4,473,726
                    )
                    
                    
                    (2,341,492
                    )Net
      loss per common share
                    
                    $
                    (0.006
                    )
                    
                    $
                    (0.015
                    )
                    
                    $
                    (0.016
                    )
                    
                    $
                    (0.026
                    )
                    
                    $
                    (0.017
                    )Number
      of shares used in computing per share data
                    
                    
                    447,090,174
                    
                    
                    
                    373,156,459
                    
                    
                    
                    243,609,819
                    
                    
                    
                    170,692,731
                    
                    
                    
                    138,097,577





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





In
mid-year 2009 we started a review process to identify new user preferences and
trends in the market, partially driven by the growing presence of social
websites such as Facebook, MySpace, and Twitter. We also started to investigate
the newest web technologies and to actively look for potential strategic
partners.





In
October 2009 we began trials and test runs of our web site on a new platform
based on most recent web technologies.   This project encompasses
the utilization of modern user tools including integrated mail systems and a
proprietary messaging system, all designed to significantly increase average
on-line times of users which should project favorably on our revenue
profile.  Concurrently, we improved Web 2.0 Technology user
firendliness and usability of web site features by means of
AJAX-Technology.


13


In
addition, we integrated features found in other social networks such as
Blogging, Messaging, Live-Tickers, Chat, Photo tagging, and Event Submission.
Inclusion of regional events calendars with participant listings and “Kiwi-Shots” are intended to
motivate users to frequent log-ins and interactive use of the website. Overall,
we 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.





Currently
we generate the majority of our revenue from
advertising/sponsorships.  Although we anticipate  average
web advertising CPM (click per thousand) rates to  decrease in 2010,
revenue growth is expected as the revitalized site is launched, membership
activity increases and new planned marketing strategies are
implemented.


With the
integration of target-group optimized advertising we seek to accommodate
potential advertisers , recognizing and responding to the importance of a
contact-price in relation to the internet target “cloud”. It is getting 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.





Results of Operations for
the Twelve Months Ended December 31, 2009 Compared to the Twelve Months Ended
December 31, 2008





The
Company had no material revenues during 2009 and 2008.  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, 2009, total revenues amounted to $50,450 compared to $59,421
in 2008. Revenues were derived entirely from the Kiwibox
operations.





Gross
profits amounted to $11,683 after considering $38,767 in website hosting
expenses.  After deducting selling, research, and general and
administrative expenses of $1,621,639 compared to the $6,229,283 recorded in
2008, the Company realized an operating loss of $1,609,956 compared to an
operating loss of $6,206,870 in 2008.  Included in SG&A expenses
for 2008 was a position of $3,138,751 attributable to the impairment of goodwill
previously capitalized in connection with the acquisition of the Kiwibox
business. Excluding this charge the 2008 operating expenses would have been
$3,090,532. On this basis, management’s efforts to reduce costs and streamline
operations clearly showed the desired effect even though some cost savings
measures such as a reduction in staffing and non-essential expenditures took
effect only during the course of the year. For the year 2010 management expects
a further reduction in total operating expenses which, coupled with an expected
increase in revenues, will start a process of putting the company on a path
towards eventually eliminating the erosion of shareholder value.




The major
item included in non-operating income and expenses was a charge of $600,000
accounting for the intrinsic value of the beneficial conversion feature
associated with convertible debt. In addition, the Company arrived at a
settlement with a former principal of its Kiwibox subsidiary which among other,
entailed the write off of a $131,262 loan to that shareholder, transacted during
the time before the Company acquired Kiwibox Media Inc. We also incurred a
charge of $77,806 in connection with changes in the valuation of derivative
liabilities, and income of $114,597 from the extinguishment of debt, consisting
of $76,855 owed to a director and $37,742 from extinguishments of other company
obligations.  The year concluded with a net loss of $2,440,465. After
accounting for dividends accrued on outstanding preferred stock which totaled
$51,263 the net loss applicable to common shareholders was $2,491,728 or $0.006
per share, compared to a loss of $5,545,096 or $0.015 per share for the previous
year.


14


Liquidity and Capital
Resources





We have
financed our business with new debt and equity capital since our cash flow is
insufficient to provide the working capital necessary to fund our operations. We
recorded $815,000 in cash from subscriptions for new equity capital from
accredited private investors during 2009. In addition, we received $1,540,000
from short-term loans. We also retired $730,000 of short term debt. 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 $2,226,345 at December 31, 2009, as
compared to $5,148,331 at December 31, 2008.  Stockholders’ equity
showed an impairment of $2,169,971 at the end of the year, compared to an
impairment of $5,048,621 at the beginning of the year. The relative improvement
stems primarily from the elimination of $3,408,618 in derivative liabilities
associated with the conversion of our Series G Convertible Preferred Stock in
February 2009 which reflected directly in the equity column. The negative cash
flow from operations totaled $1,586,512 and was substantially financed by new
debt and equity which was obtained through private placements. The new equity
placements were consummated by issuance of common stock and warrants to
accredited investors. Details of such transactions can be found in the “Changes
and Issuance of Securities” sections in the Company’s quarterly reports on Forms
10-Q during the year, as well as in the pertinent section of this
report.




We have
no bank debt and aside from trade payables and accruals, our indebtedness at
December 31, 2009, consisted of certain notes and loans aggregating $1,130,000.
The position “Obligations to be settled in stock” of $132,900 includes $76,900
for common shares and options accrued for certain officers and directors
pursuant to their respective employment and remuneration agreements, and $56,000
for stock and warrants due under consulting agreements. Current liabilities also
include $479,339 accrued unpaid dividends on outstanding preferred stock. Such
dividends will be paid only if and when capital surplus and cash-flow from
operations are sufficient to cover the outstanding amounts without thereby
unduly impacting the Company’s ability to continue operating and growing its
business.




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





Absent
the receipt of immediate
equity investment or loans, we will be compelled to close our business
operations. 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.





Subsequent Events – Fiscal
Year 2010





During
February 2010 we received an aggregate $125,000 in equity capital from
subscriptions for “units’ consisting of common stock shares and stock purchase
warrants (see “Recent Issues of Unregistered Securities”
above).


15


ITEM
      7A:
            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.


16


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





As of the
end of the period covered by this Form 10-K for the Year ended December 31,
2009, an evaluation was undertaken, under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures
pursuant to Rule 13a-15(e) of the Exchange Act; and; based upon that evaluation,
Company management, including the Chief Executive Officer and the Chief
Financial Officer, has concluded that the design of the Company’s disclosure
controls and procedures are effective and ensure that all material information
required to be disclosed by the Company in the reports that it files or submits
under the Act, are recorded, processed, summarized and reported within the time
periods specified in the Commission’s rules and forms; in addition, the
evaluation confirmed that the Company’s disclosure controls and procedures are
designed to ensure that the information required to be disclosed by the Company
in the reports that it files or submits under the Act is accumulated and
communicated to Company management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.





Management
Report on Internal Control Over Financial Reporting




The
Company maintains a system of internal controls designed to provide reasonable
assurance that:  (i) the Company’s transactions are properly
authorized; (ii) the Company’s assets are protected against unauthorized or
improper use, and (iii) the Company’s transactions are properly recorded and
reported, all to permit the preparation of complete and accurate financial
statements in conformity with generally accepted accounting
principles.





Changes
in Internal Control over Financial Reporting




Since the
date of the most recent evaluation of the Company’s internal controls by the
Chief Executive Officer and Chief Financial Officer, there have not been any
significant changes in the Company’s internal controls or other factors for the
period covered by the subject Form 10-K that materially affected or were likely
to materially affect the Company’s internal control over financial
reporting.





ITEM
9B:  OTHER INFORMATION




None.


17


PART III





ITEM
      10:
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROLPERSONS





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





Name
                
                Positions
                
                Term  Served
      (Expires)Edward
      L. Marney
                
                DirectorPresident,
      Chief Executive
                
                May
      5, 2006 to August 1, 2008*OfficerRudolf
      Hauke
                
                DirectorPresident,
      Chief Executive Officer
                
                July
      14, 2008 to presentDirector
                
                Dec.
      2, 2005 to presentJoerg
      H. Klaube
                
                Sr.
      Vice President, Secretary,
                
                July
      31, 1997 to presentChief
      Financial OfficerSteven
      L. Gray
                
                DirectorChairman
      of the Board
                
                May
      18, 2000 to July 18, 2008*Joseph
      J. Tomasek
                
                Director
                
                Feb.
      11, 1999  to presentQuentin
      Kelly
                
                Director
                
                July
      14, 2008 to March 24, 2009*Joerg
      Otzen
                
                Director
                
                July
      14, 2008 to presentAndre
      Scholz
                
                DirectorChief
      Technology Officer
                
                May
      13, 2009 to present





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




Rudolf
Hauke, Age 62 – Director, President and Chief Executive Officer. Mr.
Hauke joined the Company in July 2008. He also currently serves as the President
and Chief Executive Officer of ATG Advanced US Technology Group Inc, located in
Clearwater, Florida an organization engaged in the development of image
classification technologies with a principal focus on the protection of children
over the internet, which he founded in 2006. Prior to establishing ATG, Dr.
Hauke was a senior executive with TBS North America Inc, a biometrics company
headquartered in Herndon VA, where he managed to receive a $3 million government
fund from NIJ. A business executive and research scientist with more than 25
years experience, Dr. Hauke managed high-tech research initiatives at both
business units within large corporations and as privately funded start-up
companies. Dr. Hauke holds a PhD in Applied Physics from the University of
Tubingen, Germany and began his career in 1978 as the head of R&D for CGR
Koch & Sterzel where he oversaw the research, design and development of
medical diagnostic systems. He became the European Marketing Manager for Toshiba
Medical Systems in 1982 and significantly grew Toshiba's European market share.
In 1984, he co-developed ultrasound technology for Phillips/Dornier . In 1993 he
worked for Kaba Systems Switzerland - a leading provider in access control
systems- building distribution networks within US . He holds more than 65
patents or patents pending.


18




Andre
Scholz, Age 32 – Director, Chief Technology Officer. Andre Scholz has
more than 15 years business experience in Internet, telecommunication technology
and IT security. He holds an advanced degree from the University of Stuttgart
and Konstanz in electronic engineering. Mr. Scholz is a consultant and well
known technical expert for numerous social networks, communities and
high-traffic sites, active around the world. He brings a wealth of social
network and internet knowledge to Kiwibox. Mr. Scholz was co-founder of various
internet exchange points and manages them until now. Since 1996 he is Managing
Director of a carrier and Internet Service Provider in Stuttgart, Germany and
since 2002 he is CEO of the Interscholz company group, Leonberg, Germany, which
places private investments in and is managing and operating various
companies.





Joerg H.
Klaube, Age 68 – Director and Chief Financial Officer, Senior Vice
President. He joined the Company in December 1994.  His business
career covers a broad range of appointments in corporate financial management,
treasury and administrative functions, in a variety of business environments
including publicly held companies. He served as chief financial officer for
software design and computer marketing firms Unitronix Corporation and Comar
Technologies Inc., and the telecommunications holding company E. Oliver Capital
Group. Prior to that, he was employed for sixteen years with the U.S. subsidiary
of Siemens AG, where lastly he served as Director of Business Administration for
its Telecommunications Division.  He graduated from the Banking School
in Berlin, Germany, and holds a Masters Degree in Business Administration from
Rutgers University.




Joseph J.
Tomasek, Age 63 - Director. Mr. Tomasek was appointed a director in
February 2000.  Mr. Tomasek also serves as our General Counsel and
coordinates our legal affairs in such role. In addition to serving in these
Company positions, Mr. Tomasek represents U.S. and international clients in
corporate and securities law matters. Mr. Tomasek received his Juris Doctor and
Bachelor of Arts Degrees from Seton Hall University and a Certificate d'Etudes
in European Studies from the University of Strasbourg, France. Mr. Tomasek is a
member of the Bars of the States of New Jersey, New York and Illinois. Mr.
Tomasek is married to Victoria Mitchell Tomasek, Phd., and has two
children.




Joerg
Otzen, Age 44 – Director. Mr. Otzen was elected to serve on the Board
effective July 14, 2008. He is an executive manager of the engineering company
Meteor AG, , located in Zurich, Switzerland. As well, Dr. Otzen currently serves
as a member of the Boards of Directors of UBL Corporate Financial Services S.A.
(Switzerland) and Bullion River Corp. (U.S.A.), an SEC reporting company. Prior
to his current engagement, he was a senior manager at of UBL Corporate Financial
Services AG, where he managed numerous financial transactions including
fundraising, investment review, interim management of companies in external
portfolios and private equity funds for different clients. Dr. Otzen began his
professional career with SBC Warburg in 1995, as a vice president of equity
research. In 2000, he became head of corporate development at the industrial
group Ascom (Switzerland) and was in charge of the numerous group's divestments
during Ascom's a 4 year period of financial distress. He lead the team which
managed projects in international corporate finance, merger and acquisitions,
corporate lending, and, in urgent cases, the establishment of new management in
distressed subsidiaries. Dr. Otzen holds a Masters and Ph.D.degrees in
Mechanical Engineering from RWTH Aachen (Germany) and a Masters Degree in
Business Administration from the Harvard Business School.





Family
Relationships




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


19


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,
2009 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).


20


ITEM
      11:
            EXECUTIVE
      COMPENSATION





2009
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, 2009, regardless of the compensation level, and (ii) each of our
other executive officers, serving as an executive officer at any time during
2009, as well as the most highly compensated employees who did not serve as
executive officers during 2008. Compensation information is shown for the fiscal
years ended December 31, 2009, 2008 and 2007:





(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
                                                                                                                Compensation
                                                                                                                ($)
                                                                                                                (i)
                                                                                                              
                                                                                                              
                                                                                                              Total
                                                                                                                ($)Rudolf
      Hauke
                                                                                                              
                                                                                                              
                                                                                                              2009
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              36,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              23,790
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              48,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              107,790Chief
      Executive
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              48,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              19,200
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              52,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              119,200Officer,
      President,
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -DirectorAndre
      Scholz
                                                                                                              
                                                                                                              
                                                                                                              2009
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              140,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              25,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              20,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              185,000Chief
      Technology
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -Officer,
      Director
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -Joerg
      H. Klaube
                                                                                                              
                                                                                                              
                                                                                                              2009
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              60,885
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              60,885Chief
      Financial
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              62,500
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,750
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,410
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              69,660Officer,
      Director
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              62,500
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,825
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              65,325Joseph
      J. Tomasek,
                                                                                                              
                                                                                                              
                                                                                                              2009
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              8,910
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              185,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              193,910Esq.,
      Director and
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              19,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              256,800
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              275,800General
      Legal Counsel
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              127,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              127,000Legal
      Fees:Quentin
      Kelly
                                                                                                              
                                                                                                              
                                                                                                              2009
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              --
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -Director
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -Joerg
      Otzen
                                                                                                              
                                                                                                              
                                                                                                              2009
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -Director
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -Edward
      L. Marney
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              108,173
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              25,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              9,500
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              8,863
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              151,536Chief
      Executive
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              128,907
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              15,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              12,884
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              156,791Officer,
      PresidentSteven
      Gray
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              30,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              14,250
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              44,250Director
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              20,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              111,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              3,481
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              134,481Lin
      Dai
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              126,923
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              20,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              231,831
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              123,785
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              502,539Employee
      of Subsidiary
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              57,692
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              472,186
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              223,501
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              91,536
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              844,915DirectorIvan
      Tumanov
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              103,846
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              202,205
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              50,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              356,051Employee
      of
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              57,692
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              385,528
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              223,501
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              80,426
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              747,147SubsidiaryMichael
      Howard
                                                                                                              
                                                                                                              
                                                                                                              2009
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              75,866
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              75,866Employee
      of
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              150,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              20,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              177,165
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              161,285
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              508,450Subsidiary
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              57,692
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              312,286
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              223,501
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              71,037
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              664,516All
      executive officers
                                                                                                              
                                                                                                              
                                                                                                              2009
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              312,751
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              25,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              32,700
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              253,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              623,451and
      named significant
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              629,442
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              65,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              611,201
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              66,700
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              -
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              655,143
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,027,486employees
      and
                                                                                                              
                                                                                                              
                                                                                                              2007
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              384,483
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              15,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,281,000
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              670,503
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              389,189
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,740,175directors
      as a group




21





Rudolf Hauke
2009-2008: Rudolf Hauke joined the Company in July 2008 as a consultant,
acting in the capacity of President and Chief Executive Officer, and as a
director. During 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 has 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 has
earned 1,000,000 non-qualified stock options, 500,000 of which are 2-year
options, exercisable at $.05 per common share, and 500,000 of which are 4-year
options, exercisable at $.10 per common share, such options valued at $19,200
pursuant to the Black-Scholes valuation formula.





Andre
Scholz  2009: Andre Scholz joined the Company in May 2009, as
our Chief Technology Officer and as a director. During 2009, we paid Mr. Scholz
$140,000 as salary and $20,000 in consulting fees prior to his entry into the
Company.  He also has accrued 500,000 common shares as a signing bonus
and is earning 100,000 common shares every month, beginning with May 15, 2009.
The shares had not been issued at December 31, 2009, however, were accrued for
and valued at $25,000.





Joerg H. Klaube
2009-2007:  During the years 2009, 2009, and 2007 we paid Mr.
Klaube $60,855, $62,500, and $62,500, respectively, in salary.  We
also madelife
insurance premium payments during 2008 and 2007 on his behalf in the amounts of
$2,410 and 2,825, respectively. In 2008 Mr. Klaube also received options for
250,000 restricted shares, valued at $4,750 pursuant to the Black-Scholes
valuation formula.




Joseph J. Tomasek 2009-2007:During fiscal years 2009, 2008 and 2007, the Company incurred or paid
$185,000, $256,800 and $ 127,000, respectively, to Mr. Tomasek for legal
services rendered to the Company. In 2009 Mr. Tomasek earned options for 900,000
restricted shares, valued at $8,910 pursuant to the Black-Scholes valuation
formula. These options are earned at the rate of 100,000 options per month,
beginning with April 2009. In 2008 Mr. Tomasek also received options for
1,000,000 restricted shares, valued at $19,000 pursuant to the Black-Scholes
valuation formula.




Edward L. Marney
2008-2006: Edward Marney joined the Company in May, 2006, becoming first
our Chief Executive Officer, then our President and a director. He resigned
these positions on August 1, 2008. During 2008, we paid Mr. Marney $108,173 as
salary, a bonus of $25,000 and $8,863 for medical expenses. During 2007, we paid
Mr. Marney a cash salary of $128,907, a bonus of $15,000  and $12,884
for medical expenses, and in 2006 we paid Mr. Marney $86,538 salary and
reimbursed $5,950 of healthcare payments. In 2008 Mr. Marney also received
options for 500,000 restricted shares, valued at $9,500 pursuant to the
Black-Scholes valuation formula.
 
 Steven Gray
2008-2006. Mr. Gray served as a Director of the Company from May, 2000
through July 18, 2009, when he resigned. During 2008 we paid Mr. Gray $30,000
and issued options for 750,000 restricted shares, valued at $14,250. During
fiscal year 2007 we paid Mr. Gray $20,000 and issued 1,850,000 restricted shares
to him and an assignee, and 500,000 common stock purchase options for services
rendered to the Company. We also issued 74,031 shares for interest on loans to
the Company. During fiscal year 2006, we issued an aggregate 1,550,000
restricted common shares and 500,000 common stock purchase options to Mr. Gray
for services rendered to the Company. As set forth in the column “All Other
Compensation” in the above table for 2007, we valued the restricted common
shares issued in the subject years based upon their average public market
trading price as of the dates we issued these shares
 
 Lin Dai 2008-2007:
Lin Dai served as an employee of the Kiwibox Media, Inc., the Company’s
subsidiary, and as a Director of the Company from August, 2008 through December
8, 2008 when he resigned.  During 2008, we paid Mr. Dai a salary of
$126,923 and a bonus of $20,000; furthermore, we paid an aggregate $120,333 and
issued 11,591,544 restricted shares valued at $231,831, in accordance with the
terms of the Kiwibox acquisition agreement, as amended. We also paid him $3,452
in interest on promissory notes issued in connection with the consummation of
the Kiwibox agreement.  During fiscal year 2007 we paid Mr. Dai a
salary of $57,697 and, in connection with the acquisition of Kiwibox Media Inc.
by Magnitude and in exchange against their ownership interest in Kiwibox Media
Inc, paid a cash amount of $91,536 and issued 11,804,632 restricted common
shares (listed under “Stock Awards”) and options for 7,500,000 shares, vesting
over a 24-months period, exercisable at $0.057 per share. In addition to the
options listed above Mr. Dai was issued performance stock options for 3,000,000
shares, further detailed below. As set forth in the column “All Other
Compensation” in the above table for 2007, we valued the restricted common
shares issued based upon their average public market trading price as of the
dates we issued these shares; we valued the stock options  pursuant to
the Black-Scholes valuation formula. Mr. Dai separated from the Company on
October 30, 2008, terminating his employment agreement and surrendering all of
his outstanding 10,500,000 stock options for cancellation at that
time.
 
 Ivan Tumanov
2008-2007: Mr. Tumanov served as an employee of Kiwibox Media, Inc.
During 2008, we paid Mr. Tumanov a salary of $103,846; furthermore, we paid
$50,000 and issued 10,110,231 restricted shares valued at $202,205, in
accordance with the terms of the Kiwibox acquisition agreement, as amended.
During fiscal year 2007 we paid Mr. Tumanov a salary of $57,697 and, in
connection with the acquisition of Kiwibox Media Inc. by Magnitude and in
exchange against their ownership interest in Kiwibox Media Inc, paid a cash
amount of $80,426 and issued 9,638,213 restricted common shares (listed under
“Stock Awards”) and options for 7,500,000 shares, vesting over a 24-months
period, exercisable at $0.057 per share. In addition to the options listed above
Mr. Tumanov was issued performance stock options for 3,000,000 shares, further
detailed below. As set forth in the column “All Other Compensation” in the above
table for 2007, we valued the restricted common shares issued based upon their
average public market trading price as of the dates we issued these shares; we
valued the stock options  pursuant to the Black-Scholes valuation
formula. On September 8, 2008, Mr. Tumanov resigned as an employee of the
Company, surrendering all of his outstanding 10,500,000 stock options for
cancellation and his employment agreement was terminated.


Michael Howard
2009-2007: 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 fiscal year 2007 we paid Mr. Howard a salary of $57,697 and,
in connection with the acquisition of Kiwibox Media Inc. by Magnitude and in
exchange against their ownership interest in Kiwibox Media Inc, paid a cash
amount of $71,037 and issued 7,807,155 restricted common shares (listed under
“Stock Awards”) and options for 7,500,000 shares, vesting over a 24-months
period, exercisable at $0.057 per share. In addition to the options listed above
Mr. Howard was issued performance stock options for 3,000,000 shares, further
detailed below. As set forth in the column “All Other Compensation” in the above
table for 2007, we valued the restricted common shares issued based upon their
average public market trading price as of the dates we issued these shares; we
valued the stock options  pursuant to the Black-Scholes valuation
formula. 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.





Employment
Agreements





Rudolf Hauke –
2009-2008.   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.


22


Andre Scholz –
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 –
2009-2007.  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 terminates on October 31, 2010 unless extended
by mutual agreement.





Stock
Options :





No stock
options were granted during 2007, 2008 or 2009 pursuant to the Company’s 1997
Stock Option Plan and 2000 Stock Incentive Plan, to any executive officers,
directors, employees or to any beneficial owners of more than 10 percent of any
class of equity securities of the Company. In addition, there were no stock
options or warrants exercised by any officer, director, employee or any
beneficial owners of more than 10 percent of any class of equity securities of
the Company during 2007, 2008 or 2009.





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:





On August
16, 2007, the Company closed on its acquisition of Kiwibox Media Inc. and issued
to each of the three Kiwibox Shareholder stock options provided for under their
employment agreements. Each Kiwibox Shareholder received a stock option to
purchase up to 7,500,000 shares of our common stock at an exercise price of $.05
per share which vests and is exercisable by the Kiwibox Shareholders, 50% on the
first anniversary date of the Closing, August 16, 2008, 25% 18 months after the
Closing and 25% on the second anniversary of the Closing. Each Kiwibox
Shareholder was also issued a performance stock option to purchase up to an
additional 3,000,000 shares of our common stock, 1,500,000 of which options vest
and are exercisable following the first anniversary date of the Closing if the
Kiwi Business has received no less than an average 215,000 Unique Visitors
during either the 10th, 11th or 12th month
of the first year of the term or achieved $316,000 in gross revenues during the
first year, and the balance, or 1,500,000 options vest and are exercisable by
the Kiwibox Shareholders after the second anniversary date of the Closing,
provided the Kiwi Business has received at least an average 550,000 Unique
Visitors during either the 22nd, 23rd or 24th month of the second year of the
term or achieved $1,961,000 in gross revenues during the second year of the
agreements. All of these stock options are non-qualified and are exercisable at
$.05 per share.During
2008, 15,000,000 of the initially granted stock options and 6,000,000 of the
performance stock options were cancelled upon termination of the employment
agreements with two of the original Kiwibox Shareholders. During 2009, 7,500,000
of the initially granted stock options and 3,000,000 of the performance stock
options were cancelled upon termination of the employment agreements with the
third original Kiwibox Shareholder


23


During
2009, The Chief Executive Officer earned 1,200,000 four-years 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-years stock options, exercisable at $0.05 per common
share.





Outstanding
Equity Awards at Fiscal Year-End Table





The
following table provides certain information regarding unexercised options to
purchase common stock, stock options that have not vested, and equity-incentive
plan awards outstanding at December 31, 2009, 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
                                                            vestedRudolf
      Hauke,
                                                          
                                                          
                                                          500,000
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          $
                                                          0.05
                                                          
                                                          7/14/
      2010
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -CEO
      and
                                                          
                                                          
                                                          1,700,000
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          0.10
                                                          
                                                          8/14/2012 toPresident
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1/14/2014Joerg
      H.
                                                          
                                                          
                                                          250,000
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          $
                                                          0.025
                                                          
                                                          6/26/13
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -Klaube,CFOJoseph
      J.
                                                          
                                                          
                                                          1,000,000
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          $
                                                          0.025
                                                          
                                                          6/26/13
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -Tomasek,
                                                          
                                                          
                                                          900,000
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          $
                                                          0.05
                                                          
                                                          4/30/14
      toDirector
      and General
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          12/31/14Legal
      CounselQuentin
      Kelly,
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -director
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -Joerg
      Otzen,
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -director
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          -





Option Exercises and Stock
Vested Table: None





Pension Benefits
Table: None





Nonqualified Deferred
Compensation Table: None





Pre-requisites Table:None





Compensation of
Directors:





We have
not paid any compensation to any of our directors for services rendered as
directors during fiscal years 2009, 2008 and 2007.


24


During
2009, 2008 and 2007, one outside director of the Company who also serves as the
Company’s general and securities counsel, incurred or was paid an aggregate
$185,000, $256,800 and $127,000, respectively, for legal services. During 2008
and 2007, another outside director of the Company was paid $30,000 and $20,000,
respectively, for business advisory services.





CORPORATE GOVERNANCE AND
CODE OF ETHICS





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




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





Board
Committees





AUDIT
COMMITTEE





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





COMPENSATION AND NOMINATING
COMMITTEES





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





ITEM
      12:
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
  MANAGEMENT





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


25





Title of Class*
                                                    
                                                    Name and Address of
                                                      Beneficial Owner
                                                    
                                                    Amount and Nature of
                                                      Beneficial Ownership(1)
                                                    
                                                    
                                                    Percent
                                                      of ClassCommon
      Stock
                                                    
                                                    Rudolf
      Hauke
                                                    
                                                    12,400,000
                                                    (2)
                                                    
                                                    
                                                    2.51
                                                    %Pres./CEO/DirectorAndre
      Scholz
                                                    
                                                    24,846,176
                                                    (3)
                                                    
                                                    
                                                    5.04
                                                    %CTO /DirectorJoerg
      Otzen
                                                    
                                                    -0-
                                                    
                                                    
                                                    
                                                    -0-DirectorJoerg
      Klaube
                                                    
                                                    1,650,000
                                                    (4)
                                                    
                                                    
                                                    0.34
                                                    %CFO/DirectorJoseph
      Tomasek
                                                    
                                                    4,
      613,833
                                                    (5)
                                                    
                                                    
                                                    0.94
                                                    %Director





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





All
      Directors and Officers as a Group:
                                                      
                                                      43,510,009
                                                      
                                                      
                                                      
                                                      8.75
                                                      %as
      a Group (5 persons)Ulrich
      SchuerchTell
      Capital AG
                                                      
                                                      53,500,000
                                                      (6)
                                                      
                                                      
                                                      10.04
                                                      %Tellstrasse
      21, CH-9000St.
      Gallen, SwitzerlandDiscover
      Advisory Company
                                                      
                                                      51,238,213
                                                      (7)
                                                      
                                                      
                                                      9.99
                                                      %c/o
      Horymor Trust Corp. Ltd.50
      Shirley Street / P.O.Box N-341,NassauCambridge
      Services Inc.
                                                      
                                                      53,410,231
                                                      (8)
                                                      
                                                      
                                                      9.99
                                                      %c/o
      TSZ Treuhandgesellschaft Sauter & Co.Suedstr.
      11, CH-8034 Zurich, Switzerland




* The
Company also has issued and outstanding as of December 31, 2009, 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.


26







(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, 2010. 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)
Includes 2,400,000 stock options.


(3)
Consists of 23,396,176 shares held by Interscholz Beteiligungs GmbH, a company
over which Andre Scholz has control, and 1,450,000 shares accrued but not yet
issued.


(4)
Includes 250,000 stock options.


(5)
Includes 2,100,000 stock options.


(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 21,800,000 shares issuable upon conversion of convertible debt. Karen
Buehler has investment and voting control of Discover Advisory
Company.


(8)
Includes 18,300,000 shares issuable upon conversion of convertible debt, and
25,000,000 stock purchase warrants, exercisable at $0.05 per Warrant. Victor
Sauter has investment control of Cambridge Services Inc.




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





Family
Relationships




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




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





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


27


ITEM
      13:
            CERTAIN
      RELATIONSHIPS AND RELATED
TRANSACTIONS





During
2009 and 2008, one outside director of the Company who also serves as the
Company’s general and securities counsel, was paid or incurred an aggregate
$185,000 and $256,800, respectively, for legal services. We also granted options
for 900,000 shares, exercisable at $0.05 during four years, to this director
during 2009.





A former
director was paid $30,000 during 2008 for business consulting
services.





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





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





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





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





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
2009, the beneficial ownership in the Company’s securities held respectively, by
Tell Capital AG of Switzerland and its principal, Ulrich Schuerch on a
consolidated basis, as well as by Discover Advisory Company, located in the
Bahamas, and Cambridge Services Inc. of Switzerland, in each case amounted to
approximately 10% of the voting stock.  Both Discover Advisory Company
and Cambridge Services Inc. are major creditors, having advanced operating
capital against issuance by the Company of convertible promissory notes to
during 2009. At December 31, 2009, $950,000 and $40,000 of such notes were
outstanding and owed to Discover Advisory Company and Cambridge Services Inc,
respectively (see section “Notes” in the Notes to Financial Statements, attached
hereto).  Tell Capital AG was the lead investor in a $1 Million
private placement transaction consummated in late 2009 (we refer to the
Company’s filing on December 31, 2009 on Form 8-K, incorporated herein by
reference). In the process, Tell Capital AG was issued a finder’s fee payment of
$60,000.


28


ITEM
      14:
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES





AUDIT
FEES





Rosenberg
Rich Baker Berman & Company ("Rosenberg") billed us in the aggregate amount
of $38,500 and $62,000
for  professional  services  rendered  for  their  audit
of our  annual financial  statements and their reviews
of  the financial  statements included in our Forms 10-K and
10-Q for the years ended December  31, 2009, and December 31, 2008,
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, 2009, and December 31,
2008.





TAX
FEES





Rosenberg
billed us in the aggregate amount of $6,700 and $1,500 for
professional  services  rendered  for tax related
services for the fiscal years ended December 31, 2009 and December 31, 2008,
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.


29


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 2009, the Company filed the following reports on Form
8-K:





On
December 31, 2009 the Company filed a report on Form 8-K announcing the merger
of its two subsidiaries Magnitude, Inc. and Kiwibox Media, Inc. into the
Company, and a change of its corporate name from Magnitude Information Systems,
Inc. to Kiwibox.Com, Inc.





On
December 31, 2009 the Company filed a report on Form 8-K announcing the receipt
of $875,000 pursuant to a private placement transaction, and the repayment of
$600,000 promissory notes previously issued.


30


SIGNATURES





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





KIWIBOX.COM,
      INC.By:
                /s/ Rudolf Hauke
                
                Date:
      March 31, 2010Rudolf
      HaukePresident
      and Chief Executive Officer(Principal
      Executive Officer),DirectorBy:
                /s/ Joerg H. Klaube
                
                Date:
      March 31, 2010Joerg
      H. KlaubeSecretary,
      Chief Financial Officer(Principal
      Financial Officer)Director





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





Name
                
                Date/s/ Joerg Otzen
                
                March
      31, 2010Joerg
      Otzen/s/ Joseph J. Tomasek
                
                March
      31, 2010Joseph
      J. Tomasek, Director/s/
      Andre Scholz
                
                March
      31, 2010Andre
      Scholz, Director


31


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,
      200710.29*
              Amendment
      No. 4 to Agreement and Plan of Reorganization, dated as of December 3,
      2007.10.30*
              Amendment
      No. 5 to Agreement and Plan of Reorganization, dated as of December 31,
      2007.10.31*
              Standstill
      Letter Agreement, dated as of January 30, 2008.10.32*
              Standstill
      Letter Agreement, dated as of February 11, 2008.10.33*
              Amendment
      No. 6 to Agreement and Plan of Reorganization, dated as of February 28,
      2008.10.34*
              Engagement
      Agreement, Dated June 27, 2008, between Tell Capital AG and the
      Company.10.35*
              Resignation
      Agreement, Dated August 19, 2008, between Ivan Tumanov and the
      Company.10.36*
              Form
      of Demand Notes issued by the Company to Lender, Discover Advisory
      Company.10.36-1*
              Form
      of corrected Demand Notes issued by the Company to Lender, Discover
      Advisory Company.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
              Form
      of Registrant’s Master Corporate Promissory Note, dated June 4, 2009,
      delivered and accepted by10.37
              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.


32





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





21.
            Subsidiaries
      of the Company:





(i)
              Magnitude,
      Inc. and Kiwibox Media, Inc. were corporations formed under the laws of
      the State ofDelaware
      and are the names under which they conducted business. On December 31,
      2009, both companies merged into the
Company.





(31.1)
            Certification
      of Rudolf Hauke, Chief Executive Officer, pursuant to Section 302 of
      Sarbanes-Oxley Act of 2002.





(31.2)
            Certification
      of Joerg H. Klaube, Chief Financial Officer, pursuant to Section 302 of
      Sarbanes-Oxley Act of 2002.





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


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





OTHER
DOCUMENTS INCORPORATED HEREIN BY REFERENCE





(a)
            The
      Company’s Quarterly Reports on Form 10-Q for the periods endedMarch
      31, 2009, June 30, 2009, and September 30,
2009.





(b)
            All
      other reports filed by the Company pursuant to Section 13(a) or 15(d)
      ofthe
      Exchange Act since the Company’s fiscal year ended December 31,
      2008


33


Kiwibox.Com,
Inc.





Consolidated
Financial Statements





December
31, 2009







Kiwibox.Com,
Inc.




Index
to the Consolidated Financial Statements


December
31, 2009





PageReport
      of Independent Registered Public Accounting Firm
              2Financial
      StatementsConsolidated
      Balance Sheet
              3Consolidated
      Statements of Operations
              4Consolidated
      Statements of Stockholders Equity (Deficit)
              5-6Consolidated
      Statements of Cash Flows
              7-9Notes
      to the Consolidated Financial Statements
              10-35





Rosenberg
Rich Baker Berman & Company
 265
Davidson Avenue, Suite 210
 Somerset,
New Jersey 08873






REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and
 Stockholders
of Kiwibox.com, Inc. (f/k/a Magnitude Information Systems, Inc)
 
 We have
audited the accompanying balance sheets of Kiwibox.com, Inc. as of December 31,
2009 and 2008, and the related statements of income, stockholders’ equity, and
cash flows for each of the years in the two-year period ended December 31, 2009.
Kiwibox.com, Inc.’s management is responsible for these financial statements.
Our responsibility is to express an opinion on these financial statements based
on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Kiwibox.com, Inc. as of December
31, 2009 and 2008, and the results of its operations and its cash flows for each
of the years in the two-year period ended December 31, 2009 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 discussed in the notes to the financial
statements, the Company’s significant operating losses and significant working
capital deficiency raise substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
 /s/ Rosenberg Rich Baker
Berman & Company
 Rosenberg
Rich Baker Berman & Company
 Somerset,
New Jersey
 March 31,
2010
 
 2




Kiwibox.Com,
Inc.




Consolidated
Balance Sheets





December 31,2009
                          
                          
                          2008AssetsCurrent
      AssetsCash
                          
                          $
                          2,518
                          
                          
                          $
                          5,000Accounts
      receivable, net of allowance for doubtful accounts of $0
                          
                          
                          2,000
                          
                          
                          
                          9,800Prepaid
      expenses and other current assets
                          
                          
                          180,523
                          
                          
                          
                          16,162Total
      Current Assets
                          
                          
                          85,041
                          
                          
                          
                          30,962Property
      and equipment, net of accumulated depreciation of $85,841 and
      $63,722
                          
                          
                          18,705
                          
                          
                          
                          40,165Website
      development cost, net of accumulated amortization of $1,813 and
      $12,329
                          
                          
                          19,945
                          
                          
                          
                          52,321Deferred
      financing costs, net of accumulated amortization of $619,900 and
      $615,900
                          
                          
                          -
                          
                          
                          
                          4,000Other
      Assets
                          
                          
                          17,724
                          
                          
                          
                          3,224Total
      Assets
                          
                          
                          141,415
                          
                          
                          
                          130,672Liabilities
      and Stockholders’ Equity (Impairment)Current
      LiabilitiesAccounts
      payable and accrued expenses
                          
                          
                          535,618
                          
                          
                          
                          931,676Dividends
      payable
                          
                          
                          479,339
                          
                          
                          
                          428,076Obligations
      to be settled in stock
                          
                          
                          132,900
                          
                          
                          
                          135,200Loans
      and notes payable – related parties
                          
                          
                          990,000
                          
                          
                          
                          -Loans
      and notes payable – other
                          
                          
                          140,000
                          
                          
                          
                          320,000Current
      maturities of long-term debt
                          
                          
                          33,529
                          
                          
                          
                          33,529Derivative
      liability for warrants and options
                          
                          
                          -
                          
                          
                          
                          3,330,812Total
      Current Liabilities
                          
                          
                          2,311,386
                          
                          
                          
                          5,179,293Commitments
      and Contingencies
                          
                          
                          -
                          
                          
                          
                          -Stockholders’
      Equity (Impairment)Preferred
      stock, $.001 par value, non-voting, 3,000,000 shares authorized; 85,890
      and 129,500 shares issued and outstanding
                          
                          
                          86
                          
                          
                          
                          129Common
      stock, $.0001 par value, 1,400,000,000 shares authorized; 478,168,060 and
      436,242,570 shares issued and outstanding at December 31, 2009 and
      2008
                          
                          
                          47,817
                          
                          
                          
                          43,624Common
      stock subscribed
                          
                          
                          500
                          
                          
                          
                          -Additional
      paid in capital
                          
                          
                          45,519,375
                          
                          
                          
                          40,159,909Loans
      receivable – stockholders
                          
                          
                          -
                          
                          
                          
                          (131,262
                          )Stock
      subscription receivable
                          
                          
                          (125,000
                          )
                          
                          
                          -Accumulated
      (deficit)
                          
                          
                          (47,612,749
                          )
                          
                          
                          (45,121,021
                          )Total
      Stockholders’ Equity (Impairment)
                          
                          
                          (2,169,971
                          )
                          
                          
                          (5,048,621
                          )Total
      Liabilities and Stockholders’ Equity (Impairment)
                          
                          $
                          141,415
                          
                          
                          $
                          130,672





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





3




Kiwibox.Com,
Inc.




Consolidated
Statements of Operations


Year Ended December 31,2009
                
                
                2008Net
      SalesAdvertising
                
                $
                50,450
                
                
                $
                59,421Total
      Net Sales
                
                
                50,450
                
                
                
                59,421Cost
      of Goods SoldWebsite
      hosting expenses
                
                
                38,767
                
                
                
                37,008Total
      Cost of Goods Sold
                
                
                38,767
                
                
                
                37,008Gross
      Profit
                
                
                11,683
                
                
                
                22,413Selling
      Expenses
                
                
                73,517
                
                
                
                184,959Impairment
      of goodwill
                
                
                -
                
                
                
                3,138,751Research
      and development costs
                
                
                -
                
                
                
                7,200Stock-based
      compensation (see below)
                
                
                121,929
                
                
                
                178,659General
      and administrative expenses
                
                
                1,426,192
                
                
                
                2,719,714Loss
      From Operations
                
                
                (1,609,956
                )
                
                
                (6,206,870
                )Other
      Income (Expense)Miscellaneous
      income
                
                
                3,182
                
                
                
                28,491Interest
      income
                
                
                5
                
                
                
                1,362Interest
      expense
                
                
                (106,541
                )
                
                
                (15,965
                )Gain
      on extinguishment of debt
                
                
                114,597
                
                
                
                657,805Gain
      on disposal of assets, net
                
                
                2,683
                
                
                
                -Impairment
      loans receivable and software assets
                
                
                (162,033
                )
                
                
                -Intrinsic
      value of beneficial conversion feature of convertible debt
                
                
                (600,000
                )
                
                
                -Other
      expenses
                
                
                (596
                )
                
                
                (2,553
                )Amortization
      of intangible asset
                
                
                -
                
                
                
                (7,890
                )Amortization
      deferred  financing costs
                
                
                (4,000
                )
                
                
                (76,303
                )Change
      in fair value of options and warrants
                
                
                (77,806
                )
                
                
                (128,159
                )Total
      Other Income (Expense)
                
                
                (830,509
                )
                
                
                713,106Loss
      Before Benefit from Income Taxes
                
                
                (2,440,465
                )
                
                
                (5,493,764
                )Benefit
      from Income Taxes
                
                
                -
                
                
                
                -Net
      Loss
                
                $
                (2,440,465
                )
                
                $
                (5,493,764
                )Dividends
      on Preferred Shares
                
                $
                (51,263
                )
                
                $
                (51,332
                )Net
      Loss Applicable to Common Shareholders, basic and diluted
                
                $
                (2,491,728
                )
                
                $
                (5,545,096
                )Net
      Loss Per Common Share, basic and diluted
                
                
                (0.006
                )
                
                
                (0.015
                )Weighted
      Average of Common Shares Outstanding
                
                
                447,090,174
                
                
                
                373,156,459


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


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





4




Kiwibox.Com,
Inc.


Consolidated
Statement of Stockholders’ Equity (Deficit)


Year
Ended December 31, 2008





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





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





5





Kiwibox.Com,
Inc.


Consolidated
Statement of Stockholders’ Equity (Deficit)


Year
Ended December 31, 2009





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





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


6


Kiwibox.Com,
Inc.


Consolidated
Statements of Cash Flows





Year Ended December 31,2009
                      
                      
                      2008Cash
      Flows From Operating ActivitiesNet
      Loss
                      
                      $
                      (2,440,465
                      )
                      
                      $
                      (5,493,764
                      )Adjustments
      to Reconcile Net Loss to Net Cash Used by OperationsDepreciation
      and amortization
                      
                      
                      56,218
                      
                      
                      
                      116,876Securities
      issued for services
                      
                      
                      121,929
                      
                      
                      
                      178,659Intrinsic
      value of beneficial conversion feature
                      
                      
                      600,000
                      
                      
                      
                      -Impairment
      of shareholder loan
                      
                      
                      131,262
                      
                      
                      
                      -Impairment
      of software assets
                      
                      
                      30,771
                      
                      
                      
                      -Impairment
      of goodwill
                      
                      
                      -
                      
                      
                      
                      3,138,751Debt
      forgiveness income
                      
                      
                      -
                      
                      
                      
                      (28,401
                      )(Gain)
      loss on disposition of assets
                      
                      
                      (2,683
                      )
                      
                      
                      2,553Gain
      on extinguishment of debt
                      
                      
                      (114,597
                      )
                      
                      
                      (657,805
                      )Change
      in value of derivative liabilities
                      
                      
                      77,806
                      
                      
                      
                      (128,159
                      )Decreases
      (Increases) in AssetsAccounts
      receivable
                      
                      
                      7,800
                      
                      
                      
                      (1,907
                      )Prepaid
      expenses
                      
                      
                      (64,361
                      )
                      
                      
                      (3,823
                      )Increases
      (Decreases) in LiabilitiesObligations to
      be settled in stock
                      
                      
                      77,700
                      
                      
                      
                      -Accounts
      payable and accrued expenses
                      
                      
                      (67,892
                      )
                      
                      
                      77,804Net
      Cash Used by Operating Activities
                      
                      
                      (1,586,512
                      )
                      
                      
                      (2,799,214
                      )Cash
      Flows From Investing ActivitiesCash
      outlay - KiwiBox Media acquisition
                      
                      
                      -
                      
                      
                      
                      (50,000
                      )Cash
      outlay – website development costs
                      
                      
                      (21,758
                      )
                      
                      
                      (64,650
                      )Cash
      outlay – other assets
                      
                      
                      (14,500
                      )
                      
                      
                      -Purchases
      of property and equipment
                      
                      
                      (4,712
                      )
                      
                      
                      (42,284
                      )Net
      Cash Used by Investing Activities
                      
                      
                      (40,970
                      )
                      
                      
                      (156,934
                      )Cash
      Flows From Financing ActivitiesProceeds
      from loans payable
                      
                      
                      1,540,000
                      
                      
                      
                      220,000Repayment
      of loans payable
                      
                      
                      (730,000
                      )
                      
                      
                      (150,000
                      )Repayment
      of shareholder loan
                      
                      
                      -
                      
                      
                      
                      75,000Proceeds
      from issuance of common and preferred stock and warrants
                      
                      
                      815,000
                      
                      
                      
                      2,346,000Net
      Cash Provided by Financing Activities
                      
                      
                      1,625,000
                      
                      
                      
                      2,491,000Net
      Increase (Decrease) in Cash
                      
                      
                      (2,482
                      )
                      
                      
                      (465,148
                      )Cash
      at beginning of period
                      
                      
                      5,000
                      
                      
                      
                      470,148Cash
      at end of period
                      
                      $
                      2,518
                      
                      
                      $
                      50,000SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      Paid
                      
                      $
                      -
                      
                      
                      $
                      6,904Taxes
      Paid
                      
                      $
                      -
                      
                      
                      $
                      -


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





7




Kiwibox.Com,
Inc.


Consolidated
Statements of Cash Flows


Year
Ended December 31, 2009








Stock
      subscription receivable
                      
                      $
                      125,000Issuance
      of stock for loan origination fee
                      
                      $
                      10,000Debt
      forgiveness by director
                      
                      $
                      213,570Settlement
      of liability with common stock options
                      
                      $
                      70,000Reclassification
      of derivative liability to paid-in capital – warrants and
      options
                      
                      $
                      3,408,618





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


8


Kiwibox.Com,
Inc.


Consolidated
Statements of Cash Flows


Year
Ended December 31, 2008








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





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





9





Kiwibox.Com,
Inc.


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





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





Cash and
cash equivalents


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





Principles
of Consolidation


The
consolidated financial statements include the accounts of Magnitude Information
Systems, Inc. and its subsidiaries Magnitude, Inc. and Kiwibox Media, Inc.
through December 31, 2009. All significant inter-company balances and
transactions have been eliminated.





Depreciation


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







10





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)





Advertising
Costs


Advertising
costs are charged to operations when incurred.  Advertising expense
was $42,180 and $74,073 for the years ended December 31, 2009 and 2008,
respectively.





Evaluation
of Long Lived Assets


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





Securities
Issued for Services


The
Company accounts for stock, stock options and stock warrants issued for services
and compensation by employees under the fair value method.  For
non-employees, the fair market value of the Company’s stock on the date of stock
issuance or option/grant is used.  The Company has determined the fair
market value of the warrants/options issued under the Black-Scholes Pricing
Model. The Company has adopted the provisions of FASB Accounting Standards
Codification (“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 815-40


Pursuant
to ASC 815-40, “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. During the first quarter of 2009, we
reclassified a position of $3,408,618 from liabilities for derivative securities
to additional paid-in capital after the indeterminate factor in connection with
the conversion clause of certain convertible preferred shares was
removed





Capitalization
of Software /Website development costs




The
Company capitalized outside-contracted development work in accordance with the
guidelines published under ASC 350-50, “Website Development
Costs”,  adopted during the quarter ended March 31,
2008.  Under ASC 350-50, costs incurred during the planning stage are
expensed, whilecosts
relating to software used to operate a web site or for developing initial
graphics should be accounted for under ASC 350-40, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, unless a plan exists or
is being developed to market the software externally. Under ASC 350-50, internal
and external costs incurred to develop internal-use computer software during the
application development stage should be capitalized. Costs to develop or obtain
software that allows for access or conversion of old data by new systems should
also be capitalized, excluding training costs.Fees
incurred for web site hosting, which involve the payment of a specified,
periodic fee to an Internet service provider in return for hosting the web site
on its server(s) connected to the Internet, are expensed over the period of
benefit, and included in cost of sales in the accompanying financial
statements.


11





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)





Fair
Value Measurements




The
Company adopted the provisions of ASC 820, Fair Value Measurements and
Disclosures, which is effective for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. Under ASC 820, a
framework was established for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. Since the number of shares issuable under the Company’s Series G
convertible preferred stock was indeterminable during the year ended December
31, 2008, the Company had measured the fair value of warrants and options
outstanding at December 31, 2008, which was determined to be $3,330,812,
measured using significant unobservable inputs (Level 3) under a Black-Scholes
valuation method. The change in value during the twelve months ended December
31, 2009 was a loss of $77,806 and during the twelve months ended December 31,
2008 a loss of $128,159, all reported in the Statement of Operations under Other
Income (Expense).





The
Company adopted the provisions of "The Fair Value Option for Financial Assets
and Financial  Liabilities" under ASC 820, which included an amendment
with respect to improvement of financial  reporting of
certain  investments  in debt
and  equity  securities.  This Statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. The implementation of this new standard did not have a material
impact on the Company's financial position, results of operations and cash flows
for the twelve months ended December 31, 2009.





Income
Taxes


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


Net Loss
Per Share
 Net loss
per share, in accordance with the provisions of 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. At December 31, 2009, there were 10,453,542 stock options, stock
purchase warrants for 178,189,648 common shares, and 85,890 preferred shares,
convertible at the option of the holders into 729,537 common shares outstanding.
In addition, there was issued certain convertible debt which may be converted,
at the option of the holders, into up to 60,000,000 common
shares.


Revenue Recognition


The
Company’s revenue recognition policy for software sales is in accordance with
ASC 985-605 “Software Revenue Recognition”. Revenue is recognized at the time of
licensing provided that the resulting receivable is deemed probable of
collection and is fixed or determinable. Revenue from software maintenance
contracts is recognized ratably as earned. When a sales contract includes
multiple elements, revenues are allocated to the various elements based on
Company-specific objective evidence of fair value, regardless of any separate
prices for each element that may be stated within the contract.


12





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)





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





Goodwill and Intangible
Assets


The
Company accounts for its goodwill and intangible assets pursuant to ASC 350,
"Intangibles-Goodwill and Other".  Under ASC 350, intangibles with
definite lives continue to be amortized on a straight-line basis over the lesser
of their estimated useful lives or contractual terms.  Goodwill and
intangibles
with  indefinite  lives  are  evaluated  at
least  annually  for  impairment  by
comparing the asset's  estimated  fair value with its
carrying  value,  based on cash flow
methodology.





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




Use of
Estimates


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





2.  GOING
CONCERN


The
ability of the Company to continue its operations is dependent on increasing
sales and obtaining additional capital and financing. 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 operation. In their
report for the fiscal year ended December 31, 2009, our auditors have made
reference to the fact that, as a result of the losses incurred, there was
substantial doubt regarding our ability to continue as a going
concern.  The accompanying financial statements do not include any
adjustments that might be necessary if the Company were unable to continue as a
going concern. Management’s plans are to continue seeking equity and debt
capital until cash flow from operations cover funding needs.





3.  CONCENTRATIONS
OF BUSINESS AND CREDIT RISK





The
Company maintains cash balances in a financial institution which is insured by
the Federal Deposit Insurance Corporation up to $250,000.  Balances in
these accounts may, at times, exceed the federally insured limits. At December
31, 2009, 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.


13


Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





4.  PROPERTY
AND EQUIPMENT





Property
and equipment consist of the following at December 31,





2009
                  
                  
                  2008Furniture
      and fixtures
                  
                  $
                  6,646
                  
                  
                  $
                  2,014Office
      and computer equipment
                  
                  
                  73,770
                  
                  
                  
                  77,743Leasehold
      improvements
                  
                  
                  24,130
                  
                  
                  
                  24,130Total
                  
                  $
                  104,546
                  
                  
                  $
                  103,887Less:
      accumulated depreciation
                  
                  
                  85,841
                  
                  
                  
                  63,722$
                  18,705
                  
                  
                  $
                  $
      40,165





Depreciation expense charged to
operations was $28,855 and $20,354 in 2009 and 2008, respectively.





5.  INTANGIBLE
ASSETS





Intangible
assets at December 31, 2009 and 2008 included web site development costs and
deferred finance costs.





Website development costs consisted of,
at December 31:


2009
                  
                  
                  2008Costs
      incurred
                  
                  $
                  21,758
                  
                  
                  $
                  64,650Less
      accumulated amortization
                  
                  
                  1,813
                  
                  
                  
                  12,329Total
                  
                  $
                  19,945
                  
                  
                  $
                  52,321





During
2009, a new software platform developed by a third party was adapted for use by
the Company and placed into service. The development costs associated with this
adaptation, amounting to $21,758 were capitalized and the remaining unamortized
balance of the 2008 capitalized costs, totaling $30,771 were written off as they
were deemed to be impaired. The impairment is disclosed in Other Income
(Expense) in the Statement of Operations. The software is being amortized over
three years, with estimated amortization over the next three years expected to
be $7,253, $7,253 and $5,439, respectively. Amortization expense for the years
ended December 31, 2009 and 2008 were $23,363 and $12,329,
respectively.





During
2008 the Company incurred finance costs in connection with the Kiwibox
acquisition and other financing transactions. Financing costs incurred and
amortization of deferred financing costs were $0 and $4,000, and $45,000 and
$76,303, respectively, for the years ended December 31, 2009 and
2008.





6.  PREPAID
EXPENSES AND OTHER ASSETS





Prepaid
expenses at December 31, 2009 included $29,342 in promotional supplies
inventories, $39,795 in prepayments on promotional supplies inventory, $6,593 in
prepaid insurance and $4,792 in other prepayments. At December 31, 2008, prepaid
expenses consisted of $7,317 in prepaid insurance and $8,845 in prepaid
rents.




7.  ACCOUNTS
PAYABLE AND ACCRUED EXPENSES





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


2009
                  
                  
                  2008Accounts
      payable
                  
                  $
                  208,792
                  
                  
                  $
                  474,315Accrued
      interest
                  
                  
                  170,860
                  
                  
                  
                  65,872Accrued
      professional and consulting fees
                  
                  
                  116,900
                  
                  
                  
                  324,636Accrued
      payroll, payroll taxes and commissions
                  
                  
                  15,331
                  
                  
                  
                  24,839Owed
      to officer
                  
                  
                  3,000
                  
                  
                  
                  -Miscellaneous
      accruals
                  
                  
                  20,735
                  
                  
                  
                  42,014$
                  535,618
                  
                  
                  $
                  931,676





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


14





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





8.  OBLIGATIONS
TO BE SETTLED IN STOCK





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





2009
                    
                    
                    2008Obligation
      for warrants granted for compensation
                    
                    $
                    20,000
                    
                    
                    $
                    19,200500,000
      common shares issuable to a creditor as loan origination
    fee
                    
                    
                    -
                    
                    
                    
                    10,000600,000
      (2009) and 1,025,000 (2008) common shares issuable to one (two)
      consultants for services rendered, one of who was a director of the
      Company
                    
                    
                    36,000
                    
                    
                    
                    106,0001,250,000
      common shares and 2,200,000 stock options issuable to two officers of the
      Company pursuant to their respective employment agreements
                    
                    
                    67,990
                    
                    
                    
                    -900,000
      stock options issuable to one director who also serves as the Company’s
      general counsel
                    
                    
                    8,910
                    
                    
                    
                    -$
                    132,900
                    
                    
                    $
                    135,200





9.  LOANS
PAYABLE





The
Company and Magnitude, Inc. had borrowings under short term loan agreements with
the following terms and conditions at December 31, 2009 and 2008:





On
      December 4, 1996, Magnitude, Inc. repurchased 500,000 shares of its common
      stock and retired same against issuance of a promissory note maturing
      twelve months thereafter accruing interest at 5% per annum and due
      December 4, 1998.  This note is overdue at December 31, 2008 and
      no demand for payment has been made.
                  
                  $
                  75,000Total
                  
                  $
                  75,000


15





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





10.  NOTES
PAYABLE





Notes
payable outstanding consisted of the following, at December 31,





2009
                            
                            
                            2008At
      December 31, 1999 the Company had $1,475,000 of notes outstanding related
      to a June 1995 private placement offering. During 2000 the holders of
      $1,450,000 worth of notes agreed to accept partial repayment of
      approximately 30% of the note balances and converted the remaining
      balances into common shares or convertible preferred shares. The total
      amount of non-converted notes outstanding at December 31, 2009 is $25,000.
      Attempts to locate the holder of this note, to settle this liability, have
      been unsuccessful.
                            
                            $
                            25,000
                            
                            
                            $
                            25,000In
      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
                            
                            
                            
                            40,000In
      September and December 2008 a shareholder loaned the Company $50,000 and
      $100,000, repayable under convertible promissory notes bearing interest at
      10% per year, payable on demand.
                            
                            
                            150,000
                            
                            
                            
                            150,000In
      December 2008 an investor loaned the Company $30,000 against a promissory
      note repayable on January 15, 2009, bearing interest at the rate of 6.5%
      per year. The note was repaid in 2009.
                            
                            
                            -
                            
                            
                            
                            30,000In
      January and February 2009 a shareholder loaned the Company $350,000 and
      $150,000, repayable under convertible promissory notes bearing interest at
      10% per annum and payable on demand. On March 31, 2009, these notes and
      $100,000 of notes listed above were amended to include an option for the
      holder to convert the debt into common stock at $0.01 per share. The
      intrinsic value of the beneficial conversion feature was valued at
      $600,000 resulting in a charge to interest and a credit to additional
      paid-in capital in the same amount.
                            
                            
                            500,000
                            
                            
                            
                            -During
      March 2009, the same shareholder loaned the Company $50,000 under the same
      terms as the earlier notes issued in the first quarter. The note was
      subsequently amended to include the stipulation that the shares to be
      issued if the holder elected a conversion, together with other shares held
      by this shareholder, may not result in an ownership interest exceeding
      9.9%.
                            
                            
                            50,000
                            
                            
                            
                            -During
      April, May and June 2009, the same shareholder loaned the Company an
      aggregate $250,000 under the same terms as the earlier notes issued in the
      first quarter. All of the notes were subsequently amended to include the
      stipulation that the shares to be issued if the holder elected a
      conversion, together with other shares held by this shareholder, may not
      result in an ownership interest exceeding 9.9%.
                            
                            
                            250,000
                            
                            
                            
                            -


16





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





10.  NOTES
PAYABLE (Continued)





2009
                        
                        
                        2008During
      June 2009 through December 2009, another shareholder loaned the Company an
      aggregate $640,000 under the same terms as the earlier investor who had
      extended loans during the first two quarters in 2009 as mentioned above.
      In December 2009, the Company repaid $600,000 against such notes, leaving
      a balance of $40,000 open at year-end.
                        
                        
                        40,000
                        
                        
                        
                        -Total
                        
                        $
                        1,055,000
                        
                        
                        $
                        245,000





11.  LONG-TERM
DEBT





Long-term
debt as of December 31, 2009 and 2008 is comprised of the
following:





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





12.
COMMITMENTS AND CONTINGENCIES





We
maintain offices for our operations at 330 W. 38th Street, New York, New York
10018, for approximately 1,400 square feet. The lease expires with the end of
2010 and we pay minimum monthly rentals of $3,769 plus tenants’ share of
utility/cam/property tax charges which average approximately $800 per month.
Leasehold improvements were amortized over the initial lease term (through
August 2009).





Our total
rent expenses were $81,618 and $81,190 during the years ended December 31, 2009
and 2008, respectively.


17





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





During
the second quarter in 2009 we entered into an agreement with a consultant to
serve as the Company’s Chief Technology Officer and Chief Operating Officer. The
agreement has a term of twelve months and may be extended by mutual consent. It
provides 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 third quarter in 2009 we entered into an engagement agreement with a
consultant to assist the Company in 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 years 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.  The
agreement furthermore recognizes that the same consultant had previously
provided similar services to the Company for which he will receive a one-time
payment in form of 15,000,000 five year warrants, exercisable at $0.0025 per
share.





13.  LOANS
RECEIVABLE - STOCKHOLDERS





Loans
Receivable – Stockholders at December 31, 2008 consisted of $131,262 in total
loans extended by Kiwibox Media, Inc. to a principal during fiscal years 2001 to
2006 and prior to the acquisition by the Company. During 2008, $75,000 was
repaid to the Company, $75,000 was offset against the note payable due to the
shareholders pursuant to a Kiwibox acquisition amendment and $5,459 was forgiven
and treated as additional compensation pursuant to a separation agreement with
one of the principals. The remaining loans carried interest at the rate of 4.58%
per year, and were evidenced by a promissory note. During 2009, the Company and
the former shareholder who owed the remaining $131,262 reached an agreement
whereby, among others, this loan was forgiven.


18


Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





14.  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,
2009, there was $9,000 of cumulative preferred dividends in arrears representing
$9,000 per cumulative preferred share.





Series A
of the Senior Convertible Preferred Stock series which was issued in 2000 has
300,000 shares designated, 22,000 shares issued and outstanding.  The
total outstanding Series A Senior Convertible Preferred Stock at December 31,
2009 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.


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





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





As of
December 31, 2009 there were $99,665 Series A Senior Convertible Preferred share
dividends accrued and unpaid representing $4.53 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,
2009 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.


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





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





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





As of
December 31, 2009 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, 2009.  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.


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





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





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





As of
December 31, 2009 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, 2009 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.


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





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





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





As of
December 31, 2009 there were $370,674 Series D Senior Convertible Preferred
share dividends accrued and unpaid representing $5.80 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.


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





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





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





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





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





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





As of
December 31, 2009 there were no Series E Senior Convertible Preferred share
dividends accrued.


24





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





Series G
of the Senior Convertible Preferred Stock series which was issued in 2007 has
43,610 shares designated. 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, 2009.





(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.


Notes
to the Consolidated Financial Statements





PREFERRED
STOCK - (Continued)





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





15.  INCOME
TAXES





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


Year Ended December 31,2009
                  
                  
                  2008State
      current provision (benefit)
                  
                  $
                  -
                  
                  
                  $
                  -State
      deferred provision (benefit)
                  
                  
                  -
                  
                  
                  
                  -$
                  -
                  
                  
                  $
                  -





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





December 31,2009
                    
                    
                    2008Total
      deferred tax asset, noncurrent
                    
                    $
                    11,200,000
                    
                    
                    $
                    13,300,000Less
      valuation allowance
                    
                    
                    (11,200,000
                    )
                    
                    
                    (13,300,000
                    )Net
      deferred tax asset, noncurrent
                    
                    $
                    -
                    
                    
                    $
                    -





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





Year Ended December 31,2009
                  
                  
                  2008Tax
      benefit
                  
                  
                  40
                  %
                  
                  
                  40
                  %Valuation
      allowance
                  
                  
                  (40
                  )%
                  
                  
                  (40
                  )%Effective
      tax rate
                  
                  
                  -
                  
                  
                  
                  -





At
December 31, 2009, 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, 2013 and 2029.





At
December 31, 2009, the Company has available approximately $11,700,000 of net
operating losses to carry-forward and which may be used to reduce future state
taxable income which expire December 31, 2016.


26


Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





16.  401(k)
PLAN





The
Company adopted the qualified Magnitude, Inc. sponsored 401(k) plan covering
substantially all full time employees under which eligible employees may elect
to contribute, within statutory limits, a percentage of their annual
compensation.  The Company matches up to 50% of the employee’s
contribution of which the match may not exceed 3% of the employee’s total
compensation for the plan year.  Contributions to the plan were $1,659
and $1,875 for the years ended December 31, 2009 and 2008, respectively. In
December 2009, the Company terminated the plan, for lack of demand.





17.  STOCK
BASED COMPENSATION





During
2009 and 2008 the Company issued the following securities to officers,
directors, and non-employees as part of their compensation and, in the case of
the former principals of Kiwibox Media Inc., pursuant to the Kiwibox acquisition
agreement, as amended.





Rudolf
Hauke (president and chief executive officer): During 2009, Mr. Hauke has 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.  In 2008 Mr. Hauke has earned 1,000,000 non-qualified stock
options, 500,000 of which are 2-year options, exercisable at $.05 per common
share, and 500,000 of which are 4-year options, exercisable at $.10 per common
share, such options valued at $19,200 pursuant to the Black-Scholes valuation
formula. In computing the Black Scholes values we used a volatility of 283% and
risk-free interest rates of 2.6% and 3.3%.





Andre
Scholz (Chief Technology Officer): During 2009, Mr. Scholz  has
accrued 500,000 common shares as a signing bonus and is earning 100,000 common
shares every month, beginning with May 15, 2009. The shares had not been issued
at December 31, 2009, however, were accrued for and valued at $25,000 based on
the commitment date fair value of the shares granted.





Joseph J.
Tomasek (director): In 2009 Mr. Tomasek earned options for 900,000 restricted
shares, valued at $8,910 pursuant to the Black-Scholes valuation formula. These
options are earned at the rate of 100,000 options per month, beginning with
April 2009. In computing the Black Scholes values we used a volatility of 299%
and a risk-free interest rate of 2.95%.





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





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


.


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





Steven
Gray (former director): During 2008 Mr. Gray received options for 750,000
restricted shares, valued at $14,250 pursuant to the Black-Scholes valuation
formula.





In 2008
we also granted 500,000 options to a Consultant, exercisable at $0.15 during 2
years, valued at $9,500 pursuant to the Black-Scholes valuation
formula.





In
computing the Black Scholes values for the previous five option grants above, we
used a volatility of 169% and a risk-free interest rate of
3.5%.


27





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





STOCK
BASED COMPENSATION (continued)





In 2009,
we granted 15,000,000 warrants and again 4,000,000 warrants to a Consultant,
exercisable at $0.0025 and $0.025, respectively, during 5 years, with a cashless
exercise option, such warrants valued at $150,000 and $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%. In 2008 we granted a
total of 2,000,000 warrants to a Consultant, exercisable at prices between $0.06
and $0.085 during 4 years, valued at $97,000 pursuant to the Black-Scholes
valuation formula. In computing the Black Scholes values we used a volatility of
150% and a risk-free interest rate of 5.0%.





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





Michael
Howard (former Kiwibox principal): During 2007, Mr. Howard was granted options
for 7,500,000 shares, vesting over a 24-months period, exercisable at $0.05 per
share. In addition Mr. Howard was granted performance-based stock options for
3,000,000 shares. All of such options were cancelled upon Mr. Howard’s
separation from the Company in October, 2009.





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





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.


Notes
to the Consolidated 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 31,2009
                    
                    
                    2008Outstanding,
      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, 2009 and 2008, no options were outstanding.


At December 31, 2009, there were
1,000,000 shares reserved for future option grants.





Qualified and Non-Qualified
                      Shares Under Option Pursuant
                      to the 2000 Plan
                      December 31,2009
                    
                    
                    2008Outstanding,
      beginning of year
                    
                    
                    -
                    
                    
                    
                    5,000Granted
      during the year
                    
                    
                    -
                    
                    
                    
                    -Exercised
      during the year
                    
                    
                    -
                    
                    
                    
                    -Surrendered
      during the year
                    
                    
                    -
                    
                    
                    
                    -Expired
      during the year
                    
                    
                    -
                    
                    
                    
                    (5,000
                    )Outstanding,
      end of year
                    
                    
                    -
                    
                    
                    
                    -Eligible,
      end of year for exercise
                    
                    
                    -
                    
                    
                    
                    -





At
December 31, 2009 and 2008, no options were outstanding..


At December 31, 2009, there were
5,000,000 shares reserved for future option grants.





At
December 31, 2009 the company has two stock-based employee compensation
plans, which are described more fully above. The company accounts for those
plans under the recognition and measurement principles of ASC 718, Compensation-Stock
Compensation. The Company has not granted any options under these plans
to employees during 2009 or 2008.


29


Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





STOCK
OPTION PLANS - (Continued)





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


December 31,2009
                  
                  
                  2008Outstanding,
      beginning of year
                  
                  
                  18,353,542
                  
                  
                  
                  32,720,908Granted
      during the year
                  
                  
                  2,100,000
                  
                  
                  
                  4,000,000Exercised
      during the year
                  
                  
                  -
                  
                  
                  
                  -Surrendered
      or cancelled during the year
                  
                  
                  (8,000,000
                  )
                  
                  
                  (15,000,000
                  )Expired
      during the year
                  
                  
                  (2,000,000
                  )
                  
                  
                  (3,367,366
                  )Outstanding,
      end of year (at prices ranging from $0.01 to $0.15)
                  
                  
                  10,453,542
                  
                  
                  
                  18,353,542Eligible
      for exercise, end of year (at prices ranging from $0.01 to
      $0.15)
                  
                  
                  10,453,542
                  
                  
                  
                  14,270,208





At
December 31, 2009 and 2008 the weighted average exercise price and weighted
average remaining contractual life were $0.07 and $0.06 per share, and 1 year 8
months and 2 years 4 months, respectively. The weighted average exercise price
of cancelled options during 2009 was $0.06 per share. The weighted average
exercise price of expired options during 2009 was $0.10 per share. The weighted
average grant date fair value of forfeited options was $0.06 per
share.





During
2009, the Company granted 2,100,000 options to two officers and directors of the
Company, 1,200,000 of which are exercisable at $0.10 during a four-year period,
and 900,000 of which are exercisable at $0.05 during a four-year period. The
weighted average exercise price of these options is $0.05 per share, and the
weighted average grant date fair value was $0.02 per share.





During
2008, the Company granted options for 2,500,000 shares to four officers and/or
directors of the Company and 500,000 options to a consultant, all of which are
exercisable at $0.025 during a five years period, and 1,000,000 options to an
officer of the Company, 500,000 of which are exercisable at $0.05 during a
two-year period, and 500,000 options exercisable at $0.10 during a four-year
period.  The weighted average grant date fair value of these options
was $0.04 per share.





19.  WARRANTS











December 31,2009
                        
                        
                        2008Outstanding,
      beginning of year
                        
                        
                        168,222,981
                        
                        
                        
                        95,864,000Granted
      during the year
                        
                        
                        27,750,000
                        
                        
                        
                        89,942,315Exercised
      during the year
                        
                        
                        -
                        
                        
                        
                        -Surrendered
      /cancelled during the year
                        
                        
                        -
                        
                        
                        
                        -Expired
      during the year
                        
                        
                        (17,783,333
                        )
                        
                        
                        (17,583,334
                        )Outstanding,
      end of year (at prices ranging from $.0025 to $.15)
                        
                        
                        178,189,648
                        
                        
                        
                        168,222,981Eligible,
      end of year (at prices ranging from $.0025 to $.15)
                        
                        
                        178,189,648
                        
                        
                        
                        168,222,981





At
December 31, 2009 and 2008, the weighted average exercise price and weighted
average remaining contractual life is $0.05 and $0.06 per share and 3 year 3
months and 3 years 4 months, respectively.


30





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





20.  RELATED
PARTY TRANSACTIONS





During
2009 and 2008, one outside director of the Company who also serves as the
Company’s general and securities counsel, was paid an aggregate $180,000 and
$256,800, respectively, for legal services. During the year ended December 31,
2009, the director agreed to forgive a total of $213,570 in legal fees incurred
as of April 2009, which was treated as paid-in capital. In 2009 the director
also earned options for 900,000 restricted shares, valued at $8,910, which have
yet to be issued. The balance due to this director at December 31, 2008 was
$5,000.





During
2009 we paid our Chief Executive Officer $27,000 for outside consulting services
performed.





During
2009, we 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 paid $69,839 for
promotional materials.





During
2009, the beneficial ownership in the Company’s securities held respectively, by
Tell Capital AG of Switzerland and its principal, Ulrich Schuerch on a
consolidated basis, as well as by Discover Advisory Company, located in the
Bahamas, and Cambridge Services Inc. of Switzerland, in each case amounted to
approximately 10% of the voting stock.  Both Discover Advisory Company
and Cambridge Services Inc. are major creditors, having advanced operating
capital against issuance by the Company of convertible promissory notes to
during 2009. At December 31, 2009, $950,000 and $40,000 of such notes were
outstanding and owed to Discover Advisory Company and Cambridge Services Inc,
respectively (see section “Notes” in the Notes to Financial Statements, attached
hereto).  Tell Capital AG was the lead investor in a $1 Million
private placement transaction consummated in late 2009 (we refer to the
Company’s filing on December 31, 2009 on Form 8-K, incorporated herein by
reference). In the process, we paid a fee of $60,000 to a foreign financial
consulting firm which acted as a finder.





A former
director was paid $30,000 during 2008 for business consulting
services.





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





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





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





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


31





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





21.  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


32





Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





22.  NEW
ACCOUNTING PRONOUNCEMENTS





Fair Value Measurements and
Disclosures


In
August 2009, the FASB issued guidance on the measurement of liabilities at
fair value. The guidance provides clarification that in circumstances in which a
quoted market price in an active market for an identical liability is not
available, an entity is required to measure fair value using a valuation
technique that uses the quoted price of an identical liability when traded as an
asset or, if unavailable, quoted prices for similar liabilities or similar
assets when traded as assets. If none of this information is available, an
entity should use a valuation technique in accordance with existing fair
valuation principles. We adopted the guidance in 2009, and there was no material
impact on our consolidated financial statements or related
footnotes.





In
April 2009, the FASB issued additional guidance for estimating fair value
when the market activity for an asset or liability has declined significantly.
We adopted the guidance in 2009 with no significant impact on our consolidated
financial statements or related footnotes. See Note 21 — Fair Value Measurements
to our consolidated financial statements.





In
April 2009, the FASB issued authoritative fair value disclosure guidance
for financial instruments. The guidance requires disclosures for interim
reporting periods of publicly traded companies as well as in annual financial
statements. The guidance also requires those disclosures in summarized financial
information at interim reporting periods. We adopted the guidance in 2009 with
no significant impact on our consolidated financial statements or related
footnotes. See Note 21 — Fair Value Measurements to our consolidated financial
statements.





In
September 2006, the FASB issued authoritative guidance for fair value
measurements, which defines fair value, establishes a framework and gives
guidance regarding the methods used for measuring fair value, and expands
disclosures about fair value measurements. Effective December 29, 2007, we
adopted the guidance as it applies to our financial instruments. Effective
January 1, 2009, we adopted the guidance for our non-financial assets and
non-financial liabilities. The adoption of the guidance did not have a
significant impact on our consolidated financial statements or related
footnotes. See Note 21 — Fair Value Measurements to our consolidated financial
statements.




Derivatives and
Hedging


In
March 2008, the FASB issued authoritative guidance for enhanced disclosures
for derivative instruments, including those used in hedging activities.
Effective January 1, 2009, we adopted the guidance. The adoption of the
guidance did not have any impact on our consolidated financial statements or
related footnotes.


33


Kiwibox.Com,
Inc.


Notes
to the Consolidated Financial Statements





NEW
ACCOUNTING PRONOUNCEMENTS (continued)




Recent Accounting
Developments


In
September 2009, FASB issued the Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, which establishes only
two levels of U.S. GAAP, authoritative and non-authoritative. The standard is
the exclusive source of authoritative accounting principles recognized by the
FASB to be applied by nongovernmental entities in the preparation of financial
statements in conformity with GAAP, except for rules and interpretive releases
of the Securities and Exchange Commission (SEC), which are sources of
authoritative GAAP, for SEC registrants. All other non-grandfathered, non-SEC
accounting literature not included in the Codification is non-authoritative. The
standard became effective in the fourth quarter of 2009 and as it was not
intended to change or alter existing GAAP, it did not have any impact on the
Company’s consolidated financial statements.





In
October 2009, the FASB issued guidance which amends the scope of existing
software revenue recognition accounting. Tangible products containing software
components and non-software components that function together to deliver the
product’s essential functionality would be scoped out of the accounting guidance
on software and accounted for based on other appropriate revenue recognition
guidance. This guidance 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. Full retrospective
application of the new guidance is optional. This guidance must be adopted in
the same period that we adopt the amended accounting for arrangements with
multiple deliverables described in the preceding paragraph. We are currently
evaluating the impact of adopting this guidance on our consolidated financial
statements.





In
October 2009, the FASB amended revenue recognition guidance for
arrangements with multiple deliverables. The guidance eliminates the residual
method of revenue recognition and allows the use of management’s best estimate
of selling price for individual elements of an arrangement when vendor specific
objective evidence (VSOE), vendor objective evidence (VOE) or third-party
evidence (TPE) is unavailable. Under the guidance, non-software components
of tangible products and certain software components of tangible products have
been removed from the scope of existing software revenue recognition guidance
and will be recognized in a manner similar for other tangible products. This
guidance 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. Full retrospective
application of the guidance is optional. We are currently evaluating the impact
of adopting this guidance on our consolidated financial statements.





In
December 2009, FASB issued authoritative guidance, which changes the
consolidation model for variable interest entities (VIEs). The standard requires
companies to qualitatively assess the determination of the primary beneficiary
of a VIE based on whether the company (1) has the power to direct matters that
most significantly impact the VIE’s economic performance, and (2) has the
obligation to absorb losses or the right to receive benefits of the VIE that
could potentially be significant to the VIE. The standard is effective for
fiscal years beginning after November 15, 2009. We are currently evaluating the
impact of the guidance on our results of operations and financial
position.





23.  LITIGATION





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


34





24.  BUSINESS
SEGMENTS





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





25.  SUBSEQUENT
EVENTS


During
January and February 2010 we received an aggregate $150,000 working capital
loans from an accredited investor, covered by convertible promissory notes
carrying interest at 10% per year.





In
addition, we received $125,000 as the last tranche of our $1,000,000 private
placement, commenced in late 2009.




35