FORM 10-Q





SECURITIES AND EXCHANGE COMMISSION





WASHINGTON, DC 20549




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


For Quarter Ended March 31, 2011





OR





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


For the Transition Period from _______ to _______





Commission file number  33-20432





KIWIBOX.COM, INC.


Formerly known as Magnitude Information Systems, Inc.


(Exact Name of Registrant as Specified in its Charter)




Delaware

75-2228828(State or other Jurisdiction of

Incorporation or Organization)

(IRS Employer Identification No.)





330 West 38 St. Suite 1602 New York, NY 10018

(212) 239-8210(Address of Principal Executive Office)  (Zip Code)

(Registrant’s telephone number including area code)





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




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




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




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




The number of shares of Registrant’s Common Stock, $0.0001 par value, outstanding as of May 5, 2011, was 498,243,060 shares.









KIWIBOX.COM, INC.




INDEX




PageNumberPART  1  -  FINANCIAL INFORMATIONItem 1

Financial StatementsCondensed Balance Sheets- March 31, 2011 (unaudited) and December 31, 2010

2Condensed Statements of Operations- Three months ended March 31, 2011 and 2010 (unaudited)

3Condensed Statements of Cash Flows- Three months ended March 31, 2011 and 2010 (unaudited)

4 - 5Notes to Condensed Financial Statements

6 - 15Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16 – 17Item 3.

Quantitative and Qualitative Disclosures About Market Risk

18Item 4

Controls and Procedures

18PART II  -  OTHER INFORMATION

19 - 20Item 1.

Legal Proceedings

19Item 1A.

Risk Factors

19Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19Item 3.

Defaults Upon Senior Securities

19Item 4T.

Submission of Matters to a Vote of Security Holders

19Item 5.

Other information

19Item 6.

Exhibits

20SIGNATURES

21



















Report of Independent Registered Public Accounting Firm
   To the Board of Directors
 of Kiwibox.com, Inc.
 
 We have reviewed the accompanying financial statements of Kiwibox.com, Inc. as of March 31, 2011, and for the three-month periods ended March 31, 2011 and 2010. These interim financial statements are the responsibility of the Company's management.
 
 We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
 Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements forthem to be in conformity with U. S. generally accepted accounting principles.























1




PART I  - Item 1   Financial Statements





KIWIBOX.COM, INC.


CONDENSED BALANCE SHEETS





March 31, 2011 (Unaudited)


December 31, 2010AssetsCurrent AssetsCash

$
1,966


$
377Accounts receivable, net of allowance fordoubtful accounts of $0


295



295Prepaid expenses and other current assets


87,448



34,441Total Current Assets


89,709



35,113Property and equipment, net of accumulateddepreciation of $90,991 and $88,505


12,838



15,323Website development costs, net of accumulatedamortization of $53,066 and $32,864


109,540



106,244Other assets


40,756



9,756Total Assets


252,843



166,436Liabilities and Stockholders’ Equity (Impairment)Current LiabilitiesAccounts payable and accrued expenses


625,217



535,877Obligations to be settled in stock


212,618



183,648Dividends payable


543,418



530,602Loans and notes payable - other


140,000



140,000Loans and notes payable – related parties


340,000



240,000Convertible notes payable-related parties


2,094,980



1,894,980Current maturities of long-term debt


33,529



33,529Liability for derivative conversion feature –related parties


2,975,703



2,622,408Total Current Liabilities


6,965,465



6,181,044Commitments and Contingencies


-



-Stockholders’ Equity (Impairment)Preferred Stock,$0.001 par value, non-voting, 3,000,000 shares authorized;85,890 and 85,890 shares issued and outstanding


86



86Common Stock,$0.0001 par value, 1,400,000,000 shares authorized;issued and outstanding 498,243,060 and 498,243,060 shares


49,824



49,824Common Stock subscribed


-



-Additional paid-in capital


45,571,867



45,571,867Stock subscription receivable


-



-Accumulated (deficit)


(52,334,399
)


(51,636,385
)Total Stockholders’ Equity (Impairment)


(6,712,622
)


(6,014,608
)Total Liabilities and Equity (Impairment)

$
252,843


$
166,436





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





2





KIWIBOX.COM, INC.


CONDENSED STATEMENTS OF OPERATIONS


(Unaudited)




Three Months Ended 
March 31,2011


2010Total Revenues

$
423


$
734Cost of Goods Sold


735



-Gross Profit (Loss)


(312
)


734Selling expenses


63,354



25,131General and administrative expenses


210,493



240,929Loss from Operations


(274,159
)


(265,326
)Other Income (Expense)Misc. non-operating expenses


-



(3,185
)Change in fair value –derivative liability


(9,648
)


-Interest expense-derivative conversion feature


(343,647
)


-Gain on disposition of assets


-



2,285Interest expense


(56,619
)


(29,136
)Total Other Income (Expense)


(409,914
)


(30,036
)Loss before Provision for Income Taxes


(684,073
)


(295,362
)Provision for Income Taxes


1,125



-Net Loss

$
(685,198
)

$
(295,362
)Dividends on Preferred Shares


(12,816
)


(12,816
)Net Loss applicable toCommon Shareholders, basic and diluted

$
(698,014
)

$
(308,178
)Net Loss per Common Share, basic and diluted

$
(0.001
)

$
(0.001
)Weighted Average Number ofCommon Shares Outstanding


498,243,060



490,180,560




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





3





KIWIBOX.COM, INC.


CONDENSED STATEMENTS OF CASH FLOWS


(Unaudited)





Three Months Ended 
March 31,2011


2010Cash Flows from Operating ActivitiesNet Loss

$
(685,198
)

$
(295,362
)Adjustments to Reconcile Net Lossto Net Cash Used by OperationsDepreciation and amortization


22,687



5,232Change in fair value – derivative liabilities


9,648



-Gain on disposal of assets


-



(2,285
)Intrinsic value of beneficial conversion rights


343,647



-Decreases (Increases) in AssetsAccounts receivable


-



852Prepaid expenses


(53,007
)


(3,633
)Increases (decreases) in LiabilitiesLiabilities to be settled in stock


18,970



21,940Accounts payable and accrued expenses


89,339



21,833Net Cash Used by Operating Activities


(253,914
)


(251,424
)Cash Flows from Investing ActivitiesProceeds from sale of assets


-



4,520Cash outlay - website development costs


(23,497
)


(7,401
)Cash outlay – other assets


(21,000
)


-Purchases of property and equipment


-



(2,204
)Net Cash Used by Investing Activities


(44,497
)


(5,085
)Cash Flows from Financing ActivitiesProceeds from loans and notes


300,000



150,000Proceeds from stock subscriptions receivable


-



125,000Net Cash Provided by Financing Activities


300,000



275,000Net Increase (Decrease) in Cash


1,589



18,492Cash at Beginning of Period


377



2,518Cash at End of Period

$
1,966


$
21,010SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest Paid


4,001



-


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




4




KIWIBOX.COM, INC.


CONDENSED STATEMENTS OF CASH FLOWS


(Unaudited)




NON-CASH INVESTING AND FINANCING ACTIVITIES:Three Months Ended March 31, 2011Warrants granted in acquisition of other assetsThree Months Ended March 31, 2010Cashless exercise of warrants

$
1,312Settlement of obligations with common stock and common stock options

$
29,000




5





Kiwibox.Com, Inc.


Notes to Financial Statements





1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature of Organization





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





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





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





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 cancellation and 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.





Depreciation and Amortization





Property and equipment are recorded at cost.  Depreciation on equipment, furniture and fixtures and leasehold improvements is computed on the straight-line method over the estimated useful lives of such assets between 3-10 years, or lease term for leasehold improvements, if for a shorter period.  Maintenance and repairs are charged to operations as incurred.





6




Kiwibox.Com, Inc.


Notes to Financial Statements





1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued





Advertising Costs




Advertising costs are charged to operations when incurred. Advertising expense was $4,263 and $412 for the three months ended March 31, 2011 and  2010, 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.





Fair Value Measurements




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





Securities Issued for Services





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





Reclassification of certain securities under ASC 815-15





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





7




Kiwibox.Com, Inc.


Notes to Financial Statements





1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued




Capitalization of Software /Website development costs





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





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





A total of $23,497 and $7,401 was capitalized for web-site development work during the three months ended March 31, 2011 and 2010, respectively. During 2010, software costs of $11,880 were determined to be impaired and were written off during the year then ended.





Income Taxes





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





Net Loss Per Share





Net loss per share, in accordance with the provisions of ASC 260, “Earnings Per Share” is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding during the period.  Common Stock equivalents have not been included in this computation since the effect would be anti-dilutive. Such common stock equivalents totaled 222,765,450 common shares at March 31, 2011, comprised of 154,731,315 shares issuable upon exercise of stock purchase warrants, 8,750,000 shares issuable upon exercise of stock options, 729,537 shares exercisable upon conversion of convertible preferred shares, and 58,554,598 shares potentially issuable upon conversion of convertible debt. Such debt and the related accrued interest, presently convertible at the option of two holders at a price of $0.01 per share, totals $2,094,980 which would yield 209,498,000 shares if fully exercised, however, the respective notes, all of which were issued to these two investors, carry a stipulation whereby the number of all shares issued pursuant to a conversion, may in the aggregate not exceed a number that would increase the total share holdings beneficially owned by such investor to a level above 9.99%. At the end of the year, this clause limits any conversion to the aforementioned number of shares. All of the aforementioned conversions or exercises, as the case may be, are at the option of the holders.




8




Kiwibox.Com, Inc.


Notes to Financial Statements




1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued





Revenue Recognition




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





Use of Estimates




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





2. GOING CONCERN





The ability of the Company to continue its operations is dependent on increasing sales and obtaining additional capital and financing. Our revenues during the foreseeable future are insufficient to finance our business and we are entirely dependent on the willingness of existing investors to continue supporting the Company with working capital loans and equity investments, and our ability to find new investors should the financial support from existing investors prove to be insufficient. If we were unable to obtain a steady flow of new debt or equity-based working capital we would be forced to cease operations.  In their report for the fiscal year ended December 31, 2010, our auditors had expressed an opinion that, as a result of the losses incurred, there was substantial doubt regarding our ability to continue as a going concern.  The accompanying financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. Management’s plans are to continue seeking equity and debt capital until cash flow from operations cover funding needs.





3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK





The Company maintains cash balances in a financial institution which is insured by the Federal Deposit Insurance Corporation up to $250,000.  Balances in these accounts may, at times, exceed the federally insured limits. At December 31, 2010, cash balances in bank accounts did not exceed this limit. The Company provides credit in the normal course of business to customers located throughout the U.S. and overseas.  The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.





4. PREPAID EXPENSES




Prepaid Expenses at the end of the year consisted of $50,000 in prepaid consulting fees, $20,873 in promotional supplies inventory, $7,661 in prepaid business insurance costs, and $8,914 made up of several smaller positions.





5. PROPERTY AND EQUIPMENT




Property and equipment consist of the following at:




March 31, 2010


December 31, 2010Furniture

$
14,322


$
14,322Leasehold Improvements


24,130



24,130Equipment


65,376



65,376103,828



103,828Less accumulated depreciation


90,990



88,505Total

$
12,838


$
15,323





Depreciation expense charged to operations was $2,485 and $3,213 in the first three months of 2011 and 2010, respectively.





9




Kiwibox.Com, Inc.


Notes to Financial Statements





6.  INTANGIBLE ASSETS





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




March 31, 2011


December 31, 2010Website development costs

$
162,606


$
139,108Less accumulated amortization


53,066



32,864Total

$
109,540


$
106,244





During 2010, software costs of $11,880 were determined to be impaired and were written off during the year then ended. Amortization expense for the three months ending March 31, 2011 and 2010 was $20,202 and $2,019, respectively. Additional amortization over the next 5 years is estimated to be as follows:




Amortization expenseDecember 31, 2011

$
71,684December 31, 2012


29,400December 31, 2013


8,456December 31, 2014


-December 31, 2015


-Thereafter


-




7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES





Accounts payable and accrued expenses consisted of the following at:





March 31, 2011


December 31, 2010Accounts payable

$
254,806


$
232,099Accrued interest


221,198



168,580Accrued payroll, payroll taxes and commissions


7,491



7,902Accrued professional fees


120,987



111,900Miscellaneous accruals


20,735



20,735Total

$
625,217


$
535,618





8.  OBLIGATIONS TO BE SETTLED IN STOCK





Obligations to be settled in stock consisted of the following at





March 31, 2011


December 31, 2010Obligation for warrants granted for compensation

$
70,000


$
60,000600,000 common shares issuable to a consultantwho was a director of the company, for servicesrendered.


36,000



36,000800,000 (2011) and 500,000 (2010) commonshares, and 2,900,000 (2011 and 2010)stock options issuable to two officers of theCompany pursuant to their respective employmentAgreements


72,857



66,858
  10
  Kiwibox.Com, Inc.
 Notes to the Financial Statements
  8. OBLIGATIONS TO BE SETTLED IN STOCK (continued)
  2,400,000 (2011) and 2,100,000 (2010) stockoptions issuable to one director who also servesas the Company’s general counsel


23,760



20,790Warrants granted on asset purchase (see Note 13)


10,000



-$
212,617


$
132,900




9. LOANS PAYABLE





The Company (Formerly Magnitude, Inc.) had borrowings under short term loan agreements with the following terms and conditions at March 31, 2011 and December 31, 2010:





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

$
75,000Total

$
75,000





10. NOTES PAYABLE




March 31,


December 31,2011


2010Balance of non-converted notes outstanding. Attempts tolocate the holder of this note, to settle this liability, have beenunsuccessful.

$
25,000


$
25,000In January 2008 a shareholder loaned the Company $40,000pursuant to which the Company issued a demand note bearinginterest at the rate of 5% per year.


40,000



40,000From September 2008 through March 2011 two shareholders loaned the Company funds under the terms of the convertible notes issued, as modified in March 2009 and July 2010 and March 2011 (see Note 12).


2,094,980



1,894,980In January and again in February 2011, a shareholder loaned the Company $50,000 under a demand note at 10%. In 2011, this shareholder loaned the Company $240,000  under a demand note at 10%.


340,000



240,000Total

$
2,499,980


$
2,199,980





11




Kiwibox.Com, Inc.


Notes to Financial Statements




11. LONG-TERM DEBT





Long-term debt as of March 31, 2011 and December 31, 2010  is comprised of the following:




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


33,529Total


33,529Less current maturities


33,529Long-term debt, net of current maturities

$
-




12. DERIVATIVE CONVERSION FEATURES





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





The Company accounted for the conversion features underlying these convertible debentures modified or issued in the year ended December 31, 2010 and the three months ended March 31, 2011 in accordance with ASC 815-40, Contract in Entity’s Own Equity, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares. The Company determined the value of the derivate conversion features of these debentures issued to these holders during the three months ended March 31, 2011 under these terms at the relevant commitment dates to be $343,647 utilizing a Black-Scholes valuation model. The change in fair value of the liability for the conversion feature resulted in a cost of $9,648 for the three months ended March 31, 2011, which is included in Other Income (Expense) in the accompanying financial statements. The fair value of the derivative conversion features was determined to be $2,975,703 at March 31, 2011.





12





Kiwibox.Com, Inc.


Notes to Financial Statements





13. COMMITMENTS AND CONTINGENCIES





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





In May 2010 the Company negotiated a lease of an apartment in New York City for the CEO in order to reduce travel costs. The lease is for 12 months at $2,775 per month thru May 31, 2011. In December 2010 the CEO through a company that he controls reimbursed Kiwibox.com $20,642 for his use of the Company apartment.





Our total rent expenses were $15,122 and $12,143 during the three months ended March 31, 2011 and 2010, respectively.





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





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





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 received a one-time payment in form of 15,000,000 five years warrants, exercisable at $0.0025 per share. The 15,000,000 warrants were exercised during the three months ended March 31, 2010 pursuant to a cashless exercise into 13,125,000 shares of common stock.





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





In addition, we are in the process of completing our due diligence investigation of an international social network with whom we signed a letter of intent and which we announced in our current report filed on Form 8-K with the Commission on November 30, 2010.




13


,


Kiwibox.Com, Inc.


Notes to Financial Statements





14.RELATED PARTY TRANSACTIONS





During the three months ended March 31, 2011 and 2010 one outside director of the Company who also serves as the Company’s general and securities counsel, was paid an aggregate $15,000 and $15,000, respectively, for legal services. The director also received 300,000 common stock options during the three month periods ending March 31, 2011 and 2010, valued at $2,970 and $2,970 respectively.





During the three months ended March 31, 2011 and 2010 we incurred and aggregate of $70,243 and $27,899, respectively, to companies controlled by the Chief Executive Officer, for website hosting, website development, server  farm installations and technical advisory services





Through March 31, 2011, the beneficial ownership in the Company’s securities held respectively, by Tell Capital AG of Switzerland and its principal, Ulrich Schuerch on a consolidated basis, was approximately 10.4% and approximately 9.9% for Discovery Advisory Company, located in the Bahamas, and Cambridge Services Inc. of Switzerland, of the voting stock.  Both Discovery Advisory Company and Cambridge Services Inc. are major creditors, having advanced operating capital against issuance by the Company of convertible promissory notes to during 2011 and 2010. During the three months ended March 31, 2011, Cambridge Services, Inc. advanced an additional $200,000. At March 31, 2011 $1,080,984 and $1,013,996 of such notes were outstanding and owed to Discovery Advisory Company and Cambridge Services Inc, respectively. Additionally, Ulrich Schuerch advanced the Company an additional $100,000 in the three months ended March 31, 2011, for which $340,000 of demand notes were issued at a rate of interest of 10%.





15. FAIR VALUE





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





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





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





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





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





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




14





Kiwibox.Com, Inc.


Notes to Financial Statements




15. FAIR VALUE (continued)




ending  balances for financial instruments that are recognized at fair value in the consolidated financial statements:




Conversion Liability at January 1, 2011


-Value of beneficial conversion features of new debentures


2,622,408Change in value of beneficial conversion features during period


353,295Reductions in fair value due to principal conversions


-Conversion Liability at March 31, 2011

$
2,975,703





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





15





Item 2.





MANAGEMENT’S DISCUSSION AND ANALYSIS OF


FINANCIAL CONDITION AND RESULTS OF OPERATIONS





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





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





The following discussion and analysis should be read in conjunction with the consolidated financial statements of Kiwibox.Com, Inc., contained herein and in the Company’s annual report for the year ended December 31, 2009 as filed on Form 10-K. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.




Description of Business




The Company’s business plan focused on increasing its regional membership continues through  its marketing efforts in the New York City region through a series of street promotion and event organizing in 2011. The Company has developed a number of partnerships with event organizers and businesses along the east coast of the United States and plans further expansion of these types of market alliances.





In continuing its efforts to exploit other available revenue sources in addition to its current efforts focused on organic membership growth, the Company implemented a strategic marketing plan to identify potential acquisition candidates in 2010. Pursuant to this endeavor, the Company identified a strategic international social network operation with whom the Company signed a confidential letter of intent in 2010. The Company completed its due diligence review of this candidate and, subject to the successful negotiation of a definitive agreement and other requirements, believes that its acquisition would significantly enhance the Company’s competitive market position.





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





The operating expenses, not including stock-based compensation, remained at a level of approximately $65,000 to $80,000 per month. We are currently receiving funding at these levels from existing investors (see sections “Loans and Notes Payable”).





Results of Operations for the Three Months Ended March 31, 2011 Compared to the Three  Months Ended March 31, 2011





For the quarter ended March 31, 2011, total revenues amounted to $423, compared to $734 recorded in the first quarter in 2010.





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Gross profit (loss) for the quarter ended March 31, 2011 amounted to $(312).  After deducting selling and general and administrative expenses of $273,847 for the first quarter ended March 31, 2011 compared to $266,060 recorded in the same period in 2010, the Company realized operating losses of $274,159 for the first quarter of 2011 compared to an  operating loss of $265,326 in the same period of 2010. The slight increase in operating expenses was the result of increased online and organic marketing efforts.




The quarter concluded with a net loss of $685,198. After accounting for dividends accrued on outstanding preferred stock which totaled $12,816, the net loss applicable to common shareholders was $698,014 or $0.001 per share compared to a loss of $295,362 or $0.001 per share for the first quarter in the previous year.




Liquidity and Capital Resources





We have financed our business with new debt since our cash flow is insufficient to provide the working capital necessary to fund our operations. We received $300,000 in cash from short-term loans  from accredited private investors during the quarter. We have an ongoing and urgent need for working capital to fund our operations. If we are unable to continue to receive new equity investments or obtain loans, we will not be able to fund our operations and we will be required to close our business.





Our deficit in working capital amounted to $6,875,756 at March 31, 2011, as compared to $6,145,931 at December 31, 2010.  The change is primarily attributable the losses incurred in the first quarter of  2010.  Stockholders’ equity showed an impairment of $6,712,622 at the end of the period, compared to an impairment of $6,014,608 at the beginning of the year. The negative cash flow from operations during the three months totaled $253,914 and was financed by new debt.




We have no bank debt and aside from trade payables and accruals, our indebtedness at March 31, 2011, consisted of certain notes and loans aggregating $2,574,980. The position “Obligations to be settled in stock” of $212,618 accounts for common shares due under consulting agreements, and for services to be settled in common stock options and warrants, where the underlying securities had not yet been issued. Current liabilities also include $543,417 accrued unpaid dividends on outstanding preferred stock. Such dividends will be paid only if and when capital surplus and cash-flow from operations are sufficient to cover the outstanding amounts without thereby unduly impacting the Company’s ability to continue operating and growing its business.




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





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





17





Item 3. Quantitative and Qualitative Disclosures about Market Risk





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





Item 4T.    CONTROLS AND PROCEDURES





(a)      Evaluation of Disclosure Controls and Procedures.





The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal period ended March 31, 2011 covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.





As of March 31, 2011, management assessed, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments.  Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective as more fully described below.  Based on management’s assessment over financial reporting, management believes as of March 31, 2011, the Company’s internal control over financial reporting was not effective due to the following deficiencies:





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





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





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





Management’s Remediation Initiatives





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





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





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





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





Changes in Internal Controls over Financial Reporting





Other than as stated above, during the quarter ended March 31, 2011, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.





18




PART  II  -  OTHER INFORMATION





Item 1
LEGAL PROCEEDINGS





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





Item 1A.
RISK FACTORS





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





Item 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





a)
Issuance of unregistered securities





During the first quarter in 2011 the Company did sell any unregistered securities.





(b)
Not applicable





(c)
None





Item 3
DEFAULTS UPON SENIOR SECURITIES





The Company, as of the date of this filing, is in arrears on the payment of certain dividends on its Series A, C, and D Senior Convertible Preferred Stock. Such arrears total approximately $543,000.  These dividends have been accrued, however, the Company’s management has refrained from making payments at this time because of the absence of positive equity and/or surplus funds.





Item 4
SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS





-  None





Item 5
OTHER INFORMATION





-  None





19





Item 6
EXHIBITS AND REPORTS ON FORM 8-K





(a)
Exhibits





31.01.

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 14, 201131.02.

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 14, 2011.32.01.

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 14, 2011.




(b)
Reports on Form 8-K:





On January 5, 2011, the Company filed a current report on Form 8-K with the Commission, announcing the integration of new initial login and Live Stream enhancements to its webhsite technology platform via a press release of the same date.





On March 7 2011, the Company filed a current report on Form 8-K with the Commission, announcing its acquisition of Pixunity.de assets, a German Photo Book Community, from Brand & Nobel GmbH via a press release of the same date.





On March 10 2011, the Company filed an amendment to its current report on Form 8-K, previously filed with the Commission on March 7, 2011, attaching a copy of the Asset Purchase Agreement between the Company and Brand & Nobel GmbH, pursuant to which the Company purchased the Pixunity.de assets, certain portions of which agreement are subject to a pending request to the Commission for confidential treatment pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.




20




SIGNATURES




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




Kiwibox.Com, INC.Date: May 14, 2011
By:
/s/ Craig S. CodyCraig S. CodyChief Financial Officer





21