**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 June 30, 2008





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





MAGNITUDE
      INFORMATION SYSTEMS, INC.


(Exact
      Name of Registrant as Specified in its Charter)




Delaware
            
            75-2228828(State
                or other Jurisdiction of
            
            (IRS
                Employer Identification No.)Incorporation
                or Organization)





1250
                State Route 26, Branchburg, New Jersey 08876
            
            (908)
                879-2722(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  ̈ Accelerated
      filer  ̈ 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  ̈ No x





The
      number of shares of Registrant’s Common Stock, $0.0001 par value, outstanding as
      of July 31, 2008, was 407,402,570 shares.









MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARIES





INDEX





PageNumberPART
                1- FINANCIAL INFORMATIONItem
                1 Financial StatementsConsolidated
                Balance Sheets-
                June 30, 2008 (unaudited) and December 31, 2007 (audited)
            
            3Consolidated
                Statements of Operations-
                Three and six months ended June 30, 2008 and 2007
                (unaudited)
            
            4Consolidated
                Statements of Cash Flows-
                Six months ended June 30, 2008 and 2007 (unaudited)
            
            5Notes
                to Consolidated Financial Statements
            
            7
                -
                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
                4T.Controls and Procedures
            
            18PART
                II - OTHER INFORMATION
            
            20Item
                1. Legal Proceedings
            
            20Item
                1A. Risk Factors
            
            20Item
                3. Defaults Upon Senior Securities
            
            20Item
                4. Submission of Matters to a Vote of Security Holders
            
            20Item
                5. Other information
            
            20SIGNATURES
            
            22




2





**PART
      I - Item 1 Financial Statements**





MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


CONSOLIDATED
      BALANCE SHEETS





June 30, 2008 (Unaudited)
            
            December 31, 2007 (Audited)AssetsCurrent
                AssetsCash
            
            $
            452,150
            
            $
            470,148Accounts
                receivable, net of allowance for doubtful accounts of $7,893 and
                $0
            
            
            -
            
            
            7,893Prepaid
                expenses
            
            
            21,710
            
            
            12,339Total
                Current Assets
            
            
            473,860
            
            
            490,380Property
                and equipment, net of accumulated depreciation of $49,724 and
                $81,965
            
            
            34,083
            
            
            20,788Software,
                net of accumulated amortization of $3,350 and $0
            
            
            61,300
            
            
            -Deferred
                financing costs, net of accumulated amortization of $609,900 and
                $539,597
            
            
            -
            
            
            35,303Goodwill
            
            
            3,138,751
            
            
            2,663,751Other
                assets
            
            
            3,224
            
            
            11,114Total
                Assets
            
            
            3,711,218
            
            
            3,221,336Liabilities
                and Stockholders’ Equity (Impairment)Current
                LiabilitiesAccounts
                payable and accrued expenses
            
            
            687,922
            
            
            907,799Obligations
                to be settled in stock
            
            
            601,800
            
            
            1,622,921Deferred
                revenue
            
            
            -
            
            
            100,000Dividends
                payable
            
            
            404,575
            
            
            376,743Loans
                and notes payable
            
            
            365,000
            
            
            450,000Derivative
                liability - warrants and options
            
            
            2,145,864
            
            
            2,825,920Current
                maturities of long-term debt
            
            
            33,529
            
            
            33,529Total
                Current Liabilities
            
            
            4,238,690
            
            
            6,316,912Long-term
                Debt
            
            
            -
            
            
            -Total
                Liabilities .
            
            
            4,238,690
            
            
            6,316,912Stockholders’
                Equity (Impairment)Preferred
                Stock, $0.001 par value, non-voting, 3,000,000 shares authorized:2,500
                shares have been designated Cumulative Preferred Stock, of which
                1 share
                is issued and outstanding
            
            
            0
            
            
            0300,000
                shares have been designated Series A Convertible Preferred Stock,350,000
                shares have been designated Series B Convertible Preferred Stock,120,000
                shares have been designated Series C Convertible Preferred Stock,500,000
                shares have been designated Series D Convertible Preferred Stock,500,000
                shares have been designated Series E Convertible Preferred Stock,43,610
                shares have been designated Series E Convertible Preferred Stock,of
                which a combined total 129,500 shares are issued and
                outstanding
            
            
            129
            
            
            129Common
                Stock, $0.0001 par value, 700,000,000 shares authorized;issued
                and outstanding 376,242,570 and 276,703,237 shares
            
            
            37,624
            
            
            27,671Additional
                paid-in capital
            
            
            40,359,961
            
            
            36,739,270Loans
                receivable – stockholders
            
            
            (286,721
            )
            
            (286,721
            )Accumulated
                (deficit)
            
            
            (40,638,465
            )
            
            (39,575,925
            )Total
                Stockholders’ Equity (Impairment)
            
            
            (527,472
            )
            
            (3,095,576
            )Total
                Liabilities and Equity (Impairment)
            
            $
            3,711,218
            
            $
            3,221,336





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




3





MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF OPERATIONS


(Unaudited)





Three
                Months Ended
            
            Six
                Months EndedJune
                30,
            
            June
                30,2008
            
            2007
            
            2008
            
            2007Total
                Revenues
            
            $
            4,300
            
            $
            933
            
            $
            18,214
            
            $
            3,956Cost
                of Goods Sold
            
            
            18,559
            
            
            -
            
            
            31,750
            
            
            -Gross
                Profit (Loss)
            
            
            (14,259
            )
            
            933
            
            
            (13,536
            )
            
            3,956Selling
                expenses
            
            
            12,410
            
            
            -
            
            
            73,204
            
            
            414Provision
                for bad debts
            
            
            -
            
            
            -
            
            
            7,893
            
            
            -Stock-based
                compensation (see below)
            
            
            57,000
            
            
            172,000
            
            
            57,000
            
            
            292,000Research
                and development cost
            
            
            7,200
            
            
            -
            
            
            7,200
            
            
            735General
                and administrative expenses
            
            
            762,869
            
            
            391,288
            
            
            1,297,713
            
            
            731,663Loss
                from Operations
            
            
            (853,738
            )
            
            (562,355
            )
            
            (1,456,546
            )
            
            (1,020,856
            )Other
                Income (Expense)Miscellaneous
                income
            
            
            -
            
            
            -
            
            
            27,008
            
            
            -Misc.
                non-operating expenses
            
            
            (3,102
            )
            
            (164
            )
            
            (3,102
            )
            
            (164
            )Change
                in fair value -derivative liability
            
            
            1,945,641
            
            
            267,786
            
            
            (245,796
            )
            
            (635,699
            )Amortization
                of deferred financing cost
            
            
            (11,666
            )
            
            (203,376
            )
            
            (70,303
            )
            
            (203,376
            )Gain
                on extinguishment of debt
            
            
            25,000
            
            
            -
            
            
            718,856
            
            
            -Interest
                income
            
            
            549
            
            
            -
            
            
            549
            
            
            -Interest
                expense
            
            
            -
            
            
            (103,443
            )
            
            (5,375
            )
            
            (112,803
            )Total
                Other Income (Expense)
            
            
            1,956,422
            
            
            (39,197
            )
            
            421,837
            
            
            (952,042
            )Profit
                (Loss) before Provision for Income Taxes
            
            
            1,102,684
            
            
            (601,552
            )
            
            (1,034,709
            )
            
            (1,972,898
            )Provision
                for income taxes
            
            
            -
            
            
            22,846
            
            
            -
            
            
            22,846Net
                Profit (Loss)
            
            $
            1,102,684
            
            $
            (624,398
            )
            $
            (1,034,709
            )
            $
            (1,995,744
            )Dividends
                on Preferred Stock
            
            
            (13,916
            )
            
            (13,78
            )
            
            (27,832
            )
            
            (27,475
            )Net
                Profit (Loss) applicable to Common Shareholders
            
            $
            1,088,768
            
            $
            (638,136
            )
            $
            (1,062,541
            )
            $
            (2,023,219
            )Net
                Profit (Loss) per Common Share
            
            $
            0.003
            
            $
            (0.003
            )
            $
            (0.003
            )
            $
            (0.009
            )Weighted
                Average Number of Common Shares Outstanding
            
            
            376,242,570
            
            
            229,842,905
            
            
            337,270,348
            
            
            228,325,074





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


MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited)





Six
                Months EndedJune
                30,2008
            
            2007Cash
                Flows from Operating ActivitiesNet
                Loss
            
            $
            (1,034,709
            )
            $
            (1,995,744
            )Adjustments
                to Reconcile Net Loss to
                Net Cash Used by OperationsDepreciation
                and amortization
            
            
            87,900
            
            
            17,750Securities
                issued for various expenses
            
            
            57,000
            
            
            292,000Change
                in fair value – derivative liabilities
            
            
            245,796
            
            
            635,699Loss
                on disposal of assets
            
            
            2,553
            
            
            -Accretion
                of beneficial conversion feature
            
            
            -
            
            
            78,003Amortization
                of deferred financing costs
            
            
            -
            
            
            203,376Gain
                on extinguishment of debt
            
            
            (718,856
            )
            
            -Decreases
                (Increases) in AssetsAccounts
                receivable
            
            
            7,893
            
            
            -Prepaid
                expenses
            
            
            (9,371
            )
            
            20,545Increases
                (decreases) in LiabilitiesDeferred
                revenues
            
            
            -
            
            
            (2,720
            )Obligations
                to be settled in stock
            
            
            -
            
            
            66,561Accounts
                payable and accrued expenses
            
            
            (169,349
            )
            
            236,340Net
                Cash Used by Operating Activities
            
            
            (1,531,143
            )
            
            (448,190
            )Cash
                Flows from Investing ActivitiesCash
                outlay for website development costs
            
            
            (64,650
            )
            
            -Kiwibox
                acquisition
            
            
            (50,000
            )
            
            -Purchases
                of equipment and fixtures
            
            
            (22,205
            )
            
            (3,308
            )Net
                Cash Used by Investing Activities
            
            
            (136,855
            )
            
            (3,308
            )Cash
                Flows from Financing ActivitiesProceeds
                from loans and notes
            
            
            40,000
            
            
            347,000Issuance
                of common and preferred stock
            
            
            1,610,000
            
            
            56,000Net
                Cash Provided by Financing Activities
            
            
            1,650,000
            
            
            403,000Net
                Increase (Decrease) in Cash
            
            
            (17,998
            )
            
            (48,498
            )Cash
                at Beginning of Period
            
            
            470,148
            
            
            81,307Cash
                at End of Period
            
            $
            452,150
            
            $
            32,809





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




5


MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Unaudited)





NON-CASH
                INVESTING AND FINANCING ACTIVITIES:Additional
                goodwill incurred by obligation to be settled in stock for 20 million
                penalty shares
            
            $
            200,000Additional
                deferred finance costs incurred by obligation to be settled in
                stock
            
            $
            35,000Additional
                goodwill incurred via promissory note
            
            $
            225,000Settlement
                of deferred revenue liability with stock
            
            $
            40,000Settlement
                of note conversions and finance cost obligations with stock and
                warrants
            
            $
            123,644Issuance
                of stock and warrants for prior subscription obligations
            
            $
            1,800,000





6


MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





1.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature
      of
      Organization





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





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





Business





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. Magnitude Information Systems, Inc. is planning to change its
      corporate name to “KiwiAge Enterprises, Inc.”





Through
      our subsidiary, we own and operate “Kiwibox.com”, a social networking website
      for teens. **** Initially
      launched in 1999, Kiwibox.com is an online social networking website dedicated
      to teen users. With approximately 1.8 million registered members, the Kiwibox
      website provides online content in several categories, dedicated to teens,
      including entertainment, fashion and games. We have formed a user-based
      contingent of contributors that submit, review and comment upon content and
      articles from all over the world, 24 hours a day, seven days a week. Kiwibox.com
      uses a “points” reward system for users, where a user may acquire elevated peer
      status and/or earn prizes which in many cases are provided by advertiser and/or
      sponsors. We are in the final stages of re-launching our website with increased
      functions, etc., scheduled for release in the summer of 2008.





On
      May 2,
      2008, we disclosed the release of the “Beta” version of the Kiwibox.com new
      website to its membership. The first stage in the re-development of the
      Kiwibox.com website, the beta version will be tested and refined in the next
      several weeks. Following quality control procedures, the Kiwibox.com new website
      is expected to be released to the public later this month. Originally targeted
      for full release in April, 2008, extended technical and software implementation
      processes have delayed the public launch of the new website.




7





MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES, Continued





Basis
      of
      Presentation





The
      accompanying unaudited consolidated financial statements have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      statements and with the instructions to Form 10-Q and Article 10 of Regulation
      S-X. Accordingly, they do not include all of the information and disclosures
      required for annual financial statements. These financial statements should
      be
      read in conjunction with the consolidated financial statements and related
      footnotes included in the Company’s annual report on Form 10-KSB for the year
      ended December 31, 2007 and its quarterly report on Form 10-Q for the quarter
      ended March 31, 2008.





In
      the
      opinion of the Company’s management, all adjustments (consisting of normal
      recurring accruals) necessary to present fairly the Company’s financial position
      as of June 30, 2008, the results of operations for the three and six months
      ended June 30, 2008 and 2007, and the cash flows for the six months ended June
      30, 2008 and 2007, have been included.





Principles
      of Consolidation





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





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. Maintenance and
      repairs are charged to operations as incurred.





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.





Goodwill
      and Intangible Assets





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





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




8


MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES, Continued





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 determined the fair market value of the
      warrants/options issued under the Black-Scholes Pricing Model. Effective January
      1, 2006, the Company adopted the provisions of Statement of Financial Accounting
      Standards (SFAS) 123(R), SHARE-BASED PAYMENT, which establishes accounting
      for
      equity instruments exchanged for employee services. Under the provisions of
      SFAS
      123(R), share-based compensation cost is measured at the grant date, based
      on
      the fair value of the award, and is recognized as an expense over the employee's
      requisite service period (generally the vesting period of the equity grant).
      During the quarter, we issued 600,000 shares and stock options for an aggregate
      3,600,000 shares as compensation, whereby all such shares and 3,100,000 options
      were granted to officers and directors (see “Related
      Party
      Transactions”) .
      The
      shares were valued at the market price of the Company's common stock at times
      of
      grant and the options at their fair value according to the Black-Scholes method,
      using 169% volatility and a 1.8% risk-free interest rate.





Reclassification
      of certain securities under EITF 00-19





Pursuant
      to Emerging Issues Task Force (EITF) Issue 00-19, if a company has more than
      one
      contract subject to this Issue, and partial reclassification is required, there
      may be different methods that could be used to determine which contracts, or
      portions of contracts, should be reclassified. The Company's method for
      reclassification of such contracts is reclassification of contracts with the
      latest maturity date first.





Capitalization
      of Software /Website development costs




The
      Company capitalized outside-contracted development work in accordance with
      the
      guidelines published under EITF 00-2, *Accounting
      for Web Site Development Costs* ,
      adopted
      during the quarter ended March 31, 2008. Under EITF 00-2, costs incurred during
      the planning stage are expensed, while  costs
      relating to software used to operate a web site or for developing initial
      graphics should be accounted for under SOP
      98-1,*Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use*,
      unless
      a plan exists or is being developed to market the software externally. Under
      SOP
      98-1, internal and external costs incurred to develop internal-use computer
      software during the application development stage should be capitalized. Costs
      to develop or obtain software that allows for access or conversion of old data
      by new systems should also be capitalized, excluding training costs.Fees
      incurred for web site hosting, which involve the payment of a specified,
      periodic fee to an Internet service provider in return for hosting the web
      site
      on its server(s) connected to the Internet, are expensed over the period of
      benefit, and included in cost of sales in the accompanying financial statements.
      A total of $24,120 and $40,530 was capitalized for web-site development work
      during the first and second quarters 2008, respectively.




Fair
      Value Measurements




The
      Company adopted the provisions of Statement of Financial Accounting Standards
      (SFAS) No. 157, *Fair
      Value Measurements* ,
      which
      is effective for fiscal years beginning after November 15, 2007, and interim
      periods within those fiscal years. Under FASB Statement No. 157, a framework
      was
      established for measuring fair value in generally accepted accounting principles
      (GAAP), and expands disclosures about fair value measurements. The Company
      measured the fair value of warrants and options outstanding at June 30, 2008
      since the number of shares issuable under the Company’s Series G convertible
      preferred stock was indeterminable during the six months then ended. The value
      at June 30, 2008 was determined to be $2,145,864, measured using significant
      unobservable inputs (Level 3) under a Black-Scholes valuation method. The change
      in value during the six months period was $245,796 reported in the Statement
      of
      Operations under Other Income (Expense).




9


MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES, Continued




The
      Company adopted the provisions of Statement of Financial Accounting Standards
      (SFAS) No. 159, "The Fair Value Option for Financial Assets and Financial
      Liabilities", which included and amendment of FASB Statement No. 115 with
      respect to improvement of financial reporting of certain investments in debt
      and
      equity securities. This Statement permits entities to choose to measure many
      financial instruments and certain other items at fair value. The implementation
      of this new standard did not have a material impact on the Company's financial
      position, results of operations and cash flows for the three months ended June
      30, 2008.





Income
      Taxes





The
      Company provides for income taxes based on enacted tax law and statutory tax
      rates at which items of income and expenses are expected to be settled in the
      Company’s income tax return. Certain items of revenue and expense are reported
      for Federal income tax purposes in different periods than for financial
      reporting purposes, thereby resulting in deferred income taxes. Deferred taxes
      are also recognized for operating losses that are available to offset future
      taxable income. Valuation allowances are established when necessary to reduce
      deferred tax assets to the amount expected to be realized. The Company has
      incurred net operating losses for financial-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 Financial Accounting Standards
      Board No. 128, “Earnings Per Share” is computed by dividing net loss by the
      weighted average number of shares of Common Stock outstanding during the period.
      Common Stock equivalents have not been included in this computation since the
      effect would be anti-dilutive.





Revenue
      Recognition





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





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.


.


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.




10


MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





2.
      GOING
      CONCERN





The
      ability of the Company to continue its operations is dependent on increasing
      sales and obtaining additional capital and financing. In their reports for
      the
      fiscal years ended December 31, 2007 and December 31, 2006, 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 $100,000. Balances in these
      accounts may, at times, exceed the federally insured limits. At June 30, 2008,
      one bank account maintained with a large nationally represented institution
      carried a balance $383,341. 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 quarter included $20,910 prepaid insurance costs,
      with the remainder representing miscellaneous prepaid expenses.





5.
      PROPERTY AND EQUIPMENT





Property
      and equipment consist of the following at June 30, 2008:




Furniture
            
            
            2,014Leasehold
                Improvements
            
            
            9,400Equipment
            
            
            72,39383,807Less
                accumulated depreciation
            
            
            49,724Total
            
            $
            34,083





Depreciation
      expense charged to operations was $6,357 and $2,750 in the first six months
      of
      2008 and 2007, respectively.





During
      the quarter, we disposed of obsolete office and computer equipment with a net
      book value of $2,553.





6.
      INTANGIBLE ASSETS





Intangible
      assets at June 30, 2008 included web site development costs and deferred finance
      costs.





Website
      development costs, at June 30, 2008, consisted of:





Costs
                incurred
            
            $
            64,650Less
                accumulated amortization
            
            
            3,350Total
            
            $
            61,300





During
      the three months ended March 31, 2008, the Company incurred finance costs due
      to
      a penalty share obligation of 2,250,000 restricted shares valued at $35,000
      to
      extend the maturities of various bridge notes. Amortization of deferred
      financing costs was $11,667, $70,304, $0 and $0 for the three and six months
      ended June 30, 2008 and 2007, respectively, resulting in net deferred financing
      costs of $0 at June 30, 2008.


11


MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





7.
      ACCOUNTS PAYABLE AND ACCRUED EXPENSES





Accounts
      payable and accrued expenses consisted of the following at June 30,
      2008:





Accounts
                payable
            
            $
            502,832Accrued
                interest
            
            
            64,127Accrued
                salaries
            
            
            10,030Accrued
                commissions
            
            
            3,720Accrued
                professional fees
            
            
            56,900Miscellaneous
                accruals
            
            
            50,313Total
            
            $
            687,922





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





8.
      GOODWILL





On
      August
      16, 2007, the Company completed its acquisition of 100% of the outstanding
      capital stock of KiwiBox Media, Inc. The total initial purchase price of
      $2,850,273 was calculated as follows: we issued 30,000,000 restricted common
      shares based on a total value of $1,500,000 determined by the lower of $0.05
      per
      share and the average sales price of the Company’s common stock for the ten (10)
      successive trading days immediately preceding the closing, 43,610 shares of
      our
      Series G Preferred Stock worth $500,000, paid $450,000 in cash to the three
      KiwiBox owners, and incurred $57,500 in acquisition fees. In addition, based
      on
      the initial Agreement and Plan of Reorganization from February 2007, the Company
      committed to investing $3.5 million for the operations of Kiwibox. Based on
      an
      amendment in July 2007, in the event that certain investment tranches were
      not
      made by their respective due dates, the Company agreed to issue 60,000
      restricted shares to the former shareholders of Kiwibox for each day that the
      funds were in arrears. The Company estimated the fair value of this
      pre-acquisition contingency as of the acquisition date based on the present
      value of the total expected liability at a discount rate of 5%, with an accreted
      value of $295,800 at June 30, 2008 (current period value of $3,027 was charged
      to operations, so net increase in purchase price was $292,773). In February
      2008, the Company entered into another amendment that superseded the provisions
      of amendments in December 2007, whereby the Company agreed to issue 20 million
      reset shares, valued at $200,000, and a promissory note for $225,000, and
      $250,000 cash penalties ($100,000 paid in 2007, $150,000 paid in 2008) as
      additional consideration due to the delays in financing, which increased the
      value of Goodwill at March 31, 2008. This additional consideration eliminated
      the requirement for penalty shares to continue accruing, as long as the Company
      received $1.5 million in financing by March 7, 2008, and invested $700,000
      in
      Kiwibox operations. This financing was received in a timely fashion. The
      amendment also provided the former shareholders of Kiwibox the option to receive
      the value of the reset shares in common stock options of equivalent value.
      To
      date, none of the penalty shares have been issued.





The
      excess of the purchase price over the net assets acquired has been recorded
      as
      Goodwill in the amount of $3,138,751 as of June 30, 2008. Management expects
      the
      future discounted cash flows from Kiwibox’ operations to be equal or higher than
      the carrying amount of the goodwill.


12


MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





9.
      LOANS
      PAYABLE





The
      Company and Magnitude, Inc. had borrowings under short term loan agreements
      with
      the following terms and conditions at June 30, 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 September 30, 2005 and
                no demand
                for payment has been made.
            
            $
            75,000Total
            
            $
            75,000





10.
      NOTES
      PAYABLE





On
      February 28, 2008, two debtholders agreed to convert their outstanding notes
      of
      $350,000, finance cost obligations to be settled in stock of $385,000 and
      finance cost obligations that could be settled in stock or cash of $22,500
      into
      a total of 9,333,333 common shares and 3,500,000 five-year common stock warrants
      with an exercise price of $0.07 per share, resulting in a gain on extinguishment
      of $633,856. The warrants were valued at $30,311 using a Black-Scholes model,
      with the following assumptions: volatility - 169%, dividends - none, risk-free
      rate - 2.1%. In addition, in January 2008, the Company converted the $100,000
      deposit recorded previously as deferred revenue into common stock on behalf
      of
      the depositor by issuing 2,000,000 restricted common shares. This issuance
      resulted in a gain on extinguishment of this liability of $60,000 based on
      the
      fair value of the shares delivered in settlement.





At
                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 June 30, 2008 is $25,000.
                Attempts to locate the holder of this note, to settle this liability,
                have
                been unsuccessful.
            
            
            25,000In
                January 2008 a shareholders loaned the Company $40,000 pursuant to
                which
                the Company issued a demand note bearing interest at the rate of
                5% per
                year.
            
            
            40,000In
                February 2008, as partial additional consideration under the Kiwibox
                acquisition agreement, as amended, the Company issued a $225,000
                note
                payable bearing interest at 5% per year and due on the earlier of
                (1) the
                date the Company receives proceeds from any debt or equity financing
                or
                (2) June 15, 2008.
            
            
            225,000Total
            
            $
            290,000Subsequent
                to the reporting date, we repaid $75,000 on the above obligation with
                $75,000 now due upon receipt of any debt or equity financing; the
                remaining balance of $75,000 is subject to possible compromise pursuant
                to
                on-going negotiations with the holders.




13







MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





11.
      LONG-TERM DEBT





Long-term
      debt as of June 30, 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





Lease
      Agreements





On
      September 1, 2006, the Company entered a three year lease (which can be
      terminated by either party after 12 months) for approximately 850 square feet
      of
      office space at 1250 Route 28, Suite 309, Branchburg, New Jersey. This lease
      agreement currently calls for a base rental payment of $1,137 per month plus
      utility/cam/property tax charges of approximately $600 per month through August
      31, 2008, with a nominal increase for year three ending August 31, 2009. In
      addition, we maintain offices for our Kiwibox operations at 330 W. 38th Street,
      New York, New York 10018, consisting of approximately 1,600 square feet. We
      have
      a two-year lease covering these offices and pay minimum monthly rentals of
      $3,908.09 plus tenants’ share of 0.86% of utility/cam/property tax charges
      through August 31, 2008, and minimum monthly rentals of $4,012.82 plus
      additional rentals for the twelve months ending August 31, 2009.





13.
      RELATED PARTY TRANSACTIONS





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





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





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





During
      the first and second quarters in 2008, one outside director of the Company
      who
      also serves as the Company’s general and securities counsel, was paid an
      aggregate $170,962 and $50,000, respectively, for legal services. At June 30,
      2008, the Company owed this director $179,470. Another outside director was
      paid
      $30,000 during the second quarter in 2008, for business consulting services.





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


In
        June,
        2008, the Company granted 600,000 shares and stock options to purchase an
        aggregate 3,100,000 common shares to four officers and directors of the Company,
        for past services rendered. Such options are exercisable at prices
        between $0.025 and $0.15/share during three to five years periods. The
        Company has accounted for the fair value of these options, at $47,500 under
        the
        Black-Scholes method, using a volatility of 169% and a risk-free interest
        rate
        of 1.8%, in the current financial statements.


14





14.
      SUBSEQUENT EVENTS





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. We also issued 600,000 restricted common shares to a director
      pursuant to a consulting agreement.


On
        July
        18, 2008, Steven Gray resigned as a director and on August 1, 2008, Edward
        Marney resigned as President/CEO and director. On July 14, 2008, Rudolf Hauke
        was appointed Co-President/CEO and as a member of our Board of Directors.
        Following Mr. Marney resignation, Dr. Hauke assumed control of the positions
        of
        President/CEO. Also on July 14, 2008, Dr. Jorg Otzen and Quentin Kelly were
        appointed as members of the Board of Directors.
 
 We
        will
        pay Dr. Hauke $6,000 salary and a $7,000 expense allowance monthly. We also
        granted Dr. Hauke a 2-year stock option to purchase 500,000 common shares
        at an
        exercise price of $.05, and 4-year stock options to acquire 100,000 common
        shares, exercisable at $.10 per share, for each month of service. All of
        the
        above officer and director transitions were disclosed in our report on Form
        8-K
        filed on July 18, 2008.




15


MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


JUNE
      30,
      2008





**Item
      2.**


MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF


FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS





The
      information in this annual report contains forward-looking statements within
      the
      meaning of the Private Securities Litigation Reform Act of 1995. Such Act
      provides a “safe harbor” for forward-looking statements to encourage companies
      to provide prospective information about their businesses so long as they
      identify these statements as forward looking and provide meaningful cautionary
      statements identifying important factors that could cause actual results to
      differ from the projected results. All statements other than those statements
      of
      historical fact made in this report are forward looking. In particular, the
      statements herein regarding industry prospects and future results of operations
      or financial position are forward-looking statements. Forward-looking statements
      reflect management’s current expectations and are inherently uncertain. Our
      actual results may differ significantly from management’s expectations. The
      following discussion and analysis should be read in conjunction with the
      consolidated financial statements of Magnitude Information Systems, Inc.,
      included herewith. This discussion should not be construed to imply that the
      results discussed herein will necessarily continue into the future, or that
      any
      conclusion reached herein will necessarily be indicative of actual operating
      results in the future. Such discussion represents only the best present
      assessment of our management.





Background





On
      August
      16, 2007, we closed on our acquisition of Kiwibox Media, Inc., a business that
      had developed a social networking website dedicated to teenagers. As a result
      of
      this acquisition, accomplished through a reverse merger, Kiwibox Media, Inc.
      became our wholly owned subsidiary. Prior to this acquisition, we entered into
      a
      License and Client Software Support Agreement with Imminent Technologies, LLC
      on
      April 10, 2007, licensing our prior business’ suite of ergonomic software
      products and thereby, effectively terminating our involvement in the ergonomic
      software business, all as disclosed in the current report on Form 8-K we filed
      on April 11, 2007.





The
      Kiwibox Closing - August 16, 2007.





On
      August
      16, 2007, we closed our acquisition of Kiwibox Media, Inc. through a reverse
      merger between Kiwibox and our wholly owned acquisition subsidiary. As a result
      of the merger, Kiwibox became our wholly owned subsidiary. At the Kiwibox
      closing, we (1) issued an aggregate 30,000,000 restricted common shares to
      the
      three Kiwibox shareholders, (2) issued an aggregate 43,610 shares of our Senior
      Convertible Series G Preferred stock to these principals, (3) paid an aggregate
      $150,000 in cash to these Kiwibox principals, less a $7,000 investment banking
      fee paid to Southridge Investment Group, and (4) signed two-year employment
      agreements with Messrs. Lin Dai, Ivan Tumanov and Michael Howard, the three
      Kiwibox shareholders, all pursuant to the terms and provisions of the Agreement
      and Plan of Reorganization, dated February 19, 2007, and amendments thereto,
      and
      as most recently modified by Amendment No. 6 between the parties on February
      28,
      2008. The 43,610 Series G Preferred Shares issued to the Kiwibox principals
      at
      closing have an aggregate conversion value of $500,000 (the “Conversion Value”),
      which $500,000 Conversion Value is convertible into our common shares by
      dividing it by the “Market Price” of our common stock during the twenty (20)
      successive trading days immediately preceding the second anniversary of the
      agreement. At the closing, the Company promised to issue 750,000 of the KiwiBox
      shareholders’restricted common shares to Southridge Investment Group, LLC as
      part of its fee. Based upon our original Agreement and Plan of Reorganization
      of
      February 2007, we committed to invest $3.5 Million in the Kiwibox business.
      This
      commitment was based upon our communications with a Swiss based shareholder
      and
      investor in our Company, Tell Capital AG, who on July 26, 2007, sent us a
      commitment to invest $3 million of equity in our Company. Based upon Tell
      Capital’s commitment, we executed Amendment No. 3 to our original February, 2007
      agreement with Kiwibox, committing to invest $3.5 million in various tranches,
      corresponding to the investment schedule set forth in the Tell Capital
      commitment, as well as agreeing to pay 60,000 restricted common shares for
      each
      day any of our scheduled investment tranches were late. Because of the delays
      in
      the receipt of the equity investments from Tell Capital, scheduled through
      November 1, 2007, our corresponding investment commitments to the Kiwibox
      business were also late. The continuing lateness of our investment commitments
      to the Kiwibox business resulted in further amendments to our Kiwibox agreement
      and required us to make a $100,000 penalty payment to the Kiwibox shareholders
      in 2007. The final modification to our original agreement, Amendment No. 6,
      executed on February 28, 2008, provided that if we raised $1.5 million in equity
      on or before March 7, 2008 and dedicated $700,000 of that amount to the Kiwibox
      business, made another penalty payment of $150,000 and delivered our corporate
      note in the principal amount of $225,000 to the Kiwibox shareholders, all
      rescission rights held by the Kiwibox shareholders and any further obligations
      to invest in the Kiwibox business would terminate. On March 7, 2008, we received
      $1.5 Million in subscription proceeds from investors, from which proceeds we
      dedicated $700,000 to the Kiwibox business, made the $150,000 penalty payment
      to
      the Kiwibox shareholders and delivered to them our $225,000 corporate note.
      Accordingly, the Kiwibox shareholders’ rights of rescission and our obligation
      to invest further funds in the Kiwibox business terminated. We have paid the
      Kiwibox shareholders $250,000 in cash, delivered to them our $225,000 corporate
      note, due June 15, 2008, and must issue to them approximately 30,000,000
      restricted common shares resulting from the series of delays in meeting our
      commitments to invest funds into the Kiwibox business.


16





We
      signed
      and delivered two-year employment agreements with the three Kiwibox Shareholders
      at the closing. These employment agreements pay each Kiwibox Shareholder an
      annual base salary of $150,000 and an annual bonus if certain business goals
      are
      met. Each Kiwibox Shareholder received a stock option to purchase up to
      7,500,000 shares of our common stock which vests over time as well as a
      performance stock option to purchase up to an additional 3,000,000 shares of
      our
      common stock, vesting upon the attainment of certain business goals. All of
      these stock options are exercisable at $.05 per share *.*




Plan
      of
      Operations





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





*Increase
      in editorial staf* *f
      and
      offerings* - The
      new website combines weekly editorial with daily and up-to-the-minute
      entertainment news and content. We have hired additional editorial staff persons
      to augment and expand our existing editorial staff and volunteer teen writers
      to
      provide around the clock coverage in our content categories of music,
      entertainment, games, body & style and life & love.





*Establishment
      of KiwiboxTV* -
      Our new
      content production department is now established andharged to produce exclusive
      video content for the website. The KiwiboxTV section on the new website offers
      exclusive on camera interviews with artists and celebrities by Kiwibox teen
      Video Journalists, as well as video coverage of red carpet events in order
      to
      bring our members one step closer to their favorite celebrities.





*Enhanced
      Community Features* -
      The new
      website employs advanced social networking functionality such as dynamic profile
      pages, featuring drag and drop customization, enhanced privacy settings and
      personal sub-domains for every member. Members can add widgets to aggregate
      their web presence together with all of their favorite Kiwibox
      content.





*Revamped
      Points and Prizes* -
      We are
      expanding the number of activities for our members to earn points and prizes.
      Members will have more ways to earn KiwiPoints by participating in the social
      network and contributing editorial content. Members can redeem these KiwiPoints
      for an expanded selection of real world KiwiPrizes. We expect our expanded
      Points and Prizes program, as well as our planned offering of virtual prizes
      in
      the future, will attract new members to our website.





*Expansion
      of our Game Offerings* -
      We have
      expanded our KiwiGames offerings to our members, doubling the amount of games
      to
      play while connecting and competing with friends. We are continuing to expand
      our partnerships with online game sites and online game developers, in order
      to
      provide a better platform for sponsors to integrate their marketing messages
      and
      advertising campaigns.





**Results
      of Operations**





The
      Company had no material revenues during the quarter ended June 30, 2007. For
      the
      three and six months ended June 30, 2008, total revenues amounted to $4,300
      and
      $18,214, respectively, generated entirely from the Kiwibox operations. Expenses
      for website hosting services for Kiwibox’ website are recognized as
      cost-of-goods-sold and amounted to $18,559 and $31,750 for the three and six
      months periods ended June 30, 2008.





Our
      operating expenses increased significantly from the same period a year ago,
      due
      to an expansion in staffing and marketing expenses to advance our new Kiwibox
      business. After accounting for selling-, research-, and general and
      administrative expenses totaling $839,479 and $1,443,010, the Company realized
      losses from operations of $853,738 and $1,456,546 for the three and six months
      ended June 30, 2008, compared to operating losses of $562,355 and $1,020,856
      over the similar periods in 2007 during which time we had not yet invested
      in
      the new business. Non-operating income and expenses during the three and six
      months ended June 30, 2008 consisted primarily of a gain on extinguishment
      of
      debt of $25,000 and $718,856, respectively, and accounting income (charges)
      of
      $1,945,641 and $(245,796) reflecting the change in fair value of outstanding
      options and warrants during that period. The period results were a net profit
      of
      $1,102,684 and a net loss of $1,034,709 for the three and six months,
      respectively, ended June 30, 2008, compared to losses of $624,398 and 1,995,744
      for the same periods in 2007.




17


After
      accounting for dividend accruals on outstanding preferred stock which totaled
      $27,832 in 2008, the net results applicable to common shareholders for the
      three
      and six months periods ended June 30, 2008, were a profit of $1,088,768 or
      $0.003 per share, and a loss of $1,062,541 or $0.003 per share, respectively,
      compared to losses of $638,091 or $0.003 per share, and $2,023,219 or $0.009
      per
      share for the same periods in the previous year.




**Liquidity
      and Capital Resources**





We
      have
      financed our business with new debt and equity capital since our cash flow
      is
      insufficient to provide the working capital necessary to fund our operations.
      We
      recorded $1,610,000 in cash from subscriptions for new equity capital from
      accredited private investors during the first quarter of 2008. In addition,
      we
      received $40,000 from short-term loans. Our deficit in working capital amounted
      to $3,764,830 at June 30, 2008, as compared to a deficit of $5,826,532 at
      December 31, 2007. Stockholders’ equity showed an impairment of $527,472 at June
      30, 2008, compared to an impairment of $3,095,576 at the beginning of the year.
      The negative cash flow from operations totaled $1,531,143 and was substantially
      financed by new debt and equity which was obtained through private placements.
      The new equity placements were consummated by issuance of common stock and
      warrants to primarily foreign investors. Details of such transactions can be
      found in the “Changes and Issuance of Securities” section of this
      report.





We
      have
      no bank debt and aside from trade payables and accruals, our indebtedness at
      June 30, 2008, consisted of certain notes and loans aggregating approximately
      $365,000. The position “Obligations to be settled in stock” of $601,800
      represents, the value of penalty shares to be issued to the former shareholders
      of Kiwibox and stock to be issued to certain consultants. Current liabilities
      also include $404,575 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 may not be sufficient to fund our website development, operations and
      marketing plan over the next twelve months. We expect to fund these requirements
      with further investments in form of debt or equity capital, targeted for the
      third quarter of 2008. 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. If the Company
      failed to do so, either by not acquiring sufficient funds, or not receiving
      such
      funds in a timely manner, management may be forced to effect cut-backs in the
      Company’s operations.


.


**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
      4.** CONTROLS
      AND PROCEDURES





(a)
      Evaluation of Disclosure Controls and Procedures.





As
      of the
      end of the period covered by this Form 10-Q for the quarter ended June 30,
      2008,
      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. 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. (b) Changes in Internal Control over Financial
      Reporting Since the date of the most recent evaluation of the Company’s internal
      controls by Company management, including the Chief Executive Officer and Chief
      Financial Officer, there have not been any changes in the Company’s internal
      controls or other factors for the period covered by the subject Form 10-Q that
      materially affected or were likely to materially affect the Company’s internal
      control over financial reporting.


18


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.





(b)
      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-Q that materially affected or were likely
      to materially affect the Company’s internal control over financial
      reporting.


19





**PART
      II - OTHER INFORMATION**





Item
      1  LEGAL
      PROCEEDINGS





At
      the
      time of this report, the Company is not a party in any 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
                quarter ended June 30, 2008, the Company did not issue 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 $405,000. 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 OF SECURITY
      HOLDERS





-
      None





Item
      5  OTHER
      INFORMATION





-
      None


20





Item
      6  EXHIBITS
      AND REPORTS ON FORM 8-K


(a)
              Exhibits


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





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





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





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





(32.1)
      -
      Certification of Rudolf Hauke, Chief Executive Officer, pursuant to Sections
      906
      of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350





(32.2)
      -
      Certification of Joerg H. Klaube, Chief Financial Officer, pursuant to Sections
      906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350





(b)
            Reports
                on Form 8-K:





On
      May 2,
      2008, the Company filed a report on Form 8-K, informing the release of the
      “Beta” version of its Kiwibox website.





On
      June
      30, 2008, the Company filed a report on Form 8-K, informing about (i) a
      consultancy agreement with a major investor and shareholder, (ii) the grant
      of
      stock options to members of the board of directors of the Company, and (iii)
      a
      press release which announced the extension of access to its social network
      websire to users of mobile cellular phones.




21





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.





MAGNITUDE
                INFORMATION SYSTEMS, INC.Date:
            August
                17, 2008
            By:
            /s/
                Rudolf HaukeRudolf
                HaukeChief
                Executive Officer




22