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, 2012



OR



 ̈ 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 |  | (IRS Employer Identification No.) | 
|Incorporation or Organization)  |  |                                   | 



|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.: YesxNo ̈



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 ̈Smaller
reporting companyx



Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes ̈Nox



The number of shares of Registrant’s Common Stock, $0.0001
par value, outstanding as of August 13, 2012, was 678,944,746 shares.











KIWIBOX.COM, INC.



INDEX



|                                                                     |                                                                 | Page  
|-------------------------------------------------------------------- | --------------------------------------------------------------- | ------
|                                                                     |                                                                 | Number
|PART  1  -  FINANCIAL INFORMATION                                    |                                                                 |       
|                                                                     |                                                                 |       
|Item 1                                                               | Financial Statements                                            |       
|                                                                     |                                                                 |       
|                                                                     | Consolidated Balance Sheets                                     |       
|                                                                     | - June 30, 2012 and December 31, 2011 (unaudited)               |       
|                                                                     |                                                                 |       
|                                                                     | Consolidated Statements of Operations                           |       
|                                                                     | - Three and six months ended June 30, 2012 and 2011 (unaudited) |       
|                                                                     |                                                                 |       
|                                                                     | Consolidated Statements of Cash Flows                           |       
|                                                                     | - Six months ended June 30, 2012 and 2011 (unaudited)           |       
|                                                                     |                                                                 |       
|                                                                     | Notes to Consolidated Financial Statements                      |       
|                                                                     |                                                                 |       
|Item 2                                                               | Management’s Discussion and Analysis of Financial Condition     |       
|                                                                     | and Results of Operations                                       |       
|                                                                     |                                                                 |       
|Item 3.                                                              | Quantitative and Qualitative Disclosures About Market Risk      |       
|                                                                     |                                                                 |       
|Item 4                                                               | Controls and Procedures                                         |       
|                                                                     |                                                                 |       
|PART II  -  OTHER INFORMATION                                        |                                                                 | 23    
|                                                                     |                                                                 |       
|Item 1. Legal Proceedings                                            |                                                                 | 23    
|                                                                     |                                                                 |       
|Item 1A. Risk Factors                                                |                                                                 | 23    
|                                                                     |                                                                 |       
|Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds |                                                                 | 23    
|                                                                     |                                                                 |       
|Item 3. Defaults Upon Senior Securities                              |                                                                 | 23    
|                                                                     |                                                                 |       
|Item 4T. Submission of Matters to a Vote of Security Holders         |                                                                 | 23    
|                                                                     |                                                                 |       
|Item 5. Other information                                            |                                                                 | 23    
|                                                                     |                                                                 |       
|Item 6.  Exhibits                                                    |                                                                 | 23    
|                                                                     |                                                                 |       
|SIGNATURES                                                           |                                                                 | 25    



2













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 June 30, 2012 and for the three and six month periods ended June 30, 2012 and 2011. 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 for them to be in conformity with
U.S. generally accepted accounting principles.



The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 2 to the financial
statements, the Company has suffered losses from operations and has a working capital deficiency as of June 30, 2012. These conditions
raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters
are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this
uncertainty.





/s/ Rosenberg Rich Baker Berman & Company



Somerset, New Jersey

August 20, 2012









3









PART I - Item 1 Financial Statements



KIWIBOX.COM, INC. and SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)



|                                                                                        |  | June 30, 2012 |             |   | December 31, 2011 |  
|--------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ----------------- | -
|Assets                                                                                  |  |               |             |   |                   |  
|Current Assets                                                                          |  |               |             |   |                   |  
|Cash                                                                                    |  | $             | 52,491      |   |                   | $
|Accounts receivable, net of allowance for doubtful
    accounts of $0                   |  |               | 241,637     |   |                   |  
|Due from related parties                                                                |  |               | 9,021       |   |                   |  
|Other receivables                                                                       |  |               | 21,870      |   |                   |  
|Income taxes receivable                                                                 |  |               | 104,992     |   |                   |  
|Prepaid expenses and other current
    assets                                           |  |               | 39,069      |   |                   |  
|Total Current Assets                                                                    |  |               | 469,080     |   |                   |  
|Property and equipment, net of accumulated depreciation
    of $678,942 and $605,111    |  |               | 150,388     |   |                   |  
|Website development costs, net of accumulated amortization
    of $236,835 and $187,128 |  |               | 110,374     |   |                   |  
|Excess of purchase price over net assets acquired                                       |  |               | 5,991,020   |   |                   |  
|Deferred tax asset                                                                      |  |               | 1,003,524   |   |                   |  
|Other assets                                                                            |  |               | 38,032      |   |                   |  
|Total Assets                                                                            |  |               | 7,762,418   |   |                   |  
|                                                                                        |  |               |             |   |                   |  
|Liabilities and Stockholders’ Equity (Impairment)                                       |  |               |             |   |                   |  
|                                                                                        |  |               |             |   |                   |  
|Current Liabilities                                                                     |  |               |             |   |                   |  
|Bank overdraft                                                                          |  |               | 171,174     |   |                   |  
|Accounts payable                                                                        |  |               | 236,975     |   |                   |  
|Accrued expenses                                                                        |  |               | 1,006,749   |   |                   |  
|Due to related parties                                                                  |  |               | 28,090      |   |                   |  
|Obligations to be settled in stock                                                      |  |               | 254,218     |   |                   |  
|Dividends payable                                                                       |  |               | 607,497     |   |                   |  
|Kwick! Acquisition indebtedness                                                         |  |               | -           |   |                   |  
|Loans and notes payable - other                                                         |  |               | 140,000     |   |                   |  
|Loans and notes payable – related parties                                               |  |               | 340,000     |   |                   |  
|Convertible notes payable-related parties                                               |  |               | 8,153,699   |   |                   |  
|Convertible note payable-other, net of debt discount
    $33,333                        |  |               | 16,667      |   |                   |  
|Current maturities of long-term debt                                                    |  |               | 33,529      |   |                   |  
|Liability for derivative conversion features                                            |  |               | 10,797      |   |                   |  
|Liability for derivative conversion
    feature –related parties                        |  |               | 8,913,775   |   |                   |  
|Total Current Liabilities                                                               |  |               | 19,913,170  |   |                   |  
|                                                                                        |  |               |             |   |                   |  
|Commitments 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          |   |                   |  
|Common Stock, $0.0001 par value, 1,400,000,000 shares authorized;                       |  |               |             |   |                   |  
|issued and outstanding 678,944,746 and 586,168,060
    shares                           |  |               | 67,892      |   |                   |  
|Additional paid-in capital                                                              |  |               | 52,650,922  |   |                   |  
|Accumulated deficit                                                                     |  |               | (64,514,373 | ) |                   |  
|Accumulated other comprehensive
    loss                                                |  |               | (355,279    | ) |                   |  
|Total Stockholders’ Equity
    (Impairment)                                             |  |               | (12,150,752 | ) |                   |  
|Total Liabilities and Equity
    (Impairment)                                           |  | $             | 7,762,418   |   |                   | $



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



4







KIWIBOX.COM, INC. and SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS

(Unaudited)



|                                                                       |  | Three Months Ended |             |   | Six Months Ended |  
|---------------------------------------------------------------------- |  | ------------------ | ----------- | - | ---------------- | -
|                                                                       |  | June 30,           |             |   | June 30,         |  
|                                                                       |  | 2012               |             |   | 2011             |  
|Net Sales                                                              |  |                    |             |   |                  |  
|Advertising                                                            |  |                    | 338,662     |   |                  |  
|Other                                                                  |  |                    | 39,352      |   |                  |  
|Total Revenues                                                         |  | $                  | 378,014     |   |                  | $
|                                                                       |  |                    |             |   |                  |  
|Cost of Goods Sold                                                     |  |                    |             |   |                  |  
|Website hosting expenses                                               |  |                    | 236,241     |   |                  |  
|Total Cost of Goods Sold                                               |  |                    | 236,241     |   |                  |  
|                                                                       |  |                    |             |   |                  |  
|Gross Profit (Loss)                                                    |  |                    | 141,773     |   |                  |  
|                                                                       |  |                    |             |   |                  |  
|Selling expenses                                                       |  |                    | 176,831     |   |                  |  
|General and administrative expenses                                    |  |                    | 371,769     |   |                  |  
|                                                                       |  |                    |             |   |                  |  
|Loss from Operations                                                   |  |                    | (406,827    | ) |                  |  
|                                                                       |  |                    |             |   |                  |  
|Other Income (Expense)                                                 |  |                    |             |   |                  |  
|Miscellaneous income                                                   |  |                    | 11,284      |   |                  |  
|Misc. non-operating expenses                                           |  |                    | (2,107      | ) |                  |  
|Foreign currency transaction loss                                      |  |                    | 50,775      |   |                  |  
|Change in fair value –derivative liability                             |  |                    | 966,506     |   |                  |  
|Interest expense-derivative conversion                                 |  |                    | (5,377,391  | ) |                  |  
|Ammortized debt discount                                               |  |                    | (12,500     | ) |                  |  
|Interest expense                                                       |  |                    | (187,524    | ) |                  |  
|Total Other Income (Expense)                                           |  |                    | (4,550,957  | ) |                  |  
|                                                                       |  |                    |             |   |                  |  
|Loss before Benefit (Provision) for Income Taxes                       |  |                    | (4,957,784  | ) |                  |  
|Benefit (Provision) for income taxes                                   |  |                    | (71,640     | ) |                  |  
|                                                                       |  |                    |             |   |                  |  
|Net Income (Loss)                                                      |  | $                  | (5,029,424  | ) |                  | $
|                                                                       |  |                    |             |   |                  |  
|Dividends on Preferred Stock                                           |  |                    | (12,816     | ) |                  |  
|                                                                       |  |                    |             |   |                  |  
|Net Income (Loss) applicable to Common Shareholders, basic and diluted |  | $                  | (5,042,240  | ) |                  | $
|                                                                       |  |                    |             |   |                  |  
|Net Loss per Common Share, basic and diluted                           |  | $                  | (0.008      | ) |                  | $
|                                                                       |  |                    |             |   |                  |  
|Weighted Average Number of Common Shares Outstanding                   |  |                    | 643,326,274 |   |                  |  
|                                                                       |  |                    |             |   |                  |  
|Comprehensive Income (Loss):                                           |  |                    |             |   |                  |  
|Net Income (Loss)                                                      |  |                    | (5,029,424  | ) |                  |  
|Foreign currency translation adjustment                                |  |                    | (240,478    | ) |                  |  
|Total Comprehensive Income (Loss)                                      |  |                    | (5,269,902  | ) |                  |  



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.



5







KIWIBOX.COM, INC. and SUBSIDIARY

CONSOLIODATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                 |  | Six Months Ended |           
|---------------------------------------------------------------- |  | ---------------- | ----------
|                                                                 |  | June 30,         |           
|                                                                 |  | 2012             |           
|Cash Flows from Operating Activities                             |  |                  |           
|Net Loss                                                         |  | $                | (6,900,556
|Adjustments to Reconcile Net Loss to Net Cash Used by Operations |  |                  |           
|Depreciation and amortization                                    |  |                  | 156,828   
|Value of stock for services                                      |  |                  | 13,500    
|Change in fair value – derivative liabilities                    |  |                  | (647,843  
|Intrinsic value of beneficial conversion rights                  |  |                  | 6,333,812 
|Foreign currency transaction gain                                |  |                  | (50,775   
|Deferred tax expense                                             |  |                  | 37,825    
|Decreases (Increases) in Assets                                  |  |                  |           
|Accounts receivable                                              |  |                  | 142,105   
|Income taxes Receivable                                          |  |                  | (14,854   
|Other receivables                                                |  |                  | 69,573    
|Prepaid expenses                                                 |  |                  | 3,172     
|Increases (decreases) in Liabilities                             |  |                  |           
|Bank overdraft                                                   |  |                  | 171,174   
|Liabilities to be settled in stock                               |  |                  | 21,240    
|Accounts payable                                                 |  |                  | 8,420     
|Accrued expenses                                                 |  |                  | 232,528   
|Net Cash Used by Operating Activities                            |  |                  | (423,851  
|                                                                 |  |                  |           
|Cash Flows from Investing Activities                             |  |                  |           
|Cash outlay - website development costs                          |  |                  | (10,327   
|Cash outlay – other assets                                       |  |                  | 5,783     
|Purchases of property and equipment                              |  |                  | (1,368    
|Net Cash Used by Investing Activities                            |  |                  | (5,912    
|                                                                 |  |                  |           
|Cash Flows from Financing Activities                             |  |                  |           
|Proceeds from loans and notes                                    |  |                  | 435,000   
|Net repayments to related parties                                |  |                  | (150,613  
|Net Cash Provided by Financing Activities                        |  |                  | 284,387   
|                                                                 |  |                  |           
|Net Increase (Decrease) in Cash                                  |  |                  | (145,376  
|Effect of exchange rates on cash                                 |  |                  | 2,254     
|                                                                 |  |                  |           
|Cash at Beginning of Period                                      |  |                  | 195,613   
|Cash at End of Period                                            |  | $                | 52,491    
|                                                                 |  |                  |           
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                |  |                  |           
|                                                                 |  |                  |           
|Interest Paid                                                    |  |                  | 5,898     
|Income taxes paid                                                |  |                  | 19,487    



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



6







KIWIBOX.COM, INC. and SUBSIDIARY

CONSOLIODATED STATEMENTS OF CASH FLOWS

(Unaudited)



NON-CASH INVESTING AND FINANCING ACTIVITIES:



Six Months Ended June 30, 2012



|Settlement of obligations with common stock                                       |  | $ | 16,297    | 
|--------------------------------------------------------------------------------- |  | - | --------- | 
|                                                                                  |  |   |           | 
|Conversions of debt                                                               |  | $ | 1,413,361 | 
|                                                                                  |  |   |           | 
|Year to date dividend accruals                                                    |  | $ | 25,632    | 
|                                                                                  |  |   |           | 
|Reduction of derivatives from conversion of debt                                  |  | $ | 1,516,384 | 
|                                                                                  |  |   |           | 
|Debt discount created from derivative instrument                                  |  | $ | 50,000    | 
|                                                                                  |  |   |           | 
|Direct payment of acquisition indebtedness for issuance of convertible debentures |  | $ | 5,170,318 | 



Six Months Ended June 30, 2011



Warrants granted in acquisition of other assets



7







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements



| | 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | -- | ------------------------------------------



Nature of Organization



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



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



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



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



Cash and Cash Equivalents



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



Principles of Consolidation



The consolidated financial statements as of and
for the three months and six months ended June 30, 2012 and as of December 31, 2011 include the accounts of Kiwibox.com, Inc.
and its subsidiary, KWICK! Community GmbH & Co. KG. The activities of the Company’s newly acquired subsidiary KWICK!
Community GmbH & Co. KG. are included in the financial statements from the date of acquisition (September 30, 2011) through
June 30, 2012. Any Significant inter-company balances and transactions have been eliminated.



Depreciation and Amortization



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



Foreign Currency
Translation



Assets and liabilities of foreign operations are
translated into U.S. dollars at the rates of exchange in effect at the balance sheet date. Income and expense items are translated
at the weighted average exchange rates prevailing during each period presented. Gains and losses resulting from foreign currency
transactions are included in the results of operations. Gains and losses resulting from translation of financial statements of
our foreign subsidiary operating in a non-hyperinflationary economy are recorded as a component of accumulated other comprehensive
loss until either sale or upon complete or substantially complete liquidation by the Company of its investment in the foreign
entity. Foreign currency transaction gain (loss) was $50,775 for the three and six months ended June 30, 2012. Foreign currency
translation gain (loss) was $(240,478) and $ 27,671 for the three and six months ended June 30, 2012, respectively. Accumulated
gain or (loss) on foreign currency translation adjustment was$(355,279) through June 30, 2012.



8







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated Financial Statements



| | 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
                                                           Continued
| | -- | ----------------------------------------------------------------------------------------------------------------



Advertising Costs

Advertising costs are charged to operations when
incurred. Advertising expense was $3,222 and $8,674 for the three and six months ended June 30, 2011 and $2,010 and $6,274 for
2011, 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. UnderASC 820, a framework was established for
measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements.The Company accounted for certain convertible debentures issued in the year ended December 31, 2011 and the six months
ended June 30, 2012 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.



9







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated 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 areexpensed, whilecosts relating to software used to operate a web site or for developing initial graphics should be accounted for under
ASC 350-50, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, unless a plan exists
or is being developed to market the software externally. Under ASC 350-50, internal and external costs incurred to develop internal-use
computer software during the application development stage should be capitalized. Costs to develop or obtain software that allows
for access or conversion of old data by new systems should also be capitalized, excluding training costs.



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 $10,327 and $23,298
was capitalized for web-site development work during the six months ended June 30, 2012 and 2011, respectively.



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. The remaining deferred tax asset represents
the value of future taxable income of the foreign subsidiary that is expected to be offset by amortization of the excess value
of the purchase price from the business combination over the subsidiary capital. During the six months ended June 30, 2012, the
German subsidiary recognized an approximately $38,000 income tax provision, which consists of approximately $29,000 based on the
effect of the amortization noted above and other tax basis differences. The tax rate used for the six months June 30, 2012 is
the trade tax rate of 13% payable by partnerships in Germany on taxable profits under tax law in that jurisdiction.



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 270,641,465 common shares at June 30, 2012, comprised
of 155,731,315 shares issuable upon exercise of stock purchase warrants, 9,550,000 shares issuable upon exercise of stock options,
729,537 shares exercisable upon conversion of convertible preferred shares, and 104,630,613 shares potentially issuable upon conversion
of convertible debt. Such debt and the related accrued interest, convertible at the option of four debt holders at a price of
50% of the average closing price for the preceding 10 days, and another holder at $0.025 per share subject to reset, totals $8,203,699
which would yield approximately 820 million shares if fully converted at June 30, 2012, however, the respective notes, all of
which were issued to these 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.



10







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated 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,
2011, 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 June 30, 2012 and December 31, 2011, cash balances in bank
accounts did not exceed this limit. The Company provides credit in the normal course of business to customers located throughout
the U.S. and overseas. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful
accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.



| | 4. | PREPAID EXPENSES
| | -- | ----------------



|Prepaid expenses consist of the following at: |  | June 30, 2012 |        |  | December 31, 2011 |  
|--------------------------------------------- |  | ------------- | ------ |  | ----------------- | -
|Rent                                          |  | $             | 19,922 |  |                   | $
|Promotional supplies inventory                |  |               | 9,108  |  |                   |  
|Business insurance                            |  |               | 5,042  |  |                   |  
|Other                                         |  |               | 4,997  |  |                   |  
|                                              |  | $             | 39,069 |  |                   | $



11







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated Financial Statements



| | 5. | PROPERTY AND EQUIPMENT
| | -- | ----------------------



|Property and equipment consist of the following at: |  | June 30, 2012 |         |  | December 31, 2011 |  
|--------------------------------------------------- |  | ------------- | ------- |  | ----------------- | -
|Furniture                                           |  | $             | 14,322  |  |                   | $
|Leasehold Improvements                              |  |               | 24,130  |  |                   |  
|Computer equipment                                  |  |               | 639,393 |  |                   |  
|Equipment                                           |  |               | 194,712 |  |                   |  
|                                                    |  |               | 829,330 |  |                   |  
|Less accumulated depreciation                       |  |               | 678,942 |  |                   |  
|Total                                               |  |               | 150,388 |  |                   | $



Depreciation expense charged to operations was $88,478
and $2,485 in the first six months of 2012 and 2011, respectively.



| | 6. | INTANGIBLE ASSETS
| | -- | -----------------



|                              |  | June 30, 2012 |         |  | December 31, 2011 |  
|----------------------------- |  | ------------- | ------- |  | ----------------- | -
|Website development costs     |  | $             | 347,208 |  |                   | $
|Less accumulated amortization |  |               | 236,834 |  |                   |  
|Total                         |  | $             | 110,374 |  |                   | $



Amortization expense for the
six months ended June 30, 2012 and 2011 was $51,683 and $42,361, respectively. Additional amortization over the next 5 years is
estimated to be as follows:



|                  |  | Amortization expense |       
|----------------- |  | -------------------- | ------
|December 31, 2012 |  |                      | 35,109
|December 31, 2013 |  |                      | 15,736
|December 31, 2014 |  |                      | 2,192 
|December 31, 2015 |  |                      | 1,924 
|December 31, 2012 |  |                      | 1,156 
|Thereafter        |  |                      | 2,825 



| | 7. | ACCRUED EXPENSES
| | -- | ----------------



Accrued expenses consisted
of the following at:



|                                               |  | June 30, 2012 |           |  | December 31, 2011 |  
|---------------------------------------------- |  | ------------- | --------- |  | ----------------- | -
|                                               |  |               |           |  |                   |  
|Accrued interest                               |  | $             | 751,825   |  |                   | $
|Accrued payroll, payroll taxes and commissions |  |               | 69,282    |  |                   |  
|Accrued professional fees                      |  |               | 139,469   |  |                   |  
|Accrued rent                                   |  |               | 21,379    |  |                   |  
|Miscellaneous accruals                         |  |               | 24,794    |  |                   |  
|Total                                          |  | $             | 1,006,749 |  |                   | $



12







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated Financial Statements



| | 8. | OBLIGATIONS TO BE SETTLED IN STOCK
| | -- | ----------------------------------



Obligations to be settled in stock consisted
of the following at



|                                                                                                                              |  | June 30, |         |  | December 31, |  
|----------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------- |  | ------------ | -
|                                                                                                                              |  | 2012     |         |  | 2011         |  
|Obligation for warrants granted for compensation                                                                              |  | $        | 100,000 |  |              | $
|                                                                                                                              |  |          |         |  |              |  
|600,000 common shares issuable to a consultant who was a director of the company, for services rendered.                      |  |          | 36,000  |  |              |  
|                                                                                                                              |  |          |         |  |              |  
|500,000 (2012) and 1,100,000 shares (2011) Issuable to the CEO under a consulting agreement                                   |  |          | 12,750  |  |              |  
|                                                                                                                              |  |          |         |  |              |  
|2,900,000 options due to former director under an employment agreement                                                        |  |          | 56,858  |  |              |  
|                                                                                                                              |  |          |         |  |              |  
|3,900,000 (2012) and 2,700,000 (2011) stock options issuable to one director who also serves as the Company’s general counsel |  |          | 38,610  |  |              |  
|                                                                                                                              |  |          |         |  |              |  
|1,000,000 warrants granted on the Pixunity.de asset Purchase (see Note 13)                                                    |  |          | 10,000  |  |              |  
|                                                                                                                              |  |          |         |  |              |  
|25,000 shares issuable to employee (issued 2012)                                                                              |  |          | -       |  |              |  
|                                                                                                                              |  |          |         |  |              |  
|                                                                                                                              |  | $        | 254,218 |  |              | $



| | 9. | LOANS PAYABLE
| | -- | -------------



The Company (Formerly Magnitude,
Inc.) had borrowings under short term loan agreements with the following

terms and conditions at June
30, 2011 and December 31, 2011:



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



13







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated Financial Statements



| | 10. | NOTES PAYABLE
| | --- | -------------



|                                                                                                                                                                                                                     |  | June 30, |           |   | December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --------- | - | ------------ | -
|                                                                                                                                                                                                                     |  | 2012     |           |   | 2011         |  
|Balance of non-converted notes outstanding. Attempts to locate the holder of this note, to settle this liability, have been unsuccessful.                                                                            |  | $        | 25,000    |   |              | $
|                                                                                                                                                                                                                     |  |          |           |   |              |  
|In January 2008 a shareholder loaned the Company $40,000 pursuant to which the Company issued a demand note bearing interest at the rate of 5% per year.                                                             |  |          | 40,000    |   |              |  
|                                                                                                                                                                                                                     |  |          |           |   |              |  
|From September 2008 through June 2012 five creditors loaned the Company funds under the terms of the convertible notes issued, as modified in March 2009 and July 2010 and April 2011 and August 2012 (see Note 12). |  |          | 8,153,699 |   |              |  
|                                                                                                                                                                                                                     |  |          |           |   |              |  
|During the three months ended March 2012, an individual loaned the Company funds under the terms of a convertible promissory note at interest of 5% per year (see Note 12)                                           |  |          | 50,000    |   |              |  
|                                                                                                                                                                                                                     |  |          |           |   |              |  
|Less: debt discount on above note                                                                                                                                                                                    |  |          | (33,333   | ) |              |  
|                                                                                                                                                                                                                     |  |          |           |   |              |  
|In 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   |   |              |  
|                                                                                                                                                                                                                     |  |          |           |   |              |  
|Total                                                                                                                                                                                                                |  | $        | 8,575,366 |   |              | $



| | 11. | LONG-TERM DEBT
| | --- | --------------



Long-term debt as of June 30,
2011 and December 31, 2011 is comprised of the following:



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



14







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated Financial Statements



| | 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.Cambridge
Services. During the three and six months ended June 30, 2012 Cambridge Services, Inc. converted $-0- and
$581,269, respectively. For the three and six months ended June 30, 2012 Cambridge Services advanced $205,000 and
$1,049,251,respectively, of which $664,251 was advanced in the six months ending June 30, 2012 as a payment towards the
acquisition of Kwick!. Discovery Advisory Services advanced $2,436,588 as a payment towards the purchase of Kwick! in the six
months ended June 30, 2012. During the six months ended June 30, 2012 Kreuzfeld LTD advanced $2,069,479 and converted
$419,100. VGZ converted $409,200 during the same period.



The Company accounted for the
conversion features underlying these convertible debentures modified or issued in the year ended December 31, 2011 and the six
months ended June 30, 2012 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 six months ended June 30, 2012 under these terms at the relevant commitment dates to be $6,328,438
utilizing a Black-Scholes valuation model. The company also recognized $1,516,383 in reduction of fair value to capital for conversions
during the six months ended June 30, 2012. The change in fair value of the liability for the conversion feature resulted in income
of $603,266 for the six months ended June 30, 2012, which is included in Other Income (Expense) in the accompanying financial
statements. The fair value of these derivative conversion features was determined to be $8,913,775 at June 30, 2012.



On February 28, 2012 the Company
signed a convertible note with Michael Pisani. This is a 1 year note that is convertible at $0.025 per share in the amount of
$50,000. In the event that any portion of any outstanding Company promissory note, preferred share, warrant or stock option held
of record by a non-affiliate of the Company is converted, exercised or exchanged for common shares of the Company at a conversion
price or conversion rate less than $0.025 per one (1) common share anytime any part of the outstanding principal amount of this
note is outstanding, the conversion rate of this note shall automatically be adjusted to such lower conversion rate. The Company
evaluated this conversion contingency under the guidance at ASC 815-40-15 and determined that this conversion feature should be
bifurcated from the host contract and measured at fair value. The Company valued this conversion feature utilizing a Black-Scholes
valuation model and a probability analysis with regard to the reset provision of the conversion price. The Company determined
the initial value to be $55,241, with $50,000 recorded as a debt discount and the remainder as interest expense-derivative conversion
features. The discount is being amortized over the life of the note. A total of $16,667 in amortization expense was recorded during
the six months ended June 30, 2012. The Company recognized an additional $133 in value for convertible accrued interest incurred
in the six months ended June 30, 2012. The change in fair value of this liability for the conversion feature resulted in income
of $44,576 for the six months ended June 30, 2012, which is included in Other Income (Expense) in the accompanying financial statements.
The fair value of these derivative conversion features was determined to be $10,797 at June 30, 2012.



15







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated Financial Statements



| | 13. | COMMITMENTS AND CONTINGENCIES
| | --- | -----------------------------



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



In May 2010 the Company negotiated
a lease of an apartment in New York City for the CEO in order to reduce travel costs. The lease was for 12 months at $2,775 per
month through May 31, 2011. In May 2011 the lease was extended through August 31, 2011 at the rate of $2,837. In August 2011 the
lease was extended through December 31, 2011 at the rate of $2,837 per month. In December 2011 the lease was again extended through
May 31, 2012 with no change in the base rent. In May 2012 the lease was extended through December 31, 2012 at a monthly rate of
$2,943.



Kwick! has operating
leases related to office space in Weinstadt, Germany along with vehicle leases. The office lease is for a term of one year
expiring on December 31, 2012 at the rate of $5,858 per month plus utilities. All operating lease contracts over 5 years
contain clauses for yearly market rental reviews. The Company does not have an option to purchase the leased office at the
expiration of the lease period. These vehicle leases call for minimum monthly payments of $1,688 per month.



Our total rent expenses were
$63,706 and $30,368 during the six months ended June 30, 2012 and 2011, respectively.



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



In the six months ended June
30, 2012 and June 30, 2011 this officer was granted 600,000 shares.



During the third quarter in
2009 we entered into an engagement agreement with a consultant to assist the Company in the liaison to the Company’s shareholders
and investors, to promote the Company and its website to the public markets, and to identify potential strategic partners, acquisition
opportunities, and joint venture partners for the Company’s social networking website business. The agreement is deemed
to have commenced on January 1, 2009 and extended through December 31, 2011, and called for compensation to the consultant in
the form of 2,000,000 five year warrants for the purchase of common shares, exercisable at $ 0.025 per share with a cashless exercise
provision, for every six months period during the term of the agreement, and the payment in cash of unspecified amounts, the latter
at the sole discretion of the Company. 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 year warrants, exercisable at $0.0025
per share.



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.



16







Kiwibox.Com, Inc. and Subsidiary

Notes to Financial Statements



| | 14. | RELATED PARTY TRANSACTIONS
| | --- | --------------------------



During the six months
ended June 30, 2012 and 2011 one outside director of the Company who also serves as the Company’s general and
securities counsel, was paid an aggregate $30,000 and $30,000, respectively, for legal services. The director also received
100,000 common stock options per month during the three and six month periods ended June 30, 2012 and 2011, valued at $2,970
and $5,940, respectively in each year.



During the three and six months ended June 30,
2012 we incurred aggregate expenses of $60,751 and $97,413, and $42,881 and $113,124 for 2011 respectively, to companies
controlled by the Chief Executive Officer, for website hosting, website development, server farm installations and technical
advisory services.



Through June 30. 2012,
the beneficial ownership in the Company’s securities held respectively, by Tell Capital AG of Switzerland and its
principal, Ulrich Schuerch on a consolidated basis, was approximately 11.4% and approximately 9.9% of the voting stock was
beneficially held by Discovery Advisory Company, located in the Bahamas, and Cambridge Services Inc., Kreuzfeld, LTD and
Vermoegensverwaltungs-Gesellschaft Zurich LTD. (VGZ) of Switzerland. Discovery Advisory Company, Cambridge Services Inc.,
Kreuzfeld, LTD and VGZ are major creditors, having advanced operating capital against issuance by the Company of convertible
promissory notes during 2012, 2011 and 2010. During the three and six months ended June 30, 2012 Cambridge Services, Inc
advanced an additional $205,000 and $1,049,251 and converted $581,269 of debt in the six months ended June 30, 2012. During
the six months ended June 30, 2012 Discovery Advisory Company advanced an additional $2,436,588. Kreuzfeld, LTD advanced
$2,069,479 and converted $419,100 of debt in the six months ended June 30, 2012, and VGZ converted $409,200 during the same
period.. At June 30, 2012, $3,221,722 and $960,398 of such notes were outstanding and owed to Discovery Advisory Company and
Cambridge Services Inc, respectively and $3,564,959 and $406,620 owed to Kreuzfeld, Ltd. and VGZ, respectively.



The Company, through its subsidiary, Kwick, is party
to a service agreement with JAUMO GmbH, Germany, a company partially owned by the officers of Kwick. The subsidiary recognized
approximately $90,116 in service revenue from this entity in the six months ending June 30, 2012.



| | 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 Company has the ability
to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange- traded
securities and exchange-based derivatives.



17







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated Financial Statements



| | 15. | FAIR VALUE (continued)
| | --- | ----------------------



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



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



The following table reconciles, for the six months
ended June 30, 2012, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated
financial statements:



|Conversion Liability at January 1, 2012                         |  | $ | 4,704,987  |  
|--------------------------------------------------------------- |  | - | ---------- | -
|Value of beneficial conversion features of new debentures       |  |   | 6,383,812  |  
|Change in value of beneficial conversion features during period |  |   | (647,843   | )
|Reductions in fair value due to principal conversions           |  |   | (1,516,383 | )
|Conversion Liability at June 30, 2012                           |  | $ | 8,924,573  |  



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.



| | 16. | ACQUISITION OF KWICK!
| | --- | ---------------------



On
September 30, 2011 Kiwibox.com acquired 100% of the limited partner’s interests in the social
network, KWICK! Community GmbH & Co. KG, a private German Limited Partnership and all of the shares of its General Partner,
Kwick! Community Beteiligungs GMBH for 7,100,000 Euros, payable as follows: 2,500,000 euros at the closing on September 30, 2011;on
March 14, 2012 payment arrangements were changed to reflect the following: 2,300,000 Euros by April 13, 2012 and a third payment
on or before April 26, 2012 of 1,600,000. This converts using the conversion rate in effect on September 30, 2011 to $8,567,343.
The original agreement also called for 700,000 Euros, contingent on certain earnings goals (“original bonus payment”).The
original payment was amended by mutual consent of both parties and the original bonus payment possibly due Kwick! were eliminated.
On May 14, 2012 the amended agreement was changed to reflect a decrease in salaries based on restated employment contracts for
the former Kwick owners, provided for late payment fees, and the third payment due date was changed to on or before the date the
parties sign the amendment (“Amendment 2”). The second payment was paid on April 19, 2012 in the amount of $2,436,588.
On May 14, 2012, the final payment was made in the amount of $2,069,479. During the six months ended June 30, 2012, the Company
paid a total of $5,221,093 against the acquisition indebtedness, plus $78,263 for late payment fees in accordance with Amendment
2.



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



Due to exchange rate fluctuation,
the excess purchase price over the net assets of Kwick decreased in value, with a total of $147,190 in unrealized depreciation
through June 30, 2012. The Company is in the process of determining any identifiable intangible assets and the fair value of the
reporting unit for determining these allocations.



18







Kiwibox.Com, Inc. and Subsidiary

Notes to Consolidated Financial Statements



| | 16. | ACQUISITION OF KWICK! (continued)
| | --- | ---------------------------------



The Company was unable to provide
the pro forma disclosures required by Financial Accounting Standards Board (FASB) Accounting Standards Codification
(ASC)270-10-S99-1(b)(4) for the prior interim periods ended June 30, 2011, because in order to provide the required pro forma
disclosures the Company, at a minimum, would have had to perform a full review of the acquisition’s financial
statements for the comparable period which was not possible without extraordinary and unreasonable expense and delay.



| | 17. | SUBSEQUENT EVENTS
| | --- | -----------------



During July 2012 and
through August 10, 2012 we received $240,000 of working capital from accredited investors, which are covered by convertible
promissory notes.



The Company renegotiated certain
outstanding promissory notes with its four major creditors, Discover Advisory Company of the Bahamas (“DAC”), Kreuzfeld
Ltd. of Switzerland (“Kreuzfeld”), Cambridge Services, Inc. of Panama (“CSI”) andVermoegensverwaltunga-Gesellschaft
Zurich LTD of Switzerland “VGZ”). As of August 1, 2012, the Company authorized the issue of a new series of corporate
note, the Class AA Senior Secured Convertible Revolving Promissory Notes, dated as of August 1, 2012 (the New Note(s)”)
and issued New Notes: (1) to DAC, with a maximum credit facility of $5,000,000 which replaced the Company’s outstanding
Class A Senior Convertible Revolving Promissory Note, dated July 27, 2010, in the original principal amount of $1,080,984, now
cancelled, which has an outstanding balance due of $3,494,628.49 as of July 31, 2012; (2) to Kreuzfeld, with a maximum credit
facility of $5,000,000 which replaced the Company’s outstanding Class A Senior Convertible Revolving Promissory Note, dated
September 16, 2011, in the original principal amount of $2,000,000, now cancelled, which has an outstanding balance due of $3,762,165.38
as of July 31, 2012; to CSI, with a maximum credit facility of $2,000,000 which replaced the Company’s outstanding Class
A Senior Convertible Revolving Promissory Note, dated August 1, 2011, in the original principal amount of $1,303,996, now cancelled,
with an outstanding balance of $1,298,823.18 as of July 31, 2012, and; to VGZ, with a maximum credit facility of $2,000,000 which
replaced the Company’s outstanding Class A Senior Convertible Revolving Promissory Note, dated September 30, 2010, in the
original principal amount of $2,000,000, now cancelled, with an outstanding balance of $467,255.98 as of July 31, 2012. All of
the New Notes accrue interest at the rate of 10%, are convertible into common shares at the conversion rate equal to 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, and are due on demand.. Pursuant to an Equity and Stock Pledge Agreement, also negotiated
and executed as of August 1, 2012, the repayment of the outstanding indebtedness of the New Notes is secured by all of the limited
partnership interests of the Pledgor’s wholly-owned German subsidiary, KWICK! Community GmbH & Co. KG, a private German
limited partnership (“KG”), and all of its shares of the sole general partner of KG, KWICK! Community Beteiligungs
GmbH



19







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, 2011 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 successfully acquired the
German social network  Kwick! in the third quarter 2011. This acquisition adds more than 10 million registered members with
around 1 million active users, who create more than 2 billion page impressions a month in the Kiwibox network. This community
has been online since 1999. We are continuing to optimize this website and develop mobile applications to keep these users engaged
across multiple platforms. As one of the first social networks Kiwibox integrated for both social networks mobile advertising
in its mobile-apps, to substitute the movement based on higher mobile usage. The nearly finished integration of Kwick! into the
Kiwibox network and workflow process will generate savings effecting 3Q/4Q 2012. We are presently increasing the number of events
sponsored in Germany as a way to bind our German members to our website.



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



The Company will continue focusing on
growth through acquisition and explore new language markets, and expects to start another due diligence process in the next months.



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



Based on the integration work and the
financial translation overhead the operating expenses, not including stock-based compensation, are at a level of approximately
$100,000 per month. We expect income received as a result of the recent acquisition to minimize or wave the funding needed from
existing investors (see sections “Loans and Notes Payable”).



Overall, we have equipped the entire website
with the newest state-of-the-art advertising features which enable sponsors to self-direct their message to specific target audiences
based on gender, age, geographic region, education, and interests. That also included a Search-Engine optimization with privacy
options which improves search results That also included a Search-Engine optimization with privacy options which improves search
results.  Special attention was given to end up with a scaleable and highly redundant system that can accommodate future
growth. This system and software was updated in the 2Q to the new Internet Protocol IPv6 to verify being reachable also in
the near future. In the 2Q Kiwibox and Kwick! paralleled their software developments, versions and technology to optimize future
developments. This experience and base technology will help us to integrate easier further networks



20







Results of Operations for the Three and Six Months Ended
June 30, 2011 Compared to the Three and Six Months Ended June 30, 2011



For the three and six months ended June
30, 2011, total revenues amounted to $378,014 and $840,651, respectively compared to $349 and $772 recorded in the same periods
in 2011.



Gross Profit (Loss) for the six months
ended June 30, 2011 amounted to $279,835 after accounting for $560,816 in cost of sales. After deducting selling - and general
and administrative expenses of $548,600 and $1,221,197 for the three and six months ended June 30, 2012, compared to $255,788
and $530,760 recorded in the same period in 2011, the Company realized operating losses of $406,827 and $941,362 for the three
and six months ended June 30, 2012 compared to operating losses of $256,559 and $531,843 in the same periods in 2011. The decline
in operating expenses was the result of cost cutting measures initiated at Kwick!. In particular, outlays for salaries and consulting
expenses were reduced due to cut-backs in staffing and curtailment of consultant retentions.



The quarter concluded with a net loss
of $5,029,424 for the quarter and a loss of $6,900,556 for the first six months of 2012. After accounting for dividends accrued
on outstanding preferred stock which totaled $25,631, the net loss applicable to common shareholders for the six months ended
June 30, 2012 was $6,926,187 or $0.008 per share compared to a net loss applicable to common shareholders of $661,640 or $0.001
per share for the same period in 2012.



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 $250,000
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 $19,444,090 at June 30, 2012, as compared to $15,634,950 at December 31, 2011. The change is primarily attributable the new
convertible notes issued to complete the acquisition of Kwick!. Stockholders’ equity showed an impairment of $12,150,752
at the end of the period, compared to an impairment of $8,211,778 at the beginning of the year (as restated). The negative cash
flow from operations during the six months totaled $423,851 and was financed by new debt.



Our bank debt as of June 30, 2012 consisted
of a bank overdraft of $171,174. Aside from trade payables and accruals, our remaining indebtedness at June 30, 2012 consisted
of certain notes and loans aggregating $8,683,699 and the following obligations. The position “Obligations to be settled
in stock” of $254,218 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 $607,497
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.



21







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 June 30, 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 June 30, 2012, 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 June 30, 2012, 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 June 30, 2012 and December 31, 2011 and the related statements
of operations, and cash flows for the three and six months ended June 30, 2012 and 2011, 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 June 30,
2012, 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.



22







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 three and six months in 2012 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 $607,000. 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                                                                                                                                                                                                                                                                                                                                                                                                 



23







Item 6	EXHIBITS
AND REPORTS ON FORM 8-K



| | (a) | Exhibits
| | --- | --------



|10.41 |  | Form of Class AA Senior Secured Convertible Revolving Promissory Note issued to Discover Advisory Company,  Kreuzfeld Ltd.,, Cambridge Services, Inc.  and Vermoegensverwaltunga-Gesellschaft Zurich LTD,                               
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                         
|10.42 |  | Form of Equity and Stock Pledge Agreement, dated as of August 1, 2012, made by Kiwibox.Com, Inc., in favor of Discover Advisory, Company,  Kreuzfeld Ltd.,, Cambridge Services, Inc.  and  Vermoegensverwaltunga-Gesellschaft Zurich LTD



|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 August 20, 2012                        
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|31.02. |  | 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 August 20, 2012.                       
|       | 
|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 August 20, 2012.



| | (b) | Reports on Form 8-K:
| | --- | --------------------



On May 18, 2012, the Company filed
a current report on 8-K with the commission, announcing the Company made the last payment of 1,600,000 Euros ($2,052,800) for
all of the assets of KWICK!, the German social network it acquired on September 30, 2011, paying a total purchase price of 6,400,000
Euros for the popular German social network business. In addition, Jens Kammerer and Benjamin Roth, the owners who sold their
interests to the Company, also agreed to reduce their employment salaries by 50% for the remainder of their employment contracts,
an annual savings of approximately 185,250 Euros, by virtue of an amendment to the purchase agreement and their employment contracts
signed on May 14, 2012. Each may now earn cash bonuses of 10% of their salaries for every 5% increase in revenues, up to a cap
of 100% of their then applicable salaries of 7,500 Euros, in the case of Jens Kammerer, and 6,800 Euros, in the case of Benjamin
Roth.



On May 23, 2012, the company filed
a current report on 8-K with the commission announcing non-reliance on previously filed financial statements. These financial
statements were amended and filed with the commission on June 4, 2012



On June 11,2012, the Company filed
a current report on Form 8-K with the Commission, announcing the photo blogging community pixunity debuts a Spanish language version
and Kwick! released new advertising that is included in the new Iphone and Ipad application, via a press release of the same date.



On June 25, 2012, the Company
filed a current report on Form 8-K with the Commission, announcing the

Launcing of video chat and live
broadcast features.



24







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:  August 20, 2012 |                  
|                       |                  
|                       | By:              
|                       |                  
|                       |                  
|                       |                  
|Date: August 20, 2012  | By:              
|                       |                  
|                       |                  



25