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 September 30, 2009





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





MAGNITUDE INFORMATION
SYSTEMS, INC.


(Exact
Name of Registrant as Specified in its Charter)





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





4 Claire Drive, Bridgewater, New Jersey
      08807
                  
                  (212) 967-1953(Address
      of Principal Executive Office)  (Zip Code)
                  
                  (Registrant’s
      telephone number including area
code)





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




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 company  x




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





The
number of shares of Registrant’s Common Stock, $0.0001 par value, outstanding as
of October 31, 2009, was 443,168,060 shares.










MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES





INDEX





PageNumberPART
      1
                                                - FINANCIAL
      INFORMATIONItem
      1
                                                Financial
      StatementsConsolidated
      Balance Sheets-
      September 30, 2009 (unaudited) and December 31, 2008
    (audited)
                                                
                                                
                                                3Consolidated
      Statements of Operations-
      Three and nine months ended September 30, 2009 and 2008
      (unaudited)
                                                
                                                
                                                4Consolidated
      Statements of Cash Flows-
      Nine months ended September 30, 2009 and 2008 (unaudited)
                                                
                                                
                                                5 -
      6Notes
      to Consolidated Financial Statements
                                                
                                                
                                                7 -
      16Item
      2
                                                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                
                                                
                                                17
      – 18Item
      3.
                                                Quantitative
      and Qualitative Disclosures About Market Risk
                                                
                                                
                                                19Item
      4
                                                Controls
      and Procedures
                                                
                                                
                                                19PART
      II
                                                - OTHER
      INFORMATION
                                                
                                                
                                                20
      - 21Item
      1.
                                                Legal
      Proceedings
                                                
                                                20Item
      1A.
                                                Risk
      Factors
                                                
                                                20Item
      2.
                                                Unregistered
      Sales of Equity Securities and Use of Proceeds
                                                
                                                20Item
      3.
                                                Defaults
      Upon Senior Securities
                                                
                                                20Item
      4.
                                                Submission
      of Matters to a Vote of Security Holders
                                                
                                                
                                                20Item
      5.
                                                Other
      information
                                                
                                                
                                                20Item
      6.
                                                Exhibits
                                                
                                                21SIGNATURES
                                                
                                                
                                                22




2





PART
I  - Item 1   Financial Statements





MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


September 30, 2009 (Unaudited)
                                          
                                          
                                          December 31, 2008 (Audited)AssetsCurrent
      AssetsCash
                                          
                                          $
                                          89,781
                                          
                                          
                                          $
                                          5,000Accounts
      receivable, net of allowance for doubtful accounts of $0 and
      $0
                                          
                                          
                                          7,792
                                          
                                          
                                          
                                          9,800Prepaid
      expenses
                                          
                                          
                                          6,862
                                          
                                          
                                          
                                          16,162Total
      Current Assets
                                          
                                          
                                          104,435
                                          
                                          
                                          
                                          30,962Property
      and equipment, net of accumulated depreciation of $82,709 and
      $63,722
                                          
                                          
                                          20,993
                                          
                                          
                                          
                                          40,165Software,
      net of accumulated amortization of $28,492 and $12,329
                                          
                                          
                                          36,158
                                          
                                          
                                          
                                          52,321Deferred
      financing costs, net of accumulated amortization of $615,900
      (2008)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4,000Other
      assets .
                                          
                                          
                                          17,724
                                          
                                          
                                          
                                          3,224Total
      Assets
                                          
                                          
                                          179,310
                                          
                                          
                                          
                                          130,672Liabilities
      and Stockholders’ Equity (Impairment)Current
      LiabilitiesAccounts
      payable and accrued expenses
                                          
                                          
                                          766,357
                                          
                                          
                                          
                                          931,676Obligations
      to be settled in stock
                                          
                                          
                                          87,047
                                          
                                          
                                          
                                          135,200Dividends
      payable
                                          
                                          
                                          466,523
                                          
                                          
                                          
                                          428,076Loans
      and notes payable
                                          
                                          
                                          1,511,385
                                          
                                          
                                          
                                          320,000Derivative
      liability – warrants and options
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3,330,812Current
      maturities of long-term debt
                                          
                                          
                                          33,529
                                          
                                          
                                          
                                          33,529Total
      Current Liabilities
                                          
                                          
                                          2,864,841
                                          
                                          
                                          
                                          5,179,293Long-term
      Debt
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Total
      Liabilities
                                          
                                          
                                          2,864,841
                                          
                                          
                                          
                                          5,179,293Stockholders’
      Equity (Impairment)Preferred
      Stock, $0.001 par value,
      non-voting, 3,000,000 shares authorized:2,500 shares have been designated
      Cumulative Preferred Stock,of which 1 share is issued and
      outstanding
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0300,000
      shares have been designated Series A Convertible Preferred
      Stock,350,000
      shares have been designated Series B Convertible Preferred
      Stock,120,000
      shares have been designated Series C Convertible Preferred
      Stock,500,000
      shares have been designated Series D Convertible Preferred
      Stock,500,000
      shares have been designated Series E Convertible Preferred
      Stock,43,610
      shares have been designated Series G Convertible Preferred
      Stock,of
      which a combined total 85,890 and 129,500 shares are issued and
      outstanding
                                          
                                          
                                          86
                                          
                                          
                                          
                                          129Common Stock,$0.0001 par
      value, 1,400,000,000 shares authorized;issued
      and outstanding 443,168,060 and 436,242,570 shares
                                          
                                          
                                          44,317
                                          
                                          
                                          
                                          43,624Additional
      paid-in capital
                                          
                                          
                                          44,583,376
                                          
                                          
                                          
                                          40,159,909Loans
      receivable – stockholders
                                          
                                          
                                          (131,262
                                          )
                                          
                                          
                                          (131,262
                                          )Accumulated
      (deficit)
                                          
                                          
                                          (47,182,048
                                          )
                                          
                                          
                                          (45,121,021
                                          )Total
      Stockholders’ Equity (Impairment)
                                          
                                          
                                          (2,685,531
                                          )
                                          
                                          
                                          (5,048,621
                                          )Total
      Liabilities and Equity (Impairment)
                                          
                                          $
                                          179,310
                                          
                                          
                                          $
                                          130,672




The
accompanying notes are an integral part of the consolidated financial
statements.
  3


MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)


Three Months Ended
                                                            
                                                            
                                                            Nine Months EndedSeptember 30,
                                                            
                                                            
                                                            September 30,2009
                                                            
                                                            
                                                            2008
                                                            
                                                            
                                                            2009
                                                            
                                                            
                                                            2008Total
      Revenues
                                                            
                                                            $
                                                            14,928
                                                            
                                                            
                                                            $
                                                            18,841
                                                            
                                                            
                                                            $
                                                            53,772
                                                            
                                                            
                                                            $
                                                            37,055Cost
      of Goods Sold
                                                            
                                                            
                                                            9,223
                                                            
                                                            
                                                            
                                                            6,266
                                                            
                                                            
                                                            
                                                            20,720
                                                            
                                                            
                                                            
                                                            38,016Gross
      Profit (Loss)
                                                            
                                                            
                                                            5,705
                                                            
                                                            
                                                            
                                                            12,575
                                                            
                                                            
                                                            
                                                            33,052
                                                            
                                                            
                                                            
                                                            (961
                                                            )Selling
      expenses
                                                            
                                                            
                                                            10,213
                                                            
                                                            
                                                            
                                                            21,689
                                                            
                                                            
                                                            
                                                            111,778
                                                            
                                                            
                                                            
                                                            94,893Provision
      for bad debts
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            7,893Stock-based
      compensation (see below)..
                                                            
                                                            
                                                            121,929
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            121,929
                                                            
                                                            
                                                            
                                                            57,000Research
      and development cost
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            7,200General
      and administrative expenses
                                                            
                                                            
                                                            258,212
                                                            
                                                            
                                                            
                                                            576,021
                                                            
                                                            
                                                            
                                                            1,103,988
                                                            
                                                            
                                                            
                                                            1,873,734Loss
      from Operations
                                                            
                                                            
                                                            (384,649
                                                            )
                                                            
                                                            
                                                            (585,135
                                                            )
                                                            
                                                            
                                                            (1,304,643
                                                            )
                                                            
                                                            
                                                            (2,041,681
                                                            )Other
      Income (Expense)Miscellaneous
      income
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            549
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            26,459Misc.
      non-operating expenses
                                                            
                                                            
                                                            (450
                                                            )
                                                            
                                                            
                                                            (549
                                                            )
                                                            
                                                            
                                                            (450
                                                            )
                                                            
                                                            
                                                            (2,553
                                                            )Change
      in fair value –derivative liability
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (262,546
                                                            )
                                                            
                                                            
                                                            (77,806
                                                            )
                                                            
                                                            
                                                            (508,342
                                                            )Amortization
      of deferred financing cost
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (4,000
                                                            )
                                                            
                                                            
                                                            (70,303
                                                            )Gain
      on extinguishment of debt
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1,942
                                                            
                                                            
                                                            
                                                            32,416
                                                            
                                                            
                                                            
                                                            720,798Interest
      income
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            5
                                                            
                                                            
                                                            
                                                            549Interest
      expense
                                                            
                                                            
                                                            (32,291
                                                            )
                                                            
                                                            
                                                            (6,965
                                                            )
                                                            
                                                            
                                                            (668,101
                                                            )
                                                            
                                                            
                                                            (12,340
                                                            )Total
      Other Income (Expense)
                                                            
                                                            
                                                            (32,741
                                                            )
                                                            
                                                            
                                                            (267,569
                                                            )
                                                            
                                                            
                                                            (717,936
                                                            )
                                                            
                                                            
                                                            154,268Profit
      (Loss) before Provision for Income Taxes
                                                            
                                                            
                                                            (417,390
                                                            )
                                                            
                                                            
                                                            (852,704
                                                            )
                                                            
                                                            
                                                            (2,022,579
                                                            )
                                                            
                                                            
                                                            (1,887,413
                                                            )Provision
      for income taxes
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Net
      Profit (Loss)
                                                            
                                                            $
                                                            (417,390
                                                            )
                                                            
                                                            $
                                                            (852,704
                                                            )
                                                            
                                                            $
                                                            (2,022,579
                                                            )
                                                            
                                                            $
                                                            (1,887,413
                                                            )Dividends
      on Preferred Stock
                                                            
                                                            
                                                            (12,815
                                                            )
                                                            
                                                            
                                                            (13,915
                                                            )
                                                            
                                                            
                                                            (38,447
                                                            )
                                                            
                                                            
                                                            (41,747
                                                            )Net
      Profit (Loss) applicable toCommon
    Shareholders
                                                            
                                                            $
                                                            (430,205
                                                            )
                                                            
                                                            $
                                                            (866,619
                                                            )
                                                            
                                                            $
                                                            (2,061,026
                                                            )
                                                            
                                                            $
                                                            (1,929,160
                                                            )Net
      Profit (Loss) per Common Share
                                                            
                                                            $
                                                            (0.001
                                                            )
                                                            
                                                            $
                                                            (0.002
                                                            )
                                                            
                                                            $
                                                            (0.005
                                                            )
                                                            
                                                            $
                                                            (0.005
                                                            )Weighted
      Average Number ofCommon Shares Outstanding
                                                            
                                                            
                                                            448,633,886
                                                            
                                                            
                                                            
                                                            401,709,237
                                                            
                                                            
                                                            
                                                            449,301,580
                                                            
                                                            
                                                            
                                                            358,749,978





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





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




4




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


Nine Months EndedSeptember 30,2009
                                  
                                  
                                  2008Cash
      Flows from Operating ActivitiesNet
      Loss
                                  
                                  $
                                  (2,022,579
                                  )
                                  
                                  $
                                  (1,887,413
                                  )Adjustments
      to Reconcile Net Loss to Net Cash Used by OperationsDepreciation
      and amortization
                                  
                                  
                                  45,885
                                  
                                  
                                  
                                  93,717Change
      in fair value – derivative liabilities
                                  
                                  
                                  77,806
                                  
                                  
                                  
                                  508,342Bad
      debt expense
                                  
                                  
                                  -
                                  
                                  
                                  
                                  7,893Securities
      issued for expenses
                                  
                                  
                                  121,929
                                  
                                  
                                  
                                  57,000Interest
      accretion on long term debt
                                  
                                  
                                  1,385
                                  
                                  
                                  
                                  -Loss
      on disposal of assets
                                  
                                  
                                  450
                                  
                                  
                                  
                                  2,553Compensation
      recognized-shareholder loan forgiveness
                                  
                                  
                                  -
                                  
                                  
                                  
                                  5,459Intrinsic
      value of beneficial conversion rights
                                  
                                  
                                  600,000
                                  
                                  
                                  
                                  -Gain
      on extinguishment of debt
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (720,798
                                  )Decreases
      (Increases) in AssetsAccounts
      receivable
                                  
                                  
                                  2,008
                                  
                                  
                                  
                                  (8,475
                                  )Prepaid
      expenses
                                  
                                  
                                  9,300
                                  
                                  
                                  
                                  (3,191
                                  )Other
      assets
                                  
                                  
                                  (14,500
                                  )
                                  
                                  
                                  -Increases
      (decreases) in LiabilitiesObligations
      to be settled in stock
                                  
                                  
                                  31,847
                                  
                                  
                                  
                                  -Accounts
      payable and accrued expenses
                                  
                                  
                                  48,250
                                  
                                  
                                  
                                  (76,960
                                  )Net
      Cash Used by Operating Activities
                                  
                                  
                                  (1,098,219
                                  )
                                  
                                  
                                  (2,021,873
                                  )Cash
      Flows from Investing ActivitiesCash
      outlay for website development costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (64,650
                                  )Cash
      paid as additional consideration-KiwiboxAcquisition
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (50,000
                                  )Purchases
      of equipment and fixtures
                                  
                                  
                                  (7,000
                                  )
                                  
                                  
                                  (25,204
                                  )Net
      Cash Used by Investing Activities
                                  
                                  
                                  (7,000
                                  )
                                  
                                  
                                  (139,854
                                  )Cash
      Flows from Financing ActivitiesProceeds
      from loans and notes
                                  
                                  
                                  1,190,000
                                  
                                  
                                  
                                  90,000Repayments
      of loans and notes
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (75,000
                                  )Repayment
      of shareholder loan
                                  
                                  
                                  -
                                  
                                  
                                  
                                  75,000Issuance
      of common stock
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,610,000Net
      Cash Provided by Financing Activities
                                  
                                  
                                  1,190,000
                                  
                                  
                                  
                                  1,700,000Net
      Increase (Decrease) in Cash
                                  
                                  
                                  84,781
                                  
                                  
                                  
                                  (461,727
                                  )Cash
      at Beginning of Period
                                  
                                  
                                  5,000
                                  
                                  
                                  
                                  470,148Cash
      at End of Period
                                  
                                  $
                                  89,781
                                  
                                  
                                  $
                                  8,421





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




5




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





NON-CASH INVESTING AND FINANCING
      ACTIVITIES:Nine Months Ended September 30,
      2009Reclassification
      of derivative liabilities to Additional Paid-in capital
                    
                    $
                    3,408,618Forgiveness
      of debt by related party
                    
                    $
                    213,570Settlement
      of obligations with common stock and common stock options
                    
                    $
                    80,000Nine Months Ended September 30,
      2008Goodwill
      incurred by obligation to be settled in stock for 20 million penalty
      shares
                    
                    $
                    200,000Additional
      deferred finance costs incurred by obligation to be settled in
      stock
                    
                    $
                    35,000Additional
      goodwill incurred via promissory note
                    
                    $
                    225,000Settlement
      of deferred revenue liability with stock
                    
                    $
                    40,000Settlement
      of note conversions and finance cost obligations with stock and
      warrants
                    
                    $
                    123,644Issuance
      of stock and warrants for prior subscription obligations
                    
                    $
                    1,800,000Settlement
      with stock of penalties in connection with Kiwibox
    acquisition
                    
                    $
                    495,800Offsetting
      of note payable to shareholder loan receivable
                    
                    $
                    75,000




6




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature of Organization





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





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





Business





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





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




7


MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, Continued





Basis of
Presentation





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and disclosures
required for annual financial statements. These financial statements should be
read in conjunction with the consolidated financial statements and related
footnotes included in the Company’s annual report on Form 10-K for the year
ended December 31, 2008 and its quarterly reports on Form 10-Q for the periods
ended March 31, 2009 and June 30, 2009.





In the
opinion of the Company’s management, all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Company’s financial position
as of September 30, 2009, the results of operations for the three and nine
months ended September 30, 2009 and 2008, and the cash flows for the nine months
ended September 30, 2009 and 2008, have been included.





Principles
of Consolidation





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





Depreciation
and Amortization





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





Evaluation
of Long Lived Assets


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





Goodwill
and Intangible Assets





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





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




8




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, Continued





Securities
Issued for Services





The
Company accounts for stock, stock options and stock warrants issued for services
and compensation by employees under the fair value method.  For
non-employees, the fair market value of the Company’s stock on the date of stock
issuance or option/grant is used.  The Company 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. During the first quarter of 2009, we
reclassified a position of $3,408,618 from liabilities for derivative securities
to additional paid-in capital after the indeterminate factor in connection with
the conversion clause of certain convertible preferred shares was
removed.





Capitalization
of Software /Website development costs




The
Company capitalized outside-contracted development work in accordance with the
guidelines published under ASC 350-50, “Website Development
Costs”,  adopted during the quarter ended March 31,
2008.  Under ASC 350-50, costs incurred during the planning stage are
expensed, whilecosts
relating to software used to operate a web site or for developing initial
graphics should be accounted for under ASC 350-50, 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 $0 and $64,650 was capitalized for web-site development work during
the nine months ended September 30, 2009 and the year ended December 31, 2008,
respectively.




Fair
Value Measurements




The
Company adopted the provisions of ASC 820, Fair Value Measurements and
Disclosures, which is effective for fiscal years beginning after November
15, 2007, and interim periods within those fiscal years. Under ASC 820, a
framework was established for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. Since the number of shares issuable under the Company’s Series G
convertible preferred stock was indeterminable during the year ended December
31, 2008, the Company had measured the fair value of warrants and options
outstanding at December 31, 2008, which was determined to be $3,330,812,
measured using significant unobservable inputs (Level 3) under a Black-Scholes
valuation method. The change in value during the three and nine months ended
September 30, 2009 was a loss of $77,806 and during the three and nine months
ended September 30, 2008 a loss of $262,546 and $506,342, respectively, all
reported in the Statement of Operations under Other Income
(Expense).




9




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, Continued




On
February 19, 2009, all outstanding shares of the Series G stock automatically
converted into 17,857,142 common shares, thereby removing the indeterminable
factor and giving rise to a reclassification of the entire position of
$3,408,618 into additional paid-in capital, which included a further $77,806
loss incurred during the first quarter 2009.





Income
Taxes





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





Net Loss
Per Share





Net loss
per share, in accordance with the provisions of ASC 260, “Earnings Per Share” is
computed by dividing net loss by the weighted average number of shares of Common
Stock outstanding during the period.  Common Stock equivalents have
not been included in this computation since the effect would be anti-dilutive.
Such common stock equivalents totaled 202,609,772 common shares at September 30,
2009, comprised of 168,139,648 shares issuable upon exercise of stock purchase
warrants, 9,553,542 shares issuable upon exercise of stock options, 729,537
shares exercisable upon conversion of convertible preferred shares, 1,550,000
shares to be issued for compensation, and 22,637,045 shares potentially issuable
upon conversion of convertible debt. Such debt, presently convertible at the
option of two holders at a price of $0.01 per share, totals $1,290,000 which
would yield 129,000,000 shares if fully exercised, however, the respective
notes, all of which were issued to these two investors, carry a stipulation
whereby the number of all shares issued pursuant to a conversion, may in the
aggregate not exceed a number that would increase the total share holdings
beneficially owned by such investor to a level above 9.9%. At the end of the
quarter, this clause limits any conversion to the aforementioned number of
shares. All of the aforementioned conversions or exercises, as the case may be,
are at the option of the holders.





Revenue
Recognition





Revenue
is recognized at the time of licensing provided that the resulting receivable is
deemed probable of collection and is fixed or determinable. Revenue from
software maintenance contracts is recognized ratably as earned. When a sales
contract includes multiple elements, revenues are allocated to the various
elements based on Company-specific objective evidence of fair value, regardless
of any separate prices for each element that may be stated within the
contract.




10


.


MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES, Continued





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





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. In their report for the
fiscal year ended December 31, 2008, 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 September
30, 2009, cash balances in bank accounts did not exceed this limit. The Company
provides credit in the normal course of business to customers located throughout
the U.S. and overseas.  The Company performs ongoing credit
evaluations of its customers and maintains allowances for doubtful accounts
based on factors surrounding the credit risk of specific customers, historical
trends, and other information.





4.
PREPAID EXPENSES





Prepaid
Expenses at the end of the quarter consisted of prepaid business insurance
costs.





5.
PROPERTY AND EQUIPMENT





Property
      and equipment consist of the following at
                  
                  September 30, 2009
                  
                  
                  December 31, 2008Furniture
                  
                  $
                  6,645
                  
                  
                  $
                  2,014Leasehold
      Improvements
                  
                  
                  24,131
                  
                  
                  
                  24,131Equipment
                  
                  
                  72,926
                  
                  
                  
                  77,742103,702
                  
                  
                  
                  103,887Less
      accumulated depreciation
                  
                  
                  82,709
                  
                  
                  
                  63,722Total
                  
                  $
                  20,993
                  
                  
                  $
                  40,165





Depreciation
expense charged to operations was $25,723 and $9,494 in the first nine months of
2009 and 2008, respectively.




11





MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009




6.  INTANGIBLE
ASSETS





Intangible
assets at September 30, 2009 consisted of software for website development
cost:


September
      30, 2009
                    
                    
                    December 31, 2008Website
      development costs
                    
                    $
                    64,650
                    
                    
                    $
                    64,650Less
      accumulated amortization
                    
                    
                    28,492
                    
                    
                    
                    12,329Total
                    
                    $
                    36,158
                    
                    
                    $
                    52,321





Amortization expense on
software costs charged to operations was $16,163 and $6,030 in the first nine
months of 2009 and 2008, respectively.





7.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES





Accounts
      payable and accrued expenses consisted of the following at
                      
                      Sept. 30, 2009
                      
                      
                      December 31, 2008Accounts
      payable
                      
                      $
                      282,701
                      
                      
                      $
                      474,315Accrued
      interest
                      
                      
                      131,035
                      
                      
                      
                      65,872Accrued
      salaries and payroll taxes
                      
                      
                      13,471
                      
                      
                      
                      21,119Accrued
      commissions
                      
                      
                      3,720
                      
                      
                      
                      3,720Accrued
      professional fees
                      
                      
                      314,695
                      
                      
                      
                      324,636Miscellaneous
      accruals
                      
                      
                      20,735
                      
                      
                      
                      42,014Total
                      
                      $
                      766,357
                      
                      
                      $
                      931,676





8.
GOODWILL





On August
16, 2007, the Company completed its acquisition of 100% of the outstanding
capital stock of KiwiBox Media, Inc. The total initial purchase price of
$2,850,273 was calculated as follows: we issued 30,000,000 restricted common
shares based on a total value of $1,500,000 determined by the lower of $0.05 per
share and the average sales price of the Company’s common stock for the ten (10)
successive trading days immediately preceding the closing, 43,610 shares of our
Series G Preferred Stock worth $500,000, paid $450,000 in cash to the three
KiwiBox owners, and incurred $57,500 in acquisition fees. In addition, based on
the initial Agreement and Plan of Reorganization from February 2007, the Company
committed to investing $3.5 million for the operations of Kiwibox. Based on an
amendment in July 2007, in the event that certain investment tranches were not
made by their respective due dates, the Company agreed to issue 60,000
restricted shares to the former shareholders of Kiwibox for each day that the
funds were in arrears. The Company estimated the fair value of this
pre-acquisition contingency as of the acquisition date based on the present
value of the total expected liability at a discount rate of 5%, with an accreted
value of $295,800 at June 30, 2008 (current period value of $3,027 was charged
to operations, so net increase in purchase price was $292,773). In February
2008, the Company entered into another amendment that superseded the provisions
of amendments in December 2007, whereby the Company agreed to issue 20 million
reset shares, valued at $200,000, and a promissory note for $225,000, and
$250,000 cash penalties ($100,000 paid in 2007, $150,000 paid in 2008) as
additional consideration due to the delays in financing, which increased the
value of Goodwill at March 31, 2008. This additional consideration eliminated
the requirement for penalty shares to continue accruing, as long as the Company
received $1.5 million in financing by March 7, 2008, and invested $700,000 in
Kiwibox operations. This financing was received in a timely
fashion.





The
amendment also provided the former shareholders of Kiwibox the option to receive
the value of the reset shares in common stock options of equivalent value. To
date, all of the penalty shares have been issued. The promissory note for
$225,000 had subsequently been reduced by $75,000 in connection with a
settlement agreement reached with one of the former shareholders of Kiwibox, and
the remaining $150,000 was paid during the last quarter of 2008.




12





MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





GOODWILL
(continued)





The
excess of the purchase price over the net assets acquired had been previously
recognized as Goodwill in the amount of $3,138,751.





Management
projected the discounted cash flow for the operations of the Company’s Kiwibox
Media Inc. subsidiary, including the costs incurred by the Company’s Magnitude,
Inc. subsidiary which has no own revenue basis but provides management,
accounting, and investor relations and other professional services for the
combined entity, over a period of five years. This analysis showed that the
reliance on outside investors to provide needed additional funding to augment
cash flow from operations would likely persist for a period in excess of one
year. Management decided to write off the entire goodwill position at the end of
the 2008 year because the willingness of outside investors to continue funding
operations until positive cash flow can be realized, cannot be assured. A fair
value of the Kiwibox subsidiary cannot be determined due to the fact that at
this time this is essentially a start-up business with minimal
revenues.





9. LOANS
PAYABLE





The
Company and Magnitude, Inc. had borrowings under short term loan agreements with
the following terms and conditions at September 30, 2009 and December 31,
2008:





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





10. NOTES
PAYABLE





On
February 28, 2008, two debtholders agreed to convert their outstanding notes of
$350,000, finance cost obligations to be settled in stock of $385,000 and
finance cost obligations that could be settled in stock or cash of $22,500 into
a total of 9,333,333 common shares and 3,500,000 five-year common stock warrants
with an exercise price of $0.07 per share, resulting in a gain on extinguishment
of $633,856. The warrants were valued at $30,311 using a Black-Scholes model,
with the following assumptions: volatility - 169%, dividends – none, risk-free
rate – 2.1%. In addition, in January 2008, the Company converted the $100,000
deposit recorded previously as deferred revenue into equity on behalf of the
depositor by issuing 2,000,000 restricted common shares and 2,000,000 five-year
common stock warrants with an exercise price of $0.07 per share. The warrants
were valued at $36,051 using a Black-Scholes model, with the following
assumptions: volatility - 169%, dividends – none, risk-free rate – 2.6%. This
issuance resulted in a gain on extinguishment of this liability of $23,949 based
on the fair value of the shares delivered in settlement.




13




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





11.  NOTES
PAYABLE (continued)





September
      30,
                            
                            
                            December
      31,2009
                            
                            
                            2008Balance
      of non-converted notes outstanding. Attempts to locate the holder of this
      note, to settle this liability, have been unsuccessful.
                            
                            $
                            25,000
                            
                            
                            $
                            25,000In January 2008 a shareholder loaned the Company
      $40,000 pursuant to which the Company issued a demand note
      bearing interest at the rate of 5% per year.
                            
                            
                            40,000
                            
                            
                            
                            40,000In
      September 2008 and December 2008 a shareholder loaned the Company
      $50,000 and $100,000, repayable under convertible promissory notes
      bearing interest at 10% per annum and payable
    on demand.
                            
                            
                            150,000
                            
                            
                            
                            150,000In
      December 2008 an investor loaned the Company $30,000 repayable on
      January 15, 2009, bearing interest at 6.5% per year. The Company
      issued 500,000 restricted common shares as loan origination fee. In
      August 2009, $1,385 accrued interest was added to the principal
      amount. The note is overdue at September 30, 2009.
                            
                            
                            31,385
                            
                            
                            
                            30,000In
      January and February 2009 a shareholder loaned the Company $350,000
      and $150,000, repayable under convertible promissory notes bearing
      interest at 10% per annum and payable on demand. On March 31, 2009,
      these notes and $100,000 of notes listed above were amended to
      include an option for the holder to convert the debt into common
      stock at $0.01 per share. The intrinsic value of the beneficial
      conversion feature was valued at $600,000 resulting in a charge to
      interest and a credit to additional paid-in capital in the same
      amount.
                            
                            
                            500,000
                            
                            
                            
                            -During
      April, May and June 2009, the same shareholder loaned the Company an
      aggregate $350,000 under the same terms as the earlier notes issued
      in the first quarter. All of the notes were subsequently amended to
      include the stipulation that the shares to be issued if the holder
      elected a conversion, together with other shares held by this
      shareholder, may not result in an ownership interest exceeding
      9.9%.
                            
                            
                            350,000
                            
                            
                            
                            -During
      July 2009, the same shareholder and loaned the Company $250,000 under
      the same terms as the earlier notes issued in the second quarter. In
      September 2009, another investor loaned the Company $90,000, carrying
      interest at 10% per annum.
                            
                            
                            340,000
                            
                            
                            
                            -Total
                            
                            $
                            1,436,385
                            
                            
                            $
                            245,000




14




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





11.
            LONG-TERM
      DEBT





Long-term
debt as of September 30, 2009 and December 31, 2008 is comprised of the
following:




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





12.
              COMMITMENTS
      AND CONTINGENCIES





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





Our total
rent expenses were $69,397 and $65,579 during the nine months ended September
30, 2009 and 2008, respectively.





During
the second quarter in 2009 we entered into an agreement with a consultant to
serve as the Company’s Chief Technology Officer. The agreement has a term of
twelve months and may be extended by mutual consent. It provides for
remuneration for services and expenses at the rate of $20,000 and 100,000
restricted shares per month, and a signing bonus of 500,000 restricted
shares.





During
the third quarter in 2009 we entered into an engagement agreement with a
consultant to assist the Company in the liaison to the Company’s shareholders
and investors, to promote the Company and its website to the public markets, and
to identify potential strategic partners, acquisition opportunities, and joint
venture partners for the Company’s social networking website business. The
agreement is deemed to have commenced on January 1, 2009 and extends through
December 31, 2011, and calls for compensation to the consultant in the form of
2,000,000 five years warrants for the purchase of common shares, exercisable at
$ 0.025 per share with a cashless exercise provision, for every six months
period during the term of the agreement, and the payment in cash of unspecified
amounts, the latter at the sole discretion of the Company.  The
agreement furthermore recognizes that the same consultant had previously
provided similar services to the Company for which he will receive a one-time
payment in form of 15,000,000 five years warrants, exercisable at $0.0025 per
share.





13.
            RELATED
      PARTY TRANSACTIONS





During
the nine months ended September 30, 2009 and 2008, one outside director of the
Company who also serves as the Company’s general and securities counsel, was
paid an aggregate $65,000 and $240,632, respectively, for legal services. At
September 30, 2009, the Company conditionally owed this director $100,000
pursuant to an agreement whereby $313,570 owed to him and recorded in the books
of the company at December 31, 2008 were cancelled and replaced with a
stipulation that $100,000 would be paid to him for his services if his current
efforts to obtain additional working capital for the company were
successful.  This debt forgiveness of $213,570 was booked as a direct
contribution to paid-in capital.





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


15





MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





14.
            FAIR
      VALUE





In
accordance with FASB ASC 820, “Fair Value Measurements and Disclosures”, the
following table represents the Company’s fair value hierarchy for its financial
assets and liabilities measured at fair value on a recurring basis as of
September 30, 2009:


Level 3September
      30,
                                    
                                    
                                    December
      31,2009
                                    
                                    
                                    2008Derivative
      instruments
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    3,330,812


The
derivative instruments were valued using the market approach which is considered
Level 3 because it uses inputs other than quoted prices in active markets
that are unobservable. Accordingly, the derivatives were valued using the
Black-Scholes model.





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.





We have
determined that it is not practical to estimate the fair value of our notes
payable because of their unique nature and the costs that would be incurred to
obtain an independent valuation. We do not have comparable outstanding debt on
which to base an estimated current borrowing rate or other discount rate for
purposes of estimating the fair value of the notes payable and we have not been
able to develop a valuation model that can be applied consistently in a cost
efficient manner. These factors all contribute to the impracticability of
estimating the fair value of the notes payable. At September 30, 2009, the
carrying value of the notes payable and accrued interest was
$1,642,420.


16





MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


SEPTEMBER
30, 2009





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 Magnitude Information Systems, Inc.,
contained herein and in the Company’s annual report for the year ended December
31, 2008 as filed on Form 10-K, and in the quarterly reports for the periods
ended March 31, 2009 and June 30, 2009. 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 is continuing to proceed with a restructuring plan with the goal of
optimizing our network strategy to improve performance and broaden our reach to
an extended circle of potential subscribers. In this process we are seeking to
license innovative new technologies, preferably on an exclusive basis, that
support this plan and improve the competitive position of Kiwibox in its market
place. Pertinent negotiations with already identified suppliers of such
technologies are expected to be finalized during the fourth quarter. In
anticipation of a successful completion we have already embarked on a
comprehensive test and development program and are in the process of drafting a
complementary marketing strategy.





This
effort goes hand to hand with a continued drive to reduce overhead costs. Our
operating expenses, not including stock-based compensation, for current
operations have been reduced to a level of approximately $80,000 to $100,000. We
are currently receiving funding at these levels from existing investors (see
sections “Loans and Notes Payable”).





Results of Operations for
the Three and Nine Months Ended September 30, 2009 Compared to the Three and
Nine Months Ended September 30, 2008





The
Company had no material revenues during either the first three quarters in 2009
or 2008.  Its only revenues are derived by its subsidiary Kiwibox
Media Inc. whose business had not yet matured to a stage where significant
revenues could be generated. For the three and nine months ended September 30,
2009, total revenues amounted to $14,928 and $53,772, respectively, compared to
$18,841 and $37,055 recorded in the same periods in 2008.





Gross
profits for the nine months ended September 30, 2009 amounted to $33,052 after
considering $20,720 in website hosting expenses.  After deducting
selling - and general and administrative expenses of $390,354 and $1,337,695 for
the three and nine months ended September 30, 2009, compared to $597,710 and
$2,040,720 recorded in the same periods in 2008, the Company realized operating
losses of $384,649 and $1,304,643 for the three and nine months ended September
30, 2009 compared to operating losses of $585,135 and $2,041,681 in the same
periods in 2008. The significant decline in operating expenses was the result of
severe cost cutting measures initiated in the course of current restructuring
efforts. In particular, outlays for salaries and consulting expenses were
sharply reduced due to cut-backs in staffing and curtailment of consultant
retentions.


17




The
quarter concluded with a net loss of $417,390 for the quarter and a loss of
$2,022,579 for the first nine months in 2009. After accounting for dividends
accrued on outstanding preferred stock which totaled $12,815 and $38,447,
respectively, the net loss applicable to common shareholders was $430,205 or
$0.001 per share and $2,061,026 or $0.005 per share for the quarter and nine
months ended September 30, 2009, compared to losses of $866,619 or $0.002 per
share and $1,929,160 or $0.005 per share for the same periods in the previous
year.





Liquidity and Capital
Resources





We have
financed our business with new debt since our cash flow is insufficient to
provide the working capital necessary to fund our operations. We received
$340,000 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 $2,760,406 at September 30, 2009, as
compared to $5,148,331 at December 31, 2008.  The change is primarily
attributable the losses incurred in 2009 and to a reclassification of a position
of $3,330,812 derivative liabilities included in the December 31, 2008 balance
sheet to additional paid-in capital, following the conversion of certain shares
of the Series G convertible preferred stock into common stock in February 2009,
and the receipt by the company of an aggregate $1,190,000 in short term loans
during 2009.  Stockholders’ equity showed an impairment of $2,685,531
at the end of the period, compared to an impairment of $5,048,621 at the
beginning of the year. The negative cash flow from operations during the nine
months totaled $1,098,219 and was financed by new debt.




We have
no bank debt and aside from trade payables and accruals, our indebtedness at
September 30, 2009, consisted of certain notes and loans aggregating $1,511,385.
The position “Obligations to be settled in stock” of $87,047 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 $466,523 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. .


18




Item 3. Quantitative and
Qualitative Disclosures about Market Risk




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




Item
4.    CONTROLS AND PROCEDURES





(a)      Evaluation
of Disclosure Controls and Procedures.





As of the
end of the period covered by this Form 10-Q for the quarter ended September 30,
2009, an evaluation was undertaken, under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures
pursuant to Rule 13a-15(e) of the Exchange Act; and; based upon that evaluation,
Company management, including the Chief Executive Officer and the Chief
Financial Officer, has concluded that the design of the Company’s disclosure
controls and procedures are effective and ensure that all material information
required to be disclosed by the Company in the reports that it files or submits
under the Act, are recorded, processed, summarized and reported within the time
periods specified in the Commission’s rules and forms; in addition, the
evaluation confirmed that the Company’s disclosure controls and procedures are
designed to ensure that the information required to be disclosed by the Company
in the reports that it files or submits under the Act is accumulated and
communicated to Company management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.





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





(b)
Changes in Internal Control over Financial Reporting


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


19





PART  II  -  OTHER
INFORMATION





Item
1   LEGAL
PROCEEDINGS





At the time of this report, the Company
is not a party in any 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 third quarter in 2009 the Company issued the following unregistered
securities:





(i)
              500,000
      common shares to an investor as loan origination
  fee.


(ii)
              2,192,845
      common shares to an employee who was a former principal shareholder of
      Kiwibox Media Inc. pursuant to a settlement agreement which also provided
      for the surrender and cancellation of an aggregate 13,624,497 common
      shares previously issued to this
individual.


(iii)
            Stock
      purchase warrants for the acquisition of an aggregate 17,000,000 shares,
      exercisable at $0.025 per share during five years (see section
      “Commitments and Contingencies”).





The
Company relied upon the private placement exemption from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”),
provided by Section 4(2) thereof in connection with the issuance of the above
identified securities. The Company had a pre-existing relationships with the
recipients of above securities and no general solicitation was involved; the
certificates representing the common shares issued contained restrictive
legends, designated them as restricted securities and stating that any transfer
or other disposition of such shares can only be made in compliance with the
registration requirements of the Securities Act or pursuant to exemptions
therefrom.





(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 $466,000.  These dividends have been
accrued, however, the Company’s management has refrained from making payments at
this time because of the absence of positive equity and/or surplus
funds.





Item
      4
            SUBMISSION OF MATTERS
      TO A VOTE OF
              SECURITY
      HOLDERS





-  None





Item
      5
            OTHER
      INFORMATION





-  None


20





Item
      6
            EXHIBITS AND REPORTS
      ON FORM 8-K





(a)
            Exhibits





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





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





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





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





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





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





(b)           Reports
on Form 8-K:





No
reports on Form 8-K were filed during the third quarter in
2009.


21





SIGNATURES





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





MAGNITUDE
      INFORMATION SYSTEMS, INC.Date:
      November 14, 2009
                        
                        By:
                        /s/  Joerg
  KlaubeJoerg
      KlaubeChief
      Financial
Officer


22