**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, 2008





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
            
            (IRS
                Employer Identification No.)Incorporation
                or Organization)




1250
                State Route 28, Branchburg, New Jersey 08876
            
            (908)
                879-2722(Address
                of Principal Executive Office) (Zip Code)
            
            (Registrant’s
                telephone number including area
                code)




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




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




Large
      accelerated filer  ̈ Accelerated
      filer  ̈ Non-accelerated
      filer  ̈ 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 November 17, 2008, was 413,802,570 shares.










MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARIES




INDEX





PageNumberPART
                1 - FINANCIAL INFORMATIONItem
                1
            
            Financial
                StatementsConsolidated
                Balance Sheets-
                September 30, 2008 (unaudited) and December 31, 2007
                (audited)
            
            3Consolidated
                Statements of Operations-
                Three and nine months ended September 30, 2008 and 2007
                (unaudited)
            
            4Consolidated
                Statements of Cash Flows-
                Nine months ended September 30, 2008 and 2007 (unaudited)
            
            5-6Notes
                to Consolidated Financial Statements
            
            7
                -
                15Item
                2
            
            Management’s
                Discussion and Analysis of Financial Conditionand
                Results of Operations
            
            16
                – 18Item
                3.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            19Item
                4
            
            Controls
                and Procedures
            
            19PART
                II - OTHER INFORMATION
            
            20Item
                1.
            
            Legal
                Proceedings
            
            20Item
                1A.
            
            Risk
                Factors
            
            20Item
                3.
            
            Defaults
                Upon Senior Securities
            
            20Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            20Item
                5.
            
            Other
                information
            
            20SIGNATURES
            
            
            
            22





2


**PART
      I - Item 1 Financial Statements**





MAGNITUDE
      INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


CONSOLIDATED
      BALANCE SHEETS





September 30, 2008 (Unaudited)
            
            December 31, 2007 (Audited)AssetsCurrent
                AssetsCash
            
            $
            8,421
            
            $
            470,148Accounts
                receivable, net of allowance fordoubtful
                accounts of $7,893 and $0
            
            
            8,475
            
            
            7,893Prepaid
                expenses
            
            
            15,530
            
            
            12,339Total
                Current Assets
            
            
            32,426
            
            
            490,380Property
                and equipment, net of accumulateddepreciation
                of $52,862 and $81,965
            
            
            33,945
            
            
            20,788Software,
                net of accumulated amortization of $6,030 and $0
            
            
            58,620
            
            
            -Deferred financing costs, net of accumulated amortization of$609,900
                and $539,597
            
            
            -
            
            
            35,303Goodwill
            
            
            3,138,751
            
            
            2,663,751Other
                assets
            
            
            3,224
            
            
            11,114Total
                Assets
            
            
            3,266,966
            
            
            3,221,336Liabilities
                and Stockholders’ Equity (Impairment)Current
                LiabilitiesAccounts
                payable and accrued expenses
            
            
            778,370
            
            
            907,799Obligations
                to be settled in stock
            
            
            106,000
            
            
            1,622,921Deferred
                revenue
            
            
            -
            
            
            100,000Dividends
                payable
            
            
            418,491
            
            
            376,743Loans
                and notes payable
            
            
            265,000
            
            
            450,000Derivative
                liability – warrants and options
            
            
            2,408,410
            
            
            2,825,920Current
                maturities of long-term debt
            
            
            33,529
            
            
            33,529Total
                Current Liabilities
            
            
            4,009,800
            
            
            6,316,912Long-term
                Debt
            
            
            -
            
            
            -Total
                Liabilities
            
            
            4,009,800
            
            
            6,316,912Stockholders’
                Equity (Impairment)Preferred
                Stock, $0.001 par value, non-voting, 3,000,000 shares
                authorized:2,500
                shares have been designated Cumulative Preferred Stock,of
                which 1 share is issued and outstanding
            
            
            0
            
            
            0300,000
                shares have been designated Series A Convertible Preferred
                Stock,350,000
                shares have been designated Series B Convertible Preferred
                Stock,120,000
                shares have been designated Series C Convertible Preferred
                Stock,500,000
                shares have been designated Series D Convertible Preferred
                Stock,500,000
                shares have been designated Series E Convertible Preferred
                Stock,43,610
                shares have been designated Series G Convertible Preferred
                Stock,of
                which a combined total 129,500 shares are issued and
                outstanding
            
            
            129
            
            
            129Common
                Stock, $0.0001 par value, 700,000,000 shares authorized;issued
                and outstanding 406,802,570 and 276,703,237 shares
            
            
            40,680
            
            
            27,671Additional
                paid-in capital
            
            
            40,852,705
            
            
            36,739,270Loans
                receivable – stockholders
            
            
            (131,262
            )
            
            (286,721
            )Accumulated
                (deficit)
            
            
            (41,505,086
            )
            
            (39,575,925
            )Total
                Stockholders’ Equity (Impairment)
            
            
            (742,834
            )
            
            (3,095,576
            )Total
                Liabilities and Equity (Impairment)
            
            $
            3,266,966
            
            $
            3,221,336





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 30,2008
            
            2007
            
            2008
            
            2007Total
                Revenues
            
            $
            18,841
            
            $
            7,639
            
            $
            37,055
            
            $
            11,595Cost
                of Goods Sold
            
            
            6,266
            
            
            -
            
            
            38,016
            
            
            -Gross
                Profit (Loss)
            
            
            12,575
            
            
            7,639
            
            
            (961
            )
            
            11,595Selling
                expenses
            
            
            21,689
            
            
            63,233
            
            
            94,893
            
            
            63,647Provision
                for bad debts
            
            
            -
            
            
            -
            
            
            7,893
            
            
            -Stock-based
                compensation (see below)
            
            
            -
            
            
            270,236
            
            
            57,000
            
            
            562,236Research
                and development cost
            
            
            -
            
            
            -
            
            
            7,200
            
            
            735General
                and administrative expenses
            
            
            576,021
            
            
            386,910
            
            
            1,873,734
            
            
            1,118,573Loss
                from Operations
            
            
            (585,135
            )
            
            (712,740
            )
            
            (2,041,681
            )
            
            (1,733,596
            )Other
                Income (Expense)Miscellaneous
                income
            
            
            (549
            )
            
            -
            
            
            26,459
            
            
            -Misc.
                non-operating expenses
            
            
            549
            
            
            9
            
            
            (2,553
            )
            
            (155
            )Change
                in fair value – derivative liability
            
            
            (262,546
            )
            
            605,265
            
            
            (508,342
            )
            
            (30,434
            )Amortization
                of deferred financing cost
            
            
            -
            
            
            (331,783
            )
            
            (70,303
            )
            
            (535,159
            )Gain
                on extinguishment of debt
            
            
            1,942
            
            
            -
            
            
            720,798
            
            
            -Interest
                income
            
            
            -
            
            
            1,057
            
            
            549
            
            
            1,057Interest
                expense
            
            
            (6,965
            )
            
            (24,094
            )
            
            (12,340
            )
            
            (136,897
            )Total
                Other Income (Expense)
            
            
            (267,569
            )
            
            250,454
            
            
            154,268
            
            
            (701,588
            )Profit
                (Loss) before Provisionfor
                Income Taxes
            
            
            (852,704
            )
            
            (462,286
            )
            
            (1,887,413
            )
            
            (2,435,184
            )Provision
                for income taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                Profit (Loss)
            
            $
            (852,704
            )
            $
            (462,286
            )
            $
            (1,887,413
            )
            $
            (2,435,184
            )Dividends
                on Preferred Stock
            
            
            (13,915
            )
            
            (13,123
            )
            
            (41,747
            )
            
            (40,598
            )Net
                Profit (Loss) applicable toCommon
                Shareholders
            
            $
            (866,619
            )
            $
            (475,409
            )
            $
            (1,929,160
            )
            $
            (2,475,782
            )Net
                Profit (Loss) per Common Share
            
            $
            (0.002
            )
            $
            (0.002
            )
            $
            (0.005
            )
            $
            (0.011
            )Weighted
                Average Number ofCommon
                Shares Outstanding
            
            
            401,709,237
            
            
            247,391,177
            
            
            358,749,978
            
            
            234,680,442





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 30,2008
            
            2007Cash
                Flows from Operating ActivitiesNet
                Loss
            
            $
            (1,887,413
            )
            $
            (2,435,184
            )Adjustments
                to Reconcile Net Lossto
                Net Cash Used by OperationsDepreciation
                and amortization
            
            
            93,717
            
            
            460,744Securities
                issued for various expenses
            
            
            57,000
            
            
            562,236Change
                in fair value – derivative liabilities
            
            
            508,342
            
            
            30,434Bad
                debt expense
            
            
            7,893
            
            
            -Loss
                on disposal of assets
            
            
            2,553
            
            
            -Compensation
                recognized-shareholder loan forgiveness
            
            
            5,459
            
            
            -Accretion
                of beneficial conversion feature
            
            
            -
            
            
            114,340Amortization
                of deferred financing costs
            
            
            -
            
            
            -Gain
                on extinguishment of debt
            
            
            (720,798
            )
            
            -Decreases
                (Increases) in AssetsAccounts
                receivable
            
            
            (8,475
            )
            
            (780
            )Prepaid
                expenses
            
            
            (3,191
            )
            
            34,103Increases
                (decreases) in LiabilitiesDeferred
                revenues
            
            
            -
            
            
            (2,747
            )Obligations
                to be settled in stock
            
            
            -
            
            
            107,193Accounts
                payable and accrued expenses
            
            
            (76,960
            )
            
            266,984Net
                Cash Used by Operating Activities
            
            
            (2,021,873
            )
            
            (862,677
            )Cash
                Flows from Investing ActivitiesCash
                outlay for website development costs
            
            
            (64,650
            )
            
            -Kiwibox
                acquisition
            
            
            (50,000
            )
            
            (323
            )Purchases
                of equipment and fixtures
            
            
            (25,204
            )
            
            (4,850
            )Net
                Cash Used by Investing Activities
            
            
            (139,854
            )
            
            (5,173
            )Cash
                Flows from Financing ActivitiesProceeds
                from loans and notes
            
            
            90,000
            
            
            397,000Repayments
                of loans and notes
            
            
            (75,000
            )
            
            (100,000
            )Repayment
                of shareholder loan
            
            
            75000
            
            
            -Issuance
                of common and preferred stock
            
            
            1,610,000
            
            
            691,000Net
                Cash Provided by Financing Activities
            
            
            1,700,000
            
            
            988,000Net
                Increase (Decrease) in Cash
            
            
            (461,727
            )
            
            120,150Cash
                at Beginning of Period
            
            
            470,148
            
            
            81,307Cash
                at End of Period
            
            $
            8,421
            
            $
            201,457




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)




Nine Months EndedSeptember 30, 2008NON-CASH
                INVESTING AND FINANCING ACTIVITIES:Additional
                goodwill incurred by obligation to be settled in stock for 20 million
                penalty shares
            
            $
            200,000Additional
                deferred finance costs incurred by obligation to be settled in
                stock
            
            $
            35,000Additional
                goodwill incurred via promissory note
            
            $
            225,000Settlement
                of deferred revenue liability with stock
            
            $
            40,000Settlement
                of note conversions and finance cost obligations with stock and
                warrants
            
            $
            123,644Issuance
                of stock and warrants for prior subscription obligations
            
            $
            1,800,000Settlement
                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, 2008
 
 1. SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature
        of
        Organization
 
 Magnitude
        Information Systems, Inc. (the “Company”) was incorporated as a Delaware
        corporation on April 19, 1988 under the name Fortunistics, Inc. On November
        18,
        1998, the Company changed its name to Magnitude Information Systems,
        Inc.
 
 The
        Company, Magnitude, Inc. and Kiwibox Media Inc. are separate legal entities,
        with Kiwibox Media, Inc. being a wholly owned subsidiary. The 1% of Magnitude,
        Inc. not owned by the Company constitutes a minority interest which is valued
        at
        $0. The operations of the combined entity are currently comprised almost
        exclusively of the operations of Kiwibox Media, Inc.
 
 Business
 
 Prior
        to
        the implementation of its strategic business plan in 2007, the Company’s primary
        product was an integrated suite of proprietary software modules previously
        marketed under the name ErgoEnterpriseTM. During the latter half of fiscal
        year 2006, Company management concluded that the marketplace for the Company’s
        ergonomic software products was not developing, and would not develop to
        the
        material extent necessary in the next 12 to 24 months, to support and sustain
        the Company’s sales efforts. Accordingly, management determined that it would be
        in the best interests of the Company and its shareholders to identify another
        business opportunity and pursue it for the benefit of our shareholders. On
        February 19, 2007, the Company, pursuant to its strategic plan to seek another
        business opportunity, signed an Agreement and Plan of Reorganization with
        the
        owners of a social networking website, to acquire their Kiwibox.com website
        and
        business, represented by Kiwibox Media, Inc. Pursuant to that certain Agreement
        and Plan of Reorganization, in August, 2007, Kiwibox Media, Inc. merged with
        and
        into Magnitude Operations, Inc., a wholly owned subsidiary of Magnitude
        Information Systems, Inc., in a “reverse merger” transaction. The three
        shareholders of Kiwibox Media, Inc. transferred and delivered all of the
        outstanding stock of Kiwibox Media, Inc. to Magnitude Operations, Inc. for
        cancellation **** and
        received in exchange shares of Magnitude Information Systems, Inc. at closing.
        Also at closing and as a result of the merger, the separate legal existence
        of
        Magnitude Operations, Inc. ceased and Kiwibox Media, Inc. became the surviving
        corporation of the merger and a wholly owned subsidiary of Magnitude Information
        Systems, Inc.
 
 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. In August 2008 we had re-launched
        our
        website with increased functions.
  7
  MAGNITUDE
        INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
        30, 2008
 
 SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES, Continued
 
 Basis
        of
        Presentation
 
 The
        accompanying unaudited consolidated financial statements have been prepared
        in
        accordance with generally accepted accounting principles for interim financial
        statements and with the instructions to Form 10-Q and Article 10 of Regulation
        S-X. Accordingly, they do not include all of the information and disclosures
        required for annual financial statements. These financial statements should
        be
        read in conjunction with the consolidated financial statements and related
        footnotes included in the Company’s annual report on Form 10-KSB for the year
        ended December 31, 2007 and its quarterly report on Form 10-Q for the quarters
        ended March 31 and June 30, 2008.
 
 In
        the
        opinion of the Company’s management, all adjustments (consisting of normal
        recurring accruals) necessary to present fairly the Company’s financial position
        as of September 30, 2008, the results of operations for the three and nine
        months ended September 30, 2008 and 2007, and the cash flows for the nine
        months
        ended September 30, 2008 and 2007, have been included.
 
 Principles
        of Consolidation
 
 The
        consolidated financial statements include the accounts of Magnitude Information
        Systems, Inc. and its subsidiaries Magnitude, Inc. and Kiwibox Media, Inc.
        All
        significant inter-company balances and transactions have been
        eliminated.
 
 Depreciation
        and Amortization
 
 Property
        and equipment are recorded at cost. Depreciation on equipment, furniture
        and
        fixtures and leasehold improvements is computed on the straight-line method
        over
        the estimated useful lives of such assets between 3-10 years. Maintenance
        and
        repairs are charged to operations as incurred.
 
 Evaluation
        of Long Lived Assets
 Long-lived
        assets are assessed for recoverability on an ongoing basis. In evaluating
        the
        fair value and future benefits of long-lived assets, their carrying value
        would
        be reduced by the excess, if any, of the long-lived asset over management’s
        estimate of the anticipated undiscounted future net cash flows of the related
        long-lived asset.
 
 Goodwill
        and Intangible Assets
 
 The
        Company accounts for its goodwill and intangible assets pursuant to SFAS
        No.
        142, "Goodwill and Other Intangible Assets". Under SFAS 142, intangibles
        with
        definite lives continue to be amortized on a straight-line basis over the
        lesser
        of their estimated useful lives or contractual terms. Goodwill and intangibles
        with indefinite lives are evaluated at least annually for impairment by
        comparing the asset's estimated fair value with its carrying value, based
        on
        cash flow methodology.
 
 The
        Company’s intangible assets including goodwill are subject to impairment testing
        in the event of certain indicators. Impairment in the carrying value of an
        asset
        is recognized whenever anticipated future cash flows (undiscounted) from
        an
        asset are estimated to be less than its carrying value. The amount of the
        impairment recognized is the difference between the carrying value of the
        asset
        and its fair value.
  8
  MAGNITUDE
        INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
        30, 2008
 
 SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES, Continued
 
 Securities
        Issued for Services
 
 The
        Company accounts for stock, stock options and stock warrants issued for services
        and compensation by employees under the fair value method. For non-employees,
        the fair market value of the Company’s stock on the date of stock issuance or
        option/grant is used. The Company has determined the fair market value of
        the
        warrants/options issued under the Black-Scholes Pricing Model. The Company
        has
        adopted the provisions of Statement of Financial Accounting Standards (SFAS)
        123(R), SHARE-BASED PAYMENT, which establishes accounting for equity instruments
        exchanged for employee services. Under the provisions of SFAS 123(R),
        share-based compensation cost is measured at the grant date, based on the
        fair
        value of the award, and is recognized as an expense over the employee's
        requisite service period (generally the vesting period of the equity grant)..
 
 Reclassification
        of certain securities under EITF 00-19
 
 Pursuant
        to Emerging Issues Task Force (EITF) Issue 00-19, if a company has more than
        one
        contract subject to this Issue, and partial reclassification is required,
        there
        may be different methods that could be used to determine which contracts,
        or
        portions of contracts, should be reclassified. The Company's method for
        reclassification of such contracts is reclassification of contracts with
        the
        latest maturity date first.
 
 Capitalization
        of Software /Website development costs
  The
        Company capitalized outside-contracted development work in accordance with
        the
        guidelines published under EITF 00-2, *Accounting
        for Web Site Development Costs* ,
        adopted
        during the quarter ended March 31, 2008. Under EITF 00-2, costs incurred
        during
        the planning stage are expensed, while  costs
        relating to software used to operate a web site or for developing initial
        graphics should be accounted for under SOP 98-1, *Accounting
        for the Costs of Computer Software Developed or Obtained for Internal
        Use* ,
        unless
        a plan exists or is being developed to market the software externally. Under
        SOP
        98-1, internal and external costs incurred to develop internal-use computer
        software during the application development stage should be capitalized.
        Costs
        to develop or obtain software that allows for access or conversion of old
        data
        by new systems should also be capitalized, excluding training costs.  Fees
        incurred for web site hosting, which involve the payment of a specified,
        periodic fee to an Internet service provider in return for hosting the web
        site
        on its server(s) connected to the Internet, are expensed over the period
        of
        benefit, and included in cost of sales in the accompanying financial statements.
        A total of $0 and $64,650 was capitalized for web-site development work during
        the three and nine months ended September 30, 2008, respectively.
  Fair
        Value Measurements
  The
        Company adopted the provisions of Statement of Financial Accounting Standards
        (SFAS) No. 157, *Fair
        Value Measurements* ,
        which
        is effective for fiscal years beginning after November 15, 2007, and interim
        periods within those fiscal years. Under FASB Statement No. 157, a framework
        was
        established for measuring fair value in generally accepted accounting principles
        (GAAP), and expands disclosures about fair value measurements. Since the
        number
        of shares issuable under the Company’s Series G convertible preferred stock was
        indeterminable during the nine months ended September 30, 2008, the Company
        measured the fair value of warrants and options outstanding at September
        30,
        2008. The value at September 30, 2008 was determined to be $2,408,410, measured
        using significant unobservable inputs (Level 3) under a Black-Scholes valuation
        method. The change in value during the nine months period was $(508,342)
        reported in the Statement of Operations under Other Income
        (Expense).
  9
  MAGNITUDE
        INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
        30, 2008
 
 SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES, Continued
  The
        Company adopted the provisions of Statement of Financial Accounting Standards
        (SFAS) No. 159, "The Fair Value Option for Financial Assets and Financial
        Liabilities", which included and amendment of FASB Statement No. 115 with
        respect to improvement of financial reporting of certain investments in debt
        and
        equity securities. This Statement permits entities to choose to measure many
        financial instruments and certain other items at fair value. The implementation
        of this new standard did not have a material impact on the Company's financial
        position, results of operations and cash flows for the nine months ended
        September 30, 2008.
 
 Income
        Taxes
 
 The
        Company provides for income taxes based on enacted tax law and statutory
        tax
        rates at which items of income and expenses are expected to be settled in
        the
        Company’s income tax return. Certain items of revenue and expense are reported
        for Federal income tax purposes in different periods than for financial
        reporting purposes, thereby resulting in deferred income taxes. Deferred
        taxes
        are also recognized for operating losses that are available to offset future
        taxable income. Valuation allowances are established when necessary to reduce
        deferred tax assets to the amount expected to be realized. The Company has
        incurred net operating losses for financial-reporting and tax-reporting
        purposes. Accordingly, for Federal and state income tax purposes, the benefit
        for income taxes has been offset entirely by a valuation allowance against
        the
        related federal and state deferred tax asset.
 
 Net
        Loss
        Per Share
 
 Net
        loss
        per share, in accordance with the provisions of Financial Accounting Standards
        Board No. 128, “Earnings Per Share” is computed by dividing net loss by the
        weighted average number of shares of Common Stock outstanding during the
        period.
        Common Stock equivalents have not been included in this computation since
        the
        effect would be anti-dilutive.
 
 Revenue
        Recognition
 
 The
        Company’s revenue recognition policy for software sales is in accordance with
        Accounting Statement of Position (SOP) 97-2 “Software Revenue Recognition” and
        SOP 98-9 “Software Revenue recognition” which modifies SOP 97-2. Revenue is
        recognized at the time of licensing provided that the resulting receivable
        is
        deemed probable of collection and is fixed or determinable. Revenue from
        software maintenance contracts is recognized ratably as earned. When a sales
        contract includes multiple elements, revenues are allocated to the various
        elements based on Company-specific objective evidence of fair value, regardless
        of any separate prices for each element that may be stated within the
        contract.
 
 The
        Company’s revenue from its KiwiBox Media, Inc. subsidiary derives from
        advertising on the KiwiBox website. Most contracts require the Company to
        deliver the customer impressions, click-throughs or new customers, or some
        combination thereof. Accordingly, advertising revenue is estimated and
        recognized for the period in which customer impressions, click through or
        new
        customers are delivered. Licensing or hosting revenue consists of an annual
        contract with clients to provide web-site hosting and assistance.
 .
 Use
        of
        Estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from those estimates.
  10
  MAGNITUDE
        INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
        30, 2008
 
 2.
        GOING
        CONCERN
 
 The
        ability of the Company to continue its operations is dependent on increasing
        sales and obtaining additional capital and financing. In their reports for
        the
        fiscal years ended December 31, 2007 and December 31, 2006, our auditors
        had
        expressed an opinion that, as a result of the losses incurred, there was
        substantial doubt regarding our ability to continue as a going concern. The
        accompanying financial statements do not include any adjustments that might
        be
        necessary if the Company were unable to continue as a going concern.
        Management’s plans are to continue seeking equity and debt capital until cash
        flow from operations cover funding needs.
 
 3.
        CONCENTRATIONS OF BUSINESS AND CREDIT RISK
 
 The
        Company maintains cash balances in a financial institution which is insured
        by
        the Federal Deposit Insurance Corporation up to $250,000. Balances in these
        accounts may, at times, exceed the federally insured limits. At September
        30,
        2008, 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 included $9,947 prepaid insurance costs,
        with
        the remainder representing miscellaneous prepaid expenses.
 
 5.
        PROPERTY AND EQUIPMENT
 
 Property
        and equipment consist of the following at September 30,
        2008:
 Furniture
                
                
                2,014Leasehold
                    Improvements
                
                
                9,400Equipment
                
                
                75,39386,807Less
                    accumulated depreciation
                
                
                52,862Total
                
                $
                33,945
 
 Depreciation
        expense charged to operations was $9,494 and $4,422 in the first nine months
        of
        2008 and 2007, respectively.
 
 6.
        INTANGIBLE ASSETS
 
 Intangible
        assets at September 30, 2008 included web site development costs and deferred
        finance costs.
 
 Website
        development costs, at September 30, 2008, consisted of:
 Costs
                  incurred
              
              $
              64,650Less
                  accumulated amortization
              
              
              6,030Total
              
              $
              58,620
 
 During
        the three months ended March 31, 2008, the Company incurred finance costs
        due to
        a penalty share obligation of 2,250,000 restricted shares valued at $35,000
        to
        extend the maturities of various bridge notes. Amortization of deferred
        financing costs was $0, $70,303, $230,445 and $433,822 for the three and
        nine
        months ended September 30, 2008 and 2007, respectively, resulting in net
        deferred financing costs of $0 at September 30, 2008.
  11
  MAGNITUDE
        INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
        30, 2008
 
 7.
        ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
 Accounts
        payable and accrued expenses consisted of the following at September 30,
        2008:
 Accounts
                  payable
              
              $
              536,394Accrued
                  interest
              
              
              69,150Accrued
                  salaries
              
              
              41,938Accrued
                  commissions
              
              
              3,720Accrued
                  professional fees
              
              
              76,855Miscellaneous
                  accruals
              
              
              50,313Total
              
              $
              778,370
 
 Accrued
        commissions are due to a consultant who was retained in the capacity of Senior
        Vice President of Business Development.
 
 8.
        GOODWILL
 
 On
        August
        16, 2007, the Company completed its acquisition of 100% of the outstanding
        capital stock of KiwiBox Media, Inc. The total initial purchase price of
        $2,850,273 was calculated as follows: we issued 30,000,000 restricted common
        shares based on a total value of $1,500,000 determined by the lower of $0.05
        per
        share and the average sales price of the Company’s common stock for the ten (10)
        successive trading days immediately preceding the closing, 43,610 shares
        of our
        Series G Preferred Stock worth $500,000, paid $450,000 in cash to the three
        KiwiBox owners, and incurred $57,500 in acquisition fees. In addition, based
        on
        the initial Agreement and Plan of Reorganization from February 2007, the
        Company
        committed to investing $3.5 million for the operations of Kiwibox. Based
        on an
        amendment in July 2007, in the event that certain investment tranches were
        not
        made by their respective due dates, the Company agreed to issue 60,000
        restricted shares to the former shareholders of Kiwibox for each day that
        the
        funds were in arrears. The Company estimated the fair value of this
        pre-acquisition contingency as of the acquisition date based on the present
        value of the total expected liability at a discount rate of 5%, with an accreted
        value of $295,800 at June 30, 2008 (current period value of $3,027 was charged
        to operations, so net increase in purchase price was $292,773). In February
        2008, the Company entered into another amendment that superseded the provisions
        of amendments in December 2007, whereby the Company agreed to issue 20 million
        reset shares, valued at $200,000, and a promissory note for $225,000, and
        $250,000 cash penalties ($100,000 paid in 2007, $150,000 paid in 2008) as
        additional consideration due to the delays in financing, which increased
        the
        value of Goodwill at March 31, 2008. This additional consideration eliminated
        the requirement for penalty shares to continue accruing, as long as the Company
        received $1.5 million in financing by March 7, 2008, and invested $700,000
        in
        Kiwibox operations. This financing was received in a timely fashion. The
        amendment also provided the former shareholders of Kiwibox the option to
        receive
        the value of the reset shares in common stock options of equivalent value.
        To
        date, 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
        (see
        Note 13), with $75,000 paid during the quarter and the remaining $75,000
        paid
        subsequent to the end of the quarter.
 
 The
        excess of the purchase price over the net assets acquired has been recorded
        as
        Goodwill in the amount of $3,138,751 as of September 30, 2008. Management
        expects the future discounted cash flows from Kiwibox’ operations to be equal or
        higher than the carrying amount of the goodwill.
  12
  MAGNITUDE
        INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
        30, 2008
 
 9.
        LOANS
        PAYABLE
 
 The
        Company and Magnitude, Inc. had borrowings under short term loan agreements
        with
        the following terms and conditions at September 30, 2008:
 
 On
                  December 4, 1996, Magnitude, Inc. repurchased 500,000 shares of
                  its common
                  stock and retired same against issuance of a promissory note maturing
                  twelve months thereafter accruing interest at 5% per annum and
                  due
                  December 4, 1998. This note is overdue at September 30, 2005 and
                  no demand
                  for payment has been made.
              
              $
              75,000Total
              
              $
              75,000
 
 10.
        NOTES
        PAYABLE
 
 On
        February 28, 2008, two debtholders agreed to convert their outstanding notes
        of
        $350,000, finance cost obligations to be settled in stock of $385,000 and
        finance cost obligations that could be settled in stock or cash of $22,500
        into
        a total of 9,333,333 common shares and 3,500,000 five-year common stock warrants
        with an exercise price of $0.07 per share, resulting in a gain on extinguishment
        of $633,856. The warrants were valued at $30,311 using a Black-Scholes model,
        with the following assumptions: volatility - 169%, dividends – none, risk-free
        rate – 2.1%. In addition, in January 2008, the Company converted the $100,000
        deposit recorded previously as deferred revenue into common stock on behalf
        of
        the depositor by issuing 2,000,000 restricted common shares. This issuance
        resulted in a gain on extinguishment of this liability of $60,000 based on
        the
        fair value of the shares delivered in settlement.
 
 At
                  December 31, 1999 the Company had $1,475,000 of notes outstanding
                  related
                  to a June 1995 private placement offering. During 2000 the holders
                  of
                  $1,450,000 worth of notes agreed to accept partial repayment of
                  approximately 30% of the note balances and converted the remaining
                  balances into common shares or convertible preferred shares. The
                  total
                  amount of non-converted notes outstanding at September 30, 2008
                  is
                  $25,000. Attempts to locate the holder of this note, to settle
                  this
                  liability, have been unsuccessful.
              
              
              25,000In
                  January 2008 a shareholders loaned the Company $40,000 pursuant
                  to which
                  the Company issued a demand note bearing interest at the rate of
                  5% per
                  year.
              
              
              40,000In
                  September 2008 a shareholder loaned the Company $50,000, repayable
                  under a
                  promissory note bearing interest at 10% per annum and payable on
                  demand.
              
              
              50,000In
                  February 2008, as partial additional consideration under the Kiwibox
                  acquisition agreement, as amended, the Company issued a $225,000
                  note
                  payable bearing interest at 5% per year. $75,000 was repaid during
                  the
                  third quarter in 2008 and $75,000 was cancelled (see Note 13) pursuant
                  to
                  a settlement agreement with one of the holders.
              
              
              75,000Total
              
              $
              190,000
  13
 
 MAGNITUDE
        INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
        30, 2008
 
 11.
        LONG-TERM DEBT
 
 Long-term
        debt as of September 30, 2008 is comprised of the following:
  Discounted
                  present value of a non-interest bearing $70,000 settlement with
                  a former
                  investor of Magnitude, Inc. to be paid in 24 equal monthly payments
                  commencing July 1, 1997. The imputed interest rate used to discount
                  the
                  note is 8% per annum. This obligation is in default.
              
              
              33,529Total
              
              
              33,529Less
                  current maturities
              
              
              33,529Long-term
                  debt, net of current maturities
              
              $
              -
 
 12.
        COMMITMENTS AND CONTINGENCIES
 
 On
        September 1, 2006, the Company entered a three year lease (which can be
        terminated by either party after 12 months) for approximately 850 square
        feet of
        office space at 1250 Route 28, Suite 309, Branchburg, New Jersey. This lease
        agreement currently calls for a base rental payment of $1,137 per month plus
        utility/cam/property tax charges of approximately $600 per month through
        August
        31, 2008, with a nominal increase for year three ending August 31, 2009.
        In
        addition, we maintain offices for our Kiwibox operations at 330 W. 38th Street,
        New York, New York 10018, consisting of approximately 1,600 square feet.
        We have
        a two-year lease covering these offices and pay minimum monthly rentals of
        $3,908.09 plus tenants’ share of 0.86% of utility/cam/property tax charges
        through August 31, 2008, and minimum monthly rentals of $4,012.82 plus
        additional rentals for the twelve months ending August 31, 2009.
  On
        September 23, 2008, Kiwibox joined with UMG Recordings, Inc. to sign a one-year,
        Video Syndication Agreement, pursuant to which UMG supplies its video archive
        to
        the Kiwibox website in exchange for advertising space on our
        website.
 
 13.
        RELATED PARTY TRANSACTIONS
 
 On
        January 2, 2007, the Company and a former employee, Steven W. Jagels settled
        a
        lawsuit commenced by Mr. Jagels against the Company based upon claims which
        included breach of his employment agreement. We agreed to make a payment
        of
        $20,040 to Mr. Jagels and to issue 3,000,000 common shares to him by January
        7,
        2007. We also agreed to include these shares in a registration statement
        and
        when declared effective by the SEC, to cause a buyer to purchase these shares
        from Mr. Jagels for $75,000 prior to February 28, 2007. At the time of this
        report, the law suit has been settled.
 
 In
        January 2007 we issued warrants for 3,125,000 shares, exercisable at $0.05
        per
        share, to the former president and chief executive officer, in connection
        with a
        settlement agreement reached during the fourth quarter in 2006.
 
 In
        May
        2007 the Company reached agreement with the former president and chief executive
        officer to the effect that, in return for issuance of 2,000,000 shares, he
        would
        issue a waiver with respect to the Company’s obligation for filing a
        registration statement for certain securities previously issued to him by
        the
        Company.
 
 During
        the three and nine months periods ended September 30, 2008 one outside director
        of the Company who also serves as the Company’s general and securities counsel,
        was paid an aggregate $20,000 and $240,632, respectively, for legal services.
        At
        September 30, 2008, the Company owed this director $187,407. Another outside
        director was paid $30,000 during the second quarter in 2008, for business
        consulting services.
  14
 During
        the second quarter in 2008, we paid $24,000 to a major shareholder for investor
        relations services.
  In
        August, 2008, we issued an aggregate 30,560,000 restricted common shares
        to the
        three Kiwibox principals pursuant to our Agreement and Plan of Reorganization,
        dated February 19, 2007, and subsequent amendments, as disclosed in our report
        and exhibit, filed on Form 8-K with the U.S. Securities and Exchange Commission
        on March 4, 2008.
 
 On
        August
        17, 2008, one of the three Kiwibox Shareholders resigned his employment.
        As part
        of this agreement, his outstanding stock options were cancelled and the
        consultant entered into an agreement that provided for his future services
        to
        the Company as an independent consultant for six months at $12,500 per month.
        On
        September 5, 2008, the Company reached a Settlement Agreement with the
        consultant whereby the Company forgave the balance of loans due from the
        former
        shareholder in the balance of $155,459 for $75,000 in cash and by offsetting
        of
        $75,000 of notes payable due to the former shareholder. The difference of
        $5,459
        was treated as additional compensation.
 
 14.
        SUBSEQUENT EVENT
 
 Subsequent
        to September 30, 2008, we repaid the remaining $75,000 on the note obligation
        due under the amended Kiwibox
        acquisition agreement.
  15
  MAGNITUDE
        INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
        30, 2008
 
 **Item
        2.**
 MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF
 FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS
 
 The
        information in this annual report contains forward-looking statements within
        the
        meaning of the Private Securities Litigation Reform Act of 1995. Such Act
        provides a “safe harbor” for forward-looking statements to encourage companies
        to provide prospective information about their businesses so long as they
        identify these statements as forward looking and provide meaningful cautionary
        statements identifying important factors that could cause actual results
        to
        differ from the projected results. All statements other than those statements
        of
        historical fact made in this report are forward looking. In particular, the
        statements herein regarding industry prospects and future results of operations
        or financial position are forward-looking statements. Forward-looking statements
        reflect management’s current expectations and are inherently uncertain. Our
        actual results may differ significantly from management’s expectations. The
        following discussion and analysis should be read in conjunction with the
        consolidated financial statements of Magnitude Information Systems, Inc.,
        included herewith. This discussion should not be construed to imply that
        the
        results discussed herein will necessarily continue into the future, or that
        any
        conclusion reached herein will necessarily be indicative of actual operating
        results in the future. Such discussion represents only the best present
        assessment of our management.
 
 Background
 
 On
        August
        16, 2007, we closed on our acquisition of Kiwibox Media, Inc., a business
        that
        had developed a social networking website dedicated to teenagers. As a result
        of
        this acquisition, accomplished through a reverse merger, Kiwibox Media, Inc.
        became our wholly owned subsidiary. Prior to this acquisition, we entered
        into a
        License and Client Software Support Agreement with Imminent Technologies,
        LLC on
        April 10, 2007, licensing our prior business’ suite of ergonomic software
        products and thereby, effectively terminating our involvement in the ergonomic
        software business, all as disclosed in the current report on Form 8-K we
        filed
        on April 11, 2007.
 
 The
        Kiwibox Closing - August 16, 2007.
 
 On
        August
        16, 2007, we closed our acquisition of Kiwibox Media, Inc. through a reverse
        merger between Kiwibox and our wholly owned acquisition subsidiary. As a
        result
        of the merger, Kiwibox became our wholly owned subsidiary. At the Kiwibox
        closing, we (1) issued an aggregate 30,000,000 restricted common shares to
        the
        three Kiwibox shareholders, (2) issued an aggregate 43,610 shares of our
        Senior
        Convertible Series G Preferred stock to these principals, (3) paid an aggregate
        $150,000 in cash to these Kiwibox principals, less a $7,000 investment banking
        fee paid to Southridge Investment Group, and (4) signed two-year employment
        agreements with Messrs. Lin Dai, Ivan Tumanov and Michael Howard, the three
        Kiwibox shareholders, all pursuant to the terms and provisions of the Agreement
        and Plan of Reorganization, dated February 19, 2007, and amendments thereto,
        and
        as most recently modified by Amendment No. 6 between the parties on February
        28,
        2008. The 43,610 Series G Preferred Shares issued to the Kiwibox principals
        at
        closing have an aggregate conversion value of $500,000 (the “Conversion Value”),
        which $500,000 Conversion Value is convertible into our common shares by
        dividing it by the “Market Price” of our common stock during the twenty (20)
        successive trading days immediately preceding the second anniversary of the
        agreement. At the closing, the Company promised to issue 750,000 of the KiwiBox
        shareholders’restricted common shares to Southridge Investment Group, LLC as
        part of its fee. Based upon our original Agreement and Plan of Reorganization
        of
        February 2007, we committed to invest $3.5 Million in the Kiwibox business.
        This
        commitment was based upon our communications with a Swiss based shareholder
        and
        investor in our Company, Tell Capital AG, who on July 26, 2007, sent us a
        commitment to invest $3 million of equity in our Company. Based upon Tell
        Capital’s commitment, we executed Amendment No. 3 to our original February, 2007
        agreement with Kiwibox, committing to invest $3.5 million in various tranches,
        corresponding to the investment schedule set forth in the Tell Capital
        commitment, as well as agreeing to pay 60,000 restricted common shares for
        each
        day any of our scheduled investment tranches were late. Because of the delays
        in
        the receipt of the equity investments from Tell Capital, scheduled through
        November 1, 2007, our corresponding investment commitments to the Kiwibox
        business were also late. The continuing lateness of our investment commitments
        to the Kiwibox business resulted in further amendments to our Kiwibox agreement
        and required us to make a $100,000 penalty payment to the Kiwibox shareholders
        in 2007. The final modification to our original agreement, Amendment No.
        6,
        executed on February 28, 2008, provided that if we raised $1.5 million in
        equity
        on or before March 7, 2008 and dedicated $700,000 of that amount to the Kiwibox
        business, made another penalty payment of $150,000 and delivered our corporate
        note in the principal amount of $225,000 to the Kiwibox shareholders, all
        rescission rights held by the Kiwibox shareholders and any further obligations
        to invest in the Kiwibox business would terminate. On March 7, 2008, we received
        $1.5 Million in subscription proceeds from investors, from which proceeds
        we
        dedicated $700,000 to the Kiwibox business, made the $150,000 penalty payment
        to
        the Kiwibox shareholders and delivered to them our $225,000 corporate note.
        Accordingly, the Kiwibox shareholders’ rights of rescission and our obligation
        to invest further funds in the Kiwibox business terminated. We have paid
        the
        Kiwibox shareholders $250,000 in cash, delivered to them our $225,000 corporate
        note, due June 15, 2008, and must issue to them approximately 30,000,000
        restricted common shares resulting from the series of delays in meeting our
        commitments to invest funds into the Kiwibox business. We issued the 20,000,000
        reset shares and the 10,200,000 penalty shares to the Kiwibox shareholders
        and
        settled the $225,000 corporate note.
 
 16
  We
        signed
        and delivered two-year employment agreements with the three Kiwibox Shareholders
        at the closing. These employment agreements pay each Kiwibox Shareholder
        an
        annual base salary of $150,000 and an annual bonus if certain business goals
        are
        met. Each Kiwibox Shareholder received a stock option to purchase up to
        7,500,000 shares of our common stock which vests over time as well as a
        performance stock option to purchase up to an additional 3,000,000 shares
        of our
        common stock, vesting upon the attainment of certain business goals. All
        of
        these stock options are exercisable at $.05 per share. During the third quarter
        , we entered into a termination agreement with Ivan Tumanov, one of the Kiwibox
        shareholders, pursuant to which Mr. Tumanov resigned his position, terminated
        his employment agreement and returned his 10,500,000 stock options for
        cancellation, all as reported in our current report filed on Form 8-K with
        the
        Commission on September 24, 2008. We also issued to Paul Farris, the Director
        of
        Business Development for the Kiwibox operation, 500,000 non-qualified stock
        options, vesting one-third each on the three successive anniversary dates
        of his
        employment and 500,000 performance stock options, vesting upon attainment
        of
        certain performance goals, one-half each on the first and second employment
        anniversary dates, pursuant to the terms of his employment
        agreement.
  Plan
        of
        Operations
 
 Since
        our
        acquisition of Kiwibox, we have been developing a new version of our website,
        as
        well as extending our offerings into different mobile platforms. The mobile
        WAP
        version of the Kiwibox.com site has been launched, as well as our new Kiwibox
        2.0 website. In August, 2008, we launched our new Web 2.0 site contains
        significant enhancements over the original website, expanding our operations
        that includes the following new features :
  ·
              Dynamic
                  new profile pages — New profiles feature drag and drop customization,
                  enhanced privacy settings, and personal sub-domains for every member.
                  Kiwibox members can add widgets for Facebook, MySpace, YouTube,
                  Flickr,
                  and all of their favorite Kiwibox content.
 ·
              Revamped
                  Points and Prizes — Members have more ways to earn KiwiPoints by
                  participating in the social network and contributing editorial
                  content.
                  Members can redeem these KiwiPoints for an expanded selection of
                  real
                  world KiwiPrizes from iPods(TM) to Nintendo Wii(TM) and much more.
 ·
              New
                  KiwiGames — New KiwiGames section offers members double the amount of
                  cool, fun games to play while connecting and competing with friends.
 ·
              KiwiboxTV
                  — Exclusive on camera interviews with artists and celebrities by
                  Kiwibox
                  teen Video Journalists, as well video coverage of red carpet events
                  brings
                  members one step closer to their favorite celebrities.
 ·
              Enhanced
                  weekly and daily content — Weekly online magazine is supplemented by daily
                  and up-to-the-minute entertainment news contributed by members
                  from around
                  the world.
 
 **Search
        Engine Optimization –** Kiwibox
        restructured article, news, journal, qbook, and postboard pages to optimize
        them
        for search engines. The changes resulted in growth of organic search engine
        traffic by 129% from July 2008 to September 2008.
 **Membership
        Growth –** Through
        organic growth, new partnerships, and increased marketing efforts, new
        membership increased by 147% from the previous quarter.
 **Improved
        Referral Tools** –
In
        September, Kiwibox launched the eFriendFinder application. The application
        allows members to use their email address books from AOL, Yahoo!, Gmail,
        Hotmail, and other services to find their friends on Kiwibox and invite friends
        that aren't already members of Kiwibox.com. The service generates on average
        over 10,000 invitations to join Kiwibox, per day. We expect the number of
        friend
        invitations sent to increase as we increase new member registration, and
        promote
        the tool to current members of the Kiwibox community.
  17
  **Universal
        Music Video Partnership –** Kiwibox
        and Universal Music Group entered into an agreement that will provide the
        Kiwibox users access to thousands of videos from the world's most popular
        artists. UMG's music video catalog will be interwoven into Kiwibox's exclusive
        teen editorial content under the title of "Kiwibox Music Videos." The video
        content will be advertising supported and Kiwibox, artists, labels and copyright
        holders will all receive a share of revenue from the ads displayed next to
        their
        music video content.
 
 **Results
        of Operations**
 
 The
        Company had no material revenues during the quarter ended September 30, 2007.
        For the three and nine months ended September 30, 2008, total revenues amounted
        to $18,841 and $37,055, respectively, generated entirely from the Kiwibox
        operations. Expenses for website hosting services for Kiwibox’ website are
        recognized as cost-of-goods-sold and amounted to $6,266 and $38,016 for the
        three and nine months periods ended September 30, 2008.
 
 Our
        operating expenses increased significantly from the same period a year ago,
        due
        to an expansion in staffing and marketing expenses to advance our new Kiwibox
        business. After accounting for selling-, research-, and general and
        administrative expenses totaling $597,710 and $2,040,720, the Company realized
        losses from operations of $585,135 and $2,041,681 for the three and nine
        months
        ended September 30, 2008, compared to operating losses of $712,740 and
        $1,733,596 over the similar periods in 2007 during which time we had not
        yet
        invested in the new business. Non-operating income and expenses during the
        three
        and nine months ended September 30, 2008 consisted primarily of a gain on
        extinguishment of debt of $1,942 and $720,798, respectively, and accounting
        charges of $262,546 and $508,342 reflecting the change in fair value of
        outstanding options and warrants during that period, plus some smaller
        positions. The period results were a net loss of $852,704 and a net loss
        of
        $1,887,413 for the three and nine months, respectively, ended September 30,
        2008, compared to losses of $462,286 and 2,435,184 for the same periods in
        2007.
  After
        accounting for dividend accruals on outstanding preferred stock which totaled
        $41,747 in 2008, the net results applicable to common shareholders for the
        three
        and nine months periods ended September 30, 2008, were losses of $866,619 or
        $0.002 per share, and of $1,929,160 or $0.005 per share, respectively, compared
        to losses of $475,409 or $0.002 per share, and $2,475,782 or $0.011 per share
        for the same periods in the previous year.
  **Liquidity
        and Capital Resources**
 
 We
        have
        financed our business with new debt and equity capital since our cash flow
        is
        insufficient to provide the working capital necessary to fund our operations.
        We
        recorded $1,610,000 in cash from subscriptions for new equity capital from
        accredited private investors during the first nine months of 2008. In addition,
        we received $90,000 from short-term loans. Our deficit in working capital
        amounted to $3,977,374 at September 30, 2008, as compared to a deficit of
        $5,826,532 at December 31, 2007. Stockholders’ equity showed an impairment of
        $742,834 at September 30, 2008, compared to an impairment of $3,095,576 at
        the
        beginning of the year. The negative cash flow from operations totaled $2,021,873
        and was substantially financed by new debt and equity which was obtained
        through
        private placements. The new equity placements were consummated by issuance
        of
        common stock and warrants to primarily foreign investors. Details of such
        transactions can be found in the “Changes and Issuance of Securities” section of
        this report and our reports on Form 10-Q for the quarters ended March 31
        and
        June 30, 2008.
 
 We
        have
        no bank debt and aside from trade payables and accruals, our indebtedness
        at
        September 30, 2008, consisted of certain notes and loans aggregating $265,000.
        The position “Obligations to be settled in stock” of $106,000 represents stock
        to be issued to certain consultants. Current liabilities also include $418,491
        accrued unpaid dividends on outstanding preferred stock. Such dividends will
        be
        paid only if and when capital surplus and cash-flow from operations are
        sufficient to cover the outstanding amounts without thereby unduly impacting
        the
        Company’s ability to continue operating and growing its business.
 
 Our
        current cash reserves and net cash flow from operations expected during the
        near
        future may not be sufficient to fund our website development, operations
        and
        marketing plan over the next twelve months. We expect to fund these requirements
        with further investments in form of debt or equity capital, targeted for
        the
        fourth quarter of 2008. There can be no assurance, however, that we will
        be able
        to identify a financing source or sources and if we do, whether the terms
        of
        such financing will be acceptable or commercially reasonable. If the Company
        failed to do so, either by not acquiring sufficient funds, or not receiving
        such
        funds in a timely manner, management may be forced to effect cut-backs in
        the
        Company’s operations.
  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,
        2008, an evaluation was undertaken, under the supervision and with the
        participation of the Company’s management, including the Company’s Chief
        Executive Officer and Chief Financial Officer, of the effectiveness of the
        design and operation of the Company’s disclosure controls and procedures
        pursuant to Rule 13a-15(e) of the Exchange Act; and; based upon that evaluation,
        Company management, including the Chief Executive Officer and the Chief
        Financial Officer, has concluded that the design of the Company’s disclosure
        controls and procedures are effective and ensure that all material information
        required to be disclosed by the Company in the reports that it files or submits
        under the Act, are recorded, processed, summarized and reported within the
        time
        periods specified in the Commission’s rules and forms; in addition, the
        evaluation confirmed that
        the
        Company’s disclosure controls and procedures are designed to ensure that the
        information required to be disclosed by the Company in the reports that it
        files
        or submits under the Act is accumulated and communicated to Company management,
        including its Chief Executive Officer and Chief Financial Officer, as
        appropriate to allow timely decisions regarding required disclosure. The
        Company
        maintains a system of internal controls designed to provide reasonable assurance
        that: (i) the Company’s transactions are properly authorized; (ii) the Company’s
        assets are protected against unauthorized or improper use, and (iii) the
        Company’s transactions are properly recorded and reported, all to permit the
        preparation of complete and accurate financial statements in conformity with
        generally accepted accounting principles. (b) Changes in Internal Control
        over
        Financial Reporting Since the date of the most recent evaluation of the
        Company’s internal controls by Company management, including the Chief Executive
        Officer and Chief Financial Officer, there have not been any changes in the
        Company’s internal controls or other factors for the period covered by the
        subject Form 10-Q that materially affected or were likely to materially affect
        the Company’s internal control over financial reporting.
 
 The
        Company maintains a system of internal controls designed to provide reasonable
        assurance that: (i) the Company’s transactions are properly authorized; (ii) the
        Company’s assets are protected against unauthorized or improper use, and (iii)
        the Company’s transactions are properly recorded and reported, all to permit the
        preparation of complete and accurate financial statements in conformity with
        generally accepted accounting principles.
 
 (b)
        Changes in Internal Control over Financial Reporting
 Since
        the
        date of the most recent evaluation of the Company’s internal controls by the
        Chief Executive Officer and Chief Financial Officer, there have not been
        any
        significant changes in the Company’s internal controls or other factors for the
        period covered by the subject Form 10-Q that materially affected or were
        likely
        to materially affect the Company’s internal control over financial
        reporting.
  19
 
 **PART
        II - OTHER INFORMATION**
 
 Item
        1  LEGAL
        PROCEEDINGS
 
 At
        the
        time of this report, the Company is not a party in any legal proceedings.
 
 Item
        1A. RISK
        FACTORS
  A
        smaller
        reporting company is not required to provide the information required by
        this
        Item.
 
 Item
        2  UNREGISTERED
        SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 a)
              Issuance
                  of unregistered securities
 
 During
        the quarter ended September 30, 2008, the Company issued an aggregate 30,560,000
        restricted common shares to the three former shareholders of Kiwibox pursuant
        to
        our Agreement and Plan of Reorganization, dated February 19, 2007, and
        subsequent amendments, as disclosed in our report and exhibit, filed on Form
        8-K
        with the U.S. Securities and Exchange Commission on March 4, 2008; 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 relationship with the three
        recipients 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 $418,000. These dividends have been accrued,
        however, the Company’s management has refrained from making payments at this
        time because of the absence of positive equity and/or surplus funds.
 
 Item
        4  SUBMISSION
        OF MATTERS TO A VOTE OFSECURITY
        HOLDERS
 
 -
        None
 
 Item
        5  OTHER
        INFORMATION
 
 -
        None
  20
 
 Item
        6  EXHIBITS
        AND REPORTS ON FORM 8-K
 
 (a)
              Exhibits
 
 (3)(i)
        -
        Articles of Incorporation and Amendments thereto, incorporated herein by
        reference to Exhibits of previous filings with the Commission.
 
 (3)(ii)
        -
        By-laws of the Company, incorporated herein by reference to Exhibits of previous
        filings with the Commission.
 
 (31.1)
        -
        Certification of Rudolf Hauke, Chief Executive Officer, pursuant to Section
        302
        of the Sarbanes-Oxley Act of 2002.
 
 (31.2)
        -
        Certification of Joerg H. Klaube, Chief Financial Officer, pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002.
 
 (32.1)
        -
        Certification of Rudolf Hauke, Chief Executive Officer, pursuant to Sections
        906
        of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
 
 (32.2)
        -
        Certification of Joerg H. Klaube, Chief Financial Officer, pursuant to Sections
        906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
 
 (b)
              Reports
                  on Form 8-K:
 
 On
        July
        18, 2008, the Company filed a report on Form 8-K, informing about the
        resignations of Edward L. Marney as the President/CEO and as a director,
        as of
        August 1, 2008, and Steven L. Gray as a director, as of July 18, 2008. Also
        announced were the appointments of Dr. Rudolph Hauke to serve as co-President/
        CEO on an interim basis, effective July 14, 2008 and as a director, and of
        Quentin Kelly and Dr. Joerg Otzen as directors of Registrant.
 
 On
        June
        30, 2008, the Company filed a report on Form 8-K, informing about (i) a
        consultancy agreement with a major investor and shareholder, (ii) the grant
        of
        stock options to members of the board of directors of the Company, and (iii)
        a
        press release which announced the extension of access to its social network
        websire to users of mobile cellular phones.
  On
        August
        8, 2008, the Company filed a report on Form 8-K, informing about the launch
        of
        Kiwibox Version 2.0 Teen Social Network website and Online Magazine.
 
 On
        August
        27, 2008, the Company filed a report on Form 8-K, informing about the
        appointment of Lin Dai to the board of directors of the Registrant.
 
 On
        September 17, 2008, the Company filed a report on Form 8-K, informing about
        a
        press release that announced a significant increase in the number of daily
        new
        member registrations in the wake of the release of the Kiwibox Version 2.0
        website, and which also informed about the receipt by the company of a
        commitment for new investor funding.
 
 On
        September 24, 2008, the Company filed a report on Form 8-K, informing about
        the
        resignation of one of the three original founders of Kiwibox Media Inc. from
        the
        employ of the company.
  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 18, 2008
              
              By:
              /s/
                  Rudolf HaukeRudolf
                  HaukeChief
                  Executive Officer
  22