FORM
10-Q





SECURITIES
AND EXCHANGE COMMISSION





WASHINGTON,
DC 20549





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


For
Quarter Ended June 30, 2009





OR





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


For the
Transition Period from _______ to _______





Commission
file number  33-20432





MAGNITUDE INFORMATION
SYSTEMS, INC.


(Exact
Name of Registrant as Specified in its Charter)





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





330 W. 38th St., New York, NY
      10018
                (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 August 12, 2009, was 454,099,712 shares.










MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES





INDEX





PageNumberPART  1  -  FINANCIAL
      INFORMATIONItem
      1
                                            Financial
      StatementsConsolidated
      Balance Sheets-
      June 30, 2009 (unaudited) and December 31, 2008 (audited)
                                            
                                            3Consolidated
      Statements of Operations-
      Three and six months ended June 30, 2009 and 2008
    (unaudited)
                                            
                                            4Consolidated
      Statements of Cash Flows-
      Six months ended June 30, 2009 and 2008 (unaudited)
                                            
                                            5 -
      6Notes
      to Consolidated Financial Statements
                                            
                                            7 -
      15Item
      2
                                            Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operations
                                            
                                            16
      – 17Item
      3.
                                            Quantitative
      and Qualitative Disclosures About Market Risk
                                            
                                            17Item
      4
                                            Controls
      and Procedures
                                            
                                            17PART
      II  -  OTHER INFORMATION
                                            
                                            19 -
      20Item
      1. Legal Proceedings
                                            
                                            19Item
      1A. Risk Factors
                                            
                                            19Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
                                            
                                            19Item
      3. Defaults Upon Senior Securities
                                            
                                            19Item
      4. Submission of Matters to a Vote of Security Holders
                                            
                                            19Item
      5. Other information
                                            
                                            19Item
      6.  Exhibits
                                            
                                            20SIGNATURES
                                            
                                            21




2




PART
I  - Item 1   Financial Statements





MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





June 30, 2009 (Unaudited)
                                  
                                  
                                  December 31, 2008 (Audited)AssetsCurrent
      AssetsCash
                                  
                                  $
                                  45,578
                                  
                                  
                                  $
                                  5,000Accounts
      receivable, net of allowance for doubtful accounts of $0 and
      $0
                                  
                                  
                                  5,374
                                  
                                  
                                  
                                  9,800Prepaid
      expenses
                                  
                                  
                                  4,890
                                  
                                  
                                  
                                  16,162Total
      Current Assets
                                  
                                  
                                  55,842
                                  
                                  
                                  
                                  30,962Property
      and equipment, net of accumulated depreciation of $81,394 and
      $63,722
                                  
                                  
                                  22,493
                                  
                                  
                                  
                                  40,165Software,
      net of accumulated amortization of $23,104 and $12,329
                                  
                                  
                                  41,546
                                  
                                  
                                  
                                  52,321Deferred
      financing costs, net of accumulated amortization of $619,900 and
      $615,900
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,000Other
      assets
                                  
                                  
                                  17,724
                                  
                                  
                                  
                                  3,224Total
      Assets
                                  
                                  
                                  137,605
                                  
                                  
                                  
                                  130,672Liabilities
      and Stockholders’ Equity (Impairment)Current
      LiabilitiesAccounts
      payable and accrued expenses
                                  
                                  
                                  783,482
                                  
                                  
                                  
                                  931,676Obligations
      to be settled in stock
                                  
                                  
                                  148,200
                                  
                                  
                                  
                                  135,200Dividends
      payable
                                  
                                  
                                  453,708
                                  
                                  
                                  
                                  428,076Loans
      and notes payable
                                  
                                  
                                  1,170,000
                                  
                                  
                                  
                                  320,000Derivative
      liability – warrants and options
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,330,812Current
      maturities of long-term debt
                                  
                                  
                                  33,529
                                  
                                  
                                  
                                  33,529Total
      Current Liabilities
                                  
                                  
                                  2,588,919
                                  
                                  
                                  
                                  5,179,293Long-term
      Debt
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Total
      Liabilities
                                  
                                  
                                  2,588,919
                                  
                                  
                                  
                                  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 454,099,712 and 436,242,570
      shares
                                  
                                  
                                  45,410
                                  
                                  
                                  
                                  43,624Additional
      paid-in capital
                                  
                                  
                                  44,386,294
                                  
                                  
                                  
                                  40,159,909Loans
      receivable – stockholders
                                  
                                  
                                  (131,262
                                  )
                                  
                                  
                                  (131,262
                                  )Accumulated
      (deficit)
                                  
                                  
                                  (46,751,842
                                  )
                                  
                                  
                                  (45,121,021
                                  )Total
      Stockholders’ Equity (Impairment)
                                  
                                  
                                  (2,451,314
                                  )
                                  
                                  
                                  (5,048,621
                                  )Total
      Liabilities and Equity (Impairment)
                                  
                                  $
                                  137,605
                                  
                                  
                                  $
                                  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
                                          
                                          
                                          Six Months EndedJune 30,
                                          
                                          
                                          June 30,2009
                                          
                                          
                                          2008
                                          
                                          
                                          2009
                                          
                                          
                                          2008Total
      Revenues
                                          
                                          $
                                          20,959
                                          
                                          
                                          $
                                          4,300
                                          
                                          
                                          $
                                          38,844
                                          
                                          
                                          $
                                          18,214Cost
      of Goods Sold
                                          
                                          
                                          2,263
                                          
                                          
                                          
                                          18,559
                                          
                                          
                                          
                                          11,497
                                          
                                          
                                          
                                          31,750Gross
      Profit (Loss)
                                          
                                          
                                          18,696
                                          
                                          
                                          
                                          (14,259
                                          )
                                          
                                          
                                          27,347
                                          
                                          
                                          
                                          (13,536
                                          )Selling
      expenses .
                                          
                                          
                                          12,769
                                          
                                          
                                          
                                          12,410
                                          
                                          
                                          
                                          101,565
                                          
                                          
                                          
                                          73,204Provision
      for bad debts
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,893Stock-based
      compensation (see below)
                                          
                                          
                                          -
                                          
                                          
                                          
                                          57,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          57,000Research
      and development cost
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,200
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7,200General
      and administrative expenses
                                          
                                          
                                          260,261
                                          
                                          
                                          
                                          762,869
                                          
                                          
                                          
                                          845,776
                                          
                                          
                                          
                                          1,297,713Loss
      from Operations
                                          
                                          
                                          (254,334
                                          )
                                          
                                          
                                          (853,738
                                          )
                                          
                                          
                                          (919,994
                                          )
                                          
                                          
                                          (1,456,546
                                          )Other
      Income (Expense)Miscellaneous
      income
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          27,008Misc.
      non-operating expenses
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,102
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (3,102
                                          )Change
      in fair value –derivative liability
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,945,641
                                          
                                          
                                          
                                          (77,806
                                          )
                                          
                                          
                                          (245,796
                                          )Amortization
      of deferred financing cost
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (11,666
                                          )
                                          
                                          
                                          (4,000
                                          )
                                          
                                          
                                          (70,303
                                          )Gain
      on extinguishment of debt
                                          
                                          
                                          32,416
                                          
                                          
                                          
                                          25,000
                                          
                                          
                                          
                                          32,416
                                          
                                          
                                          
                                          718,856Interest
      income
                                          
                                          
                                          5
                                          
                                          
                                          
                                          549
                                          
                                          
                                          
                                          5
                                          
                                          
                                          
                                          549Interest
      expense
                                          
                                          
                                          (20,623
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (635,810
                                          )
                                          
                                          
                                          (5,375
                                          )Total
      Other Income (Expense)
                                          
                                          
                                          11,798
                                          
                                          
                                          
                                          1,956,422
                                          
                                          
                                          
                                          (685,195
                                          )
                                          
                                          
                                          421,837Profit
      (Loss) before Provision for Income Taxes
                                          
                                          
                                          (242,536
                                          )
                                          
                                          
                                          1,102,684
                                          
                                          
                                          
                                          (1,605,189
                                          )
                                          
                                          
                                          (1,034,709
                                          )Provision
      for income taxes
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Net
      Profit (Loss)
                                          
                                          $
                                          (242,536
                                          )
                                          
                                          $
                                          1,102,684
                                          
                                          
                                          $
                                          (1,605,189
                                          )
                                          
                                          $
                                          (1,034,709
                                          )Dividends
      on Preferred Stock
                                          
                                          
                                          (12,816
                                          )
                                          
                                          
                                          (13,916
                                          )
                                          
                                          
                                          (25,632
                                          )
                                          
                                          
                                          (27,832
                                          )Net
      Profit (Loss) applicable to  Common Shareholders
                                          
                                          $
                                          (255,352
                                          )
                                          
                                          $
                                          1,088,768
                                          
                                          
                                          $
                                          (1,630,821
                                          )
                                          
                                          $
                                          (1,062,541
                                          )Net
      Profit (Loss) per Common Share
                                          
                                          $
                                          (0.001
                                          )
                                          
                                          $
                                          0.003
                                          
                                          
                                          $
                                          (0.004
                                          )
                                          
                                          $
                                          (0.003
                                          )Weighted
      Average Number of  Common Shares Outstanding
                                          
                                          
                                          454,099,712
                                          
                                          
                                          
                                          376,242,570
                                          
                                          
                                          
                                          449,635,427
                                          
                                          
                                          
                                          337,270,348




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)





Six Months EndedJune 30,2009
                  
                  
                  2008Cash
      Flows from Operating ActivitiesNet
      Loss
                  
                  $
                  (1,605,189
                  )
                  
                  $
                  (1,034,709
                  )Adjustments
      to Reconcile Net Loss to Net Cash Used by OperationsDepreciation
      and amortization
                  
                  
                  32,447
                  
                  
                  
                  87,900Change
      in fair value – derivative liabilities
                  
                  
                  77,806
                  
                  
                  
                  (680,056
                  )Secutities
      issued for expenses
                  
                  
                  5,940
                  
                  
                  
                  57,000Loss
      on disposal of assets
                  
                  
                  -
                  
                  
                  
                  2,553Intrinsic
      value of beneficial conversion rights
                  
                  
                  600,000
                  
                  
                  
                  -Gain
      on extinguishment of debt
                  
                  
                  -
                  
                  
                  
                  (693,856
                  )Decreases
      (Increases) in AssetsAccounts
      receivable
                  
                  
                  4,426
                  
                  
                  
                  7,893Prepaid
      expenses
                  
                  
                  11,272
                  
                  
                  
                  (9,371
                  )Other
      assets
                  
                  
                  (14,500
                  )
                  
                  
                  -Increases
      (decreases) in LiabilitiesObligations
      to be settled in stock
                  
                  
                  13,000
                  
                  
                  
                  925,852Accounts
      payable and accrued expenses
                  
                  
                  65,376
                  
                  
                  
                  (194,349
                  )Net
      Cash Used by Operating Activities
                  
                  
                  (809,422
                  )
                  
                  
                  (1,531,143
                  )Cash
      Flows from Investing ActivitiesCash
      outlay for website development costs
                  
                  
                  -
                  
                  
                  
                  (64,650
                  )Cash
      paid as additional consideration-Kiwibox Acquisition
                  
                  
                  -
                  
                  
                  
                  (50,000
                  )Purchases
      of equipment and fixtures
                  
                  
                  -
                  
                  
                  
                  (22,205
                  )Net
      Cash Used by Investing Activities
                  
                  
                  -
                  
                  
                  
                  (136,855
                  )Cash
      Flows from Financing ActivitiesProceeds
      from loans and notes
                  
                  
                  850,000
                  
                  
                  
                  40,000Issuance
      of common stock
                  
                  
                  -
                  
                  
                  
                  1,610,000Net
      Cash Provided by Financing Activities
                  
                  
                  850,000
                  
                  
                  
                  1,650,000Net
      Increase (Decrease) in Cash
                  
                  
                  40,578
                  
                  
                  
                  (17,998
                  )Cash
      at Beginning of Period
                  
                  
                  5,000
                  
                  
                  
                  470,148Cash
      at End of Period
                  
                  $
                  45,578
                  
                  
                  $
                  452,150SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      paid
                  
                  
                  -
                  
                  
                  
                  -Taxes
      paid
                  
                  
                  -
                  
                  
                  
                  -




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:Six Months Ended June 30,
    2009Reclassification
      of derivative liabilities to Additional Paid-in capital
                      
                      $
                      3,408,618Forgiveness
      of debt by related party
                      
                      $
                      213,570Six Months Ended June 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
                      
                      $
                      1,800,000




6




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


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





Through
our subsidiary, we own and operate “Kiwibox.com”, a social networking website
for teens.Initially launched in
1999, Kiwibox.com is an online social networking website dedicated to teen
users. 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


JUNE 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 report on Form 10-Q for the period
ended March 31, 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 June 30, 2009, the results of operations for the three and six months
ended June 30, 2009 and 2008, and the cash flows for the six months ended June
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 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


JUNE 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 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. 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 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, whilecosts
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 six months ended June 30, 2009 and the year ended December 31, 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 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 six months ended June 30, 2009
was a loss of $77,806 and during the six months ended June 30, 2008 a profit of
$1,945,641, both reported in the Statement of Operations under Other Income
(Expense).




9




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


JUNE 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.




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 six months ended June 30, 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 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. Such common stock
equivalents totaled 183,578,598 common shares at June 30, 2009, comprised of
151,139,648 shares issuable upon exercise of stock purchase warrants, 16,753,542
shares issuable upon exercise of stock options, 729,537 shares exercisable upon
conversion of convertible preferred shares, and 14,955,871 shares potentially
issuable upon conversion of convertible debt. Such debt, presently convertible
at the option of the holder at a price of $0.01 per share, totals $950,000 which
would yield 95,000,000 shares if fully exercised, however, the respective notes,
all of which were issued to the same investor, 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 14,955,871 shares. All of the
aforementioned conversions or exercises, as the case may be, are at the option
of the holders.





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.





10


.


MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


JUNE 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 March 31,
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 $3,506 prepaid health insurance
and $1,384 prepaid business insurance costs.





5.
PROPERTY AND EQUIPMENT





Property
      and equipment consist of the following at
                  
                  June 30, 2009
                  
                  
                  December 31, 2008Furniture
                  
                  $
                  2,014
                  
                  
                  $
                  2,014Leasehold
      Improvements
                  
                  
                  24,131
                  
                  
                  
                  24,131Equipment
                  
                  
                  77,742
                  
                  
                  
                  77,742103,887
                  
                  
                  
                  103,887Less
      accumulated depreciation
                  
                  
                  81,394
                  
                  
                  
                  63,722Total
                  
                  $
                  22,493
                  
                  
                  $
                  40,165





Depreciation
expense charged to operations was $17,672 and $6,357 in the first six months of
2009 and 2008, respectively.




11




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


JUNE 30,
2009


6.  INTANGIBLE
ASSETS





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





June 30, 2009
                  
                  
                  December 31, 2008Website
      development costs
                  
                  $
                  64,650
                  
                  
                  $
                  64,650Less
      accumulated depreciation
                  
                  
                  23,104
                  
                  
                  
                  12,329Total
                  
                  $
                  41,546
                  
                  
                  $
                  52,321





Amortization
expense charged to operations was $10,775 and $2,680 in the first six months of
2009 and 2008, respectively.





7.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES





Accounts
      payable and accrued expenses consisted of the following at
                  
                  June 30, 2009
                  
                  
                  December 31, 2008Accounts
      payable
                  
                  $
                  293,829
                  
                  
                  $
                  474,315Accrued
      interest
                  
                  
                  101,653
                  
                  
                  
                  65,872Accrued
      salaries and payroll taxes
                  
                  
                  34,580
                  
                  
                  
                  21,119Accrued
      commissions
                  
                  
                  3,720
                  
                  
                  
                  3,720Accrued
      professional fees
                  
                  
                  321,635
                  
                  
                  
                  324,636Miscellaneous
      accruals
                  
                  
                  28,065
                  
                  
                  
                  42,014Total
                  
                  $
                  783,482
                  
                  
                  $
                  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


JUNE 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 June 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


JUNE 30,
2009





11.  NOTES
PAYABLE (continued)





June 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 promised to issue
      500,000 restricted common shares as loan origination fee. The note is
      overdue at March 31, 2009.
                                          
                                          
                                          30,000
                                          
                                          
                                          
                                          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
                                          
                                          
                                          
                                          -Total
                                          
                                          $
                                          1,095,000
                                          
                                          
                                          $
                                          245,000




14




MAGNITUDE
INFORMATION SYSTEMS, INC. AND SUBSIDIARIES


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


JUNE 30,
2009





11.
LONG-TERM DEBT





Long-term
debt as of June 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 $57,436 and $36,326 during the six months ended June 30, 2009
and 2008, respectively.





During
the second quarter 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.





13.
RELATED PARTY TRANSACTIONS





During
the six months ended June 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 $40,000 and $220,963, respectively, for legal services. At June 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


JUNE 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 report for the period ended
March 31, 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 whereby we will
optimize our network strategy to improve performance and broaden our reach to an
extended circle of potential subscribers. This effort goes hand to hand with a
drive to substantially reduce overhead costs. At the end of the quarter, our
burn rate for current operations has been reduced to a level between
approximately $80,000 and $100,000. Currently, the Company is exploring new
website options and features intended to generate revenues and to expand user
communications, and is in discussion with certain technology providers to
optimize its content and network capabilities.





Results of Operations for
the Three and Six Months Ended June 30, 2009 Compared to the Three and Six
Months Ended June 30, 2008





The
Company had no material revenues during either the first two 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 six months ended June 30, 2009, total
revenues amounted to $20,959 and $38,844, respectively, compared to $4,300 and
$18,214 recorded in the same periods in 2008.





Gross
profits for the six months ended June 30, 2009 amounted to $27,347 after
considering $11,497 in website hosting expenses.  After deducting
selling -, research -, and general and administrative expenses of $273,030 and
$947,341 for the three and six months ended June 30, 2009, compared to $839,479
and $1,443,010 recorded in the same periods in 2008, the Company realized
operating losses of $254,334 and $919,994 for the three and six months ended
June 30, 2009 compared to operating losses of $853,738 and $1,456,546 in the
same periods in 2008. The large 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.




16




During
the quarter, the major items included in non-operating income and expenses were
the recognition of $32,416 in income from the cancellation of liabilities
incurred in prior fiscal years.  The quarter concluded with a net loss
of $242,536, for the quarter and a loss of $1,605,189 for the first six months
in 2009. After accounting for dividends accrued on outstanding preferred stock
which totaled $12,816 and $25,632, respectively, the net loss applicable to
common shareholders was $255,352 or $0.001 per share and $1,630,821 or $0.004
per share for the quarter and six months ended June 30, 2009, compared to income
(loss) of $1,088,768 or $0.003 per share and $(1,062,541) or $(0.003) 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
$350,000 in cash from short-term loans from accredited private investors during
the quarter. We have
an urgent need for working capital to fund our operations. If we are unable to
immediately 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 $2,533,077 at June 30, 2009, as compared
to $5,148,331 at December 31, 2008.  The change is primarily
attributable 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 $850,000 in short term loans during
2009.  Stockholders’ equity showed an impairment of $2,451,314 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 totaled $809,422 and was
financed by new debt.




We have
no bank debt and aside from trade payables and accruals, our indebtedness at
June 30, 2009, consisted of certain notes and loans aggregating $1,170,000. The
position “Obligations to be settled in stock” of $148,200 includes $119,000 for
common shares due under consulting agreements, finance costs of $10,000 to be
settled in common shares and $19,200 for services to be settled in common stock
warrants, where the underlying securities had not yet been issued by year-end.
Current liabilities also include $453,708 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
discussions with potential investors. 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.





Absent
the receipt of immediate
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, absent the receipt of this
additional funding, our website development, results of operations and financial
condition could be subject to material adverse consequences. .




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.




17




As of the
end of the period covered by this Form 10-Q for the quarter ended June 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.




18




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





The
Company did not issue any unregistered securities during the
quarter.





(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 $454,000.  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




19




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 April
3, 2009, the Company filed a report on Form 8-K, informing about a press release
which announced the launch of a proprietary custom mobile platform for the
Kiwibox website.





On April
3, 2009, the Company filed a report on Form 8-K, informing about the issuance of
certain promissory notes.





On April
30, 2009, the Company filed a report on Form 8-K, informing about the Company’s
ongoing restructuring of its operations.





On May
22, 2009, the Company filed a report on Form 8-K, informing about the
appointment of A. Scholz as a director of the Company. and consolidation of
operations in its New York office.





On June
12, 2009, the Company filed a report on Form 8-K, informing about the
consolidation of certain outstanding debt in a new master convertible promissory
note secured by its shares in its Kiwibox subsidiary, and the conclusion of a
consulting agreement with one of its directors.





20




SIGNATURES





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





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




21