SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act Of 2004
Date of report (date of earliest event reported): August 16, 2007
MAGNITUDE INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
33-20432 75-2228828
(Commission File Number) (IRS Employer Identification No.)
1250 Route 28, Branchburg, New Jersey 08876
(Address of principal executive offices) (Zip Code)
(908) 927-0004
(Registrant's telephone number)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2 below):
|_| Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e- 4(c))
Item 1.01 Entry into Material Definitive Agreements
Item 2.01 Completion of Acquisition or Disposition of Assets
Item 2.03 Creation of a Direct Financial Obligation
Item 2.04 Triggering Events that Accelerate or Increase a Direct Financial
Obligation
Item 3.02 Unregistered Sales of Equity Securities
Item 7.01 Regulation FD Disclosure
On August 16, 2007, Magnitude Information Systems, Inc. closed on its
acquisition of Kiwibox Media, Inc. through a reverse merger between Kiwibox and
its wholly owned acquisition subsidiary. As a result of the merger, Kiwibox
became the wholly owned subsidiary of Magnitude. At the closing, Magnitude (1)
issued an aggregate 30 million restricted common shares to the three Kiwibox
shareholders, (2) issued an aggregate 43,610 shares of its 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, most
recently modified by Amendment No. 3 between the parties on August 2, 2007. 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 Company common shares by dividing
it by the "Market Price" of the Company's common stock during the twenty (20)
successive trading days immediately preceding the second anniversary of the
agreement.
Pursuant to their agreement, at the closing Magnitude confirmed its
receipt of the first $500,000 tranche of equity funding from Tell Capital AG,
its Swiss investor, $300,000 of such funding was dedicated to cover the $150,000
cash payment to the Kiwibox shareholders and the balance for Kiwibox operations.
Further to their agreement, Magnitude has committed to invest an aggregate $3.5
million of funds for investment in the Kiwibox business over the approximate 18
month period following closing: $1.7 million to be available during the period
from closing through October 31, 2007, an additional $1.8 million available on
or before February 1, 2008, and a last $300,000 within 12 months of closing.
Magnitude has also agreed to issue to the Kiwibox principals 60,000 Company
common shares for each day any part of the $3.5 million investment amount is
delayed and further agreed to provide Kiwibox with a right of rescission if a
30-day payment default is not cured after notice. As previously reported on its
prior Form 8-K current report of August 2, 2007, the Swiss investment firm, Tell
Capital AG and its affiliates have subscribed to purchase an aggregate
$3,000,000 of Company equity securities over the next several months. This
commitment provided the Company with the funds to close its acquisition of
Kiwibox and will cover a large part of Magnitude's $3.5 million investment
commitment to the Kiwibox operation.
The Kiwibox employment agreements cover a term of two (2) years and pay
each Kiwibox Shareholder an annual base salary of $150,000. In addition, the
Company has agreed to pay each an annual bonus if certain business goals are
met. The Company agreed to pay each a $100,000 bonus if the Kiwi Business has
received no less than an average 215,000 "Unique Visitors" during either the
10th, 11th or 12th month of the first year of the term or achieved no less than
$316,000 in gross revenues within the 12 moth period following the Closing.
Alternatively, the Company agreed to pay each a $50,000 bonus if the Kiwi
Business has received at least an average 175,000 but less than an average
215,000 "Unique Visitors" during either the 10th, 11th or 12th month of the
first year of the term or at least $237,000 in gross revenues but less than
$316,000 within the 12 moth period following the Closing. A "Unique Visitor" is
a person who visits a Kiwibox website during any month during the term. For the
second year of their employment agreements, the Company has agreed to pay each a
$100,000 bonus if the Kiwi Business has received no less than an average 550,000
Unique Visitors during either the 22nd, 23rd or 24th month of the second year of
the term or attained $1,961,000 in gross revenues, or a bonus of $50,000 each if
the Kiwi Business has received at least an average 415,000 but less than an
average 550,000 Unique Visitors during either the 22nd, 23rd or 24th month of
the second year of the term or attained at least $1,500,000 in gross revenues
but less than $1,961,000. Each Kiwibox Shareholder received a stock option to
purchase up to 7,500,000 shares of our common stock at an exercise price of $.05
per share which shall vest and be exercisable by the Kiwibox Shareholders, 50%
on the first anniversary date of the Closing, 25% 18 months after the Closing
and 25% on the second anniversary of the Closing. Each was issued, as well,
under the terms of their employment agreements, a performance stock option to
purchase up to an additional 3,000,000 shares of our common stock, 1,500,000 of
which options shall vest and be exercisable by the Kiwibox Shareholders after
the first anniversary date of the Closing if the Kiwi Business has received no
less than an average 215,000 Unique Visitors during either the 10th, 11th or
12th
month of the first year of the term or achieved $316,000 in gross revenues
during the first year, and the balance, or 1,500,000 options shall vest and be
exercisable by the Kiwibox Shareholders after the second anniversary date of the
Closing if the Kiwi Business has received at least an average 550,000 Unique
Visitors during either the 22nd, 23rd or 24th month of the second year of the
term or achieved $1,961,000 in gross revenues during the second year of the
agreements. The exercise prices for these stock options is $.05 per share.
In connection with the issuance of the above described unregistered
securities, the Company relied upon the exemptions from the registration
requirements of the Securities Act provided by Regulation D and Section 4(2) of
the Securities Act: private sales of securities not involving a public offering.
The three Kiwibox principals who received the unregistered securities were
represented by counsel and financial advisors, performed due diligence on the
Company's plan of operations and financial condition over an extended period of
time; all of the subject securities issued bore restrictive legends, preventing
their further sale or transfer other than pursuant to an effective registration
statement under the Securities Act or pursuant to valid exemptions therefrom.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
(4) The financial statements shall be filed by amendment to this
report within 71 days of August 22, 2007, the date this Form
8-k was required to be filed.
(d) Exhibits.
99.1 Press Release Dated August 20, 2007
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MAGNITUDE INFORMATION SYSTEMS, INC.
Dated: August 20, 2007 By: /s/ Edward L. Marney
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Edward L. Marney
President and Chief Executive Officer