MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations

The closing of the Kiwibox Agreement, originally scheduled for on or about June 15, 2007, has been rescheduled to occur on or about the date of August 16, 2007. The acquisition was approved by a majority of the shareholders on June 15, 2007.

During the second quarter management concentrated on obtaining commitments for the funding of future operations following the Kiwibox merger, as stipulated and required pursuant to the merger agreement. Our operating expenses, aside from legal and other professional fees which were unusually high primarily due to transactions and preparations for the Kiwibox merger, and excluding non-cash expenses for stock issuances, were reduced to approximately $200,000 for the quarter. The aforementioned legal expenses totaled $193,125, and the cost of restricted common stock issued in connection with the settlement of claims from two former employees (see "Related Party Transactions"), recognized as non-cash "stock-based compensation" amounted to $172,000. Altogether, the Company realized a loss from operations of $562,355 for the three months period ended June 30, 2007. Non-operating expenses consisted primarily of amortization of finance costs and the amortization of beneficial conversion features underlying certain loan financing transactions (see Liquidity and Capital Resources below) which charges aggregated $281,379. These expenses were partially offset by an accounting credit of $267,786 reflecting the change in fair value of outstanding options and warrants during the quarter, resulting mostly from the expiration of such instruments during the period. The period result was a net loss of $624,398 for the quarter, compared to a loss of $1,113,001 for the same period in 2006. Restricted stock is priced at market and options and warrants grants are valued using the Black-Scholes valuation model.

After accounting for dividend accruals on outstanding preferred stock for the quarter which totaled $13,738, the net losses for the quarter and the six months period ended June 30, 2007 applicable to common shareholders were $638,136 or $0.003 and $2,023,219 or $0.009 per share respectively, compared to losses of $1,599,885 or $0.010 per share, and $2,476,449 or $0.016 per share for the same periods in the previous year.

Liquidity and Capital Resources

In the absence of cash flow from operations, required working capital to finance ongoing operations was supplied entirely from short-term borrowings. During the quarter, the Company received $347,000 in proceeds in connection with borrowings under convertible notes which bear interest of 12% p.a. and are accompanied by certain loan origination fees, payable in stock grants of ten shares per Dollar invested and cash at 10% of proceeds received. In addition, during the quarter that Company received $50,000 in proceeds from a subscription for common stock and stock purchase warrants, and $6,000 from a holder's exercise of common stock options for 600,000 shares..

At June 30, 2007, the deficit in working capital amounted to $4,239,892 as compared to $3,796,960 at March 31, 2007. Stockholders' equity showed an impairment of $4,109,645 at the end of the quarter. The negative cash flow from operations for the six months ended June 30, 2007 totaled $448,190 and was substantially financed by borrowings.

At the time of this submission, the Company had no bank debt. At June 30, 2007 its short-term liabilities, aside from trade payables and accruals, consisted of certain notes and loans aggregating $789,450 (before debt discount), a derivative liability for its outstanding options and warrants totaling $1,826,151 and $368,643 accrued unpaid dividends on outstanding preferred stock. We expect that these 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.

Current cash reserves and net cash flow from operations expected during the near future are inadequate when measured against present and anticipated future needs, and the Company's financial situation remains precarious. In order to remedy the liquidity constraints management is seeking further investments in form of debt or equity capital. There can be no assurance, however, that these efforts will lead to the desired outcome and that the Company will be successful in obtaining the working capital needed to fund on-going operations. If the Company failed to do so, either by not acquiring sufficient funds, or not receiving such funds in a timely manner, management may be forced to effect further severe cut-backs in the Company's operations. .

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