SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   For the Fiscal Year ended December 31, 2000


                                       OR

 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
     EXCHANGE OF 1934

                        For the Transition Period From to

                          Commission File No. 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
               Incorporation or Organization Identification Number

                  401 State Route 24, Chester, New Jersey 07930
                 Address of Principal Executive Offices Zip Code

                                 (908) 879-2722
                Registrants Telephone Number, Including Area Code








           Securities Registered Pursuant to Section 12(b) of the Act:
                                      NONE

          Title of Each Class Name of Each Exchange on Which Registered
                                    NONE NONE

                 Securities Registered pursuant to Section 12(g)
                              of the Exchange Act:
                                      NONE

<PAGE>

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

                                    Yes X No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

      The Registrant's revenues for the fiscal year ended December 31, 2000,
      were $646,635.

Common stock, par value $.0001 per share ("Common Stock"), was the only class of
voting  stock of the  Registrant  outstanding  on March 28,  2001.  Based on the
closing  price of the  Common  Stock  on the OTC  Electronic  Bulletin  Board as
reported  on  March  28,  2001,  ($0.50),  the  aggregate  market  value  of the
approximately  14,161,095  shares of the Common Stock held by persons other than
officers,  directors  and persons known to the  Registrant to be the  beneficial
owners (as the term is defined  under the rules of the  Securities  and Exchange
Commission) of more than five percent of the Common Stock on March 28, 2001, was
approximately $7,080,548.  By the foregoing statements,  the Registrant does not
intend to imply that any of the officers,  directors,  or beneficial  owners are
affiliates of the  registrant or that the  aggregate  market value,  as computed
pursuant  to rules of the  Securities  and  Exchange  Commission,  is in any way
indicative  of the amount  which  could be  obtained  for such  shares of Common
Stock.

       As of March 28, 2001,  17,754,573  shares of Common  Stock, $.0001
       par value, were outstanding.

             DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX

                                       2

<PAGE>



                       MAGNITUDE INFORMATION SYSTEMS, INC.

                                    CONTENTS

<TABLE>
<CAPTION>
PART I.                                                                                 Page

<S>         <C>                                                                          <C>
      Item  1.    Business................................................................4

      Item  2.    Properties ............................................................14

      Item  3.    Legal Proceedings .....................................................14

      Item  4.    Submission of Matters to a Vote of Security Holders ...................14

PART II.

      Item  5.    Market for Registrant's Common Equity and
                  Related Shareholder Matters ...........................................15

      Item  6.    Management's' Discussion and Analysis of
                  Financial Condition and Results of Operations .........................17

      Item  7.    Financial Statements and Supplementary Data ...........................21

      Item  8.    Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure      ...........................21

PART III.

      Item  9.    Directors and Executive Officers of the Registrant ....................22

      Item 10.    Executive Compensation ................................................24

      Item 11.    Security Ownership of Certain Beneficial Owners
                  and Management ........................................................26

      Item 12.    Certain Relationships and Related Transactions ....................... 28

      Item 13.    Exhibits and Reports on Form 8-K ......................................29


                  Signatures ............................................................30

                  Exhibit Index .........................................................31
</TABLE>



                                       3
<PAGE>



                                                                PART I

ITEM     1:       BUSINESS

Description of Business

         Magnitude  Information Systems, Inc. (the "Company" or "Magnitude") was
incorporated  as a  Delaware  corporation  on  April  19,  1988  under  the name
Fortunistics  Inc. On March 4, 1993, the Company  changed its name to Whitestone
Industries,  Inc. On July 14,  1997,  the Company  changed its name to Proformix
Systems,  Inc.,  and on  November  18,  1998,  the  Company  changed its name to
Magnitude Information Systems, Inc.

         The Company's  primary  product is an integrated  suite of  proprietary
software modules marketed under the name  ErgoManager(TM)  which are designed to
help individual computer users and businesses  increase  productivity and reduce
the risk of  potentially  preventable  repetitive  stress  injury  (RSI).  These
software  modules can be applied  individually  or  together in a  comprehensive
ergonomic and early intervention  program that seeks to modify a user's behavior
by  monitoring  computer  usage  patterns over time and warning the user when to
break a  dangerous  trend in  repetitive  usage of an  input  device,  such as a
keyboard  or mouse.  The  product  was  developed  to train  people  working  on
computers,  monitor  computer-use  related activities and evaluate a user's risk
exposure and propensity  towards injury or loss of  effectiveness  in connection
with his/her  day-to-day work.  Moreover,  the software enables a company to not
only  address  the issue of health  risks  involving  employees  and to minimize
resulting  potential  liabilities,  but  delivers  a powerful  tool to  increase
overall productivity.

Background

         Magnitude Information Systems, Inc. (the "Company") was incorporated as
a Delaware  corporation  on April 19, 1988 under the name  Fortunistics  Inc. On
March 4, 1993, the Company  changed its name to Whitestone  Industries,  Inc. On
July 14, 1997, the Company changed its name to Proformix  Systems,  Inc., and on
November  18,  1998,  the  Company  changed  its name to  Magnitude  Information
Systems, Inc.

         On June 24,  1997,  the  Company,  extended  a stock  exchange  offer
 to the  shareholders  of  Proformix,  Inc.,  a  Delaware corporation and
manufacturer of ergonomic  keyboarding systems.  Proformix,  Inc. in November
1998 changed its name to Magnitude,  Inc. and is now  referred to as Magnitude,
Inc. At the time of this  submission,  holders of 99.1% of  Magnitude,  Inc.
common stock have tendered their shares.  The business  combination  which took
the form of a reverse  acquisition  has been accounted for as a purchase.
As a result,  the Company and Magnitude,  Inc. remain as two separate legal
entities whereby  Magnitude,  Inc. operates as a subsidiary of Magnitude
Information  Systems,  Inc.. The operations of the newly combined entity are
currently comprised solely of the operations of Magnitude, Inc.

         On February 2, 1998, the Company  entered into an Agreement and Plan of
Merger with Rolina Corporation,  a privately held New Jersey software developing
firm,  and on April 30,  1998,  into an Asset  Purchase  Agreement  with  Vanity
Software Publishing Co., a Canadian developer of specialized  software,  whereby
the  Company,  in return for  payments in form of cash and equity,  acquired the
rights to certain  software  products  and related  assets,  with such  software
products subsequently forming the basis for the further development,  during the
year, of the Company's proprietary ErgoManager(TM) software system.

         On November  18,  1998,  the Company  and its wholly  owned  subsidiary
Magnitude,  Inc.  entered into an Asset Purchase  Agreement and several  related
agreements  with  1320236  Ontario  Inc.  ("OS"),  a  publicly  traded  Canadian
designer,  manufacturer  and  distributor of office  furniture  based in Holland
Landing,  Ontario,  Canada,  pursuant  to which OS  acquired  Magnitude,  Inc.'s
hardware  product line comprised of the Company's  ergonomic  keyboard  platform
products and  accessories,  all related  inventory  and  production  tooling and
warehousing assets, and all intellectual property rights including the Proformix
name,  against a cash  consideration and an ongoing contingent stream of royalty
payments on OS' sales of the Proformix hardware products.

                                       4
<PAGE>
          The  Company is  currently  subject to the  reporting requirements of
Section  15(d) of the  Securities  Exchange  Act of 1934.  The  Company  has the
authority  to issue an  aggregate of One Hundred  Million  (100,000,000)  Common
Shares,  par value $.0001, and Three Million  (3,000,000)  Preferred Shares, par
value $.001,  of which at December 31, 2000,  Two Thousand Five Hundred  (2,500)
were designated as Cumulative  Preferred Shares,  par value $.001; Three Hundred
Thousand  (300,000)  were  designated as Series A Senior  Convertible  Preferred
Stock, par value $0.001;  Three Hundred Fifty Thousand (350,000) were designated
as Series B Senior  Convertible  Preferred Stock, par value $0.001;  One Hundred
Twenty  Thousand  (120,000)  were  designated  as  Series C  Senior  Convertible
Preferred  Stock,  par value $0.001;  and Five Hundred  Thousand  (500,000) were
designated as Series D Senior Convertible Preferred Stock, par value $0.001.

         As of December  31,  2000,  there were  outstanding  16,525,240  Common
Shares, 1 Cumulative Preferred Share, and 524,337 Convertible Preferred Shares.


                                       5
<PAGE>


Narrative Description of Business

         Magnitude  Information  Systems,  Inc.  is a pioneer  in the  Ergonomic
Productivity Software (EPS) market. With  ErgoManager(TM),  an interactive suite
of  Windows(TM)  software  products,  Magnitude  has developed and delivered the
first integrated systems approach to computer ergonomics. The Company's patented
proprietary  software products provide business and government  employers with a
complete system for the evaluation and management of ergonomic and  productivity
risk factors  with  respect to the use of  computers in the office  environment.
ErgoManager(TM)  is designed to help employers minimize  preventable  Repetitive
Stress Injuries ("RSI") and enhance productivity through:

o        Real-time  monitoring of  keyboarding  activities to ensure proper
         posture and work pacing.
o        Pro-active  dialogue  with  at-risk  employees,  including  surveys and
         training in the best practices for wellness and productivity.
o        Strategic  profiling and the  management of computer use  throughout an
         organization  to employ best practices and to measure  health,  safety,
         and performance results.
o        Computer workstation assessment tools.

      The Company has applied for several patents for its products, and has
received a patent from the U.S. Patent and Trademark  Office on its application
relative to certain core inventions within its  ErgoManager(TM)  system.  The
Company has begun to realize  material  revenues from licensing its software.
Nevertheless, with its new  products  targeting  a  relatively  new  market the
Company  must presently be considered an enterprise in transition.

         As  the   utilization   of  computers  in  the  office  has   increased
significantly in the last decade, so has the rate of health problems believed to
be related to the use of computers.  Computer ergonomics focus on optimizing the
design of technology involved in the utilization of computers in the office, and
also attempts to affect the manner in which people interact with  computers,  so
as to minimize the  associated  health risks. A successful  technology  delivery
system  positively  impacts the cost of doing business by improving the comfort,
productivity,  job  satisfaction and safety of the computer user, while reducing
the costs of absenteeism and work related disability.

         Repetitive  stress injury (RSI) is a classification  of diseases caused
by the excessive use of joints. It is a sub-classification  of Cumulative Trauma
Disorders  (CTDs).  One common form of RSI is Carpal Tunnel Syndrome (CTS) which
can be caused by excessive typing, among other activities, and can be aggravated
by deficient - in the ergonomic sense - equipment and inappropriate work habits.
The carpal  tunnel is a channel in the wrist where  tendons and the median nerve
connect the arm to the hand.  Through  excessive use, the tendons become swollen
and pinch the nerve. RSI accounts for a large portion of work-related illnesses,
and the  incidence of RSI is expected to grow as the number of people  operating
keyboards  increases.  The  impact of RSI is  measured  not only in the pain and
suffering of its victims, but also in time lost from work and medical costs.

         The  Company's  proprietary  software  products  are  designed  to help
businesses deal with potentially  preventable  repetitive  stress  injuries,  by
real-time monitoring of keyboarding  activities,  pro-active dialog with at-risk
employees,  and strategic profiling and management of computer use throughout an
organization.

         A new  study  released  in  January  2001 by the  National  Academy  of
Sciences,  originally  commissioned  by Congress  and  produced by the  National
Research Council,  finds that work-related  back, hand and wrist injuries affect
about 1  million  U.S.  workers  every  year.  The total  cost of the  resultant
disorders is between $45 billion and $54 billion in compensation, lost wages and
lower productivity. Increased awareness of the health risks and associated costs
led the State of California several years ago implemented an ergonomics
regulation Title 8 which directs qualifying  employers to establish and
maintain a program  designed to minimize RSI's.

                                       6

<PAGE>

Such program shall include work-site evaluation, control of the exposures
that have caused RSI's, and training of employees.  State agencies and employers
in  California  face fines of up to $25,000 per  incident  for  violating  these
regulations.  The State of Washington  adopted similar  regulations in 2000, and
other  states  have  indicated  a  willingness  to follow  suit.  The  Company's
proprietary  software  products  deliver a  comprehensive  compliance  tool. The
Company believes that the growing  recognition of these trends will give rise to
a rapidly expanding market for the Company's products.


The Industry

         The Company  operates in only one business  segment:  the  development,
marketing,  and licensing of risk aversion and productivity enhancement software
products for the computerized  workplace  environment.  More  specifically,  the
Company  licenses highly  sophisticated  and proprietary  software that provides
computer based training, work pacing and monitoring tools, as well as a computer
workstation assessment tool.

         Potential  customers for the Company's  products are  businesses of all
sizes,  as well as  organizations  and government  departments and agencies that
employ  many staff in  computer-related  functions.  The  software  industry  in
general is comprised of a remarkable  variety of  providers,  ranging from small
boutique-type  designers to large  international  corporations.  The industry is
characterized by great dynamics, patterns of rapid growth and well-known success
stories, but also by a high degree of volatility and risk.

         The  Company  operates  primarily  in the  United  States  of  America,
however,  has introduced a Portuguese  language version of its software products
for the Brazilian  market,  and will shortly introduce a German language version
for certain  European  markets.  The  Company  has not yet derived any  material
revenues from the licensing or sale of its software products in foreign markets.


Products, Trademarks

         The Company's  current primary  product is a suite of nine  proprietary
software modules marketed under the name  ErgoManager(TM)  which are designed to
help individual computer users and businesses deal with potentially  preventable
repetitive  stress  injury  (RSI).  The nine  software  modules  can be  applied
individually  or together in a  comprehensive  ergonomic and early  intervention
program  that seeks to modify a user's  behavior by  monitoring  computer  usage
patterns  over  time and  warning  the user when to break a  dangerous  trend in
repetitive  usage of an input device,  such as a keyboard or mouse.  The product
was developed to train people working on computers, monitor computer-use related
activities and evaluate a user's risk exposure and propensity  towards injury or
loss of effectiveness in connection with his/her day-to-day work. Moreover,  the
package  enables  a  company  to not only  address  the  issue of  health  risks
involving  employees  and  to  minimize  resulting  potential  liabilities,  but
delivers a powerful tool to increase overall productivity.

         The system is highly customizable for management,  staff and employees.
All components  operate on any PC or workstation  running the Microsoft  Windows
operating system.  ErgoManager(TM) is the first suite of software solutions that
combines  ergonomic  remediation and  productivity  enhancement  tools. Its nine
component modules are described as follows:


                                       7

<PAGE>

ErgoTutor(TM)  delivers a complete office ergonomics training course directly to
employees at their desktop,  and provides employees with clear initial awareness
training as well as follow-up  training for reinforcement of previously  learned
materials.

ErgoSURE(TM)  is a postural  assessment tool designed to allow the evaluation of
employee posture while working at computers.  It is an electronic version of the
internationally accepted RULA (Rapid Upper Limb Assessment) system. This system,
developed  at  the  University  of  Nottingham's   Institute  for   Occupational
Ergonomics in the U.K., allows users to survey a broad range of computer-related
work activities involving repetitive motions,  allowing the user to detect - and
remedy - hazardous situations and conditions.

ErgoSurveyor(TM) is used to gather usage information from employee  populations.
Customized,   professional   quality   surveys   are   designed   to   corporate
specifications  and  gather  important  information  that  may be  used  to plan
ergonomic  and  corporate  business  strategies.  Responses  to risk  assessment
surveys are  gathered and  compiled  into a database  that may be used to create
comprehensive, customized reports.

UserNotes(TM)  is an early  reporting  and "Rapid  Response"  Intervention  tool
designed to give employees a way to communicate  discomfort to designated staff,
allowing  issues  to be  addressed  earlier  - at a  lower  cost  and  a  higher
likelihood of success.  UserNotes is  consistently  available to everyone in the
organization at the workstation or notebook with or without Internet access.

ErgoSentry(R)  measures  rest against work in real time,  tracking  keyboard and
mouse activity  independently.  ErgoSentry's  patented algorithms,  designed for
prevention and control of RSI risk factors, monitor computer usage patterns over
time and alert the user when to take micro-breaks,  avoiding high-risk trends in
keyboard  or mouse  usage  through a unique  and  patented  empowering  feedback
mechanism.  Users are  alerted  to take  these  micro-breaks  only(!)  when risk
exposure exceeds configured limits.

ErgoAnalyzer(TM)  is  designed  to  measure,  analyze  and manage all aspects of
day-to-day  computer  use. Raw actual data of normal,  everyday use are gathered
through  ErgoSentry(R) and accumulated for standard and customized  reports that
track, analyze and qualify how employees are using their computer stations.

Guardian(TM) captures metrics on the frequency of keystroking and mousing during
each minute  throughout the day, and optionally  tracks which  applications  and
files users access.

ErgoQuiz(TM) is an electronic testing system used to assess ergonomic  awareness
and educate employees.

ErgoMap(TM) offers employees state of the art ergonomic training at the desktop.


         In  addition  to the  trademarks  shown  above  which  are owned by the
Company,  Magnitude  has applied for other  product  designators  to be afforded
trademark  protection,  and has filed US Patent  Application  for certain design
principles underlying several of its proprietary software products,  including a
patent  application  for its newest  product,  a new class of usage tracking and
data collection software that is directed towards e-commerce and a wide range of
other Internet related  applications.  There can be no assurance,  however, that
such patents will be granted or, if granted,  that a third party will not design
products which perform the same or similar functions as the Company's  products,
using technology other than that covered by the Company's patents.

                                       8

<PAGE>

Patents and New Products

ErgoSentry - Patent Granted:

         In March 2000 the U.S. Patent and Trademark  Office awarded the Company
a patent which covers various innovations including a proven approach that helps
computer users manage their activity to improve productivity and reduce the risk
of repetitive motion injuries.

ErgoPal Introduced, Patent Pending:

         New  patent-pending  ErgoPal  software is a work pacing tool that helps
users mitigate  health risks and improve their  productivity  by gently alerting
them to increases in stress and fatigue which are occurring  before they realize
it.

eFuel Announced, Patent Pending:

         New patent-pending  technology powering consumable software,  web-sites
and deliverable content. eFuel can be used as an e-Commerce currency provided in
exchange for user  information  on their computer usage both online and offline.
Users build up rewards to apply towards product and service purchases.


Studies Using ErgoManager(TM)

         Magnitude has conducted  productivity studies using  ErgoManager(TM) at
various client and prospect sites.

         In July 1999, Cornell University  released a study entitled "Effects of
Ergonomic  Management  Software on Employee  Performance," a field  experimental
test of the effects of  ErgoManager on computer work  activity.1  Professor Alan
Hedge tested the effects of using Magnitude's  ergonomic work pacing software to
monitor  keyboard  and  mouse  activity,  and to  provide  computer  users  with
information  on  appropriate,  discretionary  rest  breaks.  The  software  also
provided  information  on  stretching  exercises,   appropriate  postures,   and
appropriate  workstation  adjustments.  The Wall Street  office of a  nationwide
insurance brokerage firm was chosen as the test site for this study.

         Data  gathered in the study  covered  6,195  hours of  computer  usage,
equivalent to 800  person/days of computer use.  Participants  used computers an
average of 5.9 hours per day,  and typed over  3,949,000  keystrokes  during the
course of the study.  Employees at the site used their computers for much of the
workday.  The  study  evaluated  the  performance  of 21  individuals  including
executives,  administrators,  customer service  specialists,  underwriters,  and
accountants.

         Alerting users to take more short rest and break periods  improved work
accuracy,  and did not impair  overall  keystroke  and mouse usage.  These study
results agree with previous research. In addition, the study concluded that from
an economic  standpoint,  the  performance  benefits  that may accrue from using
ErgoManager indicate a return on investment of approximately 3 months.

___________________
1 Hedge, A. "Effects of Ergonomic Management Software on Employee Performance.
  Cornell Human Factors Laboratory Technical Report/SP7991, Cornell University,
  July, 1999.

                                       9
<PAGE>

         Another  client,  the California  State  Compensation  Insurance  Fund,
conducted a survey using ErgoManager in a pilot program from January 2000 - June
2000. The significant results of the study included:

o        A 50% reduction rate in the total number of Musculoskeletal Disorder
         (MSD) Claims.
o        A reduction in OSHA reported injury rates from 20% to 80%.
o        The actual workers' compensation savings in the pilot program was
         $120,000.
o        State Fund's projected annual workers' compensation cost savings was
         approximately $780,000.
o        There was a total participation of employees in Pilot Program
o        Employees postponed micro-breaks a maximum of nine minutes.
o        There was 100% employee satisfaction while using ErgoManager.
o        Some employees used program to "warm up" prior to their beginning work

         In February 2001, a study by  Cornell/Lockheed  Martin titled Ergonomic
Management  Software and Work Performance  presented an ROI analysis to quantify
the potential economic impact of a 59% improvement in keystroke accuracy for the
test  group.  Based on a  combination  of  factors  including  estimated  hourly
employee costs which include some of the following:  wages,  benefits,  occupied
internal floor space,  pre-study hourly error costs,  hourly savings per person,
and the annual  "per seat" cost of  ErgoManager,  the study  indicated  that the
breakeven/payback  period is  achieved  in 25.1  hours of usage.  Several  large
industrial  clients already have named  ErgoManager  "Best  Practice".  The term
"Best Practice" is an  acknowledgement  that a concept,  process,  or product is
proven  to  produce  the  desired  results  and  is  applicable  throughout  the
enterprise across organizational lines.

Ergonomic Advisory Board

         Magnitude  has formed an Ergonomic  Advisory  Board (EAB)  comprised of
individuals  with noted expertise in the field of ergonomics and productivity to
ensure that  Magnitude's  ergonomic  products  remain at the  forefront of these
industries. These respected leaders advise Magnitude on product requirements and
put their "stamp of approval" on the Company's EPS products,  enhancing  product
value and standing in these industries relative to the competition.

The EAB focuses on strategic issues, such as:

>>       What product functions, components, and interfaces should Magnitude's
         products possess?
>>       What markets should Magnitude target?
>>       What kinds of ergonomics measures and methods should be provided or
         recommended?
>>       What kinds of ergonomics analyses may companies do with their
         collected datasets?
>>       What kinds of research studies should Magnitude consider?
>>       How will Magnitude's products fit with current and proposed ergonomics
         regulations?
>>       What other ergonomics issues should Magnitude consider?

EAB members serve two-year terms. Today, the EAB is comprised of:

>>       Professor Alan Hedge, Ph.D. - EAB Chairman
         Expertise in office ergonomics and computer ergonomics issues.

>>       Professor Hal Hendrick, Ph.D., CPE, DABFE
         Past-president  of the  Human  Factors  and  Ergonomics  Society,  with
         expertise in macroergonomics  focusing on ergonomics and organizational
         effectiveness.

                                       10

<PAGE>


>>       Professor Rob Henning, Ph.D., CPE
         Expertise in rest-break and human performance issues.

>>       Mr. Mark Carleson
         Consultant  and Former  Deputy  Director  and Chief of  Enforcement  of
         Cal/OSHA from 1990-1999.

>>       Dr. Inger Williams, Ph.D.
         Consultant on school ergonomic issues.

>>       Dr. Chris Grant, Ph.D., CPE
         Expertise in office ergonomics and Ergonet.

Members of the EAB do not endorse specific Magnitude  products,  but do agree to
have their names and brief  biographies on  Magnitude's  Website and included in
press releases about the role and activities of the EAB.


Business Strategy

         The most important prospective customers for the Company's products are
large and medium  companies,  organizations,  and  governmental  departments and
agencies  that  have  a  relatively  large  staff  working  in  computer-related
functions.  These  entities not only are more  cognizant of the health risks and
negative effect on productivity associated with many of the traditional tools of
the  computerized  workplace  and  therefore  tend to be more  receptive  to new
remedial solutions and alternatives based on the science of Ergonomics, but also
have a significant  exposure in terms of legal  liabilities  if they fail to act
addressing  these potential risks. On an on-going basis, the increasing costs of
Work Comp  insurance  creates a growing  incentive  to deal with the  underlying
causes.

         With  its new  proprietary  ergonomic  software  the  Company  offers a
comprehensive  and  effective  tool for  corporate  clients to address the three
major  issues  involved:   (a)  employee  wellness,  (b)  cost  containment  and
productivity  enhancement,  and (c) potential legal  liabilities.  While certain
portions of the ErgoManager(TM)  software suite have been previously marketed as
individual  modules,  the release to the market, in November 1998, of an overall
integrated  solution in form of the  ErgoManager(TM)  system constituted a novel
approach.

         Since that time,  the product has been  installed by a rapidly  growing
number  of  corporate  and  institutional  clients.  Typically,  in  view of the
new-ness of product and market,  such client initially purchases a license for a
"pilot version" of the software,  functionally complete but limited to a smaller
number of users.  After undergoing a process of  familiarization  and evaluation
the  client is  expected  to upgrade to the  intended  ultimate  number of users
which,  by  definition,  should  encompass  all  personnel  exposed to the above
described  risks.  Many tests and evaluations by third parties have confirmed to
the Company's satisfaction that its product is mature, stable, and effective. It
is with a high degree of confidence, therefore, that the Company expects many of
the  ongoing  trial  installations  to lead to  larger  enterprise  orders  and,
thereby,  to the targeted revenue stream.  The key to economic success therefore
lies in a comprehensive marketing approach that carries the Company's message to
the largest  possible  number of  prospective  clients.  Since its own financial
resources  are  limited,  the Company  embarked on a strategy to seek  marketing
partnerships with entities and individuals in the risk management  industry.  An
important  milestone  was reached when the Company,  in the fall of 1998 entered
into a joint venture agreement with AON Ergonomic  Services,  a division of AON,
one of the largest  insurance  services  companies  in the world,  to market the
ErgoManager(TM) system. This agreement was renewed and expanded in July 1999. In
January 2000,  Andersen Consulting LLP and the Company entered into an agreement
whereby Andersen has included the Company's products in their prestigious "Ideas
Exchange" showcase.  This agreement is of special  significance  because it will
introduce the Company to a potentially large audience of key corporate clients.

                                       11

<PAGE>

         The  Company  intends  to  continue   developing   strategic  marketing
relationships  with leading  business  consultants,  to broaden its distribution
channels to include tiered marketing arrangements,  and to strengthen its direct
sales force and support  organization,  thereby focusing on a marketing approach
which  emphasizes  the  advantages  that  accrue to a  business  from the unique
combination of risk management and  productivity  enhancement  tools provided by
ErgoManager(TM).


Research and Development

         Since early 1998 the Company has invested considerable resources in the
further development of the overall ErgoManager(TM) system and the integration of
certain  software  assets  acquired  pursuant  to  the  agreements  with  Rolina
Corporation  and  Vanity  Software   Publishing   Corporation   (see  "Narrative
Description of Business"),  and in further  enhancements  to the products.  Also
during  this  time,  a  complete  set of new  and  necessary  documentation  and
marketing  collateral was created. In late summer, the first official version of
ErgoManager(TM), Version 1.78, was released, followed in October 1998 by Version
2.12., and in April 1999 by Version 3.05.
The Company is currently shipping Version 4.0 which was released in July 2000.

         The Company has expensed all expenditures related to the above efforts.
Such expenses  totaled  approximately  $209,600 for the year ended  December 31,
2000, and $163,000 for the year ended December 31, 1999.

Competition

         The market  addressed by the Company's  software  products is presently
served by a number of  smaller  software  companies,  none of which  occupies  a
dominant  position.  These  competitors,  however,  typically  only  target task
complexes  that are  addressed by  individual  component  parts of the Company's
products,  such as the  ErgoSentry(TM)  module,  without  offering a  comparable
breadth of  function  and  integration  in such areas as  work-site  evaluation,
employee training and work pacing.

         The  Company is not aware of any  products  that  compete - in terms of
breadth of  functionality - with the integrated  software  product suite that is
marketed by the Company under the trade name ErgoManager(TM).  While the Company
believes  that it currently has a strategic  competitive  advantage in ergonomic
software,  especially with regard to its patent-pending algorithms, there can be
no assurance that competitors will not attempt to copy the Company's products or
develop and successfully license similar products, to the Company's detriment.




                                       12
Seasonality and Dependency

         The  industry  segment  in  which  the  Company  does  business  is not
seasonal.  The Company's  software related revenues consist primarily of smaller
orders for pilot  projects  and field  tests,  and several  larger  orders where
successfully  completed pilot projects led to  enterprise-wide  deployment.  The
Company's  future success is dependent upon its ability to increase  occurrences
where such initial  pilot  projects  lead to larger  contracts  where  corporate
clients introduce the Company's  software products across the entire spectrum of
computer workplaces throughout their company or certain divisions.  There can be
no assurance  that the Company will succeed in doing so, or if it does  succeed,
that its business will generate enough revenues during the coming periods,  in a
timely  manner and  sufficient  in scope,  to finance and support the  Company's
planned future growth as expected by management.


Employees

         As of December 31, 2000, the Company employed 19 persons,  of whom four
were  primarily  engaged  in  research  and  development  and  software  support
activities,  ten were  primarily  engaged  in sales and  marketing,  and five in
general  administrative and managerial functions.  The Company has no collective
bargaining agreements with its employees.













                                     13


<PAGE>



ITEM 2:  PROPERTIES

         On  March  15,  2000,  the  Company  entered  a  five  year  lease  for
approximately  6,000 square feet of office space at 401 Route 24,  Chester,  New
Jersey.  This lease  agreement  calls for monthly rental payments of $6,500 with
nominal increases after years No. 2, 3, and 4.



ITEM 3:  LEGAL PROCEEDINGS

         The Company is not a party in any legal proceedings.



ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the security  holders during the
fourth quarter of this fiscal period.













                                       14
<PAGE>



                                     PART II

ITEM 5:  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         SHAREHOLDER MATTERS

         The Company's Common Stock currently trades on the Electronic  Bulletin
Board of the OTC market,  under the symbol MAGY. The following table sets forth,
for the calendar  quarters  indicated,  and for the last two years, the high and
low sales prices for the Company's Common Stock:


                                                       OTC-BB
                                            High/Ask            Low/Bid
1999
         First Quarter.................      $   1.37        $    0.41
         Second Quarter..............            0.81             0.53
         Third Quarter .....................     1.09             0.55
         Fourth Quarter ...................      0.76             0.42

2000
         First Quarter.................      $   4.75        $    0.42
         Second Quarter..............            2.88             0.95
         Third Quarter .....................     1.44             0.72
         Fourth Quarter ...................      0.97             0.63


         As of March 28, 2001,  there were  approximately  235  shareholders  of
record for the  Company's  Common Stock.  The number of record  holders does not
include shareholders whose securities are held in street name.

         The Company has not declared or paid, nor has it any present  intention
to pay,  cash  dividends  on its Common  Stock.  The Company is  obliged,  under
certain  circumstances,  to pay cash  dividends  on its  outstanding  Cumulative
Preferred and Convertible Preferred Stock.

Recent Issues of  Unregistered Securities

         In addition to the securities  issued as noted in the Company's  report
on Form 10-QSB for the quarter ended September 30, 2000,  incorporated herein by
reference,  the  Company,  during  the  fourth  quarter  of 2000 has  issued the
following unregistered securities:

         (i) 200,000  shares of Common Stock to a foreign  investor  pursuant to
his exercise of warrants  for the purchase of such shares which  resulted in the
receipt by the Company of $100,000 in cash;

         (ii)     10,000 shares of Common Stock to a consultant for services
rendered;

         (iii)  33,889  shares of Series D Senior  Convertible  Preferred  Stock
accompanied  by warrants for the purchase of 338,890 shares of Common Stock at a
price of $0.50 per  share,  to two  accredited  investors  pursuant  to  private
placement  subscriptions  under  Section  4(2),  Rule  506 of  Regulation  D and
Regulation S of the Securities Act, which resulted in the receipt by the Company
of $305,000 in cash.

                                       15
<PAGE>


         During  the first  quarter  of 2001 and  through  March 28,  2000,  the
Company issued the following unregistered securities:

         (i) 85,333  shares of Common  Stock  pursuant to the  conversion  of an
aggregate  $40,000 in  promissory  notes,  issued in  reliance  upon  exemptions
provided under Section 4(2) of the Securities Act;

         (ii) 33,000  shares of Common Stock to three  outside  consultants  and
suppliers for services rendered;

         (iii)    1,111,000  shares of Common Stock pursuant to the conversion
 and  cancellation  of 111,100 shares of Series B Senior
Convertible Preferred Stock;

         (iv)  16,112  shares of  Series D Senior  Convertible  Preferred  Stock
accompanied  by warrants for the purchase of 161,120 shares of Common Stock at a
price of $0.50 per  share,  to four  accredited  investors  pursuant  to private
placement  subscriptions  under  Section  4(2),  Rule 506 of Regulation D of the
Securities  Act,  which  resulted  in the  receipt by the Company of $145,000 in
cash.













                                       16
<PAGE>



ITEM 6:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         The selected financial  information  presented below under the captions
"Statement of Operations"  and "Balance  Sheet" for the years ended December 31,
2000 and 1999 is derived from the financial statements of the Company and should
be read in conjunction with the financial statements and notes thereto.

         The financial  data are those of Magnitude  Information  Systems,  Inc.
including  the  operations  of Magnitude,  Inc. All  inter-company  accounts and
transactions have been eliminated in consolidation.

SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Balance Sheet                                                                          December 31,
                                                                              2000                       1999        .
                                                                       -----------------         -----------------------
<S>                                                                    <C>                         <C>
         Total assets ......................................           $   2,168,199               $   2,220,223
         Current liabilities ...............................                 917,658                   4,465,413
         Long-term debt ....................................                 381,008                      35,755
         Working capital(deficit) ..........................                  24,302                  (3,541,257)
         Shareholders' Equity (deficit) ....................           $     869,533               $  (2,280,945)


Statement of Operations                                                      For The Year Ended December 31,
                                                                             2000                        1999        .
                                                                      ------------------        -------------------------
         Total revenues ...................................            $     646,635               $      263,553
         Operating loss ...................................               (3,546,457)                  (2,642,989)
         Loss before extraordinary items ..................               (3,627,149)                  (2,882,322)
         Net loss .........................................               (3,515,473)                  (2,391,948)

         Net loss per common share ........................            $       (0.25)              $        (0.28)
         Number of shares used in computing
         per share data ...................................                14,793,682                    8,486,443
</TABLE>


Summary

         Fiscal  Year 2000 was crucial in the  Company's  efforts to open up the
emerging new market of ergonomic  productivity  software - a highly  specialized
but rapidly growing niche market.  Recent Federal OSHA ergonomic regulation
activity and the preceding and ensuing  political   struggle  gave  high
visibility  to  the  health  problems associated with ergonomically  deficient
workplace  environments and procedures and work habits,  with a specific
emphasis on computer-use  related  repetitive stress  injuries which result in
huge remedial costs and  productivity  losses - the exact area specifically
addressed by the Company's software products.

         2000 was also the year when the Company  achieved  major  milestones in
several areas - the introduction of new enhanced products,  first major sales in
several market segments,  the grant of patent  protection for key aspects of its
software  products,  the  completion  of  an  important  scientific  study  that
validates key assumptions  underlying the functionality of the Company's premier
product - the ErgoManager(TM) software system.

                                       17

<PAGE>

         Products:

         During the summer of 2000,  Version 4.0 representing major enhancements
to the  ErgoManager(TM)  System was released to the market.  Numerous  important
feature  enhancements and extensive design changes in the user interface and the
monitoring  programs,  coupled  with new 32-bit  client  software,  provide  for
increased  functionality and state of the art design.  In addition,  the Company
issued  test  versions  of  its  new  ErgoFUN!   Ergonomic  Software  which  was
specifically designed to teach children proper work habits when using computers,
and  finalization  of the first  version of the  Company's  proprietary  "eFuel"
application.

         Key Strategic Partnerships:

         During the year,  the Company added depth to its strategic  partnership
and marketing  programs by negotiating  new or expanded  agreements with several
co-marketing  partners and resellers that have access to or specialize in health
related  enterprise  software markets.  With respect to the Government area, the
March 2000 award of a GSA contract  will  facilitate  entry into one of the most
important  market  segments  and has already  resulted in a larger  order from a
Government client.

         Expansion of Client Base and First Sales Success':

         The  most  promising  clients  are  medium  size  to  large  companies,
Government  agencies  and  organizations  that  employ a large staff in the data
entry or  general  computer  related  work  environment,  are  cognizant  of the
potential gains in productivity  associated with preventive action and sensitive
to the health risks and liability potential arising out of unattended  workplace
deficiencies,  and are prepared to make the necessary  investments in a remedial
and preventive  solution such as offered by the ErgoManager(TM)  System.  During
2000, the Company  succeeded in converting  pilot  programs into  department- or
enterprise-wide   installations  in  several  areas  that  represent   important
"firsts":  the first enterprise-wide  installation within the Federal Government
(Defense Threat Reduction Agency); the first department-wide installation within
a  State  Government   (California  State   Controller's   Office);   the  first
company-wide   installation  in  a  larger  business  enterprise  (21st  Century
Insurance Co.). Our largest contract to-date,  for approximately  $217,000,  was
received from the California  State Compensation Insurance  Fund, in the fall
of 2000.  Other significant  orders  include,  during the first  quarter  2001,
a contract  from Lockheed  Martin for software  and support  services
aggregating  approximately $140,000.

         Recapitalization and Debt Restructuring:

         As explained in more detail below, during 2000 management continued its
efforts  to  find  new  equity  capital  for  financing  the  Company's  ongoing
operations and the market  introduction  of its new software  products,  and was
successful in attracting  approximately  $4.2 million in new equity funding,  as
well as converting  substantial amounts of debt into equity.  These transactions
resulted in significant improvements to the balance sheet of the Company.


Results of Operations for the Year Ended December 31, 2000

         For the year ended December 31, 2000,  the Company had revenues of
$646,635  which  represents a 145% increase over 1999 sales which totaled
$263,553.

                                       18

<PAGE>

       Gross  profits  amounted to $483,916  for a 74.8% gross  margin  (1999:
35.5%).  Gross  profits are  burdened  with a fixed charge for  amortization  of
software  investments.  Software  assets  underlying the Company's  products are
being amortized on a straight line over 10 years, resulting in a level charge of
approximately  $12,000 per month to  cost-of-goods-sold.  Owing to the fact that
variable  cost-of-goods-sold  expenses are in the vicinity of only 5%, the gross
margins increase significantly with larger revenues, as shown in the comparative
figures  for the last two years.  After  deducting  selling -,  research  -, and
general and  administrative  expenses of $4,030,373 which increased sharply from
the  $2,735,721  recorded in 1999,  the Company  realized an  operating  loss of
$3,546,457,  compared to an operating loss of $2,642,989 in 1999.  Non-operating
income exceeded  expenses by $192,368 and include  $158,548 net interest expense
and  $84,191  in  non-recurring  income  including  an  extraordinary  credit of
approximately  $60,000  for  dissolution  of certain  prior year  accruals.  The
Company also  realized an  extraordinary  gain of $122,044  from the sale of net
loss  carry-forward  tax credits pursuant to New Jersey Emerging  Technology and
Biotechnology  Financial  Assistance  Act. The year concluded with a net loss of
$3,515,473.  After  accounting for dividend  accruals on  outstanding  preferred
stock which totaled $201,054, the net loss applicable to common shareholders was
$3,716,527  or $0.25 per share,  compared to a loss of  $2,391,948  or $0.28 per
share for the previous year.

         The relatively  large  increase in operating  expenses is the result of
the Company's intensified efforts to create awareness in the marketplace for its
software products.  These products represent direct and proven solutions for the
increasingly   publicized   challenges  to  business  and  government  employers
resulting from the epidemic growth in repetitive stress injuries to employees in
the computerized  work  environment.  The Company's  products,  however,  do not
merely represent a remedial tool for employee well-being and risk management but
- as  important - give rise to increased  productivity,  as supported by several
studies.  To convey this message to the business  community,  the Company during
the year invested substantial financial and personnel resources in promoting its
name and products,  through increased participation in trade shows, radio and TV
advertising, dissemination of printed matter and other channels. In addition, it
significantly  expanded  its direct sales force and  supporting  infrastructure.
These efforts came with a price tag in form of a $1.3 million or 47% increase in
operating expenses,  notably in the areas of marketing and promotional  expenses
which in total  increased  from  $136,000  in 1999 to  $749,000  in 2000.  Other
expense  categories which experienced larger increases were outlays for research
and development  that were entirely  expensed,  and legal  expenses,  the latter
primarily in connection  with the  negotiations  and  documentation  of expanded
financing activities, the preparation and filing of registration statements with
regulatory  authorities  and - among others - the  Company's  annual  meeting of
stockholders.  Marked increases in G&A expenses were furthermore incurred in the
areas of computer and travel expenses and  shareholder  and investor  relations.
Management  is committed to review the merit of all  activities  with respect to
cost/benefit  relations  on an on-going  basis and  exercise  due  diligence  in
day-to-day operations with the goal of reducing all non-critical expenditures.

Liquidity and Capital Resources

         At December 31, 2000,  working  capital amounted to $24,302 as
compared to a deficit of $3,541,257 at December 31, 1999.  Stockholders'  equity
was  positive, with  $869,533 at the end of the year,  compared to a deficit of
$2,280,945 at the beginning of the year. This rather  dramatic  improvement - in
face of the significant  operating losses - was the direct result of a series of
financing  transactions which added in the aggregate  approximately $4.2 million
in equity capital in the form of cash throughout the year. This was augmented by
the  conversion  of  $2.4  million  current  liabilities  into  equity  and  the
restructuring of an additional  $375,000  short-term  liabilities into long-term
debt. The new equity placements were consummated by issuance of common stock and
convertible  preferred  stock,  the  latter  carrying  a  7%  annual  cumulative
dividend,  to  accredited  private  investors  in  the  US  and  overseas.  Most
investments  were in the  form of  "unit"  purchases,  comprised  of the  before
mentioned  classes  of stock and  warrants  for the  purchase  of common  stock.
Details  of such  transactions  can be found in the  "Changes  and  Issuance  of
Securities" sections in the Company's reports on Form 10-QSB during the year, as
well as in the  pertinent  section of this  report.  The  Company in August 2000
filed a  registration  statement on Form SB-2 which  filing  included the common
shares directly  issued as well as the common shares  underlying the convertible
preferred   stock  and  warrants  issued  in  connection  with  these  financing
transactions.

                                       19

<PAGE>

         To augment  working  capital the Company,  during 2000,  negotiated  an
equity draw-down facility with Torneaux Ltd., a private equity fund specializing
in small cap and technology companies. Under this arrangement,  the Company may,
at its discretion, sell to Torneaux up to 3.6 million shares of its common stock
accompanied  by warrants,  to be registered  through a filing in Form SB-2, at a
small discount to prevailing  market,  over a fourteen months period  commencing
with the effective  date of the  registration  od such stock.  This facility is,
however,  accessible  for the  Company  only upon its  common  stock  trading at
certain minimum prices which price levels are not currently quoted on the OTC BB
for the Company's stock.

         At the  time of this  submission,  the  Company  had no bank  debt.  At
December  31, 2000 Its  short-term  liabilities,  aside from trade  payables and
accruals,  consisted  of  certain  notes  and  loans  aggregating  approximately
$250,000 of which $75,000 are owed to the chairman and chief  executive  officer
of the Company in form of demand notes (see "Related Party  Transactions").  All
of the  long-term  debt  of  approximately  $375,000  was  likewise  owed to the
chairman and chief executive officer and evidences by a promissory note maturing
in 2002.

         During the first three  months of 2001 and at time of this  submission,
newer financing  transactions in the aggregate have added approximately $300,000
to equity  and  $340,000  to  working  capital  which was  utilized  to  finance
operations during that period.  Management is currently negotiating with several
private investors with the goal of obtaining commitments for substantial further
investments in form of equity capital,  to be received during the second quarter
in 2001. There can be no assurance,  however,  that these negotiations will lead
to the desired outcome.


Outlook

         The Company  will,  throughout a major portion of the next fiscal year,
continue to be dependent on outside  funding in order to finance its operations.
While it was successful in obtaining, for the first time in its history, several
substantial  sales  contracts for the licensing of its software  products from a
number of large companies and government agencies, such contracts have until now
not been sufficient in number and frequency for the Company to achieve  positive
cash flow from  operations.  The sales- and  evaluation  cycles for  entity-wide
deployment  of  ErgoManager(TM)  at client sites has been longer than  initially
expected.  However,  during  the  past  year,  a  considerable  number  of pilot
installations  have been completed of which several,  at well-known  Fortune 500
companies,  have progressed to a point where Management fully expects conversion
to enterprise  contracts  during the upcoming two quarters.  Such contracts will
augment needed cash flow although likely not sufficient for a break-even  result
before late this year.





                                       20

<PAGE>



ITEM 7:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Company's  Financial  Statements and Notes to Financial  Statements
are attached hereto as Exhibit A and incorporated herein by reference.


ITEM 8:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE

         There have been no changes in or  disagreements  with the  Registrant's
independent auditors during the last two years.














                                       21
<PAGE>

                                    PART III

ITEM 9:           DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                  PERSONS

The names of all directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
     Name                       Position                    Term(s) of Office

<S>                        <C>                            <C>
Steven D. Rudnik           Chief Executive Officer,       Jan.8, 1999, until present
                           Director

Steven D. Rudnik           Chairman of the Board          Feb.11, 2000, until present

Michael G. Martin          Chairman of the Board          Jul.31, 1997, until Jan.28, 2000

John C. Duncan             President                      October 11, 2000, until present

John C. Duncan             Executive Vice President,      May 4, 1999, until October 11, 2000
                           Director                       May 4, 1999, until present

Joerg H. Klaube            Vice President, Secretary,     Jul.31, 1997, until present
                           Chief Financial Officer

Peter J. Buscetto          Director                       Oct. 7, 1997, until May 18, 2000

Paul Chernis               Director                       Jul.31, 1997, until April 14, 2000

Seymour Kroll              Director                       May 4, 1999 until May 18, 2000

Joseph J. Tomasek          Director                       Feb.11, 1999 until present

Ivano Angelastri           Director                       May 18, 2000 until present

Steven L. Gray             Director                       May 18, 2000 until present
</TABLE>

         There are no family  relationships  among the  Company's  Officers  and
Directors.

         All Directors of the Company hold office until the next annual  meeting
of the  shareholders  and until  successors  have been  elected  and  qualified.
Executive  Officers of the Company are  appointed  by the Board of  Directors at
meetings of the Company 's  Directors  and hold office  until they resign or are
removed from office.

Resumes:

     Steven D.  Rudnik , Age 41 -  Chairman  and Chief  Executive  Officer.  Mr.
Rudnik personally developed many of the copyrighted software products offered by
Magnitude Information Systems. Mr. Rudnik co-founded Rolina Corporation in 1996.
Prior to 1996,  Mr. Rudnik had  executive  level  positions in software  product
development  and  software  company  operations.  In  1983,  Mr.  Rudnik  joined
Randall-Helms  International,  Inc.  Over the next 13 years,  he  conceived  and
developed four independent  families of stock market modeling  software products
aimed at the worldwide "large cap" institutional  investor market. These product
families generated over US$ 25 million in sales from more than 400 clients in 23
countries.  Mr. Rudnik was Executive Vice President and Partner at Randall-Helms
when it was sold in 1995.

                                       22

<PAGE>



         John C. Duncan , Age 43 - President. Until January 1999, Mr. Duncan was
the Director of the  Department  of Industrial  Relations  (DIR) of the State of
California.  In that  capacity,  he was the  principal  advisor to Governor Pete
Wilson on labor and employment issues and served in his cabinet.  Mr. Duncan was
involved in California  becoming the first state to enact ergonomic  regulations
to help protect  workers from  repetitive  stress  injuries.  As Director of the
California DIR, Mr. Duncan oversaw the Cal/OSHA program, and was responsible for
eleven  other   divisions  of  the  State   government,   including   the  Labor
Commissioner's  Office  and  the  Division  of  Workers  Compensation.   He  was
responsible for the supervision of 3,000 State employees and an annual budget of
$220 Million.

         Joerg H. Klaube , Age 59 - Chief Financial  Officer.  Joined Magnitude,
Inc. in December 1994 as Vice President Finance &  Administration.  From 1993 to
1994 he was  Vice  President  Administration  for  Comar  Technologies  Inc.,  a
computer  retail  firm,  and  from  1983 to 1993  Chief  Financial  Officer  for
Unitronix Corporation,  a publicly traded software design and computer marketing
firm. Prior to that, Mr.Klaube was employed for 16 years with Siemens Corp., the
US  subsidiary  of Siemens  AG,  where he served  most  recently  as Director of
Business  Administration for its Telecommunications  Division. He graduated from
the Banking  School in Berlin,  Germany,  and holds an MBA degree  from  Rutgers
University.

         Joseph J.  Tomasek,  Age 54 - Director.  Mr.  Tomasek was  appointed a
director in February  2000.  He has been engaged in the private  practice of
corporate and  securities  law in his own law firm for the last ten years.
Mr.  Tomasek was appointed to serve as general  counsel for the Company in 1999.
In addition to his work with the Company,  Mr.  Tomasek  represents  several
other clients in the United States and Europe in corporate finance matters.

         Steven L. Gray, Age 52 - Director. Mr. Gray was elected to serve on the
Board on May 18, 2000. He is a resident of Venice,  Florida.  For the past 3-1/2
years,  Mr. Gray has served as the President  and is a shareholder  of a private
Florida corporation engaged in the retail distribution of nutritional  products.
This corporation has a customer base in nine countries.  Prior to that time, Mr.
Gray ran his own real estate development company, specializing in the design and
construction of multi-family housing.

         Ivano  Angelastri,  Age 38 - Director.  Mr.  Angelastri  was elected to
serve on the Board on May 18, 2000. He is a resident of Zurich, Switzerland. Mr.
Angelastri has served as Managing Director of T&T Capital Trading,  a securities
brokerage firm located in Zug,  Switzerland,  since January,  1999,  offering to
select and  institutional  clients financial  advisory and portfolio  management
services.  Prior to his  current  position,  Mr.  Angelastri  served as Managing
Director  of Megan  Services  where he also  performed  financial  advisory  and
portfolio management services.

Other Significant Employees
B. Gregory Buscetto   VP Sales                     Sept. 1, 1997, until present
Steven W. Jagels      VP Information Systems       Feb. 16, 1998, until present
Howard G. Siegel      VP Shareholder/Investor      Jan. 1, 2000, until present
                         Relations

Compliance with Section 16(a) of the Securities Exchange Act of 1934

         The Company is not  subject to the  reporting  requirements  of Section
16(a) of the Securities Exchange Act of 1934.

                                       23
<PAGE>



ITEM 10: EXECUTIVE COMPENSATION

         The  following  table sets forth the cash  compensation  and  executive
capacities  for the fiscal year ended  December  31,  2000,  for each  executive
officer whose aggregate cash remuneration  exceeded $100,000,  for all executive
officers as a group, and for two most highly compensated other employees:
<TABLE>
<CAPTION>

                                                                         Restricted       Securities
                                                         Other             Stock          Underlying
Name                       Year    Salary (1)        Compensation          Awards           Options
----                       ----    ---------         ------------          -------          -------
<S>                        <C>      <C>              <C>                <C>                    <C>
Capacity in which served
Steven D. Rudnik           2000     $ 122,185        $  11,350                 -               -
Chief Executive Officer    1999     $  34,615        $   9,529          $ 66,667 (4)

John C. Duncan             2000     $ 122,308        $   2,700                 -               (2)
President (1999:Exec.VP)   1999     $  60,000                -                 -

Joerg H. Klaube            2000     $ 116,923        $   3,960                 -               (2)
Vice President, CFO        1999     $ 100,025        $   1,710                 -

Howard G. Siegel           2000     $  79,596        $   2,250          $ 24,220 (5)           (2) (6)
VP Shareh./Invest.Rel.

B.Gregory Buscetto         2000     $ 110,164        $   5,250                 -               (2)
Vice President Sales       1999     $  86,111        $   6,088                 -

All executive officers
as a group (4 persons) (3) 2000     $ 371,931        $  18,010                 -
</TABLE>

-----------------------
(1)  The value of other non-cash compensation, except for the items listed under
     (2), (4) and (5), that was extended to or paid for individuals  named above
     did  not  exceed  10% of the  aggregate  cash  compensation  paid  to  such
     individual, or to all executive officers as a group.
(2)  See table for "Stock Options" below.
(3)  Does not include $61,105 paid to the former chairman as consulting fees
     pursuant to the separation  agreement  entered into in January 2000
(4)  During 1999, the Board of Directors  approved the issuance of 150,000
     shares in lieu of $66,667 cash salary;  this stock award was subsequently
     converted into stock options for the purchase of 225,000 shares at a price
     of $0.75 per share.
(5)  Represents the fair market value of 100,000 shares awarded as a hiring
     bonus.
(6)  Does not include stock options for the purchase of 268,750  shares at a
     price of $0.75 per share,  issued in February 2001 for services performed
     during the year 2000.


                                       24
<PAGE>

Stock Options :

         The following  table sets forth stock options granted during 2000
pursuant to the Company's 1997 Stock Option Plan and 2000 Stock Incentive Plan,
to executive  officers,  two other employees with highest remuneration,
directors,  and beneficial  owners of more than 10 percent of any class of
equity securities
of the Company:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                 Number of Common    % of Total Options
                 Shares Underlying   Granted to Employees    Exercise        Expiration
Name             Options Granted     and Directors in FY      Price ($/Sh.)     Date                .
-----------------------------------------------------------------------------------------------------------
<S>                  <C>                   <C>                 <C>              <C>   <C>
I. Angelastri        35,000                4.3 %               1.00             10/11/05
G. Buscetto          50,000                9.2%                1.00             10/11/05
G. Buscetto          25,000              incl.in above         1.00             3/29/06
J. Duncan           300,000                42.8%               1.00             7/1/06
J. Duncan            50,000              incl.in above         1.00             10/11/05
S. Gray              35,000                 4.3%               1.00             10/11/05
J. Klaube            50,000                 7.3%               1.00             10/11/05
J. Klaube            10,000              incl.in above         1.00             3/10/06
H. Siegel            50,000                 7.3%               1.00             10/11/05
J. Tomasek           35,000                 4.3%               1.00             10/11/05

         The following  table sets forth stock  options  granted  during 2000 outside of the Company's  1997
Stock Option Plan and 2000 Stock  Incentive  Plan to  executive  officers,  directors,  and  beneficial  owners
of more  than 10  percent  of any class of equity securities of the Company:
---------------------------------------------------------------------------------------------------------------
               Number of Common      % of Total Options
               Shares Underlying     Granted to Employees    Exercise         Expiration
Name           Options Granted       and Directors in FY      Price ($/Sh.)      Date                .
----------------------------------------------------------------------------------------------------------------
I. Angelastri    40,000                    4.9%                1.00             5/18/07
S. Gray          40,000                    4.9%                1.00             5/18/07
J. Tomasek       40,000                    4.9%                1.00             3/10/07
</TABLE>

1997 Stock Option Plan:

         The  Company's  1997  Stock  Option  Plan,  as filed  with  Information
Statement  pursuant to Section 14(c) with the  Commission  on July 1, 1997,  and
with  Registration  Statement  on Form S-8 with the  Commission  on September 8,
1997, is hereby incorporated by reference.

2000 Stock Incentive Plan:

         The Company's 2000 Stock  Incentive  Plan, as filed with the Commission
as an exhibit to the quarterly  report on Form 10-QSB for the period ended March
31, 2000, is hereby incorporated by reference.

Compensation of Directors:

         The  Company  currently  pays  no  outside   directors'  fees.  Outside
directors are awarded stock options for 40,000 shares each upon  commencement of
their office.  In addition,  the three  incumbent  outside  directors  have been
awarded,  in January 2001,  stock options for 112,500  shares each, for services
rendered during 2000.

                                       25

<PAGE>



ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

         The following  table sets forth,  as of March 28, 2001,  the record and
beneficial  ownership of common stock of the Company by each  executive  officer
and director,  all executive  officers and directors as a group, and each person
known to the Company to own beneficially,  or of record, five percent or more of
the outstanding shares of the Company:
<TABLE>
<CAPTION>
Title             Name and Address of                         Amount and Nature of                Percent
of Class )*       Beneficial Owner                            Beneficial Ownership (1)           of Class
-----------       ----------------                            ------------------------           --------
<S>               <C>                                          <C>                                 <C>
Common            Ivano Angelastri                             1, 237,500 (2)                      6.66 %
Stock             John C. Duncan                                  605,000 (3)                      3.33 %
                  Steven L. Gray                                  770,600 (4)                      4.24 %
                  Joerg H. Klaube                                 220,100 (5)                      1.22 %
                  Steven D. Rudnik                             2, 412,558 (6)                     12.01 %
                  Howard G. Siegel                              1,234,250 (7)                       6.67%
                  Joseph J. Tomasek                               237,500 (8)                      1.32 %

                  Address of all persons above:  c/o the Company.

                  All Directors and Executive Officers          5,483,258                         24.46 %
                  as a Group (6 persons)

                  Liechtensteinische Landesbank                 2,167,280 (9)                      11.02 %
                  Zurich, Switzerland
                  Michael G. Martin                             1,750,000 (10)                      8.97 %
                  12 Tillman Ct., Bridgewater, NJ
                  Rush & Co.                                    1,111,000 (11)                      6.26 %
                  c/o Swiss American Securities, NY
                  Schuerch Asset Management                     1,578,500 (12)                      8.28 %
                  Tellstrasse 21, St.Gallen, Switzerland
                  Viviana Partners, L.P.                        1,260,000 (13)                      6.86 %
                  1 Sansome Str., San Francisco, CA
</TABLE>

)* The Company also has issued and  outstanding  as of March 28,  2001,  429,349
shares of its Senior Convertible  Preferred Stock, with concentrations in excess
of 10% for  one or more of the  holders  of such  stock,  however,  none of such
shares bear any voting rights.
----------------------------

(1)  For purposes of this table,  a person or group of persons is deemed to have
     "beneficial  ownership" of any shares of Common Stock which such person has
     the right to acquire  within 60 days of March 28,  2001.  For  purposes  of
     computing the percentage of outstanding shares of Common Stock held by each
     person or group of persons named above,  any security  which such person or
     persons  has or have the right to acquire  within such date is deemed to be
     outstanding  but is  not  deemed  to be  outstanding  for  the  purpose  of
     computing the percentage ownership of any other person. Except as indicated
     in the footnote to this table and pursuant to applicable community property
     laws, the Company  believes based on information  supplied by such persons,
     that the persons named in this table have sole voting and investment  power
     with respect to all shares of Common Stock which they beneficially own.
(2)  Includes  options to acquire 437,500 shares and warrants for 400,000
     shares.
(3)  Represents  options to acquire  the same  number of  shares.
(4)  Includes options to acquire 187,500 shares and warrants for 240,000 shares.
(5)  Includes options to acquire 220,000 shares.
(6)  Includes  options to acquire  1,585,000  shares and conversion rights for
     749,780 shares.
(7)  Includes options for 318,750 shares and warrants for 424,000 shares.
(8)  Represents options to acquire the same number of shares.

                                       26
<PAGE>


(9)  Includes  warrants for 805,760 shares and preferred stock convertible into
     1,111,520 shares.
(10) Represents options for 750,000 shares and preferred stock convertible into
     1,000,000 shares.
(11) Represents shares held for the benefit of S. Unternaehrer.
(12) Includes options for 450,000 shares, warrants for 529,500 shares and
     preferred stock convertible into 339,000 shares.
(13) Includes warrants for 600,000 shares.
















                                       27

<PAGE>



ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         In February  2000,  the current  chairman and Chief  Executive  Officer
exercised a put option for 155,556  shares of common stock issued in  connection
with the 1998  acquisition by the Company of Rolina  Corporation  which exercise
resulted in a $375,000  current  liability  to the Company.  Subsequently,  such
liability  was converted  into  convertible  long-term  debt.  During 2000,  the
Company paid $26,555 interest against this liability.

         Between  July  and   November   1999,   the  current  Vice   President,
Shareholder/Investor  Relations,  invested an aggregate  $450,000 in the Company
against issuance of convertible promissory notes and warrants,  which notes were
subsequently  converted into 900,000 common shares.  The Company paid $15,638 in
interest on these notes. In April 2000, the Company  extended a loan for $25,000
against a  promissory  note  bearing  interest at the rate of 7% per year to the
same individual. At the time of this submission,  $19,500 is outstanding against
this note.

         During 2000, one outside director of the Company who also serves as the
Company's  general and securities  counsel,  was paid an aggregate  $237,337 for
legal services.

         At various  times  throughout  2000,  the  current  chairman  and Chief
Executive  Officer  extended  certain short term cash advances to the Company to
augment working capital. The advances were evidenced by promissory notes bearing
interest  at the  rate  of 7% per  year.  At  December  31,  2000,  $75,000  was
outstanding against such notes.
                                       28

<PAGE>


ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         The Exhibits  that are filed with this report or that are  incorporated
by reference are set forth in the Exhibit Index attached hereto.


(b)      Reports on Form 8-K

         On October 11, 2000, the Company filed a report on Form 8-K,  informing
about a Common Stock Purchase  Agreement  entered into on October 6, 2000,  with
Torneaux Ltd., a private equity fund.

         On December 19, 2000, the Company filed a report on Form 8-K, informing
about a change  amendment to the Common Stock  Purchase  Agreement  entered into
with Torneaux Ltd.














                                       29
<PAGE>



                                   SIGNATURES


In  accordance  with  Section 13 or 15(d) of the  Securities  Exchange  Act, the
Registrant has caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.



         MAGNITUDE INFORMATION SYSTEMS, INC.



         By:      /s/ Steven D. Rudnik            Date:    April 12, 2001
                  ----------------------
                  Steven D. Rudnik
                  Chief Executive Officer
                 (Principal Executive Officer),
                  Chairman of the Board


         By:      /s/ Joerg H. Klaube             Date:    April 12, 2001
                  ----------------------
                  Joerg H. Klaube
                  Secretary, Chief Financial Officer
                  (Principal Financial Officer)


In accordance with the requirements of the Securities  Exchange Act, this Report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.


         Name                                                      Date


         /s/ Ivano Angelastri                                April 12, 2001
         Ivano Angelastri, Director


         /s/ John C. Duncan                                  April 12, 2001
         -------------------
         John C. Duncan, Director


         /s/ Steven L. Gray                                  April 12, 2001
         -------------------
         Steven L. Gray, Director


         /s/ Joseph J. Tomasek                               April 12, 2001
         ----------------------
         Joseph J. Tomasek, Director



                                       30
<PAGE>



EXHIBIT INDEX

(A)      Financial Statements and Notes to Financial Statements

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

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

(4.1)    Amendment to the Company's  Certificate of  Incorporation as filed with
         the State of Delaware on November 3, 2000,  designating  a new class of
         Series D Senior Convertible Preferred Stock.

(21)     Subsidiaries of the Company:

         (i) Magnitude, Inc. is a corporation formed under the laws of the
             State of Delaware and is the name under which it conducts business.

(23)     Independent Auditors' Consent - attached to Exhibit A.



OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE

(a)      The  Company's  Quarterly  Reports on Form 10-QSB for the periods ended
         March 31, 2000, June 30, 2000, and September 30, 2000.

(b)      All other  reports  filed by the Company  pursuant to Section  13(a) or
         15(d) of the  Exchange  Act  since  the  Company's  fiscal  year  ended
         December 31, 1999.

















                                       31
<PAGE>












                                                            EXHIBIT A
                                                            --------


              Magnitude Information Systems, Inc. and Subsidiaries

                        Consolidated Financial Statements

                                December 31, 2000


<PAGE>



              Magnitude Information Systems, Inc. and Subsidiaries
                 Index to the Consolidated Financial Statements
                                December 31, 2000





                                                                       Page



Independent Auditors' Report...........................................  1

Financial Statements

     Consolidated Balance Sheet........................................  2

     Consolidated Statements of Operations.............................  3

     Consolidated Statement of Stockholders Equity (Deficit)........... 4-5

     Consolidated Statements of Cash Flows............................. 6-7

     Notes to the Consolidated Financial Statements....................8-23







<PAGE>
              [Letterhead of Rosenberg Rich Baker Berman & Company]

                          Independent Auditors' Report



To the Board of Directors and Stockholders of
Magnitude Information Systems, Inc. and Subsidiaries

We have  audited  the  accompanying  consolidated  balance  sheet  of  Magnitude
Information  Systems,  Inc.  and  Subsidiaries  as of December  31, 2000 and the
related consolidated  statements of operations,  stockholders' equity (deficit),
and cash  flows for the two  years  ended  December  31,  2000 and  1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly in all
material respects,  the consolidated financial position of Magnitude Information
Systems,  Inc. and  Subsidiaries  as of December  31, 2000 and the  consolidated
results of their  operations  and their cash flows for the years ended  December
31, 2000 and 1999, in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue as a going  concern.  As  discussed  in the notes to the
financial   statements,   the  Company's   significant  operating  losses  raise
substantial  doubt  about  its  ability  to  continue  as a going  concern.  The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

/s/Rosenberg Rich Baker Berman & Company
Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
February 28, 2001

                                       1

<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                           Consolidated Balance Sheet
                                December 31, 2000
<TABLE>
<CAPTION>

           Assets
Current Assets
<S>                                                                                                         <C>
     Cash                                                                                                   $        37,701
     Accounts receivable net of allowance for doubtful accounts of $47,844                                          359,203
     Due From Officer                                                                                                24,500
      Miscellaneous receivables                                                                                      42,195
     Deferred tax asset                                                                                             122,044
     Prepaid expenses                                                                                               356,317
                                                                                                              --------------
           Total Current Assets                                                                                     941,960
Property, plant and equipment, net of accumulated depreciation of $167,591                                          112,101
Software, net of accumulated amortization of $417,581                                                             1,089,709
Other assets                                                                                                         24,429
                                                                                                              ==============
           Total Assets                                                                                           2,168,199
                                                                                                              ==============
           Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
     Accounts payable and accrued expenses                                                                          542,113
     Deferred revenues                                                                                               28,398
     Dividends payable                                                                                               91,178
     Loans payable                                                                                                  150,000
     Notes payable                                                                                                   65,000
     Current maturities of long-term debt                                                                            33,529
     Current maturities of capitalized lease obligations                                                              7,440
                                                                                                              --------------
           Total Current Liabilities                                                                                917,658
Long term debt, less current portion                                                                                374,890
Obligations under capital leases, excluding current maturities                                                        6,118
                                                                                                              --------------
           Total Liabilities                                                                                      1,298,666
Minority Interest                                                                                                         -
Stockholders' Equity
     Preferred Stock, $.001 par value,  non-voting,  3,000,000 shares authorized                                        524
     Common  stock,  $.0001  par  value,   100,000,000  shares  authorized;
     16,525,240 shares issued                                                                                         1,652
       and outstanding
     Additional paid in capital                                                                                  15,881,897
     Accumulated deficit                                                                                        (15,014,540)
                                                                                                              --------------
           Total Stockholders' Equity                                                                               869,533
                                                                                                              ==============
           Total Liabilities and Stockholders' Equity                                                       $     2,168,199
                                                                                                              ==============
</TABLE>




See notes to the consolidated financial statements.

                                       2
<PAGE>




              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                               Year Ended December 31,
                                                                                          ----------------------------------
                                                                                               2000               1999
                                                                                          ---------------     --------------

Net Sales
<S>                                                                                     <C>                 <C>
     Hardware Products                                                                  $            600    $         2,850
     Software                                                                                    646,035            260,703
                                                                                          ---------------     --------------
       Total Net Sales                                                                           646,635            263,553



Cost of Good Sold
     Hardware Products                                                                               600              2,850
     Software                                                                                    162,119            167,971
                                                                                          ---------------     --------------
       Total Cost of Goods Sold                                                                  162,719            170,821
Gross Profit                                                                                     483,916             92,732
Research and development costs                                                                    77,334                  -
Selling, general and administrative expenses                                                   3,953,039          2,735,721
                                                                                          ---------------     --------------
(Loss) From Operations                                                                       (3,546,457)        (2,642,989)

Other Income (Expense)
     Miscellaneous income                                                                         84,192            133,520
      Interest income                                                                             16,528                  -
     Miscellaneous expense                                                                             -           (40,542)
     Interest expense                                                                          (176,337)          (293,553)
     Loss on disposition of assets                                                               (5,075)           (38,758)
                                                                                          ---------------     --------------
             Total Other (Expense)                                                              (80,692)          (239,333)
                                                                                          ---------------     --------------
(Loss) Before Provision for Income Taxes                                                     (3,627,149)        (2,882,322)
(Provision for) Benefit from Income Taxes                                                        111,676            490,374
                                                                                          ===============     ==============
Net (Loss)                                                                              $    (3,515,473)    $   (2,391,948)
                                                                                          ===============     ==============
Dividends on Preferred Shares                                                           $      (201,054)    $             -
                                                                                          ===============     ==============
Net (Loss) Applicable to Common Shareholders                                            $    (3,716,527)    $   (2,391,948)
                                                                                          ===============     ==============
Net (Loss) Per Common Share                                                                       (0.25)             (0.28)
                                                                                          ===============     ==============
Weighted Average of Common Shares Outstanding                                                 14,793,682          8,486,443
                                                                                          ===============     ==============
</TABLE>


See notes to the consolidated financial statements.



                                       3

<PAGE>



              Magnitude Information Systems, Inc. and Subsidiaries
            Consolidated Statement of Stockholders' Equity (Deficit)
                     Years Ended December 31, 2000 and 1999
<TABLE>
<CAPTION>


                                                          Convertible            Cumulative
                                                        Preferred Shares      Preferred Shares         Common Stock

                                                        -----------------    --------------------- --------------------
                                                      Shares      Amount     Shares     Amount       Shares      Amount
                                                      --------- ----------- --------- ----------- ------------- ----------


<S>                                                       <C> <C>             <C>  <C>             <C>       <C>
       Balances, January 1, 1999                            -$         -        10 $         -     6,431,113 $      643

   Issuances of common stock granted for services
   performed                                                -          -         -           -     1,404,328        140

   Issuances of common stock pursuant to stock option
   exercise loan agreement                                  -          -         -           -       535,000         53

   Issuance of common stock for conversion of loans
   and accrued interest                                     -          -         -           -       767,332         77

   Issuance of common stock pursuant to note penalty
   clause                                                   -          -         -           -        60,000          6

   Contingent liability pursuant to put option
   agreement                                                -          -         -           -             -          -

   Exchange of the Company's common stock, 1 common
   share for 3.4676 common shares of Magnitude, Inc.        -          -         -           -         7,210          1

   Issuance of common shares pursuant to private
   equity placements                                        -          -         -           -     1,050,000        105

   Cancellation of previously issued common stock           -          -         -           -       (7,500)        (1)

   Issuance of common stock pursuant to anti-dilution
   clause                                                   -          -         -           -        77,778          8

   Issuance of common stock to suppliers pursuant to
   grant                                                    -          -         -           -        15,000          2

   Issuance of convertible debt with attached warrants      -          -         -           -             -          -


   Net loss, year ended December 31, 1999                   -          -         -           -             -          -
                                                      ========  =========== ========= =========== ============= ==========
       Balances, December 31, 1999                          -$           -        10 $         -    10,340,261 $    1,034
                                                      ========  =========== ========= =========== ============= ==========
</TABLE>






See notes to the consolidated financial statements.


                                       4A

<PAGE>
<TABLE>
<CAPTION>
                                                                                           Total
                                                          Additional     Accumulated     Stockholders
                                                           Paid in        Deficit         Equity
                                                          Capital                        (Deficit)

                                                       -------------- -------------- ----------------
<S>                                                    <C>            <C>            <C>
       Balances, January 1, 1999                       $    6,913,728 $  (8,906,065) $    (1,991,694)

   Issuances of common stock granted for services
   performed                                                1,224,030              -        1,224,170

   Issuances of common stock pursuant to stock option
   exercise loan agreement                                    267,446              -          267,499

   Issuance of common stock for conversion of loans
   and accrued interest                                       383,590              -          383,667

   Issuance of common stock pursuant to note penalty
   clause                                                         (6)              -                -

   Contingent liability pursuant to put option
   agreement                                                (374,890)              -        (374,890)

   Exchange of the Company's common stock, 1 common
   share for 3.4676 common shares of Magnitude, Inc.              (1)              -                -

   Issuance of common shares pursuant to private
   equity placements                                          524,895              -          525,000

   Cancellation of previously issued common stock                   1              -                -

   Issuance of common stock pursuant to anti-dilution
   clause                                                         (8)              -                -

   Issuance of common stock to suppliers pursuant to
   grant                                                        5,249              -            5,251

   Issuance of convertible debt with attached warrants         72,000              -           72,000


   Net loss, year ended December 31, 1999                           -     (2,391,948)      (2,391,948)
                                                       ============== ============== ================
       Balances, December 31, 1999                      $   9,016,034 $  (11,298,013) $    (2,280,945)
                                                       ============== ============== ================
</TABLE>






See notes to the consolidated financial statements.

                                       4B

<PAGE>



              Magnitude Information Systems, Inc. and Subsidiaries
            Consolidated Statement of Stockholders' Equity (Deficit)
                     Years Ended December 31, 2000 and 1999
<TABLE>
<CAPTION>


                                                                Convertible             Cumulative
                                                              Preferred Shares       Preferred Shares          Common Stock

                                                            ---------------------   -------------------   ------------------------
                                                             Shares      Amount     Shares     Amount       Shares        Amount
                                                            ---------   ---------   --------  ---------   ------------   ---------
<S>                  <C>                                                                 <C>                 <C>            <C>
   Balances, January 1, 2000                                       -           -         10          -       10,340,261     1,034
   Issuance of common stock granted for services
   performed                                                       -           -          -          -        107,828          11
   Issuance of common stock pursuant to stock option exercise      -           -          -          -        100,000          10
   Issuances of common stock for conversion of loans               -           -          -          -       3,298,702        330
   Issuances of common stock pursuant to registration
   penalty clause                                                  -           -          -          -        160,000          16
   Cancellation of previously issued common stock
   pursuant to put option agreement in exchange for note           -           -          -          -       (155,556)       (15)
   Exchange of the Company's common stock, one common
   share for 3.4676 common shares of Magnitude, Inc.               -           -          -          -         11,535           1

   Issuance of common stock pursuant to private equity
   placements                                                      -           -          -          -        900,000          90

   Conversion of previously issued cumulative preferred
   shares and note into common and convertible                               100        (9)          -        700,000          70
   preferred shares pursuant to resignation agreement          100,000

   Issuance of common stock pursuant to warrant exercise           -           -          -          -        200,000          20

   Issuance of common stock to employee for compensation           -           -          -          -         16,854           2

   Issuance of common stock in connection with hiring
   bonus to officer                                                -           -          -          -        100,000          10

   Issuance of convertible preferred stock pursuant to
   private equity placements                                   395,037       395          -          -              -           -

   Issuance of convertible preferred stock for
   conversion of loans                                         29,300         29          -          -              -           -

   Issuance of common stock for conversion of loan and
   accrued interest                                                -           -          -          -        617,616          62

   Issuance of common stock pursuant to the Cornell
   Ergonomics, Inc. Acquisition Agreement                          -           -          -          -         54,000           5

   Issuance of common stock pursuant to the Internet
   Ergonomics Corp. Acquisition Agreement                          -           -          -          -         64,000           5

   Issuance of common stock granted for private
   placement finders fee                                           -           -          -          -         10,000           1

   Amortization of advertising services                            -           -          -          -              -           -
   Net loss, year ended December 31, 2000                          -           -          -          -              -           -
   Dividends on convertible preferred stock                        -           -          -          -              -           -

                                                                   -           -          -          -              -           -
                                                            =========   =========   ========  ===========   ==========    ========
   Balances, December 31, 2000                               524,337       524          1          -       16,525,240     1,652
                                                            =========   =========   ========  =========    ============   ========
</TABLE>



                                       5A
   See notes to the consolidated financial statements.


<PAGE>
<TABLE>
<CAPTION>

                                                                                                     Total
                                                                   Additional     Accumulated     Stockholders
                                                                      Paid in        Deficit         Equity
                                                                     Capital                       (Deficit)


                                                                  ------------   -------------    -------------
<S>                  <C>                                            <C>           <C>              <C>
   Balances, January 1, 2000                                     $  9,016,034     $ (11,298,013)   $ (2,280,945)
   Issuance of common stock granted for services
   performed                                                           58,147                 -          58,158
   Issuance of common stock pursuant to stock option exercise          99,990                 -         100,000
   Issuances of common stock for conversion of loans                1,887,383                 -       1,887,713
   Issuances of common stock pursuant to registration
   penalty clause                                                         (16)                -               -
   Cancellation of previously issued common stock
   pursuant to put option agreement in exchange for note                   15                 -               -
   Exchange of the Company's common stock, one common
   share for 3.4676 common shares of Magnitude, Inc.                       (1)                -               -

   Issuance of common stock pursuant to private equity
   placements                                                         449,910                 -         450,000

   Conversion of previously issued cumulative preferred
   shares and note into common and convertible                        350,890                 -         351,060
   preferred shares pursuant to resignation agreement

   Issuance of common stock pursuant to warrant exercise               99,980                 -         100,000

   Issuance of common stock to employee for compensation                3,655                 -           3,657

   Issuance of common stock in connection with hiring
   bonus to officer                                                    24,210                 -          24,220

   Issuance of convertible preferred stock pursuant to
   private equity placements                                        3,233,404                 -       3,233,799

   Issuance of convertible preferred stock for
   conversion of loans                                                146,471                 -         146,500

   Issuance of common stock for conversion of loan and
   accrued interest                                                   459,938                 -         460,000

   Issuance of common stock pursuant to the Cornell
   Ergonomics, Inc. Acquisition Agreement                              23,745                 -          23,750

   Issuance of common stock pursuant to the Internet
   Ergonomics Corp. Acquisition Agreement                              28,143                 -          28,148

   Issuance of common stock granted for private
   placement finders fee                                                   (1)                -               -

   Amortization of advertising services                                     -                 -          56,044
   Net loss, year ended December 31, 2000                                   -        (3,515,473)     (3,515,473)
   Dividends on convertible preferred stock                                 -          (201,054)       (201,054)

                                                                            -                 -              -
                                                                  ============  ==============   ===============
   Balances, December 31, 2000                                     15,881,897       (15,014,540) $      869,533
                                                                  ============  ==============   ===============
</TABLE>





                                       5B
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                                   Year Ended December 31,
                                                                                              ----------------------------------
                                                                                                2000                1999
                                                                                              --------------     ---------------
     Cash Flows From Operating Activities
<S>                                                                                          <C>                <C>
             Net Income (Loss)                                                               $   (3,515,473)    $    (2,391,948)
          Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities
                Depreciation and amortization                                                        200,564            183,053
                Amortization of prepaid advertising expense                                           56,044                  -
                Common stock issued for various expenses                                             119,000            474,119
                Loss on disposition of assets                                                          5,075             38,758
                Bad debt provision                                                                    41,328              4,109
                Forgiveness of debt                                                                 (76,328)                  -
                New debt issued for interest expense                                                  32,318              5,400
                  Inventory write-off                                                                  6,170             16,770
             Decreases (Increases) in Assets
                  Accounts receivable                                                              (341,807)             46,416
                Miscellaneous receivables                                                              4,432             58,951
                  Inventories                                                                            215              1,134
                  Deferred tax assets                                                                 79,426           (201,470)
                  Prepaid expenses                                                                  (20,980)             (3,273)
                  Other assets                                                                      (21,970)              2,652
             Increases (Decreases) in Liabilities

                Accounts payable and accrued expenses                                                 79,157           (189,975)
                Deferred revenue                                                                      28,398                  -
                                                                                               --------------     ---------------
                  Net Cash (Used) by Operating Activities                                        (3,324,431)         (1,955,304)
                                                                                               --------------     ---------------
     Cash Flows From (Used) by Investing Activities
             Purchases of equipment, fixtures, and software                                         (62,691)             (6,486)
          Sales of property and equipment                                                               750                 250
             Loans made                                                                             (55,000)                  -
             Collections of loans                                                                        500                  -
                                                                                               --------------     ---------------
                  Net Cash (Used) by Investing Activities                                          (116,441)             (6,236)
                                                                                               --------------     ---------------
     Cash Flows From Financing Activities
             Repayment of notes payable                                                            (498,250)                  -
             Proceeds from long-term debt                                                                  -            300,000
             Proceeds from long-term debt with detachable warrants                                         -            800,000
             Repayment of long-term debt                                                                   -            (50,474)
             Repayment of capital lease obligations                                                  (6,385)             (7,747)
             Proceeds from loans payable                                                             125,000            726,181
             Repayment of loans payable                                                            (156,284)            (91,254)
             Proceeds from issuance of common and preferred stock                                  3,883,799            525,000

             Dividends paid                                                                        (118,876)                   -
                                                                                               --------------     ---------------
                  Net Cash Provided by Financing Activities                                        3,229,004           2,201,706
                                                                                               --------------     ---------------
     Net increase (decrease) in Cash                                                               (211,868)             240,166
     Cash at beginning of period                                                                     249,569               9,403
                                                                                               ==============     ===============
     Cash at end of period                                                                   $        37,701    $        249,569
                                                                                               ==============     ===============
     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

             Interest Paid                                                                   $       139,624    $        153,313
             Taxes Paid                                                                      $         2,582    $          6,600
                                                                                               ==============     ===============
</TABLE>

     See notes to the consolidated financial statements.

                                       6
<PAGE>



              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>


                                                                                                 Year Ended December 31,
                                                                                              ------------------------------
                                                                                                  2000            1999
                                                                                              --------------  --------------
     Schedule of non-cash investing and financing activities

         In connection with the retirement of the balance of $162,462 remaining on
<S>                                                                                               <C>             <C>
           a $200,000 promissory note, 324,926 common shares were issued                          $      162,462  $
         In connection with the Rolina Corporation merger agreement, an
           accrued contingent liability agreement was converted to long-term debt                 $      374,890  $
           and 155,556 previously issued common shares were cancelled
         In connection with the issuance of common stock, 174,632  common shares
            were issued for current services                                                      $       74,269  $
         In connection with the retirement of a $351,060 loan and conversion of 9
           cumulative preferred shares pursuant to a resignation agreement, 100,000               $      351,060  $
           new convertible preferred shares and 700,000 common shares were issued
         In connection with the Cornell Ergonomics, Inc. and Internet Technologies,
            Corp. acquisitions, 118,000 common shares were issued                                 $       51,900  $
         In connection with the issuance of common stock, 35,605 shares were issued as
            consideration for past services                                                       $       11,765  $
         In connection with the retirement of a $400,000 promissory   note   and
            accrued interest of $260,000 thereon, 617,616 common shares were issued
            and a $200,000 short-term  installment obligation was issued                          $      660,000  $
         In connection with the retirement of a $59,735 loan, 120,000 common shares
            were issued                                                                           $       59,735
         In connection with the retirement of $1,111,750 promissory notes, 653,776common
            shares and 29,300 Series A Senior convertible preferred shares were issued            $    1,111,750
         In connection with the retirement of $1,028,000 promissory notes, 2,200,000
            common shares were issued                                                             $    1,028,000
         In connection with the disposition of a 20% equity interest in Input Technologies
            LLC, $20,392 of accounts payable and accrued expenses were written off                $                       20,392
         In connection with the trade-in of capitalized lease equipment for operating lease
            equipment, $17,975 of capitalized lease obligations were written off                  $                       17,975
         In connection with the Rolina Corporation merger agreement, a put option on
            155,556 shares at $2.41 was set up as an accrued contingent liability                 $                      374,890
         In connection with the retirement of a $100,000 promissory note and accrued
            interest thereon, 202,332 common shares were issued                                   $                      101,166
         In connection with a stock option exercise, 535,000 common shares were issued
            against the cancellation of loans and notes totaling $261,604 along with              $                      267,500
            the accrued interest thereon
         In connection with the retirement of promissory notes totaling $256,959 plus
            accrued interest thereon, 565,000 common shares were issued                           $                      282,500
         In connection with the issuance of a promissory note totaling $119,735 , $29,735
            of accrued interest on various notes was incorporated into a new note.                $                       29,735
         In connection with the issuance of common stock, 1,419,328 common shares
            were issued for past services                                                         $                      721,619
         In connection with the issuance of 1,000,000 common shares during the year ended
            December 31, 1998,  $276,230 for past services was  relieved;  notes
            totaling $134,295 with accrued interest of $19,692 were retired, and loans
            and advances of $77,585 were retired during the year ended  December 31, 1999.        $                      507,802
                                                                                                                   ==============
</TABLE>




See notes to the consolidated financial statements.

                                       7
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements


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 March 4, 1993,  the  Company  changed  its name to  Whitestone
         Industries,  Inc. On July 14,  1997,  the  Company  changed its name to
         Proformix Systems,  Inc., and on November 18, 1998, the Company changed
         its name to Magnitude Information Systems, Inc.

         The Company and Magnitude,  Inc. remain as two separate legal entities
         whereby  Magnitude,  Inc.  operates as a subsidiary of the Company.
         However, the operations of the combined entity are currently comprised
         solely of the operations of Magnitude, Inc.  The remaining 1% of
         Magnitude, Inc. stockholders hold a minority interest which is
         valued at $0.

         On February 2, 1998, the Company  entered into an Agreement and Plan of
         Merger with Rolina  Corporation,  a privately held New Jersey  software
         developing  firm,  and on  April  30,  1998,  into  an  Asset  Purchase
         Agreement with Vanity Software  Publishing Co., a Canadian developer of
         specialized  software,  whereby the Company,  in return for payments in
         the form of cash and equity,  acquired  the rights to certain  software
         products and related assets,  with such software products  subsequently
         forming the basis for the further development,  during the year, of the
         Company's proprietary EMS Software System.

         On November  18,  1998,  the Company  and its wholly  owned  subsidiary
         Magnitude,  Inc.  entered into an Asset Purchase  Agreement and several
         related  agreements with 1320236 Ontario Inc. ("OS"), a publicly traded
         Canadian  designer,  manufacturer  and distributor of office  furniture
         based  in  Holland  Landing,  Ontario,  Canada,  pursuant  to  which OS
         acquired  Magnitude,  Inc.'s  hardware  product  line  comprised of the
         Company's ergonomic keyboard platform products and accessories, and all
         related inventory and production  tooling and warehousing  assets,  and
         all intellectual  property rights including the Proformix name, against
         cash consideration and on ongoing contingent stream of royalty payments
         on OS' sales of the Magnitude hardware products.  The Agreement with OS
         also provided for the  retirement  of the Company's  then existing bank
         debt out of the proceeds of the transaction.

         Until  November  18, 1998,  when the Company sold its hardware  product
         line  comprised  of  Magnitude,   Inc.'s  ergonomic  keyboard  platform
         products and  accessories,  its business was primarily  centered around
         the design, development,  manufacture,  and marketing of research-based
         ergonomic  accessory  products  for  the  computerized   workplace.  In
         parallel,  and  beginning  with the February  1998  acquisition  by the
         Company of Rolina  Corporation,  an early stage software business which
         had  developed an ergonomic  software  product that was being  marketed
         under the name "ErgoSentry", and the subsequent acquisition in May 1998
         of  substantially  all of the  assets  of  Vanity  Software  Publishing
         Corporation,  a  Canadian  software  firm,  which  included  a  certain
         ergonomic software package known as "ErgoBreak", the Company engaged in
         the  development  of a unique  suite of software  packages  designed to
         increase  productivity in the computer related work  environment  which
         include the before  mentioned  "ErgoSentry"  and "ErgoBreak"  products.
         These efforts resulted,  in November 1998, in the release to the market
         of  the  proprietary  "Proformix  EMS  (Ergonomic  Management  System)"
         software  system.  With  the sale of the  hardware  product  line,  the
         Company's   business   became   focused   exclusively  on  the  further
         development and marketing of these software products.

                                       8

<PAGE>




              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

         On  January  15,  2000,  the  Company  acquired  all of the  issued and
         outstanding  capital stock of Cornell  Ergonomics,  Inc.  (Cornell) and
         Internet Ergonomics  Technologies Corp. (IET),  privately held Delaware
         Corporations,  whose only property was comprised of certain proprietary
         ergonomic software modules, in exchange for the Company's common stock.
         These modules were subsequently transferred to the Company. The Company
         is currently in the process of dissolving both Cornell and IET.

         The Company's  primary  product is an integrated  suite of  proprietary
         software  modules  marketed  under  the name  ErgoManagerTM  which  are
         designed to help  individual  computer  users and  businesses  increase
         productivity and reduce the risk of potentially  preventable repetitive
         stress injury (RSI). These software modules can be applied individually
         or together in a comprehensive ergonomic and early intervention program
         that seeks to modify a user's  behavior by  monitoring  computer  usage
         patterns over time and warning the user when to break a dangerous trend
         in repetitive  usage of an input  device,  such as a keyboard or mouse.
         The product was developed to train people working on computers, monitor
         computer-use related activities and evaluate a user's risk exposure and
         propensity  towards injury or loss of  effectiveness in connection with
         his/her  day-to-day work.  Moreover,  the software enables a company to
         not only address the issue of health risks  involving  employees and to
         minimize resulting potential liabilities,  but delivers a powerful tool
         to increase overall productivity.

         Magnitude   Inc.'s  wholly  owned   subsidiary,   Corporate   Ergonomic
         Solutions,  Inc.  (Ergonomics)  was  incorporated  in the  State of New
         Jersey during October 1992.  Ergonomics,  which commenced operations in
         September  1998, was formed  primarily to market  Proformix's  hardware
         products  which  has  since  been  disposed  of.  Prior  to  that,  its
         operations had not been  significant.  It's operations  during 1999 and
         2000 have not been significant. Ergonomics was dissolved on January 29,
         2001.

     Principles of Consolidation
         The consolidated  financial  statements  include the accounts of
         Magnitude  Information  Systems,  Inc. and its  subsidiaries,
         Magnitude,  Inc. and Corporate  Ergonomic  Solutions,  Inc. All
         significant  intercompany  balances and transactions have been
         eliminated.

     Inventories
         Inventory  consists of finished  goods related to the Company's  former
         hardware product line which are stated at the lower of cost (determined
         by the first-in, first out method) or market.

     Depreciation
         Property,  plant 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 5-10 years.  Maintenance and repairs are charged to
         operations as incurred. Repairs and maintenance which do not extend the
         useful lives of the related assets are expensed as incurred.

     Amortization
         Software assets acquired  pursuant to the Rolina and Vanity  agreements
         and the Cornell and IET  acquisitions are capitalized at the fair value
         of stock  exchanged/granted  upon  acquisition and are amortized on the
         straight line method over 10 years.

     Securities Issued for Services
         The Company accounts for stock, stock options and stock warrants issued
         for services and  compensation  by employees  under the intrinsic 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.  Effective
         January 1, 1996, the

                                       9
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

         Company adopted Statement of Financial  Accounting  Standard (SFAS) No.
         123, "Accounting for Stock-based Compensation". The statement generally
         suggests,  but  does not  require,  employee  stock-based  compensation
         transactions  be accounted  for based on the fair value of the services
         rendered or the fair value of the equity instruments issued,  whichever
         is more reliably measurable. As permitted by the statement, the Company
         has  elected to  continue  to follow  the  requirements  of  Accounting
         Principles  Board  Opinion  No.  25,  "Accounting  for Stock  Issued to
         Employees' for employees under the intrinsic value method. The adoption
         of SFAS  No.  123  does not have a  material  impact  on the  financial
         statements.

     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 for the year ended December 31, 2000.

     Net Loss Per Share
         Net loss per share,  in  accordance  with the  provisions  of Financial
         Accounting  Standards Board No. 128,  "Earnings Per Share," is computed
         by dividing net loss by the weighted average number of shares of Common
         Stock outstanding during the period.  Common Stock equivalents have not
         been   included  in  this   computation   since  the  effect  would  be
         anti-dilutive.

     Revenue Recognition
         Revenue  from  hardware  product  sales  is  recognized  at the time of
         shipment  provided that the resulting  receivable is deemed probable of
         collection.  Revenue from  software  sales is recognized at the time of
         licensing provided that the resulting  receivable is deemed probable of
         collection.  Revenue from software maintenance  contracts is recognized
         notably as earned.

     Use of Estimates
         The  preparation of financial  statements in conformity  with generally
         accepted   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.

GOING CONCERN

As shown in the accompanying financial statements, the Company incurred net
losses of $3,515,473 and $2,391,948 during the years ended December 31, 2000
and 1999, respectively.  The ability of the Company to continue as a going
concern is dependent on increasing sales and obtaining additional capital and
financing.  The financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going concern.
Management's plans are to continue discussions with several potential investors
to obtain additional capital to alleviate this situation.

CONCENTRATIONS OF BUSINESS AND CREDIT RISK
     The Company maintains cash balances in several financial institutions which
     are insured by the Federal  Deposit  Insurance  Corporation up to $100,000.
     Balances in these  accounts  may, at times,  exceed the  federally  insured
     limits.

     The Company  provides  credit in the normal course of business to customers
     located throughout the U.S. 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.

                                       10
<PAGE>




              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

PREPAID EXPENSES
         Prepaid Expenses include $318,956 resulting from an
         agreement in February  1998 with BNN  Business  News  Network,  Inc., a
         nationwide  media  advertising and radio network  company,  whereby the
         Company   purchased   advertising  time  to  be  utilized  on  stations
         associated  with Business News Network,  Inc.,  usable over a period of
         three years,  since then extended,  and aggregating  $900,000 in retail
         value,  against  issuance of 150,000 new and restricted  common shares.
         The services  were  recorded at the then fair market value of the stock
         issued,  for a total of $375,000.  The services are being  amortized as
         incurred,  over the time  frame of the next two  years.  For the  years
         ended  December  31,  2000 and 1999  $56,044 and $0,  respectively,  of
         advertising services were amortized.

PROPERTY, PLANT AND EQUIPMENT
     Property, plant and equipment consist of the following at December 31, 2000
<TABLE>
<CAPTION>
<S>                                                                                                 <C>
              Equipment                                                                             $             163,946
              Furniture and fixtures                                                                               69,976
              Leasehold improvements                                                                               45,770
                                                                                                      --------------------
                                                                                                                  279,692

              Less accumulated depreciation                                                                       167,591
                                                                                                      ====================
                                                                                                    $             112,101
                                                                                                      ====================

     Depreciation expense charged to operations was $44,645  and $37,514 in 2000 and 1999, respectively.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES
     Accounts  payable  and  accrued  expenses  consisted  of the  following  at
December 31, 2000:

         Accounts payable                                                                           $             244,933
         Accrued interest                                                                                          47,687
         Accrued commissions                                                                                       31,833
         Accrued returns                                                                                           35,719
         Accrued legal settlement                                                                                  20,000
         Accrued professional fees                                                                                 82,000
         Accrued taxes                                                                                             21,378
         Accrued payroll                                                                                           34,039
         Miscellaneous accruals                                                                                    24,524
                                                                                                       ===================
                                                                                                    $             542,113
                                                                                                       ===================
</TABLE>










                                       11
<PAGE>




              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

LOANS PAYABLE
     The Company and  Magnitude,  Inc. had  borrowings  under short term loan
     agreements  with the following  terms and  conditions at
     December 31, 2000:

<TABLE>
<CAPTION>
          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
<S>                                                                                                             <C>
              interest at 5% per annum and due  December 4, 1998.  This note is overdue at December 31, 2000    $    75,000
              and no demand for payment has been made through the date of our report.

          Notes dated December 6, 2000 and December 28, 2000 representing  cash advances by the
          Company's Chief Executive Officer and Board Chairman.  The notes are due on the
          earlier of January 31, 2001 or the receipt by the Company of new investment funds in the                   75,000
          approximate amount of $250,000.  The note carries an interest rate of 7% per annum.                     ==========
                  Total                                                                                         $   150,000
                                                                                                                  ==========
</TABLE>



NOTES PAYABLE

       At December  31, 1999 the Company  had  $1,475,000  of notes  outstanding
       related  to a June  1995  private  placement  offering.  During  2000 the
       holders of $1,050,000  worth of notes agreed to accept partial  repayment
       of  approximately  30% of the note  balances and  converted the remaining
       balances into common shares or convertible  preferred shares.  The holder
       of $400,000 worth of notes agreed to accept partial repayment of $200,000
       of the note balance payable in five equal monthly installments of $40,000
       commencing  September 8, 2000 and converted  the  remaining  balance into
       common shares. At December 31, 2000, there was one remaining  installment
       of  $40,000.  The  total  amount of  nonconverted  notes  outstanding  at
       December 31, 2000 is $25,000 which is in default.






                                       12
<PAGE>




              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

LONG-TERM DEBT

<TABLE>
<CAPTION>
       Long-term debt as of December 31, 2000 is comprised of the following:

        Pursuant to the February 2, 1998, Agreement and Plan of Merger with Rolina Corporation (see
        "Nature of Organization")  the Company had issued 155,556 shares (the "Shares") of its common stock to the
        principal of Rolina  Corporation who currently  serves as the Company's Chief Executive  Officer and Board
        Chairman,  and had issued a Put Option for such  Shares at a price of $2.41 per share in  accordance  with
<S>                                                                                                                 <C>
        the  provisions  contained  therein,  with  notice  for  exercise  eligible  to be given at any time after  $      374,890
        February 1, 2000,  and before 5:00 p.m. on the 90th day  thereafter.  This  liability was converted into a
        Company  obligation  maturing  March 31, 2002,  and  carrying  interest at the rate of 7% per year payable
        monthly.  The  obligation  includes an option to the holder for  conversion of the  outstanding  principal
        into shares of the Company's common stock at the rate of $0.50 per share.

        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          33,529
        rate used to discount the note is 8% per annum.
                                                                                                                      -------------
                Total                                                                                                      408,419

                   Less current maturities                                                                                  33,529
                                                                                                                      =============
                   Long-term debt, net of current maturities                                                        $      374,890
                                                                                                                     =============
</TABLE>

        Total maturities of long-term debt are as follows:

          Year Ending December 31,

                    2000                           $         33,529

                    2001                                          -

                    2002                                    374,890
                                                     ===============
                                                   $        408,419


  CAPITALIZED LEASE OBLIGATIONS

        The Company leases office equipment under  non-cancelable  capital lease
        agreements  expiring  between October 26, 2002 and October 27, 2002. The
        capital  lease  obligations  have been  recorded at the present value of
        future minimum lease payments,  discounted at an interest rate of 7.00%.
        The  capitalized  cost of  equipment  at December  31, 2000  amounted to
        $12,748 net of accumulated depreciation of $13,628.

        The following is a schedule of minimum lease payments due under capital
leases at December 31, 2000:


<TABLE>
<CAPTION>
               Year Ending December 31,
<S>             <C>                                                                            <C>
                2001                                                                           $         8,211
                2002                                                                                     6,316
                                                                                                ---------------
                Total minimum capital lease payments                                                    14,527
                Less amounts representing interest                                                         969
                                                                                                ---------------
                Present value of net minimum capital lease payments                                     13,558
                Less current maturities of capital lease obligations                                     7,440
                                                                                                ---------------
                Obligations under capital leases, excluding current maturities                $          6,118
                                                                                                ===============
</TABLE>


                                       13

<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

PREFERRED STOCK

       Preferred  stock is non-voting,  $.001 par value per share with 3,000,000
       shares authorized. Cumulative Preferred Stock has 2,500 shares designated
       of  which 1  share  is  issued  and  outstanding.  The  total  Cumulative
       Preferred  Stock at December 31, 2000 is $0 with a  liquidation  price of
       $100,000. As of December 31, 2000 and 1999, there were $9,000 and $9,000,
       respectively of cumulative  preferred  dividends in arrears  representing
       $9,000 per cumulative preferred share.

       Series A of the  Senior  Convertible  Preferred  Stock  series  which was
       issued in 2000 has 300,000  shares  designated,  29,300 shares issued and
       outstanding.  The total outstanding Series A Senior Convertible Preferred
       Stock at December 31, 2000 is $29 with a  liquidation  price of $146,500.
       The  following is a  description  of the Series A  convertible  preferred
       stock:

       (1)   The  holders of said shares of Series A Senior  Preferred  shall be
             entitled  to  receive  cumulative  dividends  at the  rate of seven
             percent  (7%) per  annum  during  the  first  annual  period  after
             issuance,  increasing  by increments of one half of one percent for
             every year thereafter  until the rate reaches ten percent (10%) per
             annum at which  time it will  remain at 10%  payable  semi-annually
             when declared by the Board of Directors,  before any dividend shall
             be  declared,  set apart for, or paid upon the Common  Stock of the
             Company. The Dividend Rate shall accrue on the Liquidation Price of
             each share of the Series A Senior  Preferred.  The dividends on the
             Series A Senior Preferred, payable in cash, shall be cumulative, so
             that if the Company fails in any fiscal year to pay such  dividends
             on all the issued and outstanding  Series A Senior Preferred,  such
             deficiency  in the  dividends  shall be  fully  paid,  but  without
             interest,  before any  dividends  shall be paid on or set apart for
             the Cumulative Preferred Stock or the Common Stock.

       (2)   The Series A Senior Preferred shall with respect to dividend rights
             and  liquidation  rights  rank prior to all  classes  and series of
             Common Stock and the Cumulative  Preferred Stock, and on a par with
             the Series B and C Senior Convertible Preferred Stock.

       (3)   In the event of any liquidation,  of the Company, whether voluntary
             or  otherwise,  after payment or provision for payment of the debts
             and other  liabilities of the Company,  the holders of the Series A
             Senior Preferred shall be entitled to receive, out of the remaining
             net assets of the Company,  the amount of Five ($5.00)  Dollars for
             each share of Series A Senior Preferred (the  "Liquidation  Price")
             held of  record  by such  holder,  payable  in cash or in shares of
             stock, securities or other consideration, the value of which stock,
             securities  or other  consideration  shall be fixed by the Board of
             Directors, plus the amount of all dividends in arrears on each such
             share up to the date  fixed for  distribution,  provided,  however,
             that such  remaining  net  assets are  sufficient  to cover all the
             before  mentioned  payments  and also like  payments  to holders of
             Series B and C Senior Preferred,  before any distribution  shall be
             made to the holders of Common Stock or Cumulative  Preferred  Stock
             of the Company.  In case such remaining net assets are insufficient
             to cover all such  payments  to holders of Series A, B and C Senior
             Preferred,  the holders of these series shall receive payments on a
             pro rata basis.

       (4)   The  Company  shall have the right to redeem pro rata any or all of
             its Series A Senior  Preferred  issued and outstanding at any time,
             with the Board of Directors  of the Company in its sole  discretion
             deciding  how many shares to redeem,  provided,  however,  that any
             such shares called for redemption  have been issued and outstanding
             for a  minimum  of  three  (3)  years  at the  time  of  notice  of
             redemption to the holders of such shares,  by paying to the holders
             thereof  the  Liquidation  Price for each  share of Series A Senior
             Preferred  held by such holder plus a "call  premium" of 15% of the
             Liquidation  Price,  together  with the amount of any  accrued  and
             unpaid  dividends  as may have  accumulated  thereon at the time of
             redemption (the "Redemption Price").

                                       14
<PAGE>



              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

PREFERRED STOCK - (Continued)

      (5)   Each share of Series A Senior  Preferred shall be convertible at any
            time prior to the Redemption Date, at the holder's option, into such
            number (the "Conversion Ratio") of shares of the Common Stock of the
            Company as  arrived  at by  dividing  the  Liquidation  Price by one
            hundred  fifty (150) percent of the market price of the Common Stock
            of the Corporation ("Market Price") on the earlier of the dates such
            share of Series A Senior  Preferred is subscribed for or issued (the
            "Effective Date").

            As of December 31, 2000 there were $1,709 Series A Senior
            Convertible  Preferred share  dividends in arrears  representing
            $.06 per share.

Series B of the Senior  Convertible  Preferred  Stock series which was issued in
2000 has 350,000 shares designated,  305,592 shares issued and outstanding.  The
total outstanding  Series B Senior  Convertible  Preferred Stock at December 31,
2000  is $306  with a  liquidation  price  of  $2,750,328.  The  following  is a
description of the Series B Senior Convertible Stock:

      (1)   The  holders of said  shares of Series B Senior  Preferred  shall be
            entitled  to  receive  cumulative  dividends  thereon at the rate of
            seven percent (7%) per annum, payable semi-annually when declared by
            the Board of Directors,  before any dividend shall be declared,  set
            apart  for,  or paid  upon  the  Common  Stock of the  Company.  The
            Dividend Rate shall accrue on the Liquidation Price of each share of
            the Series B Senior Preferred.  The dividends on the Series B Senior
            Preferred,  payable  in cash,  shall be  cumulative,  so that if the
            Company  fails in any fiscal year to pay such  dividends  on all the
            issued and outstanding Series B Senior Preferred, such deficiency in
            the dividends shall be fully paid, but without interest,  before any
            dividends shall be paid on or set apart for the Cumulative Preferred
            Stock or the Common Stock.

      (2)   The Series B Senior  Preferred shall with respect to dividend rights
            and  liquidation  rights  rank  prior to all  classes  and series of
            Common Stock and the Cumulative  Preferred  Stock, and on a par with
            the Series A and C Senior Convertible Preferred Stock.

      (3)   In the event of any liquidation of the Company, whether voluntary or
            otherwise,  after  payment or provision for payment of the debts and
            other liabilities of the Company, the holders of the Series B Senior
            Preferred  shall be entitled to receive,  out of the  remaining  net
            assets of the Company,  the amount of nine ($9.00)  Dollars for each
            share of Series B Senior Preferred (the "Liquidation Price") held of
            record  by such  holder,  payable  in cash or in  shares  of  stock,
            securities  or  other  consideration,  the  value  of  which  stock,
            securities  or other  consideration  shall be fixed by the  Board of
            Directors,  plus the amount of all dividends in arrears on each such
            share up to the date fixed for distribution,  provided however, that
            such  remaining  net assets are  sufficient  to cover all the before
            mentioned payments and also like payments to holders of Series A and
            C Senior  Preferred,  before any  distribution  shall be made to the
            holders  of  Common  Stock  or  Cumulative  Preferred  Stock  of the
            Company. In case such remaining net assets are insufficient to cover
            all such payments to holders of Series A, B and C Senior  Preferred,
            the holders of these  series  shall  receive  payments on a pro rata
            basis.

      (4)   The  Company  shall  have the right to redeem pro rata any or all of
            its Series B Senior  Preferred  issued and  outstanding at any time,
            with the Board of  Directors  of the Company in its sole  discretion
            deciding how many shares to redeem, provided, however, that any such
            shares called for redemption  have been issued and outstanding for a
            minimum  of three (3) years at the time of notice of  redemption  of
            the holders of such  shares,  by paying to the  holders  thereof the
            Liquidation  Price for each share of Series B Senior  Preferred held
            by such  holder  plus a  "call  premium"  of 10% of the  Liquidation
            Price,  together with the amount of any accrued and unpaid dividends
            as may  have  accumulated  thereon  at the time of  redemption  (the
            "Redemption Price").

                                       15
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

PREFERRED STOCK - (Continued)

       (5)   Each share of Series B Senior Preferred shall be convertible at any
             time prior to the  Redemption  Date, at the holder's  option,  into
             shares  of  Common  Stock of the  Company  on the basis of ten (10)
             shares of Common Stock for 1 share of Series B Senior Preferred.

             As of December 31, 2000 there were $63,485 Series B Senior
             Convertible  Preferred share dividends in arrears  representing
             $.21 per share.

       Series C of the  Senior  Convertible  Preferred  Stock  series  which was
       issued in 2000 has 120,000 shares  designated,  100,000 shares issued and
       outstanding.  The total outstanding Series C Senior Convertible Preferred
       Stock at December 31, 2000 is $100 with a liquidation  price of $900,000.
       The following is a description of the Series C Senior Convertible Stock:

       (1)   The  holders of said shares of Series C Senior  Preferred  shall be
             entitled  to receive  cumulative  dividends  thereon at the rate of
             seven percent (7%) per annum, payable monthly,  before any dividend
             shall be declared,  set apart for, or paid upon the Common Stock of
             the  Company.  The Dividend  Rate shall  accrue on the  Liquidation
             Price (as hereinafter defined) of each share of the Series C Senior
             Preferred. The dividends on the Series C Senior Preferred,  payable
             in cash,  shall be cumulative,  so that if the Company fails in any
             fiscal year to pay such dividends on all the issued and outstanding
             Series C Senior  Preferred,  such deficiency in the dividends shall
             be fully paid, but without interest,  before any dividends shall be
             paid on or set  apart  for the  Cumulative  Preferred  Stock or the
             Common Stock.

       (2)   The Series C Senior Preferred shall with respect to dividend rights
             and  liquidation  rights  rank prior to all  classes  and series of
             Common Stock and the Cumulative  Preferred Stock, and on a par with
             the Series A and B Senior Convertible Preferred Stock.

       (3)   In the event of any liquidation of the Company,  whether  voluntary
             or  otherwise,  after payment or provision for payment of the debts
             and other  liabilities of the Company,  the holders of the Series C
             Senior Preferred shall be entitled to receive, out of the remaining
             net assets of the Company,  the amount of nine ($9.00)  Dollars for
             each share of Series C Senior Preferred (the  "Liquidation  Price")
             held of  record  by such  holder,  payable  in cash or in shares of
             stock, securities or other consideration, the value of which stock,
             securities  or other  consideration  shall be fixed by the Board of
             Directors, plus the amount of all dividends in arrears on each such
             share up to the date  fixed for  distribution,  provided,  however,
             that such  remaining  net  assets are  sufficient  to cover all the
             before  mentioned  payments  and also like  payments  to holders of
             Series A and B Senior Preferred,  before any distribution  shall be
             made to the holders of Common Stock or Cumulative  Preferred  Stock
             of the Company.  In case such remaining net assets are insufficient
             to cover all such  payments  to holders of Series A, B and C Senior
             Preferred,  the holders of these series shall receive payments on a
             pro rata basis.

       (4)   The  Company  shall have the right to redeem pro rata any or all of
             its Series C Senior  Preferred  issued and outstanding at any time,
             with the Board of Directors  of the Company in its sole  discretion
             deciding  how many shares to redeem,  provided,  however,  that any
             such shares called for redemption  have been issued and outstanding
             for a  minimum  of  three  (3)  years  at the  time  of  notice  of
             redemption to the holders of such shares,  by paying to the holders
             thereof  the  Liquidation  Price for each  share of Series C Senior
             Preferred  held by such holder plus a "call  premium" of 10% of the
             Liquidation  Price  together  with the  amount of any  accrued  and
             unpaid  dividends  as may have  accumulated  thereon at the time of
             redemption (the "Redemption Price").

                                       16
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

PREFERRED STOCK - (Continued)

       (5)   Each share of Series C Senior Preferred shall be convertible at any
             time prior to the  Redemption  Date, at the holder's  option,  into
             shares  of  Common  Stock of the  Company  on the basis of ten (10)
             shares of Common Stock for 1 share of Series C Senior Preferred.

             As of December 31, 2000 there were $5,250 Series C Senior
             Convertible  Preferred share dividends in arrears  representing
             $.05 per share.

       Series D of the  Senior  Convertible  Preferred  Stock  series  which was
       issued in 2000 has 500,000  shares  designated,  89,445 shares issued and
       outstanding.  The total outstanding Series D Senior Convertible Preferred
       Stock at December 31, 2000 is $89 with a  liquidation  price of $805,004.
       The following is a descriptionof the Series D Senior Convertible Stock:

       (1)   The  holders of said shares of Series D Senior  Preferred  shall be
             entitled  to receive  cumulative  dividends  thereon at the rate of
             seven percent (7%) per annum,  payable  semi-annually when declared
             by the Board of Directors  before any  dividend  shall be declared,
             set apart for, or paid upon the Common  Stock of the  Company.  The
             Dividend  Rate  shall  accrue  on the  Stated  Value  (the  "Stated
             Value"),  which  Stated  Value  shall be  noted on the  certificate
             issued  to the  holder,  of  each  share  of the  Series  D  Senior
             Preferred. The dividends on the Series D Senior Preferred,  payable
             in cash,  shall be cumulative,  so that if the Company fails in any
             fiscal year to pay such dividends on all the issued and outstanding
             Series D Senior  Preferred,  such deficiency in the dividends shall
             be fully paid, but without interest,  before any dividends shall be
             paid on or set  apart  for the  Cumulative  Preferred  Stock or the
             Common Stock.

       (2)   The Series D Senior Preferred shall with respect to dividend rights
             and  liquidation  rights  rank prior to all  classes  and series of
             Common Stock and the Cumulative  Preferred Stock, and on a par with
             the Series A, B and C Senior Convertible Preferred Stock.

       (3)   In the event of any liquidation of the Company,  whether  voluntary
             or  otherwise,  after payment or provision for payment of the debts
             and other  liabilities of the Company,  the holders of the Series D
             Senior Preferred shall be entitled to receive, out of the remaining
             net assets of the  Company,  an amount equal to the Stated Value of
             each  share of  Series D Senior  Preferred  held of  record by such
             holder, payable in cash or in shares of stock,  securities or other
             consideration,  the  value  of  which  stock,  securities  or other
             consideration  shall be fixed by the Board of  Directors,  plus the
             amount of all  dividends  in  arrears  on each such share up to the
             date fixed for distribution, provided, however, that such remaining
             net  assets  are  sufficient  to  cover  all the  before  mentioned
             payments  and also like  payments  to  holders of Series A, B and C
             Senior  Preferred,  before  any  distribution  shall be made to the
             holders  of  Common  Stock  or  Cumulative  Preferred  Stock of the
             Company.  In case such  remaining  net assets are  insufficient  to
             cover all such  payments  to holders of Series A, B, C and D Senior
             Preferred,  the holders of these series shall receive payments on a
             pro rata basis.

       (4)   The  Company  shall have the right to redeem pro rata any or all of
             its Series D Senior  Preferred  issued and  outstanding at anytime,
             with the Board of Directors  of the Company in its sole  discretion
             deciding  how many shares to redeem,  provided,  however,  that any
             such shares called for redemption  have been issued and outstanding
             for a  minimum  of  three  (3)  years  at the  time  of  notice  of
             redemption to the holders of such shares,  by paying to the holders
             thereof  the  Stated  Value  for  each  share  of  Series  D Senior
             Preferred  held by such holder plus a "call  premium" of 10% of the
             Stated  Value,  together  with the amount of any accrued and unpaid
             dividends as may have accumulated thereon at the time of redemption
             (the "Redemption Price").

                                       17
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

PREFERRED STOCK - (Continued)

       (5)   Each share of Series D Senior Preferred shall be convertible at any
             time prior to the  Redemption  Date, at the holder's  option,  into
             shares of Common Stock of the  corporation  on the basis of ten(10)
             shares of Common Stock for 1 share of Series D Senior Preferred.

         As of December 31, 2000 there were $11,734 Series D Senior Convertible
         Preferred share dividends in arrears representing $.13
         per share.

INCOME TAXES

       The income tax provision (benefit) is comprised of the following:
<TABLE>
<CAPTION>
                             Year Ended December 31,
                                                                                -----------------------------------
                                                                                     2000                1999
                                                                                ---------------     ---------------
<S>                                                                           <C>                 <C>
          State current provision (benefit)                                   $      (111,676)    $      (490,374)
          State deferred provision (benefit)                                                 -                   -
                                                                                ===============     ---------------
                                                                              $      (111,676)    $      (490,374)
                                                                                ===============     ===============
</TABLE>


       In 1998, the State of New Jersey enacted  legislation  allowing  emerging
       technology and/or biotechnology companies to sell their unused New Jersey
       Net Operating  Loss ("NOL")  Carryover and Research and  Development  Tax
       Credits ("R&D Credits) to corporate taxpayers in New Jersey.  During 1999
       and 2000, the Company entered into an agreement under which it retained a
       third party broker to identify a buyer for its NOL  Carryover.  The total
       anticipated  net proceeds of this  transaction  for 1999  ($497,238)  was
       recorded as a current  deferred tax asset ($201,470) and a tax benefit of
       $295,768 in the accompanying financial statements.

       Due to limitations  placed by the State of New Jersey on the total amount
       of NOL Carryover and R&D Credits eligible to be sold in any one year, the
       sale of only a portion of the  Company's  NOL  Carryover  ($295,768)  was
       completed in 1999. The receipt of these funds was recorded as a reduction
       to the  non-current  deferred  tax  asset in the  accompanying  financial
       statements.  The  sale of the  remaining  balance  of the  Company's  NOL
       Carryover was completed in 2000;  however the deferred amount of $201,470
       was subsequently reduced by the State to $164,450.

       The total  anticipated net proceeds of this  transaction for 2000,  which
       represents the sale of the Company's 1999 New Jersey Net Operating  Loss,
       was $157,751;  of which $35,707 was received by December 31, 2000 and the
       remaining $122,044 was set up as a current deferred tax asset.

       The Company's  total  deferred tax asset and  valuation  allowance are as
follows:
<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                           ------------------------------------
                                                                                2000                1999
                                                                           ----------------    ----------------
<S>                                                                     <C>                 <C>
                       Total deferred tax asset, noncurrent             $     5,600,000     $     4,240,000
                       Less valuation allowance                              (5,600,000)         (4,240,000)
                                                                           ----------------    ----------------
                       Net deferred tax asset, noncurrent               $         -         $         -
                                                                           ================    ================
</TABLE>


                                       18

<PAGE>



              Magnitude Information Systems, Inc. and Subsidiaries
                 Notes to the Consolidated Financial Statements

INCOME TAXES - (Continued)

       The differences  between income tax benefits in the financial  statements
       and the tax  benefit  computed  at the  combined  state and U.S.  Federal
       statutory rate of 40% are as follows:

                                                     Year Ended December 31,
                                             ---------------------------------
                                                  2000                1999
                                             ----------------    -------------
          Tax benefit                             (40%)               (40%)
          Valuation allowance                     (40%)                40%
                                             ----------------    -------------
          Effective tax rate                        -                   -
                                             ================    =============

       At December 31, 2000, the Company has available approximately $14,000,000
       of net operating  losses to carryforward  and which may be used to reduce
       future federal  taxable  income and expire between  December 31, 2007 and
       2020.

       At December 31, 2000, the Company has available approximately  $3,400,000
       of net operating  losses to carryforward  and which may be used to reduce
       future state taxable income which expire December 31, 2007.

401(k) PLAN

       The Company adopted the qualified  Magnitude,  Inc. sponsored 401(k) plan
       covering  substantially  all full time  employees  under  which  eligible
       employees may elect to contribute,  within statutory limits, a percentage
       of  their  annual  compensation.  The  Company  matches  up to 50% of the
       employee's  contribution  of which  the  match  may not  exceed 3% of the
       employee's  total  compensation  for the plan year.  Contributions to the
       plan were  $20,718 and $9,592 for the years ended  December  31, 2000 and
       1999, respectively.

STOCK OPTION PLANS

       In April 1996,  Magnitude,  Inc.  adopted its 1996 Stock  Incentive  Plan
       ("the 1996 Plan").  The 1996 Plan provides that certain  options  granted
       thereunder  are intended to qualify as "incentive  stock  options"  (ISO)
       within the meaning of Section 422A of the United States Internal  Revenue
       Code of 1986, while  non-qualified  options may also be granted under the
       Plan.   The  initial  plan  and   subsequent   amendments   provided  for
       authorization  of up to 480,000  shares.  Pursuant to the above described
       stock  exchange  offer on July 2, 1997,  all options  under the 1996 Plan
       were  converted  into shares of the Company at a rate of 3.4676 shares of
       Magnitude, Inc. to 1 share of the Company.

       In September  1997,  the Company  adopted its 1997 Stock  Incentive  Plan
       ("the 1997 Plan").  The 1997 Plan provides that certain  options  granted
       thereunder  are intended to qualify as "incentive  stock  options"  (ISO)
       within the meaning of Section 422A of the United States Internal  Revenue
       Code of 1986, while  non-qualified  options may also be granted under the
       Plan. The initial plan and subsequent  amendments  provided for the grant
       of options for up to 1,000,000  shares.  The purchase  price per share of
       common stock deliverable upon exercise of each ISO shall not be less than
       100% of the fair market value of the common stock on the date such option
       is granted. If an ISO is issued to an individual who owns, at the time of
       grant, more than 10% of the total combined voting power of all classes of
       the Company's common stock, the exercise price of such option shall be at
       least 110% of the fair  market  value of the common  stock on the date of
       grant and the term of the  option  shall not  exceed  five years from the
       date of grant.  The  purchase  price of shares  subject to  non-qualified
       stock options shall be determined by a committee established by the Board
       of Directors  with the condition  that such prices shall not be less than
       85% of the fair market value of the common stock at the time of grant.

                                       19
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

STOCK OPTION PLANS - (Continued)

       In May, 2000 the Company adopted its 2000 Stock Incentive Plan ("the 2000
       Plan").  The 2000 Plan provides that certain options  granted  thereunder
       are intended to qualify as  "incentive  stock  options"  (ISO) within the
       meaning of Section  422A of the United  States  Internal  Revenue Code of
       1986, while nonqualified  options may also be granted under the Plan. The
       initial  Plan  provides  for the  grant of  options  for up to  5,000,000
       shares.  The purchase  price per share of common stock  deliverable  upon
       exercise of each ISO shall not be less than 100% of the fair market value
       of the  common  stock on the date such  option is  granted.  If an ISO is
       issued to an individual who owns, at the time of grant,  more than 10% of
       the total  combined  voting power of all classes of the Company's  common
       stock,  the  exercise  price of such option shall be at least 110% of the
       fair market value of the common  stock on the date of the grant,  and the
       term of the option  shall not  exceed  five years from the date of grant.
       The purchase price of shares subject to non-qualified stock options shall
       be determined by a  compensation  committee  established  by the Board of
       Directors.
<TABLE>
<CAPTION>
                                                                                            Qualified and Non-Qualified
                                                                                          Shares Under Option Pursuant to
                                                                                                   the 1997 Plan
                                                                                                    December 31,
                                                                                         -----------------------------------
                                                                                               2000               1999
                                                                                         -----------------   ---------------
<S>                                                                                               <C>               <C>
          Outstanding, beginning of year                                                          795,000           981,468
          Granted during the year                                                                 193,000           605,000
           Forfeited during the year                                                             (75,000)         (791,468)
          Outstanding, end of year (at prices ranging from $1.00 to $2.00                         913,000           795,000
              per share)
                                                                                         -----------------   ---------------
           Eligible, end of year for exercise (at prices ranging from $1.00 to                    757,500           470,000
             $2.00 per share)                                                            =================   ===============
</TABLE>


     At December 31, 2000 and 1999,  the  weighted  average  exercise  price and
     weighted  average  remaining  contractual life is $1.10 and $1.13 per share
     and 4 years 4 months and 4 years 9 months, respectively.

     At December 31, 2000,  there were 87,000 shares  reserved for future option
grants.
<TABLE>
<CAPTION>


                                                                                             Qualified and Non-Qualified
                                                                                           Shares Under Option Pursuant to
                                                                                                    the 2000 Plan
                                                                                                     December 31,
                                                                                                         2000
                                                                                           ---------------------------------
          Outstanding, beginning of year                                                                                  -
<S>                                                                                                                 <C>
          Granted during the year                                                                                   648,000
           Forfeited during the year                                                                                      -
          Outstanding, end of year (at prices ranging from $1.00 to $1.33)                                          648,000
           Eligible, end of year for exercise (at prices ranging from $1.00 to $1.33)                               528,000
                                                                                           =================================
</TABLE>


At December  31, 2000 the weighted  average  exercise  price and weighted
average  remaining  contractual  life is $1.07 and 4 years 6 months,
respectively.

At December 31, 2000,  there were  4,352,000  shares  reserved for future option
grants.

                                       20
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

STOCK OPTION PLANS - (Continued)

WARRANTS

     The Company granted common stock purchase  warrants between May 1, 1998 and
November 13, 2000.

     At December 31, 2000,  there were 7,344,742 shares eligible for exercise at
     prices ranging from $.50 to $5.00 per share,  of which  1,900,000  eligible
     shares are callable at $2.00 per share.  All warrants  vested upon issuance
     and expire between July 22, 2002 and February 24, 2006.

COMMITMENTS AND CONTINGENCIES

     Lease Agreement
       Magnitude,  Inc. currently leases office space which contained its former
       administrative  offices  pursuant to a lease  agreement dated December 9,
       1998. Such lease commenced  December 16, 1998 and expires on December 31,
       2001 and requires  monthly  payments of $3,700 from  December 16, 1998 to
       October 31, 1999 and $3,250 from  November 1, 1999 to December  31, 2001.
       This space has been  sublet,  generating  $3,250 per month in  offsetting
       revenues.

       On March 15, 2000, the Company  entered into a lease agreement for office
       space which is utilized for the Company's  principal offices.  Such lease
       commenced  April 15,  2000 and  expires  on March 31,  2005 and  requires
       monthly payments of $6,500 from April 15, 2000 through March 31, 2002; of
       $6,695 thereafter  through March 31, 2003; of $6,896 thereafter March 31,
       2004; and of $7,103 thereafter through March 31, 2005.

       The Company also leases office space for a sales office.  Such lease
       commenced  September 1, 2000 and expires on August 31, 2000
       and requires monthly payments of $1,000.

       Under the lease  agreements,  the  Company  is  required  to make  future
       minimum  lease  payments as follows in  addition  to a pro-rata  share of
       certain operating expenses:


         Year Ending December 31,

                  2001                                $         86,000
                  2002                                          79,755
                  2003                                          82,149
                  2004                                $         84,615
                  2005                                          21,309
                                                        ===============
                        Total                         $        353,828

       Included in general and  administrative  expenses is rent  expense  which
       amounted to $84,160and  $64,125 for the years ended December 31, 2000 and
       1999, respectively.

    Employment Agreements
       The Company has  entered  into  employment  agreements  with  certain key
       personnel which provide for a base salary, yearly bonuses in common stock
       and/or  options of the Company  and other  benefits.  Termination  of the
       agreements may be made by either party with advance notice.

                                       21
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

RELATED PARTY TRANSACTIONS

    In November  1998, the Company  entered into a consulting  agreement with an
    individual who subsequently,  in January 1999, joined the Company's board of
    directors,  and  pursuant to which the Company  issued  1,000,000  shares of
    common stock.  Such shares were registered on Form S-8 on December 22, 1998.
    During  the  first  quarter  of  1999,  this  individual,  pursuant  to  the
    consulting agreement,  obtained the release of approximately $436,000 of the
    Company's liabilities.

    Between  December  30, 1998,  and March 31,  1999, a director and  principal
    shareholder  extended  working  capital  loans  aggregating  $395,560 to the
    Company, of which a portion of $351,060 was the subject of a promissory note
    bearing  interest  at the rate of 10% per annum  During the same time,  this
    director and shareholder exercised options to purchase 450,000 shares of the
    common stock of the Company,  and was issued an additional  565,000  shares,
    against a combination of cash payments and  cancellation of debt owed by the
    Company in the aggregate amount of $507,500.

    In  January  1999,  the  Chairman  of the Board of  Directors  resigned.  In
    connection  with this  individual's  resignation,  $350,000 of the  $900,000
    principal  amount  cumulative  preferred shares held by this individual were
    exchanged for 700,000  shares of common stock of the Company.  The remaining
    principal  balance  of  $550,000  along  with a  promissory  note  totalling
    $351,060 were exchanged for a $900,000  principal  amount of a new series of
    convertible preferred shares which require 7% per annum dividend payments to
    be made monthly.  In connection  with a termination  agreement dated January
    28, 2000 a restrictive  covenant and confidentiality  agreement was executed
    whereby  the  Company  agreed to pay this  individual  a monthly  fee in the
    amount of $5,555  over the 36 month term of that  agreement  along with this
    individual's health and term life insurance for an 18 month period.

    On March 31, 2000,  the Company and its Board  Chairman and Chief  Executive
    Officer agreed to convert a current  liability  payable to him in the amount
    of $374,890 into a Company  obligation  maturing March 31, 2002, which among
    others  provides for a right to the holder to convert such  obligation  into
    common stock of the Company (see "Long-term debt").

    In  September  2000,  an officer of the Company  extended a cash  advance of
    $50,000 to the Company,  accruing  interest at the rate of 7% per year. This
    advance was repaid in October 2000. In December 2000, additional advances of
    $75,000 were made to the Company accruing interest at the rate of 7% and are
    due on the  earlier of January 31, 2001 or the receipt by the Company of new
    investment  funds  in  the  approximate   amount  of  $250,000  (see  "Loans
    Payable").

    In April 2000 an officer of the Company  borrowed  $25,000  from  Magnitude,
    Inc. accruing interest at the rate of 7% per year. This note was due on June
    30, 2000. The  outstanding  balance on this note as of December 31, 2000 was
    $24,500.

CHANGES IN KEY PERSONNEL

    On October 11, 2000,  the board of directors  of the Company  confirmed  the
    promotion of John C. Duncan,  Executive Vice  President,  to the position of
    President  and Chief  Operating  Officer of the  Company.  Steven D.  Rudnik
    retains the title and  position of Chief  Executive  Officer and Chairman of
    the Board.

                                       22
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

MAJOR CUSTOMERS

    The Company had two major  customers  for the year ended  December 31, 2000,
    which  comprised  19% and 29% of  total  sales.  The  Company  had  accounts
    receivable  balances  due from these  customers  of $122,572  and  $205,065,
    respectively, at December 31, 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

    Cash,  accounts  receivable,   accounts  payable,  accrued  expenses,  notes
           payable,  long-term  debt  and  capitalized  lease  obligations:  The
           carrying  amount  approximates  fair value  because of the short term
           maturity of these instruments.

     Limitations
         Fair value  estimates  are made at a specific  point in time,  based on
         relevant  information and information  about the financial  instrument.
         These estimates are subjective in nature and involve  uncertainties and
         matters of significant judgment and therefore cannot be determined with
         precision.  Changes  in  assumptions  could  significantly  affect  the
         estimates.

ACQUISITIONS

     On January 15, 2000 the Company  acquired all of the  outstanding  stock of
     Internet  Ergonomics  Technologies Corp (IET) in exchange for 64,000 shares
     of the Company's common stock carrying a fair market value of $28,150.  The
     purchase price was determined to approximate the value of the net assets of
     IET. The following  represents the unaudited proforma results of operations
     as if  the  business  combination  had  occurred  at the  beginning  of the
     respective  year in which IET was acquired as well as the  beginning of the
     immediately preceding year.

                                                    December 31
                                         -----------------------------------
                                              2000                1999
                                         ----------------    ---------------
           Net Sales                   $         776,635   $        263,553
           Net Loss                          (3,515,473)        (2,392,523)
           (Loss) per share                       (0.25)             (0.28)

     On January 15, 2000 the Company  acquired all of the  outstanding  stock of
     Cornell  Ergonomics,  Inc.  (Cornell) in exchange for 54,000  shares of the
     Company's  common  stock  carrying  a fair  market  value of  $23,750.  The
     purchase price was determined to approximate the value of the net assets of
     Cornell.  The  following  represents  the  unaudited  proforma  results  of
     operations as if the business  combination had occurred at the beginning of
     the respective  year in which Cornell was acquired as well as the beginning
     of the immediately preceding year.

                                                    December 31
                                         -----------------------------------
                                              2000                1999
                                         ----------------    ---------------
           Net Sales                   $         776,635   $        286,053
           Net Loss                          (3,515,473)        (2,390,623)
           (Loss) per share                       (0.25)             (0.28)



                                       23
<PAGE>


                                                          EXHIBIT 4.1


                      CERTIFICATE OF POWERS, DESIGNATIONS,
                      PREFERENCES AND RIGHTS OF THE SHARES
                            OF THE PREFERRED STOCK OF
                       MAGNITUDE INFORMATION SYSTEMS, INC.

                                To Be Designated
                   Series D Senior Convertible Preferred Stock


         Magnitude  Information  Systems,  Inc.,  a  Delaware  corporation  (the
"Corporation"), in accordance with Section 103 of the General Corporation Law of
the State of Delaware  ("DGCL"),  by its  President,  does hereby  certify  that
during  a  meeting  on  September  26,  2000,  the  Board  of  Directors  of the
Corporation duly adopted the following resolutions providing for the issuance of
a series  of  Preferred  Stock  to be  designated  Series  D Senior  Convertible
Preferred Stock, par value $.001, and to consist of 500,000 shares:

          RESOLVED,  that the Corporation is hereby  authorized to amend
          its Certificate of Incorporation  and to file a Certificate of
          Designations  of Preferred Stock to provide for 500,000 shares
          of  Series D Senior  Convertible  Preferred  Stock,  $.001 par
          value ("Series D Senior Preferred"), pursuant to the terms and
          conditions set forth in the Certificate of Designations;

          RESOLVED, that the rights,  privileges and limitations of each
          share of Series D Senior Preferred shall be as follows:

         1.   Issuance.   The series of Preferred Stock designated as Series D
Senior Preferred shall consist of 500,000 shares.

         2. Dividends.  The holders of said shares of Series D Senior  Preferred
shall be entitled to receive  cumulative  dividends thereon at the rate of seven
percent  (7%) per annum,  payable  semi-annually  when  declared by the Board of
Directors,  before any dividend  shall be declared,  set apart for, or paid upon
the Common  Stock of the  Corporation.  The  Dividend  Rate shall  accrue on the
Stated  Value (the  "Stated  Value"),  which  Stated Value shall be noted on the
certificate  issued  to the  holder,  of  each  share  of the  Series  D  Senior
Preferred.  The  dividends  on the Series D Senior  Preferred,  payable in cash,
shall be cumulative,  so that if the Corporation fails in any fiscal year to pay
such dividends on all the issued and outstanding Series D Senior Preferred, such
deficiency in the dividends  shall be fully paid, but without  interest,  before
any dividends  shall be paid on or set apart for the Cumulative  Preferred Stock
or the Common Stock.

         3.  Priority.  The  Series D Senior  Preferred  shall  with  respect to
dividend rights and  liquidation  rights rank prior to all classes and series of
Common Stock and the Cumulative Preferred Stock, and on a par with the Series A,
B and C Senior Convertible Preferred Stock.

         4.  Voting.  Except as  required by the DGCL and as provided in Section
(7) below,  the holders of said shares of Series D Senior Preferred shall not be
entitled to any voting rights.

         5.  Cancellation.  Shares of Series D Senior  Preferred which have been
issued and  reacquired in any manner,  including  shares  purchased or converted
into Common Stock, exchanged or redeemed,  shall be canceled on the books of the
Corporation and shall not be considered outstanding for any purpose.

                                       1

<PAGE>


         6.  Liquidation.  In the  event  of any  liquidation,  dissolution,  or
winding up of the affairs of the  Corporation,  whether  voluntary or otherwise,
after payment or provision for payment of the debts and other liabilities of the
Corporation,  the holders of the Series D Senior  Preferred shall be entitled to
receive, out of the remaining net assets of the Corporation,  an amount equal to
the Stated  Value of each share of Series D Senior  Preferred  held of record by
such  holder,  payable  in cash or in  shares  of  stock,  securities  or  other
consideration, the value of which stock, securities or other consideration shall
be fixed by the Board of Directors,  plus the amount of all dividends in arrears
on each such share up to the date  fixed for  distribution,  provided,  however,
that such remaining net assets are sufficient to cover all the before  mentioned
payments  and  also  like  payments  to  holders  of  Series  A, B and C  Senior
Preferred,  before any distribution shall be made to the holders of Common Stock
or Cumulative  Preferred  Stock of the  Corporation.  In case such remaining net
assets are  insufficient to cover all such payments to holders of Series A, B, C
and D Senior Preferred,  the holders of these series shall receive payments on a
pro rata basis.

         7.  Cumulative  Dividends.  During  such  time as  there  exist  unpaid
cumulative  dividends due on the Series D Senior Preferred,  no reclassification
of the shares of the Corporation or capital reorganization of the Corporation in
any manner  provided by law shall be valid  unless (a) the holders of a majority
of all the Series D Senior Preferred approve,  and (b) provision is made for the
payment of the aggregate unpaid cumulative dividends then in arrears.

         8.   Redemption.

         (i) The Corporation  shall have the right to redeem pro rata any or all
of its Series D Senior  Preferred  issued and  outstanding at any time, with the
Board of Directors of the Corporation in its sole  discretion  deciding how many
shares to redeem, provided,  however, that any such shares called for redemption
have been issued and outstanding for a minimum of three (3) years at the time of
notice of  redemption  to the holders of such  shares,  by paying to the holders
thereof  the Stated  Value for each share of Series D Senior  Preferred  held by
such holder plus a "call premium" of 10% of the Stated Value,  together with the
amount of any accrued and unpaid  dividends as may have  accumulated  thereon at
the time of redemption (the "Redemption Price").

         (ii) At least 10 days but not more than 30 days prior to the date fixed
by the Board of Directors of the Corporation for the redemption of any shares of
the Series D Senior Preferred pursuant to subsection (i) above, a written notice
shall be  mailed  to the  holder  of  record  of such  shares of Series D Senior
Preferred to be redeemed,  at the address of such holder as shown on the records
of the Corporation,  notifying such holder of the election of the Corporation to
redeem such shares,  stating the date fixed for redemption thereof  (hereinafter
referred to as the "Redemption Date"), and calling upon such holder to surrender
to the Corporation on the Redemption Date at the place designated in such notice
such holder's  certificate or certificates  representing the number of shares of
Series D Senior  Preferred  specified in such notice of redemption.  On or after
the Redemption  Date,  each holder of shares of Series D Senior  Preferred to be
redeemed shall present and surrender such holder's  certificate or  certificates
for such shares to the  Corporation  at the place  designated in such notice and
thereupon the  Redemption  Price of such shares shall be paid to or to the order
of the person  whose name appears on such  certificate  or  certificates  as the
owner thereof and each surrendered certificate shall be canceled. From and after
the Redemption  Date (unless default shall be made by the Corporation in payment
if the Redemption  Price),  all dividends on the Series D Senior Preferred shall
cease to accrue and all rights of the  holders  thereof as  stockholders  of the
Corporation,  except the right to receive the Redemption  Price thereof upon the
surrender of certificates representing the same, without interest thereon, shall
cease and terminate and such shares shall not thereafter be transferred  (except
with the consent of the  Corporation)  on the books of the  Corporation and such
shares shall not be deemed to be outstanding for any purpose whatsoever.

         (iii) The holder of any shares of Series D Senior Preferred notified by
the  Corporation  of the redemption of such shares  pursuant to subsection  (ii)
above  shall have the right to  exercise  his option to convert  such  shares of
Series D Senior  Preferred  into  Common  Stock of the  Corporation  pursuant to
Section (9) below,  by notifying  the  Corporation  in writing or via  facsimile
prior to the Redemption Date of his election to convert,  in the form prescribed
therefore.  The  Corporation,  after  receipt of such notice  shall  remove such
shares from the shares to be redeemed.

                                       2

<PAGE>


         9.  Conversion.  Each  share  of  Series D  Senior  Preferred  shall be
convertible  at any time prior to the Redemption  Date, at the holder's  option,
into shares of Common Stock of the  Corporation  on the basis of ten (10) shares
of  Common  Stock for 1 share of Series D Senior  Preferred.  The  holder of any
shares of Series D Senior  Preferred  who elects to convert  his or her Series D
Senior Preferred into Common Stock of the Corporation  shall  surrender,  at the
principal office of the Corporation or at such other office or agency maintained
by  the   Corporation   for  that  purpose,   the  certificate  or  certificates
representing the shares of Series D Senior  Preferred to be converted,  together
with a written  affidavit  informing the  Corporation  of his or her election to
convert  such  shares,  whereby the date of receipt by the  Corporation  of such
certificates and affidavit shall  constitute the "Conversion  Date". As promptly
as  practicable,  and in any event within ten business  days after  surrender of
such  certificates,  the  Corporation  shall  deliver  or cause to be  delivered
certificates   representing  the  number  of  validly  issued,  fully  paid  and
non-assessable shares of Common Stock of the Corporation to which such holder of
Series D Senior Preferred so converted shall be entitled.  Such conversion shall
be deemed to have been made at the close of business on the Conversion  Date, so
that the rights of the holders of the Series D Senior Preferred shall thereafter
cease  except  for the  right to  receive  Common  Stock of the  Corporation  in
accordance  herewith,  and such converting  holder of Series D Senior  Preferred
shall be treated  for all  purposes as having  become the record  holder of such
Common Stock of the Corporation at such time.

         10.  Anti-Dilution.  In the event that,  prior to the conversion of the
Series D Senior  Preferred  Stock by the holder thereof into Common Stock of the
Corporation,  there shall occur any change in the  outstanding  shares of Common
Stock of the  Corporation by reason of the  declaration of stock  dividends,  or
through a re-capitalization resulting from stock splits or combinations, without
the receipt by the  Corporation of fair  consideration  therefore in the form of
cash,  services  or  property,  the  conversion  ratio  of the  Series  D Senior
Preferred Stock into Common Stock of the Corporation provided for in Section (9)
above shall be adjusted such that any holder of Series D Senior  Preferred Stock
converting  such  stock  into  Common  Stock  subsequent  to such  change in the
outstanding  shares of Common  Stock of the  Corporation  shall be  entitled  to
receive,  upon such  conversion,  a number  of  shares  of  Common  Stock of the
Corporation  representing  the same  percentage of common shares  outstanding as
represented  by the shares  that he would have  received  had he  converted  his
Series D Senior  Preferred  Stock to Common  Stock  prior to such  change in the
outstanding shares of Common Stock of the Corporation.

         IN WITNESS WHEREOF,  we, the undersigned,  have executed and subscribed
this certificate on September 26, 2000





                                                     /s/ Steven D. Rudnik
                                                      --------------------
                                                     Steven D. Rudnik, President


ATTEST:


/s/  Joerg H. Klaube
------------------------
Joerg H. Klaube, Secretary