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, 2003


                                       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:
      --------------------------------------------------------------------
                         Common Stock, par value $0.0001


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


<PAGE>

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, 2003,
      were $162,335.

Common stock, par value $.0001 per share ("Common Stock"), was the only class of
voting  stock of the  Registrant  outstanding  on March  8,  2004.  Based on the
closing  price of the  Common  Stock  on the OTC  Electronic  Bulletin  Board as
reported on March 8, 2004, ($0.11), the aggregate market value of the 70,240,034
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 8, 2004, was approximately $7,726,404.
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 8, 2004,  79,482,141 shares of Common Stock, $.0001 par value,
      were outstanding.

             DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX


                                                                               2
<PAGE>


                       MAGNITUDE INFORMATION SYSTEMS, INC.

                                    CONTENTS


PART I.                                                                   Page
                                                                          ----

  Item  1.  Business......................................................  4

  Item  2.  Properties.................................................... 11

  Item  3.  Legal Proceedings............................................. 11

  Item  4.  Submission of Matters to a Vote of Security Holders........... 11

PART II.

  Item  5.  Market for Registrant's Common Equity and Related
            Shareholder Matters........................................... 12

  Item  6.  Selected Financial Data....................................... 14

  Item  7.  Management's' Discussion and Analysis of Financial Condition
            and Results of Operations..................................... 15

  Item  8.  Financial Statements and Supplementary Data................... 18

  Item 8a.  Controls and Procedures....................................... 18

  Item  9.  Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure...................................... 18
PART III.

  Item 10.  Directors and Executive Officers of the Registrant............ 19

  Item 11.  Executive Compensation........................................ 21

  Item 12.  Security Ownership of Certain Beneficial Owners and
            Management.................................................... 24

  Item 13.  Certain Relationships and Related Transactions................ 25

  Item 14.  Principal Accountant Fees and Services........................ 25

PART IV

  Item 15.  Exhibits and Reports on Form 8-K.............................. 27

            Signatures.................................................... 28

            Exhibit Index................................................. 29


<PAGE>


                                     PART I
                                     ------
ITEM 1: BUSINESS

The Company

      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  ErgoEnterprise(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

      On June 24,  1997,  the  Company  entered  into an  acquisition  agreement
whereby it acquired  substantially  all of the  outstanding  stock 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
hereafter referred to as Magnitude,  Inc. The business combination took the form
of a reverse acquisition. The Company and Magnitude, Inc. remain as two separate
legal entities  whereby  Magnitude,  Inc.  operates as a subsidiary of Magnitude
Information  Systems,  Inc. On November  18, 1998,  the Company sold  Magnitude,
Inc.'s  hardware  product line  comprised  of the  ergonomic  keyboard  platform
products and  accessories,  all related  inventory  and  production  tooling and
warehousing assets, and all intellectual property rights including the Proformix
name, to a Canadian company.

      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 acquired the rights to certain software  products,  with such software
products  subsequently  forming  the basis for the  further  development  of the
Company's  proprietary  ErgoEnterprise(TM)  software  system.  The operations of
Magnitude  Information  Systems,  Inc.  are  currently  comprised  solely of the
operations of Magnitude, Inc.

      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, 2002, 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, 2003, there were outstanding  77,213,808 Common Shares,
1 Cumulative Preferred Share, and 351,022 Convertible Preferred Shares.


                                                                               4
<PAGE>


Narrative Description of Business

      Magnitude  Information  Systems,  Inc.  is a  pioneer  and  leader  in the
ergonomic  productivity  software market. With its  Anti-Injury(TM)  software as
represented by ErgoEnterprise(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. ErgoEnterprise(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.

      We have  received  a patent  from the U.S.  Patent  and  Trademark  Office
relative to certain core inventions within the ErgoEnterprise(TM)  system and we
have applied for several more patents for our products.

      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).  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  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 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  implement an ergonomic  regulation
which directs qualifying  employers to establish and maintain a program designed
to minimize RSI's. 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 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.

                                                                               5
<PAGE>

      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 French and Portuguese  language versions of its software products
for the  European and  Brazilian  markets,  and will shortly  introduce a German
language  version for certain other  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  ErgoEnterprise(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.  ErgoEnterprise(TM)  is the first suite of software  solutions
that combines ergonomic remediation and productivity enhancement tools. Its nine
component modules are described as follows:

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.

                                                                               6
<PAGE>

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.

EMSANALYZER(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.

Patents and New Products

ErgoSentry - Patent Granted:

      In May 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.


Studies Involving ErgoEnterprise(TM)

      Magnitude has conducted  productivity studies using  ErgoEnterprise(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 ErgoEnterprise  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.

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

                                                                               7
<PAGE>

      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
ErgoEnterprise indicate a return on investment of approximately 3 months.

      One client, the California State Compensation  Insurance Fund, conducted a
survey using  ErgoEnterprise  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 by between 20% and 80% of OSHA reported injuries.
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 ErgoEnterprise.
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  ErgoEnterprise,  the study indicated that the
breakeven/payback  period is  achieved  in 25.1  hours of usage.  Several  large
industrial clients already have named ErgoEnterprise  "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:

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


                                                                               8
<PAGE>

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

o     Professor Alan Hedge,  Ph.D. - EAB Chairman Expertise in office ergonomics
      and computer ergonomics issues.
o     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.
o     Professor  Rob  Henning,  Ph.D.,  CPE  Expertise in  rest-break  and human
      performance issues.
o     Mark  Carleson   Consultant  and  Former  Deputy  Director  and  Chief  of
      Enforcement of Cal/OSHA from 1990-1999.
o     Inger Williams, Ph.D. Consultant on school ergonomic issues.
o     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 by
addressing  these potential  risks. On an on-going basis, the increasing cost of
workers  compensation  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 ErgoEnterprise(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 ErgoEnterprise(TM) system constituted
a novel approach.

      Since that time,  the product has been  installed  by a 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


                                                                               9
<PAGE>

the targeted revenue stream. The key to economic success lies in a comprehensive
marketing  approach that carries the Company's  message to the largest  possible
number of prospective clients.

      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
ErgoEnterprise(TM).


Research and Development

      The Company has invested considerable resources in the further development
of the overall  ErgoEnterprise(TM)  system and related product documentation and
marketing collateral materials.  In late summer 1997, the first official version
of ErgoEnterprise(TM),  Version 1.78, was released,  followed by yearly upgrades
since then. The Company is currently  shipping Version 5.5 which was released in
February 2004.

      The Company has expensed all  expenditures  related to the above  efforts.
Such expenses  totaled  approximately  $228,000 for the year ended  December 31,
2003, and $183,000 for the year ended December 31, 2002.

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. For the most, these competitors market software products that
address  only  one or a few of  the  task  complexes  covered  by the  Company's
products,  without  thereby  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  ErgoEnterprise(TM).  While the
Company  believes  that it currently  has a strategic  competitive  advantage in
ergonomic software, especially with regard to its patented algorithms underlying
the product, 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.


Seasonality and Dependency

      The industry  segment in which the Company does  business is not seasonal.
The  Company's  past  revenues  come  primarily  from  smaller  orders for pilot
projects and field tests, and a limited number of individual larger orders where
successfully  completed pilot projects led to  departmental  or  enterprise-wide
deployment.  The nature of the business does not usually  involve  repeat orders
and  therefore  does not create  dependency  on a specific  customer or group of
customers.  The  Company's  future  success  is  dependent  upon its  ability to
increase  the  frequency  where  initial  pilot  installations  result in larger
contracts, as corporate clients introduce the Company's software products across
the entire spectrum of computer workplaces  throughout their company or specific
divisions/departments.  The relative  major impact of individual  larger orders,
the receipt or timing of which cannot be predicted  with any degree of accuracy,
creates a significant measure of volatility that adds a degree of uncertainty to
all current planning and forecasting. There can be no assurance that the Company
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.

                                                                              10
<PAGE>

Employees

      As of December 31,  2003,  the Company  employed 10 persons,  of whom four
were  primarily  engaged  in  research  and  development  and  software  support
activities,  two were  primarily  engaged  in sales and  marketing,  and four in
general  administrative and managerial functions.  The Company has no collective
bargaining agreements with its employees.


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.




                                                                              11
<PAGE>


                                     PART II
                                     -------

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

(a) Market Information

      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  quotations  of  the  Company's   common  stock.   The  quotations   reflect
inter-dealer prices,  without retail mark-up,  mark-down,  or commission and may
not represent actual transactions.

                                                      OTC-BB
                                        High/Ask                Low/Bid
2002
      First Quarter.................   $   0.29                $    0.08
      Second Quarter................       0.29                     0.12
      Third Quarter ................       0.23                     0.09
      Fourth Quarter ...............       0.17                     0.10
2003
      First Quarter.................   $   0.15                $    0.08
      Second Quarter................       0.13                     0.06
      Third Quarter ................       0.13                     0.06
      Fourth Quarter ...............       0.15                     0.07

(b) Shareholders

      As of March 8, 2004, there were  approximately  360 shareholders of record
for the Company's  Common Stock.  The number of record  holders does not include
shareholders whose securities are held in street names.

(c) Dividends

      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. At December 31, 2003, the Company was in arrears on
the payment of certain  dividends  on its Series A, C, and D Senior  Convertible
Preferred Stock. Such arrears totaled approximately $320,000.

Recent Issues of Unregistered Securities

      During the fourth  quarter of 2003 the  Company  had issued the  following
unregistered securities:

      (i)  1,150,000  shares of common  stock  accompanied  by warrants  for the
purchase of 50,000 shares of common stock,  exercisable  at  $0.15/share  during
three years, to two foreign and three domestic 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 $66,600 in cash;

      (ii)  130,834  shares  of  Series E  Senior  Convertible  Preferred  stock
convertible six months after issue into 13,083,368 common shares, accompanied by
warrants for the purchase of 6,541,684  shares of common stock,  exercisable  at
$0.15/share during three years, to five foreign and thirteen domestic 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 $748,402 in cash;

                                                                              12
<PAGE>

(iii)  372,833  shares of  common  stock  and  19,593  shares of Series E Senior
Convertible  Preferred  stock  convertible six months after issue into 1,959,334
common shares  accompanied  by warrants for the purchase of 1,079,666  shares of
common stock,  exercisable at $0.15/share  during three years, to five creditors
of the Company, one of who is an outside director of the Company, which resulted
in the cancellation of $138,730 in current liabilities;

(iv)  947,500  shares  of  common  stock  and  7,405  shares  of Series E Senior
Convertible  Preferred  stock  convertible  six months  after issue into 740,500
common  shares  accompanied  by warrants for the  purchase of 370,250  shares of
common stock, exercisable at $0.15/share during three years, to four consultants
and one outside director of the Company, for services rendered;

(v)  2,000,000  shares of common stock issued to five  officers and directors of
the Company in the form of stock awards for compensation.


      In addition,  during the fourth quarter of 2003, the board of directors of
the Company approved  resolutions with respect to the Company's  securities,  as
follows:

      (i) During a meeting on November 6, 2003,  the board  approved  the filing
with the  Secretary of the State of Delaware of an  amendment  to the  Company's
Certificate  of  Incorporation,  canceling  a  previously  authorized  class  of
convertible  preferred stock described as Series B Senior Convertible  Preferred
Stock.

      (ii)  During the same  meeting,  the board  approved  the filing  with the
Secretary of the State of Delaware of an amendment to the Company's  Certificate
of  Incorporation,  authorizing  a new  class  of  convertible  preferred  stock
described as Series E Senior  Convertible  Preferred  Stock,  the designation of
which is attached hereto as Exhibit 10.19.


Amendment to Registration Statement on Form SB-2

      On February 6, 2004, the Company filed a Post-Effective  Amendment No.1 to
its Form SB-2  registration  statement  previously filed with the Securities and
Exchange Commission in  2001(Registration  No. 333-73992) and declared effective
during  2003.  The  Amendment  is currently  under  review.  The Company did not
receive any proceeds from the sale of any of the registered securities.

New Registration Statement on Form SB-2

      On February 6, 2004,  the Company filed with the  Securities  and Exchange
Commission a registration  statement on Form SB-2 (Registration NO. 333-112595),
registering a total of 26,040,037 shares,  already issued or underlying options,
warrants,  and convertible  preferred stock already issued, on behalf of certain
shareholders  and  investors  in the  Company.  The Company will not receive any
proceeds from the sale of any of the registered securities.


                                                                              13
<PAGE>


ITEM 6: SELECTED FINANCIAL DATA

      Except for historical information, the Company's reports to the Securities
and  Exchange  Commission  on Form  10-KSB and Form  10-QSB and  periodic  press
releases,   as  well  as  other  public   documents  and   statements,   contain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange  Act of 1934.  Forward-looking  statements  are  subject  to risks  and
uncertainties  that could cause actual results to differ  materially  from those
expressed or implied by the statements.  These risks and  uncertainties  include
general economic and business  conditions,  development and market acceptance of
the Company's  products,  current  dependence on the willingness of investors to
continue to fund  operations  of the  Company and other risks and  uncertainties
identified in the Company's  reports to the Securities and Exchange  Commission,
periodic press releases, or other public documents or statements.

      Readers  are  cautioned  not to place undue  reliance  on  forward-looking
statements.  The  Company  undertakes  no  obligation  to  republish  or  revise
forward-looking  statements to reflect  events or  circumstances  after the date
hereof or to reflect the occurrences of unanticipated events.

      The  selected  financial  information  presented  below under the captions
"Statement of Operations"  and "Balance  Sheet" for the years ended December 31,
2003 and 2002 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

   Balance Sheet                      December  31,
                                           2003
                                       ------------
      Total assets................       $925,723
      Current liabilities.........      1,200,340
      Long-term debt..............        103,234
      Working capital.............       (274,617)
      Shareholders' equity........      $(377,851)

   Statement of Operations             For the Year Ended December 31,
                                          2003                 2002
                                      ------------        -------------
      Total revenues..............       $162,335             $369,443
      Operating income(loss)......     (2,449,421)          (2,847,990)
      Net(loss)...................     (2,337,881)          (2,642,673)
      Net(loss)after dividends....
      On Preferred Shares.........     (2,464,174)          (2,763,104)

      Net loss per common share...         $(0.04)              $(0.06)
      Number of shares used in
      computing  per share data...     66,962,744           44,509,412


                                                                              14
<PAGE>

ITEM  7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS

CAUTIONARY  STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934

      Except for historical information, the Company's reports to the Securities
and  Exchange  Commission  on Form  10-KSB and Form  10-QSB and  periodic  press
releases,   as  well  as  other  public   documents  and   statements,   contain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange  Act of 1934.  Forward-looking  statements  are  subject  to risks  and
uncertainties  that could cause actual results to differ  materially  from those
expressed or implied by the statements.  These risks and  uncertainties  include
general economic and business  conditions,  development and market acceptance of
the  Company's  products,  and other risks and  uncertainties  identified in the
Company's  reports to the  Securities  and Exchange  Commission,  periodic press
releases, or other public documents or statements.

      Readers  are  cautioned  not to place undue  reliance  on  forward-looking
statements.  The  Company  undertakes  no  obligation  to  republish  or  revise
forward-looking  statements to reflect  events or  circumstances  after the date
hereof or to reflect the occurrences of unanticipated events.

Results of Operations for the Year Ended December 31, 2002

      The results for the fiscal year 2003 were  affected by a continued  severe
shortage  of cash  which  necessitated  a  retrenchment  in the  pursuit of more
ambitious marketing plans.  Previously planned sales and marketing projects were
partially  compromised by the need to dedicate  available  management  resources
towards securing new working capital in order to finance ongoing  operations and
preserve  the  infrastructure  and basis for growing the business in the future.
Only  towards the end of the year was the  Company in a position  to  accumulate
modest  financial  resources  that would permit  management  to  concentrate  on
formulating and developing a more effective  marketing  strategy.  Management is
cautiously  optimistic  that it has succeeded in identifying  promising areas of
growth and a winning  marketing  approach  that will  reverse  past year's sales
decline and result in significant  revenue  increases in the new fiscal year. An
entirely new marketing  strategy has been  developed that leverages the database
characteristics  of our software  products for the purpose of providing  clients
with a  unique  management  tool for  control  of  operations  and  increase  in
productivity.   These  efforts  go  hand-in-hand   with  a  renewed  program  of
co-marketing  the Company's  products  together  with  selected  partners in the
insurance and risk management industry.  Following these strategies, the Company
has entered  into  negotiations  for  company-wide  deployment  of its  software
products with several well known large corporate clients;  such discussions have
in some cases already resulted in pilot installations on divisional levels.

      For the year  ended  December  31,  2003,  the  Company  had  revenues  of
$162,335, considerably less than the $369,443 achieved in 2002. This decline was
a consequence of the above described detrimental factors.  Revenues consisted of
$130,812  licensing  fees for the  Company's  software  products and $31,523 for
maintenance and support services.

      Gross profits amounted to $6,388.  Gross profits are burdened with a fixed
charge for amortization of certain  proprietary  software assets.  Such software
assets  underlie the  Company's  products and are being  amortized on a straight
line over 10 years,  resulting  in a level charge of  approximately  $13,000 per
month to cost-of-goods-sold.  Owing to the fact that variable cost-of-goods-sold
expenses are less than 5%, the gross margins will increase with larger revenues,
as the portion of fixed expenses decreases  relatively.  After deducting selling
-,  research -, and  general and  administrative  expenses of  $2,455,809  which
decreased by 20% from the $3,055,563  recorded in 2002, the Company  realized an
operating  loss of  $2,449,421  compared to an operating  loss of  $2,847,990 in
2002.  Non-operating  income and expenses included $94,823 net interest expense,
$779 charges for losses on assets, and $3,745 in non-recurring income consisting
of extraordinary gains from the dissolution of certain prior year accruals.  The


                                                                              15
<PAGE>

Company also  realized a credit of  approximately  $209,000 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
$2,337,881.  After  accounting for dividend  accruals on  outstanding  preferred
stock which totaled $126,293, the net loss applicable to common shareholders was
$2,464,174  or $0.04 per share,  compared to a loss of  $2,763,104  or $0.06 per
share for the previous year.

      The  decrease  in  operating  expenses is  primarily  the result of lesser
expenditures  for sales staff  expenses  and certain  marketing  programs and of
efforts  to  curtail  general  and  administrative  expenses  across  the board.
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  further  reducing  all  non-critical
expenditures.

Liquidity and Capital Resources

      As explained in more detail below,  during 2003  management  had to invest
much  time to find new  equity  capital  for  financing  the  Company's  ongoing
operations.  Such efforts  were  successful  in  attracting  approximately  $1.7
million  in new  equity  funding  in the  form of  cash,  as well as  converting
approximately $466,000 debt into equity.

      At December 31, 2003, the deficit in working capital  amounted to $274,617
as compared to $964,689 at December 31,  2002.  Stockholders'  equity  showed an
impairment  of $377,851 at the end of the year,  compared  to an  impairment  of
$336,918 at the beginning of the year.  The negative  cash flow from  operations
totaled approximately $1.8 million and was substantially  financed by new equity
which was obtained through private  placements.  The new equity  placements were
consummated  by  issuance of common  stock and  convertible  preferred  stock to
accredited private investors in the United States and overseas.  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. In February 2004, the Company had filed a new
registration  statement  on Form SB-2 and an  amendment  to a  previously  filed
registration  statement  on Form  SB-2,  both of  which  covered  common  shares
directly  issued as well as  common  shares  underlying  the  previously  issued
convertible  preferred  stock and warrants,  in connection  with these and prior
financing  transactions.  These  filings  are  currently  under  review  by  the
Securities and Exchange Commission. During the first three months of 2004 and up
to the time of this submission,  more recent equity financing  transactions have
generated  approximately  $890,000 cash in the  aggregate  which was utilized to
finance operations during that period.

      At the time of this submission,  the Company had no bank debt. At December
31, 2003 its  short-term  liabilities,  aside from trade  payables and accruals,
consisted of certain notes and loans aggregating approximately $416,000 of which
approximately  $239,000 was 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  $100,000 was likewise owed to the chairman
and chief  executive  officer and  evidences  by a promissory  note  maturing in
January 2005.

      Current cash reserves and net cash flow from  operations  expected  during
the near future are inadequate  when measured  against  present and  anticipated
future needs. In order to remedy the resulting liquidity constraints and address
any  "going-concern"  issues,  management is currently  negotiating with several
financing sources with the goal of obtaining commitments for further investments
in form of debt or equity  capital,  to be funded  during the upcoming  quarter.
There can be no assurance,  however,  that these  negotiations  will lead to the
desired outcome.





                                                                              16
<PAGE>

Outlook

In the absence of sufficient  capital funding  management could not maintain any
meaningful marketing programs.  Giving much wider exposure to the general public
of the nature and risks  associated with  repetitive  stress  injuries,  and the
important  role that the  Company  and its  software  products  can play in this
environment by providing costs effective  remedial solutions for these problems,
is an expensive but necessary undertaking.  Until larger financial resources can
be made  available all sales and marketing  efforts must therefore be limited to
one-on-one direct sales efforts with a limited number of prospects. In doing so,
management  will try to capitalize on certain  visible success stories with well
known  larger  companies  that have  purchased  and  successfully  utilized  the
Company's products. This is a slow process that is expected to yield substantial
cash flows only during the third and fourth quarters in 2005.


                                                                              17
<PAGE>



ITEM 8: 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 8A: CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures:

Based on their evaluation as of a date within 90 days of the filing date of this
report,  our principal  executive  officer and principal  financial officer have
concluded  that  Magnitude   Information   Systems,   Inc.'s  ("the  Company's")
disclosure  controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities  Exchange Act of 1934, as amended (the "Exchange  Act") are
sufficiently  effective to ensure that the information  required to be disclosed
by the Company in the reports  that we file under the  Exchange Act is gathered,
analyzed and disclosed with adequate timeliness, accuracy and completeness.

Changes in internal controls:

There have been no  significant  changes in our  internal  controls  or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation referred to above, nor were there any significant deficiencies or
material  weaknesses  in  the  Company's  internal  controls.   Accordingly,  no
corrective actions were required or undertaken.

Limitations on the effectiveness of controls:

A control  system,  no matter how well conceived and operated,  can provide only
reasonable,  not absolute,  assurance  that the objectives of the control system
are met. Because of inherent  limitations in all control systems,  no evaluation
of controls can provide  absolute  assurance  that all control  issues,  if any,
within a company have been detected.


ITEM  9:  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.




                                                                              18
<PAGE>

                                    PART III

ITEM  10: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The names of all directors and executive officers of the Company are as follows:

         Name                Position                    Term(s) of Office
-------------------  ------------------------------  ---------------------------

Steven D. Rudnik     Chief Executive Officer,        Jan.8, 1999, until present
                     President, Director

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

Mark Chroscielewski  Sr. Vice President              Jan 2, 2003, until present
                     Business Development

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

Steven W. Jagels     Sr. Vice President              Feb 15, 1998, until present
                     Information Systems

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

      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  44  -  Chairman  and  Chief  Executive  Officer,
President.  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.

      MARK CHROSCIELEWSKI,  Age 46 - Senior Vice President Business Development.
Since  joining  the  Company in January  2003 Mark  Chroscielewski  manages  our
strategic  alliances  and  develops  new  marketing  strategies  to present  our
products  to both the  productivity  and  ergonomic  segments  of the  corporate
marketplace.  Prior to joining our Company, Mr. Chroscielewski was the principal
of a consulting firm, specializing in the development of proprietary data mining
software, modeled for corporate customers seeking an enterprise-wide application
for their customer relations management programs.  This software was utilized by
Columbia/HCA,  the largest  healthcare  enterprise in the world,  to support its


                                                                              19
<PAGE>

healthcare claims protocol. Mark's experience includes the co-founding, in 1988,
of a multi-national  software marketing  enterprise,  CrossZ  International.  As
Chairman and Chief Executive Officer, Mr. Chroscielewski grew this company to 80
plus  employees,  established  international  operations,  sold  product to many
fortune 100 companies  including  American Express,  Philip Morris and MCI while
raising  approximately  $37 million in equity  capital to fund its  business and
growth.  After  participating  in its initial  public  offering in 1997,  CrossZ
Software was sold to an Italian  consortium,  Intelitec in 2002,  and is now now
called CrossZ Solutions SA

      JOERG H. KLAUBE, Age 62 - Chief Financial Officer,  Senior Vice President.
Joined Magnitude, Inc. in December 1994. 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.

      STEVEN W. JAGELS, Age 44 - Senior Vice President  Information Systems. Mr.
Jagels joined  Magnitude in February  1998.  Mr. Jagels has 20 years of software
development  experience  in such  diverse  disciplines  as  clinical  laboratory
analysis, stock market modeling,  artificial  intelligence,  and retail business
applications. Mr. Jagels also has experience in the software industry, including
software management, project development,  systems analysis, and training. Prior
to his software  career,  Mr.  Jagels had five years  experience  in  biomedical
engineering and management.

      JOSEPH J. TOMASEK, Age 57 - 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 55 -  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 41 - Director.  Mr. Angelastri was elected to serve
on the Board on May 18,  2000.  He is a  resident  of Zurich,  Switzerland.  Mr.
Angelastri  has been active in  portfolio  management  services  for many years.
Since January 24, 2001 he is the Managing Director of T&T  Vermoegensverwaltungs
AG, Zurich,  Switzerland,  whose main business is asset management and financial
consulting services for private and institutional  clients. Prior to his current
position,  Mr. Angelastri served as Managing Director of Megan Services where he
performed financial advisory and portfolio management services.


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

      The  Company  knows of no person,  who at any time  during the period from
January  16,  2003,  the date at which  compliance  with  Section  16)a)  became
applicable,  to the present, was a director,  officer,  beneficial owner of more
than ten percent of any class of equity  securities of the Company (a "Reporting
Person"),  that  failed to file on a timely  basis any  reports  required  to be
furnished pursuant to Section 16(a), except,  however, the Forms 4 reporting the
acquisition of 300,000  restricted  common shares acquired on December 30, 2003,
by each of the members of the board of directors and chief financial officer for
services  rendered,  which were not filed  until  January 8, 2004.  Based upon a
review of Forms 3, 4 and 5 furnished to the Company  under Rule  16(a)-3(d)  and
other than set forth above the Company knows of no Reporting  Person that failed
to file the required reports within the required time limits.

                                                                              20
<PAGE>

ITEM 11: EXECUTIVE COMPENSATION

      The  following  table  sets  forth  the cash  compensation  and  executive
capacities for the fiscal years ended December 31, 2003,  December 31, 2002, and
December  31,  2001,  for the chief  executive  officer  and for each  executive
officer whose aggregate cash remuneration  exceeded $100,000,  for all executive
officers as a group, and for certain other most highly compensated employees:

<TABLE>
<CAPTION>
                                                                       Other           Restricted     Securities        All
         Name and                                                      Annual            Stock        Underlying       Other
    Principal Position        Year    Salary ($)    Bonus ($)     Compensation($)      Awards ($)    Options ($)    Compens.($)
    ------------------        ----    ----------    ---------     ---------------      ----------    -----------    -----------
                                         (1)                            (2)               (3)            (4)            (5)
<S>                          <C>       <C>           <C>             <C>             <C>            <C>              <C>
Steven D. Rudnik             2003      133,333(6)             -           15,262          27,000             -          3,250
Chief Executive Officer,     2002      133,333(7)             -           12,560          42,000             -          3,250
President                    2001         130,171             -           10,800               -             -          3,250

Mark Chroscielewski          2003         125,000             -            6,000               -             -          8,400
Sr. Vice President           2002               -             -                -               -             -              -
Business Development         2001               -             -                -               -             -              -

Joerg H. Klaube              2003         125,000             -           11,404          67,000             -          1,710
Sr. Vice President,          2002         125,000             -            9,087          42,000             -          1,710
CFO                          2001         122,375             -            9,000               -             -          1,710

Steven W. Jagels             2003         108,333             -           11,083               -             -          1,940
Sr. Vice President           2002         108,333             -            9,000               -             -              -
Information Systems          2001         100,000             -            9,000               -             -              -

All executive officers
As a group (4 persons)       2003         491,666             -           43,749          94,000             -         15,300
</TABLE>

-----------------------

(1)The value of other non-cash  compensation,  except for the items listed under
   (2),  (3), (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)Consists of automobile expenses allowances and paid vacation pay-out.
(3)During  2003,  the  Board of  Directors  approved  stock  awards  of  300,000
   restricted  shares to Rudnik  and of  800,000  restricted  shares to  Klaube.
   During  2002,  the  Board of  Directors  approved  stock  awards  of  300,000
   restricted  shares each to Rudnik and Klaube.  These shares are listed in the
   table above at the market price for unrestricted  stock quoted at the time of
   the award. The number and value of the aggregate restricted stock holdings at
   the end of fiscal year 2003 (using market prices of unrestricted stock at the
   end of the  fiscal  year)  are  as  follows:  S.Rudnik:  2,777,778  shares  -
   $388,889;  J.Klaube:  1,100,000  shares - $154,000.  The  valuation  of stock
   awards and  end-of-year  holdings is in conformity  with guidelines set forth
   for SEC Regulation S-B Item 402 (b)(2)(iv). All such shares are fully vested.
   The  Company  does not  currently  foresee to pay  dividends  on any of these
   shares.
(4).See table for "Stock Options" below.
(5) Consists of premiums for personal life insurance.
(6)During  2003,  the Board of  Directors  approved  the  issuance of  1,000,000
   restricted  shares in lieu of $100,000 cash salary;  the stated salary figure
   includes such shares, valued at the nominal $100,000 which they replaced.
(7)During  2002,  the Board of  Directors  approved  the  issuance of  1,100,000
   restricted  shares in lieu of $110,000 cash salary;  the stated salary figure
   includes such shares, valued at the nominal $110,000 which they replaced.



STOCK OPTIONS :

      The following  table sets forth stock options granted during 2003 pursuant
to the  Company's  1997 Stock  Option  Plan and 2000 Stock  Incentive  Plan,  to
executive   officers,   certain  other  employees  with  highest   remuneration,
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
--------------------------------------------------------------------------------

There were no stock options granted to employees and directors during 2003.

                                                                              21
<PAGE>


      The  following  table  sets forth  aggregated  stock  option  and  warrant
exercises  during 2003 by  executive  officers,  certain  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>
<S>          <C>             <C>          <C>                    <C>
             Shares                       #of Shares Underlying  Value of Unexercised
             Acquired        Value        Unexercised            In-the-Money Options
Name         on Exercise(#)  Realized($)  Options/Warrants       & Warrants at Y/E ($)
------------------------------------------------------------------------------------
</TABLE>

There were no stock  options or warrants  exercised  by  employee-executives  or
directors during 2003.




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 granted, in
2003,  restricted stock awards for services rendered,  as follows: I. Angelastri
300,000  common  shares;  S. Gray 688,500  common shares and 4,166.67  preferred
shares  convertible into 416,667 common shares, J. Tomasek 300,000 common shares
and 5,805 preferred  shares  convertible  into 580,500 common shares.  The above
preferred  shares were  accompanied  by warrants for the purchase of 208,333 and
290,250 common shares,  respectively,  such warrants  being  exercisable  during
three years at the price of $0.15 per share.

      During  2003,  one outside  director of the Company who also serves as the
Company's  general and securities  counsel,  was paid an aggregate  $132,000 for
legal  services.  One other  outside  director  was paid  $14,900  for  services
performed.

AUDIT COMMITTEE

      The  Company has  appointed  an Audit  Committee  in  accordance  with the
provisions  of the  Sarbanes-Oxley  Act of 2002,  comprised  of two  independent
outside  directors of the Company,  one of whom, S. Gray, is a financial  expert
with knowledge of financial statements, generally accepted accounting principles
and accounting procedures and disclosure rules.


                                                                              22
<PAGE>

CORPORATE GOVERNANCE AND CODE OF ETHICS

      The Company has always been  committed to good  corporate  governance.  In
furtherance of this commitment,  during 2002 the Board of Directors expanded the
duties of the Company's  Audit  Committee by increasing the  Committee's  duties
specifically  to include  responsibility  and oversight of corporate  governance
matters and adherence to the Company's  Code of Ethics.  A copy of the Corporate
Code of Ethics and  Conduct  had been  included  as an exhibit to the  Company's
report on Form 10-KSB for the year ended December 31, 2002.



                                                                              23
<PAGE>

ITEM  12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The  following  table  sets  forth,  as of March 8,  2004,  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:

Title         Name and Address of   Amount and Nature of      Percent
of Class )*   Beneficial Owner      Beneficial Ownership (1)  of Class
-----------   ----------------      ------------------------  --------
Common        Ivano Angelastri         2,312,500 (2)            2.89 %
Stock         Mark Chroscielewski              -                     -
              Steven L. Gray           3,871,704 (3)            4.82 %
              Steven W. Jagels           622,083 (4)            0.78 %
              Joerg H. Klaube          1,660,417 (5)            2.07 %
              Steven D. Rudnik         6,925,695 (6)            8.28 %
              Joseph J. Tomasek        1,062,500 (7)            1.33 %

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

              All Directors and
              Executive Officers      16,454,899               19.02 %
              as a Group (7 persons)

)* The  Company  also has issued and  outstanding  as of March 8, 2004,  526,582
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 8,  2004.  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 512,500 shares and warrants for 100,000 shares.
(3)Includes options to acquire 400,275 shares and warrants for 424,000 shares.
(4)Includes options to acquire 602,083 shares.
(5)Includes options to acquire 560,417 shares.
(6)Includes options to acquire 4,147,917 shares.
(7)Includes options to acquire 262,500 shares.




                                                                              24
<PAGE>

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


      On March 31,  2000,  the Company  and its  President  and Chief  Executive
Officer  agreed to convert a current  liability  payable to him in the amount of
$374,890  into  a  Company  obligation,   of  which  $100,000  was  subsequently
classified as due on demand,  which was repaid in April 2002, with the remaining
balance of $274,890 maturing July 1, 2002. On February 19, 2002, the maturity of
the term  portion  of  $274,890  was  extended  to July  2003,  and the board of
directors of the Company  approved a change in the  conversion  option towards a
rate of $0.10 per share.  In January 2004,  $175,000 was repaid and the maturity
of the remaining open balance of $99,890 was extended to January, 2005.

      In January 2003, the Company and its President and Chief Executive Officer
agreed to convert  most of his base  salary for the  remainder  of the year 2003
into restricted common stock in lieu of cash at the rate of $0.10 per share, for
a total amount of $100,000.

      During the first quarter in 2003,  an outside  director of the Company was
awarded  a stock  grant for  200,000  restricted  common  shares,  for  services
rendered.  The same director  converted  $20,500 in accrued expenses incurred on
behalf of the Company, into 205,000 restricted shares.

      During  the first  quarter  in 2003,  the  Company's  President  and Chief
Executive  Officer and an outside director of the Company extended cash advances
to the Company,  totaling $92,500,  repayable on demand and carrying interest at
the rate of 10% p.a.

      During the second quarter in 2003, an outside  director of the Company was
awarded  a stock  grant for  163,500  restricted  common  shares,  for  services
rendered.

      During  the second  quarter in 2003,  the  Company's  President  and Chief
Executive  Officer and an outside director of the Company extended cash advances
to the Company, totaling $151,500,  repayable on demand and carrying interest at
the rate of 10% per annum.

      In a meeting of the board of directors of the Company on May 29, 2003,  in
consideration of the Company's  President's role in augmenting available working
capital  through salary  conversion and direct cash loans,  the board approved a
reduction in the exercise  price of stock options for a total  4,147,917  shares
issued to him, from prices ranging from $0.50 to $1.00, to $0.10 per share.

      During the fourth quarter in 2003, the Company  granted  restricted  stock
awards  totaling  2,025,000  common shares to five officers and directors of the
Company. In addition, two outside directors were granted restricted stock awards
for services  rendered,  of 9,971.67  preferred shares  convertible into 997,167
common  shares and  warrants  for the  purchase of 498,583  shares,  exercisable
during three years at the price of $0.15 per share.

      During  2003,  one outside  director of the Company who also serves as the
Company's  general and securities  counsel,  was paid an aggregate  $132,000 for
legal  services.  One other  outside  director  was paid  $14,900  for  services
performed.



ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

      Rosenberg  Rich  Baker  Berman &  Company  ("Rosenberg")  billed us in the
aggregate amount of $39,947 and $39,399 for professional  services  rendered for
their  audit  of our  annual  financial  statements  and  their  reviews  of the
financial  statements  included in our Forms 10-QSB for the year ended  December
31, 2003 and December 31, 2002, respectively.

                                                                              25
<PAGE>

AUDIT-RELATED FEES

      Rosenberg did not bill us for, nor perform professional  services rendered
for  assurance  and  related  services  that  were  reasonably  related  to  the
performance  of audit or review of the Company's  financial  statements  for the
fiscal years ended December 31, 2003 and December 31, 2002.

TAX FEES

      Rosenberg  billed us in the  aggregate  amount of $3,073 and  $11,640  for
professional  services  rendered  for tax related  services for the fiscal years
ended December 31, 2003 and December 31, 2002, respectively.

ALL OTHER FEES

      The  aggregate  fees  billed by  Rosenberg  for  services  rendered to the
Company  during the last two fiscal years,  other than as reported  above,  were
$4,775 and $2,720, respectively.





                                                                              26
<PAGE>

                                     PART IV

ITEM 15: 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

      During  the fourth  quarter  2003,  the  Company  has filed the  following
reports on Form 8-K;

      On December 4, 2003,  the  Company  filed a report on Form 8-K,  informing
that Computer Sciences  Corporation is cooperating with the Company in promoting
usage of the Company's software product by its client base.






                                                                              27
<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: March 29, 2004
            --------------------------------
                  Steven D. Rudnik
            President and Chief Executive Officer
                        (Principal Executive Officer),
            Chairman of the Board


      By:     /s/ Joerg H. Klaube                     Date: March 29, 2004
            --------------------------------
                  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                           March 29, 2004
      --------------------------------
      Ivano Angelastri, Director


       /s/ Steven L. Gray                             March 29, 2004
      --------------------------------
      Steven L. Gray, Director


       /s/ Joseph J. Tomasek                          March 29, 2004
      --------------------------------
      Joseph J. Tomasek, Director


                                                                              28
<PAGE>


EXHIBIT INDEX

(A)   Restated 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.

(10.19)Certificate of Designation Series E 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.

(31.1)Certification of Steven D. Rudnik,  Chief Executive  Officer,  pursuant to
      Section 302 of Sarbanes-Oxley Act of 2002.

(31.2)Certification  of Joerg H. Klaube,  Chief Financial  Officer,  pursuant to
      Section 302 of Sarbanes-Oxley Act of 2002.

(99.1)Certifications  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
      18 U.S.C. Section 1350



OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE

(a)   The Company's Quarterly Reports on Form 10-QSB for the periods ended March
      31, 2003, June 30, 2003, and September 30, 2003.

(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,
      2002



                                                                              29
<PAGE>




















              Magnitude Information Systems, Inc. and Subsidiaries

                        Consolidated Financial Statements

                                December 31, 2003



                                                                              30
<PAGE>


              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003





                                                                      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.............       8-27



<PAGE>






              [letterhead of Rosenberg Rich Baker Berman & Company
                   380 Foothill Road, Bridgewater, New Jersey]





                          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, 2003 and the
related consolidated  statements of operations,  stockholders' equity (deficit),
and cash flows for the years ended December 31, 2003 and 2002.  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 auditing standards generally accepted
in the  United  States of  America.  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  provide  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, 2003 and the
consolidated  results  of their  operations  and their  cash flows for the years
ended  December 31, 2003 and 2002,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

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

Bridgewater, New Jersey
March  5, 2004,



                                                                               1
<PAGE>



              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2003


<TABLE>
<CAPTION>
<S>                                                                                               <C>
              Assets
Current Assets
        Cash                                                                                      $     97,978
        Accounts receivable, net of allowance for doubtful accounts of $212                             35,840
        Inventory                                                                                       26,917
        Miscellaneous receivables                                                                        1,800
        Prepaid expenses                                                                                69,622
                                                                                                  ------------
              Total Current Assets                                                                     232,157
Property and equipment, net of accumulated depreciation of $134,932                                     15,013
Software, net of accumulated amortization of $885,338                                                  621,952
Deposits                                                                                                23,783
Prepaid expenses, less current portion                                                                  32,818
                                                                                                  ------------
              Total Assets                                                                             925,723
                                                                                                  ============
              Liabilities and Stockholders' Equity (Impairment)
Current Liabilities
        Accounts payable and accrued expenses                                                          400,200
        Deferred revenues                                                                               16,641
        Deferred rental obligation                                                                       4,856
        Dividends payable                                                                              359,568
        Loans payable                                                                                   75,000
        Notes payable                                                                                  132,851
        Current maturities of long-term debt                                                           208,419
        Current maturities of capitalized lease obligations                                              2,805
                                                                                                  ------------
              Total Current Liabilities                                                              1,200,340
Capitalized lease obligations, less current portion                                                      3,234
Long term debt, less current portion                                                                   100,000
                                                                                                  ------------
              Total Liabilities                                                                      1,303,574

Commitments and Contingencies                                                                               --

Stockholders' Equity (Impairment)
        Preferred Stock, $.001 par value, non-voting, 3,000,000 shares authorized; 351,023
          shares issued and outstanding                                                                    351
        Common stock, $.0001 par value, 100,000,000 shares authorized; 77,213,808 shares issued
             and outstanding                                                                             7,721
        Discounts on preferred stock                                                                  (630,896)
        Additional paid in capital                                                                  23,950,614
        Accumulated (deficit)                                                                      (23,705,641)
                                                                                                  ------------
              Total Stockholders' Equity (Impairment)                                                 (377,851)
                                                                                                  ------------
              Total Liabilities and Stockholders' Equity (Impairment)                             $    925,723
                                                                                                  ============
</TABLE>




See notes to the consolidated financial statements.



                                                                               2
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                  Year Ended December 31,
                                                ----------------------------
                                                    2003            2002
                                                ------------    ------------

Net Sales
     Hardware Products                          $         --    $         --
     Software                                        162,335         369,443
                                                ------------    ------------
         Total Net Sales                             162,335         369,443
                                                ------------    ------------

Cost of Good Sold
     Hardware Products                                    --             603
     Software                                        155,947         161,267
                                                ------------    ------------
         Total Cost of Goods Sold                    155,947         161,870
                                                ------------    ------------

Gross Profit                                           6,388         207,573
                                                ------------    ------------
Research and development costs                        12,892          64,847
Stock-based compensation                             466,399         454,896
Selling, general and administrative expenses       1,976,518       2,535,820
                                                ------------    ------------
                                                  (2,449,421)     (2,847,990)
Loss From Operations
                                                ------------    ------------

Other Income (Expense)
     Miscellaneous income                              3,745          75,719
     Interest income                                      --           2,820
     Interest expense                                (94,823)        (48,946)
     Loss on disposition of assets                      (779)        (27,740)
                                                ------------    ------------

         Total Other Income (Expense)                (91,857)          1,853
                                                ------------    ------------
                                                  (2,541,278)     (2,846,137)
Loss Before Provision for Income Taxes

Benefit from Income Taxes                            203,397         203,464
                                                ------------    ------------
Net Loss                                        $ (2,337,881)   $ (2,642,673)

Dividends on Preferred Shares                   $   (126,293)   $   (120,431)
                                                ------------    ------------
                                                $ (2,464,174)   $ (2,763,104)
Net Loss Applicable to Common Shareholders
                                                ============    ============

Net Loss Per Common Share                              (0.04)          (0.06)
                                                ============    ============

Weighted Average of Common Shares Outstanding     66,962,744      44,509,412
                                                ============    ============


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, 2003 AND 2002
<TABLE>
<CAPTION>


                                            Convertible                      Cumulative
                                         Preferred Convertible            Preferred Shares              Common Stock
                                    ----------------------------    ---------------------------   ---------------------------
                                       Shares          Amount          Shares          Amount         Shares         Amount
                                    ------------    ------------    ------------   ------------   ------------   ------------

<S>                                      <C>        <C>             <C>            <C>             <C>           <C>
      Balances, January 1, 2002          214,857    $        215               1   $         --    25,,711,403   $      2,571
Conversion of convertible
preferred stock into common
stock                                    (18,889)            (19)             --             --        188,890             19
Issuance of common stock for
accrued dividends                             --              --              --             --        353,854             36
Issuance of common stock for
stock awards                                  --              --              --             --      2,200,000            220
Issuance of options for
outside services                              --              --              --                            --             --
Issuance of common stock
pursuant to exercise of options               --              --              --             --        262,500             26
Issuance of common stock
pursuant to exercise of
warrants                                      --              --              --                            --      4,432,308
Issuance of common stock
pursuant to private equity
placements                                    --              --              --             --     19,651,500          1,965
Issuance of common stock
granted for private placement
finders' fees                                 --              --              --             --        226,000             23
Issuance of common stock
pursuant to conversion of
accounts payable                              --              --              --             --        525,738             53
Issuance of common stock for
services performed                            --              --              --             --      1,532,183            153
Isuance of common stock for
compensation                                  --              --              --             --      1,311,441            131

Net loss, year ended December
31, 2002                                      --              --              --             --             --             --
Dividends on convertible
preferred stock                               --              --              --             --             --             --
                                    ------------    ------------    ------------   ------------   ------------   ------------
      Balances, December 31, 2002        195,968    $        196               1   $         --     56,395,817   $      5,640
                                    ============    ============    ============   ============   ============   ============
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
                                                                                         Total
                                         Stock         Additional                    Stockholders
                                     Subscriptions      Paid in      Accumulate        ' Equity
                                       Receivable        Capital       Deficit         (Deficit)
                                                      ------------   ------------    ------------

                                      ------------    ------------   ------------    ------------

<S>                                   <C>               <C>          <C>             <C>
      Balances, January 1, 2002       $         --      18,033,948   $(18,478,363)   $   (441,629)
Conversion of convertible
preferred stock into common
stock                                           --              --             --              --
Issuance of common stock for
accrued dividends                               --          35,350             --          35,386
Issuance of common stock for
stock awards                                    --         136,600             --         136,600
Issuance of options for
outside services                                --          56,771             --          56,771
Issuance of common stock
pursuant to exercise of options                 --          25,974             --          26,000
Issuance of common stock
pursuant to exercise of
warrants                                       443         438,565             --         439,008
Issuance of common stock
pursuant to private equity
placements                                  (3,297)      1,857,065             --       1,855,733
Issuance of common stock
granted for private placement
finders' fees                                   --           6,027             --           6,050
Issuance of common stock
pursuant to conversion of
accounts payable                                --          52,521             --          52,574
Issuance of common stock for
services performed                              --         133,255             --         133,408
Isuance of common stock for
compensation                                    --         126,154             --         126,285

Net loss, year ended December
31, 2002                                        --              --     (2,642,673)     (2,642,673)
Dividends on convertible
preferred stock                                 --              --       (120,431)       (120,431)
                                      ------------    ------------   ------------    ------------
      Balances, December 31, 2002     $     (3,297)   $ 20,902,010   $(21,241,467)   $   (336,918)
                                      ============    ============   ============    ============
</TABLE>




See notes to the consolidated financial statements.


                                                                               4
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
                     YEARS ENDED DECEMBER 31, 2003 AND 2002



<TABLE>
<CAPTION>
                                                                                                                    Discount on
                                                               Convertible                   Cumulative              Preferred
                                                            Preferred Shares               Preferred Shares            Stock
                                                      ----------------------------    ---------------------------   ---------------
                                                         Shares          Amount         Shares          Amount         Amount
                                                      ------------    ------------    ------------   ------------   ------------

<S>                                                   <C>             <C>             <C>            <C>            <C>
         Balances, January 1, 2003                         195,968    $        196               1   $         --   $         --
   Issuance of convertible                                 130,834             131              --             --       (598,289)
   preferred stock pursuant to
   private equity placements
   Issuance of convertible
   preferred stock for services
   performed and accr. interest                              7,405               7              --             --             --
   Issuance of preferred stock
   pursuant to conversion of debt                           19,593              20              --             --        (48,663)
   Repurchase of preferred stock                            (2,778)             (3)             --             --             --
   Receipt of stock subscription
   receivable                                                   --              --              --                            --
   Issuance of common stock
   pursuant to conversion of debt                               --              --              --             --             --
   Issuance of common stock
   pursuant to exercise of options                              --              --              --                            --
   Issuance of common stock
   pursuant to exercise of warrants                             --              --              --             --             --
   Issuance of common stock
   pursuant to private equity
   placements                                                   --              --              --             --             --
   Issuance of common stock
   granted for private placement
   finders' fees                                                --              --              --             --             --
   Issuance of common stock
   pursuant to conversion of
   accounts payable                                             --              --              --             --             --
   Issuance of common stock for
   services performed                                           --              --              --             --             --
   Issuance of common stock for
   compensation                                                 --              --              --             --             --
   Issuance of common stock for
   stock awards                                                 --              --              --             --             --
   Issuance of common stock for
   services performed                                           --              --              --             --             --
   Issuance of warrants for
   services performed                                           --              --              --             --             --

   Net loss, year ended December
   31, 2003                                                     --              --              --             --             --
   Dividends on convertible
   preferred stock                                              --              --              --             --             --
                                                      ------------    ------------    ------------   ------------   ------------
   Amortization of discount on
   preferred stock                                              --              --              --             --         16,056
                                                      ------------    ------------    ------------   ------------   ------------

         Balances, December 31, 2003                       351,022    $        351               1   $         --   $   (630,896)
                                                      ============    ============    ============   ============   ============
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                                                                        Stock       Additional                         Total
                                                                    Subscriptions    Paid in        Accumulated     Stockholders'
                                              Common Stock           Receivable       Capital         Deficit      Equity (Deficit)
                                      ---------------------------   -------------   -----------     ------------    ------------
                                         Shares         Amount
                                      ------------   ------------   ------------    ------------    ------------    ------------

<S>                                   <C>            <C>            <C>             <C>             <C>             <C>
         Balances, January 1, 2003      56,395,817   $      5,640   $     (3,297)   $ 20,902,010    $(21,241,467)   $   (336,918)
   Issuance of convertible                      --             --             --       1,357,560              --         759,402
   preferred stock pursuant to
   private equity placements
   Issuance of convertible
   preferred stock for services
   performed and accr. interest                 --             --             --          44,225              --          44,232
   Issuance of preferred stock
   pursuant to conversion of debt               --             --             --         166,203              --         117,560
   Repurchase of preferred stock                --             --             --         (24,997)             --         (25,000)
   Receipt of stock subscription
   receivable                                   --             --          3,297              --              --           3,297
   Issuance of common stock
   pursuant to conversion of debt          220,000             22             --          21,978              --          22,000
   Issuance of common stock
   pursuant to exercise of options          81,000              8             --           8,092              --           8,100
   Issuance of common stock
   pursuant to exercise of warrants      3,552,752            355             --         319,792              --         320,147
   Issuance of common stock
   pursuant to private equity
   placements                            9,122,171            912             --         646,480              --         647,392
   Issuance of common stock
   granted for private placement
   finders' fees                            30,000              3             --              (3)             --              --
   Issuance of common stock
   pursuant to conversion of
   accounts payable                       5620,533             62             --          41,055              --          41,117
   Issuance of common stock for
   services performed                    3,828,035            383             --         158,873              --         159,256
   Issuance of common stock for
   compensation                          1,000,000            100             --          99,900              --         100,000
   Issuance of common stock for
   stock awards                          2,363,500            236             --         105,554              --         105,790
   Issuance of common stock for
   services performed                           --             --             --          48,543              --          48,543
   Issuance of warrants for
   services performed                           --             --             --          55,349              --          55,349

   Net loss, year ended December
   31, 2003                                     --             --             --              --      (2,337,881)     (2,337,881)
   Dividends on convertible
   preferred stock                              --             --             --              --        (110,237)       (110,237)
                                      ------------   ------------   ------------    ------------    ------------    ------------
   Amortization of discount on
   preferred stock                              --             --             --              --         (16,056)             --
                                      ------------   ------------   ------------    ------------    ------------    ------------

         Balances, December 31, 2003    77,213,808   $      7,721   $         --    $ 23,950,614    $(23,705,641)   $   (377,851)
                                      ============   ============   ============    ============    ============    ============
</TABLE>



See notes to the consolidated financial statements



                                                                               5
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                       --------------------------
                                                                           2003           2002
                                                                       -----------    -----------
<S>                                                                    <C>            <C>
Cash Flows From Operating Activities

    Net Loss                                                           $(2,337,881)   $(2,642,673)

    Adjustments to Reconcile Net Loss to Net Cash Used by Operations
      Depreciation and amortization                                        178,447        205,373
      Common stock/options issued for various expenses                     466,399        454,896
      Loss on disposition of assets                                            779          2,741
      Bad debt provision                                                    30,905         20,029
      Forgiveness of debt                                                    3,745         75,719

    Decreases (Increases) in Assets
        Accounts receivable                                                (20,952)       233,578
        Miscellaneous receivables                                            1,929          4,471
        Inventories                                                             30        (26,947)
        Prepaid expenses                                                    (3,052)        31,155
        Other assets                                                            --         (1,955)

    Increases (Decreases) in Liabilities

      Accounts payable and accrued expenses                               (147,402)      (209,446)

      Deferred revenue                                                       1,396       (220,675)

      Deferred rental obligation                                            (1,339)         1,050

      Deposits payable                                                     (14,075)        14,075
                                                                       -----------    -----------
        Net Cash Used by Operating Activities                           (1,841,071)    (2,058,609)
                                                                       -----------    -----------

Cash Flows From Investing Activities
    Purchases of equipment, fixtures, and software                          (3,695)       (13,195)

    Collections of loans                                                        --         14,469
                                                                       -----------    -----------
        Net Cash (Used) Provided by Investing Activities                    (3,695)         1,274
                                                                       -----------    -----------

Cash Flows From Financing Activities
    Repayment of note payable                                                   --       (100,000)
    Repayment of capital lease obligations                                  (2,981)        (7,956)
    Proceeds from loans payable                                            183,323         25,000
    Repayment of loans payable                                             (44,793)      (142,500)

    Proceeds from officer loans                                             83,881             --
    Proceeds from issuance of common and preferred stock                 1,713,338      2,277,538
                                                                       -----------    -----------
        Net Cash Provided by Financing Activities                        1,932,768      2,052,082
                                                                       -----------    -----------

Net increase (decrease) in Cash                                             88,002         (5,253)

Cash at beginning of period                                                  9,976         15,229
                                                                       -----------    -----------
Cash at end of period                                                  $    97,978    $     9,976
                                                                       ===========    ===========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    Interest Paid                                                      $    36,564    $    35,418
                                                                       ===========    ===========
    Taxes Paid                                                         $     2,800    $     1,080
                                                                       ===========    ===========
</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,
                                                                                               -----------------------------------
                                                                                                     2003              2002
                                                                                               ----------------   ----------------
<S>                                                                                            <C>                <C>
Schedule of non-cash investing and financing activities

     In connection with consideration for consulting services, stock options for 1,935,000
     common shares were issued                                                                 $        48,543
                                                                                                ===============
     In connection with consideration for consulting and professional services, stock
     warrants for 1,570,250 common shares were issued                                          $        55,349
                                                                                                ===============
     In connection with the retirement of a short-term loan, 220,000 common shartes were
     issued                                                                                    $        22,000
                                                                                                ===============
     In connection with the retirement of accounts payable, 30,235 common shares were issued   $         2,116
                                                                                                ===============
     In connection with consideration of current services, 7,781,833 common shares were
     issued                                                                                    $       404,047
                                                                                                ===============
     In connection with consideration of current services and accrued interest, 7,405
     preferred shares were issued                                                              $        44,232
                                                                                                ===============
     In connection with the retirement of a short-term loan, 19,593 preferred shares were
     issued                                                                                    $       117,560
                                                                                                ===============
     In connection with the purchase of equipment, a capitalized lease obligation resulted     $         8,509
                                                                                                ===============
     In connection with consideration for current goods/services, 5,026,124 common shares                        $        398,125
     were issued
                                                                                                                  ================
     In connection with consideration for past services, 526,849 common shares were issued                       $         52,685
                                                                                                                  ================
     In exchange for accrued dividends on preferred stock, 353,854 common shares were issued                     $         35,385
                                                                                                                  ================
     In connection with the retirement of accrued dividends on preferred stock, notes and
     accounts payable, 463,890 common shares were issued                                                         $         46,389
                                                                                                                  ================
     In connection with consideration of current services, stock options for 1,079,500
     shares were issued                                                                                          $         56,771
                                                                                                                  ================
     In exchange for prepaid rent, 78,000 common shares were issued                                              $          4,218
                                                                                                                  ================
</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
      November 18, 1998, the Company  changed its name to Magnitude  Information
      Systems, Inc.

      The Company and Magnitude,  Inc. are 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 1% of Magnitude,  Inc. not owned by the
      Company constitutes a minority interest which is valued at $0.

      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.

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

     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.


                                                                               8
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

    Inventory
      Inventory  is stated at the lower of cost (first in,  first out) or market
      value and consists primarily of packaged software.

    Amortization
      Software   assets   are   capitalized   at  the   fair   value   of  stock
      exchanged/granted  upon acquisition and are amortized on the straight line
      method on a  product-by-product  basis over the estimated economic life of
      the products which has been determined to be 10 years.

    Advertising Costs
      Advertising  costs are charged to operations  when  incurred.  Advertising
      expense was $31,546 and $6,065 for the years ended  December  31, 2003 and
      2002, respectively.

    Evaluation of Long Lived Assets
      Long-lived assets are assessed for  recoverability on an ongoing basis. In
      evaluating the fair value and future benefits of long-lived assets,  their
      carrying  value would be reduced by the excess,  if any, of the long-lived
      asset over management's  estimate of the anticipated  undiscounted  future
      net cash flows of the related long-lived asset.

    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. The Company determined
      the  fair  market   value  of  the   warrants/options   issued  under  the
      Black-Scholes  Pricing Model and applied a 50% discount due to the trading
      nature of the Company's  stock. A similar discount was utilized in valuing
      stock issued.  Effective January 1, 1996, the 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 to 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, 2003.

    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.



                                                                               9
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

    Revenue Recognition
      The  Company's  revenue  recognition  policy  for  software  sales  is  in
      accordance  with  Accounting   Statement  of  Position  97-2.  Revenue  is
      recognized at the time of licensing provided that the resulting receivable
      is deemed  probable of collection  and is fixed or  determinable.  Revenue
      from software maintenance  contracts is recognized ratably as earned. When
      a sales contract includes multiple elements, revenues are allocated to the
      various  elements based on Company - specific  objective  evidence of fair
      value,  regardless  of any  separate  prices for each  element that may be
      stated within the contract.

    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 $2,337,881  and  $2,642,673  during the years ended December
      31, 2003 and 2002, 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  in order to
      alleviate the 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.

PREPAID EXPENSES

      Prepaid  expenses are  recorded in  connection  with common  stock/options
      issued to  consultants  for future  services  and are  amortized  over the
      period of the agreement, ranging from one to two years.

<TABLE>
<CAPTION>
PROPERTY AND EQUIPMENT
      Property and equipment consist of the following at December 31, 2003:
<S>                                                                             <C>
         Equipment                                                              $       77,715
         Furniture and fixtures                                                         72,230
                                                                                ---------------

                                                                                       149,945

         Less accumulated depreciation                                                 134,932
                                                                                ---------------

                                                                                $       15,013
                                                                                ===============
</TABLE>

Depreciation expense charged to operations was $22,529 and $49,454 in 2003 and
2002, respectively.


                                                                              10
<PAGE>



              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
     Accounts payable and accrued expenses consisted of the following at December 31, 2003:

<S>                                                                                                   <C>
     Accounts payable                                                                                 $        191,627
     Accrued interest                                                                                           53,398
     Accrued consulting fees                                                                                    32,745
     Accrued commissions                                                                                        10,118
     Accrued professional fees                                                                                  40,000
     Accrued taxes                                                                                                 371
     Accrued payroll                                                                                            59,941
     Miscellaneous accruals                                                                                     12,000
                                                                                                      -----------------

                                                                                                      $        400,200
                                                                                                      =================
LOANS PAYABLE

      The Company  and  Magnitude,  Inc.  had  borrowings  under short term loan
      agreements with the following terms and conditions at December 31, 2003:

      On December 4, 1996, Magnitude, Inc. repurchased 500,000 shares of its
      common stock and retired same against issuance of a promissory note
      maturing twelve months thereafter accruing interest at 5% per annum and
      due December 4, 1998. This note is overdue at
      December 31, 2003 and no demand for payment has been made.                                       $         75,000
                                                                                                      -----------------

             Total                                                                                     $         75,000
                                                                                                       ================

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  $1,450,000  worth of notes  agreed  to  accept  partial  repayment  of
      approximately  30%  of the  note  balances  and  converted  the  remaining
      balances into common shares or  convertible  preferred  shares.  The total
      amount of nonconverted  notes outstanding at December 31, 2002 is $25,000.
      Attempts  to locate  the  holder  of this  note,  $ 25,000 to settle  this
      liability, have been unsuccessful.

      Cash  advances by an officer of the company,  payable on demand,  carrying
      interest at 10% per annum                                                                                  64,088

      Note dated June 2, 2003,  due December 2, 2003,  issued to a relative of a
      director and carrying interest at the rate of 10% per annum. This note was
      overdue at  December  31,  2003,  and was  subsequently  repaid in full in
      January 2004.                                                                                              43,763
                                                                                                       -----------------
             Total                                                                                     $        132,851
                                                                                                       =================
</TABLE>




                                                                              11
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>                                                                                                    <C>
LONG-TERM DEBT

      Long-term debt as of December 31, 2003 is comprised of the following:

      Pursuant to the February 2, 1998, Agreement and Plan of Merger with Rolina
      Corporation,

      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
      the provisions contained therein,  with notice for exercise eligible to be
      given at any time after February 1, 2000, and before 5:00 p.m. on the 90th
      day thereafter. This liability was converted into a Company obligation for
      $274,890  maturing  March 31,  2002 and a demand  loan for  $100,000  both
      carrying  interest at the rate of 7% per year,  subsequently  increased to
      10%, payable monthly.  The demand portion of this note was repaid in April
      2002 and the due date for $274,890 of the  remaining  balance was extended
      to July 1, 2003.  Subsequently,  the  maturity  of the unpaid  balance was
      changed to a portion  of  $174,890  payable  on  demand,  and a portion of
      $100,000 due and payable on January 2, 2005.  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 $0.10  per  share.
      Subsequently,  in January 2004,  the entire demand portion of $174,890 was
      repaid.                                                                                          $        274,890

      Discounted present value of a non-interest bearing $70,000 settlement with
      a former  investor  of  Magnitude,  Inc.  to be paid in 24  equal  monthly
      payments  commencing  July 1,  1997.  The  imputed  interest  rate used to
      discount the note is 8% per annum. This obligation is in default.                                          33,529
                                                                                                       -----------------
                                                                                                                308,419
             Total
                  Less current maturities                                                                       208,419
                                                                                                       -----------------
                  Long-term debt, net of current maturities                                            $        100,000
                                                                                                       =================
</TABLE>

CAPITALIZED LEASE OBLIGATIONS

      The Company leases office equipment under a  non-cancelable  capital lease
      agreement  expiring in January 2006. The capital lease obligation has been
      recorded at the present value of future minimum lease payments, discounted
      at an  interest  rate of  6.00%.  The  capitalized  cost of  equipment  at
      December 31, 2003 amounted to $5,909 net of  accumulated  depreciation  of
      $2,600.

<TABLE>
<CAPTION>
      The  following is a schedule of minimum  lease  payments due under capital
      leases at December 31, 2003:


         Year Ending December 31, 2003

<S>                                                                                      <C>
         Total minimum capital lease payments                                            $         6,441
         Less amounts representing interest                                                          402
                                                                                         ----------------
         Present value of net minimum capital lease payments                                       6,039
         Less current maturities of capital lease obligations                                      2,805
                                                                                         ----------------
         Obligations under capital leases, excluding current maturities                  $         3,234
                                                                                         ================
</TABLE>



                                                                              12
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DEFERRED REVENUES

      Deferred  revenues at December  31, 2003,  amounted to $16,641  related to
      prepaid  software  maintenance  and support  charges  which are  amortized
      ratably over the duration of the underlying maintenance agreements.

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, 2003 is $0 with a liquidation price of $100,000.  As
      of December 31, 2003, there was $9,000 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, 2002 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.


                                                                              13
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED STOCK - (Continued)

      (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").

      (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,  2003  there  were  $32,474  Series  A  Senior
            Convertible   Preferred   share   dividends   accrued   and   unpaid
            representing $1.11 per share.

      Series B of the Senior Convertible Preferred Stock series which was issued
      in 2000 has 350,000 shares  designated,  no shares issued and outstanding.
      The  total  outstanding  Series B Senior  Convertible  Preferred  Stock at
      December 31, 2003 is $0. 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 providing 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.



                                                                              14
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED STOCK - (Continued)

      (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").

      (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,  2002  there  were no  Series  B  Senior  Convertible
      Preferred share dividends accrued and unpaid.

      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, 2002 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.


                                                                              15
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED STOCK - (Continued)

      (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").

      (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, 2003 there were  $189,000  Series C Senior  Convertible
      Preferred share dividends accrued and unpaid representing $1.89 per share.

      Series D of the Senior Convertible Preferred Stock series which was issued
      in  2000  has  500,000  shares   designated,   63,890  shares  issued  and
      outstanding.  The total outstanding Series D Senior Convertible  Preferred
      Stock at December  31, 2003 is $64 with a  liquidation  price of $575,010.
      The following is a description of 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.


                                                                              16
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED STOCK - (Continued)

      (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  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").

      (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, 2003 there were  $129,094  Series D Senior  Convertible
      Preferred share dividends accrued and unpaid representing $2.02 per share.

      Series E of the Senior Convertible Preferred Stock series which was issued
      in  2003  has  500,000  shares  designated,   157,832  shares  issued  and
      outstanding.  The total outstanding Series E Senior Convertible  Preferred
      Stock at December 31, 2003 is $158 with a  liquidation  price of $946,992.
      The  following  is a  description  of the Series E  convertible  preferred
      stock:

      (1)   The  holders of said  shares of Series E Senior  Preferred  shall be
            entitled to receive cumulative  dividends at the rate of six percent
            (6%) per annum,  payable at the time said shares are converted  into
            shares of common stock of the Company and when declared by the board
            of Directors,  before any dividend shall be declared, set apart for,
            or paid upon the Common Stock and any other  Preferred  Stock of the
            Company.  The Dividend Rate shall accrue on the Stated Value,  which
            Stated Value shall be noted on the certificate  issued to the holder
            of each share of the Series E Senior Preferred. The dividends on the
            Series E 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 E 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 any
            other class of Preferred Stock or the Common Stock.

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

      (3)   In the event of any liquidation,  dissolution,  or winding up of the
            affairs  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 E 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
            E 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, C and D Senior Preferred, before any distribution shall
            be made to (1)

                                                                              17
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED STOCK - (Continued)

            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, D and E Senior
            Preferred,  the holders of these series shall receive  payments on a
            pro rata basis.

      (4)   The holders of said shares of Series E Senior Preferred shall not be
            entitled to any voting rights.

      (5)   Shares of Series E 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 Company and shall not be considered outstanding for any
            purpose.

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

      (7)   Each share of Series E Senior Preferred shall automatically convert,
            on the date six months after the date of issuance  (the  "Conversion
            Date")  which  Conversion  Date  shall be  noted on the  certificate
            issued to the holder of each share of the Series E Senior Preferred,
            into  shares  of  Common  Stock of the  Company  on the basis of one
            hundred  (100) shares of Common Stock for 1 share of Series E Senior
            Preferred.  The  holder of any  shares of Series E Senior  Preferred
            shall  surrender,  as soon as practicable on or after the Conversion
            Date, at the principal office of the Company or at such other office
            or  agency   maintained  by  the  Company  for  that  purpose,   the
            certificate  or  certificates  representing  the  shares of Series E
            Senior Preferred due for conversion. As promptly as practicable, and
            in any event  within  ten  business  days  after  surrender  of such
            certificates,  the Company  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 Company to which
            such  holder  of Series E 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 E Senior  Preferred  shall  thereafter  cease
            except  for the right to  receive  Common  Stock of the  Company  in
            accordance  herewith,  and such converting holder of Series E Senior
            Preferred  shall be treated for all  purposes  as having  become the
            record holder of such Common Stock of the Company at such time.

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

            As of December  31,  2003 there were $0 Series E Senior  Convertible
            Preferred  share  dividends  accrued and unpaid  representing $0 per
            share.


                                                                              18
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PREFERRED STOCK - (Continued)

      At the time each  Convertible  Preferred  Stock  Series  was  issued,  the
      respective  conversion features were in excess of the then market value of
      the Company's common stock.

INCOME TAXES

       The income tax provision (benefit) is comprised of the following:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                  ------------------------------------
                                                       2003                2002
                                                  ----------------    ----------------
<S>                                               <C>                 <C>
      State current provision (benefit)           $      (203,397)    $      (203,464)
      State deferred provision (benefit)                        -                   -
                                                  ----------------    ----------------
                                                  $      (203,397)    $      (203,464)
                                                  ================    ================
</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 2003
      and 2002, the Company  entered into an agreement under which it retained a
      third party  broker to identify a buyer for its NOL  Carryover.  The total
      tax benefit of this transaction was $209,084 in 2003 and $210,598 in 2002.

       The Company's total deferred tax asset and valuation allowance are as
follows:

<TABLE>
<CAPTION>
                                                             December 31,
                                                  -----------------------------------
                                                       2003                2002
                                                  ---------------     ---------------
<S>                                               <C>                 <C>
       Total deferred tax asset, noncurrent       $     7,274,000     $     6,700,000
       Less valuation allowance                        (7,274,000)         (6,700,000)
                                                  ---------------     ---------------
       Net deferred tax asset, noncurrent         $             -     $             -
                                                  ===============     ===============
</TABLE>

      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:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                   -----------------------------------
                                                        2003                2002
                                                   ---------------     ---------------
<S>                                                     <C>                 <C>
       Tax benefit                                      40%                 40%
       Valuation allowance                              40%                 40%
                                                   ---------------     ---------------
       Effective tax rate                                -                   -
                                                   ===============     ===============
</TABLE>


      At December 31, 2003, the Company has available approximately  $22,043,000
      of net operating  losses to  carryforward  and which may be used to reduce
      future federal  taxable  income and expire  between  December 31, 2007 and
      2023.

      At December 31, 2003, the Company has available  approximately  $4,905,000
      of net operating  losses to  carryforward  and which may be used to reduce
      future state taxable income which expire December 31, 2010.


                                                                              19
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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  $16,175 and $14,715 for the years ended  December 31, 2003 and 2002,
      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.

      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.


                                       20
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK OPTION PLANS - (Continued)

<TABLE>
<CAPTION>
                                                                                             Qualified and Non-Qualified
                                                                                           Shares Under Option Pursuant to
                                                                                                    the 1997 Plan
                                                                                                     December 31,
                                                                                           ---------------------------------
                                                                                               2003               2002
                                                                                               ----               ----
<S>                                                                                              <C>                <C>
     Outstanding, beginning of year                                                              607,000            857,000
     Granted during the year                                                                           -                  -
     Expired during the year                                                                           -            (50,000)
      Forfeited during the year                                                                        -           (200,000)
                                                                                           --------------    ---------------
     Outstanding, end of year (at prices ranging from $1.00 to $2.00
         per share)                                                                              607,000            607,000
                                                                                           --------------    ---------------
      Eligible, end of year for exercise (at prices ranging from $1.00 to
         $2.00 per share)                                                                        607,000            607,000
                                                                                           ==============    ===============
</TABLE>

      At December 31, 2003 and 2002,  the weighted  average  exercise  price and
      weighted average  remaining  contractual life is $1.06 and $1.06 per share
      and 1 years 11 months and 2 years 11 months, respectively.

      At December 31, 2003, there were 393,000 shares reserved for future option
      grants.

<TABLE>
<CAPTION>
                                                                                             Qualified and Non-Qualified
                                                                                           Shares Under Option Pursuant to
                                                                                                    the 2000 Plan
                                                                                                     December 31,
                                                                                           ---------------------------------
                                                                                                 2003             2002
                                                                                                 ----             ----
<S>                                                                                              <C>              <C>
     Outstanding, beginning of year                                                              3,053,942        2,701,109
     Granted during the year                                                                         5,000          785,500
     Exercised during the year                                                                     (50,000)        (303,500)
      Forfeited during the year                                                                          -          (79,167)
     Expired during the year                                                                      (190,000)         (50,000)
                                                                                             --------------   --------------
     Outstanding, end of year (at prices ranging from $0.10 to $1.33)                            2,818,942        3,053,942
                                                                                             --------------   --------------
      Eligible, end of year for exercise (at prices ranging from $0.10 to $1.33)                 2,818,942        3,043,942
                                                                                             ==============   ==============
</TABLE>

      At December  31, 2003 and 2002 the  weighted  average  exercise  price and
      weighted average  remaining  contractual life is $0.60 and $0.76 per share
      and 2 years 4 months and 3 years 2 months, respectively.

      At December  31, 2003,  there were  2,181,058  shares  reserved for future
      option grants.

      If the Company had used the fair value based method of accounting  for its
      employee  stock  option  plan,  as  prescribed  by  Statement of Financial
      Accounting Standards No. 123,  compensation cost in net loss for the years
      ended  December 31, 2003 and 2002 would have  increased by $0 and $37,772,
      respectively,  resulting in net loss of $2,297,365  and  $2,680,445 net of
      tax, respectively, and loss per share of $0.03 and $.06, respectively. The
      value of each  option  grant is  estimated  on the date of grant using the
      Black-Scholes  option  pricing model with the following  weighted  average
      assumptions:  expected dividend, 0%; risk-free interest rate, 5%; expected
      volatility, 115%; and expected life (in years) of 4.4.



                                       21
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK OPTION PLANS - (Continued)

     The Company also issues options outside of the Stock Incentive Plans which
are comprised as follows:

<TABLE>
<CAPTION>
                                                                                                      December 31,
                                                                                             -------------------------------
                                                                                                 2003             2002
                                                                                                 ----             ----
<S>                                                                                              <C>              <C>
     Outstanding, beginning of year                                                              7,174,866        6,214,866
     Granted during the year                                                                     2,180,000        1,750,000
     Exercised during the year                                                                           -          (40,000)
     Forfeited during the year                                                                    (250,000)        (750,000)
     Expired during the year                                                                       (50,000)               -
                                                                                             --------------   --------------
     Outstanding, end of year (at prices ranging from $.10 to $1.00)                             9,054,866        7,174,866
                                                                                             --------------   --------------
     Eligible, end of year (at prices ranging from $.10 to $1.00)                                9,054,866        7,174,866
                                                                                             ==============   ==============
</TABLE>

      At December  31, 2003 and 2002 the  weighted  average  exercise  price and
      weighted average remaining  contractual life is $0.34 and $0.41 per share,
      and 4 years 7 months and 6 years 6 months, respectively.

WARRANTS

      The Company granted common stock purchase warrants between May 1, 1998 and
      December 31, 2003 which are comprised as follows:.

<TABLE>
<CAPTION>
                                                                                                      December 31,
                                                                                             -------------------------------
                                                                                                 2003             2002
                                                                                                 ----             ----
<S>                                                                                              <C>             <C>
     Outstanding, beginning of year                                                              7,398,164       11,980,472
     Granted during the year                                                                     9,241,599                -
     Exercised during the year                                                                  (3,552,752)      (4,432,308)
     Forfeited during the year                                                                     (27,780)               -
     Expired during the year                                                                    (1,086,213)        (150,000)
                                                                                             --------------   --------------
     Outstanding, end of year (at prices ranging from $.15 to $1.50)                            11,973,018        7,398,164
                                                                                             ==============   ==============
     Callable, end of year (at $2.00)                                                              100,000          824,000
                                                                                             ==============   ==============
</TABLE>

      At December 31, 2003 and 2002,  the weighted  average  exercise  price and
weighted average  remaining  contractual life is $0.32 and $0.94 per share and 2
years 8 months and 1 year, respectively.

COMMITMENTS AND CONTINGENCIES

     Lease Agreement
      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  through
      March 31, 2004; and of $7,103 thereafter through March 31, 2005. In August
      2002 the  Company  subleased  additional  office  space  at this  location
      commencing  September 1, 2002 and expiring December 31, 2003. The sublease
      requires  monthly  payments  of  $1,955   throughout  the  sublease  term.
      Consequently,  this space has been leased  directly from the landlord on a
      month-to-month basis at the same monthly rental rate.



                                       22
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

COMMITMENTS AND CONTINGENCIES (continued)

      Under the lease agreement,  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,

                                       2004             $        84,615
                                       2005                      21,309
                                                        ---------------
                                      Total             $       105,924
                                                        ===============

      Included in general and  administrative  expenses  is rent  expense  which
      amounted to $110,784 and $97,098 for the years ended December 31, 2003 and
      2002, 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.

RELATED PARTY TRANSACTIONS

      In  February  2002,  the  company and its  President  and Chief  Executive
      Officer agreed to convert most of his base salary for the remainder of the
      year 2002 into 1,100,000  restricted  common shares in lieu of cash at the
      rate of $0.10 per share, for a total amount of $110,000.

      During the first quarter of 2002,  three outside  directors of the Company
      were  awarded  stock  grants for an aggregate  700,000  restricted  common
      shares, for services rendered.

      In January and February 2002, an outside director of the Company purchased
      common stock and exercised certain warrants for a total of 726,111 shares,
      at the price of $0.10 per share.

      During the second quarter of 2002, an affiliate of an outside  director of
      the Company  received 25,000 newly issued  restricted  common shares,  for
      services rendered.

      In June 2002, an officer of the Company offered, and the Company accepted,
      the conversion of $15,000 liabilities into 150,000 shares of common stock.

      During the third quarter of 2002,  the  directors and certain  officers of
      the  Company  were  awarded  stock  grants  for  an  aggregate   1,500,000
      restricted common shares, for services rendered.

      In  July  2002,  an  outside  director  of the  Company  and an  affiliate
      exercised  certain warrants for a total of 400,000 shares, at the price of
      $0.10 per share.

      In August 2002, an outside director of the Company converted cash advances
      in the aggregate  amount of $45,000,  extended to the Company  during June
      and July 2002, into 450,000 restricted common shares.

      During the third quarter of 2002, an outside  director  exercised  options
      for the purchase of 262,500 shares, at the price of $0.10 per share.

      In January 2003, the Company and its President and Chief Executive Officer
      agreed to convert  most of his base salary for the  remainder  of the year
      2003 into 1,000,000  restricted  common shares in lieu of cash at the rate
      of $0.10 per share, for a total amount of $100,000.


                                                                              23
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


RELATED PARTY TRANSACTIONS (continued)

      During the first quarter of 2003,  an outside  director of the Company was
      awarded a stock grant for 200,000  restricted common shares,  for services
      rendered. The same director converted $20,500 in accrued expenses incurred
      on behalf of the Company, into 205,000 restricted shares.

      During the first and second quarters of 2003, the Company's  President and
      Chief Executive  Officer and an outside  director of the Company  extended
      cash advances to the Company,  totaling $244,000,  repayable on demand and
      carrying interest at the rate of 10% per annum.

      During the second quarter of 2003, an outside  director of the Company was
      awarded a stock grant for 163,500  restricted common shares,  for services
      rendered.

      In a meeting of the board of directors of the Company on May 29, 2003,  in
      consideration of the Company's  President's  role in augmenting  available
      working capital through salary conversion and direct cash loans, the board
      approved a reduction  in the exercise  price of stock  options for a total
      4,147,917  shares issued to him, from prices  ranging from $0.50 to $1.00,
      to $0.10 per share.

      During the fourth quarter in 2003, the Company  granted  restricted  stock
      awards totaling  2,025,000 common shares to five officers and directors of
      the Company.  In addition,  two outside directors were granted  restricted
      stock  awards  for  services   rendered,   of  9,971.67  preferred  shares
      convertible  into 997,167  common  shares and warrants for the purchase of
      498,583 shares,  exercisable  during three years at the price of $0.15 per
      share.

      During 2003 and 2002, one outside  director of the Company who also serves
      as the Company's  general and  securities  counsel,  was paid an aggregate
      $132,000 and $145,893, respectively, for legal services. One other outside
      director was paid $14,900 for services performed during 2003.

MAJOR CUSTOMERS

      The Company had one major  customer for the year ended  December 31, 2003,
      which  comprised 25% of total sales,  and one major  customer for the year
      ended December 31, 2002 which comprised 63% of total sales.  The Company's
      revenue  profile  consists  of  a  larger  number  of  small  transactions
      interspersed  with a few  large  contracts  which,  if  they  were  not to
      materialize,    would   significantly   alter   period   revenues.    This
      unpredictability and volatility represents a risk.

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.


                                                                              24
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NEW ACCOUNTING PRONOUNCEMENTS

      In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
      No. 4, 44 and 64,  Amendment  of FASB  Statement  No.  13,  and  Technical
      Corrections.  This  statement  rescinds  SFAS No. 4,  Reporting  Gains and
      Losses from  Extinguishment  of Debt, and an amendment of that  statement,
      SFAS No. 44, Accounting for Intangible Assets of Motor Carriers,  and SFAS
      No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.
      This statement  amends SFAS No. 13,  Accounting  for Leases,  to eliminate
      inconsistencies   between  the  required  accounting  for  sales-leaseback
      transactions and the required  accounting for certain lease  modifications
      that  have   economic   effects   that  are  similar  to   sales-leaseback
      transactions.  Also,  this statement  amends other existing  authoritative
      pronouncements to make various technical corrections, clarify meanings, or
      describe their applicability under changed conditions.  Provisions of SFAS
      No. 145 related to the  rescissions  of SFAS No. 4 were  effective for the
      Company on  November  1, 2002 and  provisions  affecting  SFAS No. 13 were
      effective for  transactions  occurring after May 15, 2002. The adoption of
      SFAS No. 145 did not have a significant impact on the Company's results of
      operations or financial position.

      In June  2003,  the  FASB  issued  SFAS  No.  146,  Accounting  for  Costs
      Associated  with  Exit  or  Disposal  Activities.  This  statement  covers
      restructuring  type  activities   beginning  with  plans  initiated  after
      December 31, 2002.  Activities  covered by this  standard that are entered
      into after that date will be recorded in  accordance  with  provisions  of
      SFAS No.  146.  The  adoption  of SFAS No. 146 did not have a  significant
      impact on the Company's results of operations or financial position.

      In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
      Compensation-Transition and Disclosure, which provides alternative methods
      of  transition  for a  voluntary  change  to fair  value  based  method of
      accounting for  stock-based  employee  compensation  as prescribed in SFAS
      123, Accounting for Stock-Based Compensation.  Additionally,  SFAS No. 148
      required  more  prominent  and  more  frequent  disclosures  in  financial
      statements about the effects of stock-based  compensation.  The provisions
      of this Statement are effective for fiscal years ending after December 15,
      2002. The adoption of this statement is not expected to have a significant
      impact on the Company's results of operations of financial position.

      In April 2003,  the FASB  issued SFAS  Statement  No. 149,  "Amendment  of
      Statement 133 on Derivative  Instruments  and Hedging  Activities",  which
      amends and clarifies  financial  accounting  and reporting for  derivative
      instruments,  including certain derivative  instruments  embedded in other
      contracts  (collectively  referred  to as  derivatives)  and  for  hedging
      activities  under  FASB  Statement  No.  133,  Accounting  for  Derivative
      Instruments  and Hedging  Activities.  This  Statement  is  effective  for
      contracts entered into or modified after June 30, 2003, except for certain
      hedging  relationships  designated after June 30, 2003. Most provisions of
      this  Statement  should be applied  prospectively.  The  adoption  of this
      statement is not expected to have a  significant  impact on the  Company's
      results of operations or financial position.

      In May 2003,  the FASB issued SFAS  Statement  No.  150,  "Accounting  for
      Certain Financial Instruments with Characteristics of both Liabilities and
      Equity". This Statement establishes standards for how an issuer classifies
      and measures certain financial  instruments with  characteristics  of both
      liabilities  and equity.  It requires that an issuer  classify a financial
      instrument  that is within its scope as a  liability  (or an asset in some
      circumstances).  This  statement is effective  for  financial  instruments
      entered into or modified after May 31, 2003, and otherwise is effective at
      the beginning of the first interim period  beginning  after June 15, 2003,
      except for  mandatorily  redeemable  financial  instruments  of  nonpublic
      entities,  if  applicable.  It is  to  be  implemented  by  reporting  the
      cumulative  effect of a change in an  accounting  principle  for financial
      instruments  created  before the issuance  date of the Statement and still
      existing at the beginning of the interim period of adoption.  The adoption
      of this  statement  is not  expected to have a  significant  impact on the
      Company's results of operations or financial position.


                                                                              25
<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NEW ACCOUNTING PRONOUNCEMENTS (continued)

      In  November  2002,  the FASB  issued  Interpretation  No. 45 ("FIN  45"),
      Guarantor's   Accounting  and  Disclosure   Requirements  for  Guarantees,
      Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires a
      company,  at the time it  issues a  guarantee,  to  recognize  an  initial
      liability for the fair value of  obligations  assumed under the guarantees
      and elaborates on existing disclosure  requirements  related to guarantees
      and warranties.  The recognition requirements are effective for guarantees
      issued or modified  after  December 31, 2002 for initial  recognition  and
      initial  measurement  provisions.  The  adoption  of FIN 45 did not have a
      significant  impact on the  Company's  results of  operations or financial
      position.

      In January 2003,  the FASB issued FASB  Interpretation  No. 46 ("FIN 46"),
      Consolidation of Variable Interest Entities,  an Interpretation of ARB No.
      51. FIN 46 requires certain variable  interest entities to be consolidated
      by the primary  beneficiary  of the entity if the equity  investors in the
      entity do not have the characteristics of a controlling financial interest
      or do not have  sufficient  equity at risk for the entity to  finance  its
      activities  without additional  subordinated  financial support from other
      parties.  FIN 46 is  effective  for all  new  variable  interest  entities
      created or acquired after January 31, 2003. For variable interest entities
      created or acquired  prior to February 1, 2003,  the  provisions of FIN 46
      must be applied for the first  interim or annual  period  beginning  after
      June 15, 2003. The adoption of FIN 46 did not have a significant impact on
      the Company' results of operations or financial position.

SUBSEQUENT EVENTS

      During  January 2004 the Company  issued  convertible  preferred  stock to
      accredited private investors pursuant to private placement  subscriptions,
      which resulted in the Company  receiving  approximately  $890,000 in cash.
      The preferred stock is convertible into  approximately 15.6 million common
      shares which the Company will  include in a  registration  statement to be
      filed during the second quarter 2004.





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