SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A

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

                   For the Fiscal Year ended December 31, 2004


                                       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



                                                                               1
<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, 2004,
                                 were $121,886.

Common stock, par value $.0001 per share ("Common Stock"), was the only class of
voting  stock of the  Registrant  outstanding  on March 29,  2005.  Based on the
closing  price of the  Common  Stock  on the OTC  Electronic  Bulletin  Board as
reported  on  March  29,  2005,  ($0.10),  the  aggregate  market  value  of the
119,056,671  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  29,  2005,  was
approximately $11,905,667.  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 29, 2005, 136,437,612 shares of Common Stock, $.0001 par
value, were outstanding.

             DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX

Explanatory Note

This Form  10-KSB/A is being filed for the purpose of  restating  the  financial
statements for the fiscal years ended December 31, 2004 and 2003 as contained in
the Company's Form 10-KSB filed with the U.S. Securities and Exchange Commission
on March  30,  2005.  The  restatement  involves  reclassifying  certain  equity
positions  in  connection  with (1)  beneficial  conversion  rights  accrued  to
warrants and shares of convertible  preferred  stock issued in 2003 and 2004 due
to the  elimination  of a discount  of 50%  applied  to the market  price of the
Company's common stock when valuing certain  securities  issued prior to January
1,  2004  to   employees   and   non-employees   for  services   rendered,   (2)
reclassification  of  warrants  and  options  in  excess  of  authorized  shares
available  as well  as (3) a  reclassification  of  deferred  compensation.  The
restatements  add $315,450 to the net loss in 2003 and subtract  $174,654 to the
net loss in 2004,  whereby both  amounts,  however,  are being offset by similar
credits to Paid-in  Capital,  as a  consequence  of which  there was no material
effect on total stockholders'  equity. In addition,  the  reclassifications  and
revaluations  give rise to corrections in the reported  dividends  positions and
per-share earnings figures which again,  however, do not materially affect total
stockholders' equity.

As discussed in the footnote to the Financial  Statements entitled  "Restatement
of Results",  certain  errors  resulting  from improper  valuation of securities
issued to non-employees  during the years ended December 31, 2001, 2002 and 2003
and the related effect on warrant value allocation and recognition of beneficial
conversion  features  during the years  ended  December  31,  2003 and 2004 were
discovered by  management  of the Company  during the current year. In addition,
the Company  determined that certain warrants and options that were in excess of
authorized  shares for the period from  December 2003 through July 2004 required
reclassification  as liabilities for the period that these instruments could not
be physically  settled.  Such  liabilities  were marked to fair value until they
reverted to equity on July 10, 2004 when the Company  amended its certificate of
incorporation  increasing  its  authorized  common  shares,  as  approved by the
Company's shareholders. Accordingly, the 2004 and 2003 financial statements have
been restated and an adjustment has been made to retained  deficit as of January
1, 2003 due to  corrections  made for the years ended  December 31, 2001 through
2003.  This  Form  10-KSB/A  has not been  updated  for  events  or  information
subsequent  to the  date of  filing  of the  original  form  10-KSB,  except  in
connection with the foregoing.


                                                                               2
<PAGE>


<TABLE>
<CAPTION>
                       MAGNITUDE INFORMATION SYSTEMS, INC.

                                    CONTENTS


PART I.

                                                                                                        Page
<S>                                                                                                     <C>
      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 - as restated.................................................14

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

      Item  8.    Financial Statements and Supplementary Data - as restated.............................17

      Item 8a.    Controls and Procedures ..............................................................17

      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
</TABLE>


                                                                               3
<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 Two Hundred  Million  (200,000,000)  Common
Shares,  par value $.0001, and Three Million  (3,000,000)  Preferred Shares, par
value $.001,  of which at December 31, 2004,  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;  Five  Hundred  Thousand  (500,000)  were
designated as Series D Senior Convertible Preferred Stock, par value $0.001; and
Five Hundred Thousand  (500,000) were designated as Series E Senior  Convertible
Preferred Stock, par value $0.001.

         As of December  31, 2004,  there were  outstanding  127,837,612  Common
Shares, 1 Cumulative Preferred Share, and 193,190 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
other language  versions.  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:

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



                                                                               8
<PAGE>


>>       What other ergonomics issues should Magnitude consider?

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

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

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

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

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

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

         >>       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
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.



                                                                               9
<PAGE>

         The  Company  intends  to  continue   developing   strategic  marketing
relationships  with leading  business  consultants,  to broaden its distribution
channels to include tiered marketing arrangements,  and to strengthen its direct
sales force and support  organization,  thereby focusing on a marketing approach
which  emphasizes  the  advantages  that  accrue to a  business  from the unique
combination of risk management and  productivity  enhancement  tools provided by
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  $221,000 for the year ended  December 31,
2004, and $228,000 for the year ended December 31, 2003.

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, 2004, 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. During February 2005, the term of
the lease was extended to March 31, 2007, at a monthly rental fee of $10,000.


ITEM 3: LEGAL PROCEEDINGS

         On March 21, 2005, the Company filed a patent  infringement  lawsuit in
the  United  States  District  Court,  District  of New  Jersey,  against  Niche
Software,  Ltd.  of New  Zealand,  alleging  that its  software  product  called
Workplace(TM)  willfully  infringed  on  the  Company's  patent  underlying  its
ErgoEnterprise(TM) product line. The Company intends to vigorously prosecute its
infringement  claims  against  this  infringer.  Except  for  this  infringement
lawsuit, 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
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
2004
----
         First Quarter .............  $  0.20       $0.09
         Second Quarter ............     0.20        0.10
         Third Quarter .............     0.14        0.09
         Fourth Quarter ............     0.18        0.10

(b)  Shareholders

         As of March 8,  2005,  there were  approximately  400  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, 2004, 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 $433,000.

Recent Issues of  Unregistered Securities

         During the fourth  quarter of 2004 the Company had issued the following
unregistered securities:

         (i) 4,720,000  shares of common stock  accompanied  by warrants for the
purchase of 4,720,000 shares of common stock,  exercisable at $0.15/share during
three years, to two foreign and seven 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 $426,000 in cash;

         (ii)  1,016,667  shares of common stock  pursuant to the  conversion of
10,167 shares of Series E Senior Convertible Preferred Stock, in accordance with
the designation for such preferred shares;

         (iii) 39,726 shares of common stock in lieu of $2,780 interest payable.




                                                                              12
<PAGE>

Amendments to Registration Statement on Form SB-2

         On October 27, 2004, the Company's two Post-Effective Amendments to its
Form SB-2  registration  statements  previously  filed with the  Securities  and
Exchange Commission  (Registrations No's 333-73992 and 333-112595) were declared
effective.  The Company did not receive any proceeds from the sale of any of the
registered securities.

New Registration Statement on Form SB-2

         Also, on October 20, 2004, the Company's new registration  statement on
Form SB-2  (Registration  NO.  333-118522),  registering  a total of  62,794,481
shares,  already issued or underlying  warrants and convertible  preferred stock
already issued,  on behalf of certain  shareholders and investors in the Company
was declared  effective by the Securities and Exchange  Commission.  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,
2004 and 2003 is derived from the financial statements of the Company and should
be read in conjunction with the financial statements and notes thereto.

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

     SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
     Balance Sheet                                 December 31, 2004,
                                                      (As restated)
                                                   ------------------
<S>                                                  <C>                <C>
         Total assets ............................   $    646,162
         Current liabilities .....................      1,158,952
         Long-term debt ..........................            256
         Working capital .........................     (1,010,649)
         Shareholders' equity ....................   $   (513,046)


     Statement of Operations
                                                      For the Year Ended December 31,
                                                   2004 (as restated)   2003 (as restated)
                                                   -----------------    -----------------
         Total revenues ..........................   $    121,886       $      162,335
         Operating income (loss) .................     (2,687,402)
                                                                            (2,764,871)
         Net (loss) ..............................     (2,308,948)
     (2,653,331) Net (loss) after dividends
         On Preferred Shares .....................     (4,509,167)          (2,798,406)

         Net loss per common share ...............   $      (0.05)      $        (0.04)
         Number of shares used in computing
         per share data ..........................     96,968,697           66,962,744
</TABLE>



                                                                              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, 2004

         The year 2004 was marked by continuing  intensive  efforts to gain full
market  acceptance for our software  products.  Our financial  resources did not
permit us to  maintain a larger  sales force and pursue a  meaningful  marketing
campaign targeted  directly at end-user  clients.  We therefore had modified our
sales approach by  concentrating  almost  entirely on developing  indirect sales
channels  whereby  we could  leverage  the  greater  marketing  capabilities  of
distributors and other strategic  partners to introduce and promote our products
to a larger audience of potential  corporate clients.  To that extent we signed,
in December 2004, a marketing  agreement with Aon Corporation  pursuant to which
Aon's  Risk   Services   division  and   Magnitude   will  jointly   market  our
ErgoEnterprise  software  solution  to clients  of both  firms.  We expect  this
venture to produce  tangible results in terms of software  licensing  contracts,
during the first half of 2005.

         For the year ended  December  31,  2004,  the Company  had  revenues of
$121,886 compared to $162,335 in 2003.  Revenues  consisted of $50,325 licensing
fees for the Company's software products and $71,561 for maintenance and support
services.

         Gross profits amounted to negative $34,089.  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 $2,653,313 which decreased  marginally by 4% from the $2,771,259  recorded in
2003,  the  Company  realized an  operating  loss of  $2,687,402  compared to an
operating loss of $2,764,871 in 2003. Non-operating income and expenses included
$43,069  net  interest  expense and  $20,703  charges for losses on assets.  The
Company  also  realized  a  credit  of  $214,618  from  the  sale  of  net  loss
carry-forward  tax credits  pursuant to the New Jersey  Emerging  Technology and
Biotechnology  Financial  Assistance Act, and accounting income of $227,608 from
changes in the fair value of warrants  and  options  (see note  "Restatement  of
Results").  The year concluded with a net loss of $2,308,948.  After  accounting
for  dividends  paid and accrued on  outstanding  preferred  stock which totaled
$173,529  and an  accounting  charge of  $1,930,372  for  discounts  accrued  on
preferred stock,  the net loss applicable to common  shareholders was $4,509,167
or $0.05 per share,  compared to a loss of $2,798,406or  $0.04 per share for the
previous year.




                                                                              15
<PAGE>

Liquidity and Capital Resources

         In the absence of cash flow from  operations,  required working capital
to finance  ongoing  operations  was supplied  almost  entirely  from new equity
capital.  The Company  attracted  almost $2 million in new equity funding in the
form of cash,  and converted  approximately  $540,000 debt and accrued  expenses
into equity.

         At  December  31,  2004,  the  deficit in working  capital  amounted to
$1,010,649 as compared to $1,086,773 at December 31, 2003.  Stockholders' equity
showed  an  impairment  of  $513,046  at the  end of the  year,  compared  to an
impairment of $463,623 at the beginning of the year. The negative cash flow from
operations totaled approximately $1.68 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. During 2004, the Company had
filed a new registration statement on Form SB-2 and amendments to two previously
filed  registration  statements on Form SB-2, all 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 were made on behalf of certain investors
in  the  Company's  equities  and  proceeds  of any  sales  of  such  registered
securities will accrue  entirely to such investors.  The filings will shortly be
updated with the current  financial  statements  and forwarded to the Securities
and Exchange Commission for review. During the first three months of 2005 and up
to the time of this submission,  more recent equity financing  transactions have
generated  approximately  $645,000 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, 2004 its  short-term  liabilities,  aside from trade  payables and
accruals,  consisted  of  certain  notes  and  loans  aggregating  approximately
$233,000 of which  approximately  $100,000  was owed to the  chairman  and chief
executive  officer of the Company in form of a demand note (see  "Related  Party
Transactions").  Accruals  include  $474,106  unpaid  dividends  on  outstanding
preferred  stock.  Such dividends will be paid only if and when capital  surplus
and cash-flow from  operations are sufficient to cover the  outstanding  amounts
without thereby unduly impacting the Company's ability to continue operating and
growing its business.

         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>


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

Our Chief  Executive  Officer and Chief  Financial  Officer  participated  in an
evaluation by our management of the effectiveness of the design and operation of
our  disclosure  controls and  procedures of the end of our fiscal  quarter that
ended on December 31, 2004 as defined in Exchange Act Rule  13(a)-15(e),.  Based
on their  participation in that  evaluation,  our CEO and CFO concluded that our
disclosure  controls and  procedures  were  effective as of December 31, 2004 to
ensure that  required  information  is  disclosed  on a timely basis in our Form
10-KSB  filed  and  furnished  under the  Securities  Exchange  Act of 1934,  as
amended,  and ensured that all material  information required to be disclosed in
the subject Form 10-KSB was recorded, processed, summarized and reported, within
the time period specified by the Commission's rules and forms.

As of the end of the  period  covered by this Form  10-KSB  for the fiscal  year
ended December 31, 2004, an evaluation (the  "Evaluation") was undertaken by the
Company's   Chief  Executive   Officer  and  Chief  Financial   Officer  of  the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures, and; based upon that Evaluation,  Company management,  including
the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), has
concluded that the Company's  disclosure  controls and procedures were effective
as of the end of the period covered by the subject Form 10-KSB

Our CEO and our CFO reviewed with our management whether our need to restate our
financial  results for the fiscal year ended  December 31, 2004  affected  their
conclusions,  set forth under the caption Evaluation of Disclosure  Controls and
Procedures  in our Annual  Report on Form 10-K for the year ended  December  31,
2004, that our disclosure controls and procedures were effective as of that date
to ensure  that  required  information  is  disclosed  on a timely  basis in our
reports  filed or  furnished  under  the  Securities  Exchange  Act of 1934,  as
amended.

In  connection  with this  review,  our CEO and CFO noted that our  decision  to
restate our financial  results did not call into  question  whether the relevant
information  was recorded,  processed,  summarized  or reported  within the time
periods  specified  in the SEC's  rules and forms.  It also did not  involve any
issue about whether  information  required to be disclosed in the Form 10-KSB we
filed under the Exchange Act was accumulated and communicated to our management,
including  our  chief  executive  officer  and  chief  financial   officer,   as
appropriate to allow timely decisions regarding required disclosure. Conversely,
the  restatements  resulted  solely from  reconsideration  of a decision made by
management  regarding how generally accepted accounting  principles required the
classification  of  beneficial  conversion  rights  accruing  to certain  equity
securities  and of certain  deferred  compensation  and the  valuation of equity
securities  issued for services  rendered,  two particular items of information,
that were properly  recorded in our financial  records and made available to our
management  in a timely  manner,  to be  classified  and valued on our financial
statements.  Our CEO and CFO do not find that management's subsequent decisions,
that  its  prior  classification  and  valuation  were  not in  accordance  with
generally accepted accounting principles,  raises any question about whether our
disclosure  controls  and  procedures  were  effective  to ensure that  required
information  was  disclosed to them as  appropriate  to allow  timely  decisions
regarding required disclosure.  Therefore, based on that review, our CEO and our
CFO determined that their prior  conclusions,  that our disclosure  controls and
procedures were effective at December 31, 2004, had not changed.


We reported in a current report on Form 8-K today that we would be restating our
results  for the fiscal year ended  December  31,  2004.  The  restatements  add
$315,450  to the net loss in 2003 and  subtracts  $174,654  from the net loss in
2004,  whereby both  amounts,  however,  are being offset by similar  credits to
Paid-in Capital, as a consequence of which there was no material effect on total
stockholders'  equity. In addition,  the reclassifications and revaluations give
rise to corrections in the reported  dividends  positions and per-share earnings
figures  which again,  however,  do not  materially  affect total  stockholders'
equity.

In addition,  the Company determined that certain warrants and options that were
in excess of  authorized  shares for the period from  December 2003 through July
2004  required  reclassification  as  liabilities  for  the  period  that  these
instruments  could not be physically  settled.  Such  liabilities were marked to
fair  value  until they  reverted  to equity on July 10,  2004 when the  Company
amended its  certificate  of  incorporation  increasing  its  authorized  common
shares, as approved by the Company's shareholders.



                                                                              17
<PAGE>

The  decision to restate our results,  comprised  principally  of  reclassifying
beneficial  conversion  rights  accruing  to certain  equity  securities  and of
certain deferred  compensation and the valuation of equity securities issued for
services  rendered,  does not cause our  management  to change  its  conclusion,
described in its  disclosures in Item 8a.  Controls and Procedures  contained in
our Annual  Report on Form 10-K for the year ended  December 31, 2004,  that our
internal control over financial reporting was effective as of December 31, 2004.
The terms of accrued  beneficial  conversion rights and the number of securities
issued  for the  services  rendered  that are  subject to the  restatement  were
visible and disclosed on the face of our financial  statements.  Although  these
beneficial  conversion  rights were  misclassified and the securities issued for
services were not correctly valued, we had employed this classification of these
beneficial conversion rights and valuation of the securities issued for services
rendered for a number of years. We previously received  unqualified  opinions on
our  consolidated  financial  statements  included in our Annual  Report on Form
10-K.

During the financial closing and reporting process relating to the third quarter
of our 2005 fiscal year,  we reviewed  the  classification  of these  beneficial
conversion rights and of certain deferred  compensation and the valuation of the
securities  issued for  services  rendered,  and  dialogued  with RRBB about the
presentation.  Based on these  procedures,  we reached the  conclusion  that the
classification  of the beneficial  conversion  rights should be reclassified and
the  valuation of the  securities  rendered for services  rendered  revalued was
appropriate.  Subsequent to our third quarter review,  we have  reconsidered the
accounting  treatment  for  beneficial  conversion  rights and  valuation of the
securities  issued for services  rendered,  and we now believe  that  beneficial
conversion rights and certain deferred  compensation  should be reclassified and
the  securities  issued for  services  rendered be  revalued.  The  restatements
conform our financial  statements to generally accepted  accounting  principles.
Under the  circumstances,  our management does not believe that the restatements
resulted  from,  or require a finding of, a material  weakness  in our  internal
control over financial reporting.

That  conclusion was discussed with, and approved by, the Audit Committee of our
Board of Directors.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Our CEO and CFO also  participated  in an  evaluation  by our  management of any
changes in our internal  control over financial  reporting that occurred  during
the quarter  ended  December  31,  2004.  That  evaluation  did not identify any
changes that have materially  affected,  or are likely to materially affect, our
internal control over financial reporting.


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:

<TABLE>
<CAPTION>
         Name                           Position                             Term(s) of Office
---------------------      ------------------------------------        ---------------------------
<S>                        <C>                                         <C>
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
</TABLE>

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

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

Resumes:

         STEVEN  D.  RUDNIK,  Age 45 -  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  47  -  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
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



                                                                              19
<PAGE>

         JOERG  H.  KLAUBE,  Age  63 -  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 45 - 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 58 - 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 area of corporate law.

         STEVEN L. GRAY, Age 56 - Director. Mr. Gray was elected to serve on the
Board on May 18,  2000.  He is a resident of Venice,  Florida.  For the past six
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 42 - 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 a 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
the date at which it filed its annual  report on Form  10-KSB for the year ended
December 31, 2003 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 that directors  Joseph Tomasek
and Steven Gray as well as director  and  officer  Steven  Rudnik each were late
once in the filing of a transactional report.



                                                                              20
<PAGE>


ITEM 11: EXECUTIVE COMPENSATION

         The  following  table sets forth the cash  compensation  and  executive
capacities for the fiscal years ended December 31, 2004,  December 31, 2003, and
December  31,  2002,  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             2004      133,333(6)             -              13,364          36,000             -          3,250
Chief Executive Officer,     2003      133,333(7)             -              15,262          27,000             -          3,250
President                    2002      133,333(8)             -              12,560          42,000             -          3,250
---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------
Mark Chroscielewski          2004         125,000             -               6,000               -             -          8,400
Sr. Vice President           2003         125,000             -               6,000               -             -          8,400
Business Development         2002               -             -                   -               -             -              -
---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------
Joerg H. Klaube              2004         125,000             -              11,404          36,000             -          1,710
Sr. Vice President,          2003         125,000             -              11,404          67,000             -          1,710
CFO                          2002         125,000             -               9,087          42,000             -          1,710
---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------
Steven W. Jagels             2004         108,333             -               9,000               -             -          1,940
Sr. Vice President           2003         108,333             -              11,083               -             -          1,940
Information Systems          2002         108,333             -               9,000               -             -              -
---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------

---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------
All executive officers
As a group (4 persons)       2004         491,666             -              39,768          72,000             -         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 vacation pay-out.
(3)  During  2004,  the Board of  Directors  approved  stock  awards of  300,000
     restricted  shares to Rudnik  and of 300,000  restricted  shares to Klaube.
     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:
     4,744,445 shares - $616,778;  J.Klaube:  1,400,000  shares - $182,000.  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 health and personal life insurance.
(6)  During 2004, the Board of Directors  approved the issuance of 16,667 shares
     of  Series E Senior  Convertible  Stock,  since  converted  into  1,666,667
     restricted  shares, and warrants for the purchase of 833,333 common shares,
     exercisable  during three years at  $0.15/share,  in lieu of $100,000  cash
     salary; the stated salary figure includes such common shares, valued at the
     nominal $100,000 which they replaced.
(7)  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.
(8)  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  2004
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:




                                                                              21
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                  Number of Common    % of Total Options
                  Shares Underlying   Granted to Employees   Exercise         Expiration
Name              Options Granted     and Directors in FY    Price ($/Sh.)    Date                .
----------------------------------------------------------------------------------------
<S>               <C>                 <C>                    <C>              <C>

</TABLE>

There were no stock options  granted to employees and directors under any of the
Company's stock option plans during 2004.


         The  following  table sets forth  aggregated  stock  option and warrant
exercises  during 2004 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>
-------------------------------------------------------------------------------------------------------
                    Shares                               #of Shares Underlying     Value of Unexercised
                    Acquired             Value           Unexercised               In-the-Money Options
Name                on Exercise (#)      Realized ($)    Options/Warrants          & Warrants at Y/E ($)
-------------------------------------------------------------------------------------------------------
<S>                 <C>                  <C>             <C>                       <C>

</TABLE>

There were no stock  options or warrants  exercised  by  employee-executives  or
directors during 2004.



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:

         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 2004,  restricted stock awards for services rendered,  as
follows:  I. Angelastri 300,000 common shares; S. Gray 450,000 common shares, J.
Tomasek 800,000 common shares.

         During 2004, one outside director of the Company who also serves as the
Company's  general and securities  counsel,  was paid an aggregate  $164,184 for
legal  services.  One other  outside  director  was paid  $10,400  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, 2005,  the record and
beneficial  ownership of common stock of the Company by each  executive  officer
and director,  all executive  officers and directors as a group, and each person
known to the Company to own beneficially,  or of record, five percent or more of
the outstanding shares of the Company:

<TABLE>
<CAPTION>
Title             Name and Address of                         Amount and Nature of        Percent
of Class )*       Beneficial Owner                            Beneficial Ownership (1)    of Class
-----------       ----------------                            ------------------------    --------
<S>               <C>                                         <C>                         <C>
Common            Ivano Angelastri                                  2,362,500 (2)          1.76 %
Stock             Mark Chroscielewski                                    --                 --
                  Steven L. Gray                                    4,626,704 (3)          3.44 %
                  Steven W. Jagels                                    622,083 (4)          0.46 %
                  Joerg H. Klaube                                   1,910,417 (5)          1.43 %
                  Steven D. Rudnik                                  9,725,695 (6)          7.03 %
                  Joseph J. Tomasek                                 2,733,250 (7)          2.04 %

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

                  All Directors and Executive Officers             16,454,899             15.51 %
                  as a Group (7 persons)

                  Christoph Marti                                   9,400,000 (8)          6.81 %
                  Kuerzestrasse 25, CH-4562 Biberist, Switzerland
</TABLE>


)* The  Company  also has issued and  outstanding  as of March 8, 2005,  193,190
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,  2005.  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 125,000 shares.
(3)  Includes options to acquire 400,275 shares and warrants for 632,333 shares.
(4)  Includes options to acquire 602,083 shares.
(5)  Includes options to acquire 510,417 shares.
(6)  Includes  options to acquire  4,147,917  shares and  warrants  for  833,333
     shares.
(7)  Includes options to acquire 262,500 shares and warrants for 290,250 shares.
(8)  Includes warrants for 4,550,000 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.  This
amount is currently open and unpaid and payable on demand.

         In January  2004,  the Company and its  President  and Chief  Executive
Officer  agreed to convert most of his base salary for the remainder of the year
2004 into  16,667  shares  of  convertible  preferred  stock,  convertible  into
1,666,667  restricted common shares,  and 833,333 warrants,  exercisable  during
three  years at the price of $0.15 per  share,  in lieu of  $100,000  cash.  The
Company also repaid $239,088 notes payable due to this officer.

         During the first  quarter in 2004,  an outside  director of the Company
was awarded a stock grant for 150,000  restricted  common  shares,  for services
rendered.  The same director  exercised an option for 250,000  restricted common
shares at the price of $0.01 per share  which  option was  acquired  by him in a
private transaction with an unrelated party.

         During the third  quarter,  five  directors and officers of the Company
received a total 1,500,000 restricted common shares as remuneration for services
as members of the board of  directors.  One outside  director who also serves as
the legal and  securities  counsel of the Company  received  500,000  restricted
common shares as  compensation  for his  commitment and agreement to continue to
invoice the Company for legal  services at a reduced rate,  in  connection  with
legal services rendered during fiscal year 2004.

         During the third quarter the Company's chief executive officer extended
short term loans  aggregating  $100,000  to the  Company.  These  loans  carried
interest at the rate of 10% per year and were subject to a loan  origination fee
of 4%. At December 31, 2004, all such loans had been repaid.

         During 2004, one outside director of the Company who also serves as the
Company's  general and securities  counsel,  was paid an aggregate  $164,184 for
legal  services.  One other  outside  director  was paid  $10,400  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 $40,307 and $39,947 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, 2004 and December 31, 2003, respectively.

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, 2004 and December 31, 2003.



                                                                              25
<PAGE>

TAX FEES

         Rosenberg  billed us in the  aggregate  amount of 5,961 and  $3,073 for
professional  services  rendered  for tax related  services for the fiscal years
ended December 31, 2004 and December 31, 2003, 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 $0
and $4,775, 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

         There were no reports on Form 8-K filed during the fourth quarter 2004.



                                                                              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 3, 2006
                  ----------------------                           -------------
                  Steven D. Rudnik
                  President and Chief Executive Officer
                           (Principal Executive Officer),
                  Chairman of the Board


         By:        /s/ Joerg H. Klaube                   Date:    MARCH 3, 2006
                  ---------------------                            -------------
                  Joerg H. Klaube
                  Secretary, Chief Financial Officer
                  (Principal Financial Officer)
                  Director

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/ Steven L. Gray                           MARCH 3, 2006
         ---------------------------                   -------------
         Steven L. Gray, Director


          /s/ Joseph J. Tomasek                        MARCH 3, 2006
         ---------------------------                   -------------
         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.

(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, 2004, June 30, 2004, and September 30, 2004.

(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, 2003




                                                                              29
<PAGE>











              Magnitude Information Systems, Inc. and Subsidiaries

                   Restated Consolidated Financial Statements

                                December 31, 2004
                                  (As Restated)












                                                                              30
<PAGE>





              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004





                                                                     Page



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

Financial Statements (As Restated)

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

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

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

     Consolidated Statements of Cash Flows........................     6-8

     Notes to the Consolidated Financial Statements...............    9-27



<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, 2004 and the
related consolidated  statements of operations,  stockholders' equity (deficit),
and cash flows for the years ended December 31, 2004 and 2003.  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 the standards of the Public  Company
Accounting Oversight Board (United States). 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, 2004 and the
consolidated  results  of their  operations  and their  cash flows for the years
ended  December 31, 2004 and 2003, in conformity  with U.S.  generally  accepted
accounting principles.

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

As discussed in the footnote to the financial  statements entitled  "RESTATEMENT
OF RESULTS",  certain  errors  resulting  from improper  valuation of securities
issued to non-employees  during the years ended December 31, 2001, 2002 and 2003
and the related effect on warrant value allocation and recognition of beneficial
conversion features during the years ended December 31, 2003 and 2004 as well as
the need for  reclassification  of certain equity instruments and recognition of
fair value adjustments  during 2004 were discovered by management of the Company
during the current year.  Accordingly,  the 2004 and 2003  financial  statements
have been  restated and an  adjustment  has been made to retained  deficit as of
January 1, 2003 due to  corrections  made for the years ended  December 31, 2001
through 2003.


[GRAPHIC OMITTED]

Bridgewater, New Jersey
March 2, 2005, except as to
RESTATEMENT OF RESULTS Note
as to which the date is March 3, 2006.



                                                                               2
<PAGE>


              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2004
          AS RESTATED - SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>                                                                                                <C>
              Assets
Current Assets
        Cash                                                                                       $     44,144
        Accounts receivable, net of allowance for doubtful accounts of $0                                30,630
        Inventory                                                                                         6,214
        Miscellaneous receivables                                                                        11,322
        Prepaid expenses                                                                                 55,993
                                                                                                   ------------
              Total Current Assets                                                                      148,303
Property and equipment, net of accumulated depreciation of $145,157                                       9,997
Software, net of accumulated amortization of $1,041,257                                                 466,033
Deposits                                                                                                 21,829
                                                                                                   ------------
              Total Assets                                                                              646,162
                                                                                                   ============
              Liabilities and Stockholders' Equity (Impairment)
Current Liabilities
        Accounts payable and accrued expenses                                                           398,031
        Deferred revenues                                                                                49,373
        Deferred rental obligation                                                                        1,045
        Dividends payable                                                                               474,106
        Loans payable                                                                                    75,000
        Notes payable                                                                                    25,000
        Current maturities of long-term debt                                                            133,419
        Current maturities of capitalized lease obligations                                               2,978
                                                                                                   ------------
              Total Current Liabilities                                                               1,158,952
Capitalized lease obligations, less current portion                                                         256
                                                                                                   ------------
                                                                                                   ------------
              Total Liabilities                                                                       1,159,208
                                                                                                   ------------
                                                                                                   ------------

Commitments and Contingencies                                                                              --

Stockholders' Equity (Impairment)
        Preferred Stock, $.001 par value, non-voting, 3,000,000 shares authorized; 193,191
          shares issued and outstanding                                                                     193
        Common stock, $.0001 par value, 200,000,000 shares authorized; 127,837,612 shares issued
             and outstanding                                                                             12,784
        Additional paid in capital                                                                   28,365,186
        Accumulated (deficit)                                                                       (28,825,573)
                                                                                                   ------------
        Deferred compensation                                                                           (65,636)
                                                                                                   ------------
              Total Stockholders' Equity (Impairment)                                                  (513,046)
                                                                                                   ------------
              Total Liabilities and Stockholders' Equity (Impairment)                              $    646,162
                                                                                                   ============
</TABLE>




See notes to the consolidated financial statements.



                                                                               3
<PAGE>


              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
          AS RESTATED - SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                         ---------------------------------
                                                                              2004              2003
                                                                         ---------------   ---------------
<S>                                                                        <C>             <C>
Net Sales
     Software                                                              $    121,886    $    162,335
                                                                           ------------    ------------
         Total Net Sales                                                        121,886         162,335
                                                                           ------------    ------------

Cost of Goods Sold
     Software                                                                   155,975         155,947
                                                                           ------------    ------------
         Total Cost of Goods Sold                                               155,975         155,947

Gross Profit (Loss)                                                             (34,089)          6,388

Research and development costs                                                    5,548          12,892
Stock-based compensation (see below)                                            748,646         781,849
Selling, general and administrative expenses                                  1,899,119       1,976,518
                                                                           ------------    ------------
                                                                           (2,687,402)       (2,764,871)
Loss From Operations
                                                                           ------------    ------------

Other Income (Expense)
     Miscellaneous income                                                          --             3,745
     Interest income                                                                189            --
     Interest expense                                                           (43,258)        (94,823)
     Loss on disposition of assets                                              (20,703)           (779)
     Change in fair value of options and warrants                               227,608            --
                                                                           ------------    ------------

         TOTAL OTHER INCOME (EXPENSE)                                           163,836         (91,857)
                                                                           ------------    ------------

                                                                             (2,523,566)     (2,856,728)
Loss Before Provision for Income Taxes

Benefit from Income Taxes                                                       214,618         203,397
                                                                           ------------    ------------

Net Loss                                                                   $ (2,308,948)   $ (2,653,331)
                                                                           ------------    ------------


Dividends on Preferred Shares                                              $ (2,200,219)   $   (145,075)
                                                                           ------------    ------------
Net Loss Applicable to Common Shareholders                                 $ (4,509,167)   $ (2,798,406)
                                                                           ============    ============

Net Loss Per Common Share                                                         (0.05)          (0.04)
                                                                           ============    ============

Weighted Average of Common Shares Outstanding                                96,968,697      66,962,744
                                                                           ============    ============
All of the stock-based compensation relates to selling, general and
administrative expenses.
</TABLE>

See notes to the consolidated financial statements.


                                                                               4
<PAGE>

<TABLE>
<CAPTION>
              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
 YEAR ENDED DECEMBER 31, 2003 - AS RESTATED - SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                 Cumulative    Discount on                              Stock
                                             Convertible          Preferred     Preferred                            Subscriptions
                                           Preferred Shares        Shares          Stock         Common Stock         Receivable
                                          -------------------  ----------------------------------------------------- ---------------
                                           Shares     Amount   Shares  Amount   Amount        Shares       Amount
                                          ---------   ------   ------  ------  ---------    -----------  ----------- ---------------
<S>                                       <C>         <C>      <C>     <C>     <C>          <C>          <C>         <C>
         Balances, January 1, 2003          195,968   $  196        1  $ --    $    --       56,395,817  $     5,640 $      (3,297)
   Issuance of convertible
   preferred stock pursuant to
   private equity placements                130,834      131     --      --     (759,403)         --           --             --
   Issuance of convertible
   preferred stock for services
   performed and accr. Interest               7,405        7     --      --      (32,442)         --           --             --
   Issuance of preferred stock
   pursuant to conversion of debt            19,593       20     --      --     (117,560)         --           --             --
   Repurchase of preferred stock             (2,778)      (3)    --      --         --            --           --             --
   Receipt of stock subscription
   receivable                                  --       --               --         --            --           --            3,297
   Issuance of common stock
   pursuant to conversion of debt              --       --       --      --         --          220,000           22          --
   Issuance of common stock
   pursuant to exercise of options             --       --               --         --           81,000            8          --
   Issuance of common stock
   pursuant to exercise of warrants            --       --       --      --         --        3,552,752          355          --
   Issuance of common stock
   pursuant to private equity
   placements                                  --       --       --      --         --        9,122,171          912          --
   Issuance of common stock
   granted for private placement
   finders' fees                               --       --       --      --         --           30,000            3          --
   Issuance of common stock
   pursuant to conversion of
   accounts payable                            --       --       --      --         --         5620,533           62          --
   Issuance of common stock for
   services performed                          --       --       --      --         --        3,828,035          383          --
   Issuance of common stock for
   compensation                                --       --       --      --         --        1,000,000          100          --
   Issuance of common stock for
   stock awards                                --       --       --      --         --        2,363,500          236          --
   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                             --       --       --      --         --            --           --             --
   Recognition of expense on
   deferred compensation                       --       --       --      --         --            --           --             --
   Amortization of discount on
   preferred stock                             --       --       --      --       34,839          --           --             --
                                          ---------   ------   ------  ------  ---------    -----------  ----------- ---------------

         Balances, December 31, 2003        351,022   $  351        1  $ --    $(874,566)    77,213,808  $     7,721 $        --
                                          =========   ======   ======  ======  =========    ===========  =========== =============


<CAPTION>
                                                                                       Total
                                          Additional                                 Stockholders'
                                           Paid in     Accumulated      Deferred       Equity
                                           Capital       Deficit      Compensation   (Deficit)
                                          ----------   ------------   -----------------------------

                                          ----------   ------------   ------------   --------------
<S>                                       <C>          <C>            <C>            <C>
         Balances, January 1, 2003         21,178,540  $(21,517,997)  $ (171,544)    $     (463,623)
   Issuance of convertible
   preferred stock pursuant to
   private equity placements                1,518,674         --            --              759,402
   Issuance of convertible
   preferred stock for services
   performed and accr. Interest               111,067         --            --               78,632
   Issuance of preferred stock
   pursuant to conversion of debt             235,100         --            --              117,560
   Repurchase of preferred stock              (24,997)        --            --              (25,000)
   Receipt of stock subscription
   receivable                                    --           --            --                3,297
   Issuance of common stock
   pursuant to conversion of debt              21,978         --            --               22,000
   Issuance of common stock
   pursuant to exercise of options              8,092         --            --                8,100
   Issuance of common stock
   pursuant to exercise of warrants           319,792         --            --              320,147
   Issuance of common stock
   pursuant to private equity
   placements                                 646,480         --            --              647,392
   Issuance of common stock
   granted for private placement
   finders' fees                                   (3)        --            --                 --
   Issuance of common stock
   pursuant to conversion of
   accounts payable                            41,055         --            --               41,117
   Issuance of common stock for
   services performed                         316,013         --        (211,001)           105,395
   Issuance of common stock for
   compensation                                99,900         --            --              100,000
   Issuance of common stock for
   stock awards                               211,344         --            --              211,580
   Issuance of common stock for
   services performed                          97,086         --            --               97,086
   Issuance of warrants for
   services performed                         110,698         --            --              110,698
   Net loss, year ended December
   31, 2003                                      --      (2,653,331)         --          (2,653,331)
   Dividends on convertible
   preferred stock                               --        (110,237)         --            (110,237)
   Recognition of expense on
   deferred compensation                         --           --          39,457             39,457
   Amortization of discount on
   preferred stock                               --         (34,839)         --                --
                                          -----------  ------------   ------------   --------------

         Balances, December 31, 2003      $24,890,819  $(24,316,404)  $  (171,544)   $     (463,623)
                                          ==========   ============   ============   ==============
</TABLE>

See notes to the consolidated financial statements.



                                                                               5
<PAGE>


<TABLE>
<CAPTION>
              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
 YEAR ENDED DECEMBER 31, 2004 - AS RESTATED - SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                 Cumulative    Discount on                           Additional
                                             Convertible          Preferred     Preferred                             Paid in
                                           Preferred Shares        Shares         Stock          Common Stock         Capital
                                          -------------------  ----------------------------------------------------- ------------
                                           Shares     Amount   Shares  Amount   Amount        Shares       Amount
                                          ---------   -------  ------  ------ ----------    -----------  ----------- ------------
<S>                                       <C>         <C>      <C>     <C>    <C>           <C>          <C>         <C>
      Balances, January 1, 2004             351,022   $   351       1  $ --   $ (874,566)   $77,213,808  $     7,721 $ 24,890,819
Issuance of convertible
preferred stock pursuant
to private equity
placements                                  156,993       157    --      --   (1,055,806)          --           --      1,991,609
Issuance of convertible
preferred stock for
services performed                            1,900         2    --      --         --             --           --         28,098
Issuance of convertible
preferred stock  for
compensation                                 16,667        17    --      --         --             --           --         99,983
Conversion of
convertible preferred
stock into common  stock                   (333,392)     (334)           --         --       33,349,202        3,334       (3,000)
Issuance of common stock
for accrued bonus                              --        --      --      --         --          196,680           20       19,648
Issuance of common stock
for stock awards                               --        --      --      --         --        2,000,000          200      224,800
Issuance of common stock
pursuant to exercise of
options                                        --        --              --         --          250,000           25        2,475
Issuance of common stock
for rent                                       --        --      --      --         --          200,000           20       23,980
Issuance of common stock
pursuant to private
equity placements                              --        --              --         --       12,215,000        1,222    1,176,828
Issuance of common stock
granted for private
placement finders' fees                        --        --      --      --         --          673,333           67          (67)
Issuance of common stock
for services performed                         --        --      --      --         --        1,680,000          169      139,281
Issuance of common stock
for accrued interest                           --        --      --      --         --           59,589            6        3,966
Issuance of options for
services performed                             --        --      --      --         --             --           --         30,150
Private placement
finders fees                                   --        --      --      --         --             --           --       (132,096)
   Net loss, year ended December
31, 2004                                       --        --      --      --         --             --           --           --
Dividends on convertible
preferred stock                                --        --              --         --             --           --           --
Recognition of expense
on deferred compensation                       --        --      --      --         --             --           --           --
Amortization of discount
on preferred stock                             --        --      --      --    1,930,372           --           --         96,320
                                          ---------   -------  ------  ------  ---------    -----------  ----------- ------------
CHANGE IN FAIR VALUE OF                        --        --      --      --         --               --         --       (227,608)
OPTIONS AND WARRANTS
                                          =========   =======  ======  ======  =========    ===========  =========== ============

Balances, December 31, 2004                 193,190   $   193       1  $ --    $    --      127,837,612  $    12,784   28,365,186
                                          =========   =======  ======  ======  =========    ===========  =========== ============

<CAPTION>
                                                                            Total
                                                                           Stockholders'
                                          Accumulated         Deferred       Equity
                                            Deficit         Compensation   (Deficit)
                                          -------------    -----------------------------

                                          -------------    -----------------------------
<S>                                         <C>            <C>             <C>
      Balances, January 1, 2004           $ (24,316,404)   $    (171,544)     (463,623)
Issuance of convertible
preferred stock pursuant
to private equity
placements                                         --              --          935,960
Issuance of convertible
preferred stock for
services performed                                 --              --           28,100
Issuance of convertible
preferred stock  for
compensation                                       --              --          100,000
Conversion of
convertible preferred
stock into common  stock                           --              --             --
Issuance of common stock
for accrued bonus                                  --              --           19,668
Issuance of common stock
for stock awards                                   --              --          225,000
Issuance of common stock
pursuant to exercise of
options                                            --              --            2,500
Issuance of common stock
for rent                                           --              --           24,000
Issuance of common stock
pursuant to private
equity placements                                  --              --        1,178,050
Issuance of common stock
granted for private
placement finders' fees                            --              --             --
Issuance of common stock
for services performed                             --              --          139,450
Issuance of common stock
for accrued interest                               --              --            3,972
Issuance of options for
services performed                                 --              --           30,150
Private placement
finders fees                                       --              --         (132,096)
   Net loss, year ended December
31, 2004                                           --        (2,308,948)    (2,308,948)
Dividends on convertible
preferred stock                                    --          (173,529)      (173,529)
Recognition of expense
on deferred compensation                           --           105,908        105,908
Amortization of discount
on preferred stock                           (2,026,692)           --             --
                                            -----------    ------------    -----------
CHANGE IN FAIR VALUE OF                            --              --         (227,608)
OPTIONS AND WARRANTS
                                            ===========    =============   ===========

Balances, December 31, 2004               $ (28,825,573)   $    (65,636)   $  (513,046)
                                            ============    ============   ===========
</TABLE>

See notes to the consolidated financial statements.



                                                                               6
<PAGE>




              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
          AS RESTATED - SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                                       --------------------------
                                                                          2004            2003
                                                                       -----------    -----------
<S>                                                                    <C>            <C>
Cash Flows From Operating Activities

    Net Loss                                                           $(2,308,948)   $(2,653,331)

    Adjustments to Reconcile Net Loss to Net Cash Used by Operations
      Depreciation and amortization                                        166,144        178,447
      Stock/options issued for various expenses                            541,172        867,621
      Recognition of expense - deferred compensation                       105,908         39,457
      Loss on disposition of assets                                         20,703            779
      Bad debt provision                                                      (212)        30,905
      Forgiveness of debt                                                     --            3,745
    Change in fair value of warrants and options                          (227,608)          --

    Decreases (Increases) in Assets
        Accounts receivable                                                  5,422        (20,952)
        Miscellaneous receivable                                            (9,522)         1,929
        Inventories                                                           --               30
        Prepaid expenses                                                   (27,322)      (128,281)
        Other assets                                                         1,951           --

    Increases (Decreases) in Liabilities

      Accounts payable and accrued expenses                                 17,499       (147,402)

      Deferred revenue                                                      32,732          1,396

      Deferred rental obligation                                            (3,811)        (1,339)

      Deposits payable                                                        --          (14,075)
                                                                       -----------    -----------

        Net Cash Used by Operating Activities                           (1,685,892)    (1,841,071)
                                                                       -----------    -----------



Cash Flows From Investing Activities


    Purchases of equipment, fixtures, and software                          (5,209)        (3,695)
                                                                       -----------    -----------

        Net Cash Used by Investing Activities                               (5,209)        (3,695)
                                                                                      -----------


Cash Flows From Financing Activities
    Dividends paid                                                         (58,991)          --
    Repayment of capital lease obligations                                  (2,805)        (2,981)
    Proceeds from loans payable                                               --          183,323
    Repayment of loans payable                                            (282,851)       (44,793)
    Proceeds from officer loans                                               --           83,881
    Proceeds from issuance of common and preferred stock                 1,981,914      1,713,338
                                                                       -----------    -----------

        Net Cash Provided by Financing Activities                        1,637,267      1,932,768
                                                                       -----------    -----------


Net Increase (Decrease) in Cash                                            (53,834)        88,002

Cash at beginning of period                                                 97,978          9,976
                                                                       -----------    -----------
Cash at end of period                                                  $    44,144    $    97,978
                                                                       ===========    ===========


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

    Interest Paid                                                      $    36,604    $    36,564
                                                                       ===========    ===========

    Taxes Paid                                                         $     1,800    $     2,800
                                                                       ===========    ===========
</TABLE>

See notes to the consolidated financial statements.


                                                                               7
<PAGE>


              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 2004
          AS RESTATED - SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
Schedule of non-cash investing and financing activities

<S>                                                                                       <C>
In connection with consideration for current consulting services, stock options for
250,000 common shares were issued                                                         $ 30,150
                                                                                          ========
In exchange for accrued interest, 59,589 common shares were issued                        $  3,972
                                                                                          ========
In connection with the retirement of accrued bonuses, 196,680 common shares were issued   $ 19,668
                                                                                          ========
In connection with consideration for current services, 4,363,333 common shares were
issued                                                                                    $364,450
                                                                                          ========
In exchange for rent, 200,000 common shares were issued                                   $ 24,000
                                                                                          ========
In connection with consideration of current year expenses, 250,000 common shares were
issued in conjunction with an option exercise                                             $  2,500
                                                                                          ========
In connection with consideration for current compensation, 16,667 convertible
preferred shares with attached warrants were issued                                       $100,000
                                                                                          ========
In connection with consideration for current consulting services, 1,900 convertible
preferred shares with attached warrants were issued                                       $ 28,100
                                                                                          ========
</TABLE>

               See notes to the consolidated financial statements


                                                                               8
<PAGE>




              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 2003
          AS RESTATED - SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




<TABLE>
<CAPTION>
Schedule of non-cash investing and financing activities

<S>                                                                                      <C>
In connection with consideration for consulting services, stock options for 1,935,000
common shares were issued                                                                $ 97,086
                                                                                         ========
In connection with consideration for consulting and professional services, stock
warrants for 1,570,250 common shares were issued                                         $110,698
                                                                                         ========
In connection with the retirement of a short-term loan, 220,000 common shares were
issued                                                                                   $ 22,000
                                                                                         ========
In connection with the retirement of accounts payable 30,235 common shares were issued   $  2,116
                                                                                         ========
In connection with consideration for current services, 7,781,833 common shares were
issued                                                                                   $666,977
                                                                                         ========
In connection with consideration for current services and accrued interest, 7,405
preferred shares were issued                                                             $ 78,632
                                                                                         ========
In connection with the retirement of short-term loans, 19,593 preferred shares were
issued                                                                                   $117,560
                                                                                         ========
In connection with the purchase of equipment, a capitalized lease obligation resulted    $  8,509
                                                                                         ========
</TABLE>

See notes to the consolidated financial statements.



                                                                               9
<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.

         The Company's  primary  product is an integrated  suite of  proprietary
         software  modules  marketed under the name  ErgoEnterpriseTM  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   inter-company   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.



                                       10
<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 $491 and $31,546 for the years ended  December 31, 2004 and
         2003, 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/warrant  grant is used.  The
         Company determined the fair market value of the warrants/options issued
         under the Black-Scholes  Pricing Model.  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.

     Reclassification  of  certain  securities  under EITF  00-19
         Pursuant to Emerging Issues Task Force (EITF) Issue 00-19, if a company
         has  more  than  one  contract  subject  to  this  Issue,  and  partial
         reclassification is required, there may be different methods that could
         be used to determine which contracts, or portions of contracts,  should
         be  reclassified.  The Company's  method for  reclassification  of such
         contracts is  reclassification  of contracts  with the latest  maturity
         date first.

     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, 2004.

     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.



                                                                              11
<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 (SOP) 97-2 "Software
         Revenue  Recognition" and SOP 98-9 "Software Revenue recognition" which
         modifies  SOP 97-2.  Revenue  is  recognized  at the time of  licensing
         provided that the resulting receivable is deemed probable of collection
         and  is  fixed  or  determinable.  Revenue  from  software  maintenance
         contracts  is  recognized  ratably  as  earned.  When a sales  contract
         includes  multiple  elements,  revenues  are  allocated  to the various
         elements based on  Company-specific  objective  evidence of fair value,
         regardless  of any separate  prices for each element that may be stated
         within the contract.

     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 $2,536,556  and  $2,653,331  during the years ended  December 31,
     2004  and  2003,  respectively,  and  has  a  significant  working  capital
     deficiency.  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.

PROPERTY AND EQUIPMENT

     Property and equipment consist of the following at December 31, 2004:

         Equipment                                                      $ 82,924
         Furniture and fixtures                                           72,230
                                                                        --------
                                                                         155,154

         Less accumulated depreciation                                   145,157
                                                                        --------
                                                                        $  9,997
                                                                        ========

Depreciation  expense  charged to operations was $10,225 and $22,529 in 2004 and
2003, respectively.


                                                                              12
<PAGE>




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

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     Accounts  payable  and  accrued  expenses  consisted  of the
following at December 31, 2004:

     Accounts payable                                                   $ 79,293
     Accrued interest                                                     56,080
     Accrued consulting fees                                             168,292
     Accrued commissions                                                  17,537
     Accrued professional fees                                            57,114
     Accrued taxes                                                         6,862
     Accrued payroll                                                       6,596
     Miscellaneous accruals                                                6,257
                                                                        --------
                                                                        $398,031
                                                                        ========

LOANS PAYABLE

     The  Company  and  Magnitude,  Inc.  had  borrowings  under short term loan
     agreements with the following terms and conditions at December 31, 2004:


     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, 2004 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 orconvertible  preferred shares.
     The  total  amount of  non-converted  notes  outstanding  at
     December 31, 2004 is $25,000.  Attempts to locate the holder
     of  this  note,   to  settle  this   liability,   have  been
     unsuccessful.                                                      $ 25,000
                                                                        --------

             Total                                                      $ 25,000
                                                                        ========



                                                               13
<PAGE>


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

LONG-TERM DEBT

       Long-term debt as of December 31, 2004 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.  During  the first  quarter  of 2004,
     $175,000 was repaid and the  maturity of the unpaid  balance
     was changed to January 1, 2005,  and is  currently  due upon
     demand. 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 $0.06 per common share
     equivalent.                                                        $ 99,890

     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
                                                                        --------
             Total                                                       133,419

                  Less current maturities                                133,419
                                                                        --------
                  Long-term debt, net of current maturities             $   --
                                                                        ========


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, 2004  amounted to $2,442 net of  accumulated
       depreciation of $6,067.

       The following is a schedule of minimum  lease  payments due under capital
leases at December 31, 2004:


         Year Ending December 31, 2004

         Total minimum capital lease payments                             $3,349
         Less amounts representing interest                                  115
                                                                          ------
                                                                          ------
         Present value of net minimum capital lease payments               3,234
         Less current maturities of capital lease obligations              2,978
                                                                          ------
                                                                          ------
         Obligations under capital leases, excluding current maturities   $  256
                                                                          ======




                                                                              14
<PAGE>




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

DEFERRED REVENUES

       Deferred  revenues at December 31, 2004,  amounted to $49,373  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, 2004 is $0 with a  liquidation  price of
       $100,000.  As of  December  31,  2004,  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, 2004 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, C and D 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, C and D
             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 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,  2004  there  were  $42,729  Series  A  Senior
             Convertible   Preferred   share   dividends   accrued   and  unpaid
             representing $1.46 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, 2004 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, C and D 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, 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 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, 2004 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, 2004 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, B and D 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, C and D
             Senior  Preferred,  the  holders  of  these  series  shall  receive
             payments on a pro rata basis.



                                                                              17
<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,  2004  there  were  $252,000  Series  C Senior
             Convertible   Preferred   share   dividends   accrued   and  unpaid
             representing $2.52 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, 2004 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.



                                                                              18
<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, 2004 there were $169,357 Series D Senior Convertible
         Preferred share  dividends  accrued and unpaid  representing  $2.65 per
         share.

       Series E of the  Senior  Convertible  Preferred  Stock  series  which was
       issued  in 2004  has  500,000  shares  designated,  0 shares  issued  and
       outstanding.  The total outstanding Series E Senior Convertible Preferred
       Stock at  December  31,  2004 is $0 with a  liquidation  price of $0. 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 the holders of Common Stock or Cumulative Preferred Stock
            of  the  (1)  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.


                                                                              19
<PAGE>




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

PREFERRED STOCK - (Continued)


      (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,  2004  there  were  $1,020  Series  E  Senior
             Convertible Preferred share dividends accrued.



                                       20
<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:


                                                       Year Ended December 31,
                                                     ---------------------------
                                                       2004             2003
                                                     ---------        ---------
State current provision (benefit)                    $(214,618)       $(203,397)
State deferred provision (benefit)                        --               --
                                                     ---------        ---------
                                                     $(214,618)       $(203,397)
                                                     =========        =========

       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 2004
       and 2003, 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  $216,418  in 2004 and  $209,084 in
       2003.

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

                                                           December 31,
                                                   ----------------------------
                                                      2004             2003
                                                   -----------      -----------
Total deferred tax asset, noncurrent               $ 7,882,000      $ 7,274,000
Less valuation allowance                            (7,882,000)      (7,274,000)
                                                   -----------      -----------
Net deferred tax asset, noncurrent                 $      --        $      --
                                                   ===========      ===========

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

                                                      Year Ended December 31,
                                                   ----------------------------
                                                      2004              2003
                                                   -----------      -----------
Tax benefit                                               40%             40%
Valuation allowance                                       40%             40%
                                                   -----------      -----------
Effective tax rate                                        --              --
                                                   ===========      ===========


       At December 31, 2004, the Company has available approximately $24,377,000
       of net operating  losses to carryforward  and which may be used to reduce
       future federal  taxable  income and expire between  December 31, 2007 and
       2024.

       At December 31, 2004, the Company has available approximately  $3,616,000
       of net operating  losses to carryforward  and which may be used to reduce
       future state taxable income which expire December 31, 2011.



                                                                              21
<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  $14,389 and $16,175 for the years ended  December 31, 2004 and
       2003, 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.



                                                                              22
<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,
                                                                                           ---------------------------------
                                                                                               2004               2003
                                                                                           --------------    ---------------
<S>                                                                                        <C>               <C>
     Outstanding, beginning of year                                                              607,000            607,000
     Granted during the year                                                                           -                  -
     Expired during the year                                                                   (170,000)                  -
      Forfeited during the year                                                                        -                  -
                                                                                           --------------    ---------------
     Outstanding, end of year (at prices ranging from $1.00 to $1.78                             437,000            607,000
         per share)
                                                                                           --------------    ---------------
      Eligible, end of year for exercise (at prices ranging from $1.00 to                        437,000            607,000
         $1.78 per share)
                                                                                           ==============    ===============
</TABLE>

     At December 31, 2004 and 2003,  the  weighted  average  exercise  price and
     weighted  average  remaining  contractual life is $1.01 and $1.06 per share
     and 1 year 4 months and 1 year 11 months, respectively.

     At December 31, 2004,  there were 563,000 shares reserved for future option
grants.

<TABLE>
<CAPTION>
                                                                                             Qualified and Non-Qualified
                                                                                           Shares Under Option Pursuant to
                                                                                                    the 2000 Plan
                                                                                                     December 31,
                                                                                           --------------------------------
                                                                                                 2004             2003
                                                                                           ---------------    -------------
<S>                                                                                        <C>                <C>
     Outstanding, beginning of year                                                              2,818,942        3,053,942
     Granted during the year                                                                             -            5,000
     Exercised during the year                                                                           -         (50,000)
      Forfeited during the year                                                                          -                -
     Expired during the year                                                                     (115,500)        (190,000)
                                                                                           ---------------    -------------
     Outstanding, end of year (at prices ranging from $0.10 to $1.00)                            2,703,442        2,818,942
                                                                                           ---------------    -------------
      Eligible, end of year for exercise (at prices ranging from $0.10 to $1.00)                 2,703,442        2,818,942
                                                                                           ===============    =============
</TABLE>


     At  December  31, 2004 and 2003 the  weighted  average  exercise  price and
     weighted  average  remaining  contractual life is $0.61 and $0.60 per share
     and 1 year 5 months and 2 years 4 months, respectively.

     At December  31,  2004,  there were  2,296,558  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,  2004  and 2003  would  have  increased  by $0 and $0,
     respectively,  resulting in net loss of $2,536,556  and  $2,653,331  net of
     tax, respectively, and loss per share of $0.04 and $0.04, 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.




                                                                              23
<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,
                                                                         -------------------------------
                                                                             2004             2003
                                                                         --------------   --------------
<S>                                                                          <C>              <C>
     Outstanding, beginning of year                                          9,054,866        7,174,866
     Granted during the year                                                   250,000        2,180,000
     Exercised during the year                                               (250,000)                -
     Forfeited during the year                                                       -        (250,000)
     Expired during the year                                                 (485,000)         (50,000)
                                                                         --------------   --------------
     Outstanding, end of year (at prices ranging from $0.07 to $1.00)        8,569,866        9,054,866
                                                                         --------------   --------------

     Eligible, end of year (at prices ranging from $0.07 to $1.00)           8,569,866        9,054,866
                                                                         ==============   ==============
</TABLE>

     At  December  31, 2004 and 2003 the  weighted  average  exercise  price and
     weighted average  remaining  contractual life is $0.32 and $0.34 per share,
     and 3 years 9 months and 4 years 7 months, respectively.

WARRANTS

     The Company granted common stock purchase  warrants between May 1, 1998 and
     December 31, 2004 which are comprised as follows:.

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                         -------------------------------
                                                                             2004             2003
                                                                         --------------   --------------
<S>                                                                      <C>              <C>
     Outstanding, beginning of year                                         11,973,018        7,398,164
     Granted during the year                                                20,433,000        9,241,599
     Exercised during the year                                                       -      (3,552,752)
     Forfeited during the year                                                       -         (27,780)
     Expired during the year                                               (1,717,419)      (1,086,213)
                                                                         --------------   --------------
     Outstanding, end of year (at prices ranging from $.15 to $1.00)        30,688,599       11,973,018
                                                                         ==============   ==============
     Callable, end of year (at $2.00)                                                -          100,000
                                                                         ==============   ==============
</TABLE>

     At December 31, 2004 and 2003,  the  weighted  average  exercise  price and
     weighted  average  remaining  contractual life is $0.18 and $0.32 per share
     and 2 years 2 months and 2 years 8 mpnths, 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. The Company
       has subsequently negotiated a lease renewal which extends the term of the
       lease to March 31, 2007 at a monthly rental of $10,000.




                                                                              24
<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,
                   ------------------------
                            2005                                  101,309
                            2006                                 $120,000
                            2007                                   30,000
                            Total minimum payments               --------
                                                                 $251,309

     Included  in general and  administrative  expenses  is rent  expense  which
     amounted to $116,734 and $110,784 for the years ended December 31, 2004 and
     2003, 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 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.

    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.

    In January 2004, the Company and its President and Chief  Executive  Officer
    agreed to convert most of his base salary for the remainder of the year 2004
    into  16,667  shares  of  convertible  preferred  stock,   convertible  into
    1,666,667 restricted common shares, and 833,333 warrants, exercisable during
    three years at the price of $0.15 per share,  in lieu of $100,000  cash. The
    Company also repaid $239,088 notes payable due to this officer.

                                                                              25
<PAGE>

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

RELATED PARTY TRANSACTIONS (continued)

    During the first  quarter of 2004,  an outside  director  of the Company was
    awarded a stock grant for 150,000  restricted  common  shares,  for services
    rendered.  The same  director  exercised  an option for  250,000  restricted
    common  shares at the price of $0.01 per share which  option was acquired by
    him in a private transaction with an unrelated party.

    During the third quarter of 2004, five directors and officers of the Company
    received a total  1,500,000  restricted  common shares as  remuneration  for
    services as members of the board of directors. One outside director who also
    serves as the legal and securities  counsel of the Company  received 500,000
    restricted common shares as compensation for his commitment and agreement to
    continue to invoice the Company  for legal  services at a reduced  rate,  in
    connection with legal services rendered during fiscal year 2004.

    During  the third  quarter of 2004 the  Company's  chief  executive  officer
    extended short term loans aggregating  $100,000 to the Company.  These loans
    carried  interest  at the rate of 10% per year  and were  subject  to a loan
    origination  fee of 4%. At  December  31,  2004,  all such  loans  have been
    repaid.

    During 2004 and 2003, one outside director of the Company who also serves as
    the Company's general and securities counsel, was paid an aggregate $164,184
    and 132,000,  respectively,  for legal services.  One other outside director
    was paid $14,900 for services  performed  during  2003,  and $10,400  during
    2004.

CAPITALIZATION

    During the second quarter of 2004, a majority of our  shareholders of record
    at the close of  business  on May 14,  2004,  voted to amend  the  Company's
    Certificate of Incorporation  to increase our authorized  common shares from
    100 million shares to 200 million shares.

MAJOR CUSTOMERS

    The Company had two major  customers  for the year ended  December 31, 2004,
    which  comprised 31% and 19%,  respectively,  of total sales,  and one major
    customer for the year ended  December 31, 2003 which  comprised 25% of total
    sales.

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.



                                                                              26
<PAGE>


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


RESTATEMENT OF RESULTS

The Company has restated its financial  statements  for the years ended December
31, 2003 and 2004. The restated  financial results reflect the  reclassification
of  certain  equity  positions  as  follows:   The  Company  recognized  certain
beneficial  conversion  rights to warrants and shares of  convertible  preferred
stock due to a revision in its accounting procedures related to the valuation of
securities  such as restricted  stock and stock  options and warrants  issued to
non-employees  for  services  performed.   Its  original  financial   statements
reflected  a valuation  of such  instruments  based on the market  price for the
Company's  common stock,  less a discount of 50% which in the Company's  opinion
compensated  for the trading  nature of the market for the common  stock and the
liquidity  constraints  associated  with  these  securities.   The  Company  has
reconsidered  this  valuation  approach and is restating its financial  results,
eliminating the 50% discount.  In addition,  under the provisions of EITF 00-19,
the Company  determined that certain warrants and options that were in excess of
authorized  shares for the period from  December 2003 through July 2004 required
reclassification  as liabilities for the period that these instruments could not
be physically settled. Such liabilities reverted to equity on July 10, 2004 when
the Company amended its certificate of  incorporation  increasing its authorized
common shares, as approved by the Company's shareholders.  The reclassifications
of the approximate  18,500,000 warrants and options that exceeded the authorized
share amount were initially recorded as adjustments to stockholders'  equity for
the change in fair value of the contracts for the period such  instruments  were
classified as equity, as applicable.  The contracts were subsequently  marked to
fair value  through  the date of the  approved  increase in  authorized  shares,
resulting in a decrease in the Net Loss for the year ended  December 31, 2004 of
$227,608  which  decrease was offset by a  conrresponding  net  reduction in the
amount of Additional Paid-in Capital of $227,608.  The impact of the adjustments
of the Company's financial results as originally reported is summarized below:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31, 2003
                                                                              ----------------------------
                                                                     As Reported                        As Restated
                                                                     -----------                        -----------
<S>                                                                <C>                                <C>
     Retained earnings (deficit)                                   $(23,705,641)                      $(24,316,404)
     Discount on Preferred Stock                                       (630,896)                          (874,566)
     Additional paid-in capital                                       23,950,614                         24,890,819
     Total stockholders' equity (impairment)                           (377,851)                          (463,623)
     Working capital (deficiency)                                      (968,183)                        (1,086,773)
     Net (loss)                                                      (2,337,881)                        (2,653,331)
     Loss per share (after dividends and amortization                    $(0.04)                            $(0.04)
          of discount on Preferred Stock)
                                                                              Year Ended December 31, 2004
                                                                              ----------------------------
                                                                     As Reported                        As Restated
                                                                     -----------                        -----------
     Retained earnings (deficit)                                   $(27,992,998)                      $(28,825,573)
     Additional paid-in capital                                       27,499,793                        28,365,186
     Total stockholders' equity (impairment)                           (480,228)                          (513,046)
     Working capital (deficiency)                                      (977,831)                        (1,010,649)
     Net (loss)                                                      (2,483,602)                        (2,308,948)
     Loss per share (after dividends and amortization                    $(0.04)                            $(0.05)
          of discount on Preferred Stock)
</TABLE>





                                                                              27
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

     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.





                                                                              28
<PAGE>


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

NEW ACCOUNTING PRONOUNCEMENTS (continued)

     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   (collectivelyreferred   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  did not 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  did not  have a  significant  impact  on the  Company's
     results of operations or financial position.

     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.

     In 2004,  the FASB issued SFAS  Statement  No. 151,  "Inventory  Costs,  an
     Amendment of ARB No. 43, Chapter 4". This Statement  amends the guidance in
     ARB No. 43,  Chapter 4 "Inventory  Pricing" to clarify the  accounting  for
     abnormal  amounts of idle facility  expense,  freight,  handling  costs and
     wasted materials  (spoilage).  This Statement  requires that these items be
     recognized as  current-period  charges  regardless of whether they meet the
     criterion  of "so  abnormal".  In  addition,  this  Statement  requires the
     allocation  of fixed  production  overheads to the costs of  conversion  be
     based on the normal capacity of the production  facilities.  The provisions
     of this Statement  shall be effective for inventory  costs incurred  during
     fiscal  years  beginning  after  June  15,  2005.  Earlier  application  is
     permitted for inventory  costs incurred during fiscal years beginning after
     the date this Statement is issued.  The provisions of this Statement  shall
     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.



                                                                              29
<PAGE>





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

SUBSEQUENT EVENTS

     During  the first  quarter  of 2005,  equity  financing  transactions  have
     generated approximately $645,000 of cash in the aggregate from the issuance
     of 7,000,000  common shares  accompanied by warrants for the same number of
     shares, exercisable during three years at the price of $0.15 per share.



                                                                              30