<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                   For the Fiscal Year ended December 31, 2002


                                       OR

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

            For the Transition Period From __________ to ____________

                          Commission File No. 33-20432

                       MAGNITUDE INFORMATION SYSTEMS, INC.
                       -----------------------------------
              Exact Name of Registrant as Specified in its Charter

              DELAWARE                              75-2228828
              --------                              ----------
  State or Other Jurisdiction of                   IRS Employer
  Incorporation or Organization                Identification Number

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

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


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

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

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


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, 2002, were
$369,443.

Common stock, par value $.0001 per share ("Common Stock"), was the only class of
voting  stock of the  Registrant  outstanding  on March  4,  2003.  Based on the
closing  price of the  Common  Stock  on the OTC  Electronic  Bulletin  Board as
reported on March 4, 2003, ($0.10), the aggregate market value of the 54,460,697
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 4, 2003, was approximately $5,446,070.
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 4, 2003, 60,834,304 shares of Common Stock, $.0001 par value, were
outstanding.

             DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX


                                       2
<PAGE>

                       MAGNITUDE INFORMATION SYSTEMS, INC.

                                    CONTENTS


<TABLE>
<CAPTION>
PART I.
                                                                                       Page
                                                                                       ----
<S>         <C>                                                                         <C>
      Item  1. Business ............................................................    4

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

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

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

PART II

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

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

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

      Item  8. Financial Statements and Supplementary Data .........................   17

      Item  9. Changes in and Disagreements with Accountants on Accounting and
               Financial Disclosure ................................................   17

PART III

      Item 10. Directors and Executive Officers of the Registrant ..................   18

      Item 11. Executive Compensation ..............................................   20

      Item 12. Security Ownership of Certain Beneficial Owners and Management ......   23

      Item 13. Certain Relationships and Related Transactions ......................   24

      Item 14. Controls and Procedures .............................................   25

PART IV

      Item 15. Exhibits and Reports on Form 8-K ....................................   26


               Signatures ..........................................................   27

               Exhibit Index .......................................................   28
</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 One Hundred Million (100,000,000) Common Shares, par value
$.0001,  and Three Million  (3,000,000)  Preferred  Shares,  par value $.001, of
which at December 31, 2002, Two Thousand Five Hundred (2,500) were designated as
Cumulative  Preferred Shares,  par value $.001; Three Hundred Thousand (300,000)
were  designated  as  Series A Senior  Convertible  Preferred  Stock,  par value
$0.001;  Three  Hundred Fifty  Thousand  (350,000)  were  designated as Series B
Senior  Convertible  Preferred  Stock,  par value  $0.001;  One  Hundred  Twenty
Thousand  (120,000)  were  designated as Series C Senior  Convertible  Preferred
Stock, par value $0.001;  and Five Hundred Thousand (500,000) were designated as
Series D Senior Convertible Preferred Stock, par value $0.001.

     As of December 31, 2002, there were outstanding 56,395,817 Common Shares, 1
Cumulative Preferred Share, and 195,968 Convertible Preferred Shares.


                                       4
<PAGE>

Narrative Description of Business
---------------------------------

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

     o    Real-time  monitoring  of  keyboarding  activities  to  ensure  proper
          posture and work pacing.

     o    Pro-active  dialogue  with at-risk  employees,  including  surveys and
          training in the best practices for wellness and productivity.

     o    Strategic  profiling and the  management of computer use throughout an
          organization to employ best practices and to measure  health,  safety,
          and performance results.

     o    Computer workstation assessment tools.

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

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

     Repetitive  stress injury (RSI) is a  classification  of diseases caused by
the excessive use of joints.  It is a  sub-classification  of Cumulative  Trauma
Disorders  (CTDs).  RSI accounts for a large portion of work-related  illnesses,
and the  incidence of RSI is expected to grow as the number of people  operating
keyboards  increases.  The  impact of RSI is  measured  not only in the pain and
suffering of its victims,  but also in time lost from work,  and medical  costs.
The  Company's  software  products  are  designed to help  businesses  deal with
potentially  preventable  repetitive stress injuries, by real-time monitoring of
keyboarding activities,  pro-active dialog with at-risk employees, and strategic
profiling and management of computer use throughout an organization.

     A study  released  in January  2001 by the  National  Academy of  Sciences,
originally  commissioned  by  Congress  and  produced by the  National  Research
Council,  finds that  work-related  back, hand and wrist injuries affect about 1
million U.S.  workers every year.  The total cost of the resultant  disorders is
between  $45  billion  and $54  billion  in  compensation,  lost wages and lower
productivity.  Increased  awareness of the health risks and associated costs led
the State of  California  several  years ago  implement an ergonomic  regulation
which directs qualifying  employers to establish and maintain a program designed
to minimize RSI's. Such program shall include work-site  evaluation,  control of
the exposures that have caused RSI's, and training of employees.  State agencies
and  employers  in  California  face fines of up to  $25,000  per  incident  for
violating these regulations. The State of Washington adopted similar regulations
in 2000,  and other states have  indicated a  willingness  to follow  suit.  The
Company believes that the growing  recognition of these trends will give rise to
a rapidly expanding market for the Company's products.

The Industry
------------

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


                                       5
<PAGE>


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

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

Products, Trademarks
--------------------

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

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

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

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

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

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


                                       6
<PAGE>

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

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

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

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

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


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

Patents and New Products
------------------------

ErgoSentry - Patent Granted:

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

ErgoPal Introduced, Patent Pending:

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


Studies Involving ErgoEnterprise(TM)
------------------------------------

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

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

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


                                       7
<PAGE>


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

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

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

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

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

Ergonomic Advisory Board
------------------------

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

The EAB focuses on strategic issues, such as:

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

                                       8
<PAGE>

o    What other ergonomics issues should Magnitude consider?



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

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

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

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

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

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

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

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


Business Strategy
-----------------

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

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

     Since that time,  the product  has been  installed  by a growing  number of
corporate  and  institutional  clients.  Typically,  in view of the  new-ness of
product  and  market,  such  client  initially  purchases a license for a "pilot
version" of the software,  functionally complete but limited to a smaller number
of users.  After  undergoing a process of  familiarization  and  evaluation  the
client is expected to upgrade to the intended ultimate number of users which, by
definition, should encompass all personnel exposed to the above described risks.
Many tests and  evaluations  by third  parties have  confirmed to the  Company's
satisfaction  that its product is mature,  stable,  and effective.  It is with a
high  degree of  confidence,  therefore,  that the Company  expects  many of the
ongoing trial installations to lead to larger


                                       9
<PAGE>

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.

     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 in October 1998 by
Version  2.12.,  in April 1999 by Version 3.05, and in July 2000 by Version 4.0.
The Company is currently shipping Version 5.0 which was released in July 2001.

     The Company has expensed  all  expenditures  related to the above  efforts.
Such expenses  totaled  approximately  $183,000 for the year ended  December 31,
2002, and $139,000 for the year ended December 31, 2001.

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, 2002, the Company employed 12 persons, of whom four were
primarily  engaged in research and development and software support  activities,
four  were  primarily  engaged  in sales  and  marketing,  and  four in  general
administrative  and  managerial   functions.   The  Company  has  no  collective
bargaining agreements with its employees.


ITEM 2: PROPERTIES

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



ITEM 3: LEGAL PROCEEDINGS

     The Company is not a party in any legal proceedings.



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

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

                                       11
<PAGE>



                                     PART II

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

(a)  Market Information

     The Company's  common stock  currently  trades on the  Electronic  Bulletin
Board of the OTC market,  under the symbol MAGY. The following table sets forth,
for the calendar  quarters  indicated,  and for the last two years, the high and
low  quotations  of  the  Company's   common  stock.   The  quotations   reflect
inter-dealer prices,  without retail mark-up,  mark-down,  or commission and may
not represent actual transactions.

                                                  OTC-BB
                                                  ------
                                       High/Ask            Low/Bid
                                       --------            -------
2001
----
         First Quarter...............  $  1.16            $  0.38
         Second Quarter..............     0.62               0.27
         Third Quarter ..............     0.54               0.22
         Fourth Quarter .............     0.30               0.12

2002
----
         First Quarter...............  $  0.29            $  0.08
         Second Quarter..............     0.29               0.12
         Third Quarter ..............     0.23               0.09
         Fourth Quarter .............     0.17               0.10

(b)  Shareholders

     As of March 4, 2003,  there were  approximately  350 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, 2002, 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 $210,000.

Recent Issues of Unregistered Securities
----------------------------------------

     During the  fourth  quarter of 2002 the  Company  had issued the  following
unregistered securities:

     (i) 2,125,000 shares of common stock to seven foreign 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 $191,250 in cash;

     (ii)  262,500  shares of common  stock and 463,890  shares of common  stock
pursuant to the exercise of stock  options and  warrants,  respectively,  at the
price of $0.10 per share which resulted in the receipt by the Company of $26,250
in cash and the cancellation of $46,389 in current liabilities;

     (iii)  90,000  shares  of  common  stock to two  consultants  for  services
rendered.


                                       12
<PAGE>

     (iv)  16,441  shares  of  common  stock  issued  to an  employee  for sales
commissions.

     (v) During the quarter,  the issuance of 81,000 shares previously  recorded
in connection with the exercise of stock options, was reversed

     In addition,  during the fourth  quarter of 2002, the board of directors of
the Company approved  resolutions  affecting  previously  issued or to be issued
securities, as follows:

     (i) During a meeting on  October  8,  2002,  the board  approved a downward
adjustment of the exercise price of stock options for 262,500 shares, previously
issued to an outside director, to $0.10 per share, conditioned upon the exercise
of such restated options;

     (ii)  During a  meeting  on  December  23,  2002,  the board  approved  the
placement of common stock with accredited  private foreign investors pursuant to
private placement subscriptions under Section 4(2), Rule 506 of Regulation D and
Regulation  S of the  Securities  Act,  at a price of  $0.10  per  share  for an
aggregate of up to $3,000,000 in proceeds.


Amendment to Registration Statement on Form SB-2
------------------------------------------------

     On December 24, 2002, the Company filed a  Pre-Effective  Amendment No.3 to
its Form SB-2  registration  statement  previously filed with the Securities and
Exchange Commission in 2001. The Amendment was declared effective on January 16,
2003.  The  Company did not  receive  any  proceeds  from the sale of any of the
registered securities.

Registration of Securities under Section 12(g)
----------------------------------------------

     On December 27, 2002,  the Company filed with the  Securities  and Exchange
Commission a Form 8-A12g registration statement, registering its class of common
stock,  $0.0001  par value  per  share  under  Section  12(g) of the  Securities
Exchange Act of 1934.


                                       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,
2001 and 2000 is derived from the financial statements of the Company and should
be read in conjunction with the financial statements and notes thereto.

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

SELECTED FINANCIAL DATA

Balance Sheet                                                       December 31,
                                                                        2002
                                                                    -----------
Total assets .........................................              $   927,832
Current liabilities ..................................                1,064,750
Long-term debt .......................................                  200,000
Working capital ......................................                 (964,689)
Shareholders' equity .................................              $  (336,918)


Statement of Operations                          For the Year Ended December 31,
                                                 ------------------------------
                                                     2002              2001
                                                 ------------      ------------
Total revenues .............................     $    369,443      $    374,839
Operating income (loss) ....................       (2,847,990)       (3,316,082)
Net (loss) .................................       (2,642,673)       (3,274,470)
Net (loss) after dividends
On Preferred Shares ........................       (2,763,104)       (3,463,823)

Net loss per common share ..................     $      (0.06)     $      (0.16)
Number of shares used in computing
per share data .............................       44,509,412        21,466,050


                                       14
<PAGE>


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

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

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

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

Results of Operations for the Year Ended December 31, 2002
----------------------------------------------------------

     Fiscal Year 2002 was another  challenging year for the Company. A continued
shortage of cash - the result of slower than  expected  revenue  growth  coupled
with an inability to attract  sufficiently  large amounts of new working capital
on terms  acceptable  to the  Company -  hampered  efforts to  implement  a more
wide-ranging marketing program that would introduce the Company and its products
- as the best  and  most  cost  effective  solution  to the  vexing  problem  of
repetitive  stress  injuries  afflicting  a growing  percentage  of  people,  in
business,  government,  and  private  life - to the  general  public.  While the
Company has  succeeded  in several  instances  to attract the  attention of well
known  large  corporate  clients,  the  frequency  and  current  volume  of such
transactions has been  insufficient to support  operations at large.  During the
year, much of management's  time and efforts were dedicated to raising  capital.
It has  become  increasingly  important  that  the  Company  conclude  a  larger
financial  transaction that would supply the necessary  capital to support a new
marketing programs and free available  management  resources towards the task of
growing the business.

     For the year ended December 31, 2002, the Company had revenues of $369,443,
slightly  less than the $374,839  achieved in 2001. A major  portion of the 2002
revenues was attributable to one account,  which accounted for approximately 63%
of total sales.

     Gross profits  amounted to $207,573 for a 56% gross  margin.  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 in the vicinity of only 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 $3,055,563 which decreased by 13% from the $3,531,655
recorded in 2001, the Company realized an operating loss of $2,847,990, compared
to an operating  loss of $3,316,082 in 2001.  Non-operating  income and expenses
included $48,946 net interest expense, $27,740 charges for losses on assets, and
$75,719 in  non-recurring  income  consisting  of  extraordinary  gains from the
dissolution of certain prior year  accruals.  The Company also realized a credit
of approximately  $210,000 from the sale of net loss  carry-forward  tax credits
pursuant  to  New  Jersey  Emerging   Technology  and  Biotechnology   Financial
Assistance  Act.  The  year  concluded  with a net  loss  of  $2,642,673.  After
accounting for dividend  accruals on outstanding  preferred  stock which totaled
$120,431, the net loss applicable to common shareholders was $2,763,104 or $0.06
per share,  compared to a loss of $3,463,823 or $0.16 per share for the previous
year.


                                       15
<PAGE>

     The  decrease  in  operating  expenses  is  primarily  the result of lesser
expenditures  for certain  marketing  programs and of efforts to curtail general
and  administrative  expenses  across the  board.  Certain  expense  categories,
however,  experienced increases,  primarily legal and other expenses relating to
investor  relations and other  expenditures  associated with financing and other
corporate  undertakings.  Management  is  committed  to review  the merit of all
activities  with  respect to  cost/benefit  relations  on an on-going  basis and
exercise due  diligence in day-to-day  operations  with the goal of reducing all
non-critical expenditures.

Liquidity and Capital Resources
-------------------------------

     As explained in more detail  below,  during 2002  management  continued its
efforts  to  find  new  equity  capital  for  financing  the  Company's  ongoing
operations.  Such efforts  were  successful  in  attracting  approximately  $2.3
million  in new  equity  funding  in the  form of  cash,  as well as  converting
approximately $200,000 debt into equity.

     At December 31, 2002, the deficit in working  capital  amounted to $964,689
as compared to $1,313,099 at December 31, 2001.  Stockholders'  equity showed an
impairment  of $336,918 at the end of the year,  compared  to an  impairment  of
$441,629 at the beginning of the year.  The negative  cash flow from  operations
totaled approximately $2.1 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 to accredited  private  investors in the
U.S. 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.  The Company had
filed an amended  registration  statement on Form SB-2 which  covered the common
shares  directly  issued as well as the common shares  underlying the previously
issued  convertible  preferred stock and warrants,  in connection with these and
prior financing transactions.  The registration statement was declared effective
by the Securities and Exchange  Commission on January 16, 2003. During the first
three months of 2003 and up to the time of this  submission,  more recent equity
financing  transactions  have  generated  approximately  $430,000  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, 2002 its  short-term  liabilities,  aside from trade  payables and accruals,
consisted of certain notes and loans aggregating approximately $233,000 of which
$75,000 was owed to the chairman and chief  executive  officer of the Company in
form of demand notes (see "Related  Party  Transactions").  All of the long-term
debt of  approximately  $200,000  was  likewise  owed to the  chairman and chief
executive officer and evidences by a promissory note maturing in July 2004.

     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  substantial
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.


Outlook
-------

In the absence of sufficient  capital funding  management could not maintain any
meaningful marketing programs.  Giving much wider exposure to the general public
of the nature and risks  associated with  repetitive  stress  injuries,  and the
important  role that the  Company  and its  software  products  can play in this
environment by providing costs effective  remedial solutions for these problems,
is an expensive but necessary undertaking.  Until larger financial resources can
be made  available all sales and marketing  efforts must therefore be limited to
one-on-one direct sales efforts with a limited number of prospects. In doing so,
management  will try to capitalize on certain  visible success stories with well
known  larger  companies  that have  purchased  and  successfully  utilized  the
Company's products. This is a slow process that is expected to yield substantial
cash flows only during the third and fourth  quarters in 2004.


                                       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 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.


                                       17
<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

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  43 -  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.

     Joerg H. Klaube , Age 61 - 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.



                                       18
<PAGE>

     Steven W. Jagels, Age 43 - 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 56 - Director.  Mr. Tomasek was appointed a director
in February  2000. He has been engaged in the private  practice of corporate and
securities  law in his own law  firm for the last ten  years.  Mr.  Tomasek  was
appointed  to serve as general  counsel for the Company in 1999.  In addition to
his work with the Company,  Mr. Tomasek  represents several other clients in the
United States and Europe in corporate finance matters.

     Steven L. Gray,  Age 54 -  Director.  Mr.  Gray was elected to serve on the
Board on May 18, 2000. He is a resident of Venice,  Florida.  For the past 3-1/2
years,  Mr. Gray has served as the President  and is a shareholder  of a private
Florida corporation engaged in the retail distribution of nutritional  products.
This corporation has a customer base in nine countries.  Prior to that time, Mr.
Gray ran his own real estate development company, specializing in the design and
construction of multi-family housing.

     Ivano Angelastri, Age 40 - Director. Mr. Angelastri was elected to serve on
the  Board  on May 18,  2000.  He is a  resident  of  Zurich,  Switzerland.  Mr.
Angelastri  has been active in  portfolio  management  services  for many years.
Since January 24, 2001 he is the Managing Director of T&T  Vermoegensverwaltungs
AG,  Zurich whose main  business is portfolio  management.  Prior to his current
position,  Mr. Angelastri served as Managing Director of Megan Services where he
also performed financial advisory and portfolio management services.

Other Employees
---------------
Mark A. Fuller, SVP Business Development       Feb. 15, 2002, until Dec. 8, 2002

Subsequent Event
----------------
On January 1, 2003,  Mark  Chroscielewski  joined the Company in the capacity of
Senior Vice President Business Development, in charge of Sales and Marketing.

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

     The  Company  knows of no person,  who at any time  during the period  from
January  16,  2003,  the date at which  compliance  with  Section  16)a)  became
applicable,  to the present, was a director,  officer,  beneficial owner of more
than ten percent of any class of equity  securities of the Company (a "Reporting
Person"),  that  failed to file on a timely  basis any  reports  required  to be
furnished  pursuant  to Section  16(a).  Based upon a review of Forms 3, 4 and 5
furnished to the Company under Rule 16(a)-3(d) the Company knows of no Reporting
Person that failed to file the required reports within the required time limits.


                                       19
<PAGE>


ITEM 11: EXECUTIVE COMPENSATION

     The  following  table  sets  forth  the  cash  compensation  and  executive
capacities for the fiscal years ended December 31, 2002,  December 31, 2001, and
December  31,  2000,  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>
Steven D. Rudnik             2002      133,333(6)             -              12,560          42,000             -          1,650
Chief Executive Officer,     2001         130,171             -              10,800               -             -          3,250
President                    2000         122,185             -               8,100               -             -          3,250
---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------
Joerg H. Klaube              2002         125,000             -               9,087          42,000             -          1,710
Sr. Vice President,          2001         122,375             -               9,000               -             -          1,710
CFO                          2000         116,923             -               2,250               -             -          1,710
---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------
Steven W. Jagels             2002         108,333             -               9,000               -             -              -
Sr. Vice President           2001         100,000             -               9,000               -             -              -
Information Systems          2000          95,000             -               2,250               -             -              -
---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------

---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------
All executive officers
As a group (3 persons)       2002         366,666             -              30,647
---------------------------- ------- ------------- ------------- ------------------- --------------- ------------- --------------
</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 taxes paid.
(3)  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 at the time of the
     award  quoted.  The  number  and value of the  aggregate  restricted  stock
     holdings  at  the  end  of  fiscal  year  2002  (using   market  prices  of
     unrestricted stock at the end of the fiscal year) are as follows: S.Rudnik:
     1,477,778  shares -  $236,444;  J.Klaube:  300,000  shares -  $48,000.  The
     valuation of stock awards and  end-of-year  holdings is in conformity  with
     guidelines set forth for SEC Regulation S-B Item 402  (b)(2)(iv).  All such
     shares are fully  vested.  The Company  does not  currently  foresee to pay
     dividends on any of these shares.
(4)  See table for "Stock Options" below.
(5)  Consists of premiums for personal life insurance.
(6)  During  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 2002 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:


<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>
S. Jagels                    250,000                        38.2%               0.1325           2/18/07
S. Jagels                     20,000                     incl. in above           0.10           7/15/02
J. Klaube                    250,000                         35.4%              0.1325           2/18/07
</TABLE>


                                       20
<PAGE>

     The  following  table  sets  forth  aggregated  stock  option  and  warrant
exercises  during 2002 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>
S. Jagels                   20,000                      800                       --                     --
S. Gray                    262,500 (1)               10,500                  824,275                      0
I. Angelastri              400,000 (1)               23,120                  512,500                      0
</TABLE>

__________________
(1) The board of directors  of the Company  approved a reduction in the exercise
prices for these options and warrants, from $1.00 (for 550,000 shares) and $0.75
(for 112,500 shares) to $0.10 per share,  contingent upon the immediate exercise
of such options or warrants.  In conformity  with SEC  Regulation  S-B Items 402
(b)(2)(iv)  and 402 (d) (2) the  realized  value figure is based upon the market
price of  unrestricted  shares at the time of  exercise  although  the shares so
issued carried a restrictive legend.

1997 Stock Option Plan:
-----------------------

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

2000 Stock Incentive Plan:
--------------------------

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

Compensation of Directors:
--------------------------

     The Company  currently pays no outside  directors' fees.  Outside directors
are awarded  stock  options for 40,000  shares each upon  commencement  of their
office. In addition, the three incumbent outside directors have been granted, in
2002,  restricted stock awards for services rendered,  as follows: I. Angelastri
500,000 shares, S. Gray 600,000 shares, J. Tomasek 500,000 shares.

     During  2002,  one  outside  director of the Company who also serves as the
Company's  general and securities  counsel,  was paid an aggregate  $145,893 for
legal services.

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.

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.


                                       21
<PAGE>


     In light of this expanded mandate, the Audit Committee, with the assistance
of legal  counsel,  engaged  in an  in-depth  study  to  examine  the  Company's
corporate governance policies and procedures, with the goal of strengthening the
Company's  commitment  to  good  governance   practices.   While  the  Committee
recognized that rules were still being established under the  Sarbanes-Oxley Act
of 2002 and that the  Electronic  Bulletin  Board had not yet  adopted  rules to
enhance its  governance  standards,  the Committee felt it was important to take
action at this time as a means of expressing  the  Company's  commitment in this
area.

     At the  conclusion of this study,  the Board of Directors  adopted a set of
Corporate  Governance  Guidelines,  which  incorporate  many  of  the  Company's
pre-existing  policies and  practices as well as  enhancements  derived from the
Committee's  current  review.  In addition,  the Board of Directors  amended the
charter of the Audit Committee to reflect its enhanced responsibilities.  A copy
of the  Corporate  Code of Ethics and Conduct is set forth as an exhibit to this
Form 10-KSB.


                                       22
<PAGE>



ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets  forth,  as of March 1,  2003,  the  record and
beneficial  ownership of common stock of the Company by each  executive  officer
and director,  all executive  officers and directors as a group, and each person
known to the Company to own beneficially,  or of record, five percent or more of
the outstanding shares of the Company:


<TABLE>
<CAPTION>
Title             Name and Address of                 Amount and Nature of              Percent
of Class )*       Beneficial Owner                    Beneficial Ownership (1)          of Class
-----------       ----------------                    ------------------------          --------
<S>               <C>                                 <C>                               <C>
Common            Ivano Angelastri                    1,712,500 (2)                      2.79%
Stock             Steven L. Gray                      2,700,104 (3)                      4.38%
                  Steven W. Jagels                      622,083 (4)                      1.01%
                  Joerg H. Klaube                       860,517 (5)                      1.40%
                  Steven D. Rudnik                   9, 374,595 (6)                     13.84%
                  Joseph J. Tomasek                     762,500 (7)                      1.25%

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

                  All Directors and Executive Officers   16,032,299                     22.74%
                  as a Group (6 persons)
</TABLE>


)* The  Company  also has issued and  outstanding  as of March 1, 2003,  195,968
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 1,  2003.  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.
(3)  Includes options to acquire 400,275 shares and warrants for 424,000 shares.
(4)  Includes options to acquire 602,083 shares.
(5)  Includes options to acquire 560,417 shares.
(6)  Includes  options to acquire  4,147,917  shares and  conversion  rights for
     2,748,900 shares.
(7)  Includes options to acquire 262,500 shares.


                                       23
<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  February  2003,  the  maturity of $ 200,000 of the
remaining open balance was extended to July, 2004.

     In February 2002, the Company and its President and Chief Executive Officer
agreed to issue 1,100,000  restricted shares of common stock bearing  piggy-back
registration  rights, in lieu of $110,000 cash remuneration  representing salary
payments due to that individual for the time February through December 2002.

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

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

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

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

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

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

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

     During 2002 and 2001,  one outside  director of the Company who also serves
as the Company's general and securities counsel,  was paid an aggregate $145,893
and $108,600, respectively, for legal services.

     In January 2003, the Company and its President and Chief Executive  Officer
agreed to issue 1,000,000  restricted shares of common stock bearing  piggy-back
registration  rights,  in lieu of  $100,000  cash  remuneration  representing  a
portion of salary payments due to be paid during 2003.


                                       24
<PAGE>


ITEM 14: CONTROLS AND PROCEDURES


Evaluation of disclosure controls and procedures:

Based on their evaluation as of a date within 90 days of the filing date of this
report,  our principal  executive  officer and principal  financial officer have
concluded  that  Magnitude   Information   Systems,   Inc.'s  ("the  Company's")
disclosure  controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities  Exchange Act of 1934, as amended (the "Exchange Act")) are
sufficiently  effective to ensure that the information  required to be disclosed
by the Company in the reports  that we file under the  Exchange Act is gathered,
analyzed and disclosed with adequate timeliness, accuracy and completeness.

Changes in internal controls:

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

Limitations  on the effectiveness of controls:

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


                                       25
<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

     On December 24, 2002, the Company filed a report on Form 8-K informing that
it had restated certain financial  information contained in its previous reports
on Forms  10-QSB  and  10-KSB  covering  fiscal  year 2001 and the  first  three
quarters in fiscal year 2002.


                                       26
<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 27, 2003
           -------------------------------------------
           Steven D. Rudnik
           President and Chief Executive Officer
                    (Principal Executive Officer),
           Chairman of the Board


  By:      /s/ Joerg H. Klaube                         Date:    March 27, 2003
           -------------------------------------------
           Joerg H. Klaube
           Secretary, Chief Financial Officer
           (Principal Financial Officer)


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


         Name                                         Date
         ----                                         ----

         /s/ Ivano Angelastri                         March 27, 2003
         ----------------------------------
         Ivano Angelastri, Director


         /s/ Steven L. Gray                           March 27, 2003
         ----------------------------------
         Steven L. Gray, Director


         /s/ Joseph J. Tomasek                        March 27, 2003
         ----------------------------------
         Joseph J. Tomasek, Director


                                       27
<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.

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

(99.2)    Corporate Code of Ethics and Conduct


OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE

(a)       The Company's  Quarterly  Reports on Form 10-QSB for the periods ended
          March 31, 2002, June 30, 2002, and September 30, 2002.

(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, 2001



                                       28
<PAGE>




              Magnitude Information Systems, Inc. and Subsidiaries

                        Consolidated Financial Statements

                                December 31, 2002






                                       29
<PAGE>



              Magnitude Information Systems, Inc. and Subsidiaries
                 Index to the Consolidated Financial Statements
                                December 31, 2002





<TABLE>
<CAPTION>
                                                                                                       Page

<S>                                                                                                       <C>
Independent Auditors' Report.....................................................................         1

Financial Statements

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

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

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

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

     Notes to the Consolidated Financial Statements..............................................       8-21
</TABLE>




<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, 2002 and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years ended December 31, 2002 and 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Magnitude
Information Systems, Inc. and Subsidiaries as of December 31, 2001 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2001 and 2000, in conformity with accounting principles
generally accepted in the United States of America.

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


/s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
March 27, 2003,


                                       1
<PAGE>




              Magnitude Information Systems, Inc. and Subsidiaries
                           Consolidated Balance Sheet
                                December 31, 2002


<TABLE>
<CAPTION>
              Assets
Current Assets
<S>                                                                                                <C>
        Cash                                                                                       $      9,976
        Accounts receivable, net of allowance for doubtful accounts of $463                              45,793
        Inventory                                                                                        26,947
        Miscellaneous receivables                                                                         3,729
        Prepaid expenses                                                                                 13,616
                                                                                                   ------------
              Total Current Assets                                                                      100,061
Property, plant and equipment, net of accumulated depreciation of $245,118                               26,116
Software, net of accumulated amortization of $729,419                                                   777,871
Deposits                                                                                                 23,784
                                                                                                   ------------
              Total Assets                                                                              927,832
                                                                                                   ============
              Liabilities and Stockholders' Equity (Impairment)
Current Liabilities
        Accounts payable and accrued expenses                                                           545,974
        Deferred revenues                                                                                15,245
        Deferred rental obligation                                                                        6,195
        Dividends payable                                                                               249,331
        Loans payable                                                                                   100,000
        Notes payable                                                                                    25,000
        Deposits                                                                                         14,075
        Current maturities of long-term debt                                                            108,419
        Current maturities of capitalized lease obligations                                                 511
                                                                                                   ------------
              Total Current Liabilities                                                               1,064,750
Long term debt, less current portion                                                                    200,000
                                                                                                   ------------
              Total Liabilities                                                                       1,264,750

Commitments and Contingencies                                                                                --

Stockholders' Equity (Impairment)
         Preferred Stock, $.001 par value, non-voting, 3,000,000 shares authorized; 195,968
             shares issued and outstanding                                                                  196
         Common stock, $.0001 par value, 100,000,000 shares authorized; 56,395,817 shares issued
             and outstanding                                                                              5,640
         Stock subscriptions receivable                                                                  (3,297)
         Additional paid in capital                                                                  20,902,010
         Accumulated deficit                                                                        (21,241,467)
                                                                                                   ------------
              Total Stockholders' Equity (Impairment)                                                  (336,918)
                                                                                                   ------------
              Total Liabilities and Stockholders' Equity (Impairment)                              $    927,832
                                                                                                   ============
</TABLE>


See notes to the consolidated financial statements.


                                       2
<PAGE>


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


<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                   -------------------------------
                                                        2002               2001
                                                   ------------       ------------
Net Sales
<S>                                                <C>                <C>
     Hardware Products                             $         --       $         --
     Software                                           369,443            374,839
                                                   ------------       ------------
         Total Net Sales                                369,443            374,839
                                                   ------------       ------------
Cost of Good Sold
     Hardware Products                                      603                521
     Software                                           161,267            158,745
                                                   ------------       ------------
         Total Cost of Goods Sold                       161,870            159,266
                                                   ------------       ------------
Gross Profit                                            207,573            215,573
                                                   ------------       ------------
Research and development costs                           64,847             13,561
Selling, general and administrative expenses          2,990,716          3,518,094
                                                   ------------       ------------
Loss From Operations                                 (2,847,990)        (3,316,082)
                                                   ------------       ------------

Other Income (Expense)
     Miscellaneous income                                75,719             28,923
     Interest income                                      2,820                103
     Interest expense                                   (48,946)           (80,875)
     Loss on disposition of assets                      (27,740)                --
                                                   ------------       ------------
         Total Other Income (Expense)                     1,853            (51,849)
                                                   ------------       ------------
Loss Before Provision for Income Taxes               (2,846,137)        (3,367,931)

Benefit from Income Taxes                               203,464             93,461
                                                   ------------       ------------
Net Loss                                           $ (2,642,673)      $ (3,274,470)

Dividends on Preferred Shares                      $   (120,431)      $   (189,353)
                                                   ------------       ------------
Net Loss Applicable to Common Shareholders         $ (2,763,104)      $ (3,463,823)
                                                   ============       ============
Net Loss Per Common Share                                 (0.06)             (0.16)
                                                   ============       ============
Weighted Average of Common Shares Outstanding        44,509,412         21,466,050
                                                   ============       ============
</TABLE>

See notes to the consolidated financial statements.



                                       3
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
            Consolidated Statement of Stockholders' Equity (Deficit)
                     Years Ended December 31, 2002 and 2001


<TABLE>
<CAPTION>


                                                           Convertible                    Cumulativ
                                                         Preferred Shares               Preferred Shares
                                                     ------------   ------------   ------------  -----------------
                                                        Amount          Shares       Amount            Shares
                                                     ------------   ------------   ------------  -----------------
<S>                                                       <C>       <C>                       <C>       <C>
   Balances, January 1, 2001                              524,337   $        524              1  $              --
   Issuance of convertible
   preferred stock pursuant to
   private equity placement                                16,112             16             --                 --
   Conversion of convertible
   preferred stock into common
   stock                                                 (325,592)          (325)            --                 --
   Issuance of common stock for
   accrued dividends                                           --             --             --                 --
   Issuance of common stock for
   accrued interest                                            --             --             --                 --
   Issuance of common stock
   pursuant to conversion of debt                              --             --             --                 --
   Issuance of common stock
   pursuant to exercise of options                             --             --             --                 --
   Issuance of common stock
   pursuant to exercise of
   warrants                                                    --             --             --                 --
   Issuance of common stock
   pursuant to private equity
   placements                                                  --             --             --                 --
   Issuance of common stock
   granted for private placement
   finders' fees                                               --             --             --                 --
   Issuance of common stock
   pursuant to conversion of
   accounts payable                                            --             --             --                 --
   Issuance of common stock for
   services performed                                          --             --             --                 --

   Net loss, year ended December
   31, 2001                                                    --             --             --                 --
   Dividends on convertible
   preferred stock                                             --             --             --                 --
                                                     ------------   ------------   ------------  -----------------
         Balances, December 31, 2001                      214,857   $        215              1  $              --
                                                     ============   ============   ============  =================

<CAPTION>
                                                                                                                Total
                                                                              Additional                    Stockholders'
                                                                                Paid in     Accumulated        Equity
                                                        Common Stock            Capital        Deficit       (Deficit)
                                                  ------------  ------------  ------------   ------------   ------------
                                                    Amount
                                                  ------------  ------------  ------------   ------------   ------------
<S>                                               <C>           <C>           <C>            <C>
   Balances, January 1, 2001                         16,525,240 $      1,652  $ 15,881,897  $(15,014,540)   $    869,533
   Issuance of convertible
   preferred stock pursuant to
   private equity placement                                 --            --       144,988             --        145,004
   Conversion of convertible
   preferred stock into common
   stock                                             3,255,920           325            --             --             --
   Issuance of common stock for
   accrued dividends                                    74,930             8        37,457             --         37,465
   Issuance of common stock for
   accrued interest                                     17,736             2         8,866             --          8,868
   Issuance of common stock
   pursuant to conversion of debt                       85,333             9        39,991             --         40,000
   Issuance of common stock
   pursuant to exercise of options                     200,000            20        49,980             --         50,000
   Issuance of common stock
   pursuant to exercise of
   warrants                                          1,517,500           152       330,282             --        330,434
   Issuance of common stock
   pursuant to private equity
   placements                                        3,662,611           366     1,429,024             --      1,429,390
   Issuance of common stock
   granted for private placement
   finders' fees                                        52,230             5            (5)            --             --
   Issuance of common stock
   pursuant to conversion of
   accounts payable                                    226,817            23        78,769             --         78,792
   Issuance of common stock for
   services performed                                   93,086             9        32,699             --         32,708

   Net loss, year ended December
   31, 2001                                                 --            --            --     (3,274,470)    (3,274,470)
   Dividends on convertible
   preferred stock                                          --            --            --       (189,353)      (189,353)
                                                  ------------  ------------  ------------   ------------   ------------
         Balances, December 31, 2001                25,711,403  $      2,571  $ 18,033,948  $(18,478,363)   $   (441,629)
                                                  ============  ============  ============   ============   ============
</TABLE>


See notes to the consolidated financial statemen


                                       4
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
            Consolidated Statement of Stockholders' Equity (Deficit)
                     Years Ended December 31, 2002 and 2001


<TABLE>
<CAPTION>


                                                 Convertible             Cumulative
                                               Preferred Shares       Preferred Shares           Common Stock
                                             ---------------------  ---------------------  -------------------------
                                              Shares      Amount    Shares     Amount        Shares        Amount
                                            -----------  ---------  --------  ----------  -------------  -----------
<S>                                            <C>     <C>                <C>               <C>        <C>
         Balances, January 1, 2002             214,857 $      215         1 $         -     25,711,403 $      2,571
   Conversion of convertible
   preferred stock into common
   stock                                      (18,889)       (19)         -           -        188,890           19
   Issuance of common stock for
   accrued dividends                                 -          -         -           -        353,854           36
   Issuance of common stock for
   stock awards                                      -          -         -           -      2,200,000          220
   Issuance of options for outside
   services                                          -          -         -           -              -            -
   Issuance of common stock
   pursuant to exercise of options                   -          -         -           -        262,500           26
   Issuance of common stock
   pursuant to exercise of warrants                  -          -         -           -      4,432,308          443
   Issuance of common stock
   pursuant to private equity
   placements                                        -          -         -           -     19,651,500        1,965
   Issuance of common stock
   granted for private placement
   finders' fees                                     -          -         -           -        226,000           23
   Issuance of common stock
   pursuant to conversion of
   accounts payable                                  -          -         -           -        525,738           53
   Issuance of common stock for
   services performed                                -          -         -           -      1,532,183          153
   Issuance of common stock for
   compensation                                      -          -         -           -      1,311,441          131

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

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

                                               -----------   -----------   -------------  -------------
<S>                                          <C>           <C>           <C>            <C>
         Balances, January 1, 2002           $          -  $ 18,033,948  $ (18,478,363) $    (441,629)
   Conversion of convertible
   preferred stock into common
   stock                                                -             -               -              -
   Issuance of common stock for
   accrued dividends                                    -        35,350               -         35,386
   Issuance of common stock for
   stock awards                                         -       136,380               -        136,600
   Issuance of options for outside
   services                                             -        56,771               -         56,771
   Issuance of common stock
   pursuant to exercise of options                      -        25,974               -         26,000
   Issuance of common stock
   pursuant to exercise of warrants                     -       438,565               -        439,008
   Issuance of common stock
   pursuant to private equity
   placements                                     (3,297)     1,857,065               -      1,855,733
   Issuance of common stock
   granted for private placement
   finders' fees                                        -         6,027               -          6,050
   Issuance of common stock
   pursuant to conversion of
   accounts payable                                     -        52,521               -         52,574
   Issuance of common stock for
   services performed                                   -       133,255               -        133,408
   Issuance of common stock for
   compensation                                         -       126,154               -        126,285

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


See notes to the consolidated financial statements.


                                       5
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                           -----------------------------
                                                                              2002              2001
                                                                           -----------       -----------
Cash Flows From Operating Activities
<S>                                                                        <C>               <C>
     Net Loss                                                              $(2,642,673)      $(3,274,470)
     Adjustments to Reconcile Net Loss to Net Cash Used by Operations
         Depreciation and amortization                                         205,373           203,848
         Common stock/options issued for various expenses                      454,896            32,708
         Loss on disposition of assets                                           2,741                --
         Bad debt provision (recovery)                                          20,029           (35,821)
         Forgiveness of debt                                                    75,719           (28,923)
     Decreases (Increases) in Assets
         Accounts receivable                                                   233,578           120,624
         Miscellaneous receivables                                               4,471            10,795
         Inventories                                                           (26,947)               --
         Deferred tax asset                                                         --           122,044
         Prepaid expenses                                                       31,155           315,764
         Other assets                                                           (1,955)            2,600
     Increases (Decreases) in Liabilities
         Accounts payable and accrued expenses                                (209,446)          331,856
         Deferred revenue                                                     (220,675)          207,522
         Deferred rental obligation                                              1,050             5,145
         Deposits payable                                                       14,075                --
                                                                           -----------       -----------

             Net Cash Used by Operating Activities                          (2,058,609)       (1,986,308)
                                                                           -----------       -----------
Cash Flows From Investing Activities
     Purchases of equipment, fixtures, and software                            (13,195)             (945)
     Collections of loans                                                       14,469                --
                                                                           -----------       -----------
         Net Cash Provided  (Used) by Investing Activities                       1,274              (945)
                                                                           -----------       -----------
Cash Flows From Financing Activities

     Repayment of note payable                                                (100,000)          (40,000)
     Repayment of capital lease obligations                                     (7,956)           (5,091)
     Proceeds from loans payable                                                25,000           107,500

     Repayment of loans payable                                               (142,500)               --
     Proceeds from officer loans                                                 8,231
     Dividends paid                                                                 --           (14,003)

     Proceeds from issuance of common and preferred stock                    2,277,538         1,908,144
                                                                           -----------       -----------
         Net Cash Provided by Financing Activities                           1,964,781
                                                                                               2,052,082
                                                                           -----------       -----------
Net decrease in Cash                                                            (5,253)          (22,472)
Cash at beginning of period                                                     15,229            37,701
                                                                           -----------       -----------
Cash at end of period                                                      $     9,976       $    15,229
                                                                           ===========       ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
   Interest Paid                                                           $    35,418       $    26,836
                                                                           ===========       ===========
   Taxes Paid                                                              $     1,080       $     5,521
                                                                           ===========       ===========
</TABLE>

See notes to the consolidated financial statements.


                                       6
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                 Year Ended December 31,
                                                                                                 -----------------------
                                                                                                   2002          2001
                                                                                                   ----          ----
<S>                                                                                              <C>            <C>
Schedule of non-cash investing and financing activities

     In connection with consideration for current goods/services, 5,026,124  common shares
     were issued                                                                                 $398,125
                                                                                                 ========
     In connection with consideration for past services, 526,849 common  shares were issued      $ 52,685
                                                                                                 ========
     In exchange for accrued dividends on preferred stock, 353,854 common shares
     were issued                                                                                 $ 35,385
                                                                                                 ========
     In connection with the retirement of accrued dividends on preferred shares,
     notes and accounts payable, 463,890 common shares were issued                               $ 46,389
                                                                                                 ========
     In connection with consideration of current services, stock options for 1,079,500
     shares were issued                                                                          $ 56,771
                                                                                                 ========
     In exchange for prepaid rent, 78,000 common shares were issued                              $  4,218
                                                                                                 ========
     In exchange for accrued dividends on preferred stock, 74,930 common
     shares were issued                                                                                          $ 37,465
                                                                                                                 ========
     In exchange for accrued interest in a promissory note, 17,736 common
     shares were issued                                                                                          $  8,868
                                                                                                                 ========
     In connection with the retirement of a portion of a promissory note,
     85,333 common shares were issued                                                                            $ 40,000
                                                                                                                 ========
     In connection with the exercise of warrants against accrued dividends on
     preferred shares, 250,000 common shares were issued                                                         $ 46,684
                                                                                                                 ========
     In connection with the issuance of common stock, 226,817 common
     shares were issued as consideration for past services                                                       $ 78,792
                                                                                                                 ========
     In connection with the issuance of common stock, 93,086 shares were issued
     as consideration for current year services                                                                  $ 32,708
                                                                                                                 ========
</TABLE>


See notes to the consolidated financial statements.

                                       7
<PAGE>

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Nature of Organization

     Magnitude Information Systems, Inc. (the "Company") was incorporated as a
     Delaware corporation on April 19, 1988 under the name Fortunistics Inc. On
     November 18, 1998, the Company changed its name to Magnitude Information
     Systems, Inc.

     The Company and Magnitude, Inc. are as two separate legal entities whereby
     Magnitude, Inc. operates as a subsidiary of the Company. However, the
     operations of the combined entity are currently comprised solely of the
     operations of Magnitude, Inc. The 1% of Magnitude, Inc. not owned by the
     Company constitutes a minority interest which is valued at $0.

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

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

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

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

   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.

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


                                       8
<PAGE>

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

   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 $6,065 and $166,767 for the years ended December 31, 2002 and
     2001, respectively.

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

   Securities Issued for Services
     The Company accounts for stock, stock options and stock warrants issued for
     services and compensation by employees under the intrinsic value method.
     For non-employees, the fair market value of the Company's stock on the date
     of stock issuance or option grant is used. 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 be accounted for based on the fair value of the services
     rendered or the fair value of the equity instruments issued, whichever is
     more reliably measurable. As permitted by the statement, the Company has
     elected to continue to follow the requirements of Accounting Principles
     Board Opinion No. 25, "Accounting for Stock Issued to Employees' for
     employees under the intrinsic value method. The adoption of SFAS No. 123
     does not have a material impact on the financial statements.

   Income Taxes
     The Company provides for income taxes based on enacted tax law and
     statutory tax rates at which items of income and expenses are expected to
     be settled in the Company's income tax return. Certain items of revenue and
     expense are reported for Federal income tax purposes in different periods
     than for financial reporting purposes, thereby resulting in deferred income
     taxes. Deferred taxes are also recognized for operating losses that are
     available to offset future taxable income. Valuation allowances are
     established when necessary to reduce deferred tax assets to the amount
     expected to be realized. The Company has incurred net operating losses for
     financial-reporting and tax-reporting purposes. Accordingly, for Federal
     and state income tax purposes, the benefit for income taxes has been offset
     entirely by a valuation allowance against the related federal and state
     deferred tax asset for the year ended December 31, 2002.

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

   Revenue Recognition
     The Company's revenue recognition policy for software sales is in
     accordance with Accounting Statement of Position 97-2. Revenue is
     recognized at the time of licensing provided that the resulting receivable
     is deemed probable of collection and is fixed or determinable. Revenue from
     software maintenance contracts is recognized ratably as



                                       9
<PAGE>


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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

     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 $2,642,673 and $3,274,470 during the years ended December 31, 2002 and
2001, respectively. The ability of the Company to continue as a going concern is
dependent on increasing sales and obtaining additional capital and financing.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. Management's plans are
to continue discussions with several potential investors to obtain additional
capital in order to alleviate the situation.

CONCENTRATIONS OF BUSINESS AND CREDIT RISK

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

The Company provides credit in the normal course of business to customers
located throughout the U.S. The Company performs ongoing credit evaluations of
its customers and maintains allowances for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical trends, and other
information.

<TABLE>
<CAPTION>
PROPERTY, PLANT AND EQUIPMENT
   Property, plant and equipment consist of the following at December 31, 2002:
<S>                                                                                  <C>
        Equipment                                                                    $149,934
        Furniture and fixtures                                                         75,530
        Leasehold improvements                                                         45,770
                                                                                     --------
                                                                                      271,234
        Less accumulated depreciation                                                 245,118
                                                                                     --------
                                                                                     $ 26,116
                                                                                     ========
</TABLE>


Depreciation expense charged to operations was $49,454 and $47,930 in 2002 and
2001, respectively.



                                       10
<PAGE>

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

<TABLE>
<CAPTION>
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
  Accounts payable and accrued expenses consisted of the following at December 31, 2002:
<S>                                                                                         <C>
    Accounts payable                                                                        $284,889
    Accrued interest                                                                          53,923
    Accrued commissions                                                                       29,132
    Accrued professional fees                                                                 83,118
    Accrued taxes                                                                                337
    Accrued payroll                                                                           91,635
    Miscellaneous accruals                                                                     2,940
                                                                                            --------
                                                                                            $545,974
                                                                                            ========
</TABLE>


<TABLE>
<CAPTION>
LOANS PAYABLE
<S>                                                                                                          <C>
    The Company and Magnitude, Inc. had borrowings under short term loan
    agreements with the following terms and conditions at December 31, 2002:

    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, 2002 and no demand
    for payment has been made.                                                                               $       75,000

    Note dated  December 31, 2002 due in full March 31, 2003 carrying  interest at the rate of 10% per
    annum  along  with a $1,000  origination  fee.  Note  carries  an option  to  convert  the  entire
    principal  balance into restricted  shares of the Company at $.10 per share.  This note is secured
    by the Company's accounts receivable.                                                                            25,000
                                                                                                             ---------------
         Total                                                                                               $      100,000
                                                                                                             ===============

NOTES PAYABLE

    At  December  31,  1999 the Company had  $1,475,000  of notes  outstanding  related to a June 1995
    private  placement  offering.  During  2000 the  holders of  $1,450,000  worth of notes  agreed to
    accept  partial  repayment of  approximately  30% of the note balances and converted the remaining
    balances into common shares or  convertible  preferred  shares.  The total amount of  nonconverted
    notes  outstanding  at December  31, 2002 is $25,000.  Attempts to locate the holder of this note,
    to settle this liability, have been unsuccessful.                                                        $       25,000
                                                                                                             ===============
</TABLE>


                                       11
<PAGE>


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

LONG-TERM DEBT

<TABLE>
<CAPTION>
     Long-term debt as of December 31, 2002 is comprised of the following:
<S>                                                                                                                <C>
     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 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
     $74,890  payable on demand,  and a portion  of  $200,000  due and  payable  on July 1, 2004.  The  obligation
     includes an option to the holder for  conversion of the  outstanding  principal  into shares of the Company's
     common stock at the rate of $0.10 per share.                                                                     $   274,890

     Discounted  present value of a non-interest  bearing $70,000  settlement with a former investor of Magnitude,
     Inc. to be paid in 24 equal  monthly  payments  commencing  July 1, 1997.  The imputed  interest rate used to
     discount the note is 8% per annum.  This obligation is in default.                                                    33,529
                                                                                                                    --------------
                                                                                                                          308,419
         Total
              Less current maturities                                                                                     108,419
                                                                                                                    --------------
              Long-term debt, net of current maturities                                                             $     200,000
                                                                                                                    ==============
</TABLE>



CAPITALIZED LEASE OBLIGATIONS

     The Company leases office equipment under non-cancelable capital lease
     agreements expiring in October 2002. The capital lease obligations have
     been recorded at the present value of future minimum lease payments,
     discounted at an interest rate of 7.00%. The capitalized cost of equipment
     at December 31, 2002 amounted to $2,198 net of accumulated depreciation of
     $24,178.

     The following is a schedule of minimum lease payments due under capital
     leases at December 31, 2002:

Year Ending December 31, 2003                                       $ 514
                                                                    -----
Total minimum capital lease payments                                  514
Less amounts representing interest                                     (3)
                                                                    -----
Present value of net minimum capital lease payments                   511
Less current maturities of capital lease obligations                 (511)
                                                                    -----
Obligations under capital leases, excluding current maturities      $  --
                                                                    =====

                                       12
<PAGE>



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

DEFERRED REVENUES

     Deferred revenues at December 31, 2002, amounted to $15,245 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, 2002 is $0 with a liquidation price of $100,000. As
     of December 31, 2002, there was $9,000 of cumulative preferred dividends in
     arrears representing $9,000 per cumulative preferred share.

     Series A of the Senior Convertible Preferred Stock series which was issued
     in 2000 has 300,000 shares designated, 29,300 shares issued and
     outstanding. The total outstanding Series A Senior Convertible Preferred
     Stock at December 31, 2002 is $29 with a liquidation price of $146,500. The
     following is a description of the Series A convertible preferred stock:

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

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


                                       13
<PAGE>


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

PREFERRED STOCK - (Continued)

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

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

          As of December 31, 2002 there were $22,219 Series A Senior Convertible
          Preferred share dividends accrued and unpaid representing $0.76 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, 2002 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, C
          and D 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.


                                       14
<PAGE>


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

PREFERRED STOCK - (Continued)

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

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

          As of December 31, 2002 there were no Series B Senior Convertible
          Preferred share dividends accrued and unpaid.

Series C of the Senior Convertible Preferred Stock series which was issued in
2000 has 120,000 shares designated, 100,000 shares issued and outstanding. The
total outstanding Series C Senior Convertible Preferred Stock at December 31,
2002 is $100 with a liquidation price of $900,000. The following is a
description of the Series C Senior Convertible Stock:

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

     (2)  The Series C Senior Preferred shall with respect to dividend rights
          and liquidation rights rank prior to all classes and series of Common
          Stock and the Cumulative Preferred Stock, and on a par with the Series
          A, 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, B
          and D 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 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, 2002 there were $126,000 Series C Senior
          Convertible Preferred share dividends accrued and unpaid representing
          $1.26 per share.

Series D of the Senior Convertible Preferred Stock series which was issued in
2000 has 500,000 shares designated, 66,668 shares issued and outstanding. The
total outstanding Series D Senior Convertible Preferred Stock at December 31,
2002 is $67 with a liquidation price of $600,012. 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.

     (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


                                       16
<PAGE>

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

PREFERRED STOCK - (Continued)

          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, 2002 there were $92,112 Series D Senior Convertible
     Preferred share dividends accrued and unpaid representing $1.38 per share.

          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,
                                        -------------------------
                                           2002            2001
                                        ---------       ---------
State current provision (benefit)       $(203,464)      $ (93,461)
State deferred provision (benefit)             --              --
                                        ---------       ---------
                                        $(203,464)      $ (93,461)
                                        =========       =========

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 2000 and 2001, 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 $210,598 in 2002 and $93,461 in 2001.

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

                                                   December 31,
                                          -----------------------------
                                                 2002              2001
                                          -----------       -----------
Total deferred tax asset, noncurrent      $ 6,700,000       $ 6,900,000
Less valuation allowance                   (6,700,000)       (6,900,000)
                                          -----------       -----------
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,
                            -----------------------------------
                                 2002                2001
                            ---------------     ---------------
Tax benefit                             40%                 40%
Valuation allowance                     40%                 40%
                            ---------------     ---------------
Effective tax rate                      --                   --
                            ===============     ===============


                                       17
<PAGE>



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

INCOME TAXES (continued)

     At December 31, 2002, the Company has available approximately $19,300,000
     of net operating losses to carryforward and which may be used to reduce
     future federal taxable income and expire between December 31, 2007 and
     2022.

     At December 31, 2002, the Company has available approximately $7,800,000 of
     net operating losses to carryforward and which may be used to reduce future
     state taxable income which expire December 31, 2009.

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 $14,715 and
     $22,711 for the years ended December 31, 2002 and 2001, 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.


                                       18
<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,
                                                                         -----------------------
                                                                             2002           2001
                                                                         --------       --------
<S>                                                                       <C>            <C>
Outstanding, beginning of year                                            857,000        913,000
Granted during the year                                                        --             --
Expired during the year                                                   (50,000)            --
Forfeited during the year                                                (200,000)       (56,000)
                                                                         --------       --------
Outstanding, end of year (at prices ranging from $1.00 to $2.00
per share)                                                                607,000        857,000
                                                                         --------       --------
Eligible, end of year for exercise (at prices ranging from $1.00 to
$2.00 per share)                                                          607,000        853,000
                                                                         ========       ========
</TABLE>


At December 31, 2002 and 2001, the weighted average exercise price and weighted
average remaining contractual life is $1.06 and $1.09 per share and 2 years 11
months and 3 years 5 months, respectively.

At December 31, 2002, there were 393,000 shares reserved for future option
grants.

<TABLE>
<CAPTION>
                                                                               Qualified and Non-Qualified
                                                                             Shares Under Option Pursuant to
                                                                                      the 2000 Plan
                                                                                       December 31,
                                                                                ---------------------------
                                                                                      2002             2001
                                                                                ----------       ----------
<S>                                                                              <C>                <C>
Outstanding, beginning of year                                                   2,701,109          648,000
Granted during the year                                                            785,500        2,153,109
Exercised during the year                                                         (303,500)              --
Forfeited during the year                                                          (79,167)        (100,000)
Expired during the year                                                            (50,000)              --
                                                                                ----------       ----------
Outstanding, end of year (at prices ranging from $0.13 to $1.33)                 3,053,942        2,701,109
                                                                                ----------       ----------
Eligible, end of year for exercise (at prices ranging from $0.50 to $1.33)       3,043,942        2,673,609
                                                                                ==========       ==========
</TABLE>


At December 31, 2002 and 2001 the weighted average exercise price and weighted
average remaining contractual life is $0.76 and $0.85 per share and 3 years 2
months and 3 years 10 months, respectively.

At December 31, 2002, there were 1,642,558 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, 2002 and 2001 would have increased by $37,772 and $1,196,720, respectively,
resulting in net loss of $2,680,445 and $4,471,190 net of tax, respectively, and
loss per share of $.06 and $.21, 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 and 8.1 in 2002 and 2001, respectively.

Total compensation cost recognized in the income statement for stock-based
employee compensation awards was $136,600 and $0 in 2002 and 2001, respectively.


                                       19
<PAGE>

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

WARRANTS

The Company granted common stock purchase warrants between May 1, 1998 and
November 26, 2001.

At December 31, 2002, there were 7,398,164 shares eligible for exercise at
prices ranging from $.50 to $5.00 per share, of which 824,000 eligible shares
are callable at $2.00 per share. All warrants vested upon issuance and expire
between March 15, 2003 and February 24, 2006.

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.

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

          Year Ending December 31,
                  2003                                         $     105,609
                  2004                                                84,615
                  2005                                                21,309
                                                               --------------
                  Total                                        $     211,533
                                                               ==============

     Included in general and administrative expenses is rent expense which
     amounted to $97,098 and $99,626 for the years ended December 31, 2002 and
     2001, 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

     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 with the remaining balance of $274,890 maturing
     July 1, 2002. Subsequently, 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 a rate of $0.10
     per share. The demand portion of this note was repaid in April 2002 and the
     maturity of the unpaid balance was changed to a portion of $74,890 payable
     on demand, and a portion of $200,000 due and payable on July 1, 2004.

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

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


                                       20
<PAGE>


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


RELATED PARTY TRANSACTION, (Continued)

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

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

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

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

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

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

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

     During 2002 and 2001, one outside director of the Company who also serves
     as the Company's general and securities counsel, was paid an aggregate
     $145,893 and $108,600, respectively, for legal services.

MAJOR CUSTOMERS

     The Company had one major customer for the year ended December 31, 2001,
     which comprised 45% of total sales, and one major customer for the year
     ended December 31, 2002 which comprised 63% of total sales. The Company's
     revenue profile consists of a larger number of small transactions
     interspersed with very few large contracts which, if they were not to
     materialize, would significantly alter period revenues. This
     unpredictability and volatility represents a risk.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     Cash, accounts receivable, accounts payable, accrued expenses, notes
     payable, long-term debt and capitalized lease obligations:

     The carrying amount approximates fair value because of the short term
     maturity of these instruments.

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



                                       21