SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-KSB/A





xANNUAL
      REPORT PURSUANT
      TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934




For
      the
      Fiscal Year ended December 31, 2006




OR





oTRANSITION
      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
              75-2228828State
                  or Other Jurisdiction of
              IRS
                  EmployerIncorporation
                  or Organization
              Identification
                  Number





1250
      State Route 28, Ste. 309, Branchburg, New Jersey 08876


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 RegisteredNONE
              NONE




Securities
      Registered pursuant to Section 12(g) of the Exchange Act:


Common
      Stock, par value $0.0001





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





Yes x No
      o





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. o





The
      Registrant’s revenues for the fiscal year ended December 31, 2006, were
      $47,701.





Common
      stock, par value $.0001 per share (“Common Stock”), was the only class of voting
      stock of the Registrant outstanding on March 20, 2007. Based on the closing
      price of the Common Stock on the OTC Electronic Bulletin Board as reported
      on
      March 20, 2007, ($0.05), the aggregate market value of the 164,898,074 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 20, 2007, was approximately $8,244,904.
      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 17, 2007 227,379,014 shares of Common Stock, $.0001 par value, were
      outstanding.





**EXPLANATORY
      NOTE**




**This
      Amendment No. 1 to the Annual Report on Form 10-KSB of Magnitude
      Information Systems, Inc. (the “Company”) amends the Company’s Annual Report on
      Form 10-KSB for the fiscal year ended December 31, 2006, originally filed
      with the Securities and Exchange Commission on April 2, 2007 (the “Original
      Filing”). The Company is filing this Amendment No. 1 for the purpose of
      amending and expanding its Item 8a. Controls and Procedures disclosures, filing
      a signed accountant’s report and corrected Certifications of Company officers.
      Except as described above, this Amendment No. 1 does not amend any other
      information set forth in the Original Filing, and the Company has not updated
      disclosures contained therein to reflect any events that occurred at a date
      subsequent to the date of the Original Filing.**




DOCUMENTS
      INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX











MAGNITUDE
      INFORMATION SYSTEMS, INC.





CONTENTS


PART
                  I.
              
              
              
              PageItem
                  1.
              
              Business
              3Item
                  2.
              
              Properties
              9Item
                  3.
              
              Legal
                  Proceedings
              9Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              9PART
                  II.Item
                  5.
              
              Market
                  for Registrant's Common Equity and Related Shareholder
                  Matters
              10Item
                  6.
              
              Selected
                  Financial Data
              11Item
                  7.
              
              Management’s'
                  Discussion and Analysis of Financial Conditionand
                  Results of Operations
              12Item
                  8.
              
              Financial
                  Statements and Supplementary Data
              14Item
                  8a.
              
              Controls
                  and Procedures
              14Item
                  9.
              
              Changes
                  in and Disagreements with Accountants on Accounting andFinancial
                  Disclosure
              14PART
                  III.Item
                  10.
              
              Directors
                  and Executive Officers of the Registrant
              15Item
                  11.
              
              Executive
                  Compensation
              17Item
                  12.
              
              Security
                  Ownership of Certain Beneficial Owners and Management
              21Item
                  13.
              
              Certain
                  Relationships and Related Transactions
              22Item
                  14.
              
              Principal
                  Accountant Fees and Services
              23PART
                  IVItem
                  15.
              
              Exhibits
                  and Reports on Form 8-K
              24Signatures
              24Exhibit
                  Index
              25




2




**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 was an integrated suite of proprietary software
      modules marketed under the name ErgoEnterprise Ô which
      was 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 Ô software
      system. The operations of Magnitude Information Systems, Inc. are currently
      comprised solely of the operations of Magnitude, Inc.





**Subsequent
      to December 31, 2006,** on
      February 19, 2007, the Company. signed an Agreement and Plan of Reorganization
      with the owners of a social networking website, to acquire their Kiwibox.com
      website and business. The Company is presently finalizing an exclusive licensing
      and support agreement with Imminent Technologies, Inc., licensing the rights
      to
      sell, support and further develop its ergonomic business and products. Imminent
      Technologies, Inc, the licensee, was organized by two former Company
      employees.





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 Three Hundred Million (300,000,000) Common Shares, par value
      $.0001, and Three Million (3,000,000) Preferred Shares, par value $.001, of
      which at December 31, 2006, Two Thousand Five Hundred (2,500) were designated
      as
      Cumulative Preferred Shares, par value $.001; Three Hundred Thousand (300,000)
      were designated as Series A Senior Convertible Preferred Stock, par value
      $0.001; Three Hundred Fifty Thousand (350,000) were designated as Series B
      Senior Convertible Preferred Stock, par value $0.001; One Hundred Twenty
      Thousand (120,000) were designated as Series C Senior Convertible Preferred
      Stock, par value $0.001; Five Hundred Thousand (500,000) were designated as
      Series D Senior Convertible Preferred Stock, par value $0.001; and Five Hundred
      Thousand (500,000) were designated as Series E Senior Convertible Preferred
      Stock, par value $0.001.




As
      of
      December 31, 2006, there were outstanding 224,235,472 Common Shares, 1
      Cumulative Preferred Share, and 109,857 Convertible Preferred
      Shares.




3


Narrative
      Description of Business





Magnitude
      Information Systems, Inc. is a pioneer and leader in the ergonomic productivity
      software **** market.
      With its Anti-Injury Ô software
      as represented by ErgoEnterprise Ô ,
      an
      interactive suite of Windows Ô 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 Ô is
      designed to help employers **** minimize
      preventable Repetitive Stress Injuries (“RSI”) and enhance productivity
      through:





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





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





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





·
            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 Ô 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 licensed
      highly sophisticated and proprietary software that provides computer based
      training, work pacing and monitoring tools, as well as a computer workstation
      assessment tool.




4




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 Company operated primarily in the United
      States of America.




Products,
      Trademarks





The
      Company’s primary product is a suite of nine proprietary software modules
      marketed under the name ErgoEnterprise Ô 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 Ô was 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.





***ErgoSurveyorTM*** 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.





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





***ErgoSentry*** **®** 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.




5




***EMSAnalyzerTM*** 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 **®** and
      accumulated for standard and customized reports that track, analyze and qualify
      how employees are using their computer stations.





***GuardianTM*** captures
      metrics on the frequency of keystroking and mousing during each minute
      throughout the day, and optionally tracks which applications and files users
      access.





***ErgoQuizTM*** is an
      electronic testing system used to assess ergonomic awareness ** and
      educate employees.





***ErgoMapTM*** offers
      employees state of the art ergonomic training at the desktop.




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 Ô





Magnitude
      has conducted productivity studies using ErgoEnterprise Ô 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 activity1. Professor
      Alan Hedge tested the effects of using Magnitude’s ergonomic work pacing
      software to monitor keyboard and mouse activity, and to provide computer users
      with information on appropriate, discretionary rest breaks. The software also
      provided information on stretching exercises, appropriate postures, and
      appropriate workstation adjustments. The
      Wall
      Street office of a nationwide insurance brokerage firm was chosen as the test
      site for this study.




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





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




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




6




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:





·
            A
                50% reduction rate in the total number of Musculoskeletal Disorder
                (MSD)
                Claims.





·
            A
                reduction by between 20% and 80% of OSHA reported
                injuries.





·
            The
                actual workers’ compensation savings in the pilot program was
                $120,000.





·
            State
                Fund’s projected annual workers’ compensation cost savings was
                approximately $780,000.





·
            There
                was a total participation of employees in Pilot
                Program





·
            Employees
                postponed micro-breaks a maximum of nine
                minutes.





·
            There
                was 100% employee satisfaction while using
                ErgoEnterprise.





·
            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.





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.




Research
      and Development





In
      our
      prior business, the Company invested considerable resources in the further
      development of the overall ErgoEnterprise Ô system
      and related product documentation and marketing collateral materials. In late
      summer 1997, the first official version of ErgoEnterprise Ô ,
      Version
      1.78, was released, followed by yearly upgrades since then.





The
      Company has expensed all expenditures related to the above efforts. Such
      expenses totaled approximately $75,998 for the year ended December 31, 2006,
      and
      $217,067 for the year ended December 31, 2005.





Competition





The
      ergonomic software products marketplace previously addressed by the Company
      was
      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.





During
      fiscal year 2006, the Company was **** not
      aware
      of any products that compete - in terms of breadth of functionality - with
      the
      integrated software product suite that was marketed by the Company under the
      trade name ErgoEnterprise Ô .




7




Seasonality
      and Dependency





The
      industry segment in which the Company did **** 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.





Employees




As
      of
      December 31, 2006, the Company employed 4 persons, of whom two were primarily
      engaged in sales and marketing, and two in general administrative and managerial
      functions. The Company has no collective bargaining agreements with its
      employees.





**Subsequent
      Events - 2007**





During
      the first quarter of fiscal year 2007, Company management concluded that the
      marketplace for the Company’s ergonomic software products was not developing,
      and would not develop to the material extent necessary in the next 12 to 24
      months, to support and sustain the Company’s sales efforts. The continuing
      length of the sales cycle was increasing, impacted by the lack of our products’
acceptance in the marketplace. Although we sold our ergonomic software to a
      number of Fortune 500 companies, the Company’s goal to market its product line
      to ever increasing populations found in our corporate clients’ various business
      segments and divisions was not being realized. Absent an unambiguous commitment
      from our clients’ senior management, our ergonomic products often competed with
      more basic corporate needs in the recent and difficult economic climate.
      Accordingly, management determined that it would be in the best interests of
      the
      Company and its shareholders to identify another business opportunity and pursue
      it for the benefit of our shareholders. In 2006, Edward Marney became our
      President and Chief Executive Officer while our founder, Steven Rudnik resigned
      to pursue other ventures. During December, 2006, an investment banker introduced
      Company management to the owners of a social networking website known as
      Kiwibox.com. Following a period of mutual due diligence review by both parties,
      we signed an Agreement and Plan of Reorganization on February 19, 2007, pursuant
      to the principal terms of which the Kiwibox business will be merged into our
      subsidiary. In exchange for the Kiwibox business, we agreed





·
            To
                issue $1,500,000 worth of our restricted common shares and $500,000
                worth
                (conversion value) of our preferred stock to the three Kiwibox owners
                and
                to pay them $300,000 cash at closing;





·
            To
                give each of the three Kiwibox owners a two-year employment agreement
                that
                will pay them each a base salary of $150,000 per year and 7,500,000
                stock
                options, vesting over two years with the possibility of earning cash
                bonuses and 3,000,000 additional stock options each if certain business
                performance goals are reached within the two-year
                period.





We
      also
      have agreed to invest $3.5 million in the Kiwibox business over the course
      of
      eighteen months and have committed to raise these funds prior to closing. The
      closing of the Kiwibox transaction is scheduled to occur on or before April
      30,
      2007. We currently have approximately 297,000,000 common shares outstanding
      on a
      fully diluted basis. Accordingly, in addition to raising the $3.5 million,
      we
      must amend our Certificate of Incorporation to increase our authorized common
      shares from 300,000,000 to 600,000,000 common shares to have a sufficient number
      of common shares necessary to close the Kiwibox transaction.




8




**ITEM
      2:**  **PROPERTIES**





On
      September 1, 2006, the Company entered a three year lease (which can be
      terminated by either party after 12 months) for approximately 850 square feet
      of
      office space at 1250 Route 28, Suite 309, Branchburg, New Jersey. This lease
      agreement calls for a base rental payment of $1,103 per month plus
      utility/cam/property tax charges of approximately $600 per month, with nominal
      increases after years two and three.




**ITEM
      3:**  **LEGAL
      PROCEEDINGS**





At
      the
      time of this report, 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.




9


**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 sales
      prices for the Company’s common stock.


OTC-BBLow/Bid
              
              High/Ask2005First
                  Quarter
              
              $
              0.09
              
              $
              0.16Second
                  Quarter
              
              
              0.06
              
              
              0.11Third
                  Quarter
              
              
              0.05
              
              
              0.08Fourth
                  Quarter
              
              
              0.04
              
              
              0.082006First
                  Quarter
              
              $
              0.06
              
              $
              0.12Second
                  Quarter
              
              
              0.05
              
              
              0.09Third
                  Quarter
              
              
              0.03
              
              
              0.06Fourth
                  Quarter
              
              
              0.03
              
              
              0.04





(b)
      Shareholders





As
      of
      March 20, 2007, there were approximately 400 shareholders of record for the
      Company’s Common Stock. The number of record holders does not include
      shareholders whose securities are held in street names.





(c)
      Dividends





The
      Company has not declared or paid, nor has it any present intention to pay,
      cash
      dividends on its Common stock. The Company is obliged to pay cash dividends
      on
      its outstanding convertible preferred stock and, under certain circumstances,
      on
      its outstanding cumulative preferred stock. See "DESCRIPTION OF CAPITAL STOCK"
      -
      "The Series A Stock", "The Series B Stock", "The Series C Stock", "The Series
      D
      Stock" and "The Series E Stock", below.





Recent
      Issues of Unregistered Securities





During
      the fourth quarter of 2006 the Company had issued the following unregistered
      securities:





(i)
      25,900,000 shares of common stock accompanied by warrants for the purchase
      of
      900,000 shares of common stock, exercisable at $0.08/share during three years,
      to four domestic accredited investors pursuant to private placement
      subscriptions under Section 4(2), Rule 506 of Regulation D and Regulation S
      of
      the Securities Act, which resulted in the receipt by the Company of $544,000
      in
      cash, less $50,000 paid to a finder and less $19,988 assumed legal
      expenses;





(ii) 2,772,860
      shares of common stock to three
      consultants and 450,000 shares to one director of the Company as part of their
      remuneration for services rendered.





(iii) 6,250,000
      shares of common stock, 4,708,333 warrants, exercisable at prices between $0.05
      and $0.15 per share and options for 1,403,542 shares, exercisable at $0.10
      per
      share, to the former president and CEO of the Company as part of a settlement
      agreement reached in December 2006. The agreement also provided, in return
      for
      the issuance of such securities, the cancellation of a promissory note for
      $99,890 as well as the cancellation of accrued interest and other remuneration
      totaling $17,500.




10




**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, 2006 and 2005
      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, 2006,Total
                  assets
              
              $
              169,128Current
                  liabilities
              
              
              2,674,613Long-term
                  debt
              
              
              -Working
                  capital
              
              
              (2,553,451
              )Shareholders’
                equity (deficit)
              
              $
              (2,505,485
              )
  Statement
          of Operations
 For
                      the Year Ended December 31,2006
                  
                  
                  2005Total
                      revenues
                  
                  $
                  47,701
                  
                  $
                  189,552Operating
                      income (loss)
                  
                  
                  (3,716,867
                  **)**
                  
                  (2,410,670
                  )Net
                      (loss)
                  
                  
                  (3,895,262
                  )
                  
                  (2,218,257
                  )Net
                      (loss) after dividendsOn
                      Preferred Shares
                  
                  
                  (4,473,726
                  )
                  
                  (2,341,492
                  )Net
                      loss per common share
                  
                  $
                  (0.03
                  )
                  $
                  (0.02
                  )Number
                      of shares used in computingper
                      share data
                  
                  
                  170,692,731
                  
                  
                  138,097,577
  11


**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, 2006




For
      the
      year ended December 31, 2006, the Company had revenues of $47,701 compared
      to
      $189,552 in 2005. Revenues consisted almost entirely of charges for maintenance
      and support services.





Gross
      profits amounted to negative $97,795. Gross profits were burdened with a fixed
      charge for amortization of certain proprietary software assets. Such software
      assets underlie the Company’s products and were 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. After deducting selling -, research -, and general
      and administrative expenses of $3,619,072 compared to the $2,448,509 recorded
      in
      2005, the Company realized an operating loss of $3,716,867 compared to an
      operating loss of $2,410,670 in 2005. A large portion of such SG&A expenses
      is attributable to non-cash charges in connection with the valuation at market
      price of the underlying stock, of securities issued in connection with
      settlement agreements reached with a shareholder who was a former officer of
      the
      Company, and with the former president and CEO, which together amounted to
      $632,677. In addition, securities valued at approximately $950,000 were issued
      as compensation to consultants. Non-operating income and expenses included
      $326,744 net interest expense (including $291,762 of amortization of debt
      discounts due to recognition of a derivative conversion option, beneficial
      conversion features and detachable warrants issued with the debt), $102,762
      income in connection with the change in fair value of a derivative conversion
      option on convertible debt, a charge of 174,954 for the impairment of software
      intangibles, and income of $192,136 from recording the change in fair value
      of
      derivative options and warrants reclassified as liabilities. The Company also
      realized a credit of $33,740 from the sale of net loss carry-forward tax credits
      pursuant to the New Jersey Emerging Technology and Biotechnology Financial
      Assistance Act. The year concluded with a net loss of $3,895,262. After
      accounting for dividends accrued and discounts on outstanding preferred stock
      which totaled $578,464 the net loss applicable to common shareholders was
      $4,473,726or $0.03 per share, compared to a loss of $2,341,492 or $0.02 per
      share for the previous year.




Liquidity
      and Capital Resources





In
      the
      absence of cash flow from operations, required working capital to finance
      ongoing operations was supplied primarily from new equity capital. The Company
      recorded $1,218,500 in new equity funding in the form of cash. The Company
      also
      assumed new private debt in the amount of approximately $440,000.




12





At
      December 31, 2006, the deficit in working capital amounted to $2,553,451 as
      compared to $1,016,230 at December 31, 2005. Stockholders’ equity showed an
      impairment of $2,505,485 at the end of the year, compared to an impairment
      of
      $664,381 at the beginning of the year. The negative cash flow from operations
      totaled $1,589,089 and was substantially financed by new debt and equity which
      was obtained through private placements. The new equity placements were
      consummated by issuance of common stock and warrants to accredited private
      investors in the United States. Details of such transactions can be found in
      the
“Changes and Issuance of Securities” sections in the Company’s reports on Form
      10-QSB during the year, as well as in the pertinent section of this report.
      During 2006, the Company had filed amendments to four previously filed
      registration statements on Form SB-2, all of which covered common shares
      directly issued as well as common shares underlying the previously issued
      convertible preferred stock and warrants, in connection with these and prior
      financing transactions. These filings were made on behalf of certain investors
      in the Company’s equities and proceeds of any sales of such registered
      securities will accrue entirely to such investors. The filings will shortly
      be
      updated with the current financial statements and forwarded to the Securities
      and Exchange Commission for review.





At
      the
      time of this submission, the Company had no bank debt. At December 31, 2006
      its
      short-term liabilities, aside from trade payables and accruals, consisted of
      certain notes and loans aggregating approximately $442,450. Accruals include
      $341,168 unpaid dividends on outstanding preferred stock. Such dividends will
      be
      paid only if and when capital surplus and cash-flow from operations are
      sufficient to cover the outstanding amounts without thereby unduly impacting
      the
      Company’s ability to continue operating and growing its business.





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





**Subsequent
      Events - Fiscal Year 2007**





In
      August, 2006, we negotiated a termination agreement with our founder, Steven
      Rudnik. As a result, Ed Marney assumed the role of President and management
      recommended to the Board of Directors That the Company seek a new business
      opportunity. The Board of Directors determined it was in the best interests
      of
      the Company and its shareholders to scale-down its operations and staff during
      the third quarter of 2006 in order to decrease overhead. During 2006 we
      terminated seven employees and reduced our monthly cash expenses from the level
      at the beginning of the year by approximately $140,000 per month to
      approximately $60,000 per month during the fourth quarter.





In
      December, 2006, an investment banker introduced the owners of a social
      networking website known as Kiwibox.com to management. Following a period of
      mutual due diligence, the parties signed an Agreement and Plan of Reorganization
      on February 19, 2007, pursuant to the principal terms of which the Kiwibox
      business, owned by the corporation Kiwibox Media, Inc., will merge with our
      subsidiary and we will issue to the three owners of Kiwibox our securities
      of an
      aggregate value of $2,000,000, a $300,000 cash payment at closing and delivery
      to each of the three Kiwibox owners a two-year employment agreement that will
      pay each a base salary of $150,000 and stock options to purchase 7,500,000
      common shares, vesting over a two-year period, with the ability to earn
      additional cash and stock bonuses based upon the attainment of certain business
      goals. The closing of the transaction with Kiwibox is scheduled to occur on
      or
      before April 30, 2007, and is subject, among other usual due diligence
      contingencies, to our having raised $3.5 million in cash by closing which we
      have promised to invest in Kiwibox in the two-year period following closing.





13





**ITEM
      8** :  **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





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





**ITEM
      8a:**  **CONTROLS
      AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





(a)
      Evaluation of Disclosure Controls and Procedures.





As
      of
      December 31, 2006, the end of the period covered by this Form 10-KSB for the
      fiscal year ended December 31, 2006, an evaluation was undertaken, under the
      supervision and with the participation of the Company's management, including
      the Company’s Chief Executive Officer and Chief Financial Officer, of the
      effectiveness of the design and operation of the Company's disclosure controls
      and procedures pursuant to Rule 13a-15(e) of the Exchange Act; and; based upon
      that evaluation, Company management, including the Chief Executive Officer
      and
      the Chief Financial Officer, has concluded that the design of the Company's
      disclosure controls and procedures are effective and ensure that all material
      information required to be disclosed by the Company in the reports that it
      files
      or submits under the Act, are recorded, processed, summarized and reported
      within the time periods specified in the Commission’s rules and forms; in
      addition, the evaluation confirmed that the Company’s disclosure controls and
      procedures are designed to ensure that the information required to be disclosed
      by the Company in the reports that it files or submits under the Act is
      accumulated and communicated to Company management, including its
      President/Chief Executive Officer and Chief Financial Officer, as appropriate
      to
      allow timely decisions regarding required disclosure.





The
      Company maintains a system of internal controls designed to provide reasonable
      assurance that: (i) the Company's transactions are properly authorized; (ii)
      the
      Company's assets are protected against unauthorized or improper use, and (iii)
      the Company's transactions are properly recorded and reported, all to permit
      the
      preparation of complete and accurate financial statements in conformity with
      generally accepted accounting principles.





(b)
      Changes in Internal Control over Financial Reporting





Since
      the
      date of the most recent evaluation of the Company's internal controls by Company
      management, including the President/Chief Executive Officer and Chief Financial
      Officer, there have not been any changes in the Company's internal controls
      or
      other factors for the period covered by the subject Form 10-KSB that materially
      affected or were likely to materially affect the Company's internal control
      over
      financial reporting.




**ITEM
              9:**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON****ACCOUNTING
                AND FINANCIAL DISCLOSURE**




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




14


**PART
      III**





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





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




Name
              
              Positions
              
              Term
                  Served (Expires)Edward
                  L. Marney
              
              DirectorPresident,
                  Chief Executive
              
              May
                  5, 2006OfficerDirectorJoerg
                  H. Klaube
              
              Sr.
                  Vice President, Secretary,
              
              December
                  2, 2005Chief
                  Financial OfficerSteven
                  L. Gray
              
              DirectorChairman
                  of the Board
              
              August
                  30, 2006Joseph
                  J. Tomasek
              
              Director
              
              Feb.
                  11, 1999 (2006)




All
      Directors of the Company hold office until the next annual meeting of the
      shareholders and until successors have ben 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.





***Edward
      L. Marney*** ,
      Age 49
      - Director, President and Chief Executive Officer.  Mr. Marney joined
      Magnitude, Inc. in May 2006 and was appointed a director in August 2006. 
From 2003 to 2006, Mr. Marney was Managing Director of Triad Partners, LLC,
      a
      privately held investment company.  Prior to that from 2001-2003 Mr. Marney
      was Vice President, Business Intelligence at Medical Manager/WebMD
      Corporation.  Mr. Marney founded TouchPoint Software Corporation in
      1994 and served as its CEO & President until its acquisition by WebMD
      Corporation in 2001.  Prior to that Mr. Marney served in various marketing
      and sales roles at Medical Information Technology and Burroughs
      Corporation.  He graduated with a B.S. from the Whittemore School of
      Business and Economics at the University of New Hampshire.





***Joerg
      H. Klaube*** ,
      Age 65
      - Director and 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.





***Joseph
      J. Tomasek*** ,
      Age 60
      - Director. Mr. Tomasek was appointed a director in February 2000. He has been
      engaged in the private practice of corporate and securities law in his own
      law
      firm for the last ten years. Mr. Tomasek was appointed to serve as general
      counsel for the Company in 1999. In addition to his work with the Company,
      Mr.
      Tomasek represents several other clients in the area of corporate law.





***Steven
      L. Gray*** ,
      Age 57
      - Director. Mr. Gray was elected to serve on the Board on May 18, 2000. He
      is a
      resident of Venice, Florida. For the past six years, Mr. Gray has served as
      the
      President and is a shareholder of a private Florida corporation engaged in
      the
      retail distribution of nutritional products. This corporation has a customer
      base in nine countries. Prior to that time, Mr. Gray ran his own real estate
      development company, specializing in the design and construction of multi-family
      housing.




15





**Family
      Relationships**




There
      are
      no family relationships between any of the directors or executive
      officers.




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





The
      Company knows of no person, who at any time during the period from the date
      at
      which it filed its annual report on Form 10-KSB for the year ended December
      31,
      2004 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).




16




**ITEM
      11:**  **EXECUTIVE
      COMPENSATION**





**2006
      SUMMARY COMPENSATION TABLE**





The
      following table sets forth the cash compensation and executive capacities for
      the fiscal years ended December 31, 2006 and December 31, 2005, 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:


(1)Name
                  and Principal Position
              
              Year
              
              Salary
                  ($)
              
              Bonus
                  ($)
              
              Stock
                  Awards ($)
              
              Option
                  Awards ($)
              
              Non-Equity
                  Incentive Plan Compensation($)
              
              Non-
                  Qualified Deferred Compensation Earnings ($)
              
              AllOther
                  Compen sation ($)
              
              Total($)(a)
              
              (b)
              
              (c)
              
              (d)
              
              (e)
              
              (f)
              
              (g)
              
              (h)
              
              (i)Edward
                  L. Marney
              
              
              2006
              
              
              86,538
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,950
              
              
              92,488Chief
                  Executive
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Officer,
                  President
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Steven
                  D. Rudnik
              
              
              2006
              
              
              64,788
              
              
              
              
              
              567,677
              
              
              
              
              
              
              
              
              
              
              
              48,250
              
              
              680,715Former
                  Chief
              
              
              2005
              
              
              33,333
              
              
              -
              
              
              100,000
              
              
              
              
              
              -
              
              
              -
              
              
              24,306
              
              
              157,639Executive
                  Officer,PresidentMark
                  Chroscielewski
              
              
              2006
              
              
              82,185
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              82,185Former
                  Sr. Vice
              
              
              2005
              
              
              125,000
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              12,900
              
              
              137,900PresidentBusiness
                  DevelopmentJoerg
                  H. Klaube
              
              
              2006
              
              
              61,376
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,626
              
              
              64,002Sr.
                  Vice President,
              
              
              2005
              
              
              117,308
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              12,203
              
              
              129,511CFOSteven
                  W. Jagels
              
              
              2006
              
              
              61,875
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              61,875Former
                  Sr. Vice
              
              
              2005
              
              
              108,333
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              13,556
              
              
              121,889PresidentInformation
                  SystemsJoseph
                  J. Tomasek,
              
              
              2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              96,121
              
              
              96,121Esq.,
                  Director and
              
              
              2005
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              131,140
              
              
              131,140General
                  Legal CounselLegal
                  Fees:Steven
                  Gray
              
              
              2006
              
              
              30,000
              
              
              
              
              
              107,450
              
              
              
              
              
              
              
              
              
              
              
              137,450DirectorAll
                  executive officers
              
              
              2006
              
              
              147,914
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              8,576
              
              
              156,490As
                  a group (2 persons)
              
              
              2005
              
              
              117,308
              
              
              -
              
              
              
              
              
              
              
              
              -
              
              
              -
              
              
              12,203
              
              
              12,203





Explanation :
      No
      current Company officer or employee has an employment agreement with the
      Company. All of the items of compensation paid to the officers and directors
      listed in the above Summary Compensation Table are discussed in the following
      paragraphs, under the individual officer’s or director’s name.





Edward
      L. Marney; 2006. Ed
      Marney joined the Company in May, 2006, becoming first our Chief Executive
      Officer, then our President and a director. We paid Mr. Marney a cash salary
      of
      $86,538 and reimbursed $5,950 of healthcare payments to him during
      2006.




17




Steven
      D. Rudnik; 2006 and 2005 .
      We paid
      our former CEO and President, Steven D. Rudnik, a cash salary of $64,788 during
      fiscal year 2006. On August 8, 2006, Mr. Rudnik terminated his employment
      agreement with us in exchange for 6,000,000 restricted common shares and
      aggregate cash payments of $60,000. The aggregate amount of compensation of
      $567,677  included
      in the “Stock Awards” **** column
      above, includes these 6,000,000 restricted common shares which we valued at
      $.06
      per share, the average public market price of the Company’s common stock on the
      date of this settlement agreement, August 8, 2006, plus the grant of previously
      cancelled warrants and options, as follows: (i) 1,583,333 common stock purchase
      warrants, exercisable over the 3-year period commencing January 18, 2007 and
      exercisable at an exercise price of $.10 per common share, which we valued
      at
      $70,652 and (ii) 2,903,542 common stock options, exercisable over the 3-year
      period commencing January 18, 2007 at the stock option exercise price of $.10
      per common share, which we valued at $137,025. In addition, the amount of “All
      Other Compensation” represents cash payments of $45,000 made by the Company in
      connection with the August 8, 2006 settlement agreement and $3,250 paid by
      the
      Company for Mr. Rudnik’s life insurance.





During
      fiscal year 2005, the Company agreed to convert $100,000 of Mr. Rudnik’s cash
      salary into 1,000,000 restricted common shares and 1,000,000 common stock
      purchase warrants, exercisable over the 3-year period, commencing on June 8,
      2005, and exercisable at the exercise price of $0.15 per common share. In
      addition, “All Other Compensation” includes Company payments of $21,056 for car
      payments and $3,250 representing payments made for Mr. Rudnik’s life insurance.





Mark
      Chroscielewski; 2006 and 2005: During
      fiscal year 2006, the Company paid this former executive $82,185 in


Salary.
      During 2005, we paid Mr. Chroscielewski a cash salary of $125,000 and in the
      column “All Other Compensation” above for 2005, we made car payments on his
      behalf in the aggregate amount of $4,000 and insurance premium payments of
      $8,900.





Joerg
      H. Klaube 2006 and 2005. We paid
      our Chief Financial Officer a cash salary of $ 61,376 during 2006 and in the
      column “All Other Compensation” in the above table for 2006 , life
      insurance premium payments on this executive’s behalf in the amount of $2,626.
      During fiscal year 2005, the Company paid Mr. Klaube cash salary of
      $ 117,308 and
      as
      indicated in the column “All Other Compensation” in the above table for 2005, we
      made life insurance premium payments on this executive’s behalf in the amount of
      $2,626 and car payments in the amount of $9,577.





Steven
      Jagels 2006 and 2005: We paid
      this former executive a cash salary of $61,875 during 2006. During fiscal year
      2005, the Company paid Mr. Jagels a salary of $108,333 and as indicated in
      the
      column “All Other Compensation” in the above table for 2005, we made life
      insurance premium payments on this executive’s behalf in the amount of $1,940
      and car payments in the amount of $11,616.





Joseph
      J. Tomasek 2006 and 2005: During
      fiscal years 2006 and 2005, the Company paid $ 96,121 and $ 131,140,
      respectively, to Mr. Tomasek for his legal services rendered to the
      Company.





Steven
      Gray 2006. During
      fiscal year 2006, we issued an aggregate 1,550,000 restricted common shares
      and
      500,000 common stock purchase warrants to Mr. Gray for services rendered to
      the
      Company. During 2006, Mr. Gray assisted the Company in its change of management,
      providing day-to-day assistance in operations, customer relations including,
      interviewing potential **** candidates
      for management positions and coordinating the various audit schedule and
      management review projects. As set forth in the column “All Other Compensation”
in the above table for 2006, we valued the 1,550,000 restricted common shares
      based upon their average public market trading price as of the dates we issued
      these shares to Mr. Gray, totaling $93,000 and the 500,000 options at $14,450,
      based upon a formula called the Black-Scholes Model.




**Stock
      Options:**





The
      following table sets forth stock options granted during 2006 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:


Name
              
              Number
                  of Common Shares UnderlyingOptions
                  Granted
              
              %
                  of Total Options Granted to Employeesand
                  Directors in FY
              
              ExercisePrice
                  ($/Sh.)
              
              ExpirationDate


18




There
      were no stock options granted to employees and directors under any of the
      Company’s stock option plans during 2006.




The
      following table sets forth aggregated stock option and warrant exercises during
      2006 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:


Name
                  
                  Shares
                      Acquired on Exercise (#)
                  
                  Value
                      Realized ($)
                  
                  #of
                      Shares Underlying Unexercised Options/Warrants
                  
                  Value
                      of Unexercised In-the-Money Options & Warrants at Y/E
                      ($)




There
      were no stock options or warrants exercised by employee-executives or directors
      during 2006.




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.







**Outstanding
      Equity Awards At Fiscal Year-End Table**




Name
                  and
                Principal
                Position
              
              Number
                  of
                Securities
                Underlying
                Unexercised
                Options
                Exercisable
              
              Number
                  of
                Securities
                Underlying
                Unexercised
                Options
                Unexercisable
              
              Equity
                Incentive
                Plan
                  Awards
                No.
                  of
                Underlying
                Unexercised
                Unearned
                Options
              
              Option
                Exercise
                Price
              
              Option
                Expiration
                Date
              
              No.
                  of
                Shares
                  or
                Units
                  of
                Stock
                  that
                have
                  not
                vested
              
              Market
                Value
                  of
                Shares
                  or
                Units
                  of
                Stock
                  that
                have
                  not
                vested
              
              Equity
                Incentive
                Awards,
                Shares,
                  Units
                Or
                  other
                Rights
                  that
                have
                  not
                vested
              
              Equity
                Incentive
                  Plan Awards:
                Market
                  or Payout value of Unearned Shares,Units or other rights that have
                  not
                  vestedEdward
                  L.
                Marney,
                CEO
                  and
                President
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Steven
                  D.
                Rudnik,
                Former
                  CEO and
                President
              
              
              -
              
              
              2,903,542
              
              
              -
              
              $
              0.10
              
              
              1/6/10
              
              
              -
              
              
              -
              
              
              -
              
              
              -Joerg
                  H.
                Klaube,
                CFO
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Steven
                  W. Jagels,
                Former
                SVP
                  -
                Information
                Systems
              
              
              250,000
              
              
              -
              
              
              -
              
              $
              0.1325
              
              
              2/18/07
              
              
              -
              
              
              -
              
              
              -
              
              
              -Joseph
                  J.
                Tomasek,
                Director
                  and General
                Legal
                Counsel
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Steven
                  Gray,
                Chairman
                of
                  the
                Board
              
              
              500,000
              
              
              -
              
              
              -
              
              $
              0.15
              
              
              1/1/09
              
              
              -
              
              
              -
              
              
              -
              
              
              -All
                  Executive Officers as a group
                (2
                  persons)
              
              
              500,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
  19


Compensation
      of Directors:





We
      have
      not paid any compensation to any of our directors for services rendered as
      directors during fiscal years 2005 and 2006.





During
      2006, one outside director of the Company who also serves as the Company’s
      general and securities counsel, was paid an aggregate $96,121 for legal
      services.




CORPORATE
      GOVERNANCE AND CODE OF ETHICS





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





20




Our
      Board
      of Directors has determined that none of its current members, Edward L. Marney,
      Joerg H. Klaube, Joseph J. Tomasek and Steven Gray, are independent in
      accordance under applicable securities laws. It is the intention, however,
      of
      the Board of Directors, to identify and appoint independent directors in the
      current fiscal year.





**Board
      Committees**





AUDIT
      COMMITTEE





The
      Company has appointed an Audit Committee in accordance with the provisions
      of
      the Sarbanes-Oxley Act of 2002. The Audit Committee is currently comprised
      of
      one director, Steven. Gray, who is a financial expert with knowledge of
      financial statements, generally accepted accounting principles and accounting
      procedures and disclosure rules. Mr. Gray is not “independent” as defined in
      Section10A-3(b)(1)(iv)(A) of the Securities Exchange Act. Our Board of Directors
      intends to appoint additional independent members to this Audit
      Committee.




**COMPENSATION
      AND NOMINATING COMMITTEES**





Our
      board
      of directors intends to appoint such persons and form such committees as are
      required to meet the corporate governance requirements imposed by the national
      securities exchanges. Therefore, we intend that a majority of our directors
      will
      eventually be independent directors. Additionally, our board of directors is
      expected to appoint a nominating committee and a compensation committee, and
      to
      adopt charters relative to each such committee. Until further determination
      by
      the Board, the full Board of Directors will undertake the duties of the
      compensation committee and nominating committee.




**ITEM
              12:**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND****MANAGEMENT**





The
      following table sets forth, as of March 20, 2006, the record and beneficial
      ownership of common stock of the Company by each executive officer and director,
      all executive officers and directors as a group, and each person known to the
      Company to own beneficially, or of record, five percent or more of the
      outstanding shares of the Company:


Title
              
              Name
                  and Address of
              
              Amount
                  and Nature of
              
              Percentof
                  Class )*
              
              Beneficial
                  Owner
              
              Beneficial
                  Ownership (1)
              
              of
                  ClassCommon
              
              Edward
                  Marney
              
              -
              
              -Stock
              
              Steven
                  L. Gray
              
              5,614,096
              (2)
              2.46
              %Joerg
                  H. Klaube
              
              1,400,000
              
              0.62
              %Joseph
                  J. Tomasek
              
              2,847,166
              (3)
              1.25
              %Address
                  of all persons above: c/o the Company.All
                  Directors and Executive Officersas
                  a Group (4 persons)
              
              9,861,262
              
              4.32
              %Michael
                  G. Martin
              
              13,000,000
              (4)
              5.7
              %12
                  Tillman Ct, Bridgewater, NJ 0880733
                  Group LLC
              
              12,500,000
              
              5.7
              %3589
                  NW 61 Circle, Boca Raton, FL 33496Azzurri
                  Group, LLC
              
              12,500,000
              
              5.7
              %3589
                  NW 61 Circle, Boca Raton, FL 33496Steven
                  D. Rudnik
              
              24,272,986
              (5)
              10.3
              %




)*
      The
      Company also has issued and outstanding as of March 16, 2006, 193,190 shares
      of
      its Senior Convertible Preferred Stock, with concentrations in excess of 10%
      for
      one or more of the holders of such stock, however, none of such shares bear
      any
      voting rights.





(1)
            For
                purposes of this table, a person or group of persons is deemed to
                have
                “beneficial ownership” of any shares of Common Stock which such person has
                the right to acquire within 60 days of March 20, 2006. 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 for 500,000 shares.





(3)
            Includes
                warrants for 333,333 shares.





(4)
            Includes
                options for 750,000 shares.





(5)
            Includes
                warrants for 4,708,333 shares and options for 2,903,542
                shares.





21


**ITEM
      13:**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**





On
      March
      31, 2000, the Company and its President and Chief Executive Officer agreed
      to
      convert a current liability payable to him in the amount of $374,890 into a
      Company obligation, of which $100,000 was subsequently classified as due on
      demand, which was repaid in April 2002, with the remaining balance of $274,890
      maturing July 1, 2002. On February 19, 2002, the maturity of the term portion
      of
      $274,890 was extended to July 2003, and the board of directors of the Company
      approved a change in the conversion option towards a rate of $0.10 per share.
      In
      January 2004, $175,000 was repaid and the maturity of the remaining open balance
      of $99,890 was extended to January, 2005. This amount has been converted into
      common stock and warrants pursuant to a settlement agreement entered into in
      December 2006.





In
      May
      2005, the Company and its President and Chief Executive Officer agreed to
      convert most of his base salary for the remainder of the year 2005 into
      1,000,000 shares of restricted common stock and 1,000,000 warrants, exercisable
      during three years at the price of $0.15 per share, in lieu of $100,000 cash.





In
      September 2005 our officers and directors surrendered for cancellation 4,507,709
      stock options, 2,283,916 common stock purchase warrants and 11,247,607 common
      shares in order to provide sufficient authorized common shares to accommodate
      the Company’s current private placement. We replaced the surrendered and
      cancelled common shares with shares of our Series E preferred stock which
      automatically converted in March, 2006, into 11,247,607 common shares, the
      amount of common shares equal to those surrendered. We also intend to reissue
      the 4,507,709 stock options and 2,283,916 warrants also surrendered for
      cancellation by our officers and directors with an equal amount of common shares
      underlying these securities. The recipients of the Series E preferred stock
      have
      waived their right to receive any dividends on their shares.





During
      2006 and 2005, one outside director of the Company who also serves as the
      Company’s general and securities counsel, was paid an aggregate $96,121 and
      $131,140, respectively, for legal services.





On
      August
      8, 2006, Steven D. Rudnik resigned from the position of Chairman of the Board
      of
      Directors of the Company. Pursuant to the principle terms of the resignation
      agreement, (a) his current employment agreement was terminated, (b) he resigned
      the position of chairman, (c) he received 6 million restricted common shares
      plus cash payments totaling $60,000.00 to be paid in installments through
      November 1, 2006, and (d) that options and warrants for an aggregate 4,486,875
      share which were previously cancelled, be re-issued upon the earlier recurrence
      of a recapitalization of our securities that would provide sufficient common
      shares to accommodate them or two years from the date of the agreement. The
      options and warrants will have similar terms as the original instruments
      (exercisable at $0.10 and $0.15, respectively), but with expiration dates as
      of
      three years from the date of re-issuance.





On
      December 13, 2006, the Company and Steven D. Rudnik, our former President and
      Chief Executive Officer signed a second settlement agreement, pursuant to the
      principal terms of which Mr. Rudnik exchanged **** a
      Company
      promissory note due him in the principal amount of approximately $100,000,
      a
      $15,000 payment due him under his resignation agreement of August 8, 2006 and
      certain interest payments by conversion into 6,250,000 common shares and
      3,125,000 warrants, exercisable over a three year period at an exercise price
      of
      $.05 per share. The Company also agreed to reissue the previously terminated
      stock options and warrants on or before February 18, 2007, comprised of
      1,583,333 warrants to purchase common shares at the exercise price of $.10
      per
      share anytime during the three-year period, commencing February 18, 2007, and
      2,903,542 stock options to purchase common shares at the exercise price of
      $.10
      per share anytime during the three-year period commencing February 18, 2007.
      This agreement also provides Mr. Rudnik a 12-month "reset" provision that
      entitles him to automatically benefit from any terms that are more favorable
      than those set forth in the agreement, including a more favorable debt
      conversion rate or equity investment price, that the Registrant grants to any
      party over the next 12 months.





On
      January 2, 2007, the Company and a former employee, Steven W. Jagels settled
      a
      lawsuit commenced by Mr. Jagels against the Company based upon claims which
      included breach of his employment agreement. We agreed to make a payment of
      $20,040 to Mr. Jagels and to issue 3,000,000 common shares to him by January
      7,
      2007. We also agreed to include these shares in this registration statement
      and
      when it is declared effective by the SEC, to cause a buyer to purchase these
      shares from Mr. Jagels for $75,000 prior to February 28, 2007. Upon Mr. Jagels’
receipt of these proceeds, the lawsuit will be discontinued with prejudice,
      or
      if not consummated as agreed, the lawsuit will continue.




22




**PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





AUDIT
      FEES





Rosenberg
      Rich Baker Berman & Company ("Rosenberg") billed us in the aggregate amount
      of $66,433 and $63,028 for professional services rendered for their audit of
      our
      annual financial statements and their reviews of the financial statements
      included in our Forms 10-KSB and 10-QSB for the years ended December 31, 2006
      and December 31, 2005, respectively.





AUDIT-RELATED
      FEES





Rosenberg
      did not bill us for, nor perform professional services rendered for assurance
      and related services that were reasonably related to the performance of audit
      or
      review of the Company's financial statements for the fiscal years ended December
      31, 2006 and December 31, 2005.





TAX
      FEES





Rosenberg
      billed us in the aggregate amount of $5,656 and $4,790 for professional services
      rendered for tax related services for the fiscal years ended December 31, 2006
      and December 31, 2005, respectively.





ALL
      OTHER
      FEES





The
      aggregate fees billed by Rosenberg for services rendered to the Company during
      the last two fiscal years, other than as reported above, were $0 and $0,
      respectively.




**TRANSFER
      AGENT**





The
      transfer agent for the Company is Securities Transfer Corporation, located
      at
      2591 Dallas Parkway, Suite 102, Frisco, Texas 75034.




**ANNUAL
      REPORT**





The
      Company intends to continue its practice of furnishing annual reports to its
      shareholders containing financial statements audited by independent certified
      public accountants.





23





**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
      October 31, 2006 the Company filed a report on Form 8-K announcing a
      restructuring plan for the Company’s operations.





On
      December 26, 2006 the Company filed a report on Form 8-K informing about a
      settlement agreement reached with the former Chief Executive
      Officer.





On
      February 2, 2007 the Company filed a report on Form 8-K informing about a loan
      transaction.





On
      February 23, 2007 the Company filed a report on Form 8-K informing about an
      Agreement and Plan of Reorganization involving the merger of its wholly owned
      subsidiary Magnitude Operations Inc. with Kiwibox Media Inc.





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act, the
      Registrant has caused this Amendment No. 1 to Form 10-KSB for the fiscal year
      ended December 31, 2006 to be signed on its behalf by the undersigned, thereunto
      duly authorized.




MAGNITUDE
                INFORMATION SYSTEMS, INC.By:  /s/ Edward Marney
            
            
            Date:
                August 7, 2007Edward
                Marney
              President
                and Chief Executive Officer
              (Principal
                Executive Officer), Director




By: 
                /s/ Joerg H. Klaube
            
            
            Date:
                August 7, 2007Joerg
                H. Klaube
              Secretary,
                Chief Financial Officer
              (Principal
                Financial Officer) Director





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





Name
            
            Date/s/
                Steven L. Gray
            
            August
                7, 2007Steven
                L. Gray, Chairman of the Board/s/
                Joseph J. Tomasek
            
            August
                7, 2007Joseph
                J. Tomasek, Director




24




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 previousfilings
                with the Commission.





(21)
            Subsidiaries
                of the Company:





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





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





(31.1)
            Certification
                of Edward Marney, Chief Executive Officer, pursuant to Section 302
                of
                Sarbanes-Oxley Act of 2002.





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





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




OTHER
      DOCUMENTS INCORPORATED HEREIN BY REFERENCE





(a)
            The
                Company’s Quarterly Reports on Form 10-QSB for the periods endedMarch
                31, 2006, June 30, 2006, and September 30,
                2006.





(b)
            All
                other reports filed by the Company pursuant to Section 13(a) or 15(d)
                ofthe
                Exchange Act since the Company’s fiscal year ended December 31,
                2005





25








Magnitude
      Information Systems, Inc. and Subsidiaries





Consolidated
      Financial Statements





December
      31, 2006








26





**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Index
      to the Consolidated Financial Statements**


**December
      31, 2006**





PageReport
                of Independent Registered Public Accounting Firm
            
            
            F-2Financial
                StatementsConsolidated
                Balance Sheet
            
            
            F-3Consolidated
                Statements of Operations
            
            
            F-4Consolidated
                Statements of Stockholders Equity (Deficit)
            
            
            F-5
                - F-6Consolidated
                Statements of Cash Flows
            
            
            F-7
                - F-9Notes
                to the Consolidated Financial Statements
            
            
            F-10
                - F-31










[letterhead
      of


Rosenberg
      Rich Baker Berman & Company


380
      Foothill Road, Bridgewater, New Jersey]





Report
      of
      Independent Registered Public Accounting Firm





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, 2006 and the related
      consolidated statements of operations, stockholders’ equity (deficit), and cash
      flows for the years ended December 31, 2006 and 2005. These financial statements
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these financial statements based on our audits.





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





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Magnitude Information
      Systems, Inc. and Subsidiaries as of December 31, 2006 and the consolidated
      results of their operations and their cash flows for the years ended December
      31, 2006 and 2005, in conformity with U.S. generally accepted accounting
      principles.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in the notes to the financial
      statements, the Company’s significant operating losses and significant working
      capital deficiency 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
              April
                2, 2007
            Rosenberg
                Rich Baker Berman & Company




F-2


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Consolidated
      Balance Sheet**


**December
      31, 2006**





AssetsCurrent
                AssetsCash
            
            $
            81,307Accounts
                receivable, net of allowance for doubtful accounts of
                $1,900
            
            
            66Prepaid
                expenses
            
            
            39,789Total
                Current Assets
            
            
            121,162Property
                and equipment, net of accumulated depreciation of $35,429
            
            
            10,076Other
                Assets
            
            
            37,890Total
                Assets
            
            
            169,128Liabilities
                and Stockholders’ Equity (Impairment)Current
                LiabilitiesAccounts
                payable and accrued expenses
            
            
            466,746Deferred
                revenues
            
            
            102,829Dividends
                payable
            
            
            341,168Obligations
                to be settled in stock
            
            
            97,439Notes
                payable
            
            
            442,450Current
                maturities of long-term debt
            
            
            33,529Derivative
                liability for warrants and options
            
            
            1,190,452Total
                Current Liabilities
            
            
            2,674,613Commitments
                and Contingencies
            
            
            -Stockholders’
                Equity (Impairment)Preferred
                stock, $.001 par value, non-voting, 3,000,000 shares authorized;
                109,857
              shares
                issued and outstanding
            
            
            110Common
                stock, $.0001 par value, 300,000,000 shares authorized; 224,235,472
                shares
                issued
              and
                outstanding
            
            
            22,424Additional
                paid in capital
            
            
            33,112,773Accumulated
                (deficit)
            
            
            (35,640,792
            )Total
                Stockholders’ Equity (Impairment)
            
            
            (2,505,485
            )Total
                Liabilities and Stockholders’ Equity (Impairment)
            
            $
            169,128




See
      notes
      to the consolidated financial statements.




F-3


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Consolidated
      Statements of Operations**





Year
                Ended December 31,2006
            
            2005Net
                SalesSoftware
            
            $
            47,701
            
            $
            189,552Total
                Net Sales
            
            
            47,701
            
            
            189,552Cost
                of Goods SoldSoftware
            
            
            145,496
            
            
            151,713Total
                Cost of Goods Sold
            
            
            145,496
            
            
            151,713Gross
                Profit (Loss)
            
            
            (97,795
            )
            
            37,839Research
                and development costs
            
            
            75,998
            
            
            217,067Stock-based
                compensation (see below)
            
            
            1,583,075
            
            
            430,239Selling,
                general and administrative expenses
            
            
            1,959,999
            
            
            1,801,203Loss
                From Operations
            
            
            (3,716,867
            )
            
            (2,410,670
            )Other
                Income (Expense)Miscellaneous
                income
            
            
            -
            
            
            4,846Interest
                income
            
            
            20
            
            
            6Interest
                expense
            
            
            (326,744
            )
            
            (21,703
            )Loss
                on disposition of assets
            
            
            (355
            )
            
            -Other
                expenses
            
            
            (5,000
            )
            
            -Impairment
                of software intangibles
            
            
            (174,954
            )
            
            -Change
                in fair value of derivative conversion feature
            
            
            102,762
            
            
            -Change
                in fair value of options and warrants
            
            
            192,136
            
            
            -Total
                Other Income (Expense)
            
            
            (212,135
            )
            
            (16,851
            )Loss
                Before Benefit from Income Taxes
            
            
            (3,929,002
            )
            
            (2,427,521
            )Benefit
                from Income Taxes
            
            
            33,740
            
            
            209,264Net
                Loss
            
            $
            (3,895,262
            )
            $
            (2,218,257
            )Dividends
                on Preferred Shares
            
            $
            (578,464
            )
            $
            (123,235
            )Net
                Loss Applicable to Common Shareholders, basic and diluted
            
            $
            (4,473,726
            )
            $
            (2,341,492
            )Net
                Loss Per Common Share, basic and diluted
            
            
            (0.03
            )
            
            (0.02
            )Weighted
                Average of Common Shares Outstanding
            
            
            170,692,731
            
            
            138,097,577





All
      of
      the stock-based compensation relates to selling, general and administrative
      expenses.





See
      notes
      to the consolidated financial statements.




F-4


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Consolidated
      Statement of Stockholders’ Equity (Deficit)**


**Year
      Ended December 31, 2005**




Convertible
                  Preferred Shares
              
              Cumulative
                  Preferred Shares
              
              Common
                  Stock
              
              Additional
                  Paid in
              
              Accumulated
              
              Deferred
              
              Total
                  Stockholders’ EquityShares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Deficit
              
              Compensation
              
              (Deficit)Balances,
                  January 1, 2005
              
              
              193,190
              
              $
              193
              
              
              1
              
              $
              -
              
              
              127,837,612
              
              $
              12,784
              
              $
              28,365,186
              
              $
              (28,825,573
              )
              $
              (65,636
              )
              $
              (513,046
              )Issuance
                  of convertible preferred stock pursuant to private equity
                  placements
              
              
              16,667
              
              
              17
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              99,983
              
              
              -
              
              
              -
              
              
              100,000Conversion
                  of common stock into convertible preferred stock
              
              
              112,476
              
              
              112
              
              
              -
              
              
              -
              
              
              (11,247,607
              )
              
              (1,125
              )
              
              1,013
              
              
              -
              
              
              -
              
              
              -Issuance
                  of common stock for compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,000,000
              
              
              100
              
              
              99,900
              
              
              -
              
              
              (100,000
              )
              
              -Issuance
                  of common stock pursuant to private equity placements
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              19,666,667
              
              
              1,967
              
              
              1,558,033
              
              
              -
              
              
              -
              
              
              1,560,000Issuance
                  of common stock for services performed
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,350,000
              
              
              335
              
              
              297,465
              
              
              -
              
              
              (205,000
              )
              
              92,800Issuance
                  of warrants for services performed
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              46,700
              
              
              -
              
              
              (32,900
              )
              
              13,800Issuance
                  of options for services performed
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              108,780
              
              
              -
              
              
              -
              
              
              108,780Private
                  placement finders fees
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (67,000
              )
              
              -
              
              
              -
              
              
              (67,000
              )Dividends
                  on convertible preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (116,936
              )
              
              -
              
              
              (116,936
              )Recognition
                  of expense on deferred compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              375,478
              
              
              375,478Amortization
                  of discount on preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,299
              
              
              (6,299
              )
              
              -
              
              
              -Net
                  loss, year ended December 31, 2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,218,257
              )
              
              -
              
              
              (2,218,257
              )Balances,
                  December 31, 2005
              
              
              322,333
              
              $
              322
              
              
              1
              
              $
              -
              
              
              140,606,672
              
              $
              14,061
              
              $
              30,516,359
              
              $
              (31,167,065
              )
              $
              (28,058
              )
              $
              (664,381
              )


See
      notes
      to the consolidated financial statements.


F-5




**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Consolidated
      Statement of Stockholders’ Equity (Deficit)**


**Year
      Ended December 31, 2006**


Convertible
                  Preferred Shares
              
              Cumulative
                  Preferred Shares
              
              Common
                  Stock
              
              Additional
                  Paid in
              
              Accumulated
              
              Deferred
              
              Total
                  Stockholders’ EquityShares
              
              Amount
              
              Shares
              
              Amount
              
              Shares
              
              Amount
              
              Capital
              
              Deficit
              
              Compensation
              
              (Deficit)Balances,
                  January 1, 2006
              
              
              322,333
              
              $
              322
              
              
              1
              
              $
              -
              
              
              140,606,672
              
              $
              14,061
              
              $
              30,516,359
              
              $
              (31,167,065
              )
              $
              (28,058
              )
              $
              (664,381
              )Issuance
                  of convertible preferred stock pursuant to private equity
                  placements
              
              
              24,583
              
              
              25
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              138,475
              
              
              -
              
              
              -
              
              
              138,500Issuance
                  of common stock and warrants pursuant to private equity
                  placements
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              39,000,000
              
              
              3,900
              
              
              1,076,500
              
              
              -
              
              
              -
              
              
              1,080,000Conversion
                  of convertible preferred stock into common stock
              
              
              (137,059
              )
              
              (137
              )
              
              -
              
              
              -
              
              
              13,705,940
              
              
              1,371
              
              
              (1,234
              )
              
              -
              
              
              -
              
              
              -Issuance
                  of common stock pursuant to settlement agreements for redemption
                  of
                  preferred stock and accrued dividends with former officer
              
              
              (100,000
              )
              
              (100
              )
              
              -
              
              
              -
              
              
              10,250,000
              
              
              1,025
              
              
              818,975
              
              
              (469,005
              )
              
              -
              
              
              350,895Issuance
                  of equity securities pursuant to severance arrangement with former
                  officer
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,000,000
              
              
              600
              
              
              567,077
              
              
              
              
              
              
              
              
              567,677Issuance
                  of common stock in connection with the conversion of a promissory
                  note and
                  settlement of certain other liabilities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              8,442,500
              
              
              844
              
              
              183,096
              
              
              -
              
              
              -
              
              
              183,940Issuance
                  of common stock for services performed
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,230,360
              
              
              623
              
              
              467,273
              
              
              -
              
              
              -
              
              
              467,896Issuance
                  of options and warrants for services performed
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              545,345
              
              
              -
              
              
              -
              
              
              545,345Amortization
                  of discount on preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              18,895
              
              
              (18,895
              )
              
              -
              
              
              -Reclassification
                  of warrants and options from equity to liabilities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,315,085
              )
              
              -
              
              
              -
              
              
              (1,315,085
              )Recognition
                  of beneficial conversion feature on convertible debt
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              97,497
              
              
              
              
              
              
              
              
              97,497Dividends
                  on convertible preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (90,565
              )
              
              -
              
              
              (90,565
              )Recognition
                  of expense on deferred compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              28,058
              
              
              28,058Net
                  loss, year ended December 31, 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,895,262
              )
              
              -
              
              
              (3,895,262
              )Balances,
                  December 31, 2006
              
              
              109,857
              
              $
              110
              
              
              1
              
              $
              -
              
              
              224,235,472
              
              $
              22,424
              
              $
              33,112,773
              
              $
              (35,640,792
              )
              $
              -
              
              $
              (2,505,485
              )




See
      notes
      to the consolidated financial statements


F-6


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**





Year
                Ended December 31,2006
            
            2005Cash
                Flows From Operating ActivitiesNet
                Loss
            
            $
            (3,895,262
            )
            $
            (2,218,257
            )Adjustments
                to Reconcile Net Loss to Net Cash Used by OperationsDepreciation
                and amortization
            
            
            173,570
            
            
            153,766Securities
                issued for various expenses
            
            
            1,555,017
            
            
            106,197Recognition
                of expense - deferred compensation
            
            
            28,058
            
            
            375,478Recognition
                of expense - derivative conversion feature
            
            
            102,762
            
            
            -Amortization
                of debt discounts - beneficial conversion feature
            
            
            97,497
            
            
            -Amortization
                of debt discount - warrants issued with debt
            
            
            67,503
            
            
            -Loss
                on disposition of assets
            
            
            356
            
            
            -Impairment
                of software intangibles
            
            
            174,954Write-down
                of inventories
            
            
            -
            
            
            6,214Change
                in value of derivative liabilities
            
            
            (294,898
            )
            
            -Bad
                debt provision
            
            
            1,900
            
            
            -Decreases
                (Increases) in AssetsAccounts
                receivable
            
            
            20,332
            
            
            8,332Miscellaneous
                receivables
            
            
            -
            
            
            11,322Prepaid
                expenses
            
            
            8,897
            
            
            33,207Other
                assets
            
            
            23,996
            
            
            (2,167
            )Increases
                (Decreases) in LiabilitiesAccounts
                payable and accrued expenses
            
            
            171,500
            
            
            38,905Deferred
                revenue
            
            
            77,290
            
            
            (23,834
            )Obligations
                to be settled in stock
            
            
            97,439
            
            
            -Deferred
                rental obligation
            
            
            -
            
            
            (1,045
            )Net
                Cash Used by Operating Activities
            
            
            (1,589,089
            )
            
            (1,509,884
            )Cash
                Flows From Investing ActivitiesPurchases
                of equipment, fixtures, and software
            
            
            (8,993
            )
            
            (5,587
            )Net
                Cash Used by Investing Activities
            
            
            (8,993
            )
            
            (5,587
            )Cash
                Flows From Financing ActivitiesDividends
                paid
            
            
            -
            
            
            -Repayment
                of capital lease obligations
            
            
            (257
            )
            
            (2,977
            )Proceeds
                from loans payable
            
            
            437,450
            
            
            54,500Repayment
                of loans payable
            
            
            (95,000
            )
            
            (54,500
            )Proceeds
                from issuance of common and preferred stock
            
            
            1,218,500
            
            
            1,593,000Net
                Cash Provided by Financing Activities
            
            
            1,560,693
            
            
            1,590,023Net
                Increase (Decrease) in Cash
            
            
            (37,389
            )
            
            74,552Cash
                at beginning of period
            
            
            118,696
            
            
            44,144Cash
                at end of period
            
            $
            81,307
            
            $
            118,696SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATIONInterest
                Paid
            
            $
            15,687
            
            $
            21,960Taxes
                Paid
            
            $
            1,000
            
            $
            630





See
      notes
      to the consolidated financial statements.


F-7


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**Year
      Ended December 31, 2006**




Schedule
                of non-cash investing and financing activitiesIn
                connection with the settlement of certain liabilities stemming from
                prior
                agreements with a consultant and two former officers of the Company,
                and
                the conversion of a promissory note for $99,890, 8,442,500 common
                shares
                were issued
            
            $
            183,940In
                connection with the redemption of the Company’s Series C preferred stock
                and accrued dividends, 10,250,000 common shares were
                issued
            
            $
            819,900Value
                of options and warrants reclassified during the year from equity
                to
                liabilities
            
            $
            1,315,085Recognition
                of beneficial conversion feature on convertible debt
                instruments
            
            $
            97,497




See
      notes
      to the consolidated financial statements


F-8


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**Year
      Ended December 31, 2005**





Schedule
                of non-cash investing and financing activitiesIn
                connection with consideration for settlement of accruals for past
                services, 130,000 common shares and options for 1,200,000 common
                shares
                were issued
            
            $
            121,780In
                connection with consideration for future services, 3,500,000 common
                shares
                and warrants for 1,000,000 were issued and recorded initially as
                deferred
                compensation
            
            $
            337,900




See
      notes
      to the consolidated financial statements.


F-9







**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**





SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Nature
      of
      Organization




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





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





Prior
      to
      its change in its strategic business plan in 2007, the Company’s primary product
      was 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.





During
      the latter half of fiscal year 2006, Company management concluded that the
      marketplace for the Company’s ergonomic software products was not developing,
      and would not develop to the material extent necessary in the next 12 to 24
      months, to support and sustain the Company’s sales efforts. Accordingly,
      management determined that it would be in the best interests of the Company
      and
      its shareholders to identify another business opportunity and pursue it for
      the
      benefit of our shareholders. **** On
      February 19, 2007, the Company, pursuant to its strategic plan to seek another
      business opportunity, signed an Agreement and Plan of Reorganization with the
      owners of a social networking website, to acquire their Kiwibox.com website
      and
      business, represented by Kiwibox Media, Inc. (see “Subsequent Events”).
      Thereafter, in March 2007, the Company signed an exclusive licensing and support
      agreement with Imminent Technologies, Inc., licensing the rights to sell,
      support and further develop its ergonomic business and products.





Cash
      and
      cash equivalents




The
      Company accounts for cash and other highly liquid investments with original
      maturities of three months or less as cash and cash equivalents.





Principles
      of Consolidation




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





Depreciation




Property,
      plant and equipment are recorded at cost. Depreciation on equipment, furniture
      and fixtures and leasehold improvements is computed on the **** straight
      line method over the estimated useful lives of such assets between 5-10 years.
      Maintenance and repairs are charged to operations as incurred. Repairs and
      maintenance which do not extend the useful lives of the related assets are
      expensed as incurred.




F-10


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**





SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)




Advertising
      Costs




Advertising
      costs are charged to operations when incurred. Advertising expense was $387
      and
      $811 for the years ended December 31, 2006 and 2005, respectively.





Evaluation
      of Long Lived Assets




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





Securities
      Issued for Services




The
      Company accounts for stock, stock options and stock warrants issued for services
      and compensation by employees under the fair value method. For non-employees,
      the fair market value of the Company’s stock is measured on the date of stock
      issuance or the date an option/warrant is granted. The Company determined the
      fair market value of the warrants/options issued under the Black-Scholes Pricing
      Model. Effective January 1, 2006, the Company adopted the provisions of
      Statement of Financial Accounting Standards (SFAS) 123(R), SHARE-BASED PAYMENT,
      which establishes accounting for equity instruments exchanged for employee
      services. Under the provisions of SFAS 123(R), share-based compensation cost
      is
      measured at the grant date, based on the fair value of the award, and is
      recognized as an expense over the employee's requisite service period (generally
      the vesting period of the equity grant). Prior to January 1, 2006, the Company
      accounted for share-based compensation to employees in accordance with
      Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
      TO
      EMPLOYEES, and related interpretations. The Company also followed the disclosure
      requirements of SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company
      elected to adopt the modified prospective transition method as provided by
      SFAS
      123(R) and, accordingly, financial statement amounts for the prior periods
      presented in the Form 10-KSB have not been restated to reflect the fair value
      method of expensing share-based compensation.





Reclassification
      of certain securities under EITF 00-19





Pursuant
      to Emerging Issues Task Force (EITF) Issue 00-19, if a company has more than
      one
      contract subject to this Issue, and partial reclassification is required, there
      may be different methods that could be used to determine which contracts, or
      portions of contracts, should be reclassified. The Company's method for
      reclassification of such contracts is reclassification of contracts with the
      latest maturity date first. The changes in fair value for all contracts
      previously reclassified during 2006 amounted in total to a credit of
      $192,137.





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- 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, 2006.


F-11




**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**





SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)




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





Use
      of
      Estimates




The
      preparation of financial statements in conformity with generally accepted
      principles requires management to make estimates and assumptions that affect
      the
      reported amounts of assets and liabilities and disclosure of contingent assets
      and liabilities at the date of the financial statements and the reported amounts
      of revenues and expenses during the reporting period. Actual results could
      differ from those estimates.





GOING
      CONCERN





As
      shown
      in the accompanying financial statements, the Company incurred net losses of
      $3,895,262 and $2,218,257 during the years ended December 31, 2006 and 2005,
      respectively, and has a significant working capital deficiency. The ability
      of
      the Company to continue as a going concern is dependent on increasing sales
      and
      obtaining additional capital and financing. The financial statements do not
      include any adjustments that might be necessary if the Company is unable to
      continue as a going concern. Management’s plans are to continue discussions with
      several potential investors to obtain additional capital in order to alleviate
      the situation.





CONCENTRATIONS
      OF BUSINESS AND CREDIT RISK





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





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





PREPAID
      EXPENSES





Prepaid
      expenses at December 31, 2006 consist of:


Insurance
              
              $
              13,089Services
              
              
              25,900Other
              
              
              800$
              39,789


F-12


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**




PROPERTY
      AND EQUIPMENT





Property
      and equipment consist of the following at December 31, 2006:


Equipment
            
            $
            45,505Less
                accumulated depreciation
            
            
            35,429$
            10,076





Depreciation
      expense charged to operations was $5,921 and $8,226 in 2006 and 2005,
      respectively. As a consequence to the move of our principal offices and the
      curtailment of staff during 2006 we disposed of certain office furniture and
      equipment assets with an aggregate original cost of $124,230 that were no longer
      needed, thereby incurring a loss of $355.




IMPAIRMENT
      OF INTANGIBLE SOFTWARE ASSETS





As
      a
      consequence of the re-direction of our business towards the imminent merger
      with
      Kiwibox Media Inc. (see “Management’s Discussion and Analysis of Operations” in
      our report on Form 10-KSB for this year) and the planned completion of an
      exclusive licensing and support agreement with Imminent Technologies, Inc.,
      licensing the rights to sell, support and further develop our ergonomic business
      and products (see Item 1 “Business” in our report on Form 10-KSB for this year)
      we recognized a loss of $174,955 representing the write-off of the residual
      balance of software assets underlying our ergonomic software
      products.




ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES





Accounts
      payable and accrued expenses consisted of the following at December 31,
      2006:





Accounts
                payable
            
            $
            181,540Accrued
                interest
            
            
            75,029Accrued
                consulting fees
            
            
            5,000Accrued
                professional fees
            
            
            119,132Finder’s
                fee payable on investment
            
            
            50,000Accrued
                payroll
            
            
            34,045Miscellaneous
                accruals
            
            
            2,000$
            466,746




OBLIGATIONS
      TO BE SETTLED IN STOCK





Obligations
      to be settled in stock consisted of the following at December 31,
      2006:





Accrued
                consulting fees
            
            
            72,000Accrued
                commissions
            
            
            25,439$
            97,439





Accrued
      consulting fees are due to two consultants for fourth quarter 2006 fees payable
      in a total of 725,000 common shares based on the consulting agreements entered
      into in 2006.


F-13





**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**




OBLIGATIONS
      TO BE SETTLED IN STOCK (continued)





Accrued
      commissions are due to a consultant who is retained in the capacity of Senior
      Vice President of Business Development. In accordance with the terms of the
      consulting agreement, one half of such commissions are payable in cash and
      the
      other half in form of restricted shares of the Company’s common stock, valued at
      the market price of the Company’s common stock on the date payment of such
      commissions are made. At December 31, 2006, the price of the stock was $0.03
      which would, had payment of the commission been made that day, require issuance
      of 423,983 shares.




LOANS
      PAYABLE





The
      Company and Magnitude, Inc. had borrowings under short term loan agreements
      with
      the following terms and conditions at December 31, 2006:





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, 2006 and no
                demand
                for payment has been made.
            
            $
            75,000Total
            
            $
            75,000




F-14





**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**





NOTES
      PAYABLE





At
                December 31, 1999 the Company had $1,475,000 of notes outstanding
                related
                to a June 1995 private placement offering. During 2000 the holders
                of
                $1,450,000 worth of notes agreed to accept partial repayment of
                approximately 30% of the note balances and converted the remaining
                balances into common shares orconvertible
                preferred shares. The total amount of non-converted notes outstanding
                at
                December 31, 2006 is $25,000. Attempts to locate the holder of this
                note,
                to settle this liability, have been unsuccessful.
            
            $
            25,000In
                July 2006 two investors who also are shareholders advanced $342,450
                to the
                Company, for which the Company issued two promissory notes, bearing
                interest at the rate of 8 % per year, repayable on demand.
            
            $
            342,450Total
            
            $
            367,450




LONG-TERM
      DEBT





Long-term
      debt as of December 31, 2006 is comprised of the following:





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.
            
            
            33,529Total
            
            
            33,529Less
                current maturities
            
            
            33,529Long-term
                debt, net of current maturities
            
            $
            -




During
      the fourth quarter the Company retired a note for $99,890 issued to Steven
      D.
      Rudnik, the former president and chief executive officer. On December 13, 2006,
      the Company and Steven D. Rudnik, signed a settlement agreement, pursuant to
      the
      principal terms of which Mr. Rudnik exchanged the above promissory note, a
      $15,000 payment due him under his resignation agreement of August 8, 2006 and
      certain interest payments for a conversion option whereby the obligations could
      be converted into common stock at $0.02 per share (6,250,000 common shares
      upon
      agreement) and 3,125,000 warrants, exercisable over a three year period at
      an
      exercise price of $.05 per share (see “Commitments and Contingencies” and
“Related Party Transactions”)..


F-15





**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**





DEFERRED
      REVENUES





Deferred
      revenues at December 31, 2006 consist of prepaid software maintenance and
      support charges which are amortized ratably over the remaining duration of
      the
      underlying maintenance agreements. On April 13, 2006 the Company received a
      deposit of $100,000 from a client who also is an investor in the Company. These
      funds were paid pursuant to a contract for the purchase of a customized version
      of the Company’s software products. At December 31, 2006 the contract had not
      been filled and the revenue has been deferred.





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, 2006 is $0
      with a liquidation price of $100,000. As of December 31, 2006, 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, 2006
      is
      $29 with a liquidation price of $146,500. The following is a description of
      the
      Series A convertible preferred stock:





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





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





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




F-16


**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, 2006 there were $82,284 Series A Senior Convertible Preferred
      share
      dividends accrued and unpaid representing $2.81 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, 2006
      is
      $0. The following is a description of the Series B Senior Convertible
      Stock:





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





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





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




F-17


**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, 2006 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. There were no shares of Series C Senior Convertible
      Preferred Stock outstanding at December 31, 2006. The following is a description
      of the Series C Senior Convertible Stock:





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





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





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




F-18


**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, 2006 there were no Series C Senior Convertible Preferred share
      dividends accrued and unpaid.





On
      April
      10, 2006, the Company and Michael G. Martin, a former officer and director,
      entered into a Settlement and Conversion Agreement. Pursuant to the principal
      terms of this Agreement, Martin converted $900,000 of the stated value of the
      shares of 7% Series C Senior Convertible Preferred Stock and approximately
      $331,000 of accrued but unpaid dividends into 10,250,000 common shares of the
      Company. As a result of this Agreement, approximately $331,000 in current
      liabilities were terminated and removed from the Company's balance sheet. The
      agreement furthermore stipulated that $60,000 would be paid in cash over the
      course of twelve months for covenants in the agreement by the former holder,
      including a covenant not to compete for a period of two years. This amount
      has
      been recorded as an intangible asset, amortizable over the term of the
      agreement. In August 2006 the Company and the former shareholder agreed to
      settle the then outstanding amount of $55,000 plus additional settlement
      compensation of $65,000 by issuance of 2,000,000 restricted common
      shares.





Series
      D
      of the Senior Convertible Preferred Stock series which was issued in 2000 has
      500,000 shares designated, 63,890 shares issued and outstanding. The total
      outstanding Series D Senior Convertible Preferred Stock at December 31, 2006
      is
      $64 with a liquidation price of $575,010. The following is a description of
      the
      Series D Senior Convertible Stock:





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





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





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





F-19


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**





PREFERRED
      STOCK - (Continued)





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





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





As
      of
      December 31, 2006 there were $249,884 Series D Senior Convertible Preferred
      share dividends accrued and unpaid representing $3.91 per share.





Series
      E
      of the Senior Convertible Preferred Stock series which was issued in 2005 has
      500,000 shares designated, 16,667 shares issued and outstanding. The total
      outstanding Series E Senior Convertible, Preferred Stock at December 31, 2006
      is
      $17 with a liquidation price of $100,100. The following is a description of
      the
      Series E convertible preferred stock:





(1)
            The
                holders of said shares of Series E Senior Preferred shall be entitled
                to
                receive cumulative dividends at the rate of six percent (6%) per
                annum,
                payable at the time said shares are converted into shares of common
                stock
                of the Company and when declared by the board of Directors, before
                any
                dividend shall be declared, set apart for, or paid upon the Common
                Stock
                and any other Preferred Stock of the Company. The Dividend Rate shall
                accrue on the Stated Value, which Stated Value shall be noted on
                the
                certificate issued to the holder of each share of the Series E Senior
                Preferred. The dividends on the Series E Senior Preferred, payable
                in
                cash, shall be cumulative, so that if the company fails in any fiscal
                year
                to pay such dividends on all the issued and outstanding Series E
                Senior
                Preferred, such deficiency in the dividends shall be fully paid,
                but
                without interest, before any dividends shall be paid on or set apart
                for
                any other class of Preferred Stock or the Common Stock. The holders
                of the
                currently outstanding shares of Series E Senior Convertible Stock
                have
                waived their right for dividends, consequently, no dividends have
                been
                accrued on this stock.





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





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




F-20




**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**





PREFERRED
      STOCK - (Continued)





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





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





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





(7)
            Each
                share of Series E Senior Preferred shall automatically convert, on
                the
                date six months after the date of issuance (the “Conversion Date”) which
                Conversion Date shall be noted on the certificate issued to the holder
                of
                each share of the Series E Senior Preferred, into shares of Common
                Stock
                of the Company on the basis of one hundred (100) shares of Common
                Stock
                for 1 share of Series E Senior Preferred. The holder of any shares
                of
                Series E Senior Preferred shall surrender, as soon as practicable
                on or
                after the Conversion Date, at the principal office of the Company
                or at
                such other office or agency maintained by the Company for that purpose,
                the certificate or certificates representing the shares of Series
                E Senior
                Preferred due for conversion. As promptly as practicable, and in
                any event
                within ten business days after surrender of such certificates, the
                Company
                shall deliver or cause to be delivered certificates representing
                the
                number of validly issued, fully paid and non-assessable shares of
                Common
                Stock of the Company to which such holder of Series E Senior Preferred
                so
                converted shall be entitled. Such conversion shall be deemed to have
                been
                made at the close of business on the Conversion Date, so that the
                rights
                of the holders of the Series E Senior Preferred shall thereafter
                cease
                except for the right to receive Common Stock of the Company in accordance
                herewith, and such converting holder of Series E Senior Preferred
                shall be
                treated for all purposes as having become the record holder of such
                Common
                Stock of the Company at such time.





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




F-21


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**





PREFERRED
      STOCK - (Continued)




During
      the month of November 2005, the company issued shares of Series E Convertible
      Preferred Stock with detachable warrants for an investment of $100,000. Due
      to
      the convertible nature of the stock and the fact that the security was
      in-the-money at the commitment date, the Company recorded a charge due to the
      beneficial conversion feature of
      $25,194 in accordance with EITF Issue No. 98-5,*Accounting
      for Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios*,
      and
      EITF Issue No. 00-27,*Application
      of EITF Issue No. 98-5 to Certain Convertible Instruments*.
      The
      value of the beneficial conversion feature was measured using the intrinsic
      value and is being amortized to implied preferred stock dividends to the date
      of
      earliest exercise, which is six months from the date of issuance. The amount
      amortized to implied preferred stock dividends in 2005 was approximately
      $6,298.The
      warrants issued in connection with the preferred stock remain outstanding.




As
      of
      December 31, 2006 there were no Series E Senior Convertible Preferred share
      dividends accrued.





INCOME
      TAXES





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




Year
                Ended December 31,2006
            
            2005State
                current provision (benefit)
            
            $
            (34,740
            )
            $
            (209,264
            )State
                deferred provision (benefit)
            
            
            -
            
            
            -$
            (34,740
            )
            $
            (209,264
            )





In
      1998,
      the State of New Jersey enacted legislation allowing emerging technology and/or
      biotechnology companies to sell their unused New Jersey Net Operating Loss
      (“NOL”) Carryover and Research and Development Tax Credits (“R&D Credits) to
      corporate taxpayers in New Jersey. During 2004 and 2003, the Company entered
      into an agreement under which it retained a third party broker to identify
      a
      buyer for its NOL Carryover. The total tax benefit of this transaction was
      $34,740 in 2006 and $209,264 in 2005.





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





December
                31,2006
            
            2005Total
                deferred tax asset, noncurrent
            
            $
            11,110,000
            
            $
            9,155,000Less
                valuation allowance
            
            
            (11,110,000
            )
            
            (9,155,000
            )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 31,2006
            
            2005Tax
                benefit
            
            
            40
            %
            
            40
            %Valuation
                allowance
            
            
            (40
            %)
            
            (40
            %)Effective
                tax rate
            
            
            -
            
            
            -




F-22


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to the Consolidated Financial Statements**





INCOME
      TAXES - (Continued)





At
      December 31, 2006, the Company has available approximately $29,825,000 of net
      operating losses to carry-forward and which may be used to reduce future federal
      taxable income and expire between December 31, 2007 and 2025.





At
      December 31, 2006, the Company has available approximately $16,140,000 of net
      operating losses to carry-forward and which may be used to reduce future state
      taxable income which expire December 31, 2012.





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 $8,895 and $13,017 for the years
      ended
      December 31, 2006 and 2005, 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.




F-23


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**





STOCK
      OPTION PLANS - (Continued)





In
      May
      2000 the Company adopted its 2000 Stock Incentive Plan (“the 2000 Plan”). The
      2000 Plan provides that certain options granted thereunder are intended to
      qualify as “incentive stock options” (ISO) within the meaning of Section 422A of
      the United States Internal Revenue Code of 1986, while nonqualified options
      may
      also be granted under the Plan. The initial Plan provides for the grant of
      options for up to 5,000,000 shares. The purchase price per share of common
      stock
      deliverable upon exercise of each ISO shall not be less than 100% of the fair
      market value of the common stock on the date such option is granted. If an
      ISO
      is issued to an individual who owns, at the time of grant, more than 10% of
      the
      total combined voting power of all classes of the Company’s common stock, the
      exercise price of such option shall be at least 110% of the fair market value
      of
      the common stock on the date of the grant, and the term of the option shall
      not
      exceed five years from the date of grant. The purchase price of shares subject
      to non-qualified stock options shall be determined by a compensation committee
      established by the Board of Directors.





Qualified
                and Non-Qualified Shares Under Option Pursuant to the 1997 Plan
              December
                31,2006
            
            2005Outstanding,
                beginning of year
            
            
            420,000
            
            
            437,000Granted
                during the year
            
            
            -
            
            
            -Expired
                during the year
            
            
            (420,000
            )
            
            (7,000
            )Surrendered
                during the year
            
            
            -
            
            
            (10,000
            )Outstanding,
                end of year (at a price of $1.00 per share)
            
            
            -
            
            
            420,000Eligible,
                end of year for exercise (at a price of $1.00 per share)
            
            
            -
            
            
            420,000





At
      December 31, 2006 and 2005, the weighted average exercise price and weighted
      average remaining contractual life is $0 and $1.00 per share and 0 months and
      0
      year 4 months, respectively.





At
      December 31, 2006, there were 1,000,000 shares reserved for future option
      grants.





Qualified
                and Non-Qualified Shares Under Option Pursuant to the 2000 Plan
              December
                31,2005
            
            2005Outstanding,
                beginning of year
            
            
            783,958
            
            
            2,688,442Granted
                during the year
            
            
            -
            
            
            -Exercised
                during the year
            
            
            -
            
            
            -Surrendered
                during the year
            
            
            -
            
            
            (1,865,484
            )Expired
                during the year
            
            
            (452,458
            )
            
            (39,000
            )Outstanding,
                end of year (at prices ranging from $0.1325 to $0.50)
            
            
            331,500
            
            
            783,958Eligible,
                end of year for exercise (at prices ranging from $0.1325 to
                $0.50)
            
            
            331,500
            
            
            783,958





At
      December 31, 2006 and 2005 the weighted average exercise price and weighted
      average remaining contractual life is $0.17 and $0.53 per share and 4 months
      and
      10 months, respectively.





At
      December 31, 2006, there were 4,668,500 shares reserved for future option
      grants.




F-24


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**





STOCK
      OPTION PLANS - (Continued)





At
      December 31, 2006 the company has two stock-based employee compensation plans,
      which are described more fully above. The company accounts for those plans
      under
      the recognition and measurement principles of APB Opinion No. 25, *Accounting
      for Stock Issued to Employees,* and
      related Interpretations. The Company has not granted any options to employees
      during the years 2006 and 2005.





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




December
                31,2006
            
            2005Outstanding,
                beginning of year
            
            
            6,226,116
            
            
            8,566,866Granted
                during the year
            
            
            6,653,542
            
            
            1,200,000Exercised
                during the year
            
            
            -
            
            
            -Surrendered
                during the year
            
            
            -
            
            
            (2,632,225
            )Expired
                during the year
            
            
            (853,750
            )
            
            (908,525
            )Outstanding,
                end of year (at prices ranging from $0.01 to $1.00)
            
            
            12,025,908
            
            
            6,226,116Eligible,
                end of year (at prices ranging from $0.01 to $1.00)
            
            
            9,122,366
            
            
            6,226,116





At
      December 31, 2006 and 2005 the weighted average exercise price and weighted
      average remaining contractual life is $0.20 and $0.57 per share, and 1 year
      11
      months and 2 years 5 months, respectively.





Of
      the
      options granted during the year ended December 31, 2006, 3,750,000 were granted
      as stock-based compensation to a consultant and 2,903,542 were granted to the
      same former officer under a settlement agreement resulting in stock-based
      compensation of $137,026 (see “RELATED PARTY TRANSACTIONS”). These options were
      valued using the Black-Scholes fair value method, with the following range
      of
      assumptions based on the fair value of common stock and exercise price of the
      warrants when the warrants were granted: risk-free rates - 4.34% to 4.86%,
      dividends - 0, volatility - 117% to 155%. Total stock-based compensation
      recorded for the options issued to consultants was $256,925 for the year ended
      December 31, 2006.





WARRANTS





The
                Company granted common stock purchase warrants between January 2,
                2005 and
                December 31, 2006 which are comprised as
                follows:.





December
                31,2006
            
            2005Outstanding,
                beginning of year
            
            
            50,886,017
            
            
            30,688,599Granted
                during the year
            
            
            32,416,666
            
            
            23,343,334Exercised
                during the year
            
            
            -
            
            
            -Surrendered
                during the year
            
            
            (2,625,000
            )
            
            (2,631,916
            )Expired
                during the year
            
            
            (8,943,016
            )
            
            (514,000
            )Outstanding,
                end of year (at prices ranging from $.08 to $.15)
            
            
            71,734,667
            
            
            50,886,017Eligible,
                end of year (at prices ranging from $.08 to $.15)
            
            
            54,526,334
            
            
            50,886,017




At
      December 31, 2006 and 2005, the weighted average exercise price and weighted
      average remaining contractual life is $0.11 and $0.14 per share and 1 year
      11
      months and 1 year 10 months, respectively.





Of
      the
      warrants granted during the year ended December 31, 2006, 4,312,500 were granted
      as stock-based compensation to consultants, 3,125,000 were awarded upon
      conversion of the convertible note held by a former officer and 1,583,333 were
      granted to the same former officer under a settlement agreement resulting in
      stock-based compensation of $70,652 (see “RELATED PARTY TRANSACTIONS”) and
      23,395,833 were issued under common and preferred stock subscription agreements
      entered into during the year. These warrants were valued using the Black-Scholes
      fair value method, with the following range of assumptions based on the fair
      value of common stock and exercise price of the warrants when the warrants
      were
      granted: risk-free rates - 4.68% to 4.87%, dividends - 0, volatility - 154%
      to
      156%. Total stock-based compensation recorded for the warrants issued to
      consultants was $288,419 for the year ended December 31, 2006.





COMMITMENTS
      AND CONTINGENCIES





Lease
      Agreement




On
      September 1, 2006, the Company entered a three year lease (which can be
      terminated by either party after 12 months) for approximately 850 square feet
      of
      office space at 1250 Route 28, Suite 309, Branchburg, New Jersey. This lease
      agreement calls for a base rental payment of $1,103 per month plus
      utility/cam/property tax charges of approximately $600 per month, with nominal
      increases after years two and three. The Company paid $110,079 and $125,742,
      respectively, during 2006 and 2005, for rent expense.


F-25




**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**





COMMITMENTS
      AND CONTINGENCIES (continued)





Settlement
      Agreements




During
      the fourth quarter the Company engaged in two settlement negotiations: the
      first
      was with our former CEO and President, Steven D. Rudnik, pursuant to which
      we
      issued to him 13,861,875 Company securities in exchange for an outstanding
      Company note in the approximate amount of $99,890, accrued interest and a debt
      of $15,000, and; the second settlement was with our former executive, Steven
      Jagels, pursuant to which we issued to him 3,000,000 shares in exchange for
      his
      claims against the Company arising under his employment agreement. . The
      issuances of Company securities in these transactions represented violations
      of
      the private placement offering rules since it raised the issue of whether or
      not
      the publicly filed and pending registration statement acted as an advertising
      mechanism or a Company "general solicitation" of the offering of securities
      in
      these settlement transactions. If a general solicitation was found to have
      occurred, Messrs. Rudnik and Jagels would have the legal right to rescind their
      settlement agreements during the one year period following the consummation
      of
      these transactions. Since Messrs. Rudnik and Jagels had long established, direct
      relationships with Company officers, directors, advisors and shareholders,
      Company management believes that they made their investment decisions based
      upon
      those relationships. The Company firmly believes that no such general
      solicitation, in fact, occurred and would vigorously defend against any such
      claims.





Stock-Based
      Compensation Agreements





In
      March
      2005, the Company entered into an agreement with a consultant providing 500,000
      common shares as a sign-up bonus, 750,000 common shares for services rendered
      during the initial six month period of the contract and an additional 750,000
      common shares for an extension period of six months (through March 2006). The
      Consultant is also entitled to contingent remuneration based on the achievement
      by the Company of certain profit goals. No obligation was incurred for this
      contingent provision in 2005. The consultant is also contingently entitled
      to a
      fee based on proceeds that may be obtained through mergers or other business
      combinations, as follows: 5% of first $1,000,000 in consideration, 4% of the
      second $1,000,000, 3% of the third $1,000,000, 2% of the fourth $1,000,000
      and
      1% of the consideration above $4,000,000.





In
      October 2005, the Company entered into an agreement with two consultants,
      providing for a monthly retainer of $12,000 for a three month period. The
      retainer is to be paid as follows: (1) $4,000 per month starting October 2005,
      (2) $4,000 per month accruing until due in January 2006 and (3) warrants to
      purchase 200,000 of the Company’s common shares, exercisable at $0.10 per share.
      The consultants are contingently entitled to additional fees and warrants based
      on certain achievements for the remainder of the term of the agreement of one
      year, unless extended, and success fees for revenues generated at a rate of
      15%
      for the first year of revenues from an introduced party and 7.5% for such
      revenues for the subsequent four years.





Also
      during 2005, the Company entered into agreements for consulting services, with
      the following provisions: (1) cash commission on sales and/or licensing of
      5% on
      revenues within the first year and 2.5% on subsequent years’ revenues from such
      transactions; (2) if determined to be directly involved in securing the initial
      sale, the consultants’ commission rates per above would be 15% and 7.5%,
      respectively, for transactions with a Federal or State entity and 10% and 5%,
      respectively, for other clients; (3) any cash commission earned per the above
      shall be matched by the Company with a non-qualified stock option to purchase
      that number of shares of the Company’s common stock which equates the amount of
      commission earned (for example, $10,000 in commission would equate to 10,000
      options). The exercise price of such options would be based on 90% of the
      average of the bid and ask prices of the Company’s common stock during the 20
      day trading period preceding the consummation of the transaction, with a minimum
      exercise price of $0.10 per share.


F-26





**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**





During
      the first quarter in 2006 the Company entered into consulting agreements with
      seven outside consultants for sales, marketing and general business advisory
      services. Such consulting agreements provided for compensation packages which
      besides certain cash remuneration include in the aggregate, subject to such
      agreements being in effect at future dates, the issuance of up to 1,200,000
      restricted common shares, warrants for the purchase of up to 2,500,000 shares
      exercisable at prices between $0.10 and $0.15 per share, and options for the
      acquisition of up to 3,250,000 shares exercisable at prices between $0.08 and
      $0.10 per share. Certain of these agreements call for contingent payments of
      earned commissions in cash and restricted stock or with common stock options
      exercisable at the higher of $0.10 per share or 90% of the 20 day trailing
      market price of the Company’s stock prior to the date earned.





The
      Company also entered into an agreement with a sales executive which provided
      for
      the issuance of 400,000 restricted shares and, conditionally, sales commissions
      payable in the form of common shares valued at the higher of $0.10 per share
      or
      90% of the prevailing market price of the Company’s stock.





During
      the second quarter in 2006 the Company’s board of directors ratified a two-year
      consulting agreement with an outside director to provide specialized business
      advisory services and to work directly for the chief executive officer in
      connection with certain sales and marketing projects. The agreement provides
      for
      a compensation package which includes the issuance of (a) 200,000 restricted
      common shares and an option to purchase 500,000 shares at the price of
      $0.15/share at the beginning of the consultancy and again after twelve month,
      and (b) 150,000 restricted shares per month during the term.





In
      August
      2006 the Company entered into a one-year agreement with a firm specializing
      in
      technology and IP transfers, for the purpose of discovering potential candidate
      firms or products that would enhance Magnitude’s own software products and
      marketing stance. Under the agreement, the Company issued 2,254,151 restricted
      common shares valued at $112,708 which vest at the rate of 187,846 shares per
      month. The agreement was terminated in November and 1,556,291 shares were
      returned to the Company and subsequently cancelled.




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, which was repaid in April 2002, with the remaining balance of $274,890
      maturing July 1, 2002. On February 19, 2002, the maturity of the term portion
      of
      $274,890 was extended to July 2003, and the board of directors of the Company
      approved a change in the conversion option towards a rate of $0.10 per share.
      In
      January 2004, $175,000 was repaid and the maturity of the remaining open balance
      of $99,890 was extended to January, 2005. This amount was repaid in the form
      of
      restricted common shares pursuant to a settlement agreement with the holder,
      entered into in December 2006 (see detail description below).





In
      May
      2005, the Company and its President and Chief Executive Officer agreed to
      convert most of his base salary for the remainder of the year 2005 into
      1,000,000 shares of restricted common stock and 1,000,000 warrants, exercisable
      during three years at the price of $0.15 per share, in lieu of $100,000 cash.





In
      September 2005 our officers and directors surrendered for cancellation 4,507,709
      stock options, 2,283,916 common stock purchase warrants and 11,247,607 common
      shares in order to provide sufficient authorized common shares to accommodate
      the Company’s current private placement. We replaced the surrendered and
      cancelled common shares with shares of our Series E preferred stock which are
      automatically convertible in March, 2006, into 11,247,607 common shares, the
      amount of common shares equal
      to
      those surrendered. We also intend to reissue the 4,507,709 stock options and
      2,283,916 warrants also surrendered for cancellation by our officers and
      directors with an equal amount of common shares underlying these securities
      following adoption by the shareholders of a proposed amendment to the Company’s
      certificate of incorporation which amendment if adopted would increase the
      number of authorized common shares from 300,000,000..


F-27





**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**





RELATED
      PARTY TRANSACTIONS (continued)





During
      2006 and 2005, one outside director of the Company who also serves as the
      Company’s general and securities counsel, was paid an aggregate $96,121 and
      $131,140, respectively, for legal services.





On
      August
      8, 2006, Steven D. Rudnik resigned from the position of Chairman of the Board
      of
      Directors of the Company. Pursuant to the principal terms of the resignation
      agreement, (a) his current employment agreement was terminated, (b) he resigned
      the position of chairman, (c) he received 6 million restricted common shares
      plus cash payments totaling $60,000.00 to be paid in installments through
      November 1, 2006, and (d) that options and warrants for an aggregate 4,486,875
      shares which were previously cancelled, be re-issued upon the earlier recurrence
      of a recapitalization of our securities that would provide sufficient common
      shares to accommodate them or two years from the date of the agreement. The
      options and warrants will have similar terms as the original instruments
      (exercisable at $0.10 and $0.15, respectively), but with expiration dates as
      of
      three years from the date of re-issuance.




On
      December 13, 2006, the Company and Steven D. Rudnik, our former President and
      Chief Executive Officer signed a second settlement agreement, pursuant to the
      principal terms of which Mr. Rudnik exchanged **** a
      Company
      promissory note due him in the principal amount of approximately $99,890, a
      $15,000 payment due him under his resignation agreement of August 8, 2006 and
      certain interest payments for a conversion option whereby the obligations could
      be converted into common stock at $0.02 per share (6,250,000 common shares
      upon
      agreement) and 3,125,000 warrants issuable upon conversion, exercisable over
      a
      three year period at an exercise price of $.05 per share. Debt discounts on
      the
      obligations were recognized for the value of the issuable warrants, which was
      determined by a Black-Scholes calculation to be $67,503, and for the intrinsic
      value of the conversion option, which was determined to have a beneficial
      conversion feature. These discounts were immediately amortized as interest
      expense due to the demand nature of the obligations. The obligations were
      converted into the common stock and warrants in December 2006. The Company
      also
      agreed to reissue previously terminated stock options and warrants on or before
      February 18, 2007, comprised of 1,583,333 warrants to purchase common shares
      at
      the exercise price of $.10 per share anytime during the three-year period,
      commencing February 18, 2007, and 2,903,542 stock options to purchase common
      shares at the exercise price of $.10 per share anytime during the three-year
      period commencing February 18, 2007. This agreement also provides Mr. Rudnik
      a
      12-month "reset" provision that entitles him to automatically benefit from
      any
      terms that are more favorable than those set forth in the agreement, including
      a
      more favorable debt conversion rate or equity investment price, that the
      Registrant grants to any party over the next 12 months.




On
      January 2, 2007, the Company and a former employee, Steven W. Jagels settled
      a
      lawsuit commenced by Mr. Jagels against the Company based upon claims which
      included breach of his employment agreement. We agreed to make a payment of
      $20,040 to Mr. Jagels and to issue 3,000,000 common shares to him by January
      7,
      2007. We also agreed to include these shares in this registration statement
      and
      when it is declared effective by the SEC, to cause a buyer to purchase these
      shares from Mr. Jagels for $75,000 prior to February 28, 2007. Upon Mr. Jagels’
receipt of these proceeds, the lawsuit will be discontinued with prejudice,
      or
      if not consummated as agreed, the lawsuit will continue.




F-28


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**




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.




F-29


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**




NEW
      ACCOUNTING PRONOUNCEMENTS





In
      February 2006, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standard (SFAS) No. 155, Accounting for Certain Hybrid
      Financial Instruments. SFAS No. 155 amends
      FASB Statements No.
      133,
      Accounting for Derivative Instruments and Hedging Activities,
      and No.
      140,
      Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilitiesand
      permits fair value remeasurement for any hybrid financial instrument that
      contains
      an
      embedded derivative that otherwise would require bifurcation.





SFAS
      No.
      155 is effective f or
      all
      financial instruments acquired, issued, or subject to a remeasurement (new
      basis) event occurring after the beginning of an entity's first fiscal year
      that
      begins after September 15, 2006. Management
      does not expect the implementation of this new standard to have a material
      impact on the Company’s financial position, results of operations and cash
      flows.





In
      March
      2006, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standard (SFAS) No. 156, Accounting for Servicing of
      Financial Asset. SFAS No. 156 amends
      FASB Statement
      No. 140, Accounting for Transfers and Servicing of Financial Assets and
      Extinguishments of Liabilities,with
      respect to the accounting for separately recognized servicing assets and
      servicing liabilities.





SFAS
      No.
      156 is effective as
      of the
      beginning of an entity's first fiscal year that begins after September 15,
      2006. Management
      does not expect the implementation of this new standard to have a material
      impact on the Company’s financial position, results of operations and cash
      flows.





In
      September 2006, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements. SFAS
      No. 157 defines
      fair value, establishes a framework for measuring fair value in generally
      accepted accounting principles (GAAP), and expands disclosures about fair value
      measurements.





SFAS
      No.
      157 is effective f or
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. Management
      does not expect the implementation of this new standard to have a material
      impact on the Company’s financial position, results of operations and cash
      flows.





On
      September 13, 2006, the SEC released Staff Accounting Bulletin No. 108,
“Considering the Effects of Prior Period Misstatements When Quantifying
      Misstatements in Current Year Financial Statements.”, which provides guidance on
      the consideration of the effects of prior year misstatements in quantifying
      current year misstatements for the purpose of a materiality assessment. The
      standard is effective for the first annual financial statements for fiscal
      years
      beginning after November 15, 2006. The Company is currently considering the
      effect of implementing the requirements of this standard.





On
      February 3, 2006, the FASB issued FASB Staff Position FSP FAS 123R-4,
      "Classification of Options and Similar Instruments Issued as Employee
      Compensation That Allow for Cash Settlement Upon the Occurrence of a Contingent
      Event *."* This
      FASB
      Staff Position (FSP) addresses the classification of options and similar
      instruments issued as employee compensation that allow for cash settlement
      upon
      the occurrence of a contingent event. The guidance in this FSP amends paragraphs 32 and A229
      of
      FASB Statement No. 123 (revised
      2004), Share-Based Payment


F-30


**Magnitude
      Information Systems, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**





NEW
      ACCOUNTING PRONOUNCEMENTS (continued)





On
      October 10, 2006, the FASB issued FASB Staff Position FSP FAS 123R-5, "Amendment
      of FASB Staff Position FAS 123R-1. *"* This
      FASB
      Staff Position (FSP) addresses whether a modification of an instrument in
      connection with an equity restructuring should be considered a modification
      for
      purposes of applying FSP
      FAS
      123(R)-1,
      “Classification and Measurement of Freestanding Financial Instruments Originally
      Issued in Exchange for Employee Services under FASB Statement
      No. 123(R).”





On
      February 3, 2006, the FASB issued FASB Staff Position FSP FAS 123R-6, "Technical
      Corrections of FASB Statement No. 123(R). *"* This
      FASB
      Staff Position (FSP) addresses certain technical corrections of FASB Statement
      No. 123 (revised 2004), Share-Based Payment.





The
      Company’s adoption of SFAS 123(R) and the implementation of these new standards
      did not have a material impact on the Company’s financial position, results of
      operations and cash flows.




LITIGATION





At
      the
      time of this report, the Company is not a party in any legal proceedings.





SUBSEQUENT
      EVENTS





On
      February 19, 2007 we
      signed
      an Agreement and Plan of Reorganization pursuant to the principal terms of
      which
      the business of Kiwibox Media Inc.will be merged into a newly formed wholly
      owned subsidiary of the Company. In exchange for the Kiwibox business, we agreed
      (a) to issue $1,500,000 worth of our restricted common shares and $500,000
      worth
      (conversion value) of our preferred stock to the three Kiwibox owners and to
      pay
      them $300,000 cash at closing; (b) to give each of the three Kiwibox owners
      a
      two-year employment agreement that will pay them each a base salary of $150,000
      per year and 7,500,000 stock options, vesting over two years with the
      possibility of earning cash bonuses and 3,000,000 additional stock options
      each
      if certain business performance goals are reached within the two-year
      period.





We
      also
      have agreed to invest $3.5 million in the Kiwibox business over the course
      of
      two years and have committed to raise these funds prior to closing. The closing
      of the Kiwibox transaction is scheduled to occur on or before April 30, 2007.
      We
      currently have approximately 297,000,000 common shares outstanding on a fully
      diluted basis. Accordingly, in addition to raising the $3.5 million, we must
      amend our Certificate of Incorporation to increase our authorized common shares
      from 300,000,000 to 600,000,000 common shares to have a sufficient number of
      common shares necessary to close the Kiwibox transaction.





In
      February 2007 we completed a bridge financing pursuant to which we issued two
      promissory notes for an aggregate $100,000 received in cash. The notes mature
      in
      90 days and carry interest at the rate of 12% per year. We paid $10,000 and
      issued 500,000 restricted common shares as loan origination fees.




F-31