SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

                   For the Fiscal Year ended December 31, 2004

                                       OR

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

             For the Transition Period From _________ to __________

                          Commission File No. 33-20432

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

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

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

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

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

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

      Securities Registered pursuant to Section 12(g) of the Exchange Act:
      --------------------------------------------------------------------
                         Common Stock, par value $0.0001

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

                                 Yes [X] No [ ]


                                       1
<PAGE>

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

The Registrant's revenues for the fiscal year ended December 31, 2004, were
$121,886.

Common stock, par value $.0001 per share ("Common Stock"), was the only class of
voting stock of the Registrant outstanding on March 29, 2005. Based on the
closing price of the Common Stock on the OTC Electronic Bulletin Board as
reported on March 29, 2005, ($0.10), the aggregate market value of the
119,056,671 shares of the Common Stock held by persons other than officers,
directors and persons known to the Registrant to be the beneficial owners (as
the term is defined under the rules of the Securities and Exchange Commission)
of more than five percent of the Common Stock on March 29, 2005, was
approximately $11,905,667. By the foregoing statements, the Registrant does not
intend to imply that any of the officers, directors, or beneficial owners are
affiliates of the registrant or that the aggregate market value, as computed
pursuant to rules of the Securities and Exchange Commission, is in any way
indicative of the amount which could be obtained for such shares of Common
Stock.

        As of March 29, 2005, 136,437,612 shares of Common Stock, $.0001
                          par value, were outstanding.

             DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX


                                       2
<PAGE>

                       MAGNITUDE INFORMATION SYSTEMS, INC.

                                    CONTENTS

<TABLE>
<CAPTION>
PART I.                                                                                          Page
<S>           <C>                                                                                  <C>

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

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

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

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

PART II.

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

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

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

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

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

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

PART III.

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

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

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

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

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

PART IV

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

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

              Exhibit Index ...................................................................    29
</TABLE>


                                       3
<PAGE>

                                     PART I

ITEM 1: BUSINESS

The Company

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

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

Background

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

      On February 2, 1998, the Company entered into an Agreement and Plan of
Merger with Rolina Corporation, a privately held New Jersey software developing
firm, and acquired the rights to certain software products, with such software
products subsequently forming the basis for the further development of the
Company's proprietary ErgoEnterprise(TM) software system. The operations of
Magnitude Information Systems, Inc. are currently comprised solely of the
operations of Magnitude, Inc.

      The Company is currently subject to the reporting requirements of Section
15(d) of the Securities Exchange Act of 1934. The Company has the authority to
issue an aggregate of Two Hundred Million (200,000,000) Common Shares, par value
$.0001, and Three Million (3,000,000) Preferred Shares, par value $.001, of
which at December 31, 2004, Two Thousand Five Hundred (2,500) were designated as
Cumulative Preferred Shares, par value $.001; Three Hundred Thousand (300,000)
were designated as Series A Senior Convertible Preferred Stock, par value
$0.001; Three Hundred Fifty Thousand (350,000) were designated as Series B
Senior Convertible Preferred Stock, par value $0.001; One Hundred Twenty
Thousand (120,000) were designated as Series C Senior Convertible Preferred
Stock, par value $0.001; Five Hundred Thousand (500,000) were designated as
Series D Senior Convertible Preferred Stock, par value $0.001; and Five Hundred
Thousand (500,000) were designated as Series E Senior Convertible Preferred
Stock, par value $0.001.

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


                                       4
<PAGE>

Narrative Description of Business

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

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

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

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

      o     Computer workstation assessment tools.

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

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

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

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

The Industry

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


                                       5
<PAGE>

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

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

Products, Trademarks

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

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

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

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

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

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


                                       6
<PAGE>

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

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

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

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

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

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

Patents and New Products

ErgoSentry - Patent Granted:

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

ErgoPal Introduced, Patent Pending:

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

Studies Involving ErgoEnterprise(TM)

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

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


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


                                       7
<PAGE>

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

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

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

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

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

      o     The actual workers' compensation savings in the pilot program was
            $120,000.

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

      o     There was a total participation of employees in Pilot Program

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

      o     There was 100% employee satisfaction while using ErgoEnterprise.

      o     Some employees used program to "warm up" prior to their beginning
            work

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

Ergonomic Advisory Board

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

The EAB focuses on strategic issues, such as:

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


                                       8
<PAGE>

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

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

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

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

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

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

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

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

Business Strategy

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

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

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


                                       9
<PAGE>

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

Research and Development

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

      The Company has expensed all expenditures related to the above efforts.
Such expenses totaled approximately $221,000 for the year ended December 31,
2004, and $228,000 for the year ended December 31, 2003.

Competition

      The market addressed by the Company's software products is presently
served by a number of smaller software companies, none of which occupies a
dominant position. For the most, these competitors market software products that
address only one or a few of the task complexes covered by the Company's
products, without thereby offering a comparable breadth of function and
integration in such areas as work-site evaluation, employee training and work
pacing.

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

Seasonality and Dependency

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


                                       10
<PAGE>

Employees

      As of December 31, 2004, the Company employed 10 persons, of whom four
were primarily engaged in research and development and software support
activities, two were primarily engaged in sales and marketing, and four in
general administrative and managerial functions. The Company has no collective
bargaining agreements with its employees.

ITEM 2:  PROPERTIES

      On March 15, 2000, the Company entered a five year lease for approximately
6,000 square feet of office space at 401 Route 24, Chester, New Jersey. This
lease agreement calls for monthly rental payments of $6,500 with nominal
increases after years No. 2, 3, and 4. During February 2005, the term of the
lease was extended to March 31, 2007, at a monthly rental fee of $10,000.

ITEM 3:  LEGAL PROCEEDINGS

      On March 21, 2005, the Company filed a patent infringement lawsuit in the
United States District Court, District of New Jersey, against Niche Software,
Ltd. of New Zealand, alleging that its software product called Workplace(TM)
willfully infringed on the Company's patent underlying its ErgoEnterprise(TM)
product line. The Company intends to vigorously prosecute its infringement
claims against this infringer. Except for this infringement lawsuit, the Company
is not a party in any legal proceedings.

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

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


                                       11
<PAGE>

                                     PART II

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

(a)   Market Information

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

                                                       OTC-BB
                                                       ------
                                            High/Ask             Low/Bid
                                            --------             -------
2003
----
         First Quarter ..............      $   0.15             $   0.08
         Second Quarter .............          0.13                 0.06
         Third Quarter ..............          0.13                 0.06
         Fourth Quarter .............          0.15                 0.07
2004
----
         First Quarter ..............      $   0.20             $   0.09
         Second Quarter .............          0.20                 0.10
         Third Quarter ..............          0.14                 0.09
         Fourth Quarter .............          0.18                 0.10

(b)   Shareholders

      As of March 8, 2005, there were approximately 400 shareholders of record
for the Company's Common Stock. The number of record holders does not include
shareholders whose securities are held in street names.

(c)   Dividends

      The Company has not declared or paid, nor has it any present intention to
pay, cash dividends on its common stock. The Company is obliged, under certain
circumstances, to pay cash dividends on its outstanding cumulative preferred and
convertible preferred stock. At December 31, 2004, the Company was in arrears on
the payment of certain dividends on its Series A, C, and D Senior Convertible
Preferred Stock. Such arrears totaled approximately $433,000.

Recent Issues of Unregistered Securities

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

      (i) 4,720,000 shares of common stock accompanied by warrants for the
purchase of 4,720,000 shares of common stock, exercisable at $0.15/share during
three years, to two foreign and seven domestic accredited investors pursuant to
private placement subscriptions under Section 4(2), Rule 506 of Regulation D and
Regulation S of the Securities Act, which resulted in the receipt by the Company
of $426,000 in cash;

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

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


                                       12
<PAGE>

Amendments to Registration Statement on Form SB-2

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

New Registration Statement on Form SB-2

      Also, on October 20, 2004, the Company's new registration statement on
Form SB-2 (Registration NO. 333-118522), registering a total of 62,794,481
shares, already issued or underlying warrants and convertible preferred stock
already issued, on behalf of certain shareholders and investors in the Company
was declared effective by the Securities and Exchange Commission. The Company
will not receive any proceeds from the sale of any of the registered securities.


                                       13
<PAGE>

ITEM 6: SELECTED FINANCIAL DATA

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

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

      The selected financial information presented below under the captions
"Statement of Operations" and "Balance Sheet" for the years ended December 31,
2004 and 2003 is derived from the financial statements of the Company and should
be read in conjunction with the financial statements and notes thereto.

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

SELECTED FINANCIAL DATA

Balance Sheet                                                December 31,
                                                             ------------
                                                                 2004
                                                             ------------

      Total assets .....................................     $    678,890
      Current liabilities ..............................        1,158,952
      Long-term debt ...................................              256
      Working capital ..................................         (977,831)
      Shareholders' equity .............................     $   (480,228)

Statement of Operations                     For the Year Ended December 31,
                                            -----------------------------
                                                2004             2003
                                            ------------     ------------
      Total revenues ...................    $    121,886     $    162,335
      Operating income (loss) ..........      (2,634,448)      (2,449,421)
      Net (loss) .......................      (2,483,602)      (2,337,881)
      Net (loss) after dividends
      On Preferred Shares ..............      (4,287,356)      (2,464,174)

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


                                       14
<PAGE>

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

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

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

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

Results of Operations for the Year Ended December 31, 2004

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

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

      Gross profits amounted to negative $34,089. Gross profits are burdened
with a fixed charge for amortization of certain proprietary software assets.
Such software assets underlie the Company's products and are being amortized on
a straight line over 10 years, resulting in a level charge of approximately
$13,000 per month to cost-of-goods-sold. Owing to the fact that variable
cost-of-goods-sold expenses are less than 5%, the gross margins will increase
with larger revenues, as the portion of fixed expenses decreases relatively.
After deducting selling -, research -, and general and administrative expenses
of $2,600,359 which increased marginally by 6% from the $2,455,809 recorded in
2003, the Company realized an operating loss of $2,634,448 compared to an
operating loss of $2,449,421 in 2003. Non-operating income and expenses included
$43,069 net interest expense and $20,703 charges for losses on assets. The
Company also realized a credit of $214,618 from the sale of net loss
carry-forward tax credits pursuant to the New Jersey Emerging Technology and
Biotechnology Financial Assistance Act. The year concluded with a net loss of
$2,483,602. After accounting for dividends paid and accrued on outstanding
preferred stock which totaled $174,024 and an accounting charge of $1,629,730
for discounts accrued on preferred stock, the net loss applicable to common
shareholders was $4,287,356 or $0.04 per share, compared to a loss of $2,464,174
or $0.04 per share for the previous year.


                                       15
<PAGE>

Liquidity and Capital Resources

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

      At December 31, 2004, the deficit in working capital amounted to $977,831
as compared to $968,183 at December 31, 2003. Stockholders' equity showed an
impairment of $480,228 at the end of the year, compared to an impairment of
$377,851 at the beginning of the year. The negative cash flow from operations
totaled approximately $1.68 million and was substantially financed by new equity
which was obtained through private placements. The new equity placements were
consummated by issuance of common stock and convertible preferred stock to
accredited private investors in the United States and overseas. Details of such
transactions can be found in the "Changes and Issuance of Securities" sections
in the Company's reports on Form 10-QSB during the year, as well as in the
pertinent section of this report. During 2004, the Company had filed a new
registration statement on Form SB-2 and amendments to two previously filed
registration statements on Form SB-2, all of which covered common shares
directly issued as well as common shares underlying the previously issued
convertible preferred stock and warrants, in connection with these and prior
financing transactions. These filings were made on behalf of certain investors
in the Company's equities and proceeds of any sales of such registered
securities will accrue entirely to such investors. The filings will shortly be
updated with the current financial statements and forwarded to the Securities
and Exchange Commission for review. During the first three months of 2005 and up
to the time of this submission, more recent equity financing transactions have
generated approximately $645,000 cash in the aggregate which was utilized to
finance operations during that period.

      At the time of this submission, the Company had no bank debt. At December
31, 2004 its short-term liabilities, aside from trade payables and accruals,
consisted of certain notes and loans aggregating approximately $233,000 of which
approximately $100,000 was owed to the chairman and chief executive officer of
the Company in form of a demand note (see "Related Party Transactions").
Accruals include $474,106 unpaid dividends on outstanding preferred stock. Such
dividends will be paid only if and when capital surplus and cash-flow from
operations are sufficient to cover the outstanding amounts without thereby
unduly impacting the Company's ability to continue operating and growing its
business.

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


                                       16
<PAGE>

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 8a: CONTROLS AND PROCEDURES

      (a)   Evaluation of Disclosure Controls and Procedures.

            Our Chief Executive Officer and our Chief Financial Officer
evaluated the effectiveness of our disclosure controls and procedures as defined
in Rule 13a-15(c) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as of December 31, 2004. Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer, have
concluded that, as of the end of the period covered by this report, our current
disclosure controls and procedures are adequate and effective to ensure that
information required to be disclosed in the reports we file under the Exchange
Act is recorded, processed, summarized and reported on a timely basis.

      (b)   Changes in Internal Controls.

            There have been no significant changes in our internal controls or
in other factors that could significantly affect internal controls during the
period covered by this report.

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

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


                                       17
<PAGE>

                                    PART III

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

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

<TABLE>
<CAPTION>
      Name                 Position                           Term(s) of Office
---------------------      ------------------------------     ---------------------------
<S>                        <C>                                <C>
Steven D. Rudnik           Chief Executive Officer,           Jan.8, 1999, until present
                           President, Director

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

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

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

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

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

Ivano Angelastri           Director                           May 18, 2000 until present

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

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

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

Resumes:

      Steven D. Rudnik, Age 45 - Chairman and Chief Executive Officer,
President. Mr. Rudnik personally developed many of the copyrighted software
products offered by Magnitude Information Systems. Mr. Rudnik co-founded Rolina
Corporation in 1996. Prior to 1996, Mr. Rudnik had executive level positions in
software product development and software company operations. In 1983, Mr.
Rudnik joined Randall-Helms International, Inc. Over the next 13 years, he
conceived and developed four independent families of stock market modeling
software products aimed at the worldwide "large cap" institutional investor
market. These product families generated over US$ 25 million in sales from more
than 400 clients in 23 countries. Mr. Rudnik was Executive Vice President and
Partner at Randall-Helms when it was sold in 1995.

      Mark Chroscielewski, Age 47 - Senior Vice President Business Development.
Since joining the Company in January 2003 Mark Chroscielewski manages our
strategic alliances and develops new marketing strategies to present our
products to both the productivity and ergonomic segments of the corporate
marketplace. Prior to joining our Company, Mr. Chroscielewski was the principal
of a consulting firm, specializing in the development of proprietary data mining
software, modeled for corporate customers seeking an enterprise-wide application
for their customer relations management programs. This software was utilized by
Columbia/HCA, the largest healthcare enterprise in the world, to support its
healthcare claims protocol. Mark's experience includes the co-founding, in 1988,
of a multi-national software marketing enterprise, CrossZ International. As
Chairman and Chief Executive Officer, Mr. Chroscielewski grew this company to 80
plus employees, established international operations, sold product to many
fortune 100 companies including American Express, Philip Morris and MCI while
raising approximately $37 million in equity capital to fund its business and
growth. After participating in its initial public offering in 1997, CrossZ
Software was sold to an Italian consortium, Intelitec in 2002, and is now now
called CrossZ Solutions SA


                                       18
<PAGE>

      Joerg H. Klaube, Age 63 - Chief Financial Officer, Senior Vice President.
Joined Magnitude, Inc. in December 1994. From 1993 to 1994 he was Vice President
Administration for Comar Technologies Inc., a computer retail firm, and from
1983 to 1993 Chief Financial Officer for Unitronix Corporation, a publicly
traded software design and computer marketing firm. Prior to that, Mr.Klaube was
employed for 16 years with Siemens Corp., the US subsidiary of Siemens AG, where
he served most recently as Director of Business Administration for its
Telecommunications Division. He graduated from the Banking School in Berlin,
Germany, and holds an MBA degree from Rutgers University.

      Steven W. Jagels, Age 45 - Senior Vice President Information Systems. Mr.
Jagels joined Magnitude in February 1998. Mr. Jagels has 20 years of software
development experience in such diverse disciplines as clinical laboratory
analysis, stock market modeling, artificial intelligence, and retail business
applications. Mr. Jagels also has experience in the software industry, including
software management, project development, systems analysis, and training. Prior
to his software career, Mr. Jagels had five years experience in biomedical
engineering and management.

      Joseph J. Tomasek, Age 58 - Director. Mr. Tomasek was appointed a director
in February 2000. He has been engaged in the private practice of corporate and
securities law in his own law firm for the last ten years. Mr. Tomasek was
appointed to serve as general counsel for the Company in 1999. In addition to
his work with the Company, Mr. Tomasek represents several other clients in the
area of corporate law.

      Steven L. Gray, Age 56 - Director. Mr. Gray was elected to serve on the
Board on May 18, 2000. He is a resident of Venice, Florida. For the past six
years, Mr. Gray has served as the President and is a shareholder of a private
Florida corporation engaged in the retail distribution of nutritional products.
This corporation has a customer base in nine countries. Prior to that time, Mr.
Gray ran his own real estate development company, specializing in the design and
construction of multi-family housing.

      Ivano Angelastri, Age 42 - Director. Mr. Angelastri was elected to serve
on the Board on May 18, 2000. He is a resident of Zurich, Switzerland. Mr.
Angelastri has been active in portfolio management services for many years.
Since January 24, 2001 he is a director of T&T Vermoegensverwaltungs AG, Zurich,
Switzerland, whose main business is asset management and financial consulting
services for private and institutional clients. Prior to his current position,
Mr. Angelastri served as Managing Director of Megan Services where he performed
financial advisory and portfolio management services.

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

      The Company knows of no person, who at any time during the period from the
date at which it filed its annual report on Form 10-KSB for the year ended
December 31, 2003 to the present, was a director, officer, beneficial owner of
more than ten percent of any class of equity securities of the Company (a
"Reporting Person"), that failed to file on a timely basis any reports required
to be furnished pursuant to Section 16(a) except that directors Joseph Tomasek
and Steven Gray as well as director and officer Steven Rudnik each were late
once in the filing of a transactional report.


                                       19
<PAGE>

ITEM 11: EXECUTIVE COMPENSATION

      The following table sets forth the cash compensation and executive
capacities for the fiscal years ended December 31, 2004, December 31, 2003, and
December 31, 2002, for the chief executive officer and for each executive
officer whose aggregate cash remuneration exceeded $100,000, for all executive
officers as a group, and for certain other most highly compensated employees:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                       Other           Restricted     Securities        All
         Name and                                                      Annual            Stock        Underlying       Other
    Principal Position        Year    Salary ($)    Bonus ($)     Compensation($)      Awards ($)    Options ($)    Compens.($)
    ------------------        ----    ----------    ---------     ---------------      ----------    -----------    -----------
                                         (1)                            (2)               (3)            (4)            (5)
---------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>       <C>            <C>             <C>                <C>             <C>          <C>
Steven D. Rudnik             2004      133,333(6)         -           13,364             36,000             -          3,250
Chief Executive Officer,     2003      133,333(7)         -           15,262             27,000             -          3,250
President                    2002      133,333(8)         -           12,560             42,000             -          3,250
---------------------------------------------------------------------------------------------------------------------------------
Mark Chroscielewski          2004         125,000         -            6,000                  -             -          8,400
Sr. Vice President           2003         125,000         -            6,000                  -             -          8,400
Business Development         2002               -         -                -                  -             -              -
---------------------------------------------------------------------------------------------------------------------------------
Joerg H. Klaube              2004         125,000         -           11,404             36,000             -          1,710
Sr. Vice President,          2003         125,000         -           11,404             67,000             -          1,710
CFO                          2002         125,000         -            9,087             42,000             -          1,710
---------------------------------------------------------------------------------------------------------------------------------
Steven W. Jagels             2004         108,333         -            9,000                  -             -          1,940
Sr. Vice President           2003         108,333         -           11,083                  -             -          1,940
Information Systems          2002         108,333         -            9,000                  -             -              -
---------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------------------
All executive officers
As a group (4 persons)       2004         491,666         -           39,768             72,000             -         15,300
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

-------------------
(1)   The value of other non-cash compensation, except for the items listed
      under (2), (3), (4) and (5), that was extended to or paid for individuals
      named above did not exceed 10% of the aggregate cash compensation paid to
      such individual, or to all executive officers as a group.

(2)   Consists of automobile expenses allowances and vacation pay-out.

(3)   During 2004, the Board of Directors approved stock awards of 300,000
      restricted shares to Rudnik and of 300,000 restricted shares to Klaube.
      During 2003, the Board of Directors approved stock awards of 300,000
      restricted shares to Rudnik and of 800,000 restricted shares to Klaube.
      During 2002, the Board of Directors approved stock awards of 300,000
      restricted shares each to Rudnik and Klaube. These shares are listed in
      the table above at the market price for unrestricted stock quoted at the
      time of the award. The number and value of the aggregate restricted stock
      holdings at the end of fiscal year 2003 (using market prices of
      unrestricted stock at the end of the fiscal year) are as follows:
      S.Rudnik: 4,744,445 shares - $616,778; J.Klaube: 1,400,000 shares -
      $182,000. The valuation of stock awards and end-of-year holdings is in
      conformity with guidelines set forth for SEC Regulation S-B Item 402
      (b)(2)(iv). All such shares are fully vested. The Company does not
      currently foresee to pay dividends on any of these shares.

(4)   .See table for "Stock Options" below.

(5)   Consists of premiums for health and personal life insurance.

(6)   During 2004, the Board of Directors approved the issuance of 16,667 shares
      of Series E Senior Convertible Stock, since converted into 1,666,667
      restricted shares, and warrants for the purchase of 833,333 common shares,
      exercisable during three years at $0.15/share, in lieu of $100,000 cash
      salary; the stated salary figure includes such common shares, valued at
      the nominal $100,000 which they replaced.

(7)   During 2003, the Board of Directors approved the issuance of 1,000,000
      restricted shares in lieu of $100,000 cash salary; the stated salary
      figure includes such shares, valued at the nominal $100,000 which they
      replaced.

(8)  During 2002, the Board of Directors approved the issuance of 1,100,000
     restricted shares in lieu of $110,000 cash salary; the stated salary figure
     includes such shares, valued at the nominal $110,000 which they replaced.

Stock Options :

      The following table sets forth stock options granted during 2004 pursuant
to the Company's 1997 Stock Option Plan and 2000 Stock Incentive Plan, to
executive officers, certain other employees with highest remuneration,
directors, and beneficial owners of more than 10 percent of any class of equity
securities of the Company:


                                       20
<PAGE>

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

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

      The following table sets forth aggregated stock option and warrant
exercises during 2004 by executive officers, certain other employees with
highest remuneration, directors, and beneficial owners of more than 10 percent
of any class of equity securities of the Company:

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

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

1997 Stock Option Plan:

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

2000 Stock Incentive Plan:

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

Compensation of Directors:

      Outside directors are awarded stock options for 40,000 shares each upon
commencement of their office. In addition, the three incumbent outside directors
have been granted, in 2004, restricted stock awards for services rendered, as
follows: I. Angelastri 300,000 common shares; S. Gray 450,000 common shares, J.
Tomasek 800,000 common shares.

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

AUDIT COMMITTEE

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


                                       21
<PAGE>

CORPORATE GOVERNANCE AND CODE OF ETHICS

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


                                       22
<PAGE>

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth, as of March 8, 2005, the record and
beneficial ownership of common stock of the Company by each executive officer
and director, all executive officers and directors as a group, and each person
known to the Company to own beneficially, or of record, five percent or more of
the outstanding shares of the Company:

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

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

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

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

)* The Company also has issued and outstanding as of March 8, 2005, 193,190
shares of its Senior Convertible Preferred Stock, with concentrations in excess
of 10% for one or more of the holders of such stock, however, none of such
shares bear any voting rights.

----------------------------
(1)   For purposes of this table, a person or group of persons is deemed to have
      "beneficial ownership" of any shares of Common Stock which such person has
      the right to acquire within 60 days of March 8, 2005. For purposes of
      computing the percentage of outstanding shares of Common Stock held by
      each person or group of persons named above, any security which such
      person or persons has or have the right to acquire within such date is
      deemed to be outstanding but is not deemed to be outstanding for the
      purpose of computing the percentage ownership of any other person. Except
      as indicated in the footnote to this table and pursuant to applicable
      community property laws, the Company believes based on information
      supplied by such persons, that the persons named in this table have sole
      voting and investment power with respect to all shares of Common Stock
      which they beneficially own.
(2)   Includes options to acquire 512,500 shares and warrants for 125,000
      shares.
(3)   Includes options to acquire 400,275 shares and warrants for 632,333
      shares.
(4)   Includes options to acquire 602,083 shares.
(5)   Includes options to acquire 510,417 shares.
(6)   Includes options to acquire 4,147,917 shares and warrants for 833,333
      shares.
(7)   Includes options to acquire 262,500 shares and warrants for 290,250
      shares.
(8)   Includes warrants for 4,550,000 shares.


                                       23
<PAGE>

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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

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

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

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

      Rosenberg Rich Baker Berman & Company ("Rosenberg") billed us in the
aggregate amount of $40,307 and $39,947 for professional services rendered for
their audit of our annual financial statements and their reviews of the
financial statements included in our Forms 10-QSB for the year ended December
31, 2004 and December 31, 2003, respectively.

AUDIT-RELATED FEES

      Rosenberg did not bill us for, nor perform professional services rendered
for assurance and related services that were reasonably related to the
performance of audit or review of the Company's financial statements for the
fiscal years ended December 31, 2004 and December 31, 2003.


                                       24
<PAGE>

TAX FEES

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

ALL OTHER FEES

      The aggregate fees billed by Rosenberg for services rendered to the
Company during the last two fiscal years, other than as reported above, were $0
and $4,775, respectively.


                                       25
<PAGE>

                                     PART IV

ITEM 15: EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

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

(b)   Reports on Form 8-K

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


                                       26
<PAGE>

                                   SIGNATURES

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

      MAGNITUDE INFORMATION SYSTEMS, INC.

      By: /s/ Steven D. Rudnik           Date:    March 29, 2005
          ----------------------
          Steven D. Rudnik
          President and Chief Executive Officer
          (Principal Executive Officer),
          Chairman of the Board

      By: /s/ Joerg H. Klaube            Date:    March 29, 2005
          ---------------------
          Joerg H. Klaube
          Secretary, Chief Financial Officer
          (Principal Financial Officer)

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

      Name                               Date
      ----                               ----

      /s/ Ivano Angelastri               March 29, 2005
      ---------------------
      Ivano Angelastri, Director

      /s/ Steven L. Gray                 March 29, 2005
      -------------------
      Steven L. Gray, Director

      /s/ Joseph J. Tomasek              March 29, 2005
      ----------------------
      Joseph J. Tomasek, Director


                                       27
<PAGE>

EXHIBIT INDEX

(A)         Financial Statements and Notes to Financial Statements

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

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

(21)        Subsidiaries of the Company:

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

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

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

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

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

OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE

(a)         The Company's Quarterly Reports on Form 10-QSB for the periods ended
            March 31, 2004, June 30, 2004, and September 30, 2004.

(b)         All other reports filed by the Company pursuant to Section 13(a) or
            15(d) of the Exchange Act since the Company's fiscal year ended
            December 31, 2003


                                       28
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries

                        Consolidated Financial Statements

                                December 31, 2004


                                       29
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                 Index to the Consolidated Financial Statements
                                December 31, 2004

                                                                           Page

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

Financial Statements

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

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

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

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

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


<PAGE>

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

                          Independent Auditors' Report

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

We have audited the accompanying consolidated balance sheet of Magnitude
Information Systems, Inc. and Subsidiaries as of December 31, 2004 and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years ended December 31, 2004 and 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Magnitude
Information Systems, Inc. and Subsidiaries as of December 31, 2004 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 2004 and 2003, in conformity with U.S. generally accepted
accounting principles.

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

/s/  Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
March 2, 2005


                                       1
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                           Consolidated Balance Sheet
                                December 31, 2004

<TABLE>
<CAPTION>
              Assets
Current Assets
<S>                                                                          <C>
        Cash                                                                 $     44,144
        Accounts receivable, net of allowance for doubtful accounts of $0          30,630
        Inventory                                                                   6,214
        Miscellaneous receivables                                                  11,322
        Prepaid expenses                                                           88,811
                                                                             ------------
              Total Current Assets                                                181,121
Property and equipment, net of accumulated depreciation of $145,157                 9,997
Software, net of accumulated amortization of $1,041,257                           466,033
Deposits                                                                           21,829
                                                                             ------------
              Total Assets                                                        678,890
                                                                             ============
              Liabilities and Stockholders' Equity (Impairment)
Current Liabilities
        Accounts payable and accrued expenses                                     398,031
        Deferred revenues                                                          49,373
        Deferred rental obligation                                                  1,045
        Dividends payable                                                         474,106
        Loans payable                                                              75,000
        Notes payable                                                              25,000
        Current maturities of long-term debt                                      133,419
        Current maturities of capitalized lease obligations                         2,978
                                                                             ------------
              Total Current Liabilities                                         1,158,952
Capitalized lease obligations, less current portion                                   256
                                                                             ------------
              Total Liabilities                                                 1,159,208
                                                                             ------------

Commitments and Contingencies                                                          --

Stockholders' Equity (Impairment)
        Preferred Stock, $.001 par value, non-voting, 3,000,000
          shares authorized; 193,191 shares issued and outstanding                    193
        Common stock, $.0001 par value, 200,000,000 shares
             authorized; 127,837,612  shares issued and outstanding                12,784
        Additional paid in capital                                             27,499,793
        Accumulated (deficit)                                                 (27,992,998)
                                                                             ------------
              Total Stockholders' Equity (Impairment)                            (480,228)
                                                                             ------------
              Total Liabilities and Stockholders' Equity (Impairment)        $    678,980
                                                                             ============
</TABLE>


See notes to the consolidated financial statements.


                                       2
<PAGE>

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

                                                     Year Ended December 31,
                                                 -----------------------------
                                                     2004             2003
                                                 ------------     ------------

Net Sales
     Software                                    $    121,886     $    162,335
                                                 ------------     ------------
         Total Net Sales                              121,886          162,335
                                                 ------------     ------------

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

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

Research and development costs                          5,548           12,892
Stock-based compensation                              695,692          466,399
Selling, general and administrative expenses        1,899,119        1,976,518
                                                 ------------     ------------

Loss From Operations                               (2,634,448)      (2,449,421)
                                                 ------------     ------------

Other Income (Expense)
     Miscellaneous income                                  --            3,745
     Interest income                                      189               --
     Interest expense                                 (43,258)         (94,823)
     Loss on disposition of assets                    (20,703)            (779)
                                                 ------------     ------------

         Total Other Expense                          (63,772)         (91,857)
                                                 ------------     ------------

Loss Before Provision for Income Taxes             (2,698,220)      (2,541,278)

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

Net Loss                                         $ (2,483,602)    $ (2,337,881)
                                                 ------------     ------------

Dividends on Preferred Shares                    $ (1,803,754)    $   (126,293)
                                                 ------------     ------------
                                                 $ (4,287,356)    $ (2,464,174)
Net Loss Applicable to Common Shareholders
                                                 ============     ============

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

Weighted Average of Common Shares Outstanding      96,968,697       66,962,744
                                                 ============     ============

See notes to the consolidated financial statements.


                                       3
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
            Consolidated Statement of Stockholders' Equity (Deficit)
                          Year Ended December 31, 2003

<TABLE>
<CAPTION>
                                                                                         Discount on
                                            Convertible                Cumulative         Preferred
                                         Preferred Shares           Preferred Shares        Stock               Common Stock
                                      ----------------------    -----------------------   -----------    --------------------------
                                        Shares      Amount       Shares        Amount       Amount         Shares         Amount
                                      ---------    ---------    ---------   -----------   -----------    -----------   -----------
<S>                                   <C>          <C>          <C>         <C>           <C>             <C>          <C>
      Balances, January 1, 2003         195,968    $     196            1   $        --   $        --     56,395,817   $     5,640
Issuance of convertible
preferred stock pursuant to
private equity placements               130,834          131           --            --      (598,289)            --            --
Issuance of convertible
preferred stock for services
performed and accr. Interest              7,405            7           --            --            --             --            --
Issuance of preferred stock
pursuant to conversion of debt           19,593           20           --            --       (48,663)            --            --
Repurchase of preferred stock            (2,778)          (3)          --            --            --             --            --
Receipt of stock subscription
receivable                                   --           --           --                          --             --            --
Issuance of common stock
pursuant to conversion of debt               --           --           --            --            --        220,000            22
Issuance of common stock
pursuant to exercise of options              --           --           --                          --         81,000             8
Issuance of common stock
pursuant to exercise of warrants             --           --           --            --            --      3,552,752           355
Issuance of common stock
pursuant to private equity
placements                                   --           --           --            --            --      9,122,171           912
Issuance of common stock
granted for private placement
finders' fees                                --           --           --            --            --         30,000             3
Issuance of common stock
pursuant to conversion of
accounts payable                             --           --           --            --            --       5620,533            62
Issuance of common stock for
services performed                           --           --           --            --            --      3,828,035           383
Issuance of common stock for
compensation                                 --           --           --            --            --      1,000,000           100
Issuance of common stock for
stock awards                                 --           --           --            --            --      2,363,500           236
Issuance of common stock for
services performed                           --           --           --            --            --             --            --
Issuance of warrants for
services performed                           --           --           --            --            --             --            --
Net loss, year ended December
  31, 2003                                   --           --           --            --            --             --            --
Dividends on convertible
preferred stock                              --           --           --            --            --             --            --
                                      ---------    ---------    ---------   -----------   -----------    -----------   -----------
Amortization of discount on
  preferred stock                            --           --           --            --        16,056             --            --
                                      ---------    ---------    ---------   -----------   -----------    -----------   -----------


      Balances, December 31, 2003       351,022    $     351            1   $        --   $  (630,896)    77,213,808   $     7,721
                                      =========    =========    =========   ===========   ===========    ===========   ===========

<CAPTION>
                                                                                    Total
                                       Stock        Adtional                     Stockholders'
                                   Subscriptions     Paid in      Accumulated      Equity
                                     Receivable      Capital        Deficit       (Deficit)
                                    -----------    -----------    ------------   -----------
<S>                                 <C>            <C>            <C>            <C>
      Balances, January 1, 2003     $    (3,297)   $20,902,010    $(21,241,467)  $  (336,918)
Issuance of convertible
preferred stock pursuant to
private equity placements                    --      1,357,560             --        759,402
Issuance of convertible
preferred stock for services
performed and accr. Interest                 --         44,225             --         44,232
Issuance of preferred stock
pursuant to conversion of debt               --        166,203             --        117,560
Repurchase of preferred stock                --        (24,997)            --        (25,000)
Receipt of stock subscription
receivable                                3,297             --             --          3,297
Issuance of common stock
pursuant to conversion of debt               --         21,978             --         22,000
Issuance of common stock
pursuant to exercise of options              --          8,092             --          8,100
Issuance of common stock
pursuant to exercise of warrants             --        319,792             --        320,147
Issuance of common stock
pursuant to private equity
placements                                   --        646,480             --        647,392
Issuance of common stock
granted for private placement
finders' fees                                --             (3)            --             --
Issuance of common stock
pursuant to conversion of
accounts payable                             --         41,055             --         41,117
Issuance of common stock for
services performed                           --        158,873             --        159,256
Issuance of common stock for
compensation                                 --         99,900             --        100,000
Issuance of common stock for
stock awards                                 --        105,554             --        105,790
Issuance of common stock for
services performed                           --         48,543             --         48,543
Issuance of warrants for
services performed                           --         55,349             --         55,349
Net loss, year ended December
  31, 2003                                   --             --     (2,337,881)    (2,337,881)
Dividends on convertible
preferred stock                              --             --       (110,237)      (110,237)
                                    -----------    -----------    -----------    -----------
Amortization of discount on
  preferred stock                            --             --        (16,056)            --
                                    -----------    -----------    -----------    -----------
      Balances, December 31, 2003   $        --    $23,950,614    $(23,705,641)  $  (377,851)
                                    ===========    ===========    ===========    ===========
</TABLE>

See notes to the consolidated financial statements.


                                       4
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
            Consolidated Statement of Stockholders' Equity (Deficit)
                          Year Ended December 31, 2004

<TABLE>
<CAPTION>
                                                                                           Discount on
                                            Convertible                 Cumulative          Preferred
                                         Preferred Shares            Preferred Shares         Stock             Common Stock
                                    -------------------------    -----------------------   -----------    -------------------------
                                       Shares         Amount       Shares       Amount        Amount        Shares        Amount
                                    -----------    ----------    ---------   -----------   -----------    -----------   -----------
<S>                                 <C>            <C>           <C>         <C>           <C>            <C>           <C>
      Balances, January 1, 2004         351,022    $      351            1   $        --   $  (630,896)    77,213,808   $     7,721
Issuance of convertible
preferred stock pursuant to
private equity placements               156,993           157           --            --      (999,330)            --            --
Issuance of convertible
preferred stock for services
performed                                 1,900             2           --            --            --             --            --
Issuance of convertible
preferred stock  for
compensation                             16,667            17           --            --            --             --            --
Conversion of convertible
preferred stock into common
stock                                  (333,392)         (334)          --            --            --     33,349,202         3,334
Issuance of common stock for
accrued bonus                                --            --           --            --            --        196,680            20
Issuance of common stock for
stock awards                                 --            --           --            --            --      2,000,000           200
Issuance of common stock
pursuant to exercise of options              --            --           --                          --        250,000            25
Issuance of common stock for
rent                                         --            --           --            --            --        200,000            20
Issuance of common stock
pursuant to private equity
placements                                   --            --           --            --            --     12,215,000         1,222
Issuance of common stock
granted for private placement
finders' fees                                --            --           --            --            --        673,333            67
Issuance of common stock for
services performed                           --            --           --            --            --      1,680,000           169
Issuance of common stock for
accrued interest                             --            --           --            --            --         59,589             6
Issuance of options for
services performed                           --            --           --            --            --             --            --
Private placement finders fees               --            --           --            --            --             --            --
Net loss, year ended
December 31, 2004                            --            --           --            --            --             --            --
Dividends on convertible
preferred stock                              --            --           --            --            --             --            --
Amortization of discount on
preferred stock                              --            --           --            --     1,630,226             --            --
                                    -----------    ----------    ---------   -----------   -----------    -----------   -----------
      Balances, December 31, 2004       193,190    $      193            1   $        --   $        --    127,837,612   $    12,784
                                    ===========    ==========    =========   ===========   ===========    ===========   ===========

<CAPTION>
                                    Additional                       Total
                                      Paid in      Accumulated  Stockholders' Equity
                                      Capital        Deficit       (Deficit)
                                    -----------    -----------    -----------
<S>                                 <C>            <C>            <C>
      Balances, January 1, 2004     $23,950,614    $(23,705,641)  $  (377,851)
Issuance of convertible
preferred stock pursuant to
private equity placements             1,935,133             --        935,960
Issuance of convertible
preferred stock for services
performed                                28,098             --         28,100
Issuance of convertible
preferred stock  for
compensation                             99,983             --        100,000
Conversion of convertible
preferred stock into common
stock                                    (3,000)            --             --
Issuance of common stock for
accrued bonus                            19,648             --         19,668
Issuance of common stock for
stock awards                            224,800             --        225,000
Issuance of common stock
pursuant to exercise of options           2,475             --          2,500
Issuance of common stock for
rent                                     23,980             --         24,000
Issuance of common stock
pursuant to private equity
placements                            1,176,828             --      1,178,050
Issuance of common stock
granted for private placement
finders' fees                               (67)            --             --
Issuance of common stock for
services performed                      139,281             --        139,450
Issuance of common stock for
accrued interest                          3,966             --          3,972
Issuance of options for
services performed                       30,150             --         30,150
Private placement finders fees         (132,096)            --       (132,096)
Net loss, year ended
December 31, 2004                            --     (2,483,602)    (2,483,602)
Dividends on convertible
preferred stock                              --       (173,529)      (173,529)
Amortization of discount on
preferred stock                              --     (1,630,226)            --
                                    -----------    -----------    -----------
      Balances, December 31, 2004   $27,499,793    $(27,992,998)  $  (480,228)
                                    ===========    ===========    ===========
</TABLE>


See notes to the consolidated financial statements.


                                        5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                                       ----------------------------
                                                                           2004            2003
                                                                       ------------    ------------

Cash Flows From Operating Activities
<S>                                                                    <C>             <C>
    Net Loss                                                           $ (2,483,602)   $ (2,337,881)

    Adjustments to Reconcile Net Loss to Net Cash Used by Operations
      Depreciation and amortization                                         166,144         178,447
      Stock/options issued for various expenses                             541,172         466,399
      Loss on disposition of assets                                          20,703             779
      Bad debt provision                                                       (212)         30,905
      Forgiveness of debt                                                        --           3,745

    Decreases (Increases) in Assets
        Accounts receivable                                                   5,422         (20,952)
        Miscellaneous receivable                                             (9,522)          1,929
        Inventories                                                              --              30
        Prepaid expenses                                                     25,629          (3,052)
        Other assets                                                          1,954              --

    Increases (Decreases) in Liabilities

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

      Deferred revenue                                                       32,732           1,396

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

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

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

Cash Flows From Investing Activities

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

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

Cash Flows From Financing Activities
    Dividends paid                                                          (58,991)             --
    Repayment of capital lease obligations                                   (2,805)         (2,981)
    Proceeds from loans payable                                                  --         183,323
    Repayment of loans payable                                             (282,851)        (44,793)

    Proceeds from officer loans                                                  --          83,881
    Proceeds from issuance of common and preferred stock                  1,981,914       1,713,338
                                                                       ------------    ------------

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

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

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

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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

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


See notes to the consolidated financial statements.


                                       6
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                          Year Ended December 31, 2004

Schedule of non-cash investing and financing activities

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


               See notes to the consolidated financial statements


                                       7
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                          Year Ended December 31, 2003

Schedule of non-cash investing and financing activities

<TABLE>
<S>                                                                                      <C>
In connection with consideration for consulting services, stock options for 1,935,000
common shares were issued                                                                $     48,543
                                                                                         ============
In connection with consideration for consulting and professional services, stock
warrants for 1,570,250 common shares were issued                                         $     55,349
                                                                                         ============
In connection with the retirement of a short-term loan, 220,000 common shares were
issued                                                                                   $     22,000
                                                                                         ============
In connection with the retirement of accounts payable 30,235 common shares were issued   $      2,116
                                                                                         ============
In connection with consideration for current services, 7,781,833 common shares were
issued                                                                                   $    404,047
                                                                                         ============
In connection with consideration for current services and accrued interest, 7,405
preferred shares were issued                                                             $     44,232
                                                                                         ============
In connection with the retirement of short-term loans, 19,593 preferred shares were
issued                                                                                   $    117,560
                                                                                         ============
In connection with the purchase of equipment, a capitalized lease obligation resulted    $      8,509
                                                                                         ============
</TABLE>


See notes to the consolidated financial statements.


                                       8
<PAGE>


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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Nature of Organization

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

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

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

      Principles of Consolidation

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

      Depreciation

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


                                       9
<PAGE>


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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

     Inventory

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

      Amortization

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

      Advertising Costs

            Advertising costs are charged to operations when incurred.
            Advertising expense was $491 and $31,546 for the years ended
            December 31, 2004 and 2003, respectively.

     Evaluation of Long Lived Assets

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

     Securities Issued for Services

            The Company accounts for stock, stock options and stock warrants
            issued for services and compensation by employees under the
            intrinsic value method. For non-employees, the fair market value of
            the Company's stock on the date of stock issuance or option/grant is
            used. The Company determined the fair market value of the
            warrants/options issued under the Black-Scholes Pricing Model and
            applied a 50% discount due to the trading nature of the Company's
            stock. A similar discount was utilized in valuing stock issued.
            Effective January 1, 1996, the Company adopted Statement of
            Financial Accounting Standard (SFAS) No. 123, "Accounting for
            Stock-based Compensation". The statement generally suggests, but
            does not require, employee stock-based compensation transactions to
            be accounted for based on the fair value of the services rendered or
            the fair value of the equity instruments issued, whichever is more
            reliably measurable. As permitted by the statement, the Company has
            elected to continue to follow the requirements of Accounting
            Principles Board Opinion No. 25, "Accounting for Stock Issued to
            Employees' for employees under the intrinsic value method. The
            adoption of SFAS No. 123 does not have a material impact on the
            financial statements.

     Income Taxes

            The Company provides for income taxes based on enacted tax law and
            statutory tax rates at which items of income and expenses are
            expected to be settled in the Company's income tax return. Certain
            items of revenue and expense are reported for Federal income tax
            purposes in different periods than for financial reporting purposes,
            thereby resulting in deferred income taxes. Deferred taxes are also
            recognized for operating losses that are available to offset future
            taxable income. Valuation allowances are established when necessary
            to reduce deferred tax assets to the amount expected to be realized.
            The Company has incurred net operating losses for
            financial-reporting and tax-reporting purposes. Accordingly, for
            Federal and state income tax purposes, the benefit for income taxes
            has been offset entirely by a valuation allowance against the
            related federal and state deferred tax asset for the year ended
            December 31, 2004.

      Net Loss Per Share

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


                                       10
<PAGE>


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


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

      Revenue Recognition

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

      Use of Estimates

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

GOING CONCERN

      As shown in the accompanying financial statements, the Company incurred
      net losses of $2,483,602 and $2,337,881 during the years ended December
      31, 2004 and 2003, respectively, and has a significant working capital
      deficiency. The ability of the Company to continue as a going concern is
      dependent on increasing sales and obtaining additional capital and
      financing. The financial statements do not include any adjustments that
      might be necessary if the Company is unable to continue as a going
      concern. Management's plans are to continue discussions with several
      potential investors to obtain additional capital in order to alleviate the
      situation.

CONCENTRATIONS OF BUSINESS AND CREDIT RISK

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

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

PREPAID EXPENSES

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

PROPERTY AND EQUIPMENT
      Property and equipment consist of the following at December 31, 2004:
         Equipment                                         $     82,924
         Furniture and fixtures                                  72,230
                                                           ------------
                                                                155,154

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

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


                                       11
<PAGE>

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


ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

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

                                                              $    398,031
                                                              ============

LOANS PAYABLE

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

      On December 4, 1996, Magnitude, Inc. repurchased
      500,000 shares of its common stock and retired same
      against issuance of a promissory note maturing twelve
      months thereafter accruing interest at 5% per annum
      and due December 4, 1998. This note is overdue at
      December 31, 2004 and no demand for payment has been
      made                                                          $     75,000
                                                                    ------------
             Total                                                  $     75,000
                                                                    ============

NOTES PAYABLE

      At December 31, 1999 the Company had $1,475,000 of
      notes outstanding related to a June 1995 private
      placement offering. During 2000 the holders of
      $1,450,000 worth of notes agreed to accept partial
      repayment of approximately 30% of the note balances
      and converted the remaining balances into common
      shares orconvertible preferred shares. The total
      amount of non-converted notes outstanding at December
      31, 2004 is $25,000. Attempts to locate the holder of
      this note, to settle this liability, have been
      unsuccessful                                                  $     25,000
                                                                    ------------
             Total                                                  $     25,000
                                                                    ============


                                       12
<PAGE>

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

LONG-TERM DEBT

      Long-term debt as of December 31, 2004 is comprised of the following:

      Pursuant to the February 2, 1998, Agreement and Plan
      of Merger with Rolina Corporation, the Company had
      issued 155,556 shares (the "Shares") of its common
      stock to the principal of Rolina Corporation who
      currently serves as the Company's Chief Executive
      Officer and Board Chairman, and had issued a Put
      Option for such Shares at a price of $2.41 per share
      in accordance with the provisions contained therein,
      with notice for exercise eligible to be given at any
      time after February 1, 2000, and before 5:00 p.m. on
      the 90th day thereafter. This liability was converted
      into a Company obligation for $274,890 maturing March
      31, 2002 and a demand loan for $100,000 both carrying
      interest at the rate of 7% per year, subsequently
      increased to 10%, payable monthly. The demand portion
      of this note was repaid in April 2002 and the due date
      for $274,890 of the remaining balance was extended to
      July 1, 2003. Subsequently, the maturity of the unpaid
      balance was changed to a portion of $174,890 payable
      on demand, and a portion of $100,000 due and payable
      on January 2, 2005. During the first quarter of 2004,
      $175,000 was repaid and the maturity of the unpaid
      balance was changed to January 1, 2005, and is
      currently due upon demand. The obligation includes an
      option to the holder for conversion of the outstanding
      principal into shares of the Company's common stock at
      the rate of $0.06 per common share equivalent                 $     99,890

      Discounted present value of a non-interest bearing
      $70,000 settlement with a former investor of
      Magnitude, Inc. to be paid in 24 equal monthly
      payments commencing July 1, 1997. The imputed interest
      rate used to discount the note is 8% per annum. This
      obligation is in default                                            33,529
                                                                    ------------
             Total                                                       133,419
                  Less current maturities                                133,419
                                                                    ------------
                  Long-term debt, net of current maturities         $         --
                                                                    ============

CAPITALIZED LEASE OBLIGATIONS

      The Company leases office equipment under a non-cancelable capital lease
      agreement expiring in January 2006. The capital lease obligation has been
      recorded at the present value of future minimum lease payments, discounted
      at an interest rate of 6.00%. The capitalized cost of equipment at
      December 31, 2004 amounted to $2,442 net of accumulated depreciation of
      $6,067.

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

         Year Ending December 31, 2004

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


                                       13
<PAGE>

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

DEFERRED REVENUES

      Deferred revenues at December 31, 2004, amounted to $49,373 related to
      prepaid software maintenance and support charges which are amortized
      ratably over the duration of the underlying maintenance agreements.

PREFERRED STOCK

      Preferred stock is non-voting, $.001 par value per share with 3,000,000
      shares authorized. Cumulative Preferred Stock has 2,500 shares designated
      of which 1 share is issued and outstanding. The total Cumulative Preferred
      Stock at December 31, 2004 is $0 with a liquidation price of $100,000. As
      of December 31, 2004, there was $9,000 of cumulative preferred dividends
      in arrears representing $9,000 per cumulative preferred share.

      Series A of the Senior Convertible Preferred Stock series which was issued
      in 2000 has 300,000 shares designated, 29,300 shares issued and
      outstanding. The total outstanding Series A Senior Convertible Preferred
      Stock at December 31, 2004 is $29 with a liquidation price of $146,500.
      The following is a description of the Series A convertible preferred
      stock:

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

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

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


                                       14
<PAGE>

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

PREFERRED STOCK - (Continued)

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

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

            As of December 31, 2004 there were $42,729 Series A Senior
            Convertible Preferred share dividends accrued and unpaid
            representing $1.46 per share.

      Series B of the Senior Convertible Preferred Stock series which was issued
      in 2000 has 350,000 shares designated, no shares issued and outstanding.
      The total outstanding Series B Senior Convertible Preferred Stock at
      December 31, 2004 is $0. The following is a description of the Series B
      Senior Convertible Stock:

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

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

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


                                       15
<PAGE>

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

PREFERRED STOCK - (Continued)

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

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

            As of December 31, 2004 there were no Series B Senior Convertible
            Preferred share dividends accrued and unpaid.

      Series C of the Senior Convertible Preferred Stock series which was issued
      in 2000 has 120,000 shares designated, 100,000 shares issued and
      outstanding. The total outstanding Series C Senior Convertible Preferred
      Stock at December 31, 2004 is $100 with a liquidation price of $900,000.
      The following is a description of the Series C Senior Convertible Stock:

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

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

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


                                       16
<PAGE>

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

PREFERRED STOCK - (Continued)

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

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

            As of December 31, 2004 there were $252,000 Series C Senior
            Convertible Preferred share dividends accrued and unpaid
            representing $2.52 per share.

      Series D of the Senior Convertible Preferred Stock series which was issued
      in 2000 has 500,000 shares designated, 63,890 shares issued and
      outstanding. The total outstanding Series D Senior Convertible Preferred
      Stock at December 31, 2004 is $64 with a liquidation price of $575,010.
      The following is a description of the Series D Senior Convertible Stock:

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

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

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


                                       17
<PAGE>


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

PREFERRED STOCK - (Continued)

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

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

            As of December 31, 2004 there were $169,357 Series D Senior
            Convertible Preferred share dividends accrued and unpaid
            representing $2.65 per share.

      Series E of the Senior Convertible Preferred Stock series which was issued
      in 2004 has 500,000 shares designated, 0 shares issued and outstanding.
      The total outstanding Series E Senior Convertible Preferred Stock at
      December 31, 2004 is $0 with a liquidation price of $0. The following is a
      description of the Series E convertible preferred stock:

      (1)   The holders of said shares of Series E Senior Preferred shall be
            entitled to receive cumulative dividends at the rate of six percent
            (6%) per annum, payable at the time said shares are converted into
            shares of common stock of the Company and when declared by the board
            of Directors, before any dividend shall be declared, set apart for,
            or paid upon the Common Stock and any other Preferred Stock of the
            Company. The Dividend Rate shall accrue on the Stated Value, which
            Stated Value shall be noted on the certificate issued to the holder
            of each share of the Series E Senior Preferred. The dividends on the
            Series E Senior Preferred, payable in cash, shall be cumulative, so
            that if the company fails in any fiscal year to pay such dividends
            on all the issued and outstanding Series E Senior Preferred, such
            deficiency in the dividends shall be fully paid, but without
            interest, before any dividends shall be paid on or set apart for any
            other class of Preferred Stock or the Common Stock.

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

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


                                       18
<PAGE>

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


PREFERRED STOCK - (Continued)

            Company. In case such remaining net assets are insufficient to cover
            all such payments to holders of Series A, B, C, D and E Senior
            Preferred, the holders of these series shall receive payments on a
            pro rata basis.

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

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

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

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

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

            As of December 31, 2004 there were $1,020 Series E Senior
            Convertible Preferred share dividends accrued.


                                       19
<PAGE>

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


PREFERRED STOCK - (Continued)

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

INCOME TAXES

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

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

      In 1998, the State of New Jersey enacted legislation allowing emerging
      technology and/or biotechnology companies to sell their unused New Jersey
      Net Operating Loss ("NOL") Carryover and Research and Development Tax
      Credits ("R&D Credits) to corporate taxpayers in New Jersey. During 2004
      and 2003, the Company entered into an agreement under which it retained a
      third party broker to identify a buyer for its NOL Carryover. The total
      tax benefit of this transaction was $216,418 in 2004 and $209,084 in 2003.

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

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

       The differences between income tax benefits in the financial statements
       and the tax benefit computed at the combined state and U.S. Federal
       statutory rate of 40% are as follows:
                                                Year Ended December 31,
                                            -----------------------------
                                                2004             2003
                                            ------------     ------------
      Tax benefit                                    40%              40%
      Valuation allowance                            40%              40%
                                            ------------     ------------
      Effective tax rate                              --               --
                                            ============     ============

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

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


                                       20
<PAGE>

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

401(k) PLAN

      The Company adopted the qualified Magnitude, Inc. sponsored 401(k) plan
      covering substantially all full time employees under which eligible
      employees may elect to contribute, within statutory limits, a percentage
      of their annual compensation. The Company matches up to 50% of the
      employee's contribution of which the match may not exceed 3% of the
      employee's total compensation for the plan year. Contributions to the plan
      were $14,389 and $16,175 for the years ended December 31, 2004 and 2003,
      respectively.

STOCK OPTION PLANS

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

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

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


                                       21
<PAGE>


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

STOCK OPTION PLANS - (Continued)

<TABLE>
<CAPTION>
                                                                              Qualified and Non-Qualified
                                                                            Shares Under Option Pursuant to
                                                                                     the 1997 Plan
                                                                                      December 31,
                                                                             ----------------------------
                                                                                     2004            2003
                                                                             ------------    ------------
<S>                                                                          <C>             <C>
      Outstanding, beginning of year                                              607,000         607,000
      Granted during the year                                                          --              --
      Expired during the year                                                    (170,000)             --
       Forfeited during the year                                                       --              --
                                                                             ------------    ------------
      Outstanding, end of year (at prices ranging from $1.00 to $1.78             437,000         607,000
          per share)
                                                                             ------------    ------------
       Eligible, end of year for exercise (at prices ranging from $1.00 to
          $1.78 per share)                                                        437,000         607,000
                                                                             ============    ============
</TABLE>

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

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

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

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

      At December 31, 2004, there were 2,296,558 shares reserved for future
      option grants.

      If the Company had used the fair value based method of accounting for its
      employee stock option plan, as prescribed by Statement of Financial
      Accounting Standards No. 123, compensation cost in net loss for the years
      ended December 31, 2004 and 2003 would have increased by $0 and $0,
      respectively, resulting in net loss of $2,483,602 and $2,337,881 net of
      tax, respectively, and loss per share of $0.04 and $0.04, respectively.
      The value of each option grant is estimated on the date of grant using the
      Black-Scholes option pricing model with the following weighted average
      assumptions: expected dividend, 0%; risk-free interest rate, 5%; expected
      volatility, 115%; and expected life (in years) of 4.4.


                                       22
<PAGE>

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

STOCK OPTION PLANS - (Continued)

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

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                         -----------------------------
                                                                             2004            2003
                                                                         ------------    ------------
<S>                                                                      <C>             <C>
      Outstanding, beginning of year                                        9,054,866       7,174,866
      Granted during the year                                                 250,000       2,180,000
      Exercised during the year                                              (250,000)             --
      Forfeited during the year                                                    --        (250,000)
      Expired during the year                                                (485,000)        (50,000)
                                                                         ------------    ------------
      Outstanding, end of year (at prices ranging from $0.07 to $1.00)      8,569,866       9,054,866
                                                                         ------------    ------------

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

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

WARRANTS

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

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

      At December 31, 2004 and 2003, the weighted average exercise price and
      weighted average remaining contractual life is $0.18 and $0.32 per share
      and 2 years 2 months and 2 years 8 mpnths, respectively.

COMMITMENTS AND CONTINGENCIES

      Lease Agreement

            On March 15, 2000, the Company entered into a lease agreement for
            office space which is utilized for the Company's principal offices.
            Such lease commenced April 15, 2000 and expires on March 31, 2005
            and requires monthly payments of $6,500 from April 15, 2000 through
            March 31, 2002; of $6,695 thereafter through March 31, 2003; of
            $6,896 thereafter through March 31, 2004; and of $7,103 thereafter
            through March 31, 2005. In August 2002 the Company subleased
            additional office space at this location commencing September 1,
            2002 and expiring December 31, 2003. The sublease requires monthly
            payments of $1,955 throughout the sublease term. Consequently, this
            space has been leased directly from the landlord on a month-to-month
            basis at the same monthly rental rate. The Company has subsequently
            negotiated a lease renewal which extends the term of the lease to
            March 31, 2007 at a monthly rental of $10,000.


                                       23
<PAGE>

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


COMMITMENTS AND CONTINGENCIES (continued)

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

            Year Ending December 31,

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

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

      Employment Agreements

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

RELATED PARTY TRANSACTIONS

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

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

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

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

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

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

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


                                       24
<PAGE>

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

RELATED PARTY TRANSACTIONS (continued)

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

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

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

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

CAPITALIZATION

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

MAJOR CUSTOMERS

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

      Limitations

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


                                       25
<PAGE>

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

NEW ACCOUNTING PRONOUNCEMENTS

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

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

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

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


                                       26
<PAGE>

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


NEW ACCOUNTING PRONOUNCEMENTS (continued)

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

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

      In 2004, the FASB issued SFAS Statement No. 151, "Inventory Costs, an
      Amendment of ARB No. 43, Chapter 4". This Statement amends the guidance in
      ARB No. 43, Chapter 4 "Inventory Pricing" to clarify the accounting for
      abnormal amounts of idle facility expense, freight, handling costs and
      wasted materials (spoilage). This Statement requires that these items be
      recognized as current-period charges regardless of whether they meet the
      criterion of "so abnormal". In addition, this Statement requires the
      allocation of fixed production overheads to the costs of conversion be
      based on the normal capacity of the production facilities. The provisions
      of this Statement shall be effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005. Earlier application is
      permitted for inventory costs incurred during fiscal years beginning after
      the date this Statement is issued. The provisions of this Statement shall
      be applied prospectively. The adoption of this Statement is not expected
      to have a significant impact on the Company's results of operations or
      financial position.

SUBSEQUENT EVENTS

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


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