SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A

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

                   For the Fiscal Year ended December 31, 2004


                                       OR

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

                        For the Transition Period From to

                          Commission File No. 33-20432

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

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

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

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


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

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

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


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

                                    Yes X No

                                                                               1
<PAGE>

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

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

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

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

             DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX

Explanatory Note


This Form 10-KSB/A is being filed for the purpose of restating the financial
statements for the fiscal years ended December 31, 2004 and 2003 as contained in
the Company's Form 10-KSB filed with the U.S. Securities and Exchange Commission
on March 30, 2005. The restatement involves reclassifying certain equity
positions in connection with beneficial conversion rights accrued to warrants
and shares of convertible preferred stock issued in 2003 and 2004 due to the
elimination of a discount of 50% applied to the market price of the Company's
common stock when valuing certain securities issued prior to January 1, 2004 to
employees and non-employees for services rendered as well as a reclassification
of deferred compensation. The restatements add $315,450 to the net loss in 2003
and $52,954 to the net loss in 2004, whereby both amounts, however, are being
offset by similar credits to Paid-in Capital, as a consequence of which there
was no material effect on total stockholders' equity. In addition, the
reclassifications and revaluations give rise to corrections in the reported
dividends positions and per-share earnings figures which again, however, do not
materially affect total stockholders' equity.

See Note "Restatement of Results" in the notes to the consolidated financial
statements for further information relating to the restatement. This Form
10-KSB/A has not been updated for events or information subsequent to the date
of filing of the original Form 10-KSB, except in connection with the foregoing.

                                                                               2
<PAGE>

                       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 - as restated................................... 14

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

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

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

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

PART III.

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

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

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

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

      Item 14.    Principal Accountant Fees and Services.................................  24

PART IV

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

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

                  Exhibit Index..........................................................  28
</TABLE>

                                                                               3
<PAGE>
                                     PART I
ITEM     1:       BUSINESS

The Company

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

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

Background

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

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

         The Company is currently subject to the reporting requirements of
Section 15(d) of the Securities Exchange Act of 1934. The Company has the
authority to issue an aggregate of 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,
                                                              (As restated)
                                                            ------------------
Total assets ........................................         $   646,162
Current liabilities .................................           1,158,952
Long-term debt ......................................                 256
Working capital .....................................          (1,010,649)
Shareholders' equity ................................         $  (513,046)


     Statement of Operations               For the Year Ended December 31,
                                       2004 (as restated)   2003 (as restated)
                                       ------------------   ------------------
Total revenues .....................      $    121,886        $    162,335
Operating income (loss) ............        (2,687,402)         (2,764,871)
Net (loss) .........................        (2,536,556)         (2,653,331)
Net (loss) after dividends
On Preferred Shares ................        (4,640,455)         (2,798,406)

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



                                                                              14
<PAGE>


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

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

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

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

Results of Operations for the Year Ended December 31, 2004

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

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

         Gross profits amounted to negative $34,089. Gross profits are burdened
with a fixed charge for amortization of certain proprietary software assets.
Such software assets underlie the Company's products and are being amortized on
a straight line over 10 years, resulting in a level charge of approximately
$13,000 per month to cost-of-goods-sold. Owing to the fact that variable
cost-of-goods-sold expenses are less than 5%, the gross margins will increase
with larger revenues, as the portion of fixed expenses decreases relatively.
After deducting selling -, research -, and general and administrative expenses
of $2,653,313 which decreased marginally by 4% from the $2,771,259 recorded in
2003, the Company realized an operating loss of $2,687,402 compared to an
operating loss of $2,764,871 in 2003. Non-operating income and expenses included
$43,069 net interest expense and $20,703 charges for losses on assets. The
Company also realized a credit of $214,618 from the sale of net loss
carry-forward tax credits pursuant to the New Jersey Emerging Technology and
Biotechnology Financial Assistance Act. The year concluded with a net loss of
$2,536,556. After accounting for dividends paid and accrued on outstanding
preferred stock which totaled $173,529 and an accounting charge of $1,930,372
for discounts accrued on preferred stock, the net loss applicable to common
shareholders was $4,640,455 or $0.05 per share, compared to a loss of
$2,798,406or $0.04 per share for the previous year.

                                                                              15
<PAGE>

Liquidity and Capital Resources

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

         At December 31, 2004, the deficit in working capital amounted to
$1,010,649 as compared to $1,086,773 at December 31, 2003. Stockholders' equity
showed an impairment of $513,046 at the end of the year, compared to an
impairment of $463,623 at the beginning of the year. The negative cash flow from
operations totaled approximately $1.68 million and was substantially financed by
new equity which was obtained through private placements. The new equity
placements were consummated by issuance of common stock and convertible
preferred stock to accredited private investors in the United States and
overseas. Details of such transactions can be found in the "Changes and Issuance
of Securities" sections in the Company's reports on Form 10-QSB during the year,
as well as in the pertinent section of this report. During 2004, the Company had
filed a new registration statement on Form SB-2 and amendments to two previously
filed registration statements on Form SB-2, all of which covered common shares
directly issued as well as common shares underlying the previously issued
convertible preferred stock and warrants, in connection with these and prior
financing transactions. These filings were made on behalf of certain investors
in the Company's equities and proceeds of any sales of such registered
securities will accrue entirely to such investors. The filings will shortly be
updated with the current financial statements and forwarded to the Securities
and Exchange Commission for review. During the first three months of 2005 and up
to the time of this submission, more recent equity financing transactions have
generated approximately $645,000 cash in the aggregate which was utilized to
finance operations during that period.

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

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






                                                                              16

<PAGE>

ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


ITEM 8a: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

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

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


                                                                              17
<PAGE>

We reported in a current report on Form 8-K today that we would be restating our
results for the fiscal year ended December 31, 2004. The restatements add
$315,450 to the net loss in 2003 and $52,954 to the net loss in 2004, whereby
both amounts, however, are being offset by similar credits to Paid-in Capital,
as a consequence of which there was no material effect on total stockholders'
equity. In addition, the reclassifications and revaluations give rise to
corrections in the reported dividends positions and per-share earnings figures
which again, however, do not materially affect total stockholders' equity.

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

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

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

Changes in Internal Control Over Financial Reporting

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


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

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


                                                                              18
<PAGE>


                                    PART III

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

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

<TABLE>
<CAPTION>

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

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

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

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

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

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

Ivano Angelastri           Director                           May 18, 2000 until present

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

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

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

Resumes:

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

         Mark Chroscielewski, Age 47 - Senior Vice President Business
Development. Since joining the Company in January 2003 Mark Chroscielewski
manages our strategic alliances and develops new marketing strategies to present
our products to both the productivity and ergonomic segments of the corporate
marketplace. Prior to joining our Company, Mr. Chroscielewski was the principal
of a consulting firm, specializing in the development of proprietary data mining
software, modeled for corporate customers seeking an enterprise-wide application
for their customer relations management programs. This software was utilized by
Columbia/HCA, the largest healthcare enterprise in the

                                                                              19
<PAGE>

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

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

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

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

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

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


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

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

                                                                              20
<PAGE>

ITEM 11: EXECUTIVE COMPENSATION

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

<TABLE>
<CAPTION>

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

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

-----------------------
(1)  The value of other non-cash compensation, except for the items listed under
     (2), (3), (4) and (5), that was extended to or paid for individuals named
     above did not exceed 10% of the aggregate cash compensation paid to such
     individual, or to all executive officers as a group.
(2)  Consists of automobile expenses allowances and vacation pay-out.
(3)  During 2004, the Board of Directors approved stock awards of 300,000
     restricted shares to Rudnik and of 300,000 restricted shares to Klaube.
     During 2003, the Board of Directors approved stock awards of 300,000
     restricted shares to Rudnik and of 800,000 restricted shares to Klaube.
     During 2002, the Board of Directors approved stock awards of 300,000
     restricted shares each to Rudnik and Klaube. These shares are listed in the
     table above at the market price for unrestricted stock quoted at the time
     of the award. The number and value of the aggregate restricted stock
     holdings at the end of fiscal year 2003 (using market prices of
     unrestricted stock at the end of the fiscal year) are as follows: S.Rudnik:
     4,744,445 shares - $616,778; J.Klaube: 1,400,000 shares - $182,000. The
     valuation of stock awards and end-of-year holdings is in conformity with
     guidelines set forth for SEC Regulation S-B Item 402 (b)(2)(iv). All such
     shares are fully vested. The Company does not currently foresee to pay
     dividends on any of these shares.
(4)  .See table for "Stock Options" below.
(5)  Consists of premiums for health and personal life insurance.
(6)  During 2004, the Board of Directors approved the issuance of 16,667 shares
     of Series E Senior Convertible Stock, since converted into 1,666,667
     restricted shares, and warrants for the purchase of 833,333 common shares,
     exercisable during three years at $0.15/share, in lieu of $100,000 cash
     salary; the stated salary figure includes such common shares, valued at the
     nominal $100,000 which they replaced.
(7)  During 2003, the Board of Directors approved the issuance of 1,000,000
     restricted shares in lieu of $100,000 cash salary; the stated salary figure
     includes such shares, valued at the nominal $100,000 which they replaced.
(8)  During 2002, the Board of Directors approved the issuance of 1,100,000
     restricted shares in lieu of $110,000 cash salary; the stated salary figure
     includes such shares, valued at the nominal $110,000 which they replaced.

Stock Options :

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


                                                                              21
<PAGE>

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

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



1997 Stock Option Plan:

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

2000 Stock Incentive Plan:

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


Compensation of Directors:

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

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

AUDIT COMMITTEE

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


                                                                              22
<PAGE>

CORPORATE GOVERNANCE AND CODE OF ETHICS

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






































                                                                              23

<PAGE>

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

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

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

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

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

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

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

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

                                                                              24

<PAGE>

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

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

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

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


ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

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

AUDIT-RELATED FEES

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

TAX FEES

                                                                              25
<PAGE>

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

ALL OTHER FEES

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



























                                                                              26

<PAGE>

                                     PART IV

ITEM 15: EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

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


(b) Reports on Form 8-K

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

























                                                                              27

<PAGE>

                                   SIGNATURES


In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
Registrant has caused this Amendment No. 2 to Registrant's Form 10-KSB for the
fiscal year ended December 31, 2004 to be signed on its behalf by the
undersigned, thereunto duly authorized.



         MAGNITUDE INFORMATION SYSTEMS, INC.



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


         By:      /s/ Joerg H. Klaube             Date:    November 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                     November 29, 2005
         ---------------------
         Ivano Angelastri, Director


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


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







                                                                              28

<PAGE>

EXHIBIT INDEX

(A)      Restated Financial Statements and Notes to Financial Statements

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

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

(21)     Subsidiaries of the Company:

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

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

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

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

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


OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE

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

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










                                                                              29

<PAGE>



              Magnitude Information Systems, Inc. and Subsidiaries

                   Restated Consolidated Financial Statements

                                December 31, 2004
                                  (As Restated)



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





                                                                      Page



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

Financial Statements (As Restated)

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

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

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

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

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


                                                                              30
<PAGE>


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

             Report of Independent Registered Public Accounting Firm


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


We have audited the accompanying consolidated balance sheet of Magnitude
Information Systems, Inc. and Subsidiaries as of December 31, 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 provides a reasonable basis for our opinion.

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

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

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


                   /s/ Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey
March 2, 2005, except as to
RESTATEMENT OF RESULTS Note
as to which the date is October 26, 2005

                                                                              31
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                           Consolidated Balance Sheet
                                December 31, 2004
          As Restated - See Notes to Consolidated Financial Statements



<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                                                                                   55,993
                                                                                                     ------------
              Total Current Assets                                                                        148,303
Property and equipment, net of accumulated depreciation of $145,157                                         9,997
Software, net of accumulated amortization of $1,041,257                                                   466,033
Deposits                                                                                                   21,829
                                                                                                     ------------
              Total Assets                                                                                646,162
                                                                                                     ============
              Liabilities and Stockholders' Equity (Impairment)
Current Liabilities
        Accounts payable and accrued expenses                                                             398,031
        Deferred revenues                                                                                  49,373
        Deferred rental obligation                                                                          1,045
        Dividends payable                                                                                 474,106
        Loans payable                                                                                      75,000
        Notes payable                                                                                      25,000
        Current maturities of long-term debt                                                              133,419
        Current maturities of capitalized lease obligations                                                 2,978
                                                                                                     ------------
              Total Current Liabilities                                                                 1,158,952
Capitalized lease obligations, less current portion                                                           256
                                                                                                     ------------
              Total Liabilities                                                                         1,159,208
                                                                                                     ------------

Commitments and Contingencies                                                                                --

Stockholders' Equity (Impairment)
        Preferred Stock, $.001 par value, non-voting, 3,000,000 shares authorized; 193,191
          shares issued and outstanding                                                                       193
        Common stock, $.0001 par value, 200,000,000 shares authorized; 127,837,612 shares issued
             and outstanding                                                                               12,784
        Additional paid in capital                                                                     28,496,474
        Accumulated (deficit)                                                                         (28,956,861)
                                                                                                     ------------
        Deferred compensation                                                                             (65,636)
                                                                                                     ------------
              Total Stockholders' Equity (Impairment)                                                    (513,046)
                                                                                                     ------------
              Total Liabilities and Stockholders' Equity (Impairment)                                $    646,162
                                                                                                     ============
</TABLE>


See notes to the consolidated financial statements.

                                                                               2
<PAGE>


              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Operations
          As Restated - See Notes to Consolidated Financial Statements


                                                     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 (see below)                  748,646           781,849
Selling, general and administrative expenses        1,899,119         1,976,518
                                                 ------------      ------------
Loss From Operations                               (2,687,402)       (2,764,871)
                                                 ------------      ------------
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             (2,751,174)       (2,856,728)

Benefit from Income Taxes                             214,618           203,397
                                                 ------------      ------------
Net Loss                                         $ (2,536,556)     $ (2,653,331)
                                                 ------------      ------------


Dividends on Preferred Shares                    $ (2,103,901)     $   (145,076)
                                                 ------------      ------------
Net Loss Applicable to Common Shareholders       $ (4,640,457)     $ (2,798,407)
                                                 ============      ============

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

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

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

See notes to the consolidated financial statements.

                                                                               3

<PAGE>

<TABLE>
<CAPTION>

                                Magnitude Information Systems, Inc. and Subsidiaries
                              Consolidated Statement of Stockholders' Equity (Deficit)
           Year Ended December 31, 2003 - As Restated - See Notes to Consolidated Financial Statements

                                                                                                      Discount on
                                                  Convertible                     Cumulative           Preferred
                                                Preferred Shares               Preferred Shares          Stock
                                         ------------------------------      ---------------------    ------------
                                             Shares           Amount           Shares       Amount      Amount
                                         ------------      ------------      ------------     ---     ------------
<S>                                           <C>          <C>                          <C>   <C>
         Balances, January 1, 2003            195,968      $        196                 1     $--                --
   Issuance of convertible
   preferred stock pursuant to
   private equity placements                  130,834               131              --        --         (759,403)
   Issuance of convertible
   preferred stock for services
   performed and accr. Interest                 7,405                 7              --        --          (32,442)
   Issuance of preferred stock
   pursuant to conversion of debt              19,593                20              --        --         (117,560)
   Repurchase of preferred stock               (2,778)               (3)             --        --             --
   Receipt of stock subscription
   receivable                                    --                --                --                       --
   Issuance of common stock
   pursuant to conversion of debt                --                --                --        --             --
   Issuance of common stock
   pursuant to exercise of options               --                --                --                       --
   Issuance of common stock
   pursuant to exercise of warrants              --                --                --        --             --
   Issuance of common stock
   pursuant to private equity
   placements                                    --                --                --        --             --
   Issuance of common stock
   granted for private placement
   finders' fees                                 --                --                --        --             --
   Issuance of common stock
   pursuant to conversion of
   accounts payable                              --                --                --        --             --
   Issuance of common stock for
   services performed                            --                --                --        --             --
   Issuance of common stock for
   compensation                                  --                --                --        --             --
   Issuance of common stock for
   stock awards                                  --                --                --        --             --
   Issuance of common stock for
   services performed                            --                --                --        --             --
   Issuance of warrants for
   services performed                            --                --                --        --             --
     Net loss, year ended December 31, 2003      --                --                --        --             --
   Dividends on convertible
   preferred stock                               --                --                --        --             --
   Recognition of expense on
   deferred compensation                         --                --                --        --             --
   Amortization of discount on
   preferred stock                               --                --                --        --           34,839
                                         ------------      ------------      ------------     ---     ------------
         Balances, December 31, 2003          351,022      $        351                 1     $--     $   (874,566)
                                         ============      ============      ============     ===     ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                Stock          Additional
                                                                            Subscriptions       Paid in
                                                Common Stock                  Receivable        Capital
                                         ------------------------------     --------------     -----------
                                             Shares          Amount
                                         -------------     ------------      ------------      ------------
<S>                                          <C>           <C>               <C>                 <C>
         Balances, January 1, 2003           56,39,817     $      5,640      $     (3,297)       21,178,540
   Issuance of convertible
   preferred stock pursuant to
   private equity placements                      --               --                --          1 ,518,674
   Issuance of convertible
   preferred stock for services
   performed and accr. Interest                   --               --                --             111,067
   Issuance of preferred stock
   pursuant to conversion of debt                 --               --                --             235,100
   Repurchase of preferred stock                  --               --                --             (24,997)
   Receipt of stock subscription
   receivable                                     --               --               3,297              --
   Issuance of common stock
   pursuant to conversion of debt              220,000               22              --              21,978
   Issuance of common stock
   pursuant to exercise of options              81,000                8              --               8,092
   Issuance of common stock
   pursuant to exercise of warrants          3,552,752              355              --             319,792
   Issuance of common stock
   pursuant to private equity
   placements                                9,122,171              912              --             646,480
   Issuance of common stock
   granted for private placement
   finders' fees                                30,000                3              --                  (3)
   Issuance of common stock
   pursuant to conversion of
   accounts payable                           5620,533               62              --              41,055
   Issuance of common stock for
   services performed                        3,828,035              383              --             316,013
   Issuance of common stock for
   compensation                              1,000,000              100              --              99,900
   Issuance of common stock for
   stock awards                              2,363,500              236              --             211,344
   Issuance of common stock for
   services performed                             --               --                --              97,086
   Issuance of warrants for
   services performed                             --               --                --             110,698
     Net loss, year ended December 31, 2003       --               --                --                --
   Dividends on convertible
   preferred stock                                --               --                --                --
   Recognition of expense on
   deferred compensation                          --               --                --                --
   Amortization of discount on
   preferred stock                                --               --                --                --
                                         -------------     ------------      ------------      ------------
         Balances, December 31, 2003        77,213,808     $      7,721      $       --          24,890,819
                                         =============     ============      ============      ============
</TABLE>

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

                                         --------------      ------------      ------------
<S>                                        <C>               <C>               <C>
         Balances, January 1, 2003         $(21,517,997)     $       --        $   (336,918)
   Issuance of convertible
   preferred stock pursuant to
   private equity placements                       --                --             759,402
   Issuance of convertible
   preferred stock for services
   performed and accr. Interest                    --                --              78,632
   Issuance of preferred stock
   pursuant to conversion of debt                  --                --             117,560
   Repurchase of preferred stock                   --                --             (25,000)
   Receipt of stock subscription
   receivable                                      --                --               3,297
   Issuance of common stock
   pursuant to conversion of debt                  --                --              22,000
   Issuance of common stock
   pursuant to exercise of options                 --                --               8,100
   Issuance of common stock
   pursuant to exercise of warrants                --                --             320,147
   Issuance of common stock
   pursuant to private equity
   placements                                      --                --             647,392
   Issuance of common stock
   granted for private placement
   finders' fees                                   --                --                --
   Issuance of common stock
   pursuant to conversion of
   accounts payable                                --                --              41,117
   Issuance of common stock for
   services performed                              --            (211,001)          105,395
   Issuance of common stock for
   compensation                                    --                --             100,000
   Issuance of common stock for
   stock awards                                    --                --             211,580
   Issuance of common stock for
   services performed                              --                --              97,086
   Issuance of warrants for
   services performed                              --                --             110,698
     Net loss, year ended December 31, 2003  (2,653,331)             --          (2,653,331)
   Dividends on convertible
   preferred stock                             (110,237)             --            (110,237)
   Recognition of expense on
   deferred compensation                           --              39,457            39,457
   Amortization of discount on
   preferred stock                              (34,839)             --                --
                                         --------------      ------------      ------------
         Balances, December 31, 2003       $(24,316,404)     $   (171,544)     $   (463,623)
                                         ==============      ============      ============
</TABLE>

See notes to the consolidated financial statements.

                                                                               5
<PAGE>

<TABLE>
<CAPTION>
                                       Magnitude Information Systems, Inc. and Subsidiaries
                                     Consolidated Statement of Stockholders' Equity (Deficit)
                     Year Ended December 31, 2004 - As Restated - See Notes to Consolidated Financial Statements


                                                                                   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>
      Balances, January 1, 2004    351,022    $        351               1  $--    $   (874,566)     77,213,808   $      7,721
   Issuance of convertible
   preferred stock pursuant
   to private equity
   placements                      156,993             157            --     --      (1,055,806)           --             --
   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                    --              --              --     --            --              --             --
   Recognition of expense
   on deferred compensation           --              --              --     --            --              --             --
   Amortization of discount
   on preferred stock                 --              --              --     --       1,930,372            --             --
                              ------------    ------------    ------------  ----   ------------    ------------   ------------
   Balances, December 31, 2004     193,190    $        193               1  $--    $       --            127,83   $     12,784
                              ============    ============    ============  ====   ============    ============   ============
</TABLE>

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


                                                   ------------    ------------    ------------
<S>                                <C>             <C>             <C>             <C>
      Balances, January 1, 2004    $ 24,890,819    $(24,316,404)   $   (171,544)   $   (463,623)
   Issuance of convertible
   preferred stock pursuant
   to private equity
   placements                         1,991,609            --              --           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                    --        (2,536,556)           --        (2,536,556)
   Dividends on convertible
   preferred stock                         --          (173,529)           --          (173,529)
   Recognition of expense
   on deferred compensation                --              --           105,908         105,908
   Amortization of discount
   on preferred stock                      --        (1,930,372)           --              --
                                   ------------    ------------    ------------    ------------
   Balances, December 31, 2004       28,496,474    $(28,956,861)   $    (65,636)   $   (513,046)
                                   ============    ============    ============    ============
</TABLE>

See notes to the consolidated financial statements.
                                                                               6
<PAGE>
              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
          As Restated - See Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                         ----------------------------
                                                                            2004              2003
                                                                         -----------      -----------
Cash Flows From Operating Activities
<S>                                                                      <C>              <C>
    Net Loss                                                             $(2,536,556)     $(2,653,331)
    Adjustments to Reconcile Net Loss to Net Cash Used by Operations
      Depreciation and amortization                                          166,144          178,447
      Stock/options issued for various expenses                              541,172          867,621
      Recognition of expense - deferred compensation                         105,908           39,457
      Loss on disposition of assets                                           20,703              779
      Bad debt provision                                                        (212)          30,905
      Forgiveness of debt                                                       --              3,745
    Decreases (Increases) in Assets
        Accounts receivable                                                    5,422          (20,952)
        Miscellaneous receivable                                              (9,522)           1,929
        Inventories                                                             --                 30
        Prepaid expenses                                                     (27,322)        (128,281)
        Other assets                                                           1,954             --
    Increases (Decreases) in Liabilities
      Accounts payable and accrued expenses                                   17,496         (147,402)
      Deferred revenue                                                        32,732            1,396
      Deferred rental obligation                                              (3,811)          (1,339)
      Deposits payable                                                          --            (14,075)
                                                                         -----------      -----------
        Net Cash Used by Operating Activities                             (1,685,892)      (1,841,071)
                                                                         -----------      -----------
Cash Flows From Investing Activities
    Purchases of equipment, fixtures, and software                            (5,209)          (3,695)
                                                                         -----------      -----------
        Net Cash Used by Investing Activities                                 (5,209)          (3,695)
                                                                                          -----------
Cash Flows From Financing Activities
    Dividends paid                                                           (58,991)            --
    Repayment of capital lease obligations                                    (2,805)          (2,981)
    Proceeds from loans payable                                                 --            183,323
    Repayment of loans payable                                              (282,851)         (44,793)
    Proceeds from officer loans                                                 --             83,881
    Proceeds from issuance of common and preferred stock                   1,981,914        1,713,338
                                                                         -----------      -----------
        Net Cash Provided by Financing Activities                          1,637,267        1,932,768
                                                                         -----------      -----------

Net Increase (Decrease) in Cash                                              (53,834)          88,002
Cash at beginning of period                                                   97,978            9,976
                                                                         -----------      -----------
Cash at end of period                                                    $    44,144      $    97,978
                                                                         ===========      ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Interest Paid                                                        $    36,604      $    36,564
                                                                         ===========      ===========
    Taxes Paid                                                           $     1,800      $     2,800
                                                                         ===========      ===========
</TABLE>

See notes to the consolidated financial statements.

                                                                               7
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                          Year Ended December 31, 2004
          As Restated - See Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>

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









See notes to the consolidated financial statements

                                                                               8
<PAGE>



              Magnitude Information Systems, Inc. and Subsidiaries
                      Consolidated Statements of Cash Flows
                          Year Ended December 31, 2003
          As Restated - See Notes to Consolidated Financial Statements




<TABLE>
<CAPTION>

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












See notes to the consolidated financial statements.



                                                                               9
<PAGE>

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

                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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




                                                                              10
<PAGE>

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

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

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

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

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

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

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

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

                                                                              11

<PAGE>

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

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

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

GOING CONCERN

     As shown in the accompanying financial statements, the Company incurred net
     losses of $2,536,556 and $2,653,331 during the years ended December 31,
     2004 and 2003, respectively, and has a significant working capital
     deficiency. The ability of the Company to continue as a going concern is
     dependent on increasing sales and obtaining additional capital and
     financing. The financial statements do not include any adjustments that
     might be necessary if the Company is unable to continue as a going concern.
     Management's plans are to continue discussions with several potential
     investors to obtain additional capital in order to alleviate the situation.

CONCENTRATIONS OF BUSINESS AND CREDIT RISK

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

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

PREPAID EXPENSES

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

PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
Property and equipment consist of the following at December 31, 2004:
<S>                                                                       <C>
    Equipment                                                             $ 82,924
    Furniture and fixtures                                                  72,230
                                                                          --------
                                                                           155,154
    Less accumulated depreciation                                          145,157
                                                                          --------
                                                                          $  9,997
                                                                          ========
</TABLE>

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

                                                                              12
<PAGE>

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

ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
     Accounts payable and accrued expenses consisted of the following at
December 31, 2004:
<S>                                                                                                      <C>
     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
                                                                                                         ========
</TABLE>







                                                                              13

<PAGE>


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

LONG-TERM DEBT

<TABLE>
<CAPTION>
       Long-term debt as of December 31, 2004 is comprised of the following:
<S>                                                                                           <C>
Pursuant to the  February 2, 1998,  Agreement  and Plan of Merger with Rolina  Corporation,
the Company had issued  155,556  shares (the "Shares") of its common stock to the principal
of Rolina  Corporation who currently  serves as the Company's  Chief Executive  Officer and
Board  Chairman,  and had issued a Put Option for such Shares at a price of $2.41 per share
in accordance with the provisions  contained therein,  with notice for exercise eligible to
be  given at any time  after  February  1,  2000,  and  before  5:00  p.m.  on the 90th day
thereafter.  This liability was converted into a Company  obligation for $274,890  maturing
March 31, 2002 and a demand loan for $100,000 both carrying  interest at the rate of 7% per
year,  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
                                                                                                --------
                                                                                                 133,419
      Total
           Less current maturities                                                               133,419
                                                                                                --------
           Long-term debt, net of current maturities                                            $   --
                                                                                                ========
</TABLE>

<TABLE>
<CAPTION>
CAPITALIZED LEASE OBLIGATIONS
<S>                                                                                <C>
       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
                                                                                     ======
</TABLE>


                                                                              14
<PAGE>

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

DEFERRED REVENUES

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

PREFERRED STOCK

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

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

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

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

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

                                                                              15
<PAGE>

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

PREFERRED STOCK - (Continued)

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

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

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

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

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

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

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

                                                                              16

<PAGE>

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

PREFERRED STOCK - (Continued)

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

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

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

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

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

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

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

                                                                              17
<PAGE>

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

PREFERRED STOCK - (Continued)

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

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

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

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

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

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

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

                                                                              18
<PAGE>

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

PREFERRED STOCK - (Continued)

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

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

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

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

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

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

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

                                                                              19
<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
         ntitled to any voting rights.

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

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

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

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

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

                                       20
<PAGE>


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

PREFERRED STOCK - (Continued)

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

INCOME TAXES

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

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

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

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

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

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


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

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


                                                                              21
<PAGE>

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

401(k) PLAN

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

STOCK OPTION PLANS

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

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

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

                                                                              22
<PAGE>

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

STOCK OPTION PLANS - (Continued)

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

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

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

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

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

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

     If the Company had used the fair value based method of accounting for its
     employee stock option plan, as prescribed by Statement of Financial
     Accounting Standards No. 123, compensation cost in net loss for the years
     ended December 31, 2004 and 2003 would have increased by $0 and $0,
     respectively, resulting in net loss of $2,536,556 and $2,653,331 net of
     tax, respectively, and loss per share of $0.05 and $0.04, respectively. The
     value of each option grant is estimated on the date of grant using the
     Black-Scholes option pricing model with the following weighted average
     assumptions: expected dividend, 0%; risk-free interest rate, 5%; expected
     volatility, 115%; and expected life (in years) of 4.4.


                                                                              23
<PAGE>

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

STOCK OPTION PLANS - (Continued)
<TABLE>
<CAPTION>

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

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

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

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

WARRANTS

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

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

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

COMMITMENTS AND CONTINGENCIES

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

                                                                             24
<PAGE>

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

COMMITMENTS AND CONTINGENCIES (continued)

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


               Year Ending December 31,
                        2005                     $  101,309
                        2006                        120,000
                        2007                     $   30,000
                                                    -------
                        Total minimum payments   $  251,309
                                                    =======

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

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

RELATED PARTY TRANSACTIONS

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

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

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

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

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

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

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

                                                                              25
<PAGE>

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

RELATED PARTY TRANSACTIONS (continued)

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

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

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

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

CAPITALIZATION

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

MAJOR CUSTOMERS

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

                                                                              26
<PAGE>


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


RESTATEMENT OF RESULTS

     The Company has restated its financial statements for the years ended
     December 31, 2003 and 2004. The restated financial results reflect the
     reclassification of certain equity positions in connection with beneficial
     conversion rights to warrants and shares of convertible preferred stock due
     to a revision in its accounting procedures related to the valuation of
     securities such as restricted stock and stock options and warrants issued
     to non-employees for services performed. Its original financial statements
     reflected a valuation of such instruments based on the market price for the
     Company's common stock, less a discount of 50% which in the Company's
     opinion compensated for the trading nature of the market for the common
     stock and the liquidity constraints associated with these securities. The
     Company has reconsidered this valuation approach and is restating its
     financial results, eliminating the 50% discount. The impact of these
     adjustments of the Company's financial results as originally reported is
     summarized below:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31, 2003
                                                                        ----------------------------
                                                                     As Reported               As Restated
                                                                   -------------             -------------
<S>                                                                <C>                       <C>
     Retained earnings (deficit)                                   $(23,705,641)             $(24,316,404)
     Discount on Preferred Stock                                       (630,896)                 (874,566)
     Additional paid-in capital                                       23,950,614                24,890,819
     Total stockholders' equity (impairment)                           (377,851)                 (463,623)
     Working capital (deficiency)                                      (968,183)               (1,086,773)
     Net (loss)                                                      (2,337,881)               (2,653,331)
     Loss per share (after dividends and amortization
          of discount on Preferred Stock)                                $(0.04)                   $(0.04)
</TABLE>

<TABLE>
<CAPTION>
                                                                        Year Ended December 31, 2004
                                                                        ----------------------------
                                                                     As Reported               As Restated
                                                                   -------------             -------------
<S>                                                                <C>                       <C>
     Retained earnings (deficit)                                   $(27,992,998)             $(28,956,861)
     Additional paid-in capital                                       27,499,793                28,496,474
     Total stockholders' equity (impairment)                           (480,228)                 (513,046)
     Working capital (deficiency)                                      (977,831)               (1,010,649)
     Net (loss)                                                      (2,483,602)               (2,536,556)
     Loss per share (after dividends and amortization
          of discount on Preferred Stock)                                $(0.04)                   $(0.05)
</TABLE>

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

                                                                              27
<PAGE>

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

NEW ACCOUNTING PRONOUNCEMENTS (continued)

     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.

     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.

                                                                              28
<PAGE>

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

SUBSEQUENT EVENTS

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
































                                                                              29