SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB



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



For the Fiscal Year ended December 31, 2001





OR



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



For the Transition Period   From            to



Commission File No. 33-20432



MAGNITUDE INFORMATION SYSTEMS, INC.

Exact Name of Registrant as Specified in its Charter



DELAWARE                                             75-2228828  _____

State or Other Jurisdiction of                             IRS Employer

Incorporation or Organization                      Identification Number



401 State Route 24,  Chester,  New Jersey      07930

Address of Principal Executive Offices            Zip Code



(908) 879-2722

Registrants Telephone Number, Including Area Code



Securities Registered Pursuant to Section 12(b) of the Act:

NONE



Title of Each Class            Name of Each Exchange on Which Registered

NONE                                                                NONE



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

NONE





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



YesX     No



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, 2001, were $609,214.



Common stock, par value $.0001 per share ("Common Stock"), was the only class of voting stock of the Registrant outstanding on March 1, 2002. Based on the closing price of the Common Stock on the OTC Electronic Bulletin Board as reported on March 1, 2002, ($0.12), the aggregate market value of the 21,645,461 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 1, 2002, was approximately $2,597,455. 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 1, 2002,  30,608,732 shares of Common Stock, $.0001 par value, were outstanding.



DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX



MAGNITUDE INFORMATION SYSTEMS, INC.



CONTENTS



PART I.										Page

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.	Management's' Discussion and Analysis of

Financial Condition and Results of Operations .............................	 14

Item  7.	Financial Statements and Supplementary Data .............................	 17

Item  8.	Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure	......................................	 17

PART III.

Item  9.	Directors and Executive Officers of the Registrant .......................	 18

Item 10.	Executive Compensation ................................................................	 20

Item 11.	Security Ownership of Certain Beneficial Owners

and Management .............................................................................	 22

Item 12.	Certain Relationships and Related Transactions .............................	 23

Item 13.	Exhibits and Reports on Form 8-K ..................................................	 23



Signatures ........................................................................................	 24



Exhibit Index ...................................................................................	 25



PART I

ITEM	1:	BUSINESS

Description of Business

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 ErgoManagerÔ
 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, extended a stock exchange offer to the shareholders 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 now referred to as such  At the time of this submission, holders of 99.4% of Magnitude, Inc. common stock have tendered their shares. The business combination which took the form of a reverse acquisition has been accounted for as a purchase.  As a result, the Company and Magnitude, Inc. remain as two separate legal entities whereby Magnitude, Inc. operates as a subsidiary of Magnitude Information Systems, Inc..  The operations of the newly combined entity are currently comprised solely of the operations of Magnitude, Inc.



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 on April 30, 1998, into an Asset Purchase Agreement with Vanity Software Publishing Co., a Canadian developer of specialized software, whereby the Company, in return for payments in form of cash and equity, acquired the rights to certain software products and related assets, with such software products subsequently forming the basis for the further development of the Company's proprietary ErgoManagerÔ
 software system. 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.

The Company is currently subject to the reporting requirements of Section 15(d) of the Securities Exchange Act of 1934.  The Company has the authority to issue an aggregate of One Hundred Million (100,000,000) Common Shares, par value $.0001, and Three Million (3,000,000) Preferred Shares, par value $.001, of which at December 31, 2000, Two Thousand Five Hundred (2,500) were designated as Cumulative Preferred Shares, par value $.001; Three Hundred Thousand (300,000) were designated as Series A Senior Convertible Preferred Stock, par value $0.001; Three Hundred Fifty Thousand (350,000) were designated as Series B Senior Convertible Preferred Stock, par value $0.001; One Hundred Twenty Thousand (120,000) were designated as Series C Senior Convertible Preferred Stock, par value $0.001; and Five Hundred Thousand (500,000) were designated as Series D Senior Convertible Preferred Stock, par value $0.001.



As of December 31, 2001, there were outstanding 25,711,403 Common Shares, 1 Cumulative Preferred Share, and 214,857 Convertible Preferred Shares.

Narrative Description of Business

Magnitude Information Systems, Inc. is a pioneer in the Ergonomic Productivity Software(EPS) market. With ErgoManagerÔ
, an interactive suite of WindowsÔ
 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.  ErgoManagerÔ
 is designed to help employersminimize preventable Repetitive Stress Injuries ("RSI") and enhance productivity through:

- Real-time monitoring of keyboarding activities to ensure proper posture and work pacing.
- Pro-active dialogue with at-risk employees, including surveys and training in the best practices for wellness and productivity.
- Strategic profiling and the management of computer use throughout an organization to employ best practices and to measure health, safety, and performance results.
- Computer workstation assessment tools.

. 	We have received a patent from the U.S. Patent and Trademark Office relative to certain core inventions within the ErgoManagerÔ
 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 new 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 implemented 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.



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



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





Products, Trademarks

The Company's current primary product is a suite of nine proprietary software modules marketed under the name ErgoManagerÔ
 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.  ErgoManagerÔ
 is the first suite of software solutions that combines ergonomic remediation and productivity enhancement tools.  Its nine component modules are described as follows:



ErgoTutor



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



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



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



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



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



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



ErgoQuizTM is an electronic testing system used to assess ergonomic awarenessand educate employees.



ErgoMapTM 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 ErgoManagerÔ

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

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



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



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



- A 50% reduction rate in the total number of Musculoskeletal Disorder (MSD) Claims.
- A reduction in OSHA reported injury rates from 20% to 80%.
- The actual workers- compensation savings in the pilot program was $120,000.
- State Fund's projected annual workers- compensation cost savings was approximately $780,000.
- There was a total participation of employees in Pilot Program
- Employees postponed micro-breaks a maximum of nine minutes.
- There was 100% employee satisfaction while using ErgoManager.
- 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 ErgoManager, the study indicated that the breakeven/payback period is achieved in 25.1 hours of usage.  Several large industrial clients already have named ErgoManager "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?



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.



- Mr. Mark Carleson

Consultant and Former Deputy Director and Chief of Enforcement of Cal/OSHA

from 1990-1999.



- Dr. Inger Williams, Ph.D.

Consultant on school ergonomic issues.



- Dr. 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 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 ErgoManagerÔ
 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 ErgoManagerÔ
 system constituted a novel approach.



Since that time, the product has been installed by a rapidly 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.  Since its own financial resources are limited, the Company embarked on a strategy to seek marketing partnerships with entities and individuals in the risk management industry, among them agreements with AON Ergonomic Services, a division of AON, one of the largest insurance services companies in the world, and Andersen Consulting LLP. Such agreements are of special significance because they will introduce the Company to a potentially large audience of key corporate clients.



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





Research and Development

The Company has invested considerable resources in the further development of the overall ErgoManagerÔ
 system and the integration of certain software assets acquired pursuant to the agreements with Rolina Corporation and Vanity Software Publishing Corporation  (see "Narrative Description of Business"), and in further enhancements to the products.  Also during this time, a complete set of new and necessary documentation and marketing collateral was created.   In late summer, the first official version of ErgoManagerÔ
, Version 1.78, was released, followed in October 1998 by Version 2.12., and in April 1999 by Version 3.05. The Company is currently shipping Version 4.0 which was released in July 2000.



The Company has expensed all expenditures related to the above efforts.  Such expenses totaled approximately $139,000 for the year ended December 31, 2001, and $209,00 for the year ended December 31, 2000.



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 ErgoManagerÔ
.. 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 relate primarily to 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. Since typically there is no repeat business involving larger amounts there also exists no dependency on a specific customer or group of customers, however, the Company's future success is dependent upon its ability to increase the frequency where initial pilot projects convert to larger contracts, as corporate clients introduce the Company's software products across the entire spectrum of computer workplaces throughout their company or certain divisions. 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 in 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.

Employees

As of December 31, 2001, the Company employed 12 persons, of whom four were primarily engaged in research and development and software support activities, four were primarily engaged in sales and marketing, and four in general administrative and managerial functions.  The Company has no collective bargaining agreements with its employees.









ITEM 2:	PROPERTIES

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







ITEM 3:	LEGAL PROCEEDINGS

The Company is not a party in any legal proceedings.







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

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



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

2000

First Quarter .	$   4.75			$    0.42

Second Quarter ..	     2.88			      0.95

Third Quarter .....................	     1.44			      0.72

Fourth Quarter ...................	     0.97			      0.63



2001

First Quarter ..	$   1.16			$    0.38

Second Quarter ..	     0.62			      0.27

Third Quarter .....................	     0.54			      0.22

Fourth Quarter ...................	     0.30			      0.12



(b)  Shareholders



As of March 28, 2002, there were approximately 235 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, 2001, the Company was in arrears on the payment of certain dividends on its Series A, B, C, and D Senior Convertible Preferred Stock. Such arrears totaled approximately $160,000.

Recent Issues of  Unregistered Securities



During the fourth quarter of 2001 the Company had issued the following unregistered securities:



(i)   220,000 shares of common stock accompanied by warrants for the purchase of 110,000 shares of common stock at a price of $0.50 per share, to three 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 $49,500 in cash;



(ii)  Warrants for the purchase of 600,000 shares of common stock at various prices averaging $1.13 per share to a consultant and his assignees for services rendered.









In addition, during the fourth quarter of 2001 and the first quarter of 2002 through March 26, 2002, the board of directors of the Company approved resolutions affecting previously issued or to be issued securities, as follows:



(i)  	During a meeting on October 16, 2001, the board approved a downward adjustment of the exercise price of previously issued warrants for the purchase of common stock, to $0.25 per share, for an aggregate of up to $500,000 in proceeds from the exercise of such restated warrants;



(ii)  	During a meeting on December 26, 2001, the board approved a downward adjustment of the exercise price of warrants for the purchase of common stock previously issued to accredited private investors, to $0.10 per share, for an aggregate of up to $1,000,000 in proceeds from the exercise of such restated warrants;



(iii)	During a meeting on January 3, 2002, the board approved the placement of common stock with accredited private investors pursuant to private placement subscriptions under Section 4(2), Rule 506 of Regulation D and Regulation S of the Securities Act, at a price of $0.10 per share for an aggregate of up to $1,000,000 in proceeds.





Amendment to Registration Statement on Form SB-2



On August 20, 2001, the Company filed a Post-Effective Amendment No.3 to Form SB-2 registration statement previously filed with the Securities and Exchange Commission in 2000, changing the number of common shares previously registered on behalf of certain selling shareholders from 19,467,160 to 17,027,568 shares. The Amendment was declared effective on September 19, 2001. The Company did not receive any proceeds from the sale of any of the registered securities.



ITEM 6:	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



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

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



The selected financial information presented below under the captions "Statement of Operations" and "Balance Sheet" for the years ended December 31, 2001 and 2000 is derived from the financial statements of the Company and should be read in conjunction with the financial statements and notes thereto.



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



SELECTED FINANCIAL DATA

Balance Sheet			                           December 31,

2001

Total assets ........................................		$   1,632,961

Current liabilities ...............................		     1,580,266

Long-term debt ..................................		        274,890

Working capital  ................................		    (1,093,665)

Shareholders- equity ........................		$     (222,195)



Statement of Operations 				     For The Year Ended December 31,

2001	2000        .

Total revenues ...................................		$       609,214		$      646,635

Operating income (loss) ....................		     (3,096,648)		   (3,546,457)

Net (loss) ............................................		     (3,055,036)		   (3,515,473)

Net (loss) after dividends

On Preferred Shares...........................		     (3,244,389)		   (3,716,527)

Net loss per common share ................		$         (0.15)		$        (0.25)

Number of shares used in computing

per share data ....................................		    21,466,050		   14,793,682



Summary



Fiscal Year 2001 was a challenging year for the Company.  A persistent shortage of cash - the result of slower than expected revenue growth coupled with an inability to attract sufficiently large amounts of new working capital on terms acceptable to the Company - hampered efforts to implement a successful marketing program and delayed a restructuring of the sales organization to make it more effective in executing changes sought by management in response to the sales results of this year. During the year, much of management's time and efforts were dedicated to raising capital.  At the same time, most available resources were focused on gaining access to a small number of potential key clients who management believes are crucial in creating the visibility and establishing the credibility that are needed to attract a larger audience for the Company's products which are new and address a new and rapidly evolving market.  This highly selective marketing approach, partially dictated by a scarcity of personnel and financial resources, responded to what management perceives to be the most pressing need, a number of visible and substantial transactions that constitutes a "break-through", however, came at the price of somewhat neglecting other potentially promising marketing channels.  As the year progressed, the requirement for broadening the Company's marketing approach became more obvious, and management's efforts towards a solution and affirmative action finally culminated in the hiring, in February 2002, of a senior marketing executive with the necessary track record and credentials.  Simultaneously, the Company is concentrating its efforts in the financing area on exploring alternatives for a larger financial transaction that would supply the necessary capital to support the new marketing programs and, subsequently, free available management resources towards the task of growing the business.



Results of Operations for the Year Ended December 31, 2001



For the year ended December 31, 2001, the Company had revenues of $609,214, slightly less than the $646,635 achieved in 2000.  The 2001 figure does not include a major $175,000 contract with a new overseas distributor that was signed in 2001 but will be consumed only during 2002 and 2003.  A major portion of the 2001 revenues was attributable to one account, a U.S reseller organization that specializes in ergonomic products and related problem solutions, which client accounted for approximately 38% of total revenues.



Gross profits amounted to $449,948 for a 73.9% gross margin.  Gross profits are burdened with a fixed charge for amortization of software investments. Software assets underlying the Company's products are being amortized on a straight line over 10 years, resulting in a level charge of approximately $12,000 per month to cost-of-goods-sold.  Owing to the fact that variable cost-of-goods-sold expenses are in the vicinity of only 5%, the gross margins will increase further with larger revenues, as the portion of fixed expenses decreases relatively.  After deducting selling -, research -, and general and administrative expenses of $3,546,596 which decreased by 10% from the $4,030,373 recorded in 2000, the Company realized an operating loss of $3,096,648, compared to an operating loss of $3,546,596 in 2000.  Non-operating income and expenses of $51,849 included $80,772 net interest expense and $28,923 in non-recurring income consisting of an extraordinary credit for dissolution of certain prior year accruals. The Company also realized an extraordinary gain of $93,461 from the sale of net loss carry-forward tax credits pursuant to New Jersey Emerging Technology and Biotechnology Financial Assistance Act. The year concluded with a net loss of $3,055,036.  After accounting for dividend accruals on outstanding preferred stock which totaled $189,353, the net loss applicable to common shareholders was $3,244,389 or $0.15 per share, compared to a loss of $3,716,527 or $0.25 per share for the previous year.



The decrease in operating expenses is primarily the result of lesser expenditures for certain marketing programs and of efforts to curtail general and administrative expenses across the board. Certain expense categories, however, experienced increases, such as non-sales related travel expenses and other expenditures associated with financing and other corporate undertakings. Management is committed to review the merit of all activities with respect to cost/benefit relations on an on-going basis and exercise due diligence in day-to-day operations with the goal of reducing all non-critical expenditures. Nevertheless, the Company's operating budget for the year 2002 foresees larger expenditures in the sales and marketing areas for certain new marketing initiatives and a planned enlargement of the sales organization.  Such increases are expected to be front-end investments for a significant growth in revenues.



Liquidity and Capital Resources



As explained in more detail below, during 2001 management continued its efforts to find new equity capital for financing the Company's ongoing operations. Such efforts were successful in attracting approximately $2.0 million in new equity funding in the form of cash, as well as converting approximately $130,000 debt into equity.



At December 31, 2001, the deficit in working capital amounted to $1,093,665 as compared to a nominally positive balance of $24,302 at December 31, 2000.  Stockholders- equity showed an impairment of $222,195 at the end of the year, compared to a surplus of $769,533 at the beginning of the year. The decrease is the direct result of the shortfall in new equity placements vis-à-vis the operating loss for the year.  The new equity placements were consummated by issuance of common stock and convertible preferred stock, the latter carrying a 7% annual cumulative dividend, to accredited private investors in the U.S. and overseas. Approximately half of the investments were in the form of "unit" purchases, comprised of the before mentioned classes of stock and warrants for the purchase of common stock.  Details of such transactions can be found in the "Changes and Issuance of Securities" sections in the Company's reports on Form 10-QSB during the year, as well as in the pertinent section of this report.  The Company is currently filing an amendment to a previously filed registration statement on Form SB-2 which amendment includes the common shares directly issued as well as the common shares underlying the convertible preferred stock and warrants issued in connection with these financing transactions.



At the time of this submission, the Company had no bank debt. At December 31, 2001 Its short-term liabilities, aside from trade payables and accruals, consisted of certain notes and loans aggregating approximately $340,000 of which $242,500 was owed to the chairman and chief executive officer of the Company in form of demand notes (see "Related Party Transactions"). All of the long-term debt of approximately $275,000 was likewise owed to the chairman and chief executive officer and evidences by a promissory note maturing in 2003.



During the first three months of 2002 and up to the time of this submission, more recent equity financing transactions have generated approximately $700,000 cash in the aggregate which was utilized to finance operations during that period. In addition, the Company has obtained commitments for approximately $750,000 in further funding, to be received in April 2002.  In order to remedy the past liquidity constraints and address any "going-concern" issues, management is currently negotiating with several financing sources with the goal of obtaining commitments for substantial further investments in form of equity capital during the upcoming quarters in 2002. There can be no assurance, however, that these negotiations will lead to the desired outcome.





Outlook



The new marketing strategy that the Company pursues emphasizes a broad approach covering several sales and distribution channels simultaneously:  strongly focused efforts towards direct sales to selected potential key accounts in specific industry segments, tie-ins with multi-level marketing operations, and increased use of distributors and area-exclusive resellers. Previous efforts were more or less restricted to a small number of potential clients, augmented by a larger number of trial- or pilot installations over a more broad-based target clientele, without specific focus. Management expects that the revised strategy which is currently being put into effect, will prove to be significantly more effective in supporting the Company's efforts of opening up the emerging market of ergonomic productivity software - a highly specialized but rapidly growing niche market. Management expects that the completed restructuring of the Sales and Marketing group, as well as the change of its focus, will not yet impact revenues during the first quarter of 2002; will, however, be followed by a marked increases in revenues in the following and subsequent quarters.



To implement this program two key resources are necessary: a highly experienced and professional sales force with particular experience in marketing enterprise-type solutions, and sufficient capital.  Management has addressed the first item with the recent hiring of Mark A. Fuller as Senior Vice President Business Development whose premier mandate is the establishment of such sales force in addition to opening up additional distribution channels. The question of adequate capital remains unsettled at this time, however, as mentioned above, management expects to be able to successfully conclude on-going negotiations during the upcoming quarter.

.

ITEM 7:	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 8:	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.





PART III



ITEM 9:  	DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL

PERSONS

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



Name            	        	Position   	Term(s) of Office



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

John C. Duncan			President, Director		Oct.11, 2000, until May 18, 2001

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

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



Joerg H. Klaube , Age 60 -  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 42 - 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 55 -  Director. Mr. Tomasek was appointed a director in February 2000.  He has been engaged in the private practice of corporate and securities law in his own law firm for the last ten years.  Mr. Tomasek was appointed to serve as general counsel for the Company in 1999.  In addition to his work with the Company, Mr. Tomasek represents several other clients in the United States and Europe in corporate finance matters.



Steven L. Gray, Age 53 - Director. Mr. Gray was elected to serve on the Board on May 18, 2000. He is a resident of Venice, Florida.  For the past 3-1/2 years, Mr. Gray has served as the President and is a shareholder of a private Florida corporation engaged in the retail distribution of nutritional products.  This corporation has a customer base in nine countries.  Prior to that time, Mr. Gray ran his own real estate development company, specializing in the design and construction of multi-family housing.



Ivano Angelastri, Age 39 - Director.  Mr. Angelastri was elected to serve on the Board on May 18, 2000. He is a resident of Zurich, Switzerland.   Mr. Angelastri has been active in portfolio management services for many years. Since January 24, 2001 he is the Managing Director of T&T Vermoegensverwaltungs AG, Zurich whose main business is portfolio management.  Prior to his current position, Mr. Angelastri served as Managing Director of Megan Services where he also performed financial advisory and portfolio management services.



Other Significant Employees

B. Gregory Buscetto	VP Sales				    	Sep. 1, 1997, until Jan. 4, 2002



Subsequent Event

On February 15, 2002, Mark A. Fuller joined the Company as Senior Vice President Business Development, in charge of Sales and Marketing.



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

The Company is not subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934.

ITEM 10:	EXECUTIVE COMPENSATION

The following table sets forth the cash compensation and executive capacities for the fiscal year ended December 31, 2001, 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:

Restricted	Securities

Name and						Other Annual	Stock		Underlying

Principal Position		Year	Salary

Steven D. Rudnik		2001	$ 120,000	$  14,050		-	    (2)

Chief Executive Officer,	2000	$ 122,185	$  11,350	             -

President			1999	$   34,615	$    9,529	$ 66,667 (3)

Joerg H. Klaube		2001	$ 120,000	$ 10,710		-	    (2)

Sr.Vice President, CFO  	2000	$ 116,923	$   3,960		-

1999	$ 100,025	$   1,710		-

Steven W. Jagels		2001	$ 100,000	$   9,000		-

Sr.Vice President Inf. Systems  	2000	$   95,000	$   2,250		-

1999	$   80,000		-		-

All executive officers

as a group (3 persons) 		2001	$ 340,000	$ 33,760

_______________________













Stock Options :



The following table sets forth stock options granted during 2001 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:

____________________________________________________________________________________

Number of Common	% of Total Options

Shares Underlying	Granted to Employees	Exercise	Expiration

Name			Options Granted	and Directors in FY	Price ($/Sh.)	Date                .

I. Angelastri		112,500		       4.3 %		0.75		2/8/06

I. Angelastri		  75,000

S. Gray		  	112,500		        4.3%		0.75		2/8/06

S. Gray			  75,000

S. Jagels		  37,500		       3.5%		0.75		1/25/06

S. Jagels		  50,000

S. Jagels		  31,250

S. Jagels		  33,333

J. Klaube		  37,500		        2.3%		0.75		1/25/06

J. Klaube		  31,250

J. Klaube		  31,667

S. Rudnik		  37,500		       64.5%		0.75		11/25/06

S. Rudnik		225,000

S. Rudnik		  31,250

S. Rudnik		  29,167

J. Tomasek		112,500		        4.3%		0.75		2/8/06

J. Tomasek		  75,000



The following table sets forth stock options granted during 2001 outside of the Company's 1997 Stock Option Plan and 2000 Stock Incentive Plan to executive officers, directors, and beneficial owners of more than 10 percent of any class of equity securities of the Company:

____________________________________________________________________________________

Number of Common	% of Total Options

Shares Underlying	Granted to Employees	Exercise	Expiration

Name			Options Granted	and Directors in FY	Price ($/Sh.)	Date                .

S. Rudnik		2,500,000







1997 Stock Option Plan:



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



2000 Stock Incentive Plan:



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



Compensation of Directors:



The Company currently pays no outside directors- fees.  Outside directors are awarded stock options for 40,000 shares each upon commencement of their office. In addition, the three incumbent outside directors have been awarded, in January 2001, stock options for 112,500 shares each, and in September 2001, stock options for 75,000 shares each, for services rendered during 2000 and 2001.



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



ITEM 11:	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT



The following table sets forth, as of March 1, 2002, the record and beneficial ownership of common stock of the Company by each executive officer and director, all executive officers and directors as a group, and each person known to the Company to own beneficially, or of record, five percent or more of the outstanding shares of the Company:



Title        	Name and Address of 			Amount and Nature of      	Percent

of Class )*      	Beneficial Owner           		Beneficial Ownership

Common	Ivano Angelastri	        		 1,512,500

Stock		Steven L. Gray				 2,062,729

Steven W. Jagels			    602,083

Joerg H. Klaube		          	    560,517

Steven D. Rudnik	        		8, 074,595

Joseph J. Tomasek			    512,500



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



All Directors and Executive Officers	 13,324,924			33.18 %

as a Group (6 persons)



Liechtensteinische Landesbank		4,323,040

Zurich, Switzerland

Michael G. Martin		         	1,750,000

12 Tillman Ct., Bridgewater, NJ

Schuerch Asset Management		1,767,144

Tellstrasse 21, St.Gallen, Switzerland



)* The Company also has issued and outstanding as of March 28, 2002,  214,857 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.

____________________________































ITEM 12:	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 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 December 2001, a director of the Company exercised warrants for the purchase of 200,000 shares of the Company's common stock, at a price of $0.10 per share.

In January 2002, the



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







ITEM 13:	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



- none -





SIGNATURES



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





MAGNITUDE INFORMATION SYSTEMS, INC.





By:  	__/s/ Steven D. Rudnik__________		Date:	March 29, 2002

Steven D. Rudnik

President and Chief Executive Officer

(Principal Executive Officer),

Chairman of the Board



By:  	__/s/ Joerg H. Klaube___________		Date:	March 29, 2002

Joerg H. Klaube

Secretary, Chief Financial Officer

(Principal Financial Officer)



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



Name							Date



_/s/ Ivano Angelastri_________				March 29, 2002

Ivano Angelastri, Director



_/s/ Steven L. Gray_________				March 29, 2002

Steven L. Gray, Director



_/s/ Joseph J. Tomasek______				March 29, 2002

Joseph J. Tomasek, Director

EXHIBIT INDEX

(A)	Financial Statements and Notes to Financial Statements

(3) (i)	Articles of Incorporation and Amendments thereto, incorporated herein by reference

to Exhibits of previous filings with the Commission.

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

filings with the Commission.

(21)	Subsidiaries of the Company:

(i)  Magnitude, Inc. is a corporation formed under the laws of the State of Delaware and

is the name under which it conducts business.

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









OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE

(a)	The Company's Quarterly Reports on Form 10-QSB for the periods ended

March 31, 2001, June 30, 2001, and September 30, 2001.

(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, 2000





































Magnitude Information Systems, Inc. and Subsidiaries



Consolidated Financial Statements



December 31, 2001

Magnitude Information Systems, Inc.  and Subsidiaries

Index to the Consolidated Financial Statements

December 31, 2001









Page





Independent Auditors- Report		1

Financial Statements

Consolidated Balance Sheet		2

Consolidated Statements of Operations		3

Consolidated Statement of Stockholders Equity (Deficit)		4-5

Consolidated Statements of Cash Flows		6-7

Notes to the Consolidated Financial Statements		8-21





































[letterhead of

Rosenberg Rich Baker Berman & Company

380 Foothill Road, Bridgewater, New Jersey]











Independent Auditors' Report



To the Board of Directors and Stockholders of

Magnitude Information Systems, Inc. and Subsidiaries



We have audited the accompanying consolidated balance sheet of Magnitude Information Systems, Inc. and Subsidiaries as of December 31, 2001 and the related consolidated statements of operations, stockholders- equity (deficit), and cash flows for the two years ended December 31, 2001 and 2000.   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 generally accepted auditing standards.  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, 2001 and the consolidated results of their operations and their cash flows for the years ended December 31, 2001 and 2000, in conformity with generally accepted accounting principles.

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



/s/  Rosenberg Rich Baker Berman & Company

Bridgewater, New Jersey

March 27, 2002



Magnitude Information Systems, Inc. and Subsidiaries

Consolidated Balance Sheet

December 31, 2001

|Assets                                                                                                           |   |             
|---------------------------------------------------------------------------------------------------------------- | - | ------------
|Current Assets                                                                                                   |   |             
|Cash                                                                                                             | $ | 15,229      
|Accounts receivable, net of allowance for doubtful accounts of $12,023                                           |   | 383,150     
|Miscellaneous receivables                                                                                        |   | 47,669      
|Prepaid expenses                                                                                                 |   | 40,553      
|Total Current Assets                                                                                             |   | 486,601     
|Property, plant and equipment, net of accumulated depreciation of $215,521                                       |   | 65,116      
|Software, net of accumulated amortization of $573,500                                                            |   | 933,790     
|Long-term receivables                                                                                            |   | 125,625     
|Deposits                                                                                                         |   | 21,829      
|Total Assets                                                                                                     |   | 1,632,961   
|Liabilities and Stockholders- Equity (Impairment)                                                                |   |             
|Current Liabilities                                                                                              |   |             
|Accounts payable and accrued expenses                                                                            |   | 772,327     
|Deferred revenues                                                                                                |   | 235,920     
|Deferred rental obligation                                                                                       |   | 5,145       
|Dividends payable                                                                                                |   | 182,378     
|Loans payable                                                                                                    |   | 217,500     
|Notes payable                                                                                                    |   | 125,000     
|Current maturities of long-term debt                                                                             |   | 33,529      
|Current maturities of capitalized lease obligations                                                              |   | 8,467       
|Total Current Liabilities                                                                                        |   | 1,580,266   
|Long term debt, less current portion                                                                             |   | 274,890     
|Total Liabilities                                                                                                |   | 1,855,156   
|Stockholders- Equity (Impairment)                                                                                |   |             
|Preferred Stock, $.001 par value, non-voting, 3,000,000 shares authorized; 214,858
shares issued and outstanding |   | 215         
|Common stock, $.0001 par value, 100,000,000 shares authorized; 25,711,403 shares 			issued and outstanding       |   | 2,571       
|Additional paid in capital                                                                                       |   | 18,033,948  
|Accumulated deficit                                                                                              |   | (18,258,929)
|Total Stockholders- Equity (Impairment)                                                                          |   | (222,195)   
|Total Liabilities and Stockholders- Equity (Impairment)                                                          | $ | 1,632,961   















See notes to the consolidated financial statements.



Magnitude Information Systems, Inc. and Subsidiaries

Consolidated Statements of Operations





|                                              |   | Year Ended December 31,
|--------------------------------------------- | - | -----------------------
|                                              |   | 2001                   
|                                              |   |                        
|Net Sales                                     |   |                        
|Hardware Products                             | $ | -                      
|Software                                      |   | 609,214                
|Total Net Sales                               |   | 609,214                
|                                              |   |                        
|Cost of Good Sold                             |   |                        
|Hardware Products                             |   | 521                    
|Software                                      |   | 158,745                
|Total Cost of Goods Sold                      |   | 159,266                
|Gross Profit                                  |   | 449,948                
|Research and development costs                |   | 13,561                 
|Selling, general and administrative expenses  |   | 3,533,035              
|(Loss) From Operations                        |   | (3,096,648)            
|Other Income (Expense)                        |   |                        
|Miscellaneous income                          |   | 28,923                 
|Interest income                               |   | 103                    
|Interest expense                              |   | (80,875)               
|Loss on disposition of assets                 |   | -                      
|Total Other (Expense)                         |   | (51,849)               
|(Loss) Before Provision for Income Taxes      |   | (3,148,497)            
|Benefit from Income Taxes                     |   | 93,461                 
|Net (Loss)                                    | $ | (3,055,036)            
|Dividends on Preferred Shares                 | $ | (189,353)              
|Net (Loss) Applicable to Common Shareholders  | $ | (3,244,389)            
|Net (Loss) Per Common Share                   | $ | (0.15)                 
|Weighted Average of Common Shares Outstanding |   | 21,466,050             



See notes to the consolidated financial statements.

Magnitude Information Systems, Inc. and Subsidiaries

Consolidated Statement of Stockholders- Equity (Deficit)

Years Ended December 31, 2000 and 1999



|                                                                                                                                                    |  | Convertible
Preferred Shares |   | Cumulative
Preferred Shares |  | Common Stock |   | Additional Paid in Capital |  | Accumulated Deficit |   | Total Stockholders Equity (Deficit)
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | - | --------------------------- |  | ------------ | - | -------------------------- |  | ------------------- | - | -----------------------------------
|                                                                                                                                                    |  | Shares                       |   | Amount                      |  | Shares       |   | Amount                     |  | Shares              |   | Amount                             
|Balances, January 1, 2000                                                                                                                           |  | -                            | $ | -                           |  | 10           | $ | -                          |  | 10,340,261          | $ | 1,034                              
|Issuance of common stock granted for services performed                                                                                             |  | -                            |   | -                           |  | -            |   | -                          |  | 107,828             |   | 11                                 
|Issuance of common stock pursuant to stock option exercise                                                                                          |  | -                            |   | -                           |  | -            |   | -                          |  | 100,000             |   | 10                                 
|Issuances of common stock for conversion of loans                                                                                                   |  | -                            |   | -                           |  | -            |   | -                          |  | 3,298,702           |   | 330                                
|Issuances of common stock pursuant to registration penalty clause                                                                                   |  | -                            |   | -                           |  | -            |   | -                          |  | 160,000             |   | 16                                 
|Cancellation of previously issued common stock pursuant to put option agreement in exchange for note                                                |  | -                            |   | -                           |  | -            |   | -                          |  | (155,556)           |   | (15)                               
|Exchange of the Company's common stock, one common share for 3.4676 common shares of Magnitude, Inc.                                                |  | -                            |   | -                           |  | -            |   | -                          |  | 11,535              |   | 1                                  
|Issuance of common stock pursuant to private equity placements                                                                                      |  | -                            |   | -                           |  | -            |   | -                          |  | 900,000             |   | 90                                 
|Conversion of previously issued cumulative preferred shares and note into common and convertible preferred shares pursuant to resignation agreement |  | 100,000                      |   | 100                         |  | (9)          |   | -                          |  | 700,000             |   | 70                                 
|Issuance of common stock pursuant to warrant exercise                                                                                               |  | -                            |   | -                           |  | -            |   | -                          |  | 200,000             |   | 20                                 
|Issuance of common stock to employee for compensation                                                                                               |  | -                            |   | -                           |  | -            |   | -                          |  | 16,854              |   | 2                                  
|Issuance of common stock in connection with hiring bonus to officer                                                                                 |  | -                            |   | -                           |  | -            |   | -                          |  | 100,000             |   | 10                                 
|Issuance of convertible preferred stock pursuant to private equity placements                                                                       |  | 395,037                      |   | 395                         |  | -            |   | -                          |  | -                   |   | -                                  
|Issuance of convertible preferred stock for conversion of loans                                                                                     |  | 29,300                       |   | 29                          |  | -            |   | -                          |  | -                   |   | -                                  
|Issuance of common stock for conversion of loan and accrued interest                                                                                |  | -                            |   | -                           |  | -            |   | -                          |  | 617,616             |   | 62                                 
|Issuance of common stock pursuant to the Cornell Ergonomics, Inc. Acquisition Agreement                                                             |  | -                            |   | -                           |  | -            |   | -                          |  | 54,000              |   | 5                                  
|Issuance of common stock pursuant to the Internet Ergonomics Corp. Acquisition Agreement                                                            |  | -                            |   | -                           |  | -            |   | -                          |  | 64,000              |   | 5                                  
|Issuance of common stock granted for private placement finders fee                                                                                  |  | -                            |   | -                           |  | -            |   | -                          |  | 10,000              |   | 1                                  
|Net loss, year ended December 31, 2000                                                                                                              |  | -                            |   | -                           |  | -            |   | -                          |  | -                   |   | -                                  
|Dividends on convertible preferred stock                                                                                                            |  | -                            |   | -                           |  | -            |   | -                          |  | -                   |   | -                                  
|                                                                                                                                                    |  | -                            |   | -                           |  | -            |   | -                          |  | -                   |   | -                                  
|Balances, December 31, 2000                                                                                                                         |  | 524,337                      | $ | 524                         |  | 1            | $ | -                          |  | 16,525,240          | $ | 1,652                              





See notes to the consolidated financial statements.



Magnitude Information Systems, Inc. and Subsidiaries

Consolidated Statement of Stockholders- Equity (Deficit)

Years Ended December 31, 2001 and 2000



|                                                                             |  | Convertible
Preferred Shares |   | Cumulative
Preferred Shares |  | Common Stock |   | Additional Paid in Capital |  | Accumulated Deficit |   | Total Stockholders Equity (Deficit)
|---------------------------------------------------------------------------- |  | ---------------------------- | - | --------------------------- |  | ------------ | - | -------------------------- |  | ------------------- | - | -----------------------------------
|                                                                             |  | Shares                       |   | Amount                      |  | Shares       |   | Amount                     |  | Shares              |   | Amount                             
|Balances, January 1, 2001                                                    |  | 524,337                      | $ | 524                         |  | 1            | $ | -                          |  | 16,525,240          | $ | 1,652                              
|Issuance of convertible preferred stock pursuant to private equity placement |  | 16,112                       |   | 16                          |  | -            |   | -                          |  | -                   |   | -                                  
|Conversion of convertible preferred stock into common stock                  |  | (325,592                     |   | (325)                       |  | -            |   | -                          |  | 3,255,920           |   | 325                                
|Issuances of common stock for accrued dividends                              |  | -                            |   | -                           |  | -            |   | -                          |  | 74,930              |   | 8                                  
|Issuances of common stock for accrued interest                               |  | -                            |   | -                           |  | -            |   | -                          |  | 17,736              |   | 2                                  
|Issuances of common stock pursuant to conversion of debt                     |  | -                            |   | -                           |  | -            |   | -                          |  | 85,333              |   | 9                                  
|Issuances of common stock pursuant to exercise of options                    |  | -                            |   | -                           |  | -            |   | -                          |  | 200,000             |   | 20                                 
|Issuance of common stock pursuant to exercise of warrants                    |  | -                            |   | -                           |  | -            |   | -                          |  | 1,517,500           |   | 152                                
|Issuance of common stock pursuant to private equity placements               |  | -                            |   | -                           |  | -            |   | -                          |  | 3,662,611           |   | 366                                
|Issuance of common stock granted for private placement finders- fees         |  | -                            |   | -                           |  | -            |   | -                          |  | 52,230              |   | 5                                  
|Issuance of common stock pursuant to conversion of accounts payable          |  | -                            |   | -                           |  | -            |   | -                          |  | 226,817             |   | 23                                 
|Issuance of common stock for services performed                              |  | -                            |   | -                           |  | -            |   | -                          |  | 93,086              |   | 9                                  
|                                                                             |  |                              |   |                             |  |              |   |                            |  |                     |   |                                    
|Net loss, year ended December 31, 2001                                       |  | -                            |   | -                           |  | -            |   | -                          |  | -                   |   | -                                  
|Dividends on convertible preferred stock                                     |  | -                            |   | -                           |  | -            |   | -                          |  | -                   |   | -                                  
|                                                                             |  |                              |   |                             |  |              |   |                            |  |                     |   |                                    
|Balances, December 31, 2001                                                  |  | 214,857                      | $ | 215                         |  | 1            | $ | -                          |  | 25,711,403          | $ | 2,571                              









See notes to the consolidated financial statements.



Magnitude Information Systems, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

|                                                                     |   | Year Ended December 31,
|-------------------------------------------------------------------- | - | -----------------------
|                                                                     |   | 2001                   
|Cash Flows From Operating Activities                                 |   |                        
|Net Income (Loss)                                                    | $ | (3,055,036)            
|Adjustments to Reconcile Net (Loss) to Net Cash (Used) by Operations |   |                        
|Depreciation and amortization                                        |   | 203,848                
|Common stock issued for various expenses                             |   | 32,708                 
|New debt issued for interest expenses                                |   | -                      
|Loss on disposition of assets                                        |   | -                      
|Bad debt provision (recovery)                                        |   | (35,821)               
|Forgiveness of debt                                                  |   | (28,923)               
|Inventory writeoff                                                   |   | -                      
|Decreases (Increases) in Assets                                      |   |                        
|Accounts receivable                                                  |   | (113,751)              
|Miscellaneous receivables                                            |   | 10,795                 
|Inventories                                                          |   | -                      
|Deferred tax asset                                                   |   | 122,044                
|Prepaid expenses                                                     |   | 315,764                
|Other assets                                                         |   | 2,600                  
|Increases (Decreases) in Liabilities                                 |   |                        
|Accounts payable and accrued expenses                                |   | 346,797                
|Deferred revenue                                                     |   | 207,522                
|Deferred rental obligation                                           |   | 5,145                  
|Net Cash Provided by (Used) by Operating Activities                  |   | (1,986,308)            
|Cash Flows From (Used) by Investing Activities                       |   |                        
|Purchases of equipment, fixtures, and software                       |   | (945)                  
|Sales of property and equipment                                      |   | -                      
|Loans made                                                           |   | -                      
|Collections of loans                                                 |   | -                      
|Net Cash (Used) by Investing Activities                              |   | (945)                  
|Cash Flows From (Used) by Financing Activities                       |   |                        
|Repayment of note payable                                            |   | (40,000)               
|Repayment of capital lease obligations                               |   | (5,091)                
|Proceeds from loans payable                                          |   | 107,500                
|Repayment of loans payable                                           |   | -                      
|Proceeds from officer loans                                          |   | 8,231                  
|Dividends paid                                                       |   | (14,003)               
|Proceeds from issuance of common and preferred stock                 |   | 1,908,144              
|Net Cash Provided by Financing Activities                            |   | 1,964,781              
|Net (decrease) in Cash                                               |   | (22,472)               
|Cash at beginning of period                                          |   | 37,701                 
|Cash at end of period                                                | $ | 15,229                 
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                     |   |                        
|Interest Paid                                                        | $ | 26,836                 
|Taxes Paid                                                           | $ | 5,521                  

See notes to the consolidated financial statements



Magnitude Information Systems, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

|                                                                                                                                                                                                                         |   | Year Ended December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | -----------------------
|                                                                                                                                                                                                                         |   | 2001                   
|Schedule of non-cash investing and financing activities                                                                                                                                                                  |   |                        
|In exchange for accrued dividends on preferred stock, 74,930 common shares were issued                                                                                                                                   | $ | 37,465                 
|In exchange for accrued interest in a promissory note, 17,736 common shares were issued                                                                                                                                  | $ | 8,868                  
|In connection with the retirement of a portion of a promissory note, 85,333 common shares were issued                                                                                                                    | $ | 40,000                 
|In connection with the exercise of warrants against accrued dividends on preferred shares, 250,000 common shares were issued                                                                                             | $ | 46,684                 
|In connection with the issuance of common stock, 226,817 common shares were issued as consideration for past services                                                                                                    | $ | 78,792                 
|In connection with the issuance of common stock, 93,086 shares were issued as consideration for current year services                                                                                                    | $ | 32,708                 
|In connection with the retirement of the balance of $162,462 remaining on a $200,000 promissory note, 324,926 common shares were issued                                                                                  |   |                        
|In connection with the Rolina Corporation merger agreement, an accrued contingent liability agreement was converted to long-term debt and 155,556 previously issued common shares were cancelled                         |   |                        
|In connection with the issuance of common stock, 174,632  common shares were issued for current services                                                                                                                 |   |                        
|In connection with the retirement of a $351,060 loan and conversion of 9 cumulative preferred shares pursuant to a resignation agreement, 100,000 new convertible preferred shares and 700,000 common shares were issued |   |                        
|In connection with the Cornell Ergonomics, Inc. and Internet Technologies, Corp. acquisitions, 118,000 common shares were issued                                                                                         |   |                        
|In connection with the issuance of common stock, 35,605 shares were issued as consideration for past services                                                                                                            |   |                        
|In connection with the retirement of a $400,000 promissory note and accrued interest of $260,000 thereon, 617,616 common shares were issued and a $200,000 short-term  installment obligation was issued                 |   |                        
|In connection with the retirement of a $59,735 loan, 120,000 common shares were issued                                                                                                                                   |   |                        
|In connection with the retirement of $1,111,750 promissory notes, 653,776 common shares and 29,300 Series A Senior convertible preferred shares were issued                                                              |   |                        
|In connection with the retirement of $1,028,000 promissory notes, 2,200,000 common shares were issued                                                                                                                    |   |                        

See notes to the consolidated financial statements.



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. remain as two separate legal entities whereby Magnitude, Inc. operates as a subsidiary of the Company.  However, the operations of the combined entity are currently comprised solely of the operations of Magnitude, Inc.  The remaining 1% of Magnitude, Inc. stockholders hold a minority interest which is valued at $0.



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



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



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



Principles of Consolidation

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



Depreciation

Property, plant and equipment are recorded at cost.  Depreciation on equipment, furniture and fixtures and leasehold improvements is computed on thestraight 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.





Magnitude Information Systems, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Amortization

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



Advertising Costs

Advertising costs are charged to operations when incurred.  Advertising expense was $166,767 and $127,241 for the years ended December 31, 2001 and 2000, 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.  During  2001, the Company charged to operations certain prepaid advertising costs in the amount of $318,956 which had been scheduled to be amortized through December 31, 2002.



Securities Issued for Services

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



Income Taxes

The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expenses are expected to be settled in the Company's income tax return.  Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes.  Deferred taxes are also recognized for operating losses that are available to offset future taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  The Company has incurred net operating losses for financial-reporting and tax-reporting purposes.  Accordingly, for Federal and state  income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the year ended December 31, 2001.



Net Loss Per Share

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



Revenue Recognition

Revenue from software sales is recognized at the time of licensing provided that the resulting receivable is deemed probable of collection.  Revenue from software maintenance contracts is recognized ratably as earned.





Magnitude Information Systems, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)



Use of Estimates

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



GOING CONCERN



As shown in the accompanying financial statements, the Company incurred net losses of $3,055,036 and $3,515,473 during the years ended December 31, 2001 and 2000, respectively.  The ability of the Company to continue as a going concern is dependent on increasing sales and obtaining additional capital and financing.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.  Management's plans are to continue discussions with several potential investors to obtain additional capital in order to alleviate the situation.



CONCENTRATIONS OF BUSINESS AND CREDIT RISK



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



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



RECEIVABLES WITH EXTENDED PAYMENT TERMS



Accounts receivable include $125,625 with extended payment terms, due for payment after December 31, 2002.  The underlying revenues for the entire amount have been deferred and are included in the position "Deferred Revenues".



PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following at December 31, 2001

|Equipment                     |  | $ | $ | 164,891
|----------------------------- |  | - | - | -------
|Furniture and fixtures        |  |   |   | 69,976 
|Leasehold improvements        |  |   |   | 45,770 
|                              |  |   |   | 280,637
|Less accumulated depreciation |  |   |   | 215,521
|                              |  | $ | $ | 65,116 

Depreciation expense charged to operations was $47,930 and $44,645 in 2001 and 2000, respectively.



Magnitude Information Systems, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements



ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following at December 31, 2001





|Accounts payable          | $ | 402,536
|------------------------- | - | -------
|Accrued interest          |   | 61,901 
|Accrued commissions       |   | 23,356 
|Accrued returns           |   | 35,719 
|Accrued legal settlement  |   | 10,000 
|Accrued professional fees |   | 166,490
|Accrued taxes             |   | 1,600  
|Accrued payroll           |   | 38,234 
|Miscellaneous accruals    |   | 32,491 
|                          | $ | 772,327



LOANS PAYABLE



The Company and Magnitude, Inc. had borrowings under short term loan agreements with the following terms and conditions at December 31, 2001:



|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, 2001 and no demand for payment has been made through the date of our report. | $ | 75,000 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------
|Notes dated December 6, 2000, December 28, 2000, January 8, 2001, February 16, 2001, March 1, 2001, March 7, 2001, and May 16, 2001 representing  cash advances by the Company's Chief Executive Officer and Board Chairman.  The notes are due on demand.  The notes carry an interest rate of 10% per annum.                                              |   | 142,500
|Total                                                                                                                                                                                                                                                                                                                                                       | $ | 217,500



NOTES PAYABLE

|At December 31, 1999 the Company had $1,475,000 of notes outstanding related to a June 1995 private placement offering.  During 2000 the holders of $1,450,000 worth of notes agreed to accept partial repayment of approximately 30% of the note balances and converted the remaining balances into common shares or convertible preferred shares.  The total amount of nonconverted notes outstanding at December 31, 2001 is $25,000 in which attempts to locate the holder of this note, to settle this liability, have been unsuccessful. | $ | 25,000 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------
|Current portion of Company obligation to the Company's Chief Executive Officer and Board Chairman, carrying interest at the rate of 7% per year payable monthly and due on demand (See Long-Term Debt below).                                                                                                                                                                                                                                                                                                                                  |   | 100,000
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $ | 125,000



Magnitude Information Systems, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements



LONG-TERM DEBT



Long-term debt as of December 31, 2001 is comprised of the following:



|Pursuant to the February 2, 1998, Agreement and Plan of Merger with Rolina Corporation (see "Nature of Organization") the Company had issued 155,556 shares (the "Shares") of its common stock to the principal of Rolina Corporation who currently serves as the Company's Chief Executive Officer and Board Chairman, and had issued a Put Option for such Shares at a price of $2.41 per share in accordance with the provisions contained therein, with notice for exercise eligible to be given at any time after February 1, 2000, and before 5:00 p.m. on the 90th day thereafter.  This liability was converted into a Company obligation for $274,890 maturing March 31, 2002 and a demand loan for $100,000 both carrying interest at the rate of 7% per year payable monthly.  The 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 $0.50 per share. | $ | 274,890
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------
|Discounted present value of a non-interest bearing $70,000 settlement with a former investor of Magnitude, Inc. to be paid in 24 equal monthly payments commencing July 1, 1997.  The imputed interest rate used to discount the note is 8% per annum.  This obligation is in default.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 33,529 
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 308,419
|Less current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 33,529 
|Long-term debt, net of current maturities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | $ | 274,890



Total maturities of long-term debt are as follows:

Year Ending December 31,



|2001 | $ | 33,529 
|---- | - | -------
|2002 |   | 274,890
|     | $ | 308,419

CAPITALIZED LEASE OBLIGATIONS

The Company leases office equipment under non-cancelable capital lease agreements expiring between October 26, 2002 and October 27, 2002.  The capital lease obligations have been recorded at the present value of future minimum lease payments, discounted at an interest rate of 7.00%.  The capitalized cost of equipment at December 31, 2001 amounted to $7,473 net of accumulated depreciation of $18,903.

The following is a schedule of minimum lease payments due under capital leases at December 31, 2001:



|Year Ending December 31,                                       |   |      
|-------------------------------------------------------------- | - | -----
|2002                                                           | $ | 8,841
|Total minimum capital lease payments                           |   | 8,841
|Less amounts representing interest                             |   | 374  
|Present value of net minimum capital lease payments            |   | 8,467
|Less current maturities of capital lease obligations           |   | 8,467
|Obligations under capital leases, excluding current maturities | $ | -    



Magnitude Information Systems, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements



DEFERRED REVENUES



Deferred revenues at December 31, 2001, amounted to $235,920.  These include $43,970 prepaid software maintenance and support charges which are amortized ratably over the duration of the underlying maintenance agreements.  The remainder of $191,950 represents revenues from software licensing agreements where the Company has not been reasonably assured of the collectibility of the associated receivables, primarily because a majority portion of $125,625 was invoiced with extended payment terms, due after December 31, 2002.  (See Receivables With Extended Payment Terms)



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, 2001 is $0 with a liquidation price of $100,000.  As of December 31, 2001, 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, 2001 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 entitledto 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 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 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 and C Senior Preferred, the holders of these series shall receive payments on a pro rata basis.





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, 2001 there were $11,964 Series A Senior Convertible Preferred share dividends accrued and unpaid representing $.0.41 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, 2001 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 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 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 and C Senior Preferred, the holders of these series shall receive payments on a pro rata basis.



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, 2001 there were $35,385 Series B Senior Convertible Preferred share dividends accrued and unpaid.  These dividends pertain to 111,000 shares issued in 2000 that were converted into common stock during 2001.



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, 2001 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 and B 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 and C Senior Preferred, the holders of these series shall receive payments on a pro rata basis.



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, 2001 there were $63,000 Series C Senior Convertible Preferred share dividends accrued and unpaid representing $.063 per share.



Series D of the Senior Convertible Preferred Stock series which was issued in 2000 has 500,000 shares designated, 85,557 shares issued and outstanding. The total outstanding Series D Senior Convertible Preferred Stock at December 31, 2001 is $86 with a liquidation price of $770,013.  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.







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 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 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, 2001 there were $63,029 Series D Senior Convertible Preferred share dividends accrued and unpaid representing $0.74 per share.



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



INCOME TAXES



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





|                                   |   | Year Ended December 31,
|---------------------------------- | - | -----------------------
|                                   |   | 2001                   
|State current provision (benefit)  | $ | (93,461)               
|State deferred provision (benefit) |   | -                      
|                                   | $ | (93,461)               

In 1998, the State of New Jersey enacted legislation allowing emerging technology and/or biotechnology companies to sell their unused New Jersey Net Operating Loss ("NOL") Carryover and Research and Development Tax Credits ("R&D Credits) to corporate taxpayers in New Jersey.  During 2000 and 2001, the Company entered into an agreement under which it retained a third party broker to identify a buyer for its NOL Carryover.  The total anticipated net proceeds of this transaction for 1999 ($497,238) was recorded as a current deferred tax asset ($201,470) and a tax benefit of $295,768 in the accompanying financial statements.

Due to limitations placed by the State of New Jersey on the total amount of NOL Carryover and R&D Credits eligible to be sold in any one year, the sale of only a portion of the Company's NOL Carryover ($295,768) was completed in 1999.  The receipt of these funds was recorded as a reduction to the non-current deferred tax asset in the accompanying financial statements.  The sale of the remaining balance of the Company's NOL Carryover was completed in 2000; however the deferred amount of $201,470 was subsequently reduced by the State to $164,450.



Magnitude Information Systems, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements





INCOME TAXES - (Continued)

The total anticipated net proceeds of this transaction for 2001, which represents the sale of the Company's 2000 New Jersey Net Operating Loss, was $291,093; of which $93,411 was received by December 31, 2001 and the remaining $197,682 has not been set up as a current deferred tax asset due to the uncertainty of the program given the current budget crisis in the State of New Jersey.

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





|                                     |   | December 31,
|------------------------------------ | - | ------------
|                                     |   | 2001        
|Total deferred tax asset, noncurrent | $ | 6,800,000   
|Less valuation allowance             |   | (6,800,000) 
|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,
|------------------- |  | -----------------------
|                    |  | 2001                   
|Tax benefit         |  | 40%                    
|Valuation allowance |  | 40%                    
|Effective tax rate  |  | -                      







At December 31, 2001, the Company has available approximately $17,000,000 of net operating losses to carry-forward and which may be used to reduce future federal taxable income and expire between December 31, 2007 and 2021.



At December 31, 2001, the Company has available approximately $3,050,000 of net operating losses to carry-forward and which may be used to reduce future state taxable income which expire December 31,  2008.



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 $22,711 and $20,718  for the years ended December 31, 2001 and 2000, respectively.



Magnitude Information Systems, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



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.



|                                                                                     |  | Qualified and Non-Qualified Shares Under Option Pursuant to the 1997 Plan
December 31,
|------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------
|                                                                                     |  | 2001                                                                                  
|Outstanding, beginning of year                                                       |  | 913,000                                                                               
|Granted during the year                                                              |  | -                                                                                     
|Forfeited during the year                                                            |  | (56,000)                                                                              
|Outstanding, end of year (at prices ranging from $1.00 to $2.00 per share)           |  | 857,000                                                                               
|Eligible, end of year for exercise (at prices ranging from $1.00 to $2.00 per share) |  | 853,000                                                                               

At December 31, 2001 and 2000, the weighted average exercise price and weighted average remaining contractual life is $1.06  and $1.10 per share and 3 years 5 months and 4 years 4 months, respectively

At December 31, 2001, there were 143,000 shares reserved for future option grants.



Magnitude Information Systems, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

STOCK OPTION PLANS - (Continued)

|                                                                           | Qualified and Non-Qualified Shares Under Option Pursuant to the 2000 Plan
December 31,
|-------------------------------------------------------------------------- | --------------------------------------------------------------------------------------
|                                                                           |                                                                                       
|Outstanding, beginning of year                                             |                                                                                       
|Granted during the year                                                    |                                                                                       
|Forfeited during the year                                                  |                                                                                       
|Outstanding, end of year (at prices ranging from $0.50 to $1.33)           |                                                                                       
|Eligible, end of year for exercise (at prices ranging from $0.50 to $1.33) |                                                                                       



At December 31, 2001 and 2000  the weighted average exercise price and weighted average remaining contractual life is $0.85 and $1.07 per share and 3 years 10 months and 4 years 6 months, respectively.

At December 31, 2001, there were 2,298,891 shares reserved for future option grants.



WARRANTS

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

At December 31, 2001, there were 11,780,472 shares eligible for exercise at prices ranging from $.50 to $5.00 per share, of which 1,460,000 eligible shares are callable at $2.00 per share.  All warrants vested upon issuance and expire between July 22, 2002 and February 24, 2006.



COMMITMENTS AND CONTINGENCIES



Lease Agreement

On March 15, 2000, the Company entered into a lease agreement for office space which is utilized for the Company's principal offices.  Such lease commenced April 15, 2000 and expires on March 31, 2005 and requires monthly payments of $6,500 from April 15, 2000 through March 31, 2002; of $6,695 thereafter through March 31, 2003; of $6,896 thereafter March 31, 2004; and of $7,103 thereafter through March 31, 2005.



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



|Year Ending December 31, |   |        
|------------------------ | - | -------
|2002                     | $ | 79,755 
|2003                     |   | 82,149 
|2004                     |   | 84,615 
|2005                     |   | 21,309 
|Total                    | $ | 267,828

Included in general and administrative expenses is rent expense which amounted to $99,626 and $84,160 for the years ended December 31, 2001 and 2000, respectively.



Magnitude Information Systems, Inc. and Subsidiaries

Notes to Consolidated Financial Statements



COMMITMENTS AND CONTINGENCIES, (Continued)





Employment Agreements

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



RELATED PARTY TRANSACTIONS

On March 31, 2000, the Company and its President and Chief Executive Officer agreed to convert a current liability payable to him in the amount of $374,890 into a Company obligation, of which $100,000 was subsequently classified as due on demand with the remaining balance of $274,890 maturing July 1, 2002.  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 December 2001, a director of the Company exercised warrants for the purchase of 200,000 shares of the Company's common stock, at a price of $0.10 per share.



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



MAJOR CUSTOMERS



The Company had two major customers for the year ended December 31, 2001, which comprised 39% and 28% of total sales.  The Company had accounts receivable balances due from these customers of $224,641 and $0, respectively, at December 31, 2001.  These two customers accounted for $405,320 of total revenues.  The Company's revenue profile consists of a larger number of small transactions interspersed with very few large contracts which, if they were not to materialize, would significantly alter period revenues.  This unpredictability and volatility represents a risk.



FAIR VALUE OF FINANCIAL INSTRUMENTS



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

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



Limitations

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