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, 1998

                                       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

                  50 Tannery Road, Branchburg, New Jersey     08876
                 Address of Principal Executive Offices     Zip Code

                                 (908) 534-6400
                Registrants Telephone Number, Including Area Code

                             PROFORMIX SYSTEMS, INC.
                             (Former Conformed Name)

                                November 18, 1998
                              (Date of Name Change)

           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

<PAGE>

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

                                    Yes _X_      No

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, 1998,
were $2,926,455.

Common stock, par value $.0001 per share ("Common Stock"), was the only class of
voting stock of the Registrant outstanding on February 26, 1999. Based on the
closing price of the Common Stock on the OTC Electronic Bulletin Board as
reported on February 26, 1999, ($0.875), the aggregate market value of the
6,260,120 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 February 26, 1999, was
approximately $5,478,000. 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 February  26, 1999,  8,065,113  shares of Common  Stock,  $.0001 par
value, were outstanding.

             DOCUMENTS INCORPORATED BY REFERENCE: SEE EXHIBIT INDEX


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<PAGE>

                       MAGNITUDE INFORMATION SYSTEMS, INC.

                                    CONTENTS

PART I.                                                                     Page
                                                                            ----
      Item  1.    Business.....................................................4
      Item  2.    Properties..................................................10
      Item  3.    Legal Proceedings ..........................................10
      Item  4.    Submission of Matters to a Vote of Security Holders ........10

PART II.
      Item  5.    Market for Registrant's Common Equity and
                  Related Shareholder Matters ................................11
      Item  6.    Management's' Discussion and Analysis of
                  Financial Condition and Results of Operations ..............12
      Item  7.    Financial Statements and Supplementary Data ................16
      Item  8.    Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure      ................16
PART III.
      Item  9.    Directors and Executive Officers of the Registrant .........17
      Item 10.    Executive Compensation .....................................19
      Item 11.    Security Ownership of Certain Beneficial Owners
                  and Management .............................................21
      Item 12.    Certain Relationships and Related Transactions .............22
      Item 13.    Exhibits and Reports on Form 8-K ...........................23

                  Signatures..................................................24
                  Exhibit Index...............................................25


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<PAGE>

                                     PART I

ITEM 1: BUSINESS

Background

      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. .

      On June 24, 1997, the Company, Royal Capital, Inc., and Proformix, Inc., a
Delaware corporation and manufacturer of ergonomic keyboarding systems, entered
into an Acquisition Agreement. Proformix, Inc. in November 1998 changed its name
to Magnitude, Inc. and is hereafter referred to as Magnitude, Inc.. Pursuant to
the Acquisition Agreement, Magnitude Inc. shareholders were offered 1 share of
the Company's common stock for every 3.4676 shares of Magnitude, Inc. common
stock, and 1 share of preferred stock for every 1 share of Magnitude, Inc.
preferred stock. At the time of this submission, holders of approximately 98% 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, during the
year, of the Company's proprietary Proformix EMS Software System.

      On November 18, 1998, the Company and its wholly owned subsidiary
Magnitude, Inc. entered into an Asset Purchase Agreement and several related
agreements with 1320236 Ontario Inc. ("OS"), a publicly traded Canadian
designer, manufacturer and distributor of office furniture based in Holland
Landing, Ontario, Canada, pursuant to which OS acquired Magnitude, Inc.'s
hardware product line comprised of the Company's ergonomic keyboard platform
products and accessories, and all related inventory and production tooling and
warehousing assets, and all intellectual property rights including the Proformix
name, against a cash consideration and an ongoing contingent stream of royalty
payments on OS' sales of the Proformix hardware products. The Company will
continue to market its proprietary software under the Proformix label. The
Agreement with OS also provided for the retirement of the Company's then
existing bank debt, out of the proceeds of the transaction. Further details
regarding this transaction may be obtained from the Company's related filing of
February 9, 1999, on Form 8-K.

      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 Thirty Million (30,000,000) Common Shares, par value
$.0001, Three Million (3,000,000) Preferred Shares Series A, par value $.01, and
Two Thousand Five Hundred (2,500) Cumulative Preferred Shares, par value $.001 .

      As of December 31, 1998, there were outstanding 6,431,113 Common Shares
and 10 Cumulative Preferred Shares.


                                       4
<PAGE>

Narrative Description of Business

      Until November 18, 1998, when the Company sold its hardware product line
comprised of Magnitude, Inc.'s ergonomic keyboard platform products and
accessories, its business was primarily centered around the design, development,
manufacture, and marketing of research-based ergonomic accessory products for
the computerized workplace. In parallel, and beginning with the February 1998
acquisition by the Company of Rolina Corporation, an early stage software
business which had developed an ergonomic software product that was being
marketed under the name "ErgoSentry", and the subsequent acquisition in May 1998
of substantially all of the assets of Vanity Software Publishing Corporation, a
Canadian software firm, which also included a certain ergonomic software package
known as "ErgoBreak", the Company engaged in the development of a unique suite
of software packages designed to increase productivity in the computer related
work environment which include the before mentioned "ErgoSentry" and "ErgoBreak"
products. These efforts resulted, in November 1998, in the release to the market
of the proprietary "Proformix EMS" (Ergonomic Management System) software
system. With the sale of the hardware product line, the Company's business is
now focused exclusively on the further development and marketing of these
software products. As such, the Company currently must be considered an
enterprise in transition, because it has not yet realized material revenues from
licensing its software.

      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 focuses 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 subclassification of Cumulative Trauma
Disorders (CTDs). One common form of RSI is Carpal Tunnel Syndrome (CTS) which
can be caused by excessive typing, among other activities, and can be aggravated
by deficient - in the ergonomic sense - equipment and inappropriate work habits.
The carpal tunnel is a channel in the wrist where tendons and the median nerve
connect the arm to the hand. Through excessive use, the tendons become swollen
and pinch the nerve. 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 proprietary 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.

      During 1996, the issues of repetitive stress injuries and the potential of
liability to employers from the effects of carpal tunnel syndrome and other
RSI's on employees were forcibly brought to the forefront of corporate
consciousness through widely publicized suits involving a major computer maker.
The US Bureau of Labor Statistics reported that already in 1995, there were
approximately 70,000 cases of carpal tunnel syndrome and associated tendonitis,
and that 25% of all injuries that result in lost work time are due to repetitive
stress problems. They currently cost employers an estimated $20 billion a year
in workers' compensation claims. The federal government estimates an additional
$80 billion is lost in related costs such as absenteeism and reduced
productivity. The RSI issues in the United States are mirrored in the rest 


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<PAGE>

of the developed world. 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 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. As such, the Company
with its recent transition from the more stable environment of a supplier of
ergonomic (hardware) accessories, to a software house addressing a specialized
market, has entered new territory. Nevertheless, its chances for success, in
management's opinion, are greatly enhanced by the timeliness of the introduction
of its product into an increasingly receptive market, as described above.

      The Company operates primarily in the United States of America, however,
has recently introduced a Portuguese language version of its software products
for the Brazilian market, and is preparing other language versions. The Company
did not so far derive material revenues from the licensing of its software
products, either domestically or in foreign markets.

Products,  Patents, Trademarks

      All patents, trademarks, and other intellectual property rights associated
with the Company's hardware product line of ergonomic keyboard platforms and
accessories were transferred to 1320236 Ontario Inc. ("OS") pursuant to the
November 18, 1998, Asset Purchase Agreement with OS (see "Background" above).

      The Company's primary product is a suite of seven proprietary software
modules marketed under the name "Proformix EMS" (Ergonomic Management System)
which are designed to help individual computer users and businesses deal with
potentially preventable repetitive stress injury (RSI). The seven 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. The EMS suite employs the International RULA (Rapid Upper Limb
Assessment) standard for compliance with CA OSHA Title 8. The seven modules are
described as follows:


                                       6
<PAGE>

ErgoSure:  A postural risk-assessment tool that records how an employee is
working; it determines injury potential and suggests improvements. It also can
be used to evaluate workstation alternatives prior to purchase.

ErgoSentry(TM): Employing patent-pending algorithms that measure rest against
work in real time, the non intrusive program informs users when to break from
high-risk trends (thresholds definable by the user or corporate safety officer)
when keyboarding or using a mouse. ErgoSentry also includes an "ErgoPak" video
or slides that depict correct workstation setup, posture and repetitive
stress-reducing exercises.

Surveyor(TM): An electronic surveyor used by management to gather
macro-information about employee populations and to gain a clear understanding
of equipment usage, discomfort and comfort patterns, workstation configurations
and employee habits.

UserNotes(TM): An easy, effective means for employees to report workplace
discomfort so staff can address certain issues earlier, at lower cost and with
greater likelihood of success. UserNotes encourages a proactive approach.

Guardian: Captures the frequency of mouse clicks and activation of individual
keys, over time. It also can be used in a review process to assess attributes
such as ease-of-use among competing applications. Guardian also is a good
training tool. By measuring before-and-after results, Guardian can be used to
determine the type of training program needed, measure each program's
effectiveness and highlight needed improvements.

ErgoQuiz: An electronic testing system and awareness-building tool that measures
employees' understanding of ergonomic principles.

EMS Analyzer: A comprehensive report writer and analysis tool for manipulating,
interpreting and evaluating the data collected in the ErgoSentry module - on the
workstation-, department-, and company level .

      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 a US Patent Application for the design principles
underlying several of the above software products. 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.

      ErgoSure(TM) which forms part of EMS, is owned by Cornell Ergonomics Inc.
who has granted the Company a license for the exclusive rights to the
ErgoSure(TM) name and product (see "Licenses" below).

Business Strategy

      The most important prospective customers for the Company's products are
medium and large 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 


                                       7
<PAGE>

these potential risks. On an on-going basis, the increasing costs of Work Comp
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 EMS 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 Proformix EMS Ergonomic Management 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 therefore
lies in a comprehensive marketing approach which 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. An
important milestone was reached when the Company, in the fall of 1998, entered
into a joint venture agreement with AON Ergonomic Services, a division of AON,
one of the largest insurance services companies in the world, to market the
Proformix EMS system.

      The Company intends to continue developing strategic marketing
relationships with leading business consultants, to broaden its distribution
channels to include multi-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 EMS.

Research and Development

      During 1998, the Company invested considerable resources in the further
development of the overall EMS 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 EMS, Version 1.78, was released, followed
in October 1998 by Version 2.12.

      The Company has expensed all expenditures related to the above efforts.
The portion attributable to direct R&D expenses totaled $130,435 for the year
ended December 31, 1998.

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. These competitors, however, 


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<PAGE>

typically only target task complexes that are addressed by individual component
parts of the Company's products, such as the ErgoSentry(TM) module, without
offering a comparable breadth of function and integration in such areas as
worksite evaluation, employee training and work pacing.

      The Company is not aware of any products which directly compete with its
integrated software product suite which is marketed by the Company under the
trade name "EMS". While the Company believes that it currently has a strategic
competitive advantage in ergonomic software, especially with regard to its
patent-pending algorithms 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 in 1998 derived 97.5% of its total revenues from the sales of
hardware comprised of ergonomic office equipment and accessories, and 2.5% from
the licensing of its proprietary software. Approximately 39% of the hardware
revenues were derived from one customer. The November 18, 1998, Asset Purchase
Agreement with 1320236 Ontario Inc. ("OS"), effectively eliminated the Company's
presence in the hardware sector of its business and the associated revenue base
although it remains the beneficiary of a contingent stream of royalties on OS'
sales of such hardware products. With the Company now being dependent on the
success of a new product line there can be no assurance that its business 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.

License Agreements

      On December 1, 1997, the Company entered into a two year Software
Distribution and Option Agreement with Cornell Ergonomics Inc., a Delaware
corporation, pursuant to which it is licensed on an exclusive basis, to
distribute and sub-license a certain software product known as "ErgoSure" which
the Company currently markets in conjunction with its own proprietary software
products. The Agreement also grants the Company the right to acquire full title
and ownership to that product, at a later time and under specified
circumstances.

Employees

      As of December 31, 1998, the Company employed 13 persons, of whom four
were primarily engaged in research and development and software support
activities, six were primarily engaged in sales and marketing, and three in
general administrative and clerical functions. The Company has no collective
bargaining agreements with its employees.


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<PAGE>

ITEM 2:  PROPERTIES

      The Company leases approximately 4,000 square feet of office space at 50
Tannery Road, Branchburg, New Jersey, where it maintains its executive and
administrative headquarters and product development and support operations. The
current lease agreement ends on December 31, 2001, and calls for monthly rental
payments of approximately $3,500 plus certain expenses.

ITEM 3:  LEGAL PROCEEDINGS

      Suit was instituted against the Company in the Superior Court of New
Jersey, Law Division, Somerset County, in November 1996, by a shareholder of the
Company. The Company has agreed to a settlement with the plaintiff pursuant to
which the claims will be dismissed against payment by the Company of $20,000 .
The settlement has not been consummated because the plaintiff had filed a
petition in bankruptcy.

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.


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<PAGE>

                                     PART II

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

      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 beginning with the Company's
acquisition of Proformix, Inc. in July 1997, the high and low sales prices for
the Company's Common Stock (no price notations for prior quarters are listed
here because any such share prices and trading reflected activities which bear
no resemblance to the Company's current business):

                                                      OTC-BB
                                                      ------
                                            High/Ask            Low/Bid
                                            --------            -------

1997
         Third Quarter .....................  $7                 $6 1/8
         Fourth Quarter ...................    7                  3 1/4
1998

         First Quarter .....................  $5 7/8             $4 3/8
         Second Quarter ...................    5 7/8              3 3/4
         Third Quarter .....................   4 3/4              1 1/4
         Fourth Quarter ...................    2 5/8                3/4

      As of February 26, 1999, there were approximately 160 shareholders of
record for the Company's Common Stock. The number of record holders does not
include shareholders whose securities are held in street name.

      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
Stock.

Recent Issues of Unregistered Securities

      During the fourth quarter of 1998 and the first quarter of 1999 the
Company issued the following unregistered securities:

      (i) 70,000 shares of Common Stock to a creditor of the Company pursuant to
that party's exercise of an option to convert debt into common stock, at $1.00
per share;

      (ii) 7,500 shares of Common Stock to two individuals who had invested in
the Company pursuant to a 506 Offering Memorandum;

      (iii) An aggregate 110,100 shares of Common Stock to five outside
consultants as compensation for services rendered;

      (iv) 565,000 shares of Common Stock to a director and shareholder of the
Company pursuant to a transaction approved by the Board of Directors of the
Company, whereby he canceled an aggregate $282,500 past-due promissory notes and
interest thereon, issued by the Company.

      (v) 77,778 shares of Common Stock to an officer and director of the
Company, who also was the principal of Rolina Corporation, pursuant to the terms
of that entity's acquisition by the Company.


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<PAGE>

ITEM 6:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

      The selected financial information presented below under the captions
"Statement of Operations" and "Balance Sheet" for the years ended December 31,
1998 and 1997 is derived from the financial statements of the Company and should
be read in conjunction with the financial statements and notes thereto.

      On July 2, 1997, the Company, then known as Whitestone Industries Inc.,
after divesting itself of substantially all operations, assets, and liabilities,
extended an offer to all holders of the common stock of Magnitude, Inc. f/k/a
Proformix, Inc. to exchange their shares into newly to be issued common stock of
the Company. The business combination which took the form of a reverse
acquisition has been accounted for as a Purchase. Subsequent to the exchange,
the Company and Magnitude, Inc. remain as two separate legal entities whereby
Magnitude, Inc. operates as a subsidiary of Magnitude Information Systems, Inc.,
however, the operations of the newly combined entity are comprised solely of the
operations of Magnitude, Inc. and its wholly owned subsidiary Corporate
Ergonomic Solutions, Inc. Therefore, the discussion ensuing below only pertains
to the operations of Magnitude, Inc. for the prior fiscal year until the date of
the acquisition of Magnitude, Inc. through the Company, and to the operations of
the Company thereafter. The past results of operations for Whitestone
Industries, Inc. are summarized as Discontinued Operations. All intercompany
accounts and transactions have been eliminated in consolidation.

SELECTED FINANCIAL DATA
     
                                                           December 31,
                                                     1998                 1997 
                                                     ----                 ---- 
Balance Sheet
     Total assets ...............................$ 2,138,453        $ 1,152,250
     Current liabilities ........................  2,813,308          3,429,825
     Long-term debt .............................  1,316,839          1,719,435
     Working capital (deficit) .................. (2,227,516)        (2,806,682)
     Shareholders' Equity (deficit) .............$(1,991,694)       $(3,997,010)
                                                                    
                                                 For The Year Ended December 31,
                                                 -------------------------------
                                                     1998                 1997
                                                     ----                 ----
Statement of Operations                                       
    Hardware revenues ...........................$ 2,853,969        $ 3,125,009
    Software revenues ...........................     72,486              --
    Total revenues ..............................$ 2,926,455        $ 3,125,009
    Operating loss .............................. (2,588,762)        (1,128,170)
    Loss before extraordinary items ............. (3,113,157)        (1,507,745)
    Net loss .................................... (2,530,909)        (1,507,745)
                                                               
    Net loss per common share ...................$     (0.58)       $     (0.76)
    Number of shares used in computing                         
    per share data ..............................  4,324,292          2,094,724


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<PAGE>

Results of Operations for the Year Ended December 31, 1998

      For the year ended December 31, 1998, the Company had gross revenues of
$2,926,455 (previous year $3,125,009), all of which was generated by its
subsidiary Magnitude, Inc., primarily through its keyboarding systems business.
A portion of $72,486 during 1998 was attributable to the licensing of the
Company's proprietary software. There were no software revenues in 1997.

      Gross profits amounted to $1,336,015 for a 46% gross margin ($1,673,805
respectively 54% in 1997). After deducting selling expenses of $1,363,564 and
general and administrative expenses of $2,561,213, the Company realized an
operating loss of $2,588,762 (compared to an operating loss of $1,128,170 in
1997). Non-operating expenses aside from an item of $686,584 extraordinary
income from the sale of the hardware business to Office Specialty and related
royalty income (see Item 1 "Business") totaled $628,731 and include $342,010 net
interest expense and charges of approximately $255,000 which account for the
write-off of assets which were obsoleted with the sale of the hardware business
and for the dissolution of previously capitalized deferred financing charges,
the latter as the result of the early repayment of bank loans in connection with
the Office Specialty transaction. The year concluded with a net loss of
$2,530,909 or $0.58 per share, compared to a loss of $1,507,745 or $0.76 per
share for the previous year.

      The fiscal year's results were primarily determined by a combination of
slightly lower revenues, a decrease in the overall gross profit margin, and
significant increases in general and administrative expenses. Sales of keyboard
platforms and accessories continued at a strong pace throughout the first two
quarters, however, were affected during the third quarter by a worsening
shortage of working capital which brought about disruptions in the supply of
materials and caused a curtailment of marketing activities. During the fourth
quarter and in anticipation of the impending sale of the hardware product line,
management dedicated most of the available resources towards the software
business. Effective with the sale of the hardware business in November 1998 no
further revenues were being generated from this product line, aside from
royalties which amounted to $53,543 for the months of November and December and
which are included in Non-operating Income. In the aftermath of the Office
Specialty transaction, the Company's revenue base is being supplied solely by
the licensing of the Company's proprietary software. The software business
accounted for only $72,486 during 1998, however, is expected to grow
significantly during 1999 (see Item 1 "Business").

      Cost-of-goods sold include approximately $95,000 amortization of software
assets. These assets which the Company acquired earlier in 1998 pursuant to the
asset purchase agreements with Rolina Corporation and Vanity Software Publishing
Inc. and which formed the basis for the further development, during the year, of
the Company's proprietary Proformix EMS Software System, are being amortized on
a straight line, 10-year, basis. Such software amortization and higher agency
fees in connection with some hardware sales accounted for the decrease in the
overall gross profit margin which otherwise would have tracked the prior year's
result.

      During the year, the Company invested considerable resources in the
further development and enhancement of its acquired software products, and the
formation of new infrastructure for the new business sector. The Company hired
product development and customer support staff and, starting with the fall of
1998, put in place a new sales organization dedicated to the software business.
Related incremental expenditures, not including the outlays for the primary
software assets acquired from Rolina and Vanity Software, totaled more than
$800,000 , most of which are reflected in the financial statements as additional
operating expenses. These expenditures which management categorizes as a
front-end


                                       13
<PAGE>

investment in the future of the Company, caused general and administrative
expenses in total to increase by 63% over the level of the preceding year.
However, the Company is in the process of divesting itself of unneeded
infrastructure previously associated with the hardware business, and a cost
savings trend is expected to take hold during the upcoming fiscal year.

The Software Business

      In expectation that - on a going forward basis - the software business
will account for most if not all of future revenues, management is giving
special attention to the fact that this business distinguishes itself from the
Company's traditional hardware business in certain important criteria:

      (a) Target Clientele: even more so than with the keyboarding products, the
Company expects its client mix to gravitate towards larger companies and
organizations. A likely consequence, initially, will be a concentration of sales
into a smaller number of larger projects and increased volatility in its revenue
stream. 

      (b) Sales Cycles: Software that has the potential of affecting a company's
operations especially with respect to utilization of human resources is
subjected to a possibly larger degree of test, scrutiny, and committee decision
making than most other software products. Management therefore expects longer
sales cycles which during the transition period until a break-even sales volume
is achieved, will put additional strain on the Company's liquidity and financial
resources.

      (c) Cost Structures: The software business to a significant degree is less
capital intensive than the Company's traditional hardware business. Also, its
overall cost structure is less sensitive to changes in volume. While this
translates into improved predictability of future expenditures, it also burdens
the Company with a certain level of quasi fixed expenses during the period when
it is only beginning to realize cash flow from revenues. However, after passing
the break-even point the Company will be the beneficiary of significant cash
flows from any further revenue increases.

      In view of the above and of its limited financial resources the Company,
at least during the upcoming quarters, will need to continue relying on outside
financing to augment working capital until a sufficiently large revenue base has
evolved. Management is working to secure such financing and fully expects to be
able to successfully complete the transition to a specialized software house,
with the goal of becoming the premier supplier of productivity enhancement
software for the computer workplace, concentrating on areas such as worksite
evaluation, employee training and work pacing.

Liquidity and Capital Resources

      At December 31, 1998, the working capital deficit amounted to $2,227,516
as compared with a deficit of $2,806,682 at December 31, 1997. The relative
increase in working capital was a direct consequence of financing activities and
other transactions more closely described below, which more than offset the
total of investments in the new software business and the losses incurred .

      Such activities fall into four areas: (1) the divestiture of the hardware
business pursuant to the Asset Purchase Agreement with 1320236 Ontario Inc. in
November 1998 (see Item 1 "Business") which generated approximately $1.3 million
cash for the Company; (2) the conversion of certain current and past-due Company
debt totaling approximately $340,000 into common equity at the rate of $1 per
share; (3) the raising of new capital through placement of the Company's Common
Shares with domestic investors under private placement arrangements, and with
foreign investors under exemptions pursuant to Regulation S promulgated under
the Securities Act of 1933, as amended, by way of which the Company received an
aggregate $2,787,000 net in new equity capital against issuance of a total of
1,525,866 shares, consisting

                                       14
<PAGE>

of $2,512,000 cash and $275,000 representing the conversion of subscription
prepayments received prior to December 31, 1997; and (4) loans extended by a
director and shareholder of the Company (see Item 12 "Certain Relationships").

      Cash received from the 1320236 Ontario Inc. transaction was used to retire
outstanding bank debt in the amount of approximately $800,000 owed to the
Company's principal lender Carnegie Bank, who held a security interest in the
sold assets, and to pay down certain trade liabilities in the aggregate amount
of approximately $500,000. Cash received from the financing transactions
mentioned under (3) and (4) above was primarily used to partially finance the
software purchases pursuant to the Rolina Corporation and Vanity Software
Publishing Co. acquisitions, and to offset losses from operations. The equity
issues as per (3) took place during the first and second quarter of 1998 and
have been discussed in more detail in the Company's last report on Form 10-KSB
and the quarterly 10-QSB reports filed during 1988, all of which are
incorporated herein by reference.

      The Company currently has only very limited financial resources, and needs
to augment working capital through outside financing. Management's efforts in
this direction center around securing additional funding from a variety of
sources including debt instruments and a liquidation of unused NOL's for which
recent New Jersey tax legislation created a market. Until such can be completed
which is expected to occur towards the beginning of the second quarter, certain
members of the Company's management have agreed to provide for needed bridge
funding. Between December 31, 1998, and March 31, 1999, approximately $500,000
of such funds have been received by the Company (see "Certain Relationships").
In addition, during that period approximately $400,000 in debt have been
converted into equity.

Changes in Accounting Treatment of Equity Issued

      Throughout the year, the Company has followed a valuation approach by
which in cases where no specific $-amount could serve as independent measure in
a particular transaction involving issuance of shares, any such shares of common
stock issued against goods supplied or services performed by third parties were
valued at the then current market price of Magnitude common shares for purpose
of accounting for such transaction.

      During reviews at year-end, management decided to take the most
conservative approach permissible in such matters. While equating the market
price with the "fair market value" and using it as the measure for valuation
usually constitutes the proper methodology, such policy may not necessarily be
appropriate in cases where the shares issued are burdened with restrictions, or
where the market for a company's securities is relatively thin. As a consequence
of these deliberations, management decided to apply a discount of 50% to the
market price in the accounting treatment of certain transactions where shares
were issued and no other independent value measures were readily available. The
financial statements for December 31, 1998, therefore reflect a retroactive
adjustment in the accounting treatment of such transactions, most notably
reductions in the carrying values as reported earlier, of software assets
acquired pursuant to the Rolina and Vanity Software purchases and of certain
other assets, by an aggregate $1,323,890 with a corresponding adjustment of
Paid-in Capital.


                                       15
<PAGE>

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

      On July 26, 1997, the Company dismissed Feldman Radin & Co., P.C. ("FRC"),
the Company's former independent accountant, previously engaged as the principal
accountant to audit the Company's financial statements. On July 26, 1997, the
Company's Board of Directors recommended and approved the hiring of Rosenberg
Rich Baker Berman & Company Certified Public Accountants ("Rosenberg"), 380
Foothill Road, Bridgewater, New Jersey, as the Company's principal independent
accountant.

      The Company is unaware of any disagreements between the Company and FRC on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. The Company authorized FRC to
respond fully to inquiries of Rosenberg concerning the subject matter of each
and every disagreement or event, if any, known by FRC.


                                       16
<PAGE>

                                    PART III

ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The names and ages of all directors and executive officers of the Company are as
follows:
        Name                      Position                 Term(s) of Office
        ----                      --------                 -----------------

Steven D. Rudnik, Age 39   President, Chief Executive    January 8, 1999, until
                           Officer, Director             present

Michael G. Martin, Age 48  Director, Chairman of the     July 31, 1997, until
                           Board                         present

Jerry Swon, Age 49         President, Chief Executive    January 15, 1998, until
                           Officer                       December 23, 1998

Jerry Swon, Age 49         Director                      January 15, 1998, until
                                                         present

Joerg H. Klaube, Age 57    Vice President, Secretary,    July 31, 1997, until
                           Chief Financial Officer       present

Peter J. Buscetto, Age 51  Director                      October 7, 1997, until
                                                         present

Paul Chernis, Age 64       Director                      July 31, 1997, until
                                                         present

Bruce L. Deichl, Age 52    Director                      January 8, 1999, 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 the annual
meeting of the Company 's Directors and hold office for a term of one year or
until they resign or are removed from office.

Resumes:

      Michael G. Martin - Chairman of the Board. Founded Magnitude, Inc. f/k/a
Proformix, Inc. in 1991 and has served as President (until January 1998) and as
a Director of that entity since its inception, and as President and CEO of the
Company from July 1997 until January 1998, and as a Director since July 1997.
Prior to forming Proformix, Inc., from 1983 to 1987, Mr.Martin founded and was
President of CenterCore Inc., where he developed the CenterCore Workstation
system for office furniture. Between 1987 and Proformix, Inc.'s inception in
1991, Mr.Martin was researching, developing and testing ergonomic products for
what is now the Company.

      Steven D. Rudnik - President, CEO, and Director. Mr. Rudnik joined the
Company in February 1998 with the acquisition of Rolina Corporation, co-founded
by Mr.Rudnik in 1996, and was appointed President and Chief Executive Officer,
and elected to the Board, in January 1999. Mr. Rudnik has extensive experience
in software product development and an operational background in software
companies extending over the past 20 years. 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


                                       17
<PAGE>

software products aimed at the worldwide Institutional Investor market. Over
this time, these product families generated over $25 million in sales, to more
than 400 clients in 23 countries. Mr. Rudnik was Senior VP Development and
Partner at the time Randall-Helms was sold in 1995.

      Joerg H. Klaube - Chief Financial Officer. Joined Proformix, Inc. in
December 1994 as Vice President Finance & Administration. 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
public 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.

      Jerry Swon - Director. Mr. Swon was appointed President and Chief
Executive Officer in January 1998, an office which he served until December 1998
when the Company repositioned itself towards the software business and Steven D.
Rudnik became President. Mr. Swon was elected to the Board in January 1998.
Prior to joining the Company, Mr.Swon was Chairman of Royal Capital Inc., a New
Jersey corporation specializing in acquisitions and project financing. From 1993
to 1996, Mr. Swon was President and CEO of Concord Energy, Inc., a public oil
and gas company.

      Peter J. Buscetto - Director. Mr. Buscetto was appointed director of the
Company in October 1997. He is President /CEO of PJB Associates, Inc., a Georgia
consulting and investment company. Mr. Buscetto has an extensive marketing and
operational background that extends over twenty-five years in the retail field.
He was involved with the expansion of CompUSA where he served as Senior VP of
Operations, CCO, and President of CompUSA East. Prior to that, he served fifteen
years with the Hechinger Company, a Landover based Home Center company. He held
various operational positions with the Hechinger Company, the last of which was
Senior VP Operations for Home Quarters and a wholly owned subsidiary. PJB
Associates is actively involved with several companies both as an investor and
consultant, throughout the US and Europe.

      Paul Chernis - Director. Mr. Chernis was appointed a director of the
Company in July 1997. Mr. Chernis has been a partner in the law firm Silverman,
Collura, Chernis & Balzano, P.C. since June 1990 and specializes in corporate
and securities law. The aforesaid law firm renders legal services to the
Company. Mr. Chernis is a graduate of New York University School of Law, and
prior to entering private practice in 1972, he served as Assistant Regional
Administrator of the New York Regional Office the Securities and Exchange
Commission.

      Bruce L. Deichl - Director. Mr. Deichl was appointed a director of the
Company effective with January 8, 1999. Mr. Deichl has over 28 years experience
in the banking/investment industry with Marine Midland Municipals as Assistant
Vice President of Retail Sales and as Vice President of Institutional Sales with
Thompson McKinnon. He has also held President positions at Royal Capital and Tax
Transfer Corporation of New Jersey. Mr. Deichl was a director for the Marty
Lyons Foundation for 12 years and founded the New Jersey chapter of the
foundation which he chaired for five years. Mr. Deichl earned a BA in Economics
from the University of Notre Dame in 1969.

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.


                                       18
<PAGE>

ITEM 10: EXECUTIVE COMPENSATION

      The following table sets forth the cash compensation and executive
capacities for the fiscal year ended December 31, 1998, for each executive
officer whose aggregate cash remuneration exceeded $100,000, and for all
executive officers as a group:

                                                             Aggregate cash
Name of individual         Capacity in which served       compensation (1) (2)
------------------         --------------------------     ---------------------

Steven D. Rudnik           President - Software Division        $ 106,923

Michael G. Martin          Chairman of the Board                $ 139,527

All executive officers
as a group (4 persons)                                          $ 343,545
-----------------------
(1)  The value of other non-cash compensation, except for the items listed under
     (2), that was extended to or paid for individuals named above did not
     exceed 10% of the aggregate cash compensation paid to such individual, or
     to all executive officers as a group.

(2)  In November 1998, the Board of Directors of the Company awarded several
     stock grants as additional compensation for services during 1998, as
     follows:

Beneficiary                         Position                  No. of Shares )*
-----------                         --------                  ----------------
Michael G. Martin          Director                               150,000
Jerry Swon                 President, CEO                         150,000
Bruce L. Deichl            Director Nominee                       100,000

All such shares were registered on Form S-8 , on January 19, 1999.

* the closing price for the Company's common stock at the time of the grants 
was $1 per share.


                                       19
<PAGE>

Stock Options :

      The following table sets forth stock options granted during 1998 pursuant
to the Company's 1997 Stock
Option Plan to executive officers, directors, and beneficial owners of more than
10 percent of any class of equity securities of the Company:

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                           Number of Common      % of Total Options
                           Shares Underlying     Granted to Employees     Exercise      Expiration
Name                       Options Granted         in Fiscal Year       Price ($/Sh.)      Date
--------------------------------------------------------------------------------------------------
<S>                          <C>                       <C>                   <C>          <C>   
J. Klaube                    31,162                    0.9%                  1.00         11/19/08
S. Rudnik                    95,235                    2.6%                  1.00         1/31/08
P. Chernis                   40,000                    n/a                   1.00         11/19/05
</TABLE>

         The following table sets forth stock options granted during 1998
outside of the Company's 1997 Stock Option Plan to executive officers,
directors, and beneficial owners of more than 10 percent of any class of equity
securities of the Company:

<TABLE>
<S>                          <C>                       <C>                   <C>          <C>   
M. Martin                   750,000                   20.6%                  1.00         5/15/08
S. Rudnik                   279,765                    7.7%                  1.00         1/31/08
S. Rudnik                   950,000                   26.1%                  1.00         11/19/08
J. Swon                     900,000                   24.7%                  1.00         5/15/08
M. Martin                   535,000 )*                14.7%                  0.50         12/31/08
------------------------------------
</TABLE>

      * Options granted pursuant to an amendment of Mr. Martin's employment
agreement of July 18, 1997. The shares underlying these options were registered
on Form S-8 on January 19, 1999.

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.

Compensation of Directors:

      The Company currently pays no outside directors' fees.


                                       20
<PAGE>

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth, as of February 26, 1999, the record and
beneficial ownership of Common stock of the Company by each officer and
director, all 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(1)       of Class
--------    ----------------         ------------------------      --------
Common      Michael G. Martin              2,410,653(2)             26.64%
Stock       65 Nicole Avenue, 
            Bridgewater, NJ

            Jerry Swon                     1,535,928(3)             16.23%
            5 Kerby Lane,
            Mendham, NJ

            Joerg H. Klaube                  100,000(4)              1.24%
            4 Claire Drive,
            Bridgewater, NJ

            Peter J. Buscetto                 79,944(5)              0.99%
            c/o the Company

            Paul Chernis                      40,000                 0.50%
            c/o the Company

            Steven D. Rudnik               1,558,334(6)             16.46%
            8 Knollwood Terr.,
            Chester, NJ

            All Directors and Officers     5,599,859                 47.22%
            as a Group (7 persons)

----------------------------
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock which such person has the
right to acquire within 60 days of February 26, 1999. For purposes of computing
the percentage of outstanding shares of Common Stock held by each person or
group of persons named above, any security which such person or persons has or
have the right to acquire within such date is deemed to be outstanding but is
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. Except as indicated in the footnote to this table
and pursuant to applicable community property laws, the Company believes based
on information supplied by such persons, that the persons named in this table
have sole voting and investment power with respect to all shares of Common Stock
which they beneficially own.
(2) Includes options to acquire 985,000 shares.
(3) Includes 27,327 shares owned by Royal Capital Inc., and 8,735 shares and
options to acquire 1,399,866 shares, both owned by Jane Swon, spouse (Jane Swon
is a principal shareholder of Royal Capital, Inc.),.
(4) Represents options to purchase a like number of shares.
(5) Includes 47,722 shares held by affiliated trusts, options to acquire 10,000
shares, and warrants to purchase 22,222 shares.
(6) Includes 77,778 shares to be issued pursuant to Mr.Rudnik's employment
agreement, and options to acquire 1,325,000 shares.


                                       21
<PAGE>

ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      In November 1998, a director and principal shareholder extended a working
capital loan of $262,000 to the Company, secured by the assets of the Company,
against issuance of a promissory note bearing interest at the rate of 10% p.a. .

      In November 1998, the Company entered into a consulting agreement with an
individual who subsequently in January 1999 - joined the Company's board of
directors, and pursuant to which the Company issued 1,000,000 shares of common
stock. Such shares were registered on Form S-8 on December 22, 1998, which
filing is incorporated herein by reference.

      Between December 30, 1998, and March 31, 1999, the director and principal
shareholder first above mentioned extended working capital loans aggregating
$395,560 to the Company, of which a portion of $351,060 was covered by a
promissory note bearing interest at the rate of 10% p.a. During the same time,
this director and shareholder exercised options to purchase 450,000 shares of
the common stock of the Company, and was issued an additional 565,000 shares,
against a combination of cash payments and cancellation of debt owed by the
Company, in the aggregate amount of $507,500.


                                       22
<PAGE>

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

      There were no reports filed on Form 8-K during the quarter ended December
31, 1997.

      On January 27, 1999, the Company filed a report on Form 8-K, announcing an
Asset Purchase Agreement and related agreements, consummated with 1320236
Ontario, Inc. d/b/a Office Specialty. Also announced was a change in the name of
the Company. The report on Form 8-K including its exhibits is incorporated
herein by reference.


                                       23
<PAGE>

                                   SIGNATURES

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

 MAGNITUDE INFORMATION SYSTEMS, INC.

 By:   /s/ Steven D. Rudnik                        Date:    April 14, 1999
       -----------------------------
       Steven D. Rudnik
       President, Chief Executive Officer
       (Principal Executive Officer),
       Director

 By:   /s/ Joerg H. Klaube                         Date:    April 14, 1999
       -----------------------------
       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/ Michael G. Martin                                April 14, 1999
       -----------------------------               
       Michael G. Martin, Chairman


                                                            April __, 1999
       -----------------------------                                       
       Peter J. Buscetto, Director


       /s/  Paul Chernis                                    April 16, 1999
       -----------------------------
       Paul Chernis, Director


       /s/ Bruce Deichl                                     April 14, 1999
       -----------------------------
       Bruce L. Deichl, Director


       /s/ Jerry Swon                                       April 14, 1999
       -----------------------------
       Jerry Swon, Director


                                       24
<PAGE>

EXHIBIT INDEX

(A)   Financial Statements and Notes to Financial Statements

(2.1) Asset Purchase Agreement and Marketing and Development Agreement with
      1320236 Ontario Inc. d.b.a Office Specialty, both of the date November 18,
      1998, filed with the Commission on Form 8-K on January 17, 1999,
      incorporated herein by reference.

(2.2)P Agreement and Plan of Merger with Rolina Corporation and Steven D.
      Rudnik, and Employment Agreement with Steven D. Rudnik, both of the date
      February 2 , 1998.

(2.3)P Asset Purchase Agreement with Vanity Software Publishing Corporation,
      dated April 30, 1998.

(4)   Designation for Cumulative Preferred Stock filed January 13, 1998, with
      the State of Delaware, and incorporated herein by reference.

(11)  Statement re: Computation of earnings per share.

(16)  Documentation regarding change in certifying accountant incorporated by
      reference to Form 8-K filed on July 31, 1997, filed by the Company with
      the Commission, and incorporated herein by reference.

(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.

      (ii) Corporate Ergonomic Systems Inc. - a wholly owned subsidiary of
      Magnitude, Inc. - is a corporation formed under the laws of the State of
      New Jersey and is the name under which it conducts business.

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

(27)  Financial Data Schedule - 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, 1998, June 30, 1998, and September 30, 1998.

(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,
      1997.


                                       25
<PAGE>

                                   EXHIBIT A

                                 Rosenberg Rich
                                  Baker Berman
                                   & Company
                         A PROFESSIONAL ASSOCIATION OF
                          CERTIFIED PUBLIC ACCOUNTANTS
         380 Foothill Road o P.O. Box 6483 o Bridgewater, NJ 08807-0483
          908-231-1000 o FAX: 908-231-6894 o E-Mail: rrbb@net-lynx.com

                                                                   April 7, 1999

To the Audit Committee of
Magnitude Information Systems, Inc. and Subsidiaries

We have audited the financial statements of Magnitude  Information Systems, Inc.
and Subsidiaries for the year ended December 31, 1998 and have issued our report
thereon dated April 7, 1999.  Professional standards require that we provide you
with the following information related to our audit.

Our Responsibility Under Generally Accepted Auditing Standards

As stated in our engagement letter dated December 22, 1998, our  responsibility,
as  described  by  professional  standards,  is to plan and perform our audit to
obtain reasonable, but not absolute, assurance that the financial statements are
free of  material  misstatement  and are fairly  presented  in  accordance  with
generally accepted accounting  principles.  Because of the concept of reasonable
assurance  and  because  we  did  not  perform  a  detailed  examination  of all
transactions,  there is a risk that material errors, irregularities,  or illegal
acts, including fraud and defalcations, may exist and not be detected by us.

As part of our audit, we considered the internal control  structure of Magnitude
Information Systems, Inc. and Subsidiaries.  Such considerations were solely for
the purpose of determining our audit procedures and not to provide any assurance
concerning such internal control structure.

Significant Accounting Policies

Management  has  the   responsibility  for  selection  and  use  of  appropriate
accounting  policies.  In accordance with the terms of our engagement letter, we
will advice  management  about the  appropriateness  of accounting  policies and
their  application.  The  significant  accounting  policies  used  by  Magnitude
Information  Systems,  Inc. and  Subsidiaries  are described in the notes to the
financial   statements.   No  new  accounting  policies  were  adopted  and  the
application  of existing  policies was not changed  during the year. We noted no
transactions  entered  into by the  Company  during  the  year  that  were  both
significant and unusual,  and of which,  under  professional  standards,  we are
required  to  inform  you,  or  transactions  for  which  there  is  a  lack  of
authoritative guidance or consensus.


<PAGE>

To the Audit Committee of
Magnitude Information Systems, Inc. and Subsidiaries
April 7, 1999
Page 2


Accounting Estimates

Accounting  estimates are an integral part of the financial  statements prepared
by management and are based on management's  knowledge and experience about past
and current  events and  assumptions  about future  events.  Certain  accounting
estimates  are  particularly  sensitive  because  of their  significance  to the
financial statements and because of the possibility that future events affecting
them may differ significantly from those expected.

Significant Audit Adjustments

For purposes of this letter,  professional  standards define a significant audit
adjustment as a proposed  correction of the  financial  statements  that, in our
judgment,  may not have been detected  except  through our auditing  procedures.
These  adjustments  may include  those  proposed  by us but not  recorded by the
Company  that  could  potentially  cause  future  financial   statements  to  be
materially  misstated,  even though we have concluded that such  adjustments are
not  material  to  the  current  financial  statements.  We  proposed  no  audit
adjustments  that  could,  in  our  judgment,  either  individually  or  in  the
aggregate,  have a  significant  effect  on the  Company's  financial  reporting
process.

Disagreements with Management

For purposes of this letter,  professional  standards define a disagreement with
management as a matter, whether or not resolved to our satisfaction,  concerning
a financial accounting,  reporting, or auditing matter that could be significant
to the financial  statements or the auditor's  report.  We are pleased to report
that no such disagreements arose during the course of our audit.

Consultations with Other Independent Accountants

In come cases,  management  may decide to consult with other  accountants  about
auditing and  accounting  matters,  similar to  obtaining a "second  opinion" on
certain  situations.  If a  consultation  involves  application of an accounting
principle to the Company's  financial  statements or a determination of the type
of auditor's opinion that may be expressed on those statements, our professional
standards  require the consulting  accounting to check with us to determine that
the consultant has all the relevant facts. To our knowledge,  there were no such
consultations with other accountants.


<PAGE>

To the Audit Committee of
Magnitude Information Systems, Inc. and Subsidiaries
April 7, 1999
Page 3


Issues Discussed Prior to Retention of Independent Auditors

We  generally  discuss  a variety  of  matters,  including  the  application  of
accounting principles and auditing standards, with management each year prior to
retention as the Company's auditors.  However, these discussions occurred in the
normal course of our  professional  relationship  and our  responses  were not a
condition to our retention.

Difficulties Encountered in Performing the Audit

We  encountered  no  significant  difficulties  in dealing  with  management  in
performing and completing our audit.

This information is intended solely for the use of the Audit Committee, Board of
Directors,  and management of Magnitude Information Systems, Inc. and should not
be used for any other purpose.

                                           Very truly yours,

                                           /s/Rosenberg Rich Baker Berman & Co.
                                           -------------------------------------
                                           Rosenberg Rich Baker Berman & Co.



<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                        Consolidated Financial Statements
                                December 31, 1998


<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Index to the Consolidated Financial Statements
                                December 31, 1998

                                                                           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

<PAGE>

                          Independent Auditors' Report

To the Board of Directors and Stockholders of
Magnitude Information Systems, Inc. and Subsidiaries
   (formerly Proformix Systems, Inc. and Subsidiaries)

We have  audited  the  accompanying  consolidated  balance  sheet  of  Magnitude
Information  Systems,  Inc.  and  Subsidiaries  as of December  31, 1998 and the
related consolidated  statements of operations,  stockholders' equity (deficit),
and cash  flows for the two  years  ended  December  31,  1998 and  1997.  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, 1998 and the
consolidated  results  of their  operations  and their  cash flows for the years
ended  December  31,  1998 and  1997,  in  conformity  with  generally  accepted
accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As discussed in the Notes to
the Consolidated Financial Statements,  as of December 31, 1998, the Company has
a negative  working capital position and has experienced net losses and negative
cash flows from  operations.  These  factors raise  substantial  doubt about the
Company's ability to continue as a going concern.  Management's  plans in regard
to these  matters are described in the notes to the  financial  statements.  The
consolidated financial statements do not include any adjustments relating to the
recoverability  and  classification  of recorded asset amounts or the amounts or
classifications  of  liabilities  that might be necessary  should the Company be
unable to continue in operation.

Bridgewater, New Jersey
April 7, 1999


                                                                               1
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                           Consolidated Balance Sheet
                                December 31, 1998

      Assets
Current Assets
     Cash                                                           $     9,403
     Accounts receivable net of allowance
       for doubtful accounts of $109,421                                109,249
     Inventories                                                         26,789
     Miscellaneous receivables                                           54,743
     Prepaid expenses                                                   385,608
                                                                    -----------
             Total Current Assets                                       585,792
Property, plant and equipment                                           148,283
Investment in Input Technologies - at cost                               60,000
Software, net of accumulated amortization of $116,123                 1,339,267
Other assets                                                              5,111
                                                                    -----------
             Total Assets                                           $ 2,138,453
                                                                    ===========

      Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
     Accounts payable and accrued expenses                          $ 1,673,742
     Dividends payable                                                    9,000
     Loans payable                                                      369,730
     Current maturities of notes payable                                550,000
     Current maturities of long-term debt                               195,010
     Current maturities of capitalized lease obligations                 15,826
                                                                    -----------
             Total Current Liabilities                                2,813,308
Notes payable, less current portion                                   1,025,000
Long term debt, less current portion                                    262,000
Obligations under capital leases, excluding
    current maturities                                                   29,839
                                                                    -----------
             Total Liabilities                                      $ 4,130,147
                                                                    -----------

Minority Interest                                                          --
Stockholders' Equity (Deficit)
     Preferred stock Series A, $.01 par value,
        authorized 3,000,000 shares; issued and
        outstanding, 0 shares                                              --
     Cumulative preferred stock, $.001 par value;
        2,500 shares authorized, 10 shares issued
        and outstanding                                                    --
     Common stock, $.0001 par value, 30,000,000 shares
        authorized; 6,431,113 shares issued and
        outstanding                                                         643
     Contributed capital                                                 81,000
     Additional paid in capital                                       6,832,728
     Accumulated deficit                                             (8,906,065)
                                                                    -----------
             Total Stockholders' Equity (Deficit)                    (1,991,694)
                                                                    -----------
             Total Liabilities and Stockholders' Equity (Deficit)     2,138,453
                                                                    ===========

See notes to the consolidated financial statements.


                                                                               2
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                      Consolidated Statements of Operations

                                                       Year Ended December 31,
                                                    ----------------------------
                                                        1998            1997
                                                    -----------     ------------


Net Sales                                           $ 2,926,455     $ 3,125,009
Cost of goods sold                                    1,590,440       1,451,204
                                                    -----------     -----------

Gross Profit                                          1,336,015       1,673,805
Selling, general and administrative expenses          3,924,777       2,801,975
                                                    -----------     -----------

(Loss) From Operations                               (2,588,762)     (1,128,170)
                                                    -----------     -----------

Other Income (Expense)
  Miscellaneous income                                   86,872          90,977
    Interest income                                       1,384            --
    Lawsuit settlement                                  (10,000)           --
  Miscellaneous expense                                (172,385)           --
  Interest expense                                     (343,394)       (338,038)
  Loss on disposition of assets                        (104,336)       (132,514)
                                                    -----------     -----------

    Total Other (Expense)                              (541,859)       (379,575)
                                                    -----------     -----------
(Loss) From Continuing Operations Before
  Provision for Income Taxes                         (3,130,621)     (1,507,745)

Provision for Income Taxes                                 --              --
                                                    -----------     -----------

(Loss) From Continuing Operations                    (3,130,621)     (1,507,745)
Discontinued Operations
  Gain on disposal of hardware line of
  business (net of $0 income tax effect)                599,712            --
                                                    -----------     -----------
Net (Loss)                                          $(2,530,909)    $(1,507,745)
                                                    ===========     ===========

Net (Loss) Per Common Share:
     (Loss) From Continuing Operations              $      (.72)    $      (.76)
      Discontinued Operations                               .14            --
                                                    -----------     -----------
     Net (Loss)                                     $      (.58)    $      (.76)
                                                    ===========     ===========
Weighted Average of Common Shares
  Outstanding                                         4,324,292       2,094,724
                                                    ===========     ===========

See notes to the consolidated financial statements.


                                                                               3
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
            Consolidated Statement of Stockholders' Equity (Deficit)
                     Years Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>

                                                            Convertible         Cumulative                            
                                                          Preferred Shares    Preferred Shares       Common Stock    
                                                          ----------------   -----------------    -------------------
                                                          Shares    Amount    Shares    Amount     Shares      Amount
                                                          ------    ------   --------   ------    ---------   -------
<S>                                                         <C>     <C>           <C>   <C>       <C>         <C>
      Balances, January 1, 1997                              --     $  --          10   $  --     3,417,655   $ 3,418
Dividends on cumulative preferred shares                     --        --          --      --           --        -- 
Dividends on cumulative preferred shares 
  waived                                                     --        --          --      --           --        -- 
Issuances of common stock granted for 
  services performed                                         --        --          --      --     1,210,000     1,210
Issuances of common stock pursuant to stock 
  option exercise per consulting agreement                   --        --          --      --       701,343       702
Issuance of common stock for conversion of 
  accrued interest on private placement notes                --        --          --      --       281,539       282
Issuance of common stock pursuant to consulting 
  agreement                                                  --        --          --      --     2,900,000     2,900
                                                          ------    ------   --------   ------    ---------   -------
    Subtotal - Magnitude, Inc.                               --        --          10      --     8,510,537     8,512
Exchange of Magnitude, Inc. preferred stock for 
  preferred stock of the Company                             --        --         (10)     --           --        -- 
Recapitalization pursuant to reverse acquisition:            --        --          --      --           --        -- 
  Exchange of Magnitude, Inc. common shares 3.4676
    to 1 common share of the Company                         --        --          --      --    (8,266,757)   (8,267
  Magnitude, Inc. common shares not tendered and 
    accounted for as a minority interest                     --        --          --      --      (243,780)     (245)
                                                          ------    ------   --------   ------   ----------   ------- 
    Subtotal - Magnitude, Inc.                               --        --          --      --           --        --  
Opening common and preferred stock of the Company 
  prior to the exchange with Magnitude, Inc.                 --        --      35,036      --        43,064         4 
Cancelation of the Company's preferred stock                 --        --     (35,036)     --           --        --  
Issuance of common stock of the Company to 
  Royal Capital, Inc.                                        --        --          --      --       313,600        32 
Fractional shares canceled                                   --        --          --      --           (18)      --  
Exchange of the Company's common stock, one common 
  share for 3.4676 common shares of Magnitude, Inc.                                                                   
Exchange of the Company's preferred stock for 
  preferred stock of Magnitude, Inc.                         --        --          10      --          --         --  
                                                          ------    ------   --------   ------   ----------   ------- 
    Subtotal - the Company                                   --        --          10      --     2,740,646      (274)
Issuance of common stock to President pursuant 
  to grant                                                   --        --          --      --        60,000         6
Issuance of common stock to domestic private 
  individuals pursuant to an exemption under 
  Rule 506                                                   --        --          --      --        28,611         3
Issuance of common stock to foreign investors 
  pursuant to Reg. S.                                        --        --          --      --        69,250         7

Net loss, year ended December 31, 1997                       --        --          --      --          --         -- 
                                                          ------    ------   --------   ------   ----------   -------
                                                             --     $  --          10   $  --     2,898,507   $   290
  Balances, December 31, 1997                             ======    ======   ========   ======   ==========   =======

<CAPTION>

                                                                                                         Total
                                                                         Additional                   Stockholders
                                                          Contributed     Paid in      Accumulated       Equity
                                                            Capital       Capital        Deficit        (Deficit)
                                                          -----------    ----------    -----------    ------------
<S>                                                       <C>            <C>            <C>            <C>
      Balances, January 1, 1997                            $162,000      $1,361,108    $(4,957,411)    (3,430,885)
Dividends on cumulative preferred shares                       --              --           (9,000)        (9,000)
Dividends on cumulative preferred shares 
  waived                                                     81,000            --          (81,000)           --
Issuances of common stock granted for 
  services performed                                           --            44,790            --          46,000
Issuances of common stock pursuant to stock 
  option exercise per consulting agreement                     --           216,636            --         217,338
Issuance of common stock for conversion of 
  accrued interest on private placement notes                  --           281,250            --         281,532
Issuance of common stock pursuant to consulting 
  agreement                                                    --            (2,900)           --             --           
                                                          -----------    ----------    -----------    ------------
    Subtotal - Magnitude, Inc.                              243,000       1,900,884     (5,047,411)    (2,895,015)
Exchange of Magnitude, Inc. preferred stock for 
  preferred stock of the Company                               --              --              --             --
Recapitalization pursuant to reverse acquisition:              --              --              --             --
  Exchange of Magnitude, Inc. common shares 3.4676
    to 1 common share of the Company                           --             8,267            --             --
  Magnitude, Inc. common shares not tendered and 
    accounted for as a minority interest                       --               245            --             --
                                                          -----------   -----------   ------------   -------------
    Subtotal - Magnitude, Inc.                              243,000       1,909,396     (5,047,411)    (2,895,015)
Opening common and preferred stock of the Company 
  prior to the exchange with Magnitude, Inc.                   --               (4)            --              --
Cancelation of the Company's preferred stock                   --               --             --              --
Issuance of common stock of the Company to 
  Royal Capital, Inc.                                          --              (32)            --              --
Fractional shares canceled                                     --               --             --              --
Exchange of the Company's common stock, one common 
  share for 3.4676 common shares of Magnitude, Inc.            --              (238)           --              --
Exchange of the Company's preferred stock for 
  preferred stock of Magnitude, Inc.                           --               --             --              --
                                                          -----------   -----------   ------------   -------------
    Subtotal - the Company                                  243,000       1,909,122     (5,047,411)    (2,895,015)
Issuance of common stock to President pursuant 
  to grant                                                     --                (6)           --              --
Issuance of common stock to domestic private 
  individuals pursuant to an exemption under 
  Rule 506                                                     --           128,747            --         128,750
Issuance of common stock to foreign investors 
  pursuant to Reg. S.                                          --           276,993            --         277,000

Net loss, year ended December 31, 1997                         --               --      (1,507,745)    (1,507,745)
                                                          -----------   -----------   ------------   -------------
                                                         $  243,000     $ 2,314,856   $ (6,555,156)  $ (3,997,010)
  Balances, December 31, 1997                            ===========    ===========   ============   =============

</TABLE>
              See notes to the consolidated financial statements.


                                                                               4
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
            Consolidated Statement of Stockholders' Equity (Deficit)
                     Years Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                                                        
                                                            Convertible         Cumulative                            
                                                          Preferred Shares    Preferred Shares       Common Stock    
                                                          ----------------   -----------------    -------------------
                                                          Shares    Amount    Shares    Amount     Shares      Amount
                                                          ------    ------   --------   ------    ---------   -------
<S>                                                         <C>     <C>           <C>   <C>       <C>         <C>
Balances, January 1, 1998                                   --      $ --        10      $ --      2,898,507   $   290
Accrued Dividends on cumulative preferred shares 
  reversed                                                  --        --        --        --            --        --
Dividends on cumulative preferred shares waiver 
  reversed                                                  --        --        --        --            --        --
Issuances of common stock to domestic private 
  individuals pursuant to an exemption under Rule 506       --        --        --        --         79,722         8
Issuances of common stock to foreign investors 
  pursuant to Reg. S.                                       --        --        --        --      1,453,644       145
Exchange of the Company's common stock, one common 
  share for 3.4676 common shares of Magnitude, Inc.         --        --        --        --         22,061         2
Issuance of common stock for conversion of accrued 
  interest on private placement notes                       --        --        --        --         10,411         1
Issuance of common stock in exchange for prepaid 
  advertising                                               --        --        --        --        150,000        15
Issuance of common stock pursuant to Rolina 
  Corporation merger                                        --        --        --        --        155,556        16
Issuance of common stock pursuant to Vanity Software 
  Publishing Corporation acquisition                        --        --        --        --        224,000        22
Issuance of common stock granted for services 
  performed                                                 --        --        --        --      1,080,177       108
Issuance of common stock for conversion of loan 
  and accrued interest                                      --        --        --        --        342,000        34
Issuance of common stock pursuant to sales incentive 
  awards                                                    --        --        --        --          5,035         1
Issuance of common stock in exchange for product 
  rights                                                    --        --        --        --         10,000         1

Net loss, year ended December 31, 1998                      --        --        --        --            --         --
                                                          ------    ------   --------   ------    ---------   -------
Balances, December 31, 1998                                 --      $ --        10      $ --      6,431,113   $   643
                                                          ======    ======   ========   ======    =========   =======

<CAPTION>
                                                                                                         Total
                                                                         Additional                   Stockholders         
                                                          Contributed     Paid in      Accumulated       Equity
                                                            Capital       Capital        Deficit        (Deficit)
                                                          -----------    ----------    -----------    ------------
<S>                                                       <C>            <C>            <C>            <C>
Balances, January 1, 1998                                  $243,000      $2,314,856    $(6,555,156)    (3,997,010)
Accrued Dividends on cumulative preferred shares 
  reversed                                                     --               --          18,000         18,000
Dividends on cumulative preferred shares waiver 
  reversed                                                 (162,000)            --         162,000            --
Issuances of common stock to domestic private 
  individuals pursuant to an exemption under Rule 506          --           199,992            --         200,000
Issuances of common stock to foreign investors 
  pursuant to Reg. S.                                          --         2,586,855            --       2,587,000
Exchange of the Company's common stock, one common 
  share for 3.4676 common shares of Magnitude, Inc.            --                (2)           --             --
Issuance of common stock for conversion of accrued 
  interest on private placement notes                          --            36,101            --          36,102
Issuance of common stock in exchange for prepaid 
  advertising                                                  --           374,985            --         375,000
Issuance of common stock pursuant to Rolina 
  Corporation merger                                           --           388,874            --         388,890
Issuance of common stock pursuant to Vanity Software 
  Publishing Corporation acquisition                           --           559,978            --         560,000
Issuance of common stock granted for services 
  performed                                                    --            29,892            --          30,000
Issuance of common stock for conversion of loan 
  and accrued interest                                         --           341,199            --         341,233
Issuance of common stock pursuant to sales incentive 
  awards                                                       --                (1)           --             --
Issuance of common stock in exchange for product 
  rights                                                       --                (1)           --             --

Net loss, year ended December 31, 1998                         --               --      (2,530,909)    (2,530,909)
                                                          -----------    ----------    -----------    ------------
Balances, December 31, 1998                               $  81,000      $6,832,728    $(8,906,065)   $(1,991,694)
                                                          ===========    ==========    ===========    ============
</TABLE>
              See notes to the consolidated financial statements.
                             

                                                                               5
<PAGE>
        
              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                      Consolidated Statements of Cash Flows

                                                       Year Ended December 31,
                                                   -----------------------------
                                                       1998            1997
                                                   ------------    -------------
Cash Flows From Operating Activities
  Net Income (Loss)                                $ (2,530,909)   $ (1,507,745)
  Adjustments to Reconcile Net (Loss) to
   Net Cash (Used) by Operating Activities
    Depreciation and amortization                       266,589         268,155
    Loss on disposition of assets                       112,112         132,514
    Bad debt provision                                   94,287             370
    Forgiveness of debt                                (32,893)          90,977
      Inventory variance                                132,890              --
      Return reserve provision                           30,000              --
  Decreases (Increases) in Assets
    Accounts receivable                                  50,956         144,674
      Miscellaneous receivables                         (54,743)             --
    Inventories                                        (317,650)         11,139
    Prepaid expenses                                     36,996          11,337
    Other assets                                            414          (1,127)
  Increases (Decreases) in Liabilities
    Accounts payable and accrued expenses               403,405         170,117
    Trade acceptance payable                            (44,860)         44,860
    Advances payable                                         --         275,000
                                                   ------------    ------------
       Net Cash (Used) by Operating 
         Activities                                  (1,853,406)       (359,729)
                                                   ------------    ------------
Cash Flows From Investing Activities
  Purchases of equipment, fixtures, 
    and software                                       (569,857)        (56,372)
  Sales of property and equipment                       716,926              --
                                                   ------------    ------------
       Net Cash Provided (Used) by  
         Investing Activities                           147,069         (56,372)
                                                   ------------    ------------
Cash Flows From Financing Activities
  Repayment of notes payable                            (25,000)             --
  Proceeds from long-term debt                          342,000              --
  Repayment of long-term debt                          (750,577)       (148,950)
  Repayment of capital lease obligations                 (7,229)         (7,660)
  Repayment of officer loans payable                    (85,000)        (30,000)
  Proceeds from loans payable                                --          25,000
  Repayment of loans payable                           (275,000)        (25,000)
  Proceeds from issuance of common stock              2,512,000         605,750
                                                   ------------    ------------
       Net Cash Provided by Financing 
         Activities                                   1,711,194         419,140
                                                   ------------    ------------
Net increase in Cash                                      4,857           3,039
Cash at beginning of period                               4,546           1,507
                                                   ------------    ------------
Cash at end of period                              $      9,403    $      4,546
                                                   ============    ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW 
  INFORMATION
  Interest Paid                                    $    245,916    $    142,875
                                                   ============    ============
  Taxes Paid                                       $      4,320    $        425
                                                   ============    ============

See notes to the consolidated financial statements.


                                                                               6
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                      Consolidated Statements of Cash Flows

                                                        Year Ended December 31,
                                                        ------------------------
                                                           1998          1997
                                                        ----------     ---------
Schedule of non-cash financing activities

   In connection with the retirement of 
    $36,102 of accrued interest on a promissory
    note, 10,411 common shares were issued              $  36,102      $      --
                                                        =========      =========
   Capitalized lease obligations incurred for
    use of equipment                                    $  26,376      $      --
                                                        =========      =========
   In connection with the acquisition of a 20% 
    equity interest in Input Technologies
    LLC, $60,000 of accounts receivable were 
    written off                                         $  60,000      $      --
                                                        =========      =========
  In connection with the Rolina Corporation 
   merger, secured payment obligation
   incurred                                             $ 100,000      $      --
                                                        =========      =========
  In connection with the issuance of common 
   stock, 281,539 Magnitude, Inc. shares
   were issued as consideration for accrued 
   interest on $1,175,000 of private
   placement notes                                      $              $ 281,539
                                                        =========      =========
  Promissory note issued in connection with 
   retirement of other promissory notes
   and the repayment of a past due 
   subordinated debenture                               $              $ 316,849
                                                        =========      =========
  In connection with the issuance of common 
   stock, 75,000 Magnitude, Inc. shares
   were issued as consideration for past 
   services                                             $              $  46,000
                                                        =========      =========
  In connection with a stock option exercise, 
   34,676 Magnitude, Inc. shares were
   issued in connection with a reduction in 
   accrued expenses                                     $              $  17,338
                                                        =========      =========
  In connection with the obtaining of prepaid 
   advertising, 150,000 common shares
   were issued                                          $ 375,000      $
                                                        =========      =========
 In connection with the Rolina Corporation 
  merger, 155,556 common shares were
  issued                                                $ 388,890      $
                                                        =========      =========
 In connection with the Vanity Software 
  Publishing Corporation acquisition,
  224,000 common shares were issued                     $ 560,000      $
                                                        =========      =========
 In connection with the issuance of common 
  stock, 72,677 shares were issued as
  consideration for past services                       $  30,000      $
                                                        =========      =========
                                                                                
  In  connection with the retirement of a 
   $316,849 promissory note and accrued
   interest thereon, 342,000 common shares 
   were issued                                          $ 341,233      $
                                                        =========      =========


See notes to the consolidated financial statements.


                                                                               7
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Nature of Organization

    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.

    On June 16, 1997, Royal Capital,  Inc. ("Royal"),  a New Jersey Corporation,
    entered  into an  agreement  with the  Company,  then  known  as  Whitestone
    Industries, Inc., and its then president, whereby Royal (i) acquired 100,000
    shares of the  Company's  preferred  stock  held by the  President  and (ii)
    acquired the voting proxy of 1,120,000  (pre-split)  shares of common stock.
    The consideration paid to the President was $100,000. Thus, Royal obtained a
    voting majority of the Company's capital stock.

    On June 24,  1997,  the  Company,  Royal,  and  Proformix,  Inc.,  a company
    incorporated  in the State of  Delaware  in October  1991,  entered  into an
    acquisition agreement as a consequence of which the Company on July 2, 1997,
    submitted a stock  exchange  offer to the  shareholders  of Proformix,  Inc.
    Proformix, Inc. in November, 1998 changed its name to Magnitude, Inc. and is
    hereafter  referred  to as  Magnitude,  Inc.  In  order  to  enter  into the
    aforesaid agreement, the Company's then Board of Directors authorized a 137:
    1 reverse split of its outstanding  shares of common stock, and spun off the
    shares of its wholly owned subsidiary Golden Bear Entertainment  Corporation
    to its  then  current  shareholders  in the form of a stock  dividend.  This
    distribution  effectively  eliminated  all assets and  liabilities  from the
    books of the Company prior to the acquisition of Magnitude, Inc.

    The exchange offer to the Magnitude,  Inc. shareholders gave them the choice
    to exchange  their shares of the common stock in Magnitude,  Inc. into newly
    to be issued  common  stock of  Whitestone  at the rate of 3.4676  shares of
    Magnitude,  Inc. common stock to 1 share of Whitestone  common stock, and to
    holders of Magnitude  Cumulative  Preferred  Stock, to exchange their shares
    into newly to be issued Cumulative Preferred Stock of Whitestone at the rate
    of 1 to 1. The exchange transaction  resulted in the former Magnitude,  Inc.
    shareholders  owning  approximately  90% of the combined entity.  Holders of
    approximately  98% of Magnitude,  Inc. common stock have agreed to the stock
    exchange and tendered their common shares in exchange for Whitestone  common
    shares.  The remaining 2% of Magnitude,  Inc.  stockholders  hold a minority
    interest which is valued at $0.

    For accounting purposes,  the acquisition has been treated as an acquisition
    of Whitestone by Magnitude,  Inc. and a recapitalization of Magnitude,  Inc.
    The  historical  financial  statements  prior to July 2,  1997 are  those of
    Magnitude,  Inc. Proforma information is not presented since the combination
    is considered a  recapitalization.  Subsequent to the exchange,  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
    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,  during the year,  of the Company's  proprietary  Proformix EMS
    Software System.


                                                                               8
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

    On November 18, 1998, the Company and its wholly owned subsidiary Magnitude,
    Inc. entered into an Asset Purchase Agreement and several related agreements
    with 1320236  Ontario Inc.  ("OS"),  a publicly  traded  Canadian  designer,
    manufacturer  and distributor of office  furniture based in Holland Landing,
    Ontario,  Canada,  pursuant to which OS acquired Magnitude,  Inc.'s hardware
    product line comprised of the Company's ergonomic keyboard platform products
    and  accessories,  and all  related  inventory  and  production  tooling and
    warehousing  assets,  and all  intellectual  property  rights  including the
    Proformix  name,  against a cash  consideration  and on  ongoing  contingent
    stream of royalty payments on OS' sales of the Proformix  hardware products.
    The Company  will  continue  to market its  proprietary  software  under the
    Proformix  label.  The Agreement with OS also provided for the retirement of
    the  Company's  then  existing  bank  debt,  out  of  the  proceeds  of  the
    transaction.

    Until  November  18, 1998,  when the Company sold its hardware  product line
    comprised of Magnitude,  Inc.'s  ergonomic  keyboard  platform  products and
    accessories,   its  business  was  primarily  centered  around  the  design,
    development,   manufacture,   and  marketing  of  research-based   ergonomic
    accessory  products  for  the  computerized   workplace.  In  parallel,  and
    beginning  with the  February  1998  acquisition  by the  Company  of Rolina
    Corporation,  an early  stage  software  business  which  had  developed  an
    ergonomic   software   product  that  was  being  marketed  under  the  name
    "ErgoSentry",  and the subsequent  acquisition in May 1998 of  substantially
    all of the  assets of Vanity  Software  Publishing  Corporation,  a Canadian
    software  firm,  which also included a certain  ergonomic  software  package
    known as  "ErgoBreak",  the Company  engaged in the  development of a unique
    suite of software packages designed to increase productivity in the computer
    related work environment which include the before mentioned "ErgoSentry" and
    "ErgoBreak"  products.  These  efforts  resulted,  in November  1998, in the
    release  to  the  market  of  the  proprietary   "Proformix  EMS  (Ergonomic
    Management  System) software  system.  With the sale of the hardware product
    line,  the  Company's  business  is now focused  exclusively  on the further
    development and marketing of these software  products.  As such, the Company
    currently must be considered an enterprise in transition, because it has not
    yet realized material revenues from licensing its software.

    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.

  Going Concern Uncertainty

    The  accompanying  consolidated  financial  statements  have  been  prepared
    assuming that the Company will continue as a going concern.  As shown in the
    consolidated financial statements,  the Company has negative working capital
    of $2,227,516 as of December 31, 1998.  Additionally,  the Company generated
    net losses from operations of $3,130,621 and $1,507,745  along with negative
    cash flows from  operations of  $1,853,406  and $359,729 for the years ended
    December  31,  1998 and 1997,  respectively.  A large  portion  of  accounts
    payable and accrued expenses are either overdue or otherwise beyond original
    terms. The Company has negotiated extended payment terms with key suppliers,
    and entered into several pay-out agreements with other creditors.

    These  factors  raise  substantial  doubt  about the  Company's  ability  to
    continue  as a  going  concern.  The  financial  statements  do not  include
    adjustments  relating to the  recoverability of assets and classification of
    liabilities that might be necessary should the Company be unable to continue
    in operation.

    The Company's plans to overcome these difficulties,  include raising funding
    through debt, new equity  capital or a combination  of both.  Management has
    provided  for  bridge  funding  of  which  approximately  $500,000  has been
    subsequently received.


                                                                               9
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

  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.

  Inventories

    Inventory  consists of finished  goods which are stated at the lower of cost
    (determined  by the first-in,  first out method) or market.  The sale of the
    Company's  hardware product line resulted in a loss on disposal of inventory
    of $74,736.

  Depreciation and Amortization

    Property, plant and equipment are recorded at cost. Certain molds were being
    depreciated  using the units of  production  method  based upon an estimated
    useful  life of  1,000,000  units.  During  1997,  the  company  changed the
    estimated  useful life of these molds to 300,000  units.  The effect of this
    change in estimate increased the Company's net loss for 1997 by $169,073. As
    part of the OS Asset  Purchase  Agreement,  molds with a remaining  net book
    value of $312,258 and  equipment  with a remaining  net book value of $6,110
    were sold.  Depreciation on remaining equipment,  furniture and fixtures and
    leasehold  improvements  is  computed on the  straight  line method over the
    estimated  useful lives of such assets between 5-10 years.  Maintenance  and
    repairs are charged to operations as incurred.

  Hardware

    System  design  costs and  software  acquisition  costs are  amortized  on a
    straight-line  basis over an estimated  useful life of 10 years.  As part of
    the OS  Asset  Purchase  Agreement,  hardware  system  design  costs  with a
    remaining net book value of $57,920 were sold.  Deferred finance charges are
    amortized  using  the  straight  line  method  over a period  of 4-5  years.
    Remaining charges of $19,495 after retirement of the Company's then existing
    bank debt as part of the OS Asset Purchase Agreement were written off.

  Securities Issued for Services

    The Company  accounts for stock options  issued for services by reference to
    the fair market value of the Company's  stock on the date of stock  issuance
    or option grant.  Compensation expense is recorded for the fair market value
    of the stock issued, or in the case of options,  for the difference  between
    the stock's fair market  value on the date of grant and the option  exercise
    price.

  Securities Issued for Services, Continued

    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  consideration  received  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',  which  does not  require  compensation  to be
    recorded if the  consideration  to be received is at least equal to the fair
    value at the measurement  date. The adoption of SFAS No. 123 does not have a
    material impact on the financial statements.

  Investment

    Investment in Input Technologies LLC is accounted for under the cost method.


                                                                              10
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

  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, the benefit for
    income taxes has been offset entirely by a valuation  allowance  against the
    related deferred tax asset for the year ended December 31, 1998.

  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  hardware  product  sales is recognized at the time of shipment
    provided that the resulting  receivable  is deemed  probable of  collection.
    Revenue from software sales is recognized at the time of licensing  provided
    that the resulting receivable is deemed probable of collection.

  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.


                                                                              11
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

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 on going 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.

INVENTORIES

    Inventories consisted of the following at December 31, 1998:

           Finished goods                                          $ 26,789
                                                                   --------
                                                                   $ 26,789
                                                                   ========

PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment consist of the following at December 31, 1998:

           Equipment                                               $195,903
           Furniture and fixtures                                    66,093
           Leasehold improvements                                    45,770
                                                                   --------
                                                                    307,766
           Less accumulated depreciation                            159,483
                                                                   --------
                                                                   $148,283
                                                                   ========

    Depreciation expense charged to operations was $107,928 and $237,189 in 1998
    and 1997, respectively.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

    Accounts payable and accrued expenses consisted of the following at December
    31, 1998:

          Accounts payable                                 $   782,863
          Accrued interest                                     283,722
          Accrued commissions                                   97,532
          Accrued returns                                       30,000
          Accrued legal settlement                              20,000
          Accrued professional fees                            130,000
          Deferred royalties                                    91,531
          Accrued payroll                                      188,014
          Miscellaneous accruals                                70,080
                                                           -----------
                                                           $ 1,693,742
                                                           ===========


                                                                              12
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

LOANS PAYABLE

    Magnitude,  Inc. had borrowings  under short term loan  agreements  with the
    following terms and conditions at December 31, 1998:

      Pursuant to three  promissory  notes  signed  throughout
        1995 and 1996, an investor  advanced  Magnitude,  Inc.
        a total of $90,000  payable upon demand with  interest
        at 12% per annum.                                             $   90,000

      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,
        1998 and no demand for  payment has been made  through
        April  7,  1999  75,000  On  December  31,  1998,  the
        Company's  board  chairman issued a short-term loan to
        the Company                                                       80,000

      Pursuant to a promissory note dated January 22, 1996, an
        officer of the Company advanced  the  sum  of  $64,730
        which  is due upon demand and accruing interest at the
        rate of 12% per annum.                                            24,730

      Pursuant  to  the Rolina Corporation Agreement & Plan of
        Merger  dated  February  2, 1998  the  Company  was to
        deliver to Steven D. Rudnik $100,000 eight months from
        the closing date. Such amount  is  overdue  and  as  a
        result Mr. Rudnik has a lien on certain software 
        products.                                                        100,000
                                                                        --------
               Total                                                    $369,730
                                                                        ========
NOTES PAYABLE

  Private Placement Offering

    During February through June 1995, an underwriter  acting as placement agent
    offered  on behalf of  Magnitude,  Inc.  in a private  placement  offering a
    minimum of five (5) and a maximum of twenty  (20)  units.  The first 5 units
    were  offered on a "best  efforts  all or none" basis and the  remaining  15
    units on a "best  efforts"  basis.  Each unit  consisted of a $100,000,  12%
    promissory  note and 10,000  shares of Magnitude,  Inc.'s common stock.  The
    promissory  notes were originally due on the earlier of 12 months from their
    issuance or the  completion of a public or private  financing of either debt
    or equity securities of Magnitude,  Inc. whereby,  if such financing was for
    less than the principal  amount of said notes,  then the principal amount of
    said  notes  were  to be  repaid  on a  pro-rata  basis.  These  notes  were
    subsequently  extended  for  an  additional  6  months,  and  further  by an
    additional  9  months.  In May 1997 a  restructuring  agreement  caused  the
    reclassification of $1,175,000 of these notes to long-term debt. These notes
    were extended and modified to (i) mature by April 30, 2000, (ii) change from
    12% to 8%,  (iii)  convert all  interest  accrued  until April 30, 1997 into
    shares of common stock of Magnitude, Inc. and (iv) paying future interest in
    cash an a quarterly basis. Two such notes,  however,  totaling $200,000 were
    extended  and  modified to (1) mature in dates  ranging from January 1, 1999
    through  April 30,  2000,  (ii) change from 12% to 8%, (iii)  converted  all
    interest  accrued  until April 30, 1997 into  shares of common  stock,  (iv)
    paying future interest in cash on a quarterly  basis, (v) reverts to 12% for
    failure to make  interest  payment when due,  with  observance of a two-week
    cure period, (vi) balance becomes due and payable immediately for failure to
    make principal payments when due, with observance of a two-week cure period,
    and (vii)  balance  convertible  into common stock of Magnitude  Inc. One of
    those notes for $150,000 also grants 10,000 common stock  purchase  warrants
    with a  exercise  price of  $5.00  expiring  April  30,2000.  The  remaining
    $450,000 of  non-restructured  notes are included in current liabilities and
    are in default as of December 31, 1998.

    The private offering was completed in June 1995 resulting in Magnitude, Inc.
    selling  a total of  sixteen  (16)  units  and  receiving  net  proceeds  of
    $1,364,061 after deducting private  placement  agent's  commission and legal
    fees amounting of $235,939. In connection therewith,  Magnitude, Inc. issued
    160,000  shares of its $.001  common  stock at par. The total amount of such
    notes outstanding at December 31, 1998 was $1,575,000,  of which $550,000 is
    current.


                                                                              13
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                        Notes to the Financial Statements

LONG-TERM DEBT

Long-term debt as of December 31, 1998 is comprised of the following:

            Note  to  the  board  chairman,   principal  due                
             January  15,  2000  accruing   interest  at   a                  
             rate  of  10%  per annum. This note is  secured                
             by all of Magnitude Inc.'s assets an   property            $262,000
           
           Note  to  the  board  chairman  of  the   Company
             issued in place of accrued royalties, principal
             due April 14, 1998 accruing interest at a  rate
             of  5%  per  annum. This note is overdue and no
             demand  for payment has been made through April
             7, 1999                                                     111,007
           
           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.                                                         33,529
           
           Discounted present value of a non-interest bearing
            $176,000  settlement  with   former  counsel   of
            Magnitude, Inc. to be paid in 24 monthly payments
            commencing September 1, 1997. The imputed interest
            rate used to discount the note is 8% per annum.               50,474
                                                                        --------
            Total                                                        457,010
                   Less current maturities                               195,010
                                                                        --------
                   Long-term debt, net of current maturities            $262,000
                                                                        ========


                                                                              14
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                        Notes to the Financial Statements

LONG-TERM DEBT, Continued

    Total maturities of long-term debt are as follows:

          Year Ending December 31,

          1999                                                          $195,010
          2000                                                           262,000
                                                                        --------
                                                                        $457,010
                                                                        ========

CAPITALIZED LEASE OBLIGATIONS

    The Company  leases  office  equipment  under  non-cancelable  capital lease
    agreements  expiring  between  January 19, 2001 and  October 27,  2002.  The
    capital lease  obligations have been recorded at the present value of future
    minimum lease payments, discounted at interest rates of 7.00% to 8.643%. The
    capitalized  cost of equipment at December 31, 1998  amounted to $32,590 net
    of accumulated depreciation of $17,014.

    The  following is a schedule of minimum  lease  payments  due under  capital
    leases at December 31, 1998:

      Year Ending December 31,
          1999                                                          $ 19,307
          2000                                                            16,456
          2001                                                             9,798
          2002                                                             6,316
                                                                        --------
          Total minimum capital lease payments                            51,877
          Less amounts representing interest                               6,212
                                                                        --------
          Present value of net minimum capital 
           lease payments                                                 45,665
          Less current maturities of capital 
           lease obligations                                              15,826
                                                                        --------
          Obligations under capital leases, 
            excluding current maturities                                $ 29,839
                                                                        ========


                                                                              15
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                   Notes to Consolidated Financial Statements

INCOME TAXES

    At December  31, 1998,  The Company has net  operating  loss carry  forwards
    approximating  $8,900,000  which expire  between the years 2008 and 2013 and
    are subject to certain annual limitations.

    The Company's  total deferred tax asset and valuation  allowance at December
    31, 1998 are as follows:

    Total deferred tax asset                                          $3,560,000
    Less valuation allowance                                           3,560,000
                                                                      ----------
    Net deferred tax asset                                            $       --
                                                                      ==========

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  which may not exceed 3% of the employee's  total  compensation
    for the plan year.  Contributions  to the plan were  $16,095 and $17,800 for
    the years ended December 31, 1998 and 1997, respectively.

STOCK OPTION PLANS

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

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


                                                                              16
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

STOCK OPTION PLANS (cont.)

                                                     Qualified and Non-Qualified
                                                         Shares Under Option
                                                             December 31,
                                                     ---------------------------
                                                        1998             1997
                                                     ----------      -----------
  Outstanding, beginning of year                       586,144               --
  Granted during the year                              501,162          596,144
  Exercised during the year at $1.73 per 
   share                                                    --          (10,000)
  Forfeited during the year                           (105,838)              --
                                                      --------         ---------
  Outstanding, end of year (at prices 
    ranging from $1.00 to $4.50 per share)             981,468          586,144
                                                      ========         =========
  Eligible, end of year for exercise (at 
    prices ranging from $1.00 to                       
      $4.50 per share)                                 292,597          283,144
                                                      ========         =========

    At December  31, 1998 and 1997,  the  weighted  average  exercise  price and
    weighted average remaining contractual life is $2.56 and $3.36 per share and
    5 years 4 months and 6 years 4 months, respectively.

    At December 31, 1998, there were 157,118 shares reserved for future grants.

WARRANTS

    The Company issued common stock purchase warrants as follows:


<TABLE>
<CAPTION>
                                                
                              
                                                Exercise                       Exercise Term                     
                              No. of            Price Per      -----------------------------------------------  
  Date of Grant              Shares              Share                Start                  Expiration            Vesting Rights
------------------------  ---------------    ---------------   ----------------------   ----------------------  --------------------
<S> <C>                            <C>                  <C>    <C>                      <C>                     <C>
May 1, 1997                        10,000               5.00   May 1, 1997              April 30, 2000          Upon Issue
August 14, 1997                    55,929               4.09   August 14, 1997          August 14, 1999         Upon Issue
May 1, 1998                       224,000               5.00   May 1, 1998              April 30, 2003          Upon Issue
</TABLE>

    At December 31, 1998,  there were  289,929  shares  eligible for exercise at
    prices ranging from $4.09 to $5.00 per share.

COMMITMENTS AND CONTINGENCIES

  Lease Agreement

    Magnitude,  Inc.  leases  its  administrative  offices  pursuant  to a lease
    agreement dated December 9, 1998. Such lease commences December 16, 1998 and
    expires on December  31, 2001 and requires  monthly  payments of $3,700 from
    December  16, 1998 to October  31, 1999 and $3,250 from  November 1, 1999 to
    December  31,1999.  Ergonomics  leases  office  space  pursuant  to a  lease
    agreement dated November 1, 1997. Such lease expired November 1, 1998. It is
    currently leased on a month-to-month  basis and requires monthly payments of
    $600.  Under such lease  agreements,  Magnitude,  Inc.  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,
                     1999                                    $ 43,500
                     2000                                      39,000
                     2001                                      39,000
                                                             --------
                           Total                             $121,500
                                                             ========

    Included  in general  and  administrative  expenses  is rent  expense  which
    amounted to $103,580  and $96,544 for the years ended  December 31, 1998 and
    1997, respectively.


                                                                              17
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

COMMITMENTS AND CONTINGENCIES, Continued

  Two lawsuits were  instituted  against  Magnitude,  Inc. by a  stockholder  of
  Magnitude, Inc.

    One suit  asserts  that the  stockholder  had a  consulting  agreement  with
    Magnitude, Inc. pursuant to which Magnitude, Inc. had agreed to pay $125,000
    a year for five years and that Magnitude,  Inc. has defaulted in performance
    of its obligations.

    The stockholder has also initiated suit along with other shareholder members
    of his family alleging damages because  Magnitude,  Inc. acted  inconsistent
    with the best interest of its stockholders.  Other miscellaneous claims were
    asserted in that suit.

    It is Magnitude, Inc.'s position that both of these suits are without merit,
    however,  a verbal  settlement  had been reached with the plaintiffs in both
    cases pursuant to which all claims would be dismissed upon  Magnitude,  Inc.
    making six monthly payments  totaling $20,000  commencing  November 1, 1998.
    This  potential  liability has been recorded by Magnitude,  Inc. No payments
    have yet been made by  Magnitude,  Inc.  since it has not received  from the
    plaintiff's attorneys the necessary settlement documents. The settlement may
    also be contingent upon approval by a bankruptcy court since the stockholder
    has filed a petition of reorganization.

    An  additional  suit was bought  against  Magnitude,  Inc. by a claimant for
    legal  fees.  The  suit  was  settled  upon  the  agreement  by the  Company
    (guaranteed  by an  officer  of the  Company)  to pay a  total  of  $176,000
    consisting of an initial payment of $20,000 and the balance in equal monthly
    installments of $6,500 each over a period of 24 months, commencing September
    1, 1997. In addition,  the Company and the officer  agreed that in the event
    any payment was in default,  they each would  consent to  judgement  for the
    total legal fees  demanded of $238,564 less any payments made to that point.
    The Company was not in default as of December 31, 1998.

  Licensing Agreement

    On August 29, 1997, the Company signed a letter of intent to acquire Cornell
    Ergonomics ("Cornell") a software developer of a unique ergonomic assessment
    tool. This agreement was subsequently  revised on December 1, 1997 through a
    Software  Distribution and Option  Agreement  whereby the Company obtained a
    two-year  exclusive license to distribute and sub-license a certain software
    product.   The  Company  also  has  the  exclusive   right,   under  certain
    circumstances, to purchase either the assets of Cornell or all of the issued
    and outstanding capital stock of Cornell.


                                                                              18
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

COMMITMENTS AND CONTINGENCIES, Continued

  Employment Agreements

    In July of 1997  the  Company  entered  into an  employment  agreement  with
    Magnitude,  Inc.'s President,  to serve as the Company's President and Chief
    Executive  Officer  for a  period  of five  years.  Base  salary  under  the
    agreement  is $108,000  per annum with annual  increases  determined  by the
    Board of Directors.  The agreement  also calls a first year bonus of 140,000
    shares of the Company's  stock, and 200,000 shares in any year thereafter in
    which the Company's after tax net profits exceed  $1,000,000 for each of its
    first three full fiscal  years during the  employment  term  beginning  with
    calendar  year 1998.  The agreement was amended to replace the stock bonuses
    with  nonqualified  options to purchase  up to 750,000  shares at a purchase
    price of $1 and up to 535,000  shares at a price of  .50(cent).  Eligibility
    for benefit  programs,  with the exception of any key employee  stock option
    plan, and a fully paid medical/hospitalization  policy is provided under the
    agreement.  The Company  will also  provide  reimbursement  of ordinary  and
    necessary    business   expenses   and   a   monthly   car   allowance.    A
    noncompetition/nonsolicitation  restriction  applies  for  36  months  after
    termination of employment. The agreement provides for severance compensation
    equal to three  months of base salary if  employment  is  terminated  by the
    Company for cause.

    The Vice President and Chief Financial  Officer of Magnitude,  Inc.  entered
    into an employment  agreement on April 15, 1996. The agreement is for a term
    of three  years  expiring  April  14,  1999.  Pursuant  to the  terms of the
    agreement, the officer is to receive an annual salary of $100,000 subject to
    annual  review  by the Board of  Directors  with the  first  such  review at
    September 1, 1996, and an annual bonus as determined by the Board.  Pursuant
    to the agreement,  Magnitude, Inc. would pay the premiums on a $400,000 life
    insurance  policy for the benefit of individuals  designated by the officer.
    The agreement restricts the officer from competing with Magnitude,  Inc. for
    a period of two years after the termination of his employment  under certain
    circumstances.  The  agreement  provides for  severance  compensation  to be
    determined  pursuant  to a  formula  established  therein  to be paid to the
    officer  if  his  employment  with  Magnitude,  Inc.  is  not  renewed  upon
    expiration  of the initial or any renewal term  thereof,  his  employment is
    terminated by Magnitude,  Inc. other than as permitted by the agreement,  or
    any  successor  to  Magnitude,  Inc.  after a  change  of  control  or other
    reorganization of Magnitude, Inc. fails to assume the agreement.

  Consulting Agreements

    On May 12, 1997, the Company's  subsidiary  Magnitude,  Inc.  entered into a
    financial  and  marketing  consulting  agreement  with Royal  Capital,  Inc.
    ("Royal"),  whereby  Royal  would act as a  consultant  to the  company.  In
    consideration  of such  services,  Royal was  granted,  in addition to other
    consideration,  options to purchase  692,122 common shares of the Company or
    any succeeding or acquiring  entity at exercise prices ranging from $1.04 to
    $5.62 per share of the  Company.  Through  December  31,  1998,  options  to
    acquire 192,256 shares of the Company were exercised at a price of $1.04 per
    share.  Through April 7, 1999, an aggregate of  approximately  $2,787,000 in
    additional equity has been raised pursuant to Royal's efforts.

    On May 12, 1997, the Company's  subsidiary  Magnitude,  Inc. entered into an
    agreement with a management  consultant.  In consideration of such services,
    whereby,  in addition to other  consideration,  the  consultant  was awarded
    options  equal to  43,258  shares  of the  Company  of which  33,258  remain
    unexercised at December 31, 1998.


                                                                              19
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix Systems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

RELATED PARTY TRANSACTIONS

    During July 1997 one of the  Company's  board  members  advanced the Company
    $100,000 as evidenced  by two 8%  promissory  notes which were  subsequently
    agreed  to be  converted  to  common  shares  pursuant  to the  filing of an
    Offering  Memorandum  offering shares  pursuant to an exemption  provided by
    Rule 504 of Regulation D promulgated  under the  Securities  Act of 1933, as
    amended. The Company,  however, decided not to consummate such offering, and
    instead pursued an offering under Rule 506 of Regulation D promulgated under
    the  Securities  Act of 1933 under which the notes were  converted to 22,222
    common shares and warrants in May 1998.  During  November and December 1997,
    one  investor  advanced  the Company  $175,000  which was to be used for the
    purchase  of common  stock  pursuant  to the  filing of a Private  Placement
    offering shares to qualified  investors pursuant to an exemption provided by
    Regulation S promulgated  under the Securities  Act of 1933, as amended.  On
    January  26,  1998,  87,500  shares  of  common  stock  were  issued to this
    investor.

    In November  1998, a director and principal  shareholder  extended a working
    capital  loan of  $262,000  to the  Company,  secured  by the  assets of the
    Company,  against issuance of a promissory note bearing interest at the rate
    of 10% per annum.

    In November  1998, the Company  entered into a consulting  agreement with an
    individual who subsequently,  in January 1999, joined the Company's board of
    directors,  and  pursuant to which the Company  issued  1,000,000  shares of
    common stock.  Such shares were registered on Form S-8 on December 22, 1998.
    During the first quarter of 1999, this individual pursuant to the consulting
    agreement  obtained the release of  approximately  $436,000 of the Company's
    liabilities.

    Between  December 30, 1998,  and March 31, 1999,  the director and principal
    shareholder  extended  working  capital  loans  aggregating  $395,560 to the
    Company,  of which a portion of $351,060  was covered by a  promissory  note
    bearing interest at the rate of 10% p.a. During the same time, this director
    and shareholder  exercised  options to purchase 450,000 shares of the common
    stock of the Company, and was issued an additional 565,000 shares, against a
    combination of cash payments and  cancellation  of debt owed by the Company,
    in the aggregate amount of $507,500.


                                                                              20
<PAGE>

              Magnitude Information Systems, Inc. and Subsidiaries
               (formerly Proformix S ystems, Inc. and Subsidiaries)
                 Notes to the Consolidated Financial Statements

MAJOR CUSTOMERS

    For the year ended  December  31,  1998,  the Company had a major  customer,
    sales of hardware  products to which  represented  approximately  38% of the
    Company's revenues.  The Company had an accounts receivable balance due from
    this customer of $35,730 at December 31, 1998. With the sale of the hardware
    product  line,  the  Company's  business is now focused  exclusively  on the
    further  development and marketing of these software products.  As such, the
    Company currently must be considered an enterprise in transition, because it
    has not yet realized material revenues from licensing its software.

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.

SUBSEQUENT EVENTS

  Changes in Key Personnel

    In January  1999,  Steven D. Rudnik was  appointed  President and CEO of the
    Company, taking over the position previously occupied by Jerry Swon.


                                                                              21