FORM 10-QSB

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended June 30, 2002

OR

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______ to _______

Commission file number  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 No.)

  401 State Route 24,  Chester,  New Jersey 07930

(Address of Principal Executive Office)   (Zip Code)

(908) 879-2722

(Registrant's telephone number including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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  _____       
The number of shares of Registrant's Common Stock, $0.0001 par value, outstanding as of August 5, 2002, was 50,308,522 shares.

MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

 

 

 

INDEX

 

									        	Page

									          Number
PART  1  -  FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)

	Consolidated Balance Sheet

	 - June 30, 2002								   3

	Consolidated Statements of Operations

	 - Three and six months ended June 30, 2002 and 2001			   4

	Consolidated Statements of Cash Flows

	 - Six months ended June 30, 2002 and 2001				   5

	Notes to Consolidated Financial Statements				 6 - 11

 

Item 2  Management's Discussion and Analysis of Financial Condition

	and Results of Operations						12 - 13

 

PART II  -  OTHER INFORMATION						   14

 

SIGNATURES							   		   15
**PART I  - Item 1**
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

(Unaudited)

						      	                    June 30, 2002

ASSETS									

	Current Assets

	Cash  .................................................................		$   99,709	

	Accounts receivable, net of allowance for

	   doubtful accounts of 56,363 ............................		      337,489

	Miscellaneous receivables ..		26,157

	Inventories ..........................................................			2,150

	Prepaid expenses .....................................................			109,817	

	   Total Current Assets ............................................		575,322		

	Receivables due for payment after 12 months 		41,875

	Property, plant and equipment, net of accumulated

	   depreciation of $239,619 ..		43,614

	Software, net of accumulated amortization of $651,460 .....		855,830

	Other assets ..........................................................		21,829	

TOTAL ASSETS ...........................................................		1,538,470		

		               		========	

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

	Accounts payable and accrued expenses ................		411,609		

	Deferred revenue .		223,262

	Dividends payable ...................................................		245,175		

	Loans and notes payable .........................................		100,000		

	Current maturities long-term debt ...........................		33,529

	Current maturities lease obligations ........................		8,467		

	   Total Current Liabilities .......................................		1,022,042		

	Long-term debt, less current portion .......................		274,890		

TOTAL LIABILITIES ...................................................		1,296,932		

STOCKHOLDERS' EQUITY

	Preferred Stock, $0.001 par value, non-voting, 3,000,000 shares authorized:
	2,500 shares have been designated Cumulative Preferred Stock,

	of which 1 share is issued and outstanding .............................		0		
	300,000 shares have been designated Series A Convertible Preferred Stock,
	350,000 shares have been designated Series B Convertible Preferred Stock,

	120,000 shares have been designated Series C Convertible Preferred Stock,

	500,000 shares have been designated Series D Convertible Preferred Stock,

	of which a combined total 209,857 shares are issued and outstanding		210
	Common Stock, $0.0001 par value, 100,000,000 shares authorized,
	47,278,175 shares are issued and outstanding ........		4,728		
	Additional paid-in capital ..........................................		20,042,814		

	Accumulated deficit ...............................................		(19,806,214)		

TOTAL STOCKHOLDERS' EQUITY .......		  241,538		

TOTAL LIABILITIES AND EQUITY ........................	$  	1,538,470		

                                                        ==========

See notes to consolidated financial statements

 

MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

				        		      Three Months Ended	       Six Months Ended

	  	     	  June 30,			   June 30,

			      2002		      2001		     2002		      2001	
Total Revenues ..................................... 		$    50,304		$    290,411		$      61,071		$    492,933

	

	Cost of Goods Sold ................................			38,937		42,211		77,878		81,042
Gross Profit ..................................................			11,367		248,200		(16,807)		411,891

	Selling expenses .....................................			219,029		328,126		359,307		749,608

	General & administrative expenses .........		658,982		638,190		1,084,943		1,206,194
Operating (Loss) ...............................			(866,644)		(718,116)		(1,461,057)		(1,543,911)

	Interest expense, net ...........................			(5,420)		(18,968)		(23,431)		(33,231)
Non-Operating (Expense) .................			(5,420)		(18,968)		(23,431)		(33,231)
Net (Loss) before taxes ...			(872,064)		(737,084)		(1,484,488)		(1,577,142)

	Provision for income taxes 			0		0		0		0

Net (Loss) ....................................................			$  (872,064)		$  (737,084)		$(1,484,488)		$(1,577,142)

				=========	=	========		=========		=========

Dividends accrued on preferred stock...........			31,005		53,280		62,797		131,207

Net (Loss) applicable to common shareholders		$  (903,069)		$ (790,364)		$(1,547,285)		$(1,708,349)

				=========	=	========	=========		=========

Loss per Common Share ...............................			$       (0.02)		$        (0.04)		$        (0.04)		$        (0.09)

			=	========	=	========		=========		=========

Weighted Average Number of 

	Common Shares Outstanding ..................		45,272,482		21,558,223		38,069,983		18,651,908

				=========	=	========		=========		=========

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements

MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

							           Six Months Ended June 30,

			      2002		           2001		

Cash Flows from Operating Activities

	Net (loss) ............................................			$(1,484,488)		$(1,577,142)	

	Adjustments to net (loss)

	   Depreciation and amortization .......................			102,057		102,018	

	   Stock issued for debt and expenses ...			321,685		27,388

	Decreases (increases) in Assets

	   Accounts receivable .......................................			129,411		(192,295)	

	   Miscellaneous receivables ..			19,363		22,196

	   Inventories ..			-		240

	   Prepaid expenses .........................................			(69,266)		113,280

	   Other assets ...			-		1,200	

	Increases (decreases) in Liabilities

	   Deferred revenues 			(12,658)		207,220

	   Accounts payable and accrued expenses .........			(355,858)		237,043
Net Cash (Used) by Operating Activities 			(1,349,754)		(1,058,852)

Cash Flows from Investing Activities

	Purchases of equipment and fixtures ..................			(2,596)		(944)
Net Cash (Used) by Investing Activities			(2,596)		(944)

Cash Flows from Financing Activities

	Proceeds from notes payable ..............................			0		397,500

	Repayment of loans and notes ............................			(252,500)		(146,000)

	Dividend payments 			0		(14,003)

	Issuance of common and preferred stock ........... 			1,689,330		790,704	

Net Cash Provided by Financing Activities			1,436,830		1,028,201		

Net Increase (Decrease) in Cash ...........................			84,480		(31,595)		

Cash at Beginning of Period ....................................			15,229		37,701	

Cash at End of Period ..............................................		$	99,709	$	6,106
 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements

MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002

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 November 18, 1998, the Company changed its name to Magnitude Information Systems, Inc. 

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

	On June 24, 1997, the Company extended a stock exchange offer to the shareholders of Magnitude, Inc., a Delaware corporation and manufacturer of ergonomic keyboarding systems. At the time of this submission, holders of 99.4% of Magnitude, Inc. common stock have tendered their shares. The remaining Magnitude, Inc. shareholders hold a minority interest which is valued at $0. 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 January 15, 2000, the Company acquired all of the issued and outstanding capital stock of Cornell Ergonomics, Inc. (Cornell) and Internet Ergonomics Technologies Corp. (IET), privately held New York corporations, whose only property was comprised of certain proprietary ergonomic software modules, in exchange for shares of the Company's common stock. These software modules were subsequently transferred to the Company. 

 

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosure required for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company's annual report on Form 10-KSB for the year ended December 31, 2001, and its report on Form 10-QSB for the quarter ended March 31, 2002.

In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of June 30, 2002, the results of operations for the three and six months ended June 30, 2002 and 2001, and the cash flows for the six months ended June 30, 2002 and 2001, have been included.

 

 

 

MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Principles of Consolidation

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

Inventories

Inventory consists of finished goods that are stated at the lower of cost (determined by the first-in, first out method) or market.

Depreciation and Amortization

Property, plant and equipment are recorded at cost.  Depreciation on equipment, furniture and fixtures and leasehold improvements is computed on the straight-line method over the estimated useful lives of such assets between 3-10 years.  Maintenance and repairs are charged to operations as incurred.  Software assets are amortized on the straight-line method over 10 years. Software assets are capitalized at the fair value of stock exchanged/granted upon acquisition and are amortized on the straight line method on a product-by-product basis over the estimated economical life of the products which has been determined to be 10 years.

Securities Issued for Services

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

Income Taxes

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

MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Net Loss Per Share

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

Revenue Recognition

Revenue from the licensing of our proprietary software products is recognized at the time of licensing provided that the resulting receivable is deemed probable of collection.  In determining the amounts to be recognized, we follow the guidelines established by SEC Staff Accounting Bulletin SAB 101 and Statement of Position (SOP) 97-2. Revenue from software maintenance contracts and services are recognized ratably as earned.

Use of Estimates

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

GOING CONCERN

The ability of the Company to continue its operations is dependent on increasing sales and obtaining additional capital and financing. In their report for the fiscal year ended December 31, 2001, our auditors had expressed an opinion that, as a result of the losses incurred and the relative lack of working capital, there was substantial doubt regarding our ability to continue as a going concern.  The accompanying financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. During the last year and the first two quarters in 2002 the Company has relied on the private placement of its common and preferred stock to fund its operations. Management's plans are to continue seeking additional working capital through equity and debt placements with private and institutional investors.  

PREPAID EXPENSES

Prepaid expenses at the end of the quarter included a position of $60,000 representing the unamortized portion of the Company's chief executive officer's base salary for the remainder of the current year which was prepaid in February 2002 in the form of restricted common stock, in lieu of cash (see "Related Party Transactions"). 

RECEIVABLES WITH EXTENDED PAYMENT TERMS

Accounts receivable include $41,875 with extended payment terms, due for payment after June 30, 2003. The underlying revenues for the entire amount have been deferred and are included in the position "Deferred Revenues". 

MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002

 

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. and overseas.  The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.

 

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following at June 30, 2002:

Equipment
$
167,487
Furniture and fixtures
69,976
Leasehold improvements
45,770
 
 

 
 

 
 

 
 

283,233
Less accumulated depreciation
 
 

 
 

 
 

239,619
                                   Total
 
 

 
 

$
43,614
**Depreciation expense charged to operations was $24,098 in the first six months of 2002 and $24,060 in the first six months of 2001.
****
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
****
Accounts payable and accrued expenses consisted of the following at June 30, 2002:

Accounts payable
$
   159,618
Accrued interest
 
 

49,374
Accrued commissions
 
 

15,611
Accrued returns 
35,719
Accrued salaries
 
 

19,495
Accrued professional fees 
116,958
Miscellaneous accruals
 
 

14,834
                      Total
$
411,609

 

 

MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002

DEFERRED REVENUES

Deferred revenues at June 30, 2002, include $32,312 prepaid software maintenance and support charges which are amortized ratably over the duration of the underlying maintenance agreements.  Also included are $190,950 representing revenues from software licensing agreements where the Company has not been reasonably assured of the collectibility of the associated receivables, primarily because the majority of such receivables was invoiced to foreign entities with extended payment terms of which a portion of $41,875 is due after June 30, 2003 (see "Receivables with Extended Payment Terms").  

 

LOANS AND NOTES PAYABLE

At June 30, 2002, Magnitude, Inc. and the Company had borrowings under short term loan agreements with the following terms and conditions:
****

Note issued by Magnitude, Inc. originally maturing December 4, 1998 and accruing interest at 5% per year.  This note is overdue at June 30, 2002; no demand for payment has been made through today's date.
$
75,000
Note issued by Magnitude, Inc. originally maturing June 1996 and accruing interest at 12% per year.  This note is overdue at June 30, 2002; no demand for payment has been made through today's date. 

 
 

25,000

   

		Total	$	    100,000						========

LONG TERM DEBT

	Long-term debt as of June 30, 2002, is comprised of the following:

Pursuant to the February 2, 1998, Agreement and Plan of Merger with Rolina Corporation (see "Background") the Company had issued 155,556 shares (the "Shares") of its common stock to the principal of Rolina Corporation who currently serves as the Company's President and Chief Executive Officer, and had issued a Put Option for such Shares at a price of $2.41 per share in accordance with the provisions contained therein, with notice for exercise eligible to be given at any time after February 1, 2000, and before the 90th day thereafter. This liability was converted into a Company obligation maturing July 1, 2003, carrying interest at the rate of 7% per year payable monthly, of which a portion of $100,000 has been repaid in April 2002. The obligation includes an option to the holder for conversion of the outstanding principal into shares of the Company's common stock at the rate of $0.10 per share.

Discounted present value of a non-interest bearing $70,000 settlement with a former investor of Magnitude, Inc. to be paid in monthly payments commencing July 1, 1997.  The imputed interest rate used to discount the note is 8% per annum. This obligation is in default.
$
274,890

 

 

 

 

 

 

 

 

33,529

 

			Total		    308,419

			Less current maturities		      33,529
			Long-term debt, net of current maturities	      $   274,890						========

MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002

 

INCOME TAXES

At December 31, 2001, the Company had net operating loss carry forwards approximating $17,000,000 for federal income tax purposes which expire between the years 2007 and 2021 and are subject to certain annual limitations.

The Company's total deferred tax asset and valuation allowance at December 31, 2001 are as follows:

Total deferred tax asset
$
6,800,000
Less valuation allowance
6,800,000
Net deferred tax asset
$
-

 

COMMITMENTS AND CONTINGENCIES

Lease Agreements

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

 

RELATED PARTY TRANSACTIONS

In February 2002, the Company and its President and Chief Executive Officer agreed to convert most of his base salary for the remainder of the year 2002 into restricted common stock in lieu of cash at the rate of $0.10 per share, for a total amount of $110,000. 

During the first quarter in 2002, three outside directors of the Company were awarded stock grants for an aggregate 700,000 restricted common shares, for services rendered.

In January and February 2002, an outside director of the Company purchased common stock and exercised certain warrants for a total of 726,111 shares, at the price of $0.10 per share. 

During the second quarter in 2002, an affiliate of an outside director of the Company received 25,000 newly issued restricted common shares, for services rendered.

In June 2002, an officer of the Company offered, and the Company accepted, the conversion of $15,000 liabilities into 150,000 shares of common stock. 
**Item 2.		

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS
** 

CAUTIONARY STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934**
Except for historical information, the Company's reports to the Securities and Exchange Commission on Form 10-KSB and Form 10-QSB and periodic press releases, as well as other public documents and statements, contain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the statements. These risks and uncertainties include general economic and business conditions, development and market acceptance of the Company's products, reliance on third parties to produce the products, availability of Medicaid reimbursement for the purchase of Company products and other risks and uncertainties identified in the Company's reports to the Securities and Exchange Commission, periodic press releases, or other public documents or statements.

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

The Company did not finalize any major new sales contracts during the reporting period. The bulk of the revenues for the quarter was contributed by support and maintenance services which accounted for $43,000 out of the approximately $50,000 revenues, which compare to $290,411 for the second quarter in 2001. During the current period, the Company continued its efforts to restructure its sales operations and pursue a broader marketing approach that seeks to cover additional distribution channels and access new markets. A potentially significant milestone was reached in June 2002 when the Company entered into an agreement with Shop America Network. Shop America, the fastest growing home shopping television network in the country, will be the Company's first foray into the consumer products market.  In connection with this project, the Company released two new versions of its patented ergonomic software, specifically directed towards the adult and children consumer market. First broadcasts are expected to reach homes in selected geographical areas during the third quarter. In the business-to-business market segment, the Company continued sales discussions with several prospective industrial clients in the Fortune 1000 category. As mentioned in previous filings, these undertakings are pioneering marketing efforts whose outcome cannot be predicted with any degree of certainty, due to the relative newness of product and market.   

Selling- and general and administrative expenses for the quarter totaled $878,011, a decrease of 9% from the $966,316 recorded during the same period in 2001. Significant variances are in the personnel expense and sales promotion areas which showed decreases of 21% and 80% respectively, primarily due to staffing reductions and the re-orientation in marketing efforts that temporarily curtailed advertising and trade show activities in favor of increased direct sales-related travel, whereby the expenditures for the latter almost doubled in size. Other notable increases were recorded for professional services, reflecting heightened efforts in investor relations and business consulting areas. In addition, management increased reserves for allowance against receivables to account for slower than expected collections. For the second quarter as a total, the Company realized an operating loss of $866,644, compared to an operating loss of $718,116 in 2001. The net loss for the quarter was $872,064.  After accounting for dividend accruals on outstanding preferred stock that totaled $31,005, the net loss applicable to common shareholders was $959,142 or $0.02 per share, compared to a loss of $790,364 or $0.04 per share for the same quarter in the previous year. The total for the first six months in 2002 was a net loss applicable to common shareholders of $1,547,285 or $0.04 per share, compared to a loss of $1,708,349 or $0.09 per share in 2001.

 

 

 
**Liquidity and Capital Resources:**
New private placements with accredited investors, plus the exercise of stock purchase warrants, resulted in the receipt by the Company of approximately $960,000 in new equity capital in the form of cash, during the second quarter. The new equity placements were consummated by issuance of common stock to such private investors in the U.S. and overseas. Details of those transactions can be found in the "Changes and Issuance of Securities" section of this report as well as previous filings on Forms 10-KSB and 10-QSB.  The Company is currently filing an amendment to a previously filed registration statement on Form SB-2 which amendment includes the common shares directly issued, as well as the common shares underlying convertible preferred stock and warrants issued in connection with past financing transactions. 

At June 30, 2002, the deficit in working capital amounted to $446,720, down from $739,304 at March 31, 2002. The deficit, although relatively improved, continues to challenge the Company's ability to aggressively proceed with certain marketing programs. The lack of adequate financing hinders long-term planning and continues to occupy management time and resources. Due to the presently decreased stock price management has moved more slowly on a planned larger capital raising transaction which would likely involve the leverage or issuance of significant quantities of additional common stock. Until such a financing can be completed, the probability and timing of which is uncertain at this time, the Company will continue to be forced to obtain necessary operating funds through series of smaller investments.

At the time of this submission, the Company had no bank debt. At June 30, 2002 its short-term liabilities, consisted primarily of $159,618 trade payables, approximately $475,000 in various accruals and deferred revenues (see "Accounts Payable and Accrued Expenses" and "Deferred Revenues" in the Notes to Financial Statements section), and $245,175 in accrued dividends on outstanding preferred stock. Recognizing the absence of surplus funds, management presently has no firm plan to liquidate the latter position in the immediate future.  All of the long-term debt of approximately $275,000 is owed to the Company's chairman and chief executive officer and is evidenced by a promissory note maturing in July 2003.

During July and August, 2002 and up to the time of this submission, more recent equity financing transactions have generated approximately $180,000 cash in the aggregate which was utilized to finance operations during that period.  Current cash reserves are inadequate when measured against needs projected for the upcoming quarter, and the Company's liquidity overall remains strained. While management expects to be able to obtain necessary working capital, there can be no assurance that pertinent negotiations will lead to the desired outcome in terms of timeliness and volume.
****
 
**PART  II  -  OTHER INFORMATION**
 

Item 1	LEGAL PROCEEDINGS
The Company is not a party in any legal proceedings.

 

Item 2	CHANGES IN SECURITIES
-  None

c)   Issuance of unregistered securities	

During the quarter ended June 30, 2002, the Company issued the following unregistered securities:

8,245,000 shares of common stock to 38 accredited investors pursuant to private placement subscriptions, issued in reliance upon exemptions provided under Section 4(2), Rule 506 of Regulation D and Regulation S of the Securities Act, and 1,789,240 shares of common stock pursuant to the exercise of stock purchase warrants previously issued, which resulted in the receipt by the Company of approximately $960,000 in cash;

165,500 shares of common stock to three foreign individuals as finder's fee in connection with certain of the private placement subscription mentioned under (i) above which subscriptions were entered into by private foreign investors;

341,814 shares of common stock pursuant to the conversion of certain payables into equity, at a rate of $0.10 per share;

377,139 shares of common stock for investor relations services performed;

250,000 shares pursuant to a stock grant to a business consultant for the Company;

20,000 shares pursuant to the exercise of options at a price of $0.10 per share.

 

Item 3	DEFAULTS ON SENIOR SECURITIES

The Company, as of the date of this filing, is in arrears on the payment of certain dividends on its Series A, B, C, and D Senior Convertible Preferred Stock. Such arrears total approximately $222,000.  Such dividends have been accrued, however, the Company's management has refrained from making such payments at this time because of the absence of positive equity and/or surplus funds. 

Item 4	SUBMISSION OF MATTERS TO A VOTE OF

	SECURITIES HOLDERS      		    

-  None

Item 5	OTHER INFORMATION

  -  None

 

 

 

Item 6	EXHIBITS AND REPORTS ON FORM 8-K

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

Exhibit (3)(ii) - By-laws of the Company, incorporated herein by reference to Exhibits of previous filings with the Commission.

(b)	Reports on Form 8-K:      - None

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

						MAGNITUDE INFORMATION SYSTEMS, INC.

 

 

 

Date:   August 12, 2002				By: _____/s/  Steven D. Rudnik___________

					      		Steven D. Rudnik

					        		Chairman and Chief Executive Officer

					

 

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