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, 2004

                                       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 July 31, 2004, was 92,551,489 shares.

<PAGE>

              MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES

                                      INDEX

                                                                         Page
                                                                        Number

PART  1  -  FINANCIAL INFORMATION

Item 1   Financial Statements (unaudited)

         Consolidated Balance Sheet
          - June 30, 2004                                                3

         Consolidated Statements of Operations
          - Three and six months ended June 30, 2004 and 2003            4

         Consolidated Statements of Cash Flows
          - Six months ended June 30, 2004 and 2003                      5

         Notes to Consolidated Financial Statements                      6  - 12

Item 2   Management's Discussion and Analysis of
         Financial Condition and Results of Operations                   13 - 14

Item 3   Controls and Procedures                                         15

PART II  -  OTHER INFORMATION                                            16 - 18

SIGNATURES                                                               19


                                       2
<PAGE>

PART I  - Item 1


               MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                  June 30, 2004
                                                                                   ------------
<S>                                                                                <C>
ASSETS
     Current Assets
     Cash ......................................................................   $      9,927
     Accounts receivable, net of allowance for
        doubtful accounts of $212 ..............................................          1,408
     Miscellaneous receivables .................................................          1,800
     Inventories ...............................................................         12,428
     Prepaid expenses ..........................................................        206,199
                                                                                   ------------
        Total Current Assets ...................................................        231,762
     Property and equipment, net of accumulated
        depreciation of $139,954 ...............................................         13,434
     Software, net of accumulated amortization of $963,298 .....................        543,992
     Other assets ..............................................................         38,548
                                                                                   ------------
TOTAL ASSETS ...................................................................        827,736
                                                                                   ============

LIABILITIES AND STOCKHOLDERS' EQUITY (IMPAIRMENT)
LIABILITIES
     Accounts payable and accrued expenses .....................................        362,945
     Deferred revenue ..........................................................         31,607
     Dividends payable .........................................................        472,920
     Loans and notes payable ...................................................        100,000
     Current maturities of long-term debt ......................................        133,419
     Current maturities of capitalized lease obligations .......................          2,805
                                                                                   ------------
        Total Current Liabilities ..............................................      1,103,696
     Capitalized lease obligations, less current portion .......................          3,234
                                                                                   ------------
TOTAL LIABILITIES ..............................................................      1,106,930

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,
     500,000 shares have been designated Series E Convertible Preferred Stock,
     of which a combined total 521,582 shares are issued and outstanding .......            522
     Common Stock, $0.0001 par value, 100,000,000 shares authorized,
     83,292,141 shares are issued and outstanding ..............................          8,329
     Additional paid-in capital ................................................     26,293,818
     Accumulated deficit .......................................................    (26,581,863)
                                                                                   ------------
TOTAL STOCKHOLDERS' EQUITY .....................................................       (279,194)

TOTAL LIABILITIES AND EQUITY ...................................................   $    827,736
                                                                                   ============
</TABLE>

                 See notes to consolidated financial statements


                                       3
<PAGE>

               MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           Three Months Ended                  Six Months Ended
                                                                June 30,                           June 30,
                                                      2004              2003               2004                2003
                                                  ------------       ------------       ------------       ------------
<S>                                               <C>                <C>                <C>                <C>
Total Revenues .............................      $     20,294       $     33,107       $     64,874       $     68,559

     Cost of Goods Sold ....................            39,066             38,980             78,021             77,967
                                                  ------------       ------------       ------------       ------------
Gross Profit ...............................           (18,772)            (5,873)           (13,147)            (9,408)

     Selling expenses ......................           111,412            139,049            229,649            293,645
     Stock-based compensation ..............            85,978             61,210            236,033            207,216
     General & administrative expenses .....           329,935            407,616            763,985            781,312
                                                  ------------       ------------       ------------       ------------
Operating (Loss) ...........................          (546,097)          (613,748)        (1,242,814)        (1,291,581)

     Misc. non-operating expenses ..........           (14,489)                --            (14,489)                --
     Interest expense, net .................            (3,407)           (24,612)            (9,203)           (31,195)
                                                  ------------       ------------       ------------       ------------
Non-Operating (Expense) ....................           (17,896)           (24,612)           (23,692)           (31,195)
                                                  ------------       ------------       ------------       ------------
Net (Loss) before taxes ....................          (563,993)          (638,360)        (1,266,506)        (1,322,776)

     Provision for income taxes ............                 0                  0                  0                  0
Net (Loss) .................................      $   (563,993)      $   (638,360)      $ (1,266,506)      $ (1,322,776)
                                                  ============       ============       ============       ============
Dividends accrued on preferred stock .......            56,873             28,817            114,253             57,634
Amortized discount on convertible
     preferred stock .......................           779,026                 --          1,495,462                 --

Net (Loss) applicable to common shareholders      $ (1,399,892)      $   (667,177)      $ (2,876,221)      $ (1,380,410)
                                                  ============       ============       ============       ============
Loss per Common Share ......................      $      (0.02)      $      (0.01)      $      (0.04)      $      (0.02)
                                                  ============       ============       ============       ============
Weighted Average Number of
     Common Shares Outstanding .............        81,805,474         65,661,771         79,971,031         63,232,175
                                                  ============       ============       ============       ============
</TABLE>

                 See notes to consolidated financial statements


                                       4
<PAGE>

               MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           Six Months Ended
                                                               June 30,
                                                       2004               2003
                                                     -----------       -----------
<S>                                                  <C>               <C>
Cash Flows from Operating Activities
     Net (loss) ...............................      $(1,266,506)      $(1,322,776)
     Adjustments to net (loss)
        Depreciation and amortization .........           82,982            93,456
        Securities issued for expenses and debt          314,300           182,937
     Decreases (increases) in Assets
        Accounts receivable ...................           34,432             3,875
        Miscellaneous receivables .............               --             1,458
        Inventories ...........................           14,489                30
        Prepaid expenses ......................         (129,101)          (87,057)
        Other assets ..........................           10,577                --
     Increases (decreases) in Liabilities
        Deferred revenues .....................           38,925            (3,198)
        Change in prepayments .................               --           (14,075)
        Accounts payable and accrued expenses .          (66,069)          208,236
                                                     -----------       -----------
Net Cash (Used) by Operating Activities .......         (965,971)         (937,114)

Cash Flows from Investing Activities
     Purchases of equipment and fixtures ......           (3,443)           (1,885)
                                                     -----------       -----------
Net Cash (Used) by Investing Activities .......           (3,443)           (1,885)

Cash Flows from Financing Activities
     Proceeds from loans and notes payable ....               --           316,763
     Repayment of loans and notes .............         (282,851)          (16,706)
     Payment of dividends .....................             (900)               --
     Issuance of common and preferred stock ...        1,165,114           655,148
                                                     -----------       -----------
Net Cash Provided by Financing Activities .....          881,363           955,205
Net Increase (Decrease) in Cash ...............          (88,051)           16,206
Cash at Beginning of Period ...................           97,978             9,976
                                                     -----------       -----------
Cash at End of Period .........................      $     9,927       $    26,182
                                                     ===========       ===========
</TABLE>

                 See notes to consolidated financial statements


                                       5
<PAGE>

               MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

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

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 combined  entity are currently  comprised  solely of the
operations of Magnitude, Inc.

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
disclosures 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, 2003 and its  quarterly  report on Form 10-QSB for the
period ended March 31, 2004.

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, 2004,  the results of  operations  for the three and six
months ended June 30, 2004 and 2003, and the cash flows for the six months ended
June 30, 2004 and 2003, have been included.


                                       6
<PAGE>

               MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

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

Securities Issued for Services

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

Income Taxes

The Company provides for income taxes based on enacted tax law and statutory tax
rates at which items of income and  expenses  are  expected to be settled in the
Company's  income tax return.  Certain items of revenue and expense are reported
for  Federal  income  tax  purposes  in  different  periods  than for  financial
reporting purposes,  thereby resulting in deferred income taxes.  Deferred taxes
are also  recognized  for  operating  losses that are available to offset future
taxable income.  Valuation  allowances are established  when necessary to reduce
deferred  tax assets to the amount  expected  to be  realized.  The  Company has
incurred  net  operating  losses  for   financial-reporting   and  tax-reporting
purposes.  Accordingly,  for Federal and state income tax purposes,  the benefit
for income taxes has been offset entirely by a valuation  allowance  against the
related  federal and state  deferred  tax asset for the year ended  December 31,
2003.

                                       7
<PAGE>


               MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

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

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

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting 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, 2003, our auditors had expressed an opinion that,
as a result of the losses  incurred,  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 two years and the first two
quarters in 2004 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.


                                       8
<PAGE>

               MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

CONCENTRATIONS OF BUSINESS AND CREDIT RISK

The Company maintains cash balances in a financial institution 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.

PREPAID EXPENSES

The major  positions  in Prepaid  Expenses  at the end of the  quarter  included
$50,000  representing  the  value  of the  unamortized  portion  of  part of the
Company's chief executive officer's base salary for the remainder of the current
year  which was  prepaid in January  2004 in the form of  convertible  preferred
stock and warrants,  in lieu of cash (see "Related  Party  Transactions").  Also
included were approximately  $85,000  representing the value of restricted stock
and options  issued to certain  consultants  for  services to be rendered in the
near future, and approximately $41,000 prepaid rent and insurance costs.

PROPERTY AND EQUIPMENT

Property and equipment consist of the following at June 30, 2004:
         Equipment                                                      $ 81,157
         Furniture and fixtures                                           72,231
                                                                        --------
                                                                         153,388
         Less accumulated depreciation                                   139,954
                                                                        --------
                                   Total                                $ 13,434
                                                                        ========

Depreciation expense charged to operations was $5,021 in the first six months of
2004 and $15,497 in the first six months of 2003.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts  payable and accrued  expenses  consisted of the  following at June 30,
2004:

Accounts payable                                                        $183,328

Accrued interest                                                          55,572

Accrued commissions                                                       12,678

Accrued salaries, bonuses, vacations                                      49,334

Accrued professional fees                                                 50,563

Miscellaneous accruals                                                    11,470
                                                                        --------

                      Total                                             $362,945
                                                                        ========


                                       9
<PAGE>

               MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

DEFERRED REVENUES

Deferred revenues at June 30, 2004, consist of prepaid software  maintenance and
support charges which are amortized  ratably over the remaining  duration of the
underlying maintenance agreements.

LOANS AND NOTES PAYABLE

At June 30, 2004,  Magnitude,  Inc. and the Company had  borrowings  under short
term loan agreements with the following terms and conditions:

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 June 30,  2004 and no  demand  for
payment has been made.                                                 $  75,000

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

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


                             10
<PAGE>

LONG TERM DEBT

Long-term  debt as of June 30,  2004,  is  comprised  of the
following:  Pursuant to the February 2, 1998,  Agreement and
Plan of Merger  with  Rolina  Corporation,  the  Company had
issued  155,556 shares (the "Shares") of its common stock to
the principal of Rolina  Corporation who currently serves as
the Company's  Chief  Executive  Officer and Board Chairman,
and had issued a Put  Option  for such  Shares at a price of
$2.41 per share in accordance with the provisions  contained
therein,  with notice for  exercise  eligible to be given at
any time after February 1, 2000, and before 5:00 p.m. on the
90th day  thereafter.  This  liability was converted  into a
Company  obligation for $274,890 maturing March 31, 2002 and
a demand loan for  $100,000  both  carrying  interest at the
rate of 7% per year,  subsequently increased to 10%, payable
monthly. The demand portion of this note was repaid in April
2002 and the due date for $274,890 of the remaining  balance
was  extended to July 1, 2003.  During the first  quarter of
2004,  $175,000  was repaid and the  maturity  of the unpaid
balance  was  changed to January  1,  2005.  The  obligation
includes  an  option to the  holder  for  conversion  of the
outstanding   principal   into   shares  of  the   Company's
convertible  preferred  stock  and  warrants  at the rate of
$0.06 per common share equivalent.                                      $ 99,890

Discounted  present value of a non-interest  bearing $70,000
settlement with a former  investor of Magnitude,  Inc. to be
paid  in  monthly  payments  commencing  July 1,  1997.                   33,529
imputed  interest  rate used to discount  the note is 8% per
annum. This obligation is in default.
                                                                        --------
Total                                                                    133,419
Less  current  maturities                                                133,419
                                                                        --------
Long-term debt, net of current maturities                               $      0
                                                                        ========

INCOME TAXES

At  December  31,  2003,  the  Company  had net  operating  loss  carry-forwards
approximating  $22,043,000  for federal income tax purposes which expire between
the years  2007 and 2023 and are  subject  to  certain  annual  limitations.  At
December 31, 2003,  the Company has  available  approximately  $4,905,000 of net
operating losses to  carry-forward  and which may be used to reduce future state
taxable income which expire December 31, 2010.

The Company's total deferred tax asset and valuation
       allowance at December 31, 2003 are as follows:
       Total deferred tax asset, non-current                        $ 7,274,000
       Less valuation allowance                                      (7,274,000)
                                                                    -----------
       Net deferred tax asset                                       $        --
                                                                    ===========

COMMITMENTS AND CONTINGENCIES

Lease  Agreement On March 15, 2000, the Company  entered into a lease  agreement
for office space which is utilized for the  Company's  principal  offices.  Such
lease  commenced  April 15,  2000 and  expires  on March 31,  2005 and  requires
monthly payments of $6,500 from April 15, 2000 through March 31, 2002; of $6,695
thereafter  through March 31, 2003; of $6,896 thereafter through March 31, 2004;
and of $7,103  thereafter  through  March 31,  2005.  In August 2002 the Company
rented  additional office space at this location  commencing  September 1, 2002.
The add-on rental requires monthly  payments of $1,955  throughout the remainder
of the original lease term.


                                       11
<PAGE>

               MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

COMMITMENTS AND CONTINGENCIES, continued


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

Year Ending December 31,
        2005                                                             $21,309
                                                                         =======


Employment Agreements

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

RELATED PARTY TRANSACTIONS

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

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


                                       12
<PAGE>

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, 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:

Our  efforts to close  some of the larger  sales  contracts  for a  company-wide
deployment of our software  products at several large potential clients which we
have been working on for some time now, have not met with success as of the date
of this report.  We are continuing  these efforts and are still optimistic about
ultimate  success,  however,  we cannot  predict when this might occur.  We also
continued with a program of co-marketing  the Company's  products  together with
selected partners in the insurance and risk management industry.

The quarter ended June 30, 2004 showed revenues of $20,294,  compared to $33,107
achieved in the second  quarter of 2003.  Revenues for the six months ended June
30, 2004,  totaled  $64,874,  close to the $68,559 recorded in 2003 for the same
period.

Gross  profits for the quarter  amounted to negative  $18,772,  as a result of a
fixed charge for  amortization  of certain  proprietary  software  assets.  Such
software  assets  underlie the Company's  products and are being  amortized on a
straight  line  over 10 years,  resulting  in a level  charge  of  approximately
$13,000 per month to  cost-of-goods-sold.  Our expense  and cost  structure  was
essentially  unchanged from prior periods,  and, after  deducting  selling - and
general and administrative  expenses of $527,325 which decreased by 13% over the
$607,875  recorded in 2003, the Company  realized an operating loss of $546,097,
compared  to an  operating  loss of  $613,748  in 2003.  Non-operating  expenses
consisted of $3,407 net interest expense and a charge of $14,489 for a valuation
allowance on certain inventories.  The period result was a net loss of $563,993,
with a total loss for the first six months of $1,266,506,  compared to losses of
$638,360 and $ 1,322,776 respectively, for the same periods in 2003.

After  accounting  for dividend  accruals on outstanding  preferred  stock which
totaled  $56,873,  and an  accounting  charge to  capital  for  amortization  of
discount  for  warrants  issued in  connection  with the  placement  of  certain
convertible  stock  which  amounted  to  $779,026,  the net loss for the quarter
applicable to common shareholders was $1,399,892 or $0.02 per share, compared to
a loss of $667,177 or $0.01 per share for the same quarter in the previous year.


                                       13
<PAGE>

Liquidity and Capital Resources

The cash  reserves  that were built up during the first  quarter,  augmented  by
limited  subsequent  new equity  placements,  were  sufficient  to  finance  the
Company's  operations  during the  second  quarter.  Such new  equity  placement
transactions  resulted  in the  receipt  of  approximately  $280,000  cash.  The
issuances  of new common and  convertible  preferred  stock during the first six
months of the year,  and  anticipated  issuance  of  further  shares  thereafter
necessitated  an increase in the authorized  number of common shares,  for which
the Company obtained shareholder approval in June (see "Submission of Matters to
a Vote of Securities' Holders").

At June 30, 2004, the deficit in working capital amounted to $871,934,  compared
to $619,182 at March 31, 2004.  The cash flow from  operations  during the first
six months  totaled  approximately  negative  $966,000  and was  financed by new
equity  which was  obtained  through  the  placement  of common and  convertible
preferred stock with accredited private investors.  Details of such transactions
can be found in the  "Changes in  Securities"  section in this report and in the
Company's report on Form 10-QSB for the period ended March 31, 2004. In February
2004,  the Company had filed a new  registration  statement  on Form SB-2 and an
amendment to a previously  filed  registration  statement on Form SB-2,  both of
which covered common shares directly issued as well as common shares  underlying
the previously issued  convertible  preferred stock and warrants,  in connection
with these and prior financing  transactions.  These registrations were declared
effective by the Securities and Exchange Commission as of June 30, 2004.

At the time of this  submission,  the Company had no bank debt. At June 30, 2004
our short-term  liabilities,  aside from trade  payables and accruals,  included
certain notes aggregating $233,419 of which $99,890 was owed to the chairman and
chief executive  officer of the Company in form of a demand note (see "Long Term
Debt"). Also included are 472,920 in accrued dividends, the majority of which on
outstanding  series A, C, and D preferred  stock which in view of the absence of
surplus funds management does not plan to liquidate in the immediate future.

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


                                       14
<PAGE>

Item 3. CONTROLS AND PROCEDURES

      (a) Evaluation of Disclosure Controls and Procedures.

      Prior to the filing  date of this  Quarterly  Report on Form  10-QSB,  our
Chief  Executive   Officer  and  our  Chief  Financial   Officer  evaluated  the
effectiveness  of our  disclosure  controls  and  procedures  as defined in Rule
13a-14(c)  under the Securities  Exchange Act of 1934, as amended (the "Exchange
Act").  Based upon that  evaluation,  the Chief Executive  Officer and the Chief
Financial  Officer,  have  concluded  that our current  disclosure  controls and
procedures are adequate and effective to ensure that information  required to be
disclosed in the reports we file under the Exchange Act is recorded,  processed,
summarized and reported on a timely basis.

      (b) Changes in Internal Controls.

      There have been no  significant  changes in our  internal  controls  or in
other factors that could  significantly  affect internal controls  subsequent to
the date of their  evaluation  by the  Chief  Executive  Officer  and the  Chief
Financial Officer.


                                       15
<PAGE>

PART II - OTHER INFORMATION

Item 1 LEGAL PROCEEDINGS

      The Company is not a party in any legal proceedings.

Item 2 CHANGES IN SECURITIES

     a)  - None
     b)  - None
     c)   Issuance of unregistered securities

      During the quarter ended June 30, 2004,  the Company  issued the following
unregistered securities:

      (i)   2,875,000  shares of common stock,  accompanied  by warrants for the
            purchase of 2,875,000 common shares at the price of $0.15 per share,
            to six accredited  foreign  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,  altogether  resulting in the receipt by the Company
            of approximately $284,000 in cash.

      (ii)  285,000  shares  of  common  stock  to  a  consultant  for  investor
            relations and general business consulting services.

      (iii) 150,000 shares of common stock in lieu of cash, for rent expenses.

      (iv)  500,000  shares of common stock  pursuant to the conversion of 5,000
            shares of Series E Senior Convertible Preferred Stock, in accordance
            with the designation for the latter.


(d) Not applicable


                                       16
<PAGE>

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, C, and D Senior Convertible  Preferred Stock.
Such arrears total  approximately  $396,000.  These dividends have been accrued,
however,  the Company's  management has refrained  from making  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

On May 21,  2004,  we  filed a  Schedule  14A  Information  Statement  with  the
Securities and Exchange  Commission  (the "SEC") seeking the written  consent of
our shareholders of record as of the close of business on May 14, 2004, to amend
our Company's  Certificate of  Incorporation  to increase our authorized  common
shares from 100 million shares to 200 million  shares.  Following SEC clearance,
we mailed  the  Information  Statement  to  shareholders  on June 14 2004 and we
received written consents on July 10, 2004 approving the amendment. Shareholders
representing  56.82% of our  outstanding  voting shares  submitted their written
consents,  with 56.03% of our  outstanding  voting shares  casting their written
consents in favor of the proposal,  0.72% submitted written consents against the
proposal and 0.07% of our outstanding voting securities abstained.

Item 5 OTHER INFORMATION

      - None

Item 6 EXHIBITS AND REPORTS ON FORM 8-K

(a)         Exhibits

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

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

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

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

            (32.1)- Certification of Steven D. Rudnik,  Chief Executive Officer,
                  pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18
                  U.S.C. Section 1350

            (32.2)- Certification of Joerg H. Klaube,  Chief Financial  Officer,
                  pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18
                  U.S.C. Section 1350

(b) Reports on Form 8-K:

On May 6, 2004,  the  Company  filed a report on Form 8-K,  informing  about the
conclusion  of a marketing  and  distribution  agreement  with a major  European
business consulting company.

On June 21, 2004,  the Company filed a report on Form 8-K,  informing  about the
conclusion of a marketing and  distribution  agreement  with a  California-based
distributor of ergonomic products and provider of related services.


                                       17
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant has duly caused this report on Form 10-QSB to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                        MAGNITUDE INFORMATION SYSTEMS, INC.


Date:   August 12, 2004                 By: /s/  Steven D. Rudnik
                                            ------------------------------------
                                            Steven D. Rudnik
                                            Chairman and Chief Executive Officer


                                       18