SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act Of 2004
Date of report (date of earliest event reported): October 28, 2005
MAGNITUDE INFORMATION SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
33-20432 75-2228828
(Commission File Number) (IRS Employer Identification No.)
401 State Route 24, Chester, New Jersey 07930
(Address of principal executive offices) (Zip Code)
(908) 879-2722
(Registrant's telephone number)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions (see General Instruction A.2 below):
|_| Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e- 4(c))
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
Magnitude Information Systems (the "Company") has decided to restate its
financial results for the years ended December 31, 2003 and 2004, and for the
quarters ended March 31, 2005 and June 30, 2005.
The restatement involves reclassifying certain equity positions in
connection with beneficial conversion rights accrued to warrants and shares of
convertible preferred stock issued in 2003 and 2004, and revaluing securities
issued prior to January 1, 2004 to employees and non-employees for services
rendered.
The restatements add $315,450 to the net loss in 2003 and $52,954 to the
net loss in 2004, whereby both amounts, however, are being offset by similar
credits to Paid-in Capital, as a consequence of which there was no material
effect on total stockholders' equity. In addition, the reclassifications and
revaluations give rise to corrections in the reported dividends positions and
per-share earnings figures which again, however, do not materially affect total
stockholders' equity.
As a result of the foregoing, the Company intends to file a Form 10-KSB/A
for the fiscal year ended December 31, 2004 and Forms 10-QSB/As for the quarters
ended March 31, 2005 and June 30, 2005, restating the balance sheets, statements
of operations and cash and equity schedules included in those reports. The
previously filed financial statements in these reports should not be relied
upon.
The effects of the restatements will be as follows
Year Ended December 31, 2003
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As Reported As Restated
------------ ------------
Retained earnings (deficit) $(23,705,641) $(24,316,404)
Additional paid-in capital 23,950,614 24,647,149
Total stockholders' equity (impairment) (377,851) (292,079)
Working capital (deficiency) (968,183) (1,001,001)
Net (loss) (2,337,881) (2,653,331)
Loss per share (after dividends and amortization $ (0.04) $ (0.04)
of discount on Preferred Stock)
Year Ended December 31, 2004
----------------------------
As Reported As Restated
------------ ------------
Prepaid expenses $ 88,811 $ 55,993
Retained earnings (deficit) (27,992,998) (28,956,861)
Additional paid-in capital 27,499,793 28,496,474
Total stockholders' equity (impairment) (480,228) (513,046)
Deferred compensation -- (65,636)
Working capital (deficiency) (977,831) (1,010,649)
Net (loss) (2,483,602) (2,536,556)
Loss per share (after dividends and amortization $ (0.04) $ (0.05)
of discount on Preferred Stock)
For the quarter ended March 31, 2005, the effects will be as follows:
Three Months Ended March 31, 2005
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As Reported As Restated
------------ ------------
Prepaid expenses $ 102,783 $ 80,905
Retained earnings (deficit) $(28,612,395) $(29,587,197)
Additional paid-in capital 28,351,708 29,348,389
Total stockholders' equity (impairment) (246,825) (268,703)
Deferred compensation -- (43,757)
Working capital (deficiency) (707,462) (729,340)
Net (loss) (591,019) (601,958)
Loss per share $ (0.005) $ (0.005)
For the quarter ended June 30, 2005, the effects will be as follows:
Three Months Ended June 30, 2005
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As Reported As Restated
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Net (loss) (575,696) (586,636)
Loss per share $ (0.004) $ (0.004)
Six Months Ended June 30, 2005
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As Reported As Restated
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Prepaid expenses $ 146,378 $ 63,372
Retained earnings (deficit) (29,216,471) (30,202,213)
Additional paid-in capital 28,760,188 29,756,869
Total stockholders' equity (impairment) (442,121) (525,127)
Deferred compensation -- (93,945)
Working capital (deficiency) (866,832) (949,838)
Net (loss) (1,166,715) (1,188,594)
Loss per share $ (0.009) $ (0.009)
The decision to restate the Company's financial results does not cause
management to change its conclusion, described at Item 8a that is contained in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2004,
that the Company's internal control over financial reporting was effective as of
December 31, 2004. The issuances of common and preferred stock and warrants and
the quantification and classification of the securities that are subject to the
restatement were visible and disclosed in the financial statements. Although the
valuation of such securities, issued prior to the fiscal year 2004, incorporated
a discount from the then quoted price of the Company's publicly traded common
stock, the Company had employed this accounting treatment for a number of years,
and believes that a number of other companies in many industries follow this
practice. The Company previously received unqualified opinions on its
consolidated financial statements incorporating the subject classification and
valuations.
During the fourth quarter of the Company's 2005 financial closing and
reporting process, the Company reviewed the classification and valuation of
these securities in its financial statements as well as the disclosure
presentation of other companies, and held discussions with its independent
auditors, Rosenberg Rich Baker Berman & Company ("RRBB") about the treatment in
its financial statements. Based on these procedures, the Company reached the
conclusion that the reclassification of certain securities issued prior to
January 1, 2004 and the valuation of the subject securities without application
of a discount to the then quoted market value of the Company's common stock was
appropriate. Subsequent to this fourth quarter review, the Company has
reconsidered the accounting treatment for such securities. The restatements
conform the Company's consolidated financial statements to that accounting
treatment.
Under the circumstances, the Company's management does not believe that
the restatements resulted from, or require a finding of, a material weakness in
its internal control over financial reporting. This conclusion was discussed
with, and approved by, the Audit Committee of the Company's Board of Directors.
RRBB has been provided with a copy of this disclosure in advance of the
filing of this report with the Securities and Exchange Commission.
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.
Dated: October 28, 2005 By: /s/ Joerg H. Klaube
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Joerg H. Klaube
Chief Financial Officer