Joseph J. Tomasek, Esq.
77 North Bridge Street
Somerville, New Jersey 08876
October 28, 2005
FOR THE EXCLUSIVE USE
OF THE SECURITIES AND EXCHANGE COMMISSION ONLY
VIA EDGAR AND OVERNIGHT DELIVERY
Filing Desk Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20005
Attention: Kathleen Collins, Accounting Branch Chief
RE: Magnitude Information Systems, Inc. (the "Company")
Form 10-KSB for the Fiscal Year Ended
December 31, 2004
Filed March 30, 2005
File No. 000-32485
Dear Ms. Collins:
On behalf of the Company, we are filing today Amendment No. 1 to the
Company's Form 10-KSB for the fiscal year ended December 31, 2004, previously
filed with the Commission on March 31, 2005 (the "10-KSB Amendment"), and
Amendments Nos 1 to the Company's Form 10-QSBs for the quarters ended March 31,
2005, previously filed with the commission on May 16, 2005 (the "March 10-QSB
Amendment") and June 30, 2005, previously filed with the Commission on August
15, 2005 (the "June 10-QSB Amendment") via Edgar and in response to those
comments set forth in the Staff's letters to Mr. Steven D. Rudnik, President of
the Company, dated September 8, 2005 and October 21, 2005, respectively. Please
be advised that the Company is also filing today via Edgar its current report on
Form 8-K, addressing the Item 4.02 concerns raised by the Staff in its Comment
No. 5 of its October 21, 2005 letter (the "4.02 Form 8-K").
For the convenience of the Staff's review, we are enclosing three (3)
paper copies of the 10-KSB Amendment, the March 10-QSB Amendment and the June
10-QSB Amendment marked to indicate changes made to the original filing,
together with copies of the Staff's letters to the Company, dated September 8,
2005 and October 21, 2005, which contain or restate seven comments. We have also
enclosed three (3) paper copies of the Item 4.02 Form 8-K
Kathleen Collins, Accounting Branch Chief
Securities and Exchange Commission
October 28, 2005
Page 2
The Company's responses to the Staff's comments set forth in the Staff letters,
dated October 6, 2005 and October 21, 2005, respectively, are as follows:
CONSOLIDATED STATEMENTS OF OPERATIONS, PAGE 3
1. PLEASE REFER TO COMMENT 1 OF OUR LETTER DATED SEPTEMBER 8, 2005. WE NOTE
IN YOUR RESPONSE THAT YOU BELIEVE THAT YOU HAVE PROPERLY REFLECTED THE
STOCK BASED COMPENSATION AS ONE LINE ITEM IN YOUR CONSOLIDATED STATEMENTS
OF OPERATIONS AS ALL RELATE TO SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE. AS NOTED IN OUR PREVIOUS COMMENT, STOCK BASED COMPENSATION
RELATED TO SELLING, GENERAL AND ADMINISTRATIVE EXPENSES CAN CONTINUE TO BE
SHOWN AS ONE LINE ITEM IN YOUR STATEMENT OF OPERATIONS. HOWEVER, YOU MUST
PROVIDE EITHER A FOOTNOTE DISCLOSURE OR DISCLOSURE BELOW YOUR STATEMENT OF
OPERATIONS INDICATING THAT ALL OF YOUR STOCK BASED COMPENSATION RELATES TO
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. REVISE YOUR PRESENTATION BY
ALLOCATING THE TOTAL AMOUNT OF STOCK BASED COMPENSATION EXPENSE TO THE
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE LINE ITEM OR PROVIDE THE
APPROPRIATE DISCLOSURE ON THE FACE OF THE STATEMENTS OF OPERATIONS OR IN A
FOOTNOTE INDICATING THAT SUCH STOCK BASED COMPENSATION RELATES SOLELY TO
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE.
Pursuant to the Staff's comment, we have provided appropriate disclosure
on the face of the statements of operations in the restated financial
statements contained in the Form 10-KSB Amendment, the March 10-QSB
Amendment, and in the June 10-QSB Amendment, indicating that all of the
Company's stock based compensation relates solely to selling, general and
administrative expense.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SECURITIES ISSUED FOR SERVICES, PAGE 10
2. PLEASE REFER TO COMMENT 2 AND 3 OF OUR LETTER DATED SEPTEMBER 8, 2005. WE
ARE UNABLE TO CONCLUDE ON YOUR RESPONSE AS IT RELATES TO THE FAIR VALUE OF
YOUR OPTIONS/WARRANTS ISSUED TO NON-EMPLOYEES AND EMPLOYEES FOR SERVICES
UNTIL YOUR AMENDMENT WITH THE REVISED FINANCIAL STATEMENTS AND
DISCLOSURES. PLEASE ENSURE THAT WHEN YOU FILE THE AMENDED EXCHANGE ACT
REPORTS YOU SUPPLEMENTALLY PROVIDE THE STAFF WITH DETAILED SUPPORT TO YOUR
REVISIONS, INCLUDING THE ADJUSTMENTS TO PERIODS PRIOR TO JANUARY 1, 2003.
In response to the Staff's comment, please be advised that management, in
consultation with its independent registered accountants, Rosenberg Rich
Baker Berman & Company of Bridgewater, New Jersey, has recently determined
to reclassify certain beneficial conversion rights and deferred
compensation, and to revalue its options and warrants issued to
Kathleen Collins, Accounting Branch Chief
Securities and Exchange Commission
October 28, 2005
Page 3
non-employees and employees for services rendered at the average public
market price on the dates of issuance for the reasons set forth in its
Item 4.02 Form 8-K, a hard copy of which is included with this
correspondence. As disclosed, Company management originally applied a 50%
discount to these securities when determining their fair value, using the
Black Scholes pricing model. Company management had initially relied upon
expert advice received but has now restated its financial results,
eliminating the 50% discount. A detailed schedule of information which
supports our revisions, including the adjustments to periods prior to
January 1, 2003, is attached to this correspondence.
3. PLEASE REFER TO COMMENT 4 OF OUR LETTER DATED SEPTEMBER 8, 2005. WE
REISSUE OUR PREVIOUS COMMENT TO PROVIDE US WITH A SCHEDULE OF
OPTIONS/WARRANTS GRANTED IN EXCHANGE FOR SERVICES TO BOTH EMPLOYEES AND
NON-EMPLOYEES THAT INCLUDES (A) THE DATE OF GRANT, (B) THE NUMBER OF
OPTION GRANTED, (C) THE NAME OF THE RECIPIENT, AND (D) THE FAIR VALUE OF
THE OPTIONS/WARRANTS AND THE ASSUMPTIONS AND METHOD USED TO DETERMINE SUCH
VALUE. THIS SCHEDULE SHOULD BE PROVIDED FOR EACH PERIOD IN WHICH AN INCOME
STATEMENT IS PRESENTED, INCLUDING THE INTERIM PERIOD THROUGH THE DATE OF
YOUR RESPONSE.
Pursuant to the Staff's comment, we have attached to this correspondence a
schedule of Stock Options and Warrants Issued for Services rendered to
non-employees and employees for each period an income statement is
presented, including the interim period through the date hereof,
commencing on January 1, 2003 and continuing through September 22, 2005,
setting forth the (a) date of grant, (b) the number of options/warrants
granted, (c) the name of the recipient, and (d) the fair value of the
options/warrants and the assumptions and methods used to determine such
value.
GENERAL
4. TELL US HOW YOU WILL CONSIDER THE REVISIONS TO YOUR FINANCIAL STATEMENTS
IN DISCLOSING INFORMATION RELATING TO YOUR DISCLOSURE CONTROLS AND
PROCEDURES AND YOUR INTERNAL CONTROLS, PURSUANT TO ITEM 307 AND 308 OF
REGULATION S-K IN YOUR PERIODIC EXCHANGE ACT REPORTS. IN THIS REGARD, WE
NOTE YOUR CURRENT DISCLOSURE IN YOUR FORM 10-KSB AND SUBSEQUENT 10-QSB'S
THAT YOUR CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER HAVE
CONCLUDED THAT YOUR DISCLOSURE CONTROLS AND PROCEDURES WERE EFFECTIVE.
TELL US WHETHER YOU CONSIDER YOUR DISCLOSURE CONTROLS AND PROCEDURES
EFFECTIVE AS OF THE END OF THE PERIODS COVERED BY THE REPORTS
NOTWITHSTANDING THE RECENT RESTATEMENT IN YOUR 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 2004 AND YOUR 10-QSB'S FOR THE QUARTERS ENDED MARCH 31, 2005
AND JUNE 30, 2005 AND TELL US WHETHER YOU CONSIDERED EXCHANGE ACT RULE
13A-15(C) AND THE REQUIREMENT THAT YUR CONTROLS AND PROCEDURES ENSURED
THAT INFORMATION REQUIRED TO BE DISCLOSED BY YOU IN THE REPORTS THAT ARE
FILED OR SUBMITTED UNDER THE EXCHANGE ACT ARE RECORDED, PROCESSED ,
SUMMARIZED AND REPORTED, WITHIN THE TIME PERIODS SPECIFIED IN THE
Kathleen Collins, Accounting Branch Chief
Securities and Exchange Commission
October 28, 2005
Page 4
COMMISSION'S RULE AND FORMS. IF NECESSARY, PLEASE REVISE TO EXPRESSLY
IDENTIFY ANY MATERIAL WEAKNESSES IN YOUR INTERNAL CONTROLS OVER FINANCIAL
REPORTING AND ANY SIGNIFICANT DEFICIENCY THAT, WHEN COMBINED WITH OTHER
SIGNIFICANT DEFICIENCIES, IS DETERMINED TO BE A MATERIAL WEAKNESS OR
CONVERSELY STATE THAT EVEN AS A RESULT OF THE INTERNAL CONTROL CONCERNS
THAT CAUSE YOUR RECENT RESTATEMENT, YOU DID NOT HAVE MATERIAL WEAKNESS OR
SIGNIFICANT DEFICIENCIES.
In response to the Staff's comment and as disclosed in the Item 4.02 Form
8-K, our Chief Executive Officer and Chief Financial Officer participated
in an evaluation by our management of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of our
fiscal quarter that ended on December 31, 2004 as defined in Exchange Act
Rule 13(a)-15(e),. Based on their participation in that evaluation, our
CEO and CFO concluded that our disclosure controls and procedures were
effective as of December 31, 2004 to ensure that required information is
disclosed on a timely basis in our Form 10-KSB filed and furnished under
the Securities Exchange Act of 1934, as amended, and ensured that all
material information required to be disclosed in the subject Form 10-KSB
was recorded, processed, summarized and reported, within the time period
specified by the Commission's rules and forms.
As of the ends of the periods covered by the Form 10-KSB for the fiscal
year ended December 31, 2004, the Form 10-QSB for the quarter ended March
31, 2005 and the Form 10-QSB for the quarter ended June 30, 2005,
evaluations (collectively, the "Evaluation") were undertaken by the
Company's Chief Executive Officer and Chief Financial Officer of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures, and; based upon that Evaluation, Company
management, including the Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO"), has concluded that the Company's disclosure
controls and procedures were effective as of the ends of the periods
covered by the subject Form 10-KSB and Forms 10-QSB.
Our CEO and our CFO reviewed with our management whether our need to
restate our financial results for the fiscal year ended December 31, 2004
affected their conclusions, set forth under the caption Evaluation of
Disclosure Controls and Procedures in our Annual Report on Form 10-KSB for
the year ended December 31, 2004, that our disclosure controls and
procedures were effective as of that date to ensure that required
information is disclosed on a timely basis in our reports filed or
furnished under the Securities Exchange Act of 1934, as amended.
Kathleen Collins, Accounting Branch Chief
Securities and Exchange Commission
October 28, 2005
Page 5
In connection with this review, our CEO and CFO noted that our decision to
restate our financial results did not call into question whether the
relevant information was recorded, processed, summarized or reported
within the time periods specified in the SEC's rules and forms. It also
did not involve any issue about whether information required to be
disclosed in the Form 10-KSB we filed under the Exchange Act was
accumulated and communicated to our management, including our chief
executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure. Conversely, the
restatements resulted solely from reconsideration of a decision made by
management regarding how generally accepted accounting principles required
the classification of beneficial conversion rights accruing to certain
equity securities and the valuation of equity securities issued for
services rendered, two particular items of information, that were properly
recorded in our financial records and made available to our management in
a timely manner, to be classified and valued on our financial statements.
Our CEO and CFO do not find that management's subsequent decisions, that
its prior classification and valuation were not in accordance with
generally accepted accounting principles, raises any question about
whether our disclosure controls and procedures were effective to ensure
that required information was disclosed to them as appropriate to allow
timely decisions regarding required disclosure. Therefore, based on that
review, our CEO and our CFO determined that their prior conclusions, that
our disclosure controls and procedures were effective at December 31,
2004, had not changed.
We are filing a current report on Form 8-K today, Item 4.02, disclosing
that we are restating our results for the fiscal year ended December 31,
2004. The restatements add $315,450 to the net loss in 2003 and $52,954 to
the net loss in 2004, with both amounts offset by corresponding credits to
Paid-in Capital, as a consequence of which there is no material effect on
total stockholders' equity. In addition, the reclassifications and
revaluations give rise to adjustments in the reported dividends positions
and per-share earnings which, again do not materially affect total
stockholders' equity.
The decision to restate our results, comprised principally of
reclassifying beneficial conversion rights accruing to certain equity
securities and the valuation of equity securities issued for services
rendered, does not cause our management to change its conclusion,
described in its disclosures in Item 8a. Controls and Procedures contained
in our Annual Report on Form 10-K for the year ended December 31, 2004,
that our internal control over financial reporting was effective as of
December 31, 2004. The terms of accrued beneficial conversion rights and
the number of securities issued for the services rendered that are subject
to the restatement were visible and disclosed on the face of our financial
statements. Although these beneficial conversion rights were misclassified
and the securities issued for services were not correctly valued, we had
employed this classification of these beneficial conversion rights and
valuation of the securities issued for services rendered for a number of
years. We previously received unqualified opinions on our consolidated
financial statements included in our Annual Reports on Forms 10-KSB.
Kathleen Collins, Accounting Branch Chief
Securities and Exchange Commission
October 28, 2005
Page 6
During the financial closing and reporting process relating to the third
quarter of our 2005 fiscal year, management reviewed the classification of
these beneficial conversion rights and the valuation of the securities
issued for services rendered, and held discussions with Rosenberg Rich
Baker Berman & Company, our independent accountants ("RRBB") about the
presentation. Based on these procedures, we reached the conclusion that
the classification of the beneficial conversion rights should be
reclassified and the valuation of the securities rendered for services
rendered revalued was appropriate. Subsequent to our third quarter review,
we have reconsidered the accounting treatment for beneficial conversion
rights and valuation of the securities issued for services rendered, and
we now believe that the beneficial conversion rights be reclassified and
the securities issued for services rendered be revalued. The restatements
conform our financial statements to these accounting treatments. Under
these circumstances, our management does not believe that the restatements
resulted from, or require a finding of, a material weakness in our
internal control over financial reporting.
That conclusion was discussed with, and approved by, the Audit Committee
of our Board of Directors.
Changes in Internal Control Over Financial Reporting
Our CEO and CFO also participated in an evaluation by our management of
any changes in our internal control over financial reporting that occurred
during the quarter ended December 31, 2004. That evaluation did not
identify any changes that have materially affected, or are likely to
materially affect, our internal control over financial reporting.
5. WE NOTE FROM YOUR RESPONSES THAT YOU PLAN OR AMENDING YOUR 2004 10-KSB AND
SUBSEQUENT 10-QSB FILINGS. TELL US WHAT CONSIDERATION YOU HAVE GIVEN TO
FILING AND ITEM 4.02 8-K IN CONNECTION WITH THE RESTATEMENT OF YOUR
FINANCIAL STATEMENTS IN THE AFOREMENTIONED FILINGS.
Pursuant to the Staff's comment, the Company is filing an Item 4.02 Form
8-K today in connection with the restatement of its financial statements
in the aforementioned filings.
6. IN CONNECTION WITH OUR PRIOR COMMENT LETTER DATED SEPTEMBER 8, 2005, WE
NOTE THAT YOU DID NOT PROVIDE, AS PREVIOUSLY REQUESTED, A STATEMENT IN
WRITING THAT THE COMPANY ACKNOWLEDGED THAT:
Kathleen Collins, Accounting Branch Chief
Securities and Exchange Commission
October 28, 2005
Page 7
o THE COMPANY IS RESPONSIBLE FOR THE ADEQUACY AND ACCURACY OF THE
DISCLOSURES IN THE FILING;
o STAFF COMMENTS OR CHANGES TO DISCLOSURES IN THE FILING AND THE
COMPANY'S RESPONSES TO STAFF COMMENTS DO NOT FORECLOSE THE
COMMISSION FROM TAKING ANY ACTION WITH RESPECT TO THE FILING; AND
o THE COMPANY MAY NOT ASSERT STAFF COMMENTS AS A DEFENSE IN ANY
PROCEEDING INITIATED BY THE COMMISSION OR ANY PERSON UNDER THE
FEDERAL SECURITIES LAWS OF THE UNITED STATES.
In response to the Staff's comment, we are filing with this
correspondence via Edgar and providing a paper copy of a letter,
signed by the executive officers and directors of the Company,
addressed to the Commission, acknowledging their responsibilities
for the adequacy and accuracy of the disclosures contained in the
Company's current, quarterly and annual reports filed with the
Commission.
Very truly yours,
/s/ Joseph J. Tomasek
----------------------------
Joseph J. Tomasek, Esq.
cc: Patrick Gilmore
Division of Corporation Finance
Board of Directors
Magnitude Information Systems, Inc.
Kathleen Collins, Accounting Branch Chief
Securities and Exchange Commission
October 28, 2005
Page 8
MAGNITUDE INFORMATION SYSTEMS, INC.
SUPPLEMENTAL INFORMATION TO RESTATED REPORTS ON FORM 10-KSB/A FOR THE YEAR
ENDED DECEMBER 31, 2004 AND THE RESTATED REPORTS ON FORM 10-QSB/A
FOR THE QUARTERS ENDED MARCH 31, 2005 AND JUNE 30, 2005
I. REVISIONS IN FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2004
a) Revisions at December 31, 2004 and for the years ended December 31,
2003 and 2004, made as a consequence of (1) additional compensation
expense due to the elimination of a 50% discount in the valuation of
securities issued for services during the year 2003, (2)
reclassification of issuances for future services from prepaid
expenses to deferred compensation and (3) entries to record expense
incurred on related additional deferred compensation:
Stmt. of Operations
Balance Sheet Effect (DR/(CR)) Effect (DR/(CR))
----------------------------------- ---------------------
Restated As Prepaid SG&A SG&A
Transaction Value Reported Variance Expenses APIC Def'd Comp. Exp-2003 Exp-2004
---------------------------------------------------------------------------------------------------------------------------
Common share issuances $ 525,860 $ 262,930 $ 262,930 $ (18,867) $(262,930) $ 37,735 $ 212,969 $ 31,094
Preferred share issuances 68,800 34,400 34,400 0 (34,400) 0 34,400 0
Stock option issuances 97,086 48,543 48,543 (13,951) (48,543) 27,901 12,732 21,860
Stock warrant issuances 110,698 55,349 55,349 0 (55,349) 0 55,349 0
--------- --------- --------- --------- ---------
$ (32,818) $(401,222) $ 65,636 $ 315,450 $ 52,954
b) Revision at December 31, 2004 and for the year ended December 31,
2003 to record amortization of additional discount on preferred
stock related to warrant value allocations and intrinsic value of
beneficial conversion features, made as a consequence of the
elimination of a 50% discount in the valuation of preferred stock
with warrants issued for other than services during the year 2003:
Balance Sheet Effect (DR/(CR)) Stmt. of Operations Effect (DR/(CR))
APIC
Restated As (Discount Preferred
Transaction Value Reported Variance on Pref'd) Dividends
------------------------------------- --------- --------- --------- --------- ---------
Amortization-preferred stock discount $ 34,839 $ 16,056 $ 18,783 $ (18,783) $ 18,783
c) Revisions at December 31, 2004 and for the year then ended to record
amortization of additional discount on preferred stock related to
warrant value allocations and intrinsic value of beneficial
conversion features, made as a consequence of (1) the elimination of
a 50% discount in the valuation of preferred stock with warrants
issued for other than services during the year 2003 and (2)
inclusion of issuance costs in total proceeds from preferred stock
financing for calculation of intrinsic value of beneficial
conversion feature on such issuances during 2004:
Balance Sheet Effect (DR/(CR)) Stmt. of Operations Effect (DR/(CR))
APIC
Restated As (Discount Preferred
Transaction Value Reported Variance on Pref'd) Dividends
------------------------------------- --------- --------- --------- --------- ---------
Amortization-2003 discount $ 874,565 $ 630,896 $ 243,670 $(243,670) $ 243,670
Amortization-2004 discount 939,640 886,164 56,476 (56,476) 56,476
--------- ---------
$(300,146) $ 300,146
d) Revision at December 31, 2004, made as a consequence of the
elimination of a 50% discount in the valuation of securities issued
for services during the year 2001:
Balance Sheet Effect (DR/(CR))
Transaction Restated Value As Reported Variance Additional Paid-In Capital Retained Deficit
Common share issuances $33,416 $16,708 $16,708 $(16,708) $16,708
e) Revision at December 31, 2004, made as a consequence of the
elimination of a 50% discount in the valuation of securities issued
for services during the year 2002:
Balance Sheet Effect (DR/(CR))
Transaction Restated Value As Reported Variance Additional Paid-In Capital Retained Deficit
Common share issuances $419,644 $259,822 $259,822 $(259,822) $259,822
Kathleen Collins, Accounting Branch Chief
Securities and Exchange Commission
October 28, 2005
Page 9
II. REVISIONS IN FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2005
f) Revision at March 31, 2005 and for the quarter then ended, made as a
consequence of (2) the reclassification of stock issued for future
services from prepaid expenses to deferred compensation and (3) the
elimination of a 50% discount in the valuation of securities issued
for services during the year 2003 requiring entries to record
expense incurred on related additional deferred compensation:
Balance Sheet Effect (DR/(CR)) Stmt. of Operations Effect (DR/(CR))
Restated As Prepaid Deferred Selling
Transaction Value Reported Variance Exp. Comp. and G&A Exp
---------------------------- --------- --------- --------- --------- --------- ---------
Reclassification and expense $ 21,879 $ 10,939 $ 10,940 $ 10,940 $ (21,879) $ 10,940
of deferred comp.
g) Revisions at March 31, 2005, made as a consequence of the
elimination of a 50% discount in the valuation of securities issued
for services during the year 2003, and the related carry-forward of
changes in the balance sheet at December 31, 2004:
Balance Sheet Effect (DR/(CR))
Prepaid Retained Deferred
Transaction Expenses APIC Deficit Comp.
----------------------- --------- --------- --------- ---------
Carry-forward of changes $ (32,818) $(996,681) $ 963,863 $ 65,636
III. REVISIONS IN FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 2005
h) Revision at June 30, 2005 and for the three and six months then
ended, made as a consequence of the elimination of a 50% discount in
the valuation of securities issued for services during the year 2003
requiring entries to record expense incurred on related additional
deferred compensation:
Balance Sheet Effect (DR/(CR)) Stmt. of Operations Effect (DR/(CR))
Transaction Restated Value As Reported Variance Prepaid Exp. Deferred Comp. SG&A Exp-3 mos. SG&A Exp-6 mos.
- ---------------------- -------------- ----------- -------- ------------ -------------- --------------- --------------
Reclassification and
expense of deferred comp. $ 43,757 $ 21,878 $ 21,879 $ (50,188) $ 28,309 $ 10,939 $ 21,879
i) Revisions at June 30, 2005, made as a consequence of the elimination
of a 50% discount in the valuation of securities issued for services
during the year 2003, and the related carry-forward of changes in
the balance sheet at December 31, 2004:
Balance Sheet Effect (DR/(CR))
Transaction Prepaid Expenses APIC Retained Deficit Deferred Comp.
------------------------ ---------------- --------------- ---------------- -------------
Carry-forward of changes $ (32,818) $(996,681) $ 963,863 $ 65,636
Kathleen Collins, Accounting Branch Chief
Securities and Exchange Commission
October 28, 2005
Page 10
MAGNITUDE INFORMATION SYSTEMS, INC.
Stock Options and Warrants Issued for Services
Years 2003 - 2005 (Status October 12, 2005)
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
ISSUED NO. SHS. TYPE NAME FAIR VALUE BASIS(1)
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
1/8/03 100,000 Option Myles Medgal $9,850 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
1/16/03 500,000 Warrant Ulrich Schuerch $27,900 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
1/16/03 500,000 Warrant Insa Stiftung $27,900 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
5/3/03 200,000 Warrant Converthedge LLC $15,800 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
6/12/03 50,000 Option Alan Hedge $2,556 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
6/12/03 150,000 Option Alan Hedge $5,386 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
6/30/03 70,000 Option Myles Megdal $3,480 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
9/15/03 5,000 Option Hal W. Hendrick $754 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
9/25/03 1,500,000 Option Ulrich Schuerch $73,950 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
9/30/03 30,000 Option Myles Megdal $1,100 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
12/31/03 290,250 Warrant Joseph J. Tomasek $30,650 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
12/31/03 80,000 Warrant B.Michael Pisani $8,448 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
1/1/04 833,333 Warrant Steven D. Rudnik $40,167 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
1/6/04 50,000 Warrant B.Michael Pisani $5,280 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
1/6/04 25,000 Warrant B.Michael Pisani $2,640 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
1/15/04 20,000 Warrant B.Michael Pisani $1,948 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
2/15/04 250,000 Option Robert Reimann $30,150 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
5/1/05 600,000 Option Robert Desena $67,900 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
5/1/05 600,000 Option Robert Desena $40,860 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
9/22/05 1,000,000 Warrant Steven D. Rudnik $32,900 Black-Scholes
- ---------------- -------------- --------------- ------------------------- ------------------- -------------------------
- ---------
1 The value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected dividend, 0%; risk-free interest rate, 5%; expected
volatility, 115%; and expected life (in years) of 4.4.