February 16, 2007
VIA EDGAR AND TELECOPY DELIVERY
Filing Desk
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20005
Attention: Barbara C. Jacobs, Assistant Director
Kathleen Collins, Accounting Branch Chief
Re: Magnitude Information Systems, Inc.
Amendment No. 5 to Registration Statement on Form SB-2
Commission File No. 333-138961
Dear Assistant Director Jacobs and Branch Chief Collins:
We are filing via EDGAR today our fifth amendment to our combined, above
identified registration statement (the "Amendment") on behalf of Magnitude
Information Systems, Inc. (the "Company").The Amendment contains a revised
"Subsequent Event" footnote in the financial statements for the quarter ended
September 30, 2006 as follows:
Subsequent Event
In November, 2006, the Company filed this registration statement with the
Securities and Exchange Commission via the electronic EDGAR System, making it
publicly available. While the registration statement was still pending and being
reviewed by the Securities and Exchange Commission, the Company engaged in two
settlement negotiations: the first was with our former CEO and President, Steven
D. Rudnik, pursuant to which we issued to him 13,861,875 Company securities in
exchange for an outstanding Company note in the approximate amount of $100,000,
accrued interest and a debt of $15,000, and; the second settlement was with our
former executive, Steven Jagels, pursuant to which we issued to him 3,000,000
shares in exchange or his claims against the Company arising under his
employment agreement. Due to the pending public offering at the time, these
transactions could be deemed transactions by an issuer not involving a public
offering and therefore could possibly have violated the private placement
offering rules. As a result, if the private offering exemption was not available
to the Company for these transactions they could be deemed integrated with the
public offering. The integration of these two transactions with the pending
public offering, would implicate a possible Section 5 violation under the
Securities Act which prohibits sales of securities while a public offering is
pending. If a court of competent jurisdiction were to find that we, in fact,
violated Section 5, it could require the Company to rescind the settlement
agreements with Messrs. Rudnik and Jagels, a remedy that could be available to
either of them anytime during the one year period following the consummation of
these transactions. The Company believes based on an analysis of any potential
contingent liabilities under FAS 5 that the possible rescission by Mr. Rudnik
would have no material impact on the Company's financial statements nor to the
presentation in the Company's financial statements for the liabilities
represented by the Rudnik obligations. If Mr. Rudnik chose to rescind his
settlement agreement, all of his exchanged debt would be reinstated: his
approximate $100,000 demand note, the approximate $10,000 in accrued interest
thereunder and the $15,000 payment, representing all of the debt obligations
exchanged for the 13,861,875 of securities issued to him. However, in Mr.
Jagels' case, a rescission would likely reinstate his lawsuit against the
Company and his claims for approximately $125,000, less the $20,000 paid to him
by the Company would proceed. An order of rescission obtained by Mr. Jagels,
therefore, from a court of competent jurisdiction could likely have a material
adverse effect on the Company's cash position, liquidity and financial
condition. Based upon further evaluation of the facts and circumstances and the
relationships between the Company and these individuals, the Company believes
there exists only a remote possibility that either would exercise his rights of
rescission.
Very truly yours,
/s/ Joseph J. Tomasek, Esq.
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Joseph J. Tomasek, Esq.
cc Securities and Exchange Commission:
Daniel Lee, Esq., Staff