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 September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT O 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.)
50 Tannery Road, Branchburg, New Jersey 08876
(Address of Principal Executive Office) (Zip Code)
(908) 534-6400
(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 September 30, 1999, was 9,027,929 shares.
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART 1 - FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Consolidated Balance Sheet
- September 30, 1999 3
Consolidated Statements of Operations
- Three and nine months ended September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows
- Nine months ended September 30, 1999 and 1998 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
FINANCIAL DATA SCHEDULE 16
<PAGE>
PART I - Item 1
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1999
ASSETS
Current Assets
Cash ............................................. $ 2,588
Accounts receivable, net of allowance for
doubtful accounts of 61,777 ....................... 95,911
Inventories ........................................ 8,963
Prepaid expenses ................................... 507,135
---------------------
Total Current Assets ........................... 614,597
Property, plant and equipment ..................... 111,355
Acquired software assets .......................... 1,230,113
Other assets ..................................... 3,059
----------
TOTAL ASSETS ........................................... 1,959,124
========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses .............. 903,781
Dividends payable .................................. 9,000
Prepayments received ............................... -
Loans and notes payable ............................ 3,161,022
Accrued contingent liability ....................... 374,890
Current maturities long-term debt .................. 33,529
Current maturities lease obligations ............... 15,826
-------------
Total Current Liabilities ....................... 4,498,048
Long-term debt, less current portion ............... 175,000
Lease obligations, less current portion ............ 29,839
-------------
TOTAL LIABILITIES ....................................... 4,702,887
STOCKHOLDERS' EQUITY
Preferred Stock, $0.01 par value, 3,000,000 shares
authorized, of which 2,500 shares have been designated
as Cumulative Preferred Stock, $0.001 par value, with
10 shares issued and outstanding ................. 0
Common Stock, $0.0001 par value, 30,000,000 shares
authorized, 9,027,929 issued and outstanding ..... 903
Contributed capital .............................. 81,000
Additional paid-in capital ....................... 8,204,999
Accumulated deficit .............................. (11,030,665)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ....... (2,743,763)
TOTAL LIABILITIES AND EQUITY .......................... $ 1,959,124
==========
See notes to consolidated financial statements
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Hardware Revenues .................... $ 0 $ 325,857 $ 0 $ 2,734,683
Software Revenues .................... 52,250 9,019 162,430 41,686
---------- --------- ------------ ----------
Total Revenues ....................... 52,250 334,876 162,430 2,776,369
Cost of Goods Sold .............. 41,257 372,150 127,696 1,567,278
---------- ----------- ------------ -------------
Gross Profit ......................... 10,993 (37,274) 34,734 1,209,091
Selling expenses ................ 210,383 266,623 567,217 1,118,232
General & administrative expenses 499,253 569,737 1,433,692 1,693,656
----------- ------------ ------------- -------------
Operating Income (Loss) ............. (698,643) (873,634) (1,966,175) (1,602,797)
Miscellaneous income ............ 10,469 103 98,065 436
Interest expense (net) .......... (77,385) (41,782) (187,383) ( 221,139)
Miscellaneous expenses .......... (49,417) (32,547) (69,106) (42,547)
------------- ------------ ------------- ------------
Non-Operating Income (Expense) ....... (116,333) (74,226) (158,424) ( 263,250)
------------- ------------- ------------- -----------
Net Loss ............................$ (814,976) $ (947,860) $ (2,124,599) $ (1,866,047)
========== ============== =============== ===============
Loss per Common Share ........... (0.09) $ (0.19) $ (0.26) $ (0.41)
=========== ============== =============== ==============
Weighted Average Number of
Common Shares Outstanding .. 8,824,380 5,061,977 8,164,100 4,539,511
</TABLE>
See notes to consolidated financial statements
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1999 1998
Cash Flows from Operating Activities
Net income (loss) ..................... $ (2,124,599) $ (1,866,047)
Adjustments to net income (loss)
Depreciation and Amortization ....... 139,694 235,414
Loss on disposition of certain assets 8,993 7,776
Decreases (increases) in Assets
Accounts receivable .................. 68,281 (97,443)
Inventories .......................... 17,827 (57,481)
Prepaid advertising .................. 0 (388,275)
Prepaid expenses ..................... (121,527) 19,935
Other assets ......................... 1,852 450
Increases (decreases) in Liabilities
Accounts payable and accrued expenses (711,686) 227,912
-------------- ---------------
Net Cash Provided (Used) by Operating Activities (2,721,165) (1,675,815)
Cash Flows from Investing Activities
Rolina & Vanity acquisition ............... 0 (1,455,390)
Investment Input Technologies ............. 0 (60,000)
Disposition investment Input Technologies .. 60,000 0
Capital expenditures (net) ................. (2,606) (160,425)
------- -------------
Net Cash Provided (Used) by Investing Activities 57,394 (1,628,511)
Cash Flows from Financing Activities
Proceeds from notes payable .............. 1,247,235 225,000
Conversion of equity subscriptions ....... 0 (275,000)
Repayment of loans and notes ............. (293,200) (295,000)
Repayment of long-term debt .............. (52,000) (149,474)
Accrual of contingent liability .......... 374,890 0
Issuance of common stock ................. 1,380,031 4,146,992
------------- --------------
Net Cash Provided (Used) by Financing Activitie 2,656,956 3,652,518
Net Increase (Decrease) in Cash ............... (6,815) 58,544
Cash at Beginning of Period ................... 9,403 4,546
-------- ----------
Cash at End of Period ........................ $ 2,588 $ 63,490
================= ============
See notes to consolidated financial statements
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
DESCRIPTION OF BUSINESS
Magnitude Information Systems, Inc. (the "Company" or "Magnitude") was
incorporated as a Delaware corporation on April 19, 1988 under the name
Fortunistics Inc. On March 4, 1993, the Company changed its name to
Whitestone Industries, Inc. On July 14, 1997, the Company changed its
name to Proformix Systems, Inc., and 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 "Magnitude EMS" (Ergonomic
Management System) which are designed to help individual computer users
and businesses deal with 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 package 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.
BACKGROUND
On June 24, 1997, the Company, Royal Capital, Inc., and Proformix,
Inc., a Delaware corporation and manufacturer of ergonomic keyboarding
systems, entered into an Acquisition Agreement. Proformix, Inc. in
November 1998 changed its name to Magnitude, Inc. and is hereafter
referred to as Magnitude, Inc. Pursuant to the June 1997 Acquisition
Agreement, Magnitude Inc. shareholders were offered 1 share of the
Company's common stock for every 3.4676 shares of Magnitude, Inc.
common stock, and 1 share of preferred stock for every 1 share of
Magnitude, Inc. preferred stock. At the time of this submission,
holders of approximately 98% of Magnitude, Inc. common stock have
tendered their shares in exchange for Magnitude Information Systems,
Inc. common shares. The remaining 2% of Magnitude, Inc.
stockholders hold a minority interest which is valued at $0. For
accounting purposes, the acquisition has been treated as an
acquisition of Magnitude Information Systems, Inc. by Magnitude, Inc.
and a recapitalization of Magnitude, Inc.. As a result, 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 February 2, 1998, the Company entered into an Agreement and Plan of
Merger with Rolina Corporation, a privately held New Jersey software
developing firm, and on April 30, 1998, into an Asset Purchase
Agreement with Vanity Software Publishing Co., a Canadian developer of
specialized software, whereby the Company, in return for payments in
form of cash and equity, acquired the rights to certain software
products and related assets, with such software products subsequently
forming the basis for the further development during the year of the
Company's proprietary "Magnitude EMS" (Ergonomic Management System)
software product. The "Magnitude EMS" system was introduced to the
market in November 1998 and has since been expanded and enhanced
through newer releases.
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
On November 18, 1998, the Company and its wholly owned subsidiary
Magnitude, Inc. entered into an Asset Purchase Agreement and several
related agreements with 1320236 Ontario Inc. ("OS"), a publicly traded
Canadian designer, manufacturer and distributor of office furniture
based in Holland Landing, Ontario, Canada, pursuant to which OS
acquired Magnitude, Inc.'s hardware product line comprised of ergonomic
keyboard platform products and accessories, and all related inventory
and production tooling and warehousing assets, and all intellectual
property rights including the Proformix name, against a cash
consideration and an ongoing contingent stream of royalty payments on
OS' sales of the Proformix hardware products. The Agreement with OS
also provided for the retirement of the Company's then existing bank
debt, out of the proceeds of the transaction. Further details regarding
this transaction may be obtained from the Company's related filing of
February 9, 1999, on Form 8-K, incorporated herein by reference. With
the sale of the hardware product line, the Company's business is now
focused exclusively on the further development and marketing of its new
software products. The Company has not yet realized material revenues
from licensing its software, and must currently be considered an
enterprise in transition (see Item 2: "Management's Discussion and
Analysis").
Magnitude Inc.'s wholly owned subsidiary, Corporate Ergonomic
Solutions, Inc. (Ergonomics) was incorporated in the State of New
Jersey during October 1992. Ergonomics, which commenced operations in
September 1997, was formed primarily to market hardware products. Its
operations during 1998 and 1999 have not been significant.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
Magnitude Information Systems, Inc. and its subsidiaries,
Magnitude, Inc. and Corporate Ergonomic Solutions, Inc.
All significant intercompany balances and transactions have been
eliminated.
Inventories
Inventory consists of finished goods which 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 5-10 years. Maintenance and repairs are charged to
operations as incurred. Software assets acquired pursuant to the Rolina
and Vanity agreements are amortized on the straight line method over 10
years.
Securities Issued for Services
The Company accounts for stock and stock options issued for services by
reference to the fair market value of the Company's stock on the date
of stock issuance or option grant. Compensation expense is recorded for
the fair market value of the stock issued, or in the case of options,
for the difference between the stock's fair market value on the date of
grant and the option exercise price. 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
consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable.
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
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, the benefit for income taxes has
been offset entirely by a valuation allowance against the related
deferred tax asset for the periods ended September 30, 1999.
Notwithstanding the above, the Company has filed an application with
the New Jersey Economic Development Authority who administers the
current New Jersey Tax Certification program pursuant to the New Jersey
Emerging Technology and Biotechnology Financial Assistance Act to
qualify for and be the beneficiary of this program which will permit a
participant to liquidate its State NOL tax benefits against cash
considerations.
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 hardware product sales is recognized at the time of
shipment provided that the resulting receivable is deemed probable of
collection. Revenue from the licensing of proprietary software products
is recognized at the time of licensing provided that the resulting
receivable is deemed probable of collection.
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.
PREPAID EXPENSES
Prepaid expenses include a position of $375,000 resulting from an
agreement in February 1998 with BNN Business News Network Inc., a
nationwide media advertising and radio network company, whereby the
Company purchased advertising time to be utilized on stations
associated with Business News Network Inc., usable over a period of
three years and aggregating $900,000 in retail value, against issuance
of 150,000 new and restricted common shares. The services purchased
were capitalized at the then fair market value of the stock issued, for
a total of $375,000. The resulting asset will be amortized as utilized,
over the time frame of the next eighteen months. As per the date of
this report, no portion of this asset has been utilized. Management
believes that the Company will derive economic benefits commensurate
with the value of this asset. If management determines that these
assumptions are incorrect or that it may not be able to economically
utilize the entire amount during the time allotted, it will effect an
accelerated amortization or write-down of this asset position.
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
OTHER ASSETS
During a meeting of the Board of Directors on September 7, 1999, it was
determined that the Company accept an offer from a third party to acquire
its equity investment in Input Technologies Inc. for a consideration of
approximately $20,000. This investment was carried on the books at $60,000
, however, in management's opinion the change in the Company's business in
connection with the November 1998 sale of its former hardware product line,
and the current financial condition of Input Technologies Inc.
warrant the divestiture.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September 30,
1999:
Equipment $ 157,520
Furniture and fixtures 64,184
Leasehold improvements 45,770
--------------
267,474
Less accumulated depreciation 156,119
--------------
Total $ 111,355
==============
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at September
30, 1999:
Accounts payable $ 329,657
Accrued interest 325,158
Accrued commissions 47,474
Accrued salaries and professional fees 131,299
Miscellaneous accruals 70,193
=============
Total $ 903,781
=============
LOANS AND NOTES PAYABLE
At September 30, 1999, Magnitude, Inc. and the Company had borrowings
under short term loan agreements with the following terms and conditions:
Pursuant to three promissory notes signed throughout
1995 and 1996, an investor $ 119,735
advanced Magnitude, Inc. a total of $90,000
payable upon demand with interest at 12% per
annum. In July 1999, these obligations and
accrued interest were converted into a new
promissory note maturing February 2000.
<PAGE>
On December 4, 1996, Magnitude, Inc. repurchased the
equivalent of 144,192 shares 75,000
of itscommon 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
September 30, 1999 and no demand for payment has been
made through today's date.
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
LOANS AND NOTES PAYABLE continued
Pursuant to the Rolina Corporation Agreement &
Plan of Merger dated February 2, 1998 100,000
the Company was to deliver to Steven D. Rudnik,
current President and CEO of the Company, $100,000
eight months from the closing date. This
indebtedness has been recast as a promissory note
maturing 10/1/99 and accruing interest at 10% p.a..
In consideration of the indebtedness, Mr. Rudnik has
a lien on certain software products owned by the Company.
Note to the board chairman, principal due May 31, 2000,
accruing interest at a rate of 351,060
10% per annum. This note is secured by all of Magnitude
Inc.'s assets and property and is guaranteed by the
Company.
Private Placement Offering: During February
through June 1995, an underwriter acting as 1,475,000
placement agent, on behalf of Magnitude, Inc., in
a private placement offering, placed an
aggregate 16 units, each consisting of a $100,000,
12% promissory note and 10,000 shares of Magnitude,
Inc.'s common stock. The promissory notes were
originally due on the earlier of 12 months from their
issuance or the completion of a public or private
financing of either debt or equity securities of
Magnitude, Inc., and were subsequently extended
for an additional 6 months, and further by an
additional 9 months. In May 1997 a restructuring
agreement caused $1,075,000 of these notes to be
extended and modified to, among other, mature by
April 30, 2000. Two such notes, however, totaling
$200,000 were extended and modified to, among other,
mature on dates ranging from October 1, 1998
through April 30, 2000. The total amount of notes
outstanding at September 30, 1999 was
$1.475,000.
Convertible promissory notes issued to seven 850,000
individual private accredited investors accruing
interest at 7% p.a. and maturing during the third
quarter 2000. The notes provide the holders with
the option to convert part or all of the outstanding
principal amounts into shares of the common stock
of the Company at the rate of $0.50 per share.
Promissory note issued to a member of the board 190,227
of directors of the Company, carrying interest
at 12% p.a. and maturing July 2000, convertible
at the holders' option into shares of the common
stock of the Company at the rate of $0.50 per share.
The note as originally issued for $200,000 with
$9,773 since repaid.
--------------
Total $ 3,161,022
==============
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
ACCRUED CONTINGENT LIABILITY
Pursuant to the February 2, 1998, Agreement and $ 374,890
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 5:00 p.m. on the 90th day thereafter.
In view of the relative proximity of the exercise
period of the option and the fact that the market price
for the Company's shares currently is significantly
lower than the option put price, the entire amount has
been recognized as an accrued contingent liability.
LONG-TERM DEBT
Long-term debt as of September 30, 1999 is comprised of the following:
Convertible promissory note issued to a private $ 175,000
accredited investor accruing interest at 7%
p.a. and maturing during the fourth quarter
2000. The note provides the holder with the
option to convert part or all of the outstanding
principal amounts into shares of the common
stock of the Company at the rate of $0.50 per share.
Discounted present value of a non-interest bearing
$70,000 settlement with a former investor $ 33,529
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.
INCOME TAXES
At December 31, 1998, the Company had net operating
loss carry forwards approximating $ 8,900,000
which expire between the years 2008 and 2013 and
are subject to certain annual limitations.
The Company's total deferred tax asset and valuation allowance
at December 31, 1998 are as follows:
Total deferred tax asset $ 3,560,000
Less valuation allowance 3,560,000
Net deferred tax asset $ -
================
COMMITMENTS AND CONTINGENCIES
Lease Agreement
Magnitude, Inc. leases its administrative offices pursuant to a lease
agreement dated December 9, 1998. Such lease commenced December 16, 1998
and expires on December 31, 2001 and requires monthly payments of $3,700
from December 16, 1998 to October 31, 1999 and $3,250 from November 1, 1999
to December 31, 2001.
Licensing Agreement
Pursuant to an August 29, 1997 letter of intent, the Company may acquire
Cornell Ergonomics ("Cornell"), a software developer of a unique ergonomic
assessment tool. This agreement was subsequently revised on December 1,
1997 through a Software Distribution and Option Agreement whereby the
Company obtained a two-year exclusive license to distribute and sub-license
a certain software product and obtained the exclusive right, under certain
circumstances, to purchase either the assets of Cornell or all of the
issued and outstanding capital stock of Cornell.
<PAGE>
RELATED PARTY TRANSACTIONS
-- None .
CHANGES IN KEY PERSONNEL
In July 1999, J. Swon and B. Deichl resigned from the Company's Board of
Directors.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
New Software Business and Results of Operations:
Effective with the sale of the hardware business in November 1998 to Office
Specialty (see "Background" in Notes to Financial Statements) no further
revenues were being generated from this product line, aside from royalties on
third party revenues from the sales of such hardware products which amounted to
$10,469 for the quarter and which are included in non-operating income. In the
aftermath of the Office Specialty transaction, the Company's revenue base is
being supplied solely by the licensing of the Company's proprietary software.
The Company has not yet realized material revenues from licensing its software,
and must currently be considered an enterprise in transition. The software
business accounted for less than 3% of total revenues during 1998 or $72,486. A
comparison of revenues to last year's fiscal quarters therefore is not
meaningful. Comparisons of operating expenses likewise are of limited
usefulness, and will therefore only be made where appropriate.
The Company is currently introducing to the market its new Magnitude EMS(TM)
("Ergonomic Management System") suite of software products. This unique product
is the first integrated suite of software tools that provides a complete system
for evaluation and management of ergonomic risk factors for the computer
workplace. The software also provides an effective productivity measuring tool
that can make a verifiable difference in any company's bottom line. The
Company's proprietary software products are designed to help businesses deal
with potentially preventable repetitive stress injuries, by real-time monitoring
of keyboarding activities, pro-active dialog with at-risk employees, and
strategic profiling and management of computer use throughout an organization. A
significant step towards introducing EMS to the a large number of potential
corporate users was a 1998 joint venture agreement with AON Ergonomic Services,
a division of AON Worldwide Resources, to market and sell this product. During
the quarter, this agreement has been renewed and expanded.
The sales cycle for larger projects involving software related products is
relatively long, and while the Company is investigating strategies to shorten
it, the new products are not expected to yield significant new revenues before
the end of this fiscal year and the first two quarters of the next year.
Revenues during the quarter ended September 30, 1999, totaled $52,250 and were
supplied primarily from what the Company classifies as "pilot projects".
Typically, in view of the new-ness of product and market, a client initially
purchases a license for a "pilot version" of the software, functionally complete
but limited to a smaller number of users. After undergoing a process of
familiarization and evaluation the client is expected to upgrade to the intended
ultimate number of users which, by definition, should encompass all personnel
exposed to the above described risks. Currently, more than 100 companies in a
broad cross selection of industries, among them Insurance, Risk Management,
Financial Institutions, Oil & Energy, Technology, and Transportation as well as
several State and Federal agencies and several companies in the UK and Brazil,
are at various stages of evaluating the Magnitude EMS software. Many such tests
and evaluations by third parties have confirmed to the Company's satisfaction
that its product is mature, stable, and effective. It is with a high degree of
confidence, therefore, that the Company expects many of the ongoing trial
installations to lead to larger enterprise orders during the periods to come and
thereby to the targeted revenue stream, despite some delays that must be
anticipated as a consequence of potential clients postponing decisions involving
software acquisitions, due to the "Year-2000" phenomenon. Even though, the
Company in October 1999 posted its best month ever, with $61, 000 in revenues,
as a result of the conversion of a pilot program by a client, in this case
one of the world's largest drug development services companies.
Software assets underlying the Company's products are being amortized on a
straight line over 10 years, resulting in a level charge of approximately
$12,000 per month to cost-of-goods-sold. Selling expenses amo unted to $210,383
and general and administrative expenses totaled $499,253 for the quarter,
roughly equal to the preceding 3-months period. The relatively large amount of
G&A expenses is attributable to the fact that most of the Company's operating
expenses currently have fixed or quasi-fixed character covering the cost of
maintaining an operational infrastructure required for the business. The
operating results for the quarter ended September 30, 1999, was a loss of
$698,643. The net loss for the quarter was $814,976 or $0.09 per share.
<PAGE>
Liquidity and Capital Resources
As a consequence of the operating losses the Company's liquidity remains
strained. The increase by approximately $1.5 million in the working capital
deficit during the quarter was primarily a consequence of a reclassification of
long-term liabilities to current status because of approaching maturities, and
the placement of convertible promissory notes with private investors for purpose
of raising working capital. Even though management is confident that - as a
consequence of anticipated first larger orders - the situation will improve
considerably during the next few quarters such development will be gradual and
its impact may be incremental. Thus, the need for additional cash to augment
working capital from outside sources to finance operations during the upcoming
quarters will persist.
During the quarter ended June 30, 1999, the Company completed the placement
of an aggregate $275,000 in convertible debt with accredited private investors
which, at the time of this submission has resulted in the receipt of
approximately the same amount in cash. This debt unless converted will mature
during the third and fourth quarter 2000. Anticipated future cash needs are
planned to be met from a variety of sources including relatively smaller
additional debt placements and a liquidation of unused NOL tax benefits pursuant
to the New Jersey Emerging Technology and Biotechnology Financial Assistance Act
which are expected to generate approximately $500,000 during the fourth quarter
1999 and the first quarter in 2000. In addition, the Company is currently
conducting exploratory discussions with several potential private investors with
respect to a larger financing transaction expected to be consumed during the
first quarter in 2000. While there can be no assurance that these efforts will
result in securing such funds on terms acceptable to the Company, management
expects to be able to meet cash needs throughout the rest of the year and
beyond, and to secure the financing necessary to support the expected vigorous
growth during the upcoming year.
<PAGE>
PART II - OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
In response to this item, reference is made to the Company's reports on Form
10-KSB for the year ended December 31, 1998, and on Forms 10-QSB for the
quarters ended March 31, 1999 and June 30, 1999 as previously submitted.
Item 2 ISSUANCE OF UNREGISTERED SECURITIES
On September 1, 1999, the Company issued 7,210 shares of its common stock to a
shareholder of Magnitude, Inc., f/k/a Proformix, Inc. in exchange for his 25,000
shares in Proformix, Inc., pursuant to the terms of the Company's stock exchange
offer of July 2, 1997.
During the second and third quarters of 1999 the Company received an aggregate
$1,225,000 in cash against issuance of convertible promissory notes in the same
aggregate amount, to eight individual accredited private investors pursuant to
transactions under Section 4 (2) of the Securities Act, all of them maturing at
14 months from date of issuance, convertible at the holders' option into shares
of the common stock of the Company at the rate of $0.50 /share, and carrying
interest at rates between 7% and 12% p.a. . A portion of such notes was
accompanied by stock purchase warrants for the purchase of an aggregate
1,450,000 shares at $1 per share, with such warrants being callable by the
Company under certain circumstances, if and when the market price reaches $2 per
share.
Item 3 DEFAULTS ON SENIOR SECURITIES - None
-----------------------------
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
(a) Exhibit 27 - Financial Data Schedule - is attached hereto.
(b) Reports on Form 8-K: - On July 19, 1991, the Company filed a report
on Form 8-K, informing about the results of a research test conducted
in collaboration with Cornell University. The project involved the
utilization of the Company's primary product, the "EMS Ergonomic
Management System" software product, in a typical office environment .
<PAGE>
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: November 11, 1999 By: _____/s/ Steven D. Rudnik___________
---------------------
Steven D. Rudnik
President and Chief Executive Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1999 FINANCIAL STATEMENTS OF MAGNITUDE INFORMATION SYSTEMS, INC.
AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000838796
<NAME> Magnitude Information Systems, Inc.
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<FISCAL-YEAR-END> Dec-31-1999
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<PERIOD-END> Sep-30-1999
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