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 March 31, 2000
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.)
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, $0.0001 par value,
outstanding as of March 31, 2000, was 14,591,980 shares.
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART 1 - FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited)
Consolidated Balance Sheet
- March 31, 2000 3
Consolidated Statements of Operations
- Three months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows
- Three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6 - 11
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 12 - 13
PART II - OTHER INFORMATION 14
SIGNATURES 16
2
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PART I - Item 1
MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, 2000
<S> <C>
Current Assets
Cash .....................................................................$ 1,427,184
Accounts receivable, net of allowance for
doubtful accounts of 76,111 ............................................... 152,008
Inventories ............................................................... 8,885
Deferred tax asset......................................................... 201,470
Prepaid expenses .......................................................... 419,490
-------------
Total Current Assets ................................................... 2,209,037
Property, plant and equipment, net of accumulated
depreciation of $153,910 ............................................... 107,679
Software, net of accumulated amortization of
$300,702 .............................................................. 1,206,648
Other assets .............................................................. 28,459
-------------
TOTAL ASSETS ................................................................... 3,551,823
========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses ..................................... 735,164
Dividends payable ......................................................... 15,601
Prepayments received ...................................................... 5,000
Loans and notes payable ................................................... 1,745,992
Current maturities long-term debt ......................................... 0
Current maturities lease obligations ...................................... 6,938
-------------
Total Current Liabilities .............................................. 2,508,695
Long-term debt, less current portion ...................................... 374,890
Lease obligations, less current portion ................................... 13,005
-------------
TOTAL LIABILITIES .............................................................. 2,896,590
STOCKHOLDERS' EQUITY
Preferred Stock, $0.001 par value, 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,
of which a combined total 294,440 shares are issued and outstanding 294
Common Stock, $0.0001 par value, 30,000,000 shares authorized,
14,591,980 shares are issued and outstanding............................... 1,459
Contributed capital ....................................................... 81,000
Additional paid-in capital ................................................ 12,671,091
Accumulated deficit ....................................................... (12,098,611)
------------
TOTAL STOCKHOLDERS' EQUITY...................................................... 655,233
TOTAL LIABILITIES AND EQUITY .................................................. $ 3,551,823
==========
</TABLE>
See notes to consolidated financial statements
3
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2000 1999
------------- -------------
Total Revenues ..................... 100,022 44,507
Cost of Goods Sold ............ 40,934 42,876
------------- -------------
Gross Profit ....................... 59,088 1,631
Selling expenses .............. 226,820 165,471
General & administrative expenses .... 522,286 421,975
----------- -----------
Operating Income (Loss) ................... (690,018) (585,815)
Miscellaneous income ................. 17,222 63,675
Interest expense (net) ............... (109,579) (51,837)
Miscellaneous expenses ............... (1,122) (13,685)
----------- -------------
Non-Operating Income (Expense) ............ (93,479) (1,847)
------------- -------------
Net Loss .................................. $ (783,497) $ (587,662)
========= ========
Loss per Common Share ..................... $ (0.06) $ (0.08)
======== =========
Weighted Average Number of
Common Shares Outstanding ............ 12,858,331 7,295,093
See notes to consolidated financial statements
4
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2000 1999
Cash Flows from Operating Activities
Net income (loss) ....................... $ (783,497) $ (587,662)
Adjustments to net income (loss)
Depreciation and Amortization ......... 48,07 45,794
Loss on disposition of certain assets . 1,122 0
Stock and debt issued for expenses..... 163,306 0
Payment of dividends................... (10,500) 0
Decreases (increases) in Assets
Accounts receivable ................... (91,885) 83,029
Miscellaneous receivables ............. 0 0
Inventories ........................... 0 0
Prepaid expenses ...................... (30,609) (161,075)
Other assets .......................... (26,000) (450)
Increases (decreases) in Liabilities
Prepayments received.................. 5,000 0
Accounts payable and accrued expenses . (115,932) (570,198)
------------- ------------
Net Cash Provided (Used) by Operating Activities (825,721) (1,190,562)
Cash Flows from Investing Activities
Purchases of equipment and fixtures ...... (18,738) 0
Disposition of property and equipment .... 3,358 0
------------- ------------
Net Cash Provided (Used) by Investing Activities 57,394 0
Cash Flows from Financing Activities
Proceeds from notes payable ................ 0 0
Conversion of equity subscriptions ......... 0 0
Repayment of loans and notes ...............(106,284) (184,177)
Repayment of long-term debt ................ 0 (19,500)
Issuance of common stock.................... 550,000 1,385,659
Issuance of preferred stock ...............1,575,000 0
------------- -------------
Net Cash Provided (Used)by Financing Activities 2,018,716 1,181,982
Net Increase (Decrease) in Cash ................1,177,615 (8,580)
Cash at Beginning of Period .................... 249,569 9,403
------------ -------------
Cash at End of Period ........................ $1,427,184 $ 823
=============== =============
See notes to consolidated financial statements
5
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 ErgoManager(TM) 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 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.
BACKGROUND
On June 24, 1997, the Company, extended a stock exchange offer
to the shareholders of Proformix, Inc., a Delaware corporation
and manufacturer of ergonomic keyboarding systems. Proformix Inc.
in November 1998 changed its name to Magnitude, Inc. and is now
referred to as Magnitude, Inc.. At the time of this submission,
holders of 98.5% of Magnitude, Inc. common stock have tendered their
shares. The business combination which took the form of a reverse
acquisition has been accounted for as a purchase. 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 ErgoManager(TM) software system.
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 the
Company's ergonomic keyboard platform products and accessories, 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.
6
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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 are amortized on the straight
line method over 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. 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 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 income tax purposes,
the benefit for income taxes has been offset entirely by a valuation
allowance against the related federal deferred tax asset for the year
ended December 31, 1999. For state income tax purposes, a partial
valuation allowance has been offset against the related state deferred
tax asset for the year ended December 31, 1999.
7
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
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
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.
DEFERRED TAX ASSET
During 1999, the Company had 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.
The Company has been accepted under this program and has been issued
tax transfer certificates which will, upon liquidation, result in a
cash benefit in the amount stated.
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.
8
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at March 31, 2000:
Equipment $ 151,635
Furniture and fixtures 64,184
Leasehold improvements 45,770
--------------
261,589
Less accumulated depreciation 153,910
--------------
Total $ 107,679
==============
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at March 31,
2000:
Accounts payable $ 141,263
Accrued interest 306,314
Accrued commissions 25,385
Accrued salaries and
professional fees 193,480
Miscellaneous accruals 68,722
=============
Total $ 735,164
=============
<TABLE>
<CAPTION>
LOANS AND NOTES PAYABLE
At March 31, 2000, Magnitude, Inc. and the Company had borrowings
under short term loan agreements with the following terms and
conditions:
<S> <C>
On December 4, 1996, Magnitude, Inc. repurchased the equivalent of $ 75,000
144,192 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
September 30, 1999 and no demand for payment has been made through today's
date.
Private Placement Offering: During February through June 1995, an 1,475,000
underwriter acting as 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.
</TABLE>
9
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
<TABLE>
<CAPTION>
LOANS AND NOTES PAYABLE continued
nine 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 March 31, 2000 was $1,475,000.
<S> <C>
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.
162,463
Promissory note issued to a member of the board of directors of the Company, carrying interest
at 12% p.a. and maturing July 2000, convertible at the holder'soption into shares of the
common stock of the Company at the rate of $0.50 per share. The note
was originally issued for $200,000 with $37,537 since repaid.
--------------
Total $ 1,745,992
==============
LONG-TERM DEBT
Pursuant to the February 2, 1998, Agreement and Plan of Merger with Rolina Corporation (see
"Background") the Company had issued 155,556 shares (the "Shares") of its common stock to the $ 374,890
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. This
current liability was converted into a promissory note maturing March 31, 2002, and carrying
interest at the rate of 7% per year payable monthly. The note includes an option to the holder
for conversion of the outstanding principal into shares of the Company's common stock at the
rate of $0.50 per share.
INCOME TAXES
At December 31, 1999, the Company had net operating loss carry forwards
approximating $11,300,000 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, 1999 are as follows:
Total deferred tax asset $ 4,240,000
Less valuation allowance 4,240,000
Net deferred tax asset $ -
================
</TABLE>
10
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
COMMITMENTS AND CONTINGENCIES
Lease Agreements
Magnitude, Inc. leases its administrative offices pursuant to a lease
agreement dated December 9, 1998. Such lease commences 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.
On March 15, 2000, the Company entered into a lease agreement for office
space. Such lease commences 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.
RELATED PARTY TRANSACTIONS
In January 2000, the Chairman of the Board of Directors resigned. In
connection with his resignation, $350,000 of the $900,000 principal amount
cumulative preferred shares held by him were exchanged for 700,000 shares
of common stock of the Company. The remaining principal balance of
$550,000 along with a promissory note totaling $351,060 were exchanged for
a $900,000 principal amount of a new series of convertible preferred
shares which have rights of 7% per annum dividend payments to be made
monthly. In connection with a termination agreement dated January 28, 2000
a restrictive covenant and confidentiality agreement was executed whereby
the Company agreed to pay this individual a monthly fee in the amount of
$5,555 over the 36 month term of that agreement along with this
individual's health and term life insurance for an 18 month period.
On March 31, 2000, the Company and its President and Chief Executive
Officer agreed to convert a current liability payable to him in the amount
of $374,890 into a convertible promissory note maturing March 31, 2002
(see "Long-term Liabilities").
CHANGES IN KEY PERSONNEL
In February 2000, Steven D. Rudnik was appointed Chairman of the
Board of Directors and Joseph J. Tomasek was elected as a director.
Mr. Tomasek also serves as the Company's general counsel. In April 2000,
Paul Chernis resigned as a director from the Board.
SUBSEQUENT EVENTS
On April 30, 2000, the Company retired an aggregate $1,050,000 current
notes payable by a combination of partial repayment and conversion of the
balance into common stock and convertible preferred stock (see "Management
Discussion and Analysis").
11
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
For the quarter ended March 31, 2000, the Company had gross revenues of
$100,022 compared to $44,507 for the same period in 1999, all such revenues
generated by the Company's wholly owned subsidiary Magnitude, Inc. from the
licensing of the Company's proprietary ErgoManager(TM) software. As in prior
periods, these revenues were largely composed of smaller orders for initial
pilot projects. Significantly, however, they also include a first order from a
Government agency to equip an entire department with the Company's ergonomic
software.
Gross profits amounted to $59,088 for a 59% gross margin. Gross profits
are burdened with a fixed charge for amortization of software investments.
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. Owing to the fact that variable
cost-of-goods-sold expenses are in the vicinity of only 5%, the gross margin is
expected to further increase as revenues grow. After deducting selling expenses
and general and administrative expenses of $749,106 the Company realized an
operating loss of $690,018 (compared to an operating loss of $585,815 for the
first quarter in 1999). Non-operating expenses, after taking into account
$17,222 income from royalties totaled $93,479 and include $65,113 net interest
expense and a $44,466 non-recurring charge for amortization of debt discount.
The net result for the quarter was a loss of $783,497 or $0.06 per share,
compared to a loss of $587,662 or $0.08 per share for the same period last year.
The operating results for the first three months of the fiscal year are
indicative of the present status of Magnitude as a company in transition, with
new products being introduced into emerging markets. The Company is undertaking
pioneering efforts in educating future customers and the business community at
large about the merits of a pro-active stance in dealing with the growing level
of health risks and potential liabilities associated with repetitive stress
injuries in the computer workplace environment. Management believes that these
efforts are justified by the potential rewards accruing from this "First to
Market" approach which should lead to a strong competitive advantage and a
sizable market share during the years to come.
The significant improvement in the Company's balance sheet and working
capital position effected during the first quarter will make it possible to
invest in a more comprehensive marketing campaign with the goal of accelerating
the education of potential clients. This task will become easier for the Company
as the general public becomes aware of the risks associated with poor posture
and work habits in the computerized work environment, and as the burden of
informing the public is taken up by certain State and Federal agencies in the
course of public discussion in connection with current proposals by OSHA. This
process, however, takes time and while management is confident of the ultimate
success of its strategy it is not in a position to predict the timing with any
degree of certainty. In addition, marketing efforts must take into account the
relatively long sales cycles typical for products such as those offered by the
Company. Software that has the potential of affecting a company's operations
especially where it impacts the utilization of human resources is subject to a
possibly larger degree of test, scrutiny, and committee decision making than
most other software products. Management therefore expects longer sales cycles
which may extend the transition period until a break-even sales volume is
achieved.
12
<PAGE>
As part of its overall marketing strategy, the Company negotiated
several joint venture-, joint marketing-, and distribution agreements with,
among others, AON Ergonomic Services (a division of insurance industry leader
AON Corporation), The Speech Centre Training Group (U.K.) , CapitalReps
(organization specializing in sales of computer products to the federal
government). In January 2000, Anderson Consulting LLP and the Company entered
into an agreement whereby Anderson will include the Company's products in their
prestigious "Ideas Exchange" showcase. This agreement is of special significance
because it will introduce the Company to a potentially large audience of key
corporate clients. In order to take advantage of the wide reach of the Internet,
the Company just completed a distribution agreement with a key e-commerce
marketer - Big Planet Inc., whereby Big Planet will offer the Company's products
directly to Internet users and through its vast network of independent
distributors.
Liquidity and Capital Resources
During the quarter, new equity investments through private placements
with accredited investors accompanied by the conversion of larger amounts of
debt into equity significantly improved the balance sheet of the Company and put
the Company on a more solid financial footing so that, at March 31, 2000,
stockholders' equity totaled positive $655,223 compared to a deficit in excess
of $2.2 Million at the end of the previous fiscal year. During the same time,
the working capital deficit was reduced from $3,541,257 to $299,658, a relative
improvement in excess of $3.2 Million.
In February, the Company had obtained a firm commitment from a previous
investor to act as placement agent for a capital raising effort to obtain new
equity capital of $3 Million through private placement subscriptions by
accredited investors. By March 31, 2000, the Company had received a total of $2
Million under this program. The remaining $1 Million is expected to be received
during the second quarter this year. In addition, the Company received a further
$200,000 from equity placements with other investors.
Parallel to attracting new capital in the form of equity investments,
the Company between January 1, 2000 and March 31, 2000 has converted an
aggregate of $1,510,795 short-term debt into equity and restructured $374,890
short-term liabilities into long-term convertible debt. Since then, a further
$711,500 of the remaining short-term debt was converted into equity which is not
yet reflected in the financial statements included herein.
These financing transactions more than offset the negative cash flow
from operations of approximately $825,000 during the quarter, primarily as a
consequence of losses incurred due to the absence of sufficient revenues, and
resulted in a cash position in excess of $ 1.4 Million at the end of the
quarter. The Company has no bank debt.
Management believes that these capital transactions provide for
adequate liquidity and financial resources sufficient to fund present and
anticipated future operations during the current fiscal year.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
The Company is not a party in any legal proceedings.
Item 2 CHANGES IN SECURITIES
c) Issuance of unregistered Securities
During the first quarter of 2000 and through May 8, 2000, the Company issued the
following unregistered securities:
(i) 118,000 shares of Common Stock to the principals of two privately
held companies, Internet Ergonomic Technologies, Inc. and Cornell Ergonomics,
Inc., purchased by the Company in January 2000, which companies owned certain
software assets which have been made part of and integrated into the Company's
proprietary ErgoManager(TM) software system
(ii) 81,383 shares of Common Stock to three outside consultants and
suppliers for services rendered;
(iii) 14,445 shares of Common Stock to a director and shareholder
of the Company pursuant to a 1997 transaction approved by the Board of
Directors of the Company;
(iv) 16,854 shares of Common Stock to an employee in lieu of salary, for
services rendered;
(v) 100,000 shares to an officer of the Company pursuant to the
terms of his employment agreement;
(vi) 2,380,000 shares of Common Stock pursuant to the conversion of an
aggregate $1,190,000 in convertible promissory notes, issued in reliance upon
exemptions provided under Section 4(2) of the Securities Act;
(vii) 160,000 shares of Common Stock to seven private investors who had
previously subscribed for certain convertible debt, such shares issued pursuant
to the terms of the pertinent subscription agreement, and in reliance upon
exemptions provided under Section 4(2) of the Securities Act;
(viii) 400,000 shares of Common Stock to two individual investors
pursuant to private placement subscriptions under Section 4(2) of the
Securities Act,which resulted in the receipt by the Company of $200,000 in cash;
(ix) 500,000 shares of Common Stock to three individual foreign
investors pursuant to private placement subscriptions under Section 4 (2) of the
Securities Act, which resulted in the receipt by the Company of $250,000 in
cash;
(x) 194,440 shares of Series B Senior Convertible Preferred Stock to
five individual foreign investors pursuant to private placement subscriptions
under Section 4 (2) of the Securities Act, which resulted in the receipt by the
Company of $1,750,000 in cash, whereby such shares, among other things, have the
following rights and privileges: (i) 7% annual preferential dividend, payable
semi-annually, (ii) conversion at the holders' option into shares of Common
Stock at a conversion rate equivalent to $0.90 per share, and (iii) callable by
the Company under certain terms and conditions;
14
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(xi) 100,000 shares of Series C Senior Convertible Preferred Stock to
the former chairman of the Company pursuant to the terms of a Resignation
Agreement entered into between the Company and this individual, whereby such
shares, among other things, have the following rights and privileges: (i) 7%
annual preferential dividend, payable monthly, (ii) conversion at the holders'
option into 1,000,000 shares of Common, and (iii) callable by the Company under
certain terms and conditions.
Item 3 DEFAULTS ON SENIOR SECURITIES - None
-----------------------------
Item 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITIES' HOLDERS
In a meeting on March 10, 2000, the Board of Directors of the Company
approved a resolution by which the date of the Annual Meeting of
Stockholders of the Company has bee set for May 18, 2000, with March
31, 2000, the date of record of stockholders entitled to vote at the
meeting. A copy of the proxy statement mailed to all stockholders of
record as of March 31, 2000 is attached hereto as Exhibit 22.
Item 5 OTHER INFORMATION - None
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit (3)(i) - Articles of Incorporation and Amendments
thereto, incorporated herein by reference to Exhibits of
previous filings with the Commission.
Exhibit (3)(ii) - By-laws of the Company, incorporated herein
by reference to Exhibits of previous filings with the
Commission.
Exhibit (4) - Instruments defining the Rights of Holders - On
January 31, 2000, the Company filed amendments to its
Certificate of Incorporation, designating from its "blank
check" preferred stock pool 300,000 shares as Series A Senior
Convertible Preferred Stock, par value $0.001; 350,000 shares
as Series B Senior Convertible Preferred Stock, par value
$0.001; and 120,000 shares as Series C Senior Convertible
Preferred Stock, par value $0.001. A copy of the designations
has been attached to the Company's report on Form 10-KSB for
the year ended December 31, 1999, as Exhibits 4.1, 4.2, 4.3,
which exhibits are included herein by reference.
Exhibit (22) - Notice of Annual Meeting dated April
21, 2000, and Proxy Statement - attached
hereto.
Exhibit (27) - Financial Data Schedule - attached hereto.
(b) Reports on Form 8-K: - None
15
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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: May 12, 2000 By: _/s/ Steven D. Rudnik_____
-----------------------------
Steven D. Rudnik
President and Chief Executive Officer
16
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MAGNITUDE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
EXHIBIT 22
Notice of Annual Meeting and Proxy Statement
To Our Shareholders
This is an exciting and dynamic time for Magnitude. Our marketplace is
poised for extraordinary growth and we have focused our efforts and
resources to position us to capture the lion's share of this new market.
Our solutions are in place, our team is in place and we are committed to
you, our partners.
This year we worked on sharpening and evolving our solutions to better
target our short-term and long-term markets and goals. We have:
o completed the expansion of our core software product, the
ErgoManager(TM) software system - this solution is market tested and
ready.
o developed strategic partnerships with several potential resellers and
influencers - creating the demand and channel for bringing our
solution to market.
o introduced key prospective clients to the ErgoManager(TM) product -
with many thousands of ErgoManager(TM) seats up and running
world-wide.
o restructured the company's balance sheet and have secured a
substantial amount of new equity capital to finance ongoing marketing,
sales and development efforts -- to give Magnitude the lead in our
market and keep us there.
o developed several valuable and proprietary new software products
related to Internet and e-Commerce usage - two important growth
markets.
We have set the stage to realize our goal of building a strong technology and
"solution" based business that creates substantial value for shareholders for
years to come.
We have carefully included our clients and partners in our development efforts,
listening to their needs and objectives. During the past year, we have started
more than 100 pilot programs, many of which are at Fortune 1000 corporations and
major government agencies.
Over 4,000 licenses are presently being used in these pilot programs --
our clients are reporting results that exceed their expectations.
Early in our development effort, our clients shared the positive impact on
productivity they attributed to smart ergonomics as measured by our products.
And our ErgoManager(TM) is the first suite of software solutions that help
businesses increase productivity by reducing employee fatigue and improving
their comfort while at the same time mitigating the health risks of repetitive
stress. This win-win combination of improved productivity and health benefits is
being realized by increasing numbers of pilot program customers. And for this
reason, many of these companies have already started deploying our software on a
broader scale throughout their organizations.
17
<PAGE>
In 2000, we are looking forward to very promising year. We have strengthened our
management team and added to our growing list of substantial partners. We have
expanded our relationship with Aon and entered into a highly coveted
co-partnering agreement with Andersen Consulting after a lengthy and thorough
evaluation of iur products and company. Early last year we identified a vast
marketplace of potential buyers who can significantly benefit from our products,
in various U.S. Government departments and agencies. A recently finalized
General Services Administration (GSA) contract will lower the barriers in
selling to the Government. To help us achieve our goals in this area we retained
the services of a specialized marketing organization based in Washington D.C.
We have brought our financial house in order. During the latter part of 1999
and, especially, during the first Quarter 2000, our efforts to retain our
shareholders' and investors' confidence in the Company's future have resulted in
a significant improvement of our balance sheet. Since January 2000 we have
received new equity capital in excess of $2 Million and commitments for a
further $1 Million, and we are in the process of converting debt exceeding $2
Million in the aggregate, into equity.
During the past year we have received our first patent which will protect the
valuable intellectual property underlying our core ergonomic product
technologies. We have other applications pending with the US Patent and
Trademark office and will continue to protect our proprietary and valuable
technology assets.
We have relentlessly, systematically and methodically moved our business
strategy forward as we bring our Ergonomic Software solutions to market. We have
laid the needed infrastructure to secure a "first to market" position and the
lion share of the new markets to come. Our investment in R&D will continually
keep us two steps ahead of the competitors that will surely follow our lead into
this market.
We firmly believe that we have created the foundation for a successful and
profitable future for Magnitude. We could not have done so without the
contribution and support of you, our shareholders. For that, I wish to express
our gratitude.
Steven D. Rudnik
Chairman, President and
Chief Executive Officer
April 21, 2000
18
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC.
401 Route 24
Chester, New Jersey 07930
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
TIME . . . . . . . . . . . . . . 10:00 a.m. eastern time, May 18, 2000
PLACE. . . . . . . . . . . . . . Newark Airport Marriott Hotel
Newark International Airport
Newark, New Jersey
ITEMS OF BUSINESS. . . . . . (1) To vote on the nominees for election to the
Board of Directors, whose terms are described
in the proxy statement.
(2) To approve an amendment to the certificate
of incorporation to increase the number of
authorized common shares from 30,000,000
to 100,000,000.
(3) To approve and ratify the adoption of the
Company's 2000 Stock Incentive Plan.
(4) To ratify the appointment of Rosenberg Rich
Baker Berman & Company as independent
auditors of the Company for the fiscal year
ending December 31, 2000.
(5) To transact such other business as may
properly come before the meeting or any
adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. Only stockholders of record at the close of
business on March 31, 2000 are entitled to notice of and to vote at the meeting
or any adjournment or postponement thereof. A copy of the Company's 1999 Annual
Report on Form 10-KSB, which is not a part of the proxy soliciting material, is
enclosed. Whether or not you expect to attend the meeting, please complete,
date, sign and promptly return the accompanying proxy in the enclosed
postage-paid envelope so that your shares may be represented at the meeting.
By Order of the Board of Directors
-----------------------------
Joerg H. Klaube, Secretary and
Chief Financial Officer
19
<PAGE>
MAGNITUDE INFORMATION SYSTEMS, INC.
Annual Meeting of Stockholders - May 18, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby acknowledges receipt of the notice of annual
meeting of stockholders of Magnitude Information Systems, Inc., to be held at
the Newark Airport Mariott Hotel, Newark International Airport, Newark, New
Jersey, on May 18, 2000, beginning at 10:00 a.m., Eastern Time, and the proxy
statement in connection therewith, and appoints Steven D. Rudnik, Joseph J.
Tomasek and Joerg H. Klaube, or any of them as proxies, with full power of
substitution, to vote as directed all shares of common stock of Magnitude
Information Systems, Inc. standing in the name of the undersigned, or with
respect to which the undersigned is entitled to vote and act, at the meeting and
at any adjournment thereof. If this card contains no specific voting
instructions, this proxy will be voted FOR the election of the director nominees
in item 1, and FOR the Directors' proposals in items 2, 3, and 4. This proxy
authorizes each of the persons named above to vote at his or her discretion on
any other matter that may properly come before the meeting or any adjournment
thereof.
1. ELECTION OF DIRECTORS--The Board of Directors recommends a vote "FOR"
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for the nominees
listed below
Nominees: Steven D. Rudnik, John C. Duncan, Joseph J. Tomasek,
Ivano Angelastri, Steven L. Gray
(Instruction: To withhold authority to vote any individual nominee, write
that nominee's name on the line provided below.)
---------------------------------------------------------------------------
2. DIRECTORS' PROPOSAL--To Approve an Amendment to the Certificate of
Incorporation to Increase Authorized Common Stock from 30,000,000
Shares to 100,000,000 Shares.
/ / FOR / / AGAINST / / ABSTAIN
3. DIRECTORS' PROPOSAL--To Approve and Ratify the Adoption of the Company's
2000 Stock Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
4. DIRECTORS' PROPOSAL--To Ratify the Appointment of Rosenberg Rich Baker
Berman & Company as Independent Auditors of the Company for the Fiscal
Year Ending December 31, 2000.
/ / FOR / / AGAINST / / ABSTAIN
The undersigned hereby revokes any proxy heretofore given to vote or act with
respect to the common stock of Magnitude Information Systems, Inc. and hereby
ratifies and confirms all that the proxies, their substitutes, or any of them
may lawfully do by virtue hereof. If more than one of the proxies named shall be
present in person or by substitute at the meeting or at any adjournment thereof,
the majority of the proxies so present and voting, either in person or by
substitute, shall exercise all of the powers hereby given.
Please date, sign and mail this proxy in the enclosed envelope.
No postage is required. Date __________________________, 2000
------------------------------------
Signature of Stockholder
------------------------------------
Signature of Stockholder
20
<PAGE>
Please sign exactly as name or names appear on
this proxy. Where there is more than one owner,
each should sign. When signing as attorney,
executor, administrator, trustee, custodian, guardian
or corporation officer, give full title. If more
than one trustee, all should sign.
Votes MUST be indicated (x) in Black or Blue Ink.
21
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Page
PROXY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Proxies and Voting Procedures . . . . . . . . . . . . . . . . . 4
Stockholders Entitled to Vote . . . . . . . . . . . . . . . . . 4
Required Vote . . . . . . . . . . . . . . . . . . . . . . . . . 4
Cost of Proxy Solicitations . . . . . . . . . . . . . . . . . . 4
Stockholder Communications . . . . . . . . . . . . . . . . . . . 5
Stockholder Account Maintenance . . . . . . . . . . . . . . . . . . . . . 5
GOVERNANCE OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . 6
Committees of the Board of Directors . . . . . . . . . . . . . . 6
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . 6
Relationship with Independent Public Accountants . . . . . . . . . . . . 6
PROPOSAL 1: ELECTION OF BOARD OF DIRECTORS . . . . . . . . . . . . . . 6
Share Ownership of Management, Directors and Nominees . . . . . 8
PROPOSAL 2: APPROVAL OF AMENDMENT TO CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED
COMMON STOCK . . . . . . . . . . . . . . . .. . . . 10
PROPOSAL 3: APPROVAL OF THE ADOPTION OF THE COMPANY'S
2000 INCENTIVE STOCK PLAN . . . . . . . . . . . . . 11
Purpose of the Proposal . . . . . . . . . . . . . . . . . . . . 11
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Purpose of the Plan . . . . . . . . . . . . . . . . . . . . . . 12
Administration of the Plan . . . . . . . . . . . . . . . . . . 12
Eligibility to Receive Awards . . . . . . . . . . . . . . . . . 12
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Stock Grants and Stock Purchase Rights . . . . . . . . . . . . . . . 13
Stock Appreciation Rights . . . . . . . . . . . . . . . . . . . 13
Transferability of Awards . . . . . . . . . . . . . . . . . . . 14
Certain U.S. Federal Income Tax Consequences . . . . . . . . . 14
Amendment and Termination of the Plan . . . . . . . . .. . . . 15
PROPOSAL 4: RATIFICATION OF THE APPOINTMENT OF
ROSENBERG RICH BAKER BERMAN & COMPANY
AS INDEPENDENT AUDITORS OF THE COMPANY
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000 . . . 16
STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . 16
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EXHIBIT A: MAGNITUDE INFORMATION SYSTEMS, INC.
2000 STOCK INCENTIVE PLAN . . . . . . . . . . . . . . 18
22
<PAGE>
PROXY STATEMENT
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
We are providing these proxy materials in connection with the
solicitation by the Board of Directors of Magnitude Information Systems,
Inc., (the "Company") of proxies to be voted at the Company's 2000 Annual
Meeting of Shareholders and at any meeting following adjournment thereof.
You are cordially invited to attend the annual meeting on
May 18, 2000 beginning at 10:00 a.m. E.D.T. Stockholders will be
admitted beginning at 9:30 a.m. E.D.T. The meeting will be held at
the Newark Airport Marriott Hotel, Newark International
Airport, Newark, New Jersey.
You will need a proxy card to enter the meeting. If you are a
stockholder of record the proxy card will have been sent to you. If your
shares are held by your broker in street name, you will need to obtain
your proxy card from your broker. If you plan to attend the meeting in
person, please retain the proxy card.
We are mailing this proxy statement and accompanying forms of proxy and
voting instructions to holders of the Company's common stock on March 31,
2000.
PROXIES AND VOTING PROCEDURES
YOUR VOTE IS IMPORTANT. Because many Stockholders cannot attend the
meeting in person, it is necessary that a large number be represented by
proxy. Most Stockholders will cast their votes by completing a proxy card
and mailing it in the postage-paid envelope provided.
You can revoke your proxy at any time before it is exercised by timely
delivery of a properly executed, later-dated proxy or by voting by ballot
at the meeting. By providing your voting instructions promptly, you may
save the Company the expense of a second mailing.
The method by which you vote will in no way limit your right to vote at
the meeting if you later decide to attend in person. If your shares are
held in the name of a bank, broker or other holder of record, you must
obtain a proxy, executed in your favor, from the holder of record, to be
able to vote at the meeting.
All shares entitled to vote and represented by properly completed
proxies received prior to the meeting and not revoked will be voted at the
meeting in accordance with your instructions. IF YOU DO NOT INDICATE HOW
YOUR SHARES SHOULD BE VOTED ON A MATTER, THE SHARES REPRESENTED BY YOUR
PROPERLY COMPLETED PROXY WILL BE VOTED AS THE BOARD OF DIRECTORS
RECOMMENDS.
If any other matters are properly presented at the annual meeting for
consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time or place, the persons named as proxies
and acting thereunder will have discretion to vote on those matters
according to their best judgment to the same extent as the person
delivering the proxy would be entitled to vote. At the date this proxy
statement went to press, we did not anticipate that any other matters
would be raised at the meeting.
STOCKHOLDERS ENTITLED TO VOTE
Stockholders at the close of business on the record date are entitled
to notice of and to vote at the annual meeting.
On March 31, 2000, there were 14,591,980 shares of common stock
outstanding. Each share is entitled to one vote on each matter properly
brought before the meeting.
23
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In accordance with Delaware law, a list of Stockholders entitled to
vote at the meeting will be available at the location of the Annual
Meeting on May 18, 2000, and for 10 days prior to the meeting, between the
hours of 9:00 a.m. E.D.T. and 4:00 p.m.
at the Company's offices.
REQUIRED VOTE
The presence, in person or by proxy, of the holders of a majority of
the shares entitled to vote generally for the election of Directors is
necessary to constitute a quorum at the meeting. Abstentions and broker
"non-votes" are counted as present and entitled to vote for purposes of
determining a quorum. A broker "non-vote" occurs when a nominee holding
shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect
to that item and has not received instructions from the beneficial owner.
A plurality of the votes duly cast is required for the election of each
Director. Abstentions and broker "non-votes" are not counted for purposes
of the election of a Director.
The affirmative vote of the holders of a majority of the outstanding
common shares entitled to vote is required to approve the Directors'
proposal to increase the number of authorized common shares, to ratify and
approve the adoption of the Company's 2000 Stock Incentive Plan and to
ratify the appointment of Rosenberg Rich Baker Berman & Company as the
Company's independent auditors for the fiscal year ending December 31,
2000.
COST OF PROXY SOLICITATION
The Company will pay the cost of soliciting proxies. Proxies may be
solicited on behalf of the Company by Directors, officers or employees of
the Company in person or by telephone, facsimile or other electronic
means. We estimate the cost of preparing and mailing this Proxy Statement
to all stockholders of record and to brokerage firms who hold our shares
in street name to be approximately $5,000.
In accordance with the regulations of the Securities and Exchange
Commission, the Company will also reimburse brokerage firms and other
custodians, nominees and fiduciaries for their expenses incurred in
sending proxies and proxy materials to beneficial owners of Company stock.
STOCKHOLDER COMMUNICATIONS
As a stockholder, your comments pertaining to any aspect of Company
business are welcome. Space is provided for this purpose on the proxy card
given to Stockholders of record. Although stockholder comments are not
answered on an individual basis, they do assist us in understanding the
concerns of Stockholders.
STOCKHOLDER ACCOUNT MAINTENANCE
Our transfer agent is Securities Transfer Corporation, 16910 Dallas
Parkway, Dallas, Texas 75248, telephone: 972-447-9890. All communications
concerning accounts of Stockholders of record, including address changes,
name changes, inquiries as to requirements to transfer Company stock and
similar issues can be handled by calling our transfer agent.
25
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GOVERNANCE OF THE COMPANY
----------------------------------------------------------
Pursuant to the Delaware General Corporation Law and the Company's
by-laws, THE COMPANY' business, property and affairs are managed under the
direction of the Board of Directors. Members of the Board are kept
informed of the Company's business through discussions with the Chairman
and officers, by reviewing materials provided to them and by participating
in meetings of the Board.
During fiscal 1999, the Board held 20 meetings. The average
attendance in the aggregate of the total number of Board meetings was 5.
COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1999, the Board of Directors had no committees.
Under the by-laws, nominations for Director may be made only by the Board.
COMPENSATION OF DIRECTORS
Each non-employee Director received an option to purchase 40,000 shares
of the Company common stock.. The exercise price per share under the options
granted during 1998 and 1999 was $1.00. Options generally vested in annual
successive 25% tranches beginning on the first anniversary date of grant.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Upon review of its work product and in recognition of its high quality
of professional services rendered, the Board has reappointed Rosenberg Rich
Baker Berman & Company the independent public accounting firm to audit our
financial statements for the fiscal year beginning January 1, 2000.
Representatives of Rosenberg Rich Baker Berman & Company will be
present at the meeting. They will be given the opportunity to make a statement
if they desire to do so, and they will be available to respond to appropriate
questions.
PROPOSAL 1
ELECTION OF BOARD OF DIRECTORS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Board of Directors is currently comprised of five (5) members whose
terms expire at the Annual Meeting.
We have nominated Steven D. Rudnik, John C. Duncan,
Joseph J. Tomasek, Ivano Angelastri and Steven L. Gray for one-year
terms that will expire at our next annual meeting in the year 2001.
You can find the principal occupations and other information
about these nominees below.
25
<PAGE>
The persons named in the proxy card intend to vote such proxy for the
election of all the nominees unless you indicate that your vote should be
withheld. They will not vote for additional directors. If elected, the
nominees will continue in office until their successors have been duly elected
and qualified, or until the earlier of their death, resignation or retirement.
We expect all nominees to be able to serve if elected.
The Board of Directors may, following the annual meeting, increase the
size of the Board and fill any resulting vacancy or vacancies. If the Board of
Directors increases the size of the Board and elects a new Director to fill
the resulting vacancy, the new Director must stand for election at the next
year's annual meeting.
NOMINEES
Steven D. Rudnik , Age 40 - President, CEO, and Director. Mr. Rudnik
joined the Company in February 1998 with the acquisition of Rolina Corporation,
co-founded by Mr. Rudnik in 1996, and was appointed President and Chief
Executive Officer, and elected to the Board, in January 1999. Mr. Rudnik has
extensive experience in software product development and an operational
background in software companies extending over the past 20 years. In 1983, Mr.
Rudnik joined Randall-Helms International, Inc. Over the next 13 years, he
conceived and developed four independent families of stock market modeling
software products aimed at the worldwide Institutional Investor market. Over
this time, these product families generated over $25 million in sales, to more
than 400 clients in 23 countries. Mr. Rudnik was Executive VP Development and
Partner at the time Randall-Helms was sold in 1995.
John C. Duncan , Age 42 - Executive Vice President. Until January
1999, Mr. Duncan was the Director of the Department of Industrial Relations
(DIR) of the State of California. In that capacity he was the principal advisor
to Governor Pete Wilson on labor and employment issues and served in his
cabinet. Mr. Duncan was instrumental in California becoming the first state to
enact ergonomic regulations to help protect workers from repetitive stress
injuries. As Director of the California DIR, Mr. Duncan supervised the Cal/OSHA
program and eleven other divisions of the State government, including the Labor
Commissioner's Office and the Division of Workers Compensation. He was
responsible for the supervision of 3,000 State employees and an annual budget of
$220 Million.
Joseph J. Tomasek , Age 53 - Director. Mr. Tomasek was appointed a
director in February 2000. He has been engaged in the private practice of
corporate and securities law in his own law firm for the last ten years.
Mr. Tomasek was appointed to serve as general counsel for the Company in
1999. In addition to his work with the Company, Mr. Tomasek represents
several other clients in the United States and Europe in corporate finance
matters.
Ivano Angelastri, age 37 years, is a resident of Zurich, Switzerland.
Mr. Angelastri has served as Managing Director of T&T Capital Trading, a
securities brokerage firm located in Zug, Switzerland, since January, 1999,
offering to select and institutional clients financial advisory and portfolio
management services. Prior to his current position, Mr. Angelastri served as
Managing Director of Megan Services where he also performed financial advisory
and portfolio management services.
Steven L. Gray, age 51 years, is a resident of Venice, Florida. For the
past 3-1/2 years, Mr. Gray has served as the President and is a shareholder of a
private Florida corporation engaged in the retail distribution of nutritional
products. This corporation has a customer base in nine countries. Prior to that
time, Mr. Gray ran his own real estate development company, specializing in the
design and construction of multi-family housing.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR STEVEN D. RUDNIK, JOHN C. DUNCAN,
JOSEPH J. TOMASEK, IVANO ANGELASTRI AND STEVEN L. GRAY FOR ELECTION AS
DIRECTORS.
26
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- - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SHARE OWNERSHIP OF MANAGEMENT, DIRECTORS AND NOMINEES
- - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - -
The following table sets forth information concerning the beneficial
ownership of the Company's common stock as of March 31, 2000, for: (a) each
Director and the nominee for Director; (b) each officer, including all executive
officers who are not also Directors; and (c) the Directors and officers as a
group. Except as otherwise noted, the named individual or family members had
sole voting and investment power with respect to such securities.
Title Name and Address of Amount and Nature of Percent
of Class Beneficial Owner Beneficial Ownership (1) of Class
- -------- ---------------- ------------------------ --------
Common Steven D. Rudnik 2, 302,778 (2) 13.98%
Stock President, Chief Executive
Officer and Director
John C. Duncan 210,000 (3) 1.42%
Senior Vice President
and Director
Joerg H. Klaube 100,100 (4) **
Chief Financial Officer
Peter J. Buscetto 56,667 (5) **
Director
Paul Chernis 30,000 (3) **
Director
Seymour Kroll 618,792 (6) 4.17%
Director
Howard G. Siegel 831,000 (7) 5.61%
Vice President for
Shareholder Relations
Joseph J. Tomasek 50,000 (3) **
Director
Address of all persons above: c/o the Company.
All Directors and Officers 3,774,411 21.78%
as a Group (8 persons)
Ivano Angelastri
Nominee for Director 1,050,000 (11) 6.89%
Steven L. Gray
Nominee for Director 757,600 (12) 5.11%
Michael G. Martin 1,750,000 (8) 10.91%
12 Tillman Ct.
Bridgewater, New Jersey
Schuerch Asset Management 1,533,900 (9) 10.06%
Tellstrasse 21, St.Gallen,
Switzerland
Viviana Partners, L.P. 1,260,000 (10) 8.40%
1 Sansome Str.,
San Francisco, CA
** less than 1%
- ----------------------------
(1) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any shares of Common Stock which such person has
the right to acquire within 60 days of March 28, 2000. For purposes of computing
the percentage of outstanding shares of Common Stock held by each person or
group of persons named above, any security which such person or persons has or
have the right to acquire within such date is deemed to be outstanding but is
not deemed to be outstanding for the purpose of computing the percentage
ownership of any other person. Except as indicated in the footnote to this table
and pursuant to applicable community property laws, the Company believes based
on information supplied by such persons, that the persons named in this table
have sole voting and investment power with respect to all shares of Common Stock
which they beneficially own.
(2) Includes deferred compensation of 150,000 shares, options to acquire
1,325,000 shares and conversion rights for appr. 750,000 shares.
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(3) Represents options to acquire the same number of shares; Mr. Chernis
resigned as a Director of the Company on April 17, 2000.
(4) Includes options to acquire 100,000 shares.
(5) Includes 22,222 shares held by an affiliate and options to acquire
20,000 shares.
(6) Includes options to acquire 129,866 shares and conversion rights for
approx. 325,000 Shares.
(7) Includes warrants for 424,000 shares.
(8) Includes options for 750,000 shares and preferred stock convertible
into 1,000,000 shares; Mr. Martin resigned as a Director and Officer
of the Company on January 28, 2000.
(9) Includes options and warrants for 1,023,900 shares.
(10) Includes warrants for 600,000 shares.
(11) Includes options and warrants for 650,000 shares.
(12) Includes options and warrants for 240,000 shares.
PROPOSAL 2
DIRECTORS' PROPOSAL TO APPROVE AN AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
----------------------------------------------------------
The Board of Directors believes that it is in the Company' best
interest to amend the Company's certificate of incorporation to increase
the number of shares of common stock the Company is authorized to issue
from 30 million to 100 million.
As of March 31, 2000, 14,591,980 of the Company's 30 million currently
authorized common shares were issued and outstanding. Of the remaining
authorized shares, approximately 14,909,754 were reserved for issuance in
connection with outstanding warrants, stock options, convertible debt and
convertible preferred stock.
During fiscal 2000, the Company may decide to choose to offer certain
accredited or institutional investors the opportunity to subscribe for and
purchase additional common shares. In addition, the Company may decide to
acquire a company as part of its strategy to broaden its portfolio of
product offerings, to augment its technological capabilities and to expand
its geographic markets and distribution channels. As part of this
strategy, we may acquire additional companies for these and other business
reasons. We may choose to pay for acquisitions with Company stock. The
Board believes that the proposed increase in the number of authorized
shares is desirable to maintain the Company's flexibility in choosing how
to pay for acquisitions and other corporate actions such as equity
offerings to raise capital and adoption of additional benefit plans. The
Board will determine the terms of any such issuance of additional shares.
If this proposal is approved, all or any of the authorized shares may
be issued without further stockholder action (unless such approval is
required by applicable law or regulatory authorities) and without first
offering those shares to the stockholders for subscription. The issuance
of shares otherwise than on a pro-rata basis to all stockholders would
reduce the proportionate interest in the Company of each stockholder.
We have not proposed the increase in the authorized number of shares
with the intention of using the additional shares for anti-takeover
purposes, although we could theoretically use the additional shares to
make more difficult or to discourage an attempt to acquire control of the
Company.
If this proposal is approved, the Company will immediately file an
amendment to its Certificate of Incorporation with the Secretary of State
of the State of Delaware, increasing our authorized Common Shares to the
new number as approved by stockholders.
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THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED
UNLESS STOCKHOLDERS SPECIFY OTHERWISE IN THEIR PROXIES.
PROPOSAL 3
APPROVAL OF THE ADOPTION OF THE COMPANY'S 2000
INCENTIVE STOCK PLAN
The Board of Directors proposes that the Company's stockholders approve
the Company's 2000 Incentive Stock Plan (the "Plan"). The Plan was approved by
the Board of Directors on April 21, 2000. The Plan reserves 5,000,000 Common
Shares for issuance to employees, consultants, advisors and directors. The Plan
is being submitted for stockholder approval in its entirety and is attached as
Exhibit A to this Proxy Statement.
We have previously issued options pursuant to the Company's 1997 Stock
Option Plan and on an individual basis, outside of any stock plan. As of March
31, 2000, there are currently 795,000 stock options issued pursuant to the
provisions of our 1997 Stock Option Plan and 4,134,866 stock options issued
outside of any stock plan. Even with the approval of the Company's 2000
Incentive Stock Plan, represented in this Proposal 3, the Company may continue
to grant stock options outside of any stock plan and is expected to do so.
PURPOSE OF THE PROPOSAL
In order to continue to provide key individuals with awards and
incentives commensurate with their contributions and competitive with those
offered by other employers, the Board of Directors determined that it was in our
best interest to adopt the 2000 Stock Incentive Plan and reserve 5,000,000 of
our Common Shares for distribution under its terms. Consequently, on April 21,
2000, our Board of Directors adopted the Plan, subject to approval by our
stockholders. The Board of Directors believes that this Plan will increase
stockholder value by further aligning the interests of key individuals with the
interest of our stockholders by providing a great opportunity to benefit from
stock price appreciation that generally accompanies improved financial
performance.
GENERAL
The following summary is qualified in its entirety by reference to the
Plan, a copy of which is attached to this proxy statement as Exhibit A. The Plan
provides for the granting of stock options, stock appreciation rights and stock
awards (collectively, "Awards") to eligible Plan participants. If the Plan is
approved at the Annual Meeting by the stockholders, the maximum number of shares
of the Company's common stock available for Awards under the Plan will be
5,000,000.
PURPOSE OF THE PLAN
The Plan is intended to:
o attract and retain the best available personnel for positions of
substantial responsibility;
o provide additional incentives to employees, directors and
consultants of the Company; and
o promote the success of the Company's business.
ADMINISTRATION OF THE PLAN
The Plan may be administered by the Company's Board of Directors or a
committee of directors appointed by the Board of Directors (the "Committee")
with respect to whether the optionee is an employee, a director or a consultant.
To the extent that the Company wishes to qualify options granted under the Plan
as performance-based compensation under Section 162(m) under the Internal
Revenue Code of 1986, as amended (the "Code"), members of the Committee must
also be "outside directors" under Section 162(m). For this discussion, the Board
of Directors or Committee is generally referred to as the Committee, except
where only the Board of Directors may act.
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<PAGE>
Subject to the terms of the Plan, the Committee has the sole
discretion to determine the employees, directors and consultants who shall be
granted Awards, the size and types of such Awards, and the terms and conditions
of such Awards.
ELIGIBILITY TO RECEIVE AWARDS
Employees, directors and consultants of the Company are eligible to be
selected to receive one or more Awards. The actual number of employees who will
receive Awards under the Plan cannot be determined because eligibility for
participation in the Plan is in the discretion of the Committee.
OPTIONS
The Committee may grant non-qualified stock options, incentive stock
options ("ISO") (which are entitled to favorable tax treatment), or a
combination thereof. The number of shares covered by each option will be
determined by the Committee but during any fiscal year of the Company, no
participant may be granted options for more than 500,000 shares. However, a
participant may be granted options for an additional 250,000 shares in
connection with the participant's commencement of service with the Company.
The price of the shares of the Company's common stock subject to each
stock option is set by the Committee, subject to the following restrictions. The
exercise price of an ISO (or a nonqualified stock option intended to be
performance based compensation under Section 162(m)) cannot be less than 100% of
the fair market value (on the date of grant) of the shares covered by the
option. In addition, the exercise price of an ISO must be at least 110% of fair
market value if (on the grant date) the participant owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any of its subsidiaries. Also, the aggregate fair market value of the
shares (determined on the grant date) covered by ISOs which first become
exercisable by any participant during any calendar year may not exceed $100,000.
Any excess over this amount will be deemed a nonqualified stock option.
Options become exercisable at the times and on the terms established
by the Committee. If the Company is acquired in certain types of transactions
and the acquisition and options are not assumed or substituted by the acquirer,
options granted under the Plan will become fully exercisable.
STOCK GRANTS AND STOCK PURCHASE RIGHTS
Stock grants and stock purchase rights may be issued by the Committee
to eligible participants under the Plan. The Committee may make an outright
grant of restricted stock to a Plan participant. In addition, the Committee may
award a participant a stock purchase right. Stock purchase rights are shares of
the Company's common stock that vest in accordance with terms and conditions
established by the Committee. The number of shares of restricted stock granted
to a participant (if any) by either a stock grant or a stock purchase right will
be determined by the Committee.
In determining whether an Award of either a restricted stock grant or
stock purchase rights should be made, and/or the vesting schedule, if
applicable, for an Award, the Committee may impose whatever conditions to
vesting as it determines to be appropriate. For example, the Committee may
determine to grant stock purchase rights only if performance goals established
by the Committee are satisfied. Again, if stock purchase rights are not assumed
or substituted by the acquirer in certain transactions, their vesting will
accelerate.
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<PAGE>
STOCK APPRECIATION RIGHTS
The Committee is authorized to issue two types of stock appreciation
rights under the Plan.
Tandem Appreciation Right. A Tandem Appreciation Right means an
Appreciation Right granted in tandem with an Option Right or any similar right
granted under any other plan of the Company, payable in cash or shares or a
combination thereof upon the exercise of the Appreciation Right and generally
provides for such payment in an amount equal to the "spread" between the market
price of the Company's Common Shares on the date the Appreciation Right is
exercised and the exercise price of the related Option Right.
Free-standing Appreciation Right. A Free-standing Appreciation Right is
an Appreciation Right granted under the Plan, not in tandem with a stock option
or Option Right, payable in cash or shares or a combination thereof upon the
exercise of the Appreciation Right and generally provides for such payment in an
amount equal to the "spread" between the market price of the Company's Common
Share on the date of exercise and the base exercise price.
TRANSFERABILITY OF AWARDS
Awards granted under the Plan generally may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will or
by the applicable laws of descent and distribution.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The rules concerning the Federal income tax consequences with respect
to Awards granted and to be granted pursuant to the Plan are quite technical.
Moreover, the applicable statutory provisions are subject to change, as are
their interpretations and applications which may vary in individual
circumstances. Therefore, the following is designed only to provide a general
understanding of the Federal income tax consequences. In addition, the following
discussion does not set forth any gift, estate, social security or state or
local tax consequences that may be applicable and is limited to the U.S. federal
income tax consequences to individuals who are citizens or residents of the
U.S., other than those individuals who are taxed on a residence basis in a
foreign country.
Incentive Stock Options. In general, an employee will not realize
taxable income upon either the grant or the exercise of an ISO and the Company
will not realize an income tax deduction at either such time. In general,
however, the excess of the fair market value of the shares of common stock
acquired upon exercise of an ISO (determined at the time of exercise) over the
exercise price of the ISO will be considered income for purposes of the
alternative minimum tax. If the recipient does not sell the common stock
received pursuant to the exercise of the ISO within either (i) two years after
the date of the grant of the ISO or (ii) one year after the date of exercise, a
subsequent sale of the common stock will result in long-term capital gain or
loss to the recipient and will not result in a tax deduction to the Company.
If the recipient disposes of the common stock acquired upon exercise of
the ISO within either of the above mentioned time periods, the recipient will
generally realize as ordinary income an amount equal to the lesser of (i) the
fair market value of the common stock on the date of exercise over the exercise
price, or (ii) the amount realized upon disposition over the exercise price. In
such event, the Company generally will be entitled to an income tax deduction
equal to the amount recognized as ordinary income. Any gain in excess of such
amount realized by the recipient as ordinary income would be taxed at the rates
applicable to short-term or long-term capital gains (depending on the holding
period).
Nonqualified Stock Options. A recipient generally will not realize any
taxable income upon the grant of a nonqualified stock option and the Company
will not receive a deduction at the time of such grant. Upon exercise of a
nonqualified stock option, the recipient generally will receive ordinary income
in an amount equal to the excess of the fair market value of the common stock on
the date of exercise over the exercise price. Upon a subsequent sale of the
common stock by the recipient, 16 the recipient will recognize short-term or
long-term capital gain or loss depending upon his or holding period for the
common stock. the Company will generally be allowed a deduction equal to the
amount recognized by the recipient as ordinary income.
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<PAGE>
All Options. With regard to both ISOs and nonqualified stock options,
the following also apply: (i) any entitlement to a tax deduction on the part of
the Company is subject to the applicable tax rules (including, without
limitation, Section 162(m) of the Code regarding a $1,000,000 limitation on
deductible compensation), and (ii) in the event that the exercisability or
vesting of any award is accelerated because of a change of control, payments
relating to the awards (or a portion thereof), either alone or together with
certain other payments, may constitute parachute payments under Section 280G of
the Code, which excess amounts may be subject to excise taxes and a loss of
deductibility for the Company or the resulting entity.
Stock Grants. The tax principles applicable to a direct grant of
restricted shares under the Plan are substantially the same as those summarized
above under the heading "Nonqualified Stock Options".
Stock Purchase Rights. Unless a recipient makes an election under
Section 83(b) of the Code, the recipient will not recognize taxable income when
the Company grants stock purchase rights (or if there is a purchase price, when
the recipient buys restricted stock pursuant to a stock purchase right).
Instead, the recipient generally will recognize ordinary income as the shares
vest. If the recipient makes a Section 83(b) election, the recipient will
recognize ordinary income when the Company grants the recipient stock purchase
rights (or buy restricted stock if a purchase price is required). If the
recipient later loses its shares, however, the recipient cannot take a tax
deduction. In either case, the recipient's ordinary income will be equal to the
fair market value of the shares when the recipient recognizes the income
Stock Appreciation Rights. A recipient who is granted a Stock
Appreciation Right, whether in tandem with a stock option or free-standing, will
recognize ordinary income in the year of exercise equal to the amount of the
appreciation distribution. The Company will be entitled to an income deduction
equal to such distribution for the taxable year in which the ordinary income is
recognized by the recipient.
In general, Section 162(m) of the Code denies a publicly held
corporation a deduction for Federal income tax purposes for compensation in
excess of $1,000,000 per year per person to its chief executive officer and four
other executive officers whose compensation is disclosed in its proxy statement,
subject to certain exceptions. Options will generally qualify under one of these
exceptions if they are granted under a plan that states the maximum number of
shares with respect to which options may be granted to any recipient during a
specified period if the plan under which the options are granted is approved by
stockholders and is administered by a compensation committee comprised
exclusively of outside directors. The Plan is intended to satisfy these
requirements with respect to options.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors, in its sole discretion, generally may amend or
terminate the Plan, or any part thereof at any time and for any reason. The
amendment, suspension or termination of the Plan shall not, without the consent
of the participant, alter or impair any rights or obligations under any Award
granted to such participant. Any Plan amendment shall be approved by the the
Company stockholders as required by law. The Plan shall remain in effect,
subject to the Board of Directors' right to terminate the plan. Absent further
Board of Directors action, the Plan will terminate ten (10) years from the
Plan's effective date.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE PLAN.
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PROPOSAL 4
RATIFICATION OF THE APPOINTMENT OF
ROSENBERG RICH BAKER BERMAN & COMPANY
AS INDEPENDENT AUDITORS OF THE COMPANY
FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000
The Board of Directors proposes that the Company's stockholders ratify
its appointment of Rosenberg Rich Baker Berman & Company as the independent
auditors of the Company for the fiscal year ending December 31, 2000.
The Board of Directors has reviewed the work product as well as has
held conferences with members of Rosenberg Rich Baker Berman & Company
throughout fiscal year 1999. In recognition of this firm's high quality
professional services rendered, the Board has re-appointed Rosenberg Rich Baker
Berman & Company to audit our financial statements for the fiscal year beginning
January 1, 2000.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ROSENBERG RICH BAKER BERMAN & COMPANY AS THE
AUDITORS OF THE COMPANY FOR FISCAL YEAR ENDING DECEMBER 31, 2000.
STOCKHOLDER PROPOSALS
----------------------------------------------------------
Any stockholder who intends to present a proposal at the annual
meeting in the year 2001 must deliver the proposal to the Corporate
Secretary at 401 Route 24, Chester, New Jersey 07930, not later than
December 1, 2000, if the proposal is submitted for inclusion in our proxy
materials for that meeting pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934.
OTHER MATTERS
Whether or not you plan to attend the meeting, please vote by mark,
sign, date and promptly return the proxy card sent to you in the envelope
provided. No postage is required for mailing in the United States.
-------------------
Steven D. Rudnik
Chairman of the Board and
Chief Executive Officer
April 21, 2000
33
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EXHIBIT A
MAGNITUDE INFORMATION SYSTEMS, INC.
2000 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Plan is to attract and retain qualified
officers, directors and other key employees of, and consultants to, Magnitude
Information Systems, Inc., a Delaware corporation (the "Company"), and its
Subsidiaries and to provide such persons with appropriate incentives. The
Company has adopted the Plan effective as of May 1, 2000, subject to the
approval of the Company's shareholders, and unless extended by amendment in
accordance with the terms of the Plan, no Option Rights, Appreciation Rights,
Restricted Shares or Deferred Shares will be granted hereunder after the tenth
anniversary of such effective date.
2. Definitions. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section 5 of
this Plan, including a Free-standing Appreciation Right
and a Tandem Appreciation Right.
"Base Price" means the price to be used as the basis for determining
the Spread upon the exercise of a Free-standing Appreciation Right.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Compensation Committee of the Board, as
described in Section 13(a) of this Plan, or, in the absence of
a Compensation Committee, the full Board.
"Common Shares" means (i) shares of the Common Stock, $.01 par value,
of the Company and (ii) any security into which Common Shares may be converted
by reason of any transaction or event of the type referred to in Section 9 of
this Plan.
"Date of Grant" means the date specified by the Committee on which a
grant of Option Rights or Appreciation Rights or a grant or sale of Restricted
Shares or Deferred Shares shall become effective, which shall not be earlier
than the date on which the Committee takes action with respect thereto.
"Deferral Period" means the period of time during which Deferred
Shares are subject to deferral limitations under Section 7
of this Plan.
"Deferred Shares" means an award pursuant to Section 7 of this
Plan of the right to receive Common Shares at the end of a
specified Deferral Period.
"Free-standing Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an Option
Right or similar right.
"Incentive Stock Option" means an Option Right that is intended to
qualify as an "incentive stock option" under Section 422 of the Code or any
successor provision thereto.
"Market Value per Share" means the fair market value of the Common
Shares as determined by the Committee from time to time.
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<PAGE>
"Nonqualified Option" means an Option Right that is not intended to
qualify as an Incentive Stock Option.
"Optionee" means the person so designated in an agreement evidencing
an outstanding Option Right.
"Option Price" means the purchase price payable upon the exercise of an
Option Right.
"Option Right" means the right to purchase Common Shares from the
Company upon the exercise of a Nonqualified Option or an Incentive Stock Option
granted pursuant to Section 4 of this Plan.
"Participant" means a person who is selected by the Committee to
receive benefits under this Plan and (i) is at that time an officer, director or
other key employee of, or a consultant to, the Company or any Subsidiary or (ii)
has agreed to commence serving in any such capacity.
"Reload Option Rights" means additional Option Rights automatically
granted to an Optionee upon the exercise of Option Rights pursuant to Section
4(f) of this Plan.
"Restricted Shares" means Common Shares granted or sold pursuant to
Section 6 of this Plan as to which neither the substantial risk of forfeiture
nor the restriction on transfer referred to in Section 6 hereof has expired.
"Rule 16b-3" means Rule 16b-3, as promulgated and amended from time to
time by the Securities and Exchange Commission under the Securities Exchange Act
of 1934, or any successor rule to the same effect.
"Spread" means, in the case of a Free-standing Appreciation Right, the
amount by which the Market Value per Share on the date when the Appreciation
Right is exercised exceeds the Base Price specified therein or, in the case of a
Tandem Appreciation Right, the amount by which the Market Value per Share on the
date when the Appreciation Right is exercised exceeds the Option Price specified
in the related Option Right.
"Subsidiary" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest; provided, however, that for
purposes of determining whether any person may be a Participant for purposes of
any grant of Incentive Stock Options, "Subsidiary" means any corporation in
which the Company owns or controls directly or indirectly more than 50% of the
total combined voting power represented by all classes of stock issued by such
corporation at the time of the grant.
"Tandem Appreciation Right" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is granted in tandem with an Option
Right or any similar right granted under any other plan of the Company.
"10% Shareholder" means an individual who, at the time an Option Right
is granted, owns stock possessing more than 10% of the total combined voting
power of all classes of stock issued by the Company or by any parent or
subsidiary corporation, within the meaning of Section 422(b)(6) of the Code or
any successor provision thereto.
3. Shares Available under the Plan.
(a) Subject to adjustment as provided in Section 9 of this
Plan, the number of Common Shares which may be (i) issued or transferred upon
the exercise of Option Rights or Appreciation Rights, or (ii) awarded as
Restricted Shares and released from substantial risk of forfeiture thereof or
Deferred Shares, shall not in the aggregate exceed 5,000,000 Common Shares,
which may be Common Shares of original issuance or Common Shares held in
treasury or a combination thereof. For the purposes of this Section 3(a):
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<PAGE>
(i) Upon payment in cash of the benefit provided by
any award granted under this Plan, any Common Shares that were covered
by that award shall again be available for issuance or transfer
hereunder; and
(ii) Upon the full or partial payment of any Option
Price by the transfer to the Company of Common Shares or upon
satisfaction of tax withholding obligations in connection with any such
exercise or any other payment made or benefit realized under this Plan
by the transfer or relinquishment of Common Shares, there shall be
deemed to have been issued or transferred under this Plan only the net
number of Common Shares actually issued or transferred by the Company
less the number of Common Shares so transferred or relinquished.
(b) Notwithstanding anything in Section 3(a) hereof, or
elsewhere in this Plan, to the contrary, the aggregate number of Common Shares
actually issued or transferred by the Company upon the exercise of the Incentive
Stock Options shall not exceed the total number of Common Shares first specified
in Section 3(a) hereof.
(c) Notwithstanding any other provision of this Plan
to the contrary, no Participant shall be granted Option Rights and
Appreciation Rights, in the aggregate, for more than 500,000 Common
Shares during any one calendar year, subject to adjustment as provided
in Section 9 of this Plan.
(d) Notwithstanding any other provision of this Plan to the
contrary, no Participant shall be granted Deferred Shares, in the aggregate, for
more than 2,000,000 Common Shares during any two consecutive calendar years,
subject to adjustment as provided in Section 9 of this Plan.
4. Option Rights. The Committee may from time to time authorize grants
to Participants of options to purchase Common Shares upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:
(a) Each grant shall specify the number of Common Shares to
which it pertains.
(b) Each grant shall specify an Option Price per Common Share,
which Option Price, in the case of Nonqualified Stock Options, shall be
determined in the sole and absolute discretion of the Committee, and which
Option Price, in the case of Incentive Stock Options, shall be no less than the
Fair Market Value of the Common Shares at the Date of Grant . In the case of any
grant of Incentive Stock Options to a 10% Shareholder, such Option Price per
Common Share may not be less than 110% of the Market Value per Share on the Date
of Grant.
(c) Each grant shall specify the form of consideration to be
paid in satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check or
other cash equivalent acceptable to the Company, (ii) nonforfeitable,
unrestricted Common Shares, which are already owned by the Optionee, (iii) any
other legal consideration that the Committee may deem appropriate, including
without limitation any form of consideration authorized under Section 4(d)
below, on such basis as the Committee may determine in accordance with this Plan
and (iv) any combination of the foregoing.
(d) Any grant of a Nonqualified Option may provide that
payment of the Option Price may also be made in whole or in part in the form of
Restricted Shares or other Common Shares that are subject to a risk of
forfeiture or restrictions on transfer. Unless otherwise determined by the
Committee on or after the Date of Grant, whenever any Option Price is paid in
whole or in part by means of any of the forms of consideration specified in this
Section 4(d), the Common Shares received by the Optionee upon the exercise of
the Nonqualified Option shall be subject to the same risks of forfeiture or
restrictions on transfer as those that applied to the consideration surrendered
by the Optionee; provided, however, that such risks of forfeiture and
restrictions on transfer shall apply only to the same number of Common Shares
received by the Optionee as applied to the forfeitable or restricted Common
Shares surrendered by the Optionee.
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<PAGE>
(e) Any grant may, if there is then a public market for the
Common Shares, provide for deferred payment of the Option Price from the
proceeds of sale through a broker of some or all of the Common Shares to which
the exercise relates.
(f) Any grant may provide for the automatic grant to the
Optionee of Reload Option Rights upon the exercise of Option Rights, including
Reload Option Rights, for Common Shares or any other noncash consideration
authorized under Sections 4(c) and (d) above; provided, however, that the term
of any Reload Option Right shall not extend beyond the term of the Option Right
originally exercised.
(g) Successive grants may be made to the same Optionee
regardless of whether any Option Rights previously granted to the Optionee
remain unexercised.
(h) Each grant shall specify the period or periods of
continuous employment, or continuous engagement of the consulting services, of
the Optionee by the Company or any Subsidiary that are necessary and/or the
individual or aggregate performance criteria that must be satisfied before the
Option Rights or installments thereof shall become exercisable, and any grant
may provide for the earlier exercise of the Option Rights in the event of a
change in control of the Company or other similar transaction or event.
Notwithstanding the foregoing, in the case of any grant of Incentive Stock
Options, the aggregate Market Value per Share on the Date of Grant of the Common
Shares subject to such Incentive Stock Options (and all other incentive stock
options granted by the Company or any parent or subsidiary corporation) that are
exercisable for the first time by the Optionee during any calendar year shall
not exceed $100,000.
(i) Option Rights granted pursuant to this Section 4
may be Nonqualified Options or Incentive Stock Options or
combinations thereof.
(j) Any grant of an Option Right may provide for the payment
to the Optionee of dividend equivalents thereon in cash or Common Shares on a
current, deferred or contingent basis, or the Committee may provide that any
dividend equivalents shall be credited against the Option Price.
(k) No Option Right granted pursuant to this Section 4 may be
exercised more than 10 years from the Date of Grant. In the case of any
Incentive Stock Option granted to a 10% Shareholder, such Incentive Stock Option
may not be exercised more than five years from the Date of Grant.
(l) Each grant shall be evidenced by an agreement, which shall
be executed on behalf of the Company by any designated officer thereof and
delivered to and accepted by the Optionee and shall contain such terms and
provisions as the Committee may determine consistent with this Plan.
5. Appreciation Rights. The Committee may also authorize grants to
Participants of Appreciation Rights. An Appreciation Right shall be a right of
the Participant to receive from the Company an amount, which shall be determined
by the Committee and shall be expressed as a percentage (not exceeding 100%) of
the Spread at the time of the exercise of an Appreciation Right. Any grant of
Appreciation Rights under this Plan shall be upon such terms and conditions as
the Committee may determine in accordance with the following provisions:
(a) Any grant may specify that the amount payable upon the
exercise of an Appreciation Right may be paid by the Company in cash, Common
Shares or any combination thereof and may (i) either grant to the Participant or
reserve to the Committee the right to elect among those alternatives or (ii)
preclude the right of the Participant to receive and the Company to issue Common
Shares or other equity securities in lieu of cash.
(b) Any grant may specify that the amount payable upon the
exercise of an Appreciation Right shall not exceed a maximum specified by the
Committee on the Date of Grant.
(c) Each grant shall specify (i) the period or periods of
continuous employment, or continuous engagement of the consulting services, of
the Optionee by the Company or any Subsidiary that are necessary and/or the
individual or aggregate performance criteria that must be satisfied before the
Appreciation Rights or installments thereof shall become exercisable and (ii)
permissible dates or periods on or during which Appreciation Rights shall be
exercisable.
37
<PAGE>
(d) Any grant may specify that an Appreciation Right may be
exercised only in the event of a change in control of the Company or other
similar transaction or event.
(e) Any grant may provide for the payment to the Participant
of dividend equivalents thereon in cash or Common Shares on a current, deferred
or contingent basis.
(f) Each grant shall be evidenced by an agreement, which shall
be executed on behalf of the Company by any designated officer thereof and
delivered to and accepted by the Optionee and shall describe the subject
Appreciation Rights, identify any related Option Rights, state that the
Appreciation Rights are subject to all of the terms and conditions of this Plan
and contain such other terms and provisions as the Committee may determine
consistent with this Plan.
(g) Regarding Tandem Appreciation Rights only: Each grant
shall provide that a Tandem Appreciation Right may be exercised only (i) at a
time when the related Option Right (or any similar right granted under any other
plan of the Company) is also exercisable and the Spread is positive and (ii) by
surrender of the related Option Right (or such other right) for cancellation.
(h) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each
Free-standing Appreciation Right a Base Price per Common Share, which
shall be equal to or greater than the Market Value per Share on the
Date of Grant;
(ii) Successive grants may be made to the same
Participant regardless of whether any Free-standing Appreciation Rights
previously granted to the Participant remain unexercised; and
(iii) No Free-standing Appreciation Right
granted under this Plan may be exercised more than 10 years from the Date of
Grant.
6. Restricted Shares. The Committee may also authorize grants or sales
to Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute an immediate transfer
of the ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to dividend, voting and
other ownership rights, subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
(b) Each grant or sale may be made without additional
consideration from the Participant or in consideration of a payment by the
Participant that is less than the Market Value per Share on the Date of Grant.
(c) Each grant or sale shall provide that the Restricted
Shares covered thereby shall be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Committee on the Date of Grant, and any grant or sale may provide for the
earlier termination of such period in the event of a change in control of the
Company or other similar transaction or event.
(d) Each grant or sale shall provide that, during the period
for which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted in
the manner and to the extent prescribed by the Committee on the Date of Grant.
Such restrictions may include without limitation rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Shares to a
continuing substantial risk of forfeiture in the hands of any transferee.
38
<PAGE>
(e) Any grant or sale may require that any or all dividends or
other distributions paid on the Restricted Shares during the period of such
restrictions be automatically sequestered and reinvested on an immediate or
deferred basis in additional Common Shares, which may be subject to the same
restrictions as the underlying award or such other restrictions as the Committee
may determine.
(f) Each grant or sale shall be evidenced by an agreement,
which shall be executed on behalf of the Company by any designated officer
thereof and delivered to and accepted by the Participant and shall contain such
terms and provisions as the Committee may determine consistent with this Plan.
Unless otherwise directed by the Committee, all certificates representing
Restricted Shares, together with a stock power that shall be endorsed in blank
by the Participant with respect to the Restricted Shares, shall be held in
custody by the Company until all restrictions thereon lapse.
7. Deferred Shares. The Committee may also authorize grants or sales of
Deferred Shares to Participants upon such terms and conditions as the Committee
may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute the agreement by the
Company to issue or transfer Common Shares to the Participant in the future in
consideration of the performance of services, subject to the fulfillment during
the Deferral Period of such conditions as the Committee may specify.
(b) Each grant or sale may be made without additional
consideration from the Participant or in consideration of a payment by the
Participant that is less than the Market Value per Share on the Date of Grant.
(c) Each grant or sale shall provide that the Deferred Shares
covered thereby shall be subject to a Deferral Period, which shall be fixed by
the Committee on the Date of Grant, and any grant or sale may provide for the
earlier termination of the Deferral Period in the event of a change in control
of the Company or other similar transaction or event.
(d) During the Deferral Period, the Participant shall not have
any right to transfer any rights under the subject award, shall not have any
rights of ownership in the Deferred Shares and shall not have any right to vote
the Deferred Shares, but the Committee may on or after the Date of Grant
authorize the payment of dividend equivalents on the Deferred Shares in cash or
additional Common Shares on a current, deferred or contingent basis.
(e) Each grant or sale shall be evidenced by an agreement,
which shall be executed on behalf of the Company by any designated officer
thereof and delivered to and accepted by the Participant and shall contain such
terms and provisions as the Committee may determine consistent with this Plan.
8. Transferability.
(a) No Option Right or Appreciation Right granted under this
Plan may be transferred by a Participant, except (i) by will or the laws of
descent and distribution, or (ii) in the case of an award other than an
Incentive Stock Option, to one or more members of the Participant's immediate
family or to a trust established for the benefit of the Participant and/or one
or more members of the Participant's immediate family. Option Rights and
Appreciation Rights granted under this Plan may not be exercised during a
Participant's lifetime except by (i) the Participant, (ii) a permissible
transferee of the Participant described in the preceding sentence, or (iii) in
the event of the legal incapacity of the Participant or any such transferee, by
the guardian or legal representative of the Participant or such transferee (as
applicable) acting in a fiduciary capacity on behalf thereof under state law and
court supervision.
39
<PAGE>
(b) Any grant made under this Plan may provide that all or any
part of the Common Shares that are to be issued or transferred by the Company
upon the exercise of Option Rights or Appreciation Rights or upon the
termination of the Deferral Period applicable to Deferred Shares, or are no
longer subject to the substantial risk of forfeiture and restrictions on
transfer referred to in Section 6 of this Plan, shall be subject to further
restrictions upon transfer.
9. Adjustments.
(a) The Committee may make or provide for such adjustments in
the number of Common Shares covered by outstanding Option Rights, Appreciation
Rights and Deferred Shares granted hereunder, the Option Prices per Common Share
or Base Prices per Common Share applicable to any such Option Rights and
Appreciation Rights, and the kind of shares (including shares of another issuer)
covered thereby, as the Committee may in good faith determine to be equitably
required in order to prevent dilution or expansion of the rights of Participants
that otherwise would result from (i) any stock dividend, stock split,
combination of shares, recapitalization or similar change in the capital
structure of the Company or (ii) any merger, consolidation, spin-off, spin-out,
split-off, split-up, reorganization, partial or complete liquidation or other
distribution of assets, issuance of warrants or other rights to purchase
securities or any other corporate transaction or event having an effect similar
to any of the foregoing. In the event of any such transaction or event, the
Committee may provide in substitution for any or all outstanding awards under
this Plan such alternative consideration as it may in good faith determine to be
equitable under the circumstances and may require in connection therewith the
surrender of all awards so replaced. Moreover, the Committee may on or after the
Date of Grant provide in the agreement evidencing any award under this Plan that
the holder of the award may elect to receive an equivalent award in respect of
securities of the surviving entity of any merger, consolidation or other
transaction or event having a similar effect, or the Committee may provide that
the holder will automatically be entitled to receive such an equivalent award.
The Committee may also make or provide for such adjustments in the maximum
numbers of Common Shares specified in Section 3 of this Plan as the Committee
may in good faith determine to be appropriate in order to reflect any
transaction or event described in this Section 9.
(b) If another corporation is merged into the Company or the
Company otherwise acquires another corporation, the Committee may elect to
assume under this Plan any or all outstanding stock options or other awards
granted by such corporation under any stock option or other plan adopted by it
prior to such acquisition. Such assumptions shall be on such terms and
conditions as the Committee may determine; provided, however, that the awards as
so assumed do not contain any terms, conditions or rights that are inconsistent
with the terms of this Plan. Unless otherwise determined by the Committee, such
awards shall not be taken into account for purposes of the limitations contained
in Section 3 of this Plan.
10. Fractional Shares. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Committee may provide for
the elimination of fractions or for the settlement thereof in cash.
11. Withholding Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for the withholding are insufficient, it
shall be a condition to the receipt of any such payment or the realization of
any such benefit that the Participant or such other person make arrangements
satisfactory to the Company for payment of the balance of any taxes required to
be withheld. At the discretion of the Committee, any such arrangements may
without limitation include voluntary or mandatory relinquishment of a portion of
any such payment or benefit or the surrender of outstanding Common Shares. The
Company and any Participant or such other person may also make similar
arrangements with respect to the payment of any taxes with respect to which
withholding is not required.
40
<PAGE>
12. Certain Terminations of Employment or Consulting Services,
Hardship, and Approved Leaves of Absence. Notwithstanding any other provision of
this Plan to the contrary, in the event of termination of employment or
consulting services by reason of death, disability, normal retirement, early
retirement with the consent of the Company, termination of employment or
consulting services to enter public or military service with the consent of the
Company or leave of absence approved by the Company, or in the event of hardship
or other special circumstances, of a Participant who holds an Option Right or
Appreciation Right that is not immediately and fully exercisable, any Restricted
Shares as to which the substantial risk of forfeiture or the prohibition or
restriction on transfer has not lapsed, any Deferred Shares as to which the
Deferral Period is not complete, or any Common Shares that are subject to any
transfer restriction pursuant to Section 8(b) of this Plan, the Committee may
take any action that it deems to be equitable under the circumstances or in the
best interests of the Company, including without limitation waiving or modifying
any limitation or requirement with respect to any award under this Plan.
13. Administration of the Plan.
(a) This Plan shall be administered by the Compensation
Committee of the Board, which shall be composed of not less than two members of
the Board, or, in the absence of a Compensation Committee, by the full Board. At
any time that awards under the Plan are subject to Rule 16b-3, each member of
the Compensation Committee shall be a "non-employee director" within the meaning
of such Rule. In addition, at any time that the Company is subject to Section
162(m) of the Code, each member of the Compensation Committee shall be an
"outside director" within the meaning of such Section. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee.
(b) The interpretation and construction by the Committee of
any provision of this Plan or any agreement, notification or document evidencing
the grant of Option Rights, Appreciation Rights, Restricted Shares or Deferred
Shares, and any determination by the Committee pursuant to any provision of this
Plan or any such agreement, notification or document, shall be final and
conclusive. No member of the Committee shall be liable for any such action taken
or determination made in good faith.
14. Amendments and Other Matters.
(a) This Plan may be amended from time to time by the
Committee; provided, however, that except as expressly authorized by this Plan,
no such amendment shall cause this Plan to cease to satisfy any applicable
condition of Rule 16b-3 or cause any award under the Plan to cease to qualify
for any applicable exception under Section 162(m) of the Code, without the
further approval of the stockholders of the Company.
(b) With the concurrence of the affected Participant, the
Committee may cancel any agreement evidencing Option Rights or any other award
granted under this Plan. In the event of any such cancellation, the Committee
may authorize the granting of new Option Rights or other awards hereunder, which
may or may not cover the same number of Common Shares as had been covered by the
cancelled Option Rights or other award, at such Option Price, in such manner and
subject to such other terms, conditions and discretion as would have been
permitted under this Plan had the cancelled Option Rights or other award not
been granted.
(c) The Committee may condition the grant of any award or
combination of awards authorized under this Plan on the surrender or deferral by
the Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company or a Subsidiary to the
Participant.
41
<PAGE>
(d) This Plan shall not confer upon any Participant any right
with respect to continuance of employment or other service with the Company or
any Subsidiary and shall not interfere in any way with any right that the
Company or any Subsidiary would otherwise have to terminate any Participant's
employment or other service at any time.
(e) To the extent that any provision of this Plan would
prevent any Option Right that was intended to qualify as an Incentive Stock
Option from so qualifying, any such provision shall be null and void with
respect to any such Option Right; provided, however, that any such provision
shall remain in effect with respect to other Option Rights, and there shall be
no further effect on any provision of this Plan.
(f) Any award that may be made pursuant to an amendment to
this Plan that shall have been adopted without the approval of the stockholders
of the Company shall be null and void if it is subsequently determined that such
approval was required under the terms of the Plan or applicable law.
(g) Unless otherwise determined by the Committee, this Plan is
intended to comply with Rule 16b-3 at all times that awards hereunder are
subject to such Rule.
42
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 31, 2000 FINANCIAL STATEMENTS OF MAGNITUDE INFORMATION
SYSTEMS, INC. AND SUBSIDIARES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000838796
<NAME> Magnitude Information Systems, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-01-2000
<PERIOD-END> Mar-31-2000
<CASH> 1,427,184
<SECURITIES> 0
<RECEIVABLES> 226,719
<ALLOWANCES> 76,111
<INVENTORY> 8,885
<CURRENT-ASSETS> 2,209,037
<PP&E> 261,589
<DEPRECIATION> 153,910
<TOTAL-ASSETS> 3,551,823
<CURRENT-LIABILITIES> 2,508,695
<BONDS> 387,895
0
294
<COMMON> 1,459
<OTHER-SE> 653,480
<TOTAL-LIABILITY-AND-EQUITY> 3,551,823
<SALES> 100,022
<TOTAL-REVENUES> 100,022
<CGS> 40,934
<TOTAL-COSTS> 267,754
<OTHER-EXPENSES> 522,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,579
<INCOME-PRETAX> (783,497)
<INCOME-TAX> 0
<INCOME-CONTINUING> (783,497)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (783,497)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
