SEC Company Response from MAGNITUDE INFORMATION SYSTEMS INC (CIK 0000838796) — Dec 1, 2005
MAGNITUDE INFORMATION SYSTEMS INC (CIK 0000838796)
Date: Dec. 1, 2005 · CIK: 0000838796 · Accession: 0001144204-05-038488
AI Filing Summary & Sentiment
File numbers found in text: 000-32485
Referenced dates: November 15, 2005, October 21, 2005
Letter
FOR THE EXCLUSIVE USE OF THE SECURITIES AND EXCHANGE COMMISSION ONLY VIA EDGAR, TELECOPY AND OVERNIGHT DELIVERY Securities and Exchange Commission Mail Stop 4561 100 F Street, N.E. Washington, D.C. 20005 Attention: Ms. Kathleen Collins Accounting Branch Chief
RE: Magnitude Information Systems, Inc. Form 10-KSB for the Fiscal Year Ended December 31, 2004 Filed March 30, 2005 File No. 000-32485
Dear Ms. Collins:
I serve as General Counsel to Magnitude Information Systems, Inc. (the "Company"). We are filing today via EDGAR, Amendment No. 2 to the Company's Form 10-KSB for the fiscal year ended December 31, 2004 (the "Amendment"). The Amendment contains revisions responsive to the four(4) comments set forth in the Staff comment letter to the Company, dated November 15, 2005. We are filing the Amendment, this correspondence and certain revised supplementary information, identified below, via EDGAR as required by Rule 101 of Regulation S-T as well as mailing three (3) hard copies together with the Staff's November 15, 2005 comment letter by overnight delivery and telecopying one (1) copy for the Staff's convenience. Please note the Company's following responses, keyed to the Staff's comments in its November 15, 2005 letter:
Report of Independent Registered Public Accounting Firm, page 1
1. We note the revisions to your financial statements related to the reclassification of certain beneficial conversion rights and deferred compensation and the revaluation of options and warrants issued to non-employees and employees for services. We also note your footnote on page 26 titled, "Restatement of Results." Tell us how your auditors considered including a reference in their audit report to the restatement. We refer you to AU 561.06.
<PAGE>
Ms. Kathleen Collins December 1, 2005 Page 2
Please be advised that our auditors have revised their Auditor's Report by including a new paragraph referencing the footnote titled "Restatement of Results" in accordance with the Staff's comment and AU 561.06.
Consolidated Statement of Stockholders' Equity (Deficit), page 5
2. We note your revised presentation of your statement of Stockholders' equity (deficit) for year ended December 31, 2004. It appears that the ending balances at December 31, 2003 do not agree to the beginning balances at January 1, 2004 and that certain amounts for the year ended December 31, 2004 are not in the correct columns. Revise your presentation to include the correct amounts, as necessary, or tell us why such revisions are not necessary.
In response to the Staff's comment, we have revised the presentation of the statement of stockholder's equity (deficit) for the year ended December 31, 2004 by correcting certain amounts so that the ending balances at December 31, 2003 agree with the beginning balances at January 1, 2004.
Restatement of Results, page 26.
3. We have reviewed your explanatory note on page 2 of your 10-KSB/A and note your statement, "the restatement involves reclassifying certain equity positions in connection with beneficial conversion rights accrued to warrants and shares of convertible preferred stock issued in 2003 and 2004 as well as the reclassification of deferred compensation." However, in your restatement footnote on page 26, you refer only to the restated financial results to reflect a revision related to the valuation of securities issued to non-employees for services performed. Tell us why your restatement footnote does not discuss the revisions related to your reclassifications related to the beneficial conversion rights accrued to warrants and shares of convertible preferred stock. Additionally, help us understand what the beneficial conversion rights you refer to on page 2 consist of and provide us with your calculation/analysis of this beneficial conversion rights as well as the accounting literature you are relying on.
In response to the Staff's comment, the Amendment contains additional disclosures in the Explanatory Note and the restatement footnote that provide more complete disclosure and clarification that the restated financial results relate to the Company's elimination of a discount of 50% applied to the market price of the Company's common stock when valuing certain securities issued prior to January 1, 2004 to employees and non-employees for services rendered as well as a reclassification of deferred compensation and reclassifications related to the beneficial conversion rights accrued to warrants and shares of convertible preferred stock caused by the elimination of this discount.
In further response to the Staff's comment and by way of supplementary information, we have attached to this correspondence, as Attachment A, a (1) "Summary of Recalculation of Warrant Cost and Beneficial Conversion Feature and 2003 Amortization on Convertible Preferred Stock Issued in 2003 FYE December 31, 2003 FS Restatement, (2) a Recalculation of Beneficial Conversion Feature on Convertible Preferred Stock Issued in 2003 FYE December 31, 2003 FS Restatement, (3) a Summary of Recalculation of Warrant Cost and Beneficial Conversion Feature and 2004 Amortization on Convertible Preferred Stock Issued in 2003 and 2004 FYE December 31, 2004 FS Restatement and (4) Recalculation of Beneficial Conversion Feature on Convertible Preferred Stock Issued in 2004 FYE December 31, 2004 FS Restatement
<PAGE>
Ms. Kathleen Collins December 1, 2005 Page 3
General
4. Please refer to comment 6 in our letter dated October 21, 2005. We note in your response that the Company filed a separate correspondence via Edgar, signed by the executive officers and directors of the Company, acknowledging your responsibilities as indicated in our previous comment. We note, however, that the correspondence filed via Edgar included was only signed by Mr. Angelastri. Was it the Company's intent to have all named persons sign the letter? If so, please revise to include appropriate signatures.
Please be advised that the executive officers and directors of the Company signed their acknowledgment of responsibilities, including Director, Ivano Angelastri, but it appears that the copy of this letter acknowledgment, filed via Edgar on October 28, 2005, failed to contain conformed signatures. Please be further advised that hard copies of the signed acknowledgement letters were sent to the attention of Kathleen Collins, Accounting Branch Chief on the same date via overnight delivery. We have filed the letter of acknowledgment of responsibilities, with all conformed signatures with this correspondence and have enclosed hard copies as supplementary material.
Please do not hesitate to contact the undersigned if you require any further information or documents.
Very truly yours, /s/ Joseph J. Tomasek Joseph J. Tomasek, Esq.
Encl. cc: Patrick Gilmore Division of Corporation Finance
Steve D. Rudnik, President Magnitude Information Systems, Inc.
Joerg Klaube, Chief Financial Officer Magnitude Information Systems, Inc.
<PAGE>
Ms. Kathleen Collins December 1, 2005 Page 4
Magnitude Information Systems, Inc. 401 State Route 24 Chester, New Jersey 07930
October 20, 2005
FOR THE EXCLUSIVE USE OF THE SECURITIES AND EXCHANGE COMMISSION ONLY
VIA EDGAR AND OVERNIGHT DELIVERY Filing Desk Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20005
Attention: Kathleen Collins, Accounting Branch Chief
RE: Magnitude Information Systems, Inc. (the "Company") Form 10-KSB for the Fiscal Year Ended December 31, 2004 Filed March 30, 2005 File No. 000-32485
Dear Ms. Collins:
The undersigned, including the Chief Executive Officer and the Chief Financial Officer, comprising the executive officers of the Company, and all of the four (4) directors of the Company, hereby acknowledge to the Commission their respective obligations in connection with Amendment No. 1 to the Company's Form 10-KSB for the fiscal year ended December 31, 2004 and Amendments No. 1 to the Company's Forms 10-QSB for the quarters ended March 31, 2005 and June 30, 2005 (collectively, the "Filing"), filed with the Commission via Edgar on or about October 21, 2005, which include that:
o the Company is responsible for the adequacy and accuracy of the disclosures in the Filing;
o Staff comments or changes to disclosures in the Filing and the Company's responses to Staff comments do not foreclose the Commission from taking any action with respect to the Filing; and
<PAGE>
Ms. Kathleen Collins December 1, 2005 Page 5
o the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Very truly yours,
MAGNITUDE INFORMATION SYSTEMS, INC.
Show Raw Text
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
Joseph J. Tomasek, Esq.
77 North Bridge Street
Somerville, New Jersey 08876
December 1, 2005
FOR THE EXCLUSIVE USE
OF THE SECURITIES AND EXCHANGE COMMISSION ONLY
VIA EDGAR, TELECOPY AND OVERNIGHT DELIVERY
Securities and Exchange Commission
Mail Stop 4561
100 F Street, N.E.
Washington, D.C. 20005
Attention: Ms. Kathleen Collins
Accounting Branch Chief
RE: Magnitude Information Systems, Inc.
Form 10-KSB for the Fiscal Year Ended
December 31, 2004
Filed March 30, 2005
File No. 000-32485
Dear Ms. Collins:
I serve as General Counsel to Magnitude Information Systems, Inc. (the
"Company"). We are filing today via EDGAR, Amendment No. 2 to the Company's Form
10-KSB for the fiscal year ended December 31, 2004 (the "Amendment"). The
Amendment contains revisions responsive to the four(4) comments set forth in the
Staff comment letter to the Company, dated November 15, 2005. We are filing the
Amendment, this correspondence and certain revised supplementary information,
identified below, via EDGAR as required by Rule 101 of Regulation S-T as well as
mailing three (3) hard copies together with the Staff's November 15, 2005
comment letter by overnight delivery and telecopying one (1) copy for the
Staff's convenience. Please note the Company's following responses, keyed to the
Staff's comments in its November 15, 2005 letter:
Report of Independent Registered Public Accounting Firm, page 1
1. We note the revisions to your financial statements related to the
reclassification of certain beneficial conversion rights and deferred
compensation and the revaluation of options and warrants issued to
non-employees and employees for services. We also note your footnote on
page 26 titled, "Restatement of Results." Tell us how your auditors
considered including a reference in their audit report to the restatement.
We refer you to AU 561.06.
<PAGE>
Ms. Kathleen Collins
December 1, 2005
Page 2
Please be advised that our auditors have revised their Auditor's Report by
including a new paragraph referencing the footnote titled "Restatement of
Results" in accordance with the Staff's comment and AU 561.06.
Consolidated Statement of Stockholders' Equity (Deficit), page 5
2. We note your revised presentation of your statement of Stockholders'
equity (deficit) for year ended December 31, 2004. It appears that the
ending balances at December 31, 2003 do not agree to the beginning
balances at January 1, 2004 and that certain amounts for the year ended
December 31, 2004 are not in the correct columns. Revise your presentation
to include the correct amounts, as necessary, or tell us why such
revisions are not necessary.
In response to the Staff's comment, we have revised the presentation of
the statement of stockholder's equity (deficit) for the year ended
December 31, 2004 by correcting certain amounts so that the ending
balances at December 31, 2003 agree with the beginning balances at January
1, 2004.
Restatement of Results, page 26.
3. We have reviewed your explanatory note on page 2 of your 10-KSB/A and note
your statement, "the restatement involves reclassifying certain equity
positions in connection with beneficial conversion rights accrued to
warrants and shares of convertible preferred stock issued in 2003 and 2004
as well as the reclassification of deferred compensation." However, in
your restatement footnote on page 26, you refer only to the restated
financial results to reflect a revision related to the valuation of
securities issued to non-employees for services performed. Tell us why
your restatement footnote does not discuss the revisions related to your
reclassifications related to the beneficial conversion rights accrued to
warrants and shares of convertible preferred stock. Additionally, help us
understand what the beneficial conversion rights you refer to on page 2
consist of and provide us with your calculation/analysis of this
beneficial conversion rights as well as the accounting literature you are
relying on.
In response to the Staff's comment, the Amendment contains additional
disclosures in the Explanatory Note and the restatement footnote that
provide more complete disclosure and clarification that the restated
financial results relate to the Company's elimination of a discount of 50%
applied to the market price of the Company's common stock when valuing
certain securities issued prior to January 1, 2004 to employees and
non-employees for services rendered as well as a reclassification of
deferred compensation and reclassifications related to the beneficial
conversion rights accrued to warrants and shares of convertible preferred
stock caused by the elimination of this discount.
In further response to the Staff's comment and by way of supplementary
information, we have attached to this correspondence, as Attachment A, a
(1) "Summary of Recalculation of Warrant Cost and Beneficial Conversion
Feature and 2003 Amortization on Convertible Preferred Stock Issued in
2003 FYE December 31, 2003 FS Restatement, (2) a Recalculation of
Beneficial Conversion Feature on Convertible Preferred Stock Issued in
2003 FYE December 31, 2003 FS Restatement, (3) a Summary of Recalculation
of Warrant Cost and Beneficial Conversion Feature and 2004 Amortization on
Convertible Preferred Stock Issued in 2003 and 2004 FYE December 31, 2004
FS Restatement and (4) Recalculation of Beneficial Conversion Feature on
Convertible Preferred Stock Issued in 2004 FYE December 31, 2004 FS
Restatement
<PAGE>
Ms. Kathleen Collins
December 1, 2005
Page 3
General
4. Please refer to comment 6 in our letter dated October 21, 2005. We note in
your response that the Company filed a separate correspondence via Edgar,
signed by the executive officers and directors of the Company,
acknowledging your responsibilities as indicated in our previous comment.
We note, however, that the correspondence filed via Edgar included was
only signed by Mr. Angelastri. Was it the Company's intent to have all
named persons sign the letter? If so, please revise to include appropriate
signatures.
Please be advised that the executive officers and directors of the Company
signed their acknowledgment of responsibilities, including Director, Ivano
Angelastri, but it appears that the copy of this letter acknowledgment,
filed via Edgar on October 28, 2005, failed to contain conformed
signatures. Please be further advised that hard copies of the signed
acknowledgement letters were sent to the attention of Kathleen Collins,
Accounting Branch Chief on the same date via overnight delivery. We have
filed the letter of acknowledgment of responsibilities, with all conformed
signatures with this correspondence and have enclosed hard copies as
supplementary material.
Please do not hesitate to contact the undersigned if you require any
further information or documents.
Very truly yours,
/s/ Joseph J. Tomasek
Joseph J. Tomasek, Esq.
Encl.
cc: Patrick Gilmore
Division of Corporation Finance
Steve D. Rudnik, President
Magnitude Information Systems, Inc.
Joerg Klaube, Chief Financial Officer
Magnitude Information Systems, Inc.
<PAGE>
Ms. Kathleen Collins
December 1, 2005
Page 4
Magnitude Information Systems, Inc.
401 State Route 24
Chester, New Jersey 07930
October 20, 2005
FOR THE EXCLUSIVE USE
OF THE SECURITIES AND EXCHANGE COMMISSION ONLY
VIA EDGAR AND OVERNIGHT DELIVERY
Filing Desk
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20005
Attention: Kathleen Collins, Accounting Branch Chief
RE: Magnitude Information Systems, Inc. (the "Company")
Form 10-KSB for the Fiscal Year Ended
December 31, 2004
Filed March 30, 2005
File No. 000-32485
Dear Ms. Collins:
The undersigned, including the Chief Executive Officer and the Chief
Financial Officer, comprising the executive officers of the Company, and all of
the four (4) directors of the Company, hereby acknowledge to the Commission
their respective obligations in connection with Amendment No. 1 to the Company's
Form 10-KSB for the fiscal year ended December 31, 2004 and Amendments No. 1 to
the Company's Forms 10-QSB for the quarters ended March 31, 2005 and June 30,
2005 (collectively, the "Filing"), filed with the Commission via Edgar on or
about October 21, 2005, which include that:
o the Company is responsible for the adequacy and accuracy of the
disclosures in the Filing;
o Staff comments or changes to disclosures in the Filing and the
Company's responses to Staff comments do not foreclose the
Commission from taking any action with respect to the Filing; and
<PAGE>
Ms. Kathleen Collins
December 1, 2005
Page 5
o the Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Very truly yours,
MAGNITUDE INFORMATION SYSTEMS, INC.
By: /s/ Steven D. Rudnik
------------------------------------
Steven D. Rudnik, President, Chief
Executive Officer and Director
By: /s/ Joerg H. Klaube
------------------------------------
Joerg H. Klaube, Chief Financial
Officer
By: /s/ Steven Gray
------------------------------------
Steven Gray, Director
By: /s/ Ivano Angelastri
------------------------------------
Ivano Angelastri, Director
By: /s/ Joseph J. Tomasek
------------------------------------
Joseph J. Tomasek, Director
<PAGE>
ATTACHMENT A
Magnitude Information Systems, Inc.
Summary of recalculation of Warrant Cost and Beneficial Conversion Feature, and
2003 Amortization on Convertible Preferred Stock Issued in 2003
FYE December 31, 2003 FS Restatement
<TABLE>
<CAPTION>
Calc Calc
Description Investment to Warr to BCF(3) to Pref.Stock AmortWarr AmortBCR
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issued with warrants 876,962.00 653,998.08 222,963.92 -- 26,690.60 8,148.50
Issued without warrants 78,632.78 -- 32,442.22 46,190.56 -- --
--------------------------------------------------------------------------------------------------
Recalculated Totals 955,594.78 653,998.08 255,406.14 46,190.56 26,690.60 8,148.50
(1) ------------------------------(2)------------------------ ----------------(4)-----------
</TABLE>
NOTES:
(1) Total investment recalculated based on elimination of 50% discount of stock
valuation taken on certain issuances
(2) Increased overall value due to elimination of 50% valuation discount caused
re-allocation of warrants and preferred stock (discounted for BCF) based on
relative values under APB 16. The total gross discount on preferred stock
(warrants and BCF) totaled $909,404.
(3) Intrinsic value of beneficial conversion features calculated under
provisions of EITF 98-5 as amended by EITF 00-27 (see following page).
(4) Discount amortized over period through date of earliest conversion (6
months); certain issuances made on 12/31/03
Consideration was given to the provisions of EITF 00-19, and above securities
issued were classified as permanent equity as the instruments must be physically
settled in a certain number of shares, are not mandatorily redeemable and meet
all other conditions necessary for equity classification.
<PAGE>
Magnitude Information Systems, Inc.
Recalculation of Beneficial Conversion Feature on
Convertible Preferred Stock Issue in 2003
FYE December 31, 2003 FS Restatement
<TABLE>
<CAPTION>
(A) (B) (C) (A x (C) - (B)
Principal/ Allocation of Proceeds (see (1) to right) Shares Issuable Effective Market
Investment Amount to Warrants to Preferred Stock upon Conversion Conversion Price Price Intrinsic Value BCF
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
With warrants:
--------------
30,000.00 23,293.99 6,706.01 500,000 0.01 0.07 28,293.99 6,706.01
108,000.00 83,860.23 24,139.77 2,000,000 0.01 0.07 115,860.23 24,139.77
100,002.00 74,954.84 25,047.16 1,666,700 0.02 0.12 174,956.84 25,047.16
27,000.00 20,237.35 6,762.65 500,000 0.01 0.12 53,237.35 6,762.65
16,200.00 11,982.25 4,217.75 300,000 0.01 0.15 40,782.25 4,217.75
64,800.00 47,928.99 16,871.01 1,200,000 0.01 0.15 163,128.99 16,871.01
5,400.00 3,994.08 1,405.92 100,000 0.01 0.15 13,594.08 1,405.92
150,000.00 110,946.75 39,053.25 2,500,000 0.02 0.15 335,946.75 39,053.25
7,000.00 5,177.52 1,822.48 116,667 0.02 0.15 15,677.57 1,822.48
30,000.00 22,189.35 7,810.65