UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 0R
15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended February 28, 2005
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission File Number 0-22969
Market Central, Inc.
(Name of Small Business Issuer in its Charter)
Delaware 59-3562953
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7810 Ballantyne Commons Parkway, Suite 300, Charlotte, NC 28277
(Address of Principal Executive Offices)
704-319-2250
(Issuer's Telephone Number)
1650 Gum Branch Road
Jacksonville, NC 28540
(Former name, former address and former fiscal year,
if changed since last report)
Check 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 |_|
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class: Common Stock, $.001 par value
Outstanding as of March 15, 2005: 12,830,590 shares
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|
PART I.
ITEM 1. FINANCIAL STATEMENTS
The following unaudited Condensed Consolidated Financial Statements as of
February 28, 2005 and for the three months and six months ended February 28,
2005 and February 29, 2004 have been prepared by Market Central, Inc., a
Delaware corporation.
MARKET CENTRAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
February 28, 2005 August 31, 2004
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ 344,099
Accounts receivable, net of allowance for doubtful accounts of $0 at
February 28, 2005 and August 31, 2004 648,514 719,262
Accounts receivable - related parties, net of allowance for doubtful
accounts of $0 at February 28, 2005 and August 31, 2004 428,747 277,119
Prepaid expenses and other assets 57,941 149,282
------------ ------------
Total Current Assets 1,135,202 1,489,762
Property and Equipment:
Furniture and fixtures 119,094 116,185
Computers and software 32,683 28,490
Leasehold improvement 3,699 --
------------ ------------
155,476 144,675
Less: accumulated depreciation 145,053 138,412
------------ ------------
Property and Equipment, net 10,423 6,263
Net assets from discontinued operations (Note B)
699,705 885,186
Other Assets:
Restricted cash (Note C) 109,617 109,617
Goodwill 745,050 745,050
Deposits and other 426 50,308
Patents and trademarks, net of accumulated amortization of $48,662
and $32,440 at February 28, 2005 and August 31, 2004, respectively 48,657 64,879
------------ ------------
Total Other Assets 903,750 969,854
Total Assets $ 2,749,080 $ 3,351,065
============ ============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
Current Liabilities:
Cash disbursed in excess of available funds $ 83,472
Accounts payable and accrued liabilities 3,468,388 $ 4,202,696
Note payable to related parties (Note D and H) 2,912,465 1,210,474
Notes payable, current portion (Note D) 48,597 1,830,422
Due to factor (Note E) 354,584 483,590
Accrued preferred stock dividend (Note F) 139,529 61,067
Current portion of capital lease obligation 523,921 648,484
------------ ------------
Total Current Liabilities 7,530,956 8,436,733
Capital lease obligation - long-term portion 36,982 64,716
Commitments and Contingencies (Note K) -- --
Liabilities from discontinued operations (Note B) 125,000 125,000
Deficiency in Stockholders' Equity:
Preferred stock, par value $.001 per share; 10,000,000 shares authorized;
Series A - 3,841,008 shares and 2,251,407 shares issued and outstanding
at February 28, 2005 and August 31, 2004, respectively (Note F) 3,841 2,251
Series B - 350,000 shares issued and outstanding at February 28, 2005
and August 31, 2004 (Note F) 350 350
Common stock, par value $.001 per share; 75,000,000 shares authorized;
12,830,590 shares and 13,391,693 shares issued and outstanding at
February 28, 2005 and August 31, 2004, respectively (Note F) 12,830 13,392
Common stock receivable (Note F) (5, 881) (800)
Additional paid-in-capital 29,908,502 27,672,231
Preferred stock dividend (875,000) (875,000)
Accumulated deficit (33,988,500) (32,087,808)
------------ ------------
Total Deficiency in Stockholders' Equity (4,943,858) (5,275,384)
Total Liabilities and Deficiency in Stockholders' Equity $ 2,749,080 $ 3,351,065
============ ============
MARKET CENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
February 28, February 29,
2005 2004
---- ----
Revenues, net $ 5,014 $ --
Cost of sales -- --
------------ -----------
Gross profit 5,014 --
Operating expenses:
Selling, general and administrative 668,543 328,273
Impairment of goodwill (Note I) -- 4,062,003
Depreciation and amortization 11,432 9,210
------------ -----------
Total operating expenses 679,975 4,399,486
Loss from operations (674,961) (4,399,486)
Other income (Note K) 235,661 --
Interest (expenses), net (16,946) (20,846)
------------ ------------
Total other (income) expenses 218,715 (20,846)
Loss from continuing operations, before income taxes and
discontinued operations (456,246) (4,420,332)
Provision for income taxes -- --
------------ ------------
Loss from continuing operations, before discontinued operations (456,246) (4,420,332)
Loss from discontinued operations (Note B) (288,122) (1,446,048)
------------ ------------
Net loss $ (744,368) $(5,866,380)
============ ============
Cumulative convertible preferred stock dividend requirements (45,640) (4,951)
------------ ------------
Net loss attributable to common shareholders $ (790,008) $(5,871,331)
============ ============
Net loss per common share $ (0.06) $ (0.45)
============ ============
Continuing operations: $ (0.04) $ (0.34)
============ ============
Discontinued operations: $ (0.02) $ (0.11)
============ ============
Weighted Average Shares Outstanding
Basic and assumed diluted 12,786,954 13,268,969
============ ============
See accompanying notes to unaudited condensed consolidated financial statements
MARKET CENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
February 28, February 29,
2005 2004
---- ----
Revenues, net $ 6,784 $ --
Cost of sales 2,455 --
----------- -----------
Gross profit 4,329 --
Operating expenses:
Selling, general and administrative 1,451,734 397,141
Impairment of goodwill (Note J) -- 4,062,003
Depreciation and amortization 22,863 18,420
----------- -----------
Total operating expenses 1,474,597 4,477,564
Loss from operations (1,470,268) (4,477,564)
Other income (Note K) 235,661 --
Interest (expenses), net (44,499) (33,870)
----------- -----------
Total other (income) expenses 191,162 (33,870)
Loss from continuing operations, before income taxes and
discontinued operations (1,279,106) (4,511,434)
Provision for income taxes -- --
----------- -----------
Loss from continuing operations, before discontinued operations (1,279,106) (4,511,434)
Loss from discontinued operations (Note B) (543,397) (2,181,966)
Net loss $(1,822,503) $(6,693,400)
=========== ==============
Cumulative convertible preferred stock dividend requirements
(Note I) (78,189) (4,951)
----------- ------------
Net loss attributable to common shareholders $(1,900,692) $(6,698,351)
=========== ============
Net (loss) per common share $ (0.15) $ (0.50)
=========== ============
Continuing operations: (0.10) (0.34)
=========== ============
Discontinued operations: (0.05) (0.16)
=========== ============
Weighted Average Shares Outstanding
Basic and assumed diluted 12,786,954 13,268,969
=========== ============
MARKET CENTRAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
FEBRUARY 28, 2005 FEBRUARY 29, 2004
Cash flows used in operating activities $ (2,204,379) $ (2,251,795)
Cash flows used in investing activities (10,801) (193,014)
Cash flows provided by financing activities 1,871,081 2,342,578
--------------
- --------------
Net increase (decrease) in cash and
cash equivalents (344.099) (102,231)
Cash and cash equivalents at beginning of period 344,099
337,953
-------------- --------------
Cash and cash equivalents at end of period $ -- $ 235,722
============== ==============
Supplemental Cash Flow Information:
Cash paid for interest $ 47,553 $ 228,795
Cash paid for income taxes -- --
Non cash investing and financing activities:
Accrual of preferred stock dividend
during the period 78,189 4,951
Preferred shares issued in exchange for debt
Stock options and warrants issued in exchange
for services rendered 167,955 7,787
Stock options issued in exchange for
previously incurred debt -- 167,500
Warrants issued in exchange for
financing costs -- 238,650
See accompanying notes to unaudited condensed consolidated financial statements
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB, and therefore, do
not include all the information necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Accordingly, the results from operations for the three-month and six-month
period ending February 28, 2005 are not necessarily indicative of the results
that may be expected for the year ended August 31, 2005. The unaudited
consolidated financial statements should be read in conjunction with the
consolidated August 31, 2004 financial statements and footnotes thereto included
in the Company's SEC Form 10-KSB.
Business and Basis of Presentation
Market Central, Inc. dba Scientigo, Inc. (the "Company") is primarily focused in
intelligent Business Process Automation technologies, specializing in developing
and licensing intellectual property to partners whose products and services
complement our technologies for the benefit of clients. These customizable
solutions enable organizations to convert data from a processing and storage
burden into a competitive advantage, whether structured, semi-structured, or
unstructured, whether it is in paper or digital form, and regardless of volume.
The Company's believes its technology provides next generation artificial
intelligence and collaboration capabilities today. In addition, the Company
provides customer support and professional services to support its products.
Scientigo product strategy is to focus on developing and licensing technologies
from its valuable intellectual property portfolio. Development of the technology
that is the foundation of Scientigo's unique capabilities was begun in the mid
1990s and has resulted in four issued patents with numerous patents pending or
under development both within the United States and internationally.
The unaudited condensed consolidated financial statements for the three and six
months ended February 28, 2005, include the accounts of the Company and its
wholly owned subsidiaries, ecommerce support centers, inc. ("ecom") and Convey
Systems International, Inc. ("CSI"). All significant inter-company transactions
and balances have been eliminated in consolidation. The Company's CSI subsidiary
was formed to be the acquiring entity of the assets of The Tag Group, Inc., a
transaction that has not yet been completed and CSI is essentially inactive.
In April 2005 the Company entered into a binding commitment to sell its call
center operations. The Company's call center operations were contained within
its ecom subsidiary. The ecom operations are accounted for as a discontinued
operation, and accordingly, amounts in the financial statements, and related
notes for all periods shown have been restated to reflect discontinued
operations accounting. Summarized results of the discontinued business and
information on the sale price are further described in Note B. In May 2004, the
Company sold a subsidiary, U.S. Convergion, Inc. ("Convergion"), to Sylvia
Holding Co., Inc. ("Sylvia"), a Nevada Corporation, in exchange for 500,000
shares of Sylvia's common stock, and other goods and valuable consideration. The
Convergion business segment is accounted for as a discontinued operation, and
accordingly, amounts in the financial statements, and related notes for all
periods shown have been restated to reflect discontinued operations accounting.
Summarized results of the discontinued business are further described in Note B.
Stock Based Compensation
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option.
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
Stock Based Compensation (Continued)
The Company has adopted the annual disclosure provisions of SFAS No. 148 in its
financial reports for the year ended August 31, 2004 and 2003 and has adopted
the interim disclosure provisions for its financial reports for the subsequent
periods. Had compensation costs for the Company's stock options been determined
based on the fair value at the grant dates for the awards, the Company's net
loss and losses per share would have been as follows (transactions involving
stock options issued to employees and Black-Scholes model assumptions are
presented in Note G):
For the three months ended For the six months ended
February 28, 2005 February 29, 2004 February 28, 2005 February 29, 2004
----------------- ----------------- ----------------- -----------------
Net loss - as reported $ (744,368) $ (5,866,380) $ (1,822,503) $ (6,693,400)
============ =============== =============== ===============
Add: Total stock based employee
compensation expense as reported
under intrinsic value method (APB.
No. 25) -- -- -- --
Deduct: Total stock based employee
compensation expense as reported
under fair value based method (SFAS
No. 123) (16,770) (16,687) (309,145) (28,350)
------------ ------------- --------------- ---------------
Net loss - Pro Forma $ (761,138) $ (5,883,067) $ (2,131,648) $ (6,721,750)
Net loss attributable to common
stockholders - Pro forma $ (806,778) $ (5,888,018) $ (2,209,837) $ (6,726,701)
Basic (and assuming dilution) loss
per share - as reported $ (0.06) $ (0.44) $ (0.15) $ (0.50)
Basic (and assuming dilution) loss
per share - Pro forma $ (0.06) $ (0.44) $ (0.18) $ (0.50)
New Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
151, Inventory Costs--an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that ". . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal as to require treatment as current period charges. . . ." This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this Statement will have any immediate material impact on the
Company.
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements (Continued)
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate that the implementation of this standard will
have a material impact on its financial position, results of operations or cash
flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting Standards
No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions (" SFAS 153"). This statement amends APB
Opinion 29 to eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Under SFAS 153, if a
nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
Reclassification
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE B - DISCONTINUED OPERATIONS
ecommerce support centers, inc
In April 2005, the Company entered into a binding commitment to sell the assets
which comprise its call center operations. This sale of assets which are
included in the Company's ecom subsidiary provides for a sale price of
$1,100,000 and the assumption of certain liabilities, which have been estimated
at $125,000 for purposes of these discontinued operations disclosures. The
purchase price is payable $100,000 at closing and a note which provides for
$25,000 per month with 5% interest until the balance is paid. The effects of
this sale on the Company's balance sheet have been reflected as of August 31,
2004 and February 28, 2005 but these amounts are estimates and will change when
the actual transaction is completed.
As a result of the sale of the call center business segment, the Company
accounted for the segment as a discontinued operation, and accordingly, the
amounts in the financial statements and related notes for all periods shown have
been restated to reflect discontinued operations accounting.
The following summarizes the assets and liabilities from discontinued operations
as on February 28, 2005 and August 31, 2004:
February 28, 2005 August 31, 2004
----------------- ---------------
Assets:
Leasehold Improvements $ 1,243,278 $ 1,243,278
Furniture and Fixtures 886,305 935,304
Computers and Software 1,906,578 1,849,387
Accumulated Depreciation (3,336,456) (3,142,783)
----------- -----------
Total Assets $ 699,705 $ 885,186
=========== ===========
February 28, 2005 August 31, 2004
----------------- ---------------
Liabilities:
Accounts payable and accrued liabilities $ 125,000 $ 125,000
----------- -----------
Total Liabilities $ 125,000 $ 125,000
=========== ===========
The financial statements reflect the operating results and balance sheet items
of the discontinued operations separately from continuing operations. The
results for the three and six month periods ended February 29, 2004 have been
restated. Operating results for the discontinued operations for the three and
six month periods ended February 29, 2004 were:
Three Months Ended Six Months Ended
February 28, 2005 February 29, 2004 February 28, 2005 February 29, 2004
---------------------------------------- ----------------------------------------
Revenues $ 1,444,326 $ 1,963,281 $ 2,877,012 $ 3,985,822
Expenses (1,732,448) (3,080,368) (3,420,409) (5,897,719)
------------ ----------- ----------- -----------
Net income $ (288,122) $(1,117,087) $ (543,397) $(1,911,897)
============ =========== ========== ===========
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE B - DISCONTINUED OPERATIONS (Continued)
U.S. Convergion, Inc.
In May 2004, the Company sold its wholly owned subsidiary, Convergion to Sylvia
through a Stock Purchase Agreement ("Agreement"). As a result of the sale of the
Convergion business segment, the Company accounted for the segment as a
discontinued operation, and accordingly, the amounts in the financial statements
and related notes for all periods shown have been restated to reflect
discontinued operations accounting. The financial statements reflect the
operating results and balance sheet items of the discontinued operations
separately from continuing operations. The results for the three and six month
periods ended February 29, 2004 have been restated. Operating results for the
discontinued operations for the three and six month periods ended February 29,
2004 were:
Three Months Ended Six Months Ended
February 29, 2004 February 29, 2004
----------------- -----------------
Revenues $ 537,689 $ 2,155,104
Expenses (866,650) (2,425,173)
---------- -----------
Net income $ (328,961) $ (270,069)
========== ===========
NOTE C - RESTRICTED CASH
In June 2004, the Onslow County Tax Office, North Carolina sought the
garnishment of the Company's bank balance in the amount of $109,617 for
outstanding property taxes owed by the Company's wholly-owned subsidiary, ecom.
The Company has obtained a court order to allow the Company to defend its
position and recalculate the exact amount of taxes due. The Company's management
believes that the recalculated amount due was approximately $78,000. As of
February 28, 2005, the Company has not resolved the issue with Onslow County Tax
Office. The Company has included the amount of taxes due in its accrued
liabilities at February 28, 2005 and August 31, 2004 and accounted restricted
cash in the amount of $109,617.
NOTE D - NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES
Notes payable are as follows:
February August 31,
28, 2005 2004
Note payable in monthly installments of $33,333 including interest at 6% per
annum; maturity date is in March 2005; collateralized by 500,000 shares held by
a major stockholder and personal guarantees by two stockholders. $ -- $ 501,134
Note payable in monthly installments of $1,919 including interest at 7.34% per
annum; unsecured; maturity date is in May 2005. 7,464 18,975
Note payable in monthly installments of $2,813 including interest at 6% per annum; -- 19,180
unsecured; maturity date is in February 2005.
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE D - NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES (Continued)
(Continued)
February 28, August 31,
2005 2004
------------ ----------
Note payable to related party in monthly installments of interest only at LIBOR
daily floating rate plus 3.5%; maturity date is not specified (Note H) 1,250,000 -
Note payable to bank in monthly installments of interest only at LIBOR daily
floating rate plus 3.5%; maturity date is December 2004, personally guaranteed
by
Company shareholders -- 1,250,000
Note payable on demand to a related party, interest payable at 6% per annum on
repayment date; unsecured. (see Note H) 349,432 237,569
Note payable on demand to a related party, interest payable at 6% per annum on
repayment date; unsecured. (see Note H) 1,130,533 852,905
Note payable on demand to a related party, non-interest bearing; unsecured;
maturity date is in May 2004; the Company shall repay the note with Company
common stock. The Company is currently in default under the terms of the note
agreement. (Note H) 120,000 120,000
Notes payable to related parties due upon demand and bearing interest at 15%
(Note H) 62,500
Note payable; liabilities assumed pursuant to Assets Purchase Agreement with
Pliant ; interest payable at 12% per annum, interest due and principal due in
March 2004; unsecured. The Company is in default under the terms of the note
agreements. 41,133 41,133
---------- ---------
2,961,062 3,040,896
Less: current portion (2,961,062) (3,040,896)
---------- ---------
$ -- $ --
========== ===========
NOTE E - DUE FROM FACTOR
The Company's subsidiary, ecommerce support centers, inc., has an arrangement
for a $2,000,000 factoring facility whereby the factor purchases eligible
receivables and advances 80% of the purchased amount to the Company. Purchased
receivables are bought at 96.25% of their face amount. The Company receives a
rebate of 2.40% for invoices paid by customers between one to thirty days, and
2.36% for invoices paid by customers after thirty days reduced by .04% per
additional day such invoice remains outstanding. The arrangement is accounted
for as a sale of receivables on which the factor has recourse to the 20%
residual of aggregate receivables purchased and outstanding. Net charge to the
Company is 1.35% of the invoices paid by customers between one to thirty days,
and 1.39% after thirty days, increased by .04% per additional day such invoice
remains outstanding. In connection with this agreement, the Company is required
to maintain certain financial covenants. At February 28, 2005 and August 31,
2004, balance due from factor (included in accounts receivable) was as follows:
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE E - DUE FROM FACTOR (Continued)
February 28, August 31,
2005 2004
------------ -----------
Accounts Receivable - Factored $ 443,230 $ 604,488
Less: Advance from Factor $(354,584) (483,590)
--------- ----------
Net Due from Factor $ 88,646 $ 120,898
========= ==========
NOTE F - CAPITAL STOCK
The Company is authorized to issue 75,000,000 shares of common stock with $.001
par value per share and 10,000,000 shares of preferred stock with $.001 par
value per share. In July 2001, the Board of Directors of the Company designated
1,800,000 shares as 8% Cumulative Convertible Series C Preferred Stock and
1,050,000 shares as 8% Cumulative Convertible Series D Preferred Stock. In
February 2003, the Company effected a one-for-ten reverse stock split of its
outstanding shares of common stock. The Company's 75,000,000 authorized shares
of common stock with $.001 par value remained unchanged. All references in
consolidated financial statements and notes to financial statements, numbers of
shares and share amounts have been restated to reflect the reverse split.
In December 2003, the Company's Board of Directors designated 2,251,407 and in
November 2004 they designated an additional 3,001,877 shares bringing the total
to 5,253,284 shares of Series A Convertible Preferred Stock, par value $.001 per
share and 350,000 shares of Series B Convertible Preferred Stock, par value
$.001 per share. Both Series A Preferred Stock and Series B Preferred Stock have
a liquidation preference with is senior to the Company's Common Stock. The
Series A Preferred Stock provides for a 4% annual cumulative dividend, that is
payable when declared by the Company's Board of Directors and is payable in
shares of the Series A Preferred Stock.
As of February 28, 2005, the Company has 12,830,590 shares of common stock,
350,000 shares of Series B Convertible Preferred Stock and 3,841,008 shares of
Series A Convertible Preferred Stock issued and outstanding. As of August 31,
2004, the Company had 13,391,693 shares of common stock, 350,000 shares of
Series B Convertible Preferred Stock and 2,251,407 shares of Series A
Convertible Preferred Stock issued and outstanding.
During the six-month period ended February 28, 2005, the Company issued an
aggregate of 1,589,601shares of Series A Preferred Stock and received $1,915,749
of net proceeds. These proceeds from issuance of Series A Preferred Stock are
subject to 10% cash commissions and certain offering costs. As of February 28,
2005, the Company had accrued cumulative preferred stock dividends and charged
to retained deficit in the amount of $139,529.
During the six-month period ended February 28, 2005, the Company issued an
aggregate of 116,564 shares of common stock to employees and consultants in
exchange for services rendered. The shares issued to employees and consultants
were valued at approximately $1.20 to $1.30 per share, which approximated the
fair value of the shares issued during the period the services were rendered.
Compensation costs of $147,291 were charged to operations during the period
ended February 28, 2005.
Additionally, the Company issued an aggregate of 89,001 shares of its common
stock to consultants during the period ended February 28, 2005 in exchange for
stock options exercised at $0.01 per share. The Company received $890 of
proceeds, net of costs and fees (Note G). The Company valued the stock options
at the fair value of its common shares at the date the options were granted and
compensation costs were charged to operations in prior period at the time the
options were granted.
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE F - CAPITAL STOCK (Continued)
The Company issued an aggregate of 33,332 shares of its common stock to a
consultant during the period ended February 28, 2005 in exchange for stock
options exercised at $0.01 per share. The Company received $333 of proceeds, net
of costs and fees (Note G). The Company valued the stock options at the fair
value of its common shares during the period ended February 28, 2005 at the date
the options were granted and compensation costs were charged to operations
during the same period.
In connection with the Settlement Agreement and Mutual Release the Company
entered into in August 2004 with the Company's former CEO and Board of Directors
member ("Former CEO"), the Former CEO returned to the Company 800,000 shares of
common stock during the period ended February 28, 2005, and such shares were
canceled.
The common stock receivable shown on the February 28, 2005 balance sheet relates
to the November 2004 agreement between the Company and its two largest
shareholders resulting in the return of 5,880,740 shares of common stock to the
Company in connection with certain other actions which have been formally agreed
to (Note K). The transactions specified in this notification and agreement has
not been formally completed although all parties are bound by its provisions.
NOTE G - STOCK OPTIONS AND WARRANTS
Stock Options
The following table summarizes the changes in options outstanding and the
related prices for the shares of the Company's common stock issued to employees,
consultants and shareholders at February 28, 2005, after giving effect to 1:10
reverse split in common stock in February 2003:
Options Outstanding Options Exercisable
Weighted Average
Number Contractual Life Weighted AverageNumber Weighted Average
Exercise Price Outstanding (Years) Exercise Price Exercisable Exercise Price
- -------------- ----------- ------- -------------- ----------- --------------
$ .01- $3.16 5,666,061 5.31 $ 1.99 1,833,562 $ 1.56
$ 7.00-$9.50 20,000 0.11 $ 8.25 20,000 $ 8.25
---------- ------- ------------ --------- -----------
5,686,061 5.24 $ 2.02 1,853,562 $ 1.64
========== ======= ============ ========= ===========
Transactions involving the Company's options issuance are summarized as follows:
Number Weighted Average
of shares Exercise Price
--------- --------------
Outstanding at August 31, 2003 302,210 $ 5.22
========== ========
Granted 844,092 1.30
Exercised (67,500) 0.01
Cancelled (12,875) 17.06
---------- --------
Outstanding at August 31, 2004 1,065,927 $2.06
========== ========
Granted 4,855,000 2.03
Exercised (122,333) 0.01
Cancelled (112,533) 5.01
---------- --------
Outstanding at February 28, 2005 5,686,061 $ 2.02
========== ========
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE G - STOCK OPTIONS AND WARRANTS (Continued)
Warrants
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to employees,
consultants and shareholders at February 28, 2005 after giving effect to 1:10
reverse split in common stock in February 2003.
Warrants Outstanding Warrants Exercisable
Weighted Average
Number Contractual Life Weighted Average Number Weighted Average
Exercise Prices: Outstanding (Years) Exercise Price Exercisable Exercise Price
- ---------------- ----------- ------- -------------- ----------- --------------
$ 0.90- $7.81 2,461,635 3.03 $ 2.08 2,461,635 $ 2.08
$ 11.06- $33.75 111,743 0.60 $ 12.41 111,743 $ 12.41
--------- ------- -------- --------- --------
2,573,738 3.03 $ 2.53 2,573,738 $ 2.53
========= ======= ========= ========= ========
Transactions involving the Company's warrants issuance are summarized as
follows:
Number Weighted Average
of shares Exercise Price
--------- --------------
Outstanding at August 31, 2003 4,135,176 $ 3.43
========== ==============
Granted 692,452 1.94
Exercised -- --
Cancelled (80,631) 22.54
---------- --------------
Outstanding at August 31, 2004 4,746,997 $ 3.06
========== ==============
Granted 389,093 1.18
Exercised -- --
Cancelled (2,562,352) 2.93
---------- --------------
Outstanding at February 28, 2005 2,573,738 $ 2.53
========== ==============
The weighted-average fair value of stock options and warrants granted to
employees, consultants and shareholders during the period ended February 28,
2005, and February 2004 and the weighted-average significant assumptions used to
determine those fair values, using a Black-Scholes option pricing model are as
follows:
February 28, 2005 February 29, 2004
----------------- -----------------
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 2.04% 1.01%
Expected stock price volatility 22% 80%
Expected dividend payout -- --
Expected option life-years (a) 4.0 to 8.0 3.0 to 4.0
(a) The expected option/warrant life is based on contractual expiration dates.
If the Company recognized compensation cost for the non-qualified stock option
and warrant plan in accordance with SFAS No. 123, the Company's pro forma net
loss attributable to common shareholders and net loss per share would have been
$(2,209,837) and $(0.18), respectively, for the period ended February 28, 2005,
and $(6,726,701) and $(0.50), respectively, for the period ended February 29,
2004 (Note A).
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE G - STOCK OPTIONS AND WARRANTS (Continued)
The estimated value of the options and warrants granted to consultants was in
lieu of cash compensation for services performed. The amount of the expense
charged to operations in connection with granting the stock options to
consultants was $7,787 during the period ended February 29, 2004. The amount of
the expense charged to operations in connection with granting warrants in
exchange for financing costs for the issuance of Series A Preferred Stock
amounted $238,650 during the period ended February 29, 2004. In February 2004,
the Company also granted an aggregate of 84,092 options in exchange for $167,500
of previously incurred debt.
The Company granted 274,455 compensatory warrants to consultants during the
period ended February 28, 2005. The amount of the expense charged to operations
in connection with granting warrants to consultants was $28,955 during the
period ended February 2005. Additionally, the Company granted 100,000 stock
options to a consultant, exercisable at $0.01 per share. The Company valued
those options at the fair market value of its common stock at the date the
options were granted and $139,000 of compensation expense was charged to
discontinued operations during the period ended February 28, 2005. During the
period ended February 28, 2005, the Company received $1,223 of proceeds for
122,333 stock options exercised (Note F).
NOTE H - RELATED PARTY TRANSACTIONS
During the six months and three month periods ended February 28, 2005, the
Company recognized $151,616 and $38,715 of sales in connection with services
provided Cheapseats, Inc. During the six months and three month periods ended
February 29, 2004, the Company recognized $1,015,006 and $426,552 of sales in
connection with services provided Cheapseats, Inc., J&C Nationwide, Inc. and
Gibralter Publishing, Inc. and/or its successor entities. Gibralter Publishing,
Inc., Cheapseats, Inc. and J&C Nationwide, Inc. are owned by individuals who
were Company officers, directors and significant shareholders. Due to the
discontinued operations treatment of the call center revenues, these amounts are
included in the loss from discontinued operations in the Statements of
Operations. At February 28, 2005, the accounts receivable- related parties
includes $428,747 due relating to these revenues.
During the three month period ended February 28, 2005, the Company's President
and its CFO advanced a total of $75,000 in the form of unsecured notes to the
Company for working capital purposes. As of February 28, 2005, the balance on
these notes was $62,500. A Company shareholder advanced funds in the form of an
unsecured, non-interest bearing note to the Company for working capital
purposes. As of February 28, 2005, the amount due to the shareholder is $120,000
(Note D). The Company shall repay the note with common stock at the rate of
100,000 shares of common stock per $120,000 of advances. Operating advances from
the Company's two primary shareholders had been made to the Company at various
times since February 2003, and then in December 2004 one of these shareholders
assumed $1,250,000 of the Company's bank debt which has been reflected as
$1,250,000 in notes due to related parties (Note D). The balance of all these
shareholder loans or advances at February 28, 2005 and August 31, 2004 was
$2,912,465 and $1,210,474, respectively.
NOTE I - IMPAIRMENT OF GOODWILL
As a result of the Company's evaluation of the goodwill related to its U.S
Convergion, Inc. acquisition and related circumstances, Company management
during 2004, determined that more likely than not the fair value of the
reporting unit's goodwill has been reduced below its carrying value. As a
result, management performed an evaluation of the reporting unit's tangible and
intangible assets for purposes of determining the implied fair value of goodwill
at February 29, 2004. Upon completion of the assessment, management recorded a
non-cash impairment charge of $4,062,003 relating to the Company's U.S.
Convergion, Inc. subsidiary, net of tax, or $0.30 per share during the six
months ended February 29, 2004 to reduce the carrying value of goodwill in this
reporting unit to its estimated value of $ 0.
MARKET CENTRAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2005
UNAUDITED
NOTE J - OTHER INCOME
Other income of $235,661 recognized during the three months ended February 28,
2005 relates to the Company's settlement of vendor obligations for amounts less
than originally agreed to. Due to the Company's financial condition during
recent years, certain vendor obligations are in arrears and these vendors have
agreed to accept reduced amounts to settle the debts than had been originally
agreed to.
NOTE K - COMMITMENTS AND CONTINGENCIES
Litigation
In September 2004, an order requesting the U.S. Attorney for Eastern District of
North Carolina to prosecute an alleged criminal contempt of court by the
Company, that occurred in the case of Tweddle Litho Corp. vs. Gibralter
Publishing, Inc. and Market Central, Inc., ("Tweddle Case") was entered by a
judge in the U.S. District Court, Eastern District of North Carolina in the
United States District Court for the Eastern District of North Carolina. The
U.S. Attorney for the Eastern District of North Carolina issued a criminal
information against Market Central, Inc. alleging contempt of court by virtue of
the Company's violation of a court order entered on May 13, 2004 in the Tweddle
Case when Market Central, Inc. sold its wholly-owned subsidiary, Convergion on
June 2, 2004 in violation of the provisions of the order of May 13, 2004
enjoining the Company from transferring any of its assets out of the ordinary
course of business. In October 2004, the Company and the U.S. Attorney entered
into a written plea agreement whereby the Company agreed to pay $50,000 for the
alleged criminal contempt of court. The matter is set for disposition in U.S.
District Court for the Eastern District of North Carolina on April 28, 2005. The
U.S. States Attorney is supporting the Plea Agreement and the Company expects
that the Court will accept the plea agreement. The Company has accounted the
$50,000 for the alleged criminal contempt of court in connection with the Plea
Agreement as accrued liabilities at August 31, 2004.
NOTE L - SUBSEQUENT EVENTS
In April 2005, the escrow agent handling the November 2004 agreement between the
Company and its two largest shareholders notified the Company that one of the
shareholders has tendered 2,940,370 of the Company's common shares as called for
in the agreement. The remaining shareholder, per the agreement, has until April
30, 2005 to tender his shares to the escrow agent. These shares are currently
pledged as collateral on a loan between the shareholder and a bank. If the
shares are not returned until after April 2005, the Company has no other
obligation on the $1,250,000 note to the shareholder. Certain other actions in
connection with this agreement have not been formally completed although all
parties are bound by its provisions.
The Company has continued to raise capital in connection with a private
placement of its Series A Convertible Preferred Stock. Since February 28, 2005,
an additional 540,155 shares have been sold which provided $719,756 in proceeds
to the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Market Central, Inc. (formerly Paladyne Corp.) (the "Company") has two wholly
owned subsidiaries, ecommerce support centers, inc.("ecom") and Convey Systems
International, Inc.. The ecom subsidiary's activities have been reflected as
discontinued operations in the accompanying financial statements. Convey Systems
International, Inc. is inactive at this time.
The Company's on-going operations are conducted within Market Central, Inc.
Market Central, Inc. will be changing its name, with appropriate shareholder
approval to Scientigo, Inc. This change is expected to be effective in May 2005.
The Company is now primarily focused in intelligent Business Process Automation
technologies, specializing in developing and licensing intellectual property to
partners whose products and services complement our technologies for the benefit
of clients. These customizable solutions enable organizations to convert data
from a processing and storage burden into a competitive advantage, whether
structured, semi-structured, or unstructured, whether it is in paper or digital
form, and regardless of volume. The Company's believes its technology provides
next generation artificial intelligence and collaboration capabilities today. In
addition, the Company provides customer support and professional services to
support its products. Scientigo product strategy is to focus on developing and
licensing technologies from its valuable intellectual property portfolio.
The Company's unaudited condensed consolidated financial statements are
presented on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. As with any
new venture, concerns must be considered in light of the normal problems,
expenses and complications encountered by entrance into established markets and
the competitive environment in which the Company operates. The unaudited
condensed consolidated financial statements do not include, nor does management
feel it necessary, any adjustments to reflect any possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the Company to
continue as a going concern.
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 2005 TO THE THREE MONTHS ENDED
FEBRUARY 29, 2004
As discussed in Note B to the financial statements, the statements of operations
for three months ended February 28, 2005 and February 29, 2004 reflect the
reclassification of the Company's call center operating results into one line
item, discontinued operations. Accordingly, all amounts remaining in the various
line items on the statements of operations reflect the ongoing activities of the
Company.
Revenues for the three months ended February 28, 2005 and February 29, 2004 were
$5,014 and $-0-, respectively, due to the classification of Company's call
center operations into discontinued operations. As a result of the sale of the
Company's call center in April 2005, all of the revenue from 2004 and most of
that for the 2005 period are combined with related expenses as a separate line
item. The Company's new focus to exploit its intellectual property and related
software products began within the last six months with sales as of February 28,
2005 being minimal.
Operating expenses, which in the 2004 period included the $4,062,003 impairment
charge, were $679,975 and $4,399,486 during the three month periods ended
February 28, 2005 and February 29, 2004, respectively. The 2004 period amount is
$337,483 when the impairment charge is excluded from the amount. The increase in
operating expenses from 2004 to 2005 is $337,483, excluding the impairment
charge and consists of increased payroll and consultant costs together with a
growth in legal and professional fees relating to the Company's transition from
a call center dominated company to a technology based enterprise. The growth in
salaries is a result of the Company's recruitment of management and marketing
personnel needed to exploit its market opportunity. Depreciation and
amortization were $11,432 and $9,210 for the three month periods ended February
28, 2005 and February 29, 2004, respectively. This expense includes $8,110 of
amortization expenses related to the Company's patent portfolio during both
periods shown.
Other income of $235,661 recognized during the three months ended February 28,
2005 relates to the Company's settlement of vendor obligations for amounts less
than originally agreed to. Due to the Company's financial condition during
recent years, certain vendor obligations are in arrears and these vendors have
agreed to accept reduced amounts to settle the debts than had been originally
agreed to.
Interest expense decreased slightly from $20,846 to $16,946 during the three
months ended February 29, 2004 as compared to the three months ended February
28, 2005. This decrease is attributable to reductions in the Company's vendor
notes payable.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 2005 TO THE SIX MONTHS ENDED
FEBRUARY 29, 2004
As discussed in Note B to the financial statements, the statements of operations
for six months ended February 28, 2005 and February 29, 2004 reflect the
reclassification of the Company's call center operating results into one line
item, discontinued operations. Accordingly, all amounts remaining in the various
line items on the statements of operations reflect the ongoing activities of the
Company.
Revenues for the six months ended February 28, 2005 and February 29, 2004 were
$6,784 and $-0-, respectively, due to the classification of Company's call
center operations into discontinued operations. As a result of the sale of the
Company's call center in April 2005, all of the revenue from 2004 and most of
that for the 2005 period are combined with related expenses as a separate line
item. The Company's new focus to exploit its intellectual property and related
software products began within the last six months with sales as of February 28,
2005 being minimal.
Operating expenses, which in the 2004 period included the $4,062,003 impairment
charge, were $1,474,597 and $4,477,564 during the six month periods ended
February 28, 2005 and February 29, 2004, respectively. The 2004 period amount is
$415,561 when the impairment charge is excluded from the amount. The increase in
operating expenses from 2004 to 2005 is $1,059,036, excluding the impairment
charge and consists of increased payroll and consultant costs together with a
growth in legal and professional fees relating to the Company's transition from
a call center dominated company to a technology based enterprise. During the six
month periods ended February 28, 2005 and February 29, 2004, the increase in
Operating expenses is also the result of the shift of general and administrative
personnel and costs related to the on-going operations of the Company being
effected during the first few months of the 2005 period while in 2004, these
items were generally focused on the call center operations and have been
reclassified into discontinued operations. The growth in salaries is a result of
the Company's recruitment of management and marketing personnel needed to
exploit its market opportunity. Depreciation and amortization were $22,863 and
$18,420 for the six month periods ended February 28, 2005 and February 29, 2004,
respectively. This expense includes $16,220 of amortization expenses related to
the Company's patent portfolio during both periods shown.
Other income of $235,661 recognized during the three months ended February 28,
2005 relates to the Company's settlement of vendor obligations for amounts less
than originally agreed to. Due to the Company's financial condition during
recent years, certain vendor obligations are in arrears and these vendors have
agreed to accept reduced amounts to settle the debts than had been originally
agreed to.
Interest expense increased slightly from $33,870 to $44,499 during the six
months ended February 29, 2004 as compared to the six months ended February 28,
2005. This increase is attributable to interest costs during the first part of
the 2005 period including certain fees as a result of late payments.
LIQUIDITY AND CAPITAL RESOURCES
The Company is not currently generating positive cash flow and its cash
resources on hand are insufficient for its long term needs. As a result, certain
vendor payables, capital leases and other obligations are in arrears and in
default. Sale of Series A Convertible Preferred shares since November 2004 has
resulted in approximately $1,717,000 in capital for the Company through April 4,
2005. These have been the primary source of capital for the Company and
approximately $500,000 remains to be sold unless additional shares are
authorized by the Board of Directors. The Company's decision to sell its call
center operations will result in improved cash flows but the Company must, and
is continuing pursue other capital sources to enable it to grow and enhance its
operations going forward. The Company's Board of Directors has approved a term
sheet for a convertible debt offering that if successfully completed should
provide the Company with long term financial stability.
The Company's principal cash requirements are for selling, general and
administrative expenses, employee costs, funding of accounts receivable and
capital expenditures. The Company's redirection to a technology enterprise that
includes both software products and licensing of intellectual property will
dramatically alter all phases of the Company's operations and cash flow issues.
Cash used in operating activities was $2,204,379 for the six months ended
February 28, 2005. This was due primarily as a result of operating losses,
caused by the revenue levels that are at less than a breakeven volume.
Increasing revenues or further cost cutting will be required in the future. The
Company invested $10,801 in computers and furniture during this period. The
Company met its cash requirements during the six months ended February 28, 2005
mainly through the receipt of $1,915,749 in proceeds from its sale of its Series
A Preferred Stock, net of offering expenses of approximately $201,333.
While the Company has continued to raise capital to meet its working capital
requirements, additional financing is required in order to meet future needs.
There are no assurances the Company will be successful in raising the funds
required and any equity raised would be substantially dilutive to existing
shareholders.
The Company's independent certified public accountants have stated in their
report included in the Company's August 31, 2004 Form 10-KSB, that the Company
has incurred operating losses in the last two years, and that the Company is
dependent upon management's ability to develop profitable operations. These
factors among others may raise substantial doubt about the Company's ability to
continue as a going concern.
INFLATION
In the opinion of management, inflation has not had a material effect on the
operations of the Company.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Certain statements made in this report, and other written or oral statements
made by or on behalf of the Company may constitute "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995. When used in this
report, the words "believes," "expects," "estimates," "intends," "will" and
similar expressions are intended to identify forward-looking statements.
Statements regarding future events and developments and our future performance,
as well as the Company's expectations, beliefs, plans, intentions, estimates or
projections relating to the future, are forward-looking statements within the
meaning of these laws. Examples of such statements in this report include the
Company's current plans for improving liquidity and its future acquisition
plans. Forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from those expressed in or implied by
the statements, including, but not limited to the ability of the Company to
provide for its debt obligations and to provide for working capital needs from
operating revenue; general economic conditions; the ability to integrate
acquisitions successfully and without disruptions to normal operations; and
other risks detailed in the Company's periodic report filings with the
Securities and Exchange Commission. The Company believes that these
forward-looking statements are reasonable; however, you should not place undue
reliance on such statements. These statements are based on current expectations
and speak only as of the date of such statements. The Company undertakes no
obligation to publicly update or revise any forward-looking statement, whether
as a result of future events, new information or otherwise.
ITEM 3. CONTROLS AND PROCEDURES
(a) On April 14, 2005, we made an evaluation of our disclosure controls and
procedures. In our opinion, the disclosure controls and procedures are adequate
because the systems of controls and procedures are designed to assure, among
other items, that 1) recorded transactions are valid; 2) valid transactions are
recorded; and 3) transactions are recorded in the proper period in a timely
manner to produce financial statements which present fairly the financial
condition, results of operations and cash flows for the respective periods being
presented. Moreover, the evaluation did not reveal any significant deficiencies
or material weaknesses in our disclosure controls and procedures.
(b) There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls since the last evaluation
PART II
ITEM 1. LEGAL PROCEEDINGS
In September 2004, an order requesting the U.S. Attorney for Eastern District of
North Carolina to prosecute an alleged criminal contempt of court by the
Company, that occurred in the case of Tweddle Litho Corp. vs. Gibralter
Publishing, Inc. and Market Central, Inc., ("Tweddle Case") was entered by a
judge in the U.S. District Court, Eastern District of North Carolina in the
United States District Court for the Eastern District of North Carolina. The
U.S. Attorney for the Eastern District of North Carolina issued a criminal
information against Market Central, Inc. alleging contempt of court by virtue of
the Company's violation of a court order entered on May 13, 2004 in the Tweddle
Case when Market Central, Inc. sold its wholly-owned subsidiary, Convergion on
June 2, 2004 in violation of the provisions of the order of May 13, 2004
enjoining the Company from transferring any of its assets out of the ordinary
course of business. In October 2004, the Company and the U.S. Attorney entered
into a written plea agreement whereby the Company agreed to pay $50,000 for the
alleged criminal contempt of court. The matter is set for disposition in U.S.
District Court for the Eastern District of North Carolina on April 28, 2005. The
U.S. States Attorney is supporting the Plea Agreement and the Company expects
that the Court will accept the plea agreement.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) From December 1, 2004, through February 28, 2005, the Company
issued 1,062,855 shares of Series A Preferred Stock at $1.3325 per share.
Each share of Preferred Stock is convertible into one (1) share of the
Company's Common Stock. The Company paid a commission of 7% on all shares
issued and issued one warrant to purchase one share of Common Stock at
$1.3325 per share for each seven shares of Series A Preferred Stock sold.
The shares were issued pursuant to Section 4(2) of the Securities Act of
1933, as amended, as they were sold only to accredited investors and not
more than 35 nonaccredited investors.
(b) None
(c) The following table provides information about purchases by us
and our affiliated purchasers during the quarter ended February 28, 2005
of equity securities that are registered by us pursuant to Section 12 of
the Securities Exchange Act of 1934:
ISSUER PURCHASES OF EQUITY SECURITIES
Period (a) (b) (c) (d)
Total Number of Average Price Total Number of Shares (or Maximum Number (or Approximate
Shares (or Units) Paid per Share Units) Purchased as Part of Dollar Value) of Shares (or Units)
Purchased) (or Unit) Publicly Announced Plans or that May Yet Be Purchased Under the
Programs (1) Plans or Programs (1)
12/01/04-12/31/04 0 $0 0 0
01/01/05-01/31/05 0 $0 0 0
2/01/05-2/28/05 0 $0 0 0
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
(a) Exhibits
31.1 Certification of Doyal G. Bryant pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 Certification of Clifford A. Clark pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 Certification of Doyal G. Bryant pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2 Certification of Clifford A. Clark pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (filed herewith).
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MARKET CENTRAL, INC.
Date: April 19, 2005 By /s/ Doyal G. Bryant
--------------------
Doyal G. Bryant
President
Date: April 19, 2005 By /s/ Clifford Clark
-------------------
Clifford Clark
Chief Financial Officer