-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WNla8NwLG9/+4KsyJIIaw/Gm8021lipjBMBC4/egtwEpTP3M8d/4mw5WK2CcxBLJ TxguABYTFx/f3bLANlvCQg== 0001144204-04-000434.txt : 20040120 0001144204-04-000434.hdr.sgml : 20040119 20040120143214 ACCESSION NUMBER: 0001144204-04-000434 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20031130 FILED AS OF DATE: 20040120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARKET CENTRAL INC CENTRAL INDEX KEY: 0001043933 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 593562953 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-22969 FILM NUMBER: 04532251 BUSINESS ADDRESS: STREET 1: 1650A GUM BRANCH RD CITY: JACKSONVILLE STATE: NC ZIP: 32830 BUSINESS PHONE: 4079091723 MAIL ADDRESS: STREET 1: 1650A GUM BRANCH ROAD CITY: JACKSONVILLE STATE: NC ZIP: 32746 FORMER COMPANY: FORMER CONFORMED NAME: PALADYNE CORP DATE OF NAME CHANGE: 19990324 FORMER COMPANY: FORMER CONFORMED NAME: SYNAPTX WORLDWIDE INC DATE OF NAME CHANGE: 19970807 10QSB 1 form10qsb.txt 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 November 30, 2003 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.) 1650A Gum Branch Road, Jacksonville, NC 28540 (Address of Principal Executive Offices) 910-478-0097 (Issuer's Telephone Number) N/A (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 December 31, 2003: 13,268,969 shares Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] PART I. ITEM 1. FINANCIAL STATEMENTS The following unaudited Condensed Consolidated Financial Statements for the three months ended November 30, 2003 and November 30, 2002 have been prepared by Market Central, Inc. a Delaware corporation. MARKET CENTRAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2003 AUGUST 31, 2003 ----------------- --------------- (Unaudited) (Audited) ASSETS Current Assets: Cash and cash equivalents $ 206,130 $ 337,953 Accounts receivable, net 2,023,813 1,905,316 Due from related parties 565,823 362,673 Inventory 30,045 9,678 Costs in excess of billings 57,870 50,446 Prepaid expenses and other current assets 308,558 66,013 ------------ ------------ Total Current Assets 3,192,239 2,732,079 Furniture and fixtures 1,022,344 1,010,228 Computers and software 2,050,870 2,059,445 Leasehold improvements 1,227,905 1,227,905 Accumulated depreciation (3,043,514) (2,778,725) ------------ ------------ Property and equipment, net 1,257,605 1,518,853 Other assets: Deposits 77,442 77,442 Patents and trademarks 97,319 97,319 Other 425 425 Goodwill 4,807,053 4,807,053 ------------ ------------ Total other assets 4,982,239 4,982,239 Total assets $ 9,432,083 $ 9,233,171 ============ ============ LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY Current Liabilities: Cash disbursed in excess of available funds $ -- $ 111,581 Accounts payable and accrued liabilities 7,521,114 7,522,282 Deferred revenue 210,025 432,448 Notes payable to related parties (Note C and F) 1,034,724 428,696 Notes payable, current portion (Note C) 3,020,535 2,097,761 Current portion of capital lease obligations 642,370 691,606 ------------ ------------ Total current liabilities 12,428,767 11,284,374 Notes payable, long-term portion (Note C) 189,575 288,816 Capital lease obligations, long-term portion 91,053 113,439 ------------ ------------ Total long-term liabilities 280,628 402,255 Total liabilities 12,709,395 11,686,629 COMMITMENTS AND CONTINGENCIES -- -- DEFICIENCY IN STOCKHOLDERS' EQUITY Common stock 13,269 13,269 Additional paid-in capital 21,880,013 21,876,847 Accumulated deficit (25,170,594) (24,343,574) ------------ ------------ Total deficiency in stockholders' equity (3,277,312) (2,453,458) ------------ ------------ $ 9,432,083 $ 9,233,171 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements 3 MARKET CENTRAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 2002 ------------ ------------ Revenues, net $ 3,647,033 $ 2,475,050 Cost of Revenues 2,469,036 1,426,876 ------------ ------------ Gross Profit 1,177,997 1,048,174 Selling, general and administrative expenses 1,605,944 776,798 Depreciation and amortization 264,789 248,454 ------------ ------------ Total operating expense 1,870,733 1,025,252 Income (loss) from operations (692,736) 22,922 Other income (expense): Interest expense (134,284) (151,514) ------------ ------------ Loss from operations, before income taxes (827,020) (128,592) Income (taxes) benefits -- -- ------------ ------------ Net loss (827,020) (128,592) Cumulative convertible preferred stock dividend requirement -- (10,200) ------------ ------------ Net loss attributable to common stockholders $ (827,020) $ (138,792) ============ ============ Weighted average common shares outstanding: Basic 13,268,969 1,670,935 Diluted 13,268,969 1,670,935 Earnings (loss) per share: Basic $ (.06) $ (.08) Diluted $ (.06) $ (.08)
See accompanying notes to unaudited condensed consolidated financial statements 4 MARKET CENTRAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 2002 ----------- ----------- Cash flows used in operating activities $(1,486,222) $ (99,405) Cash flows provided by (used in) investing activities (3,541) (12,671) Cash flows provided by financing activities 1,357,939 284,119 ----------- ----------- Net increase (decrease) in cash and cash equivalents (131,824) 172,043 Cash and cash equivalents at beginning of period 337,953 -- ----------- Cash and cash equivalents at end of period $ 206,129 $ 172,043 =========== =========== Supplemental Cash Flow Information: Cash paid for interest $ 117,584 $ 151,514 Non cash investing and financing activities: Accrual of preferred stock dividend -- 10,200 Stock options issued in exchange for services rendered 3,166 --
See accompanying notes to unaudited condensed consolidated financial statements 5 MARKET CENTRAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2003 UNAUDITED NOTE A - SUMMARY OF ACCOUNTING POLICIES General The accompanying unaudited 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 period ended November 30, 2003 are not necessarily indicative of the results that may be expected for the year ended August 31, 2004. The unaudited consolidated financial statements should be read in conjunction with the consolidated August 31, 2003 financial statements and footnotes thereto included in the Company's SEC Form 10-KSB. Business and Basis of Presentation Market Central, Inc. (formerly Paladyne Corp.) (the "Company") operates two wholly owned subsidiaries, ecommerce support centers, inc.("ecom") and U.S. Convergion, Inc. ("Convergion"). ecom provides outsourced contact center solutions and Customer Relationship Management (CRM) services, and Convergion provides systems design, integration, sales and service of internal contact centers and is a reseller for MicroSoft's MS CRM solution. Combined, the subsidiaries provide inbound technical support, sales, and customer service; outbound pre-sales and sales; data mining; campaign management; CRM Integration (contact center systems design, sales, integration and life-cycle support). The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ecom and Convergion. The Company's acquisition of Convergion occurred on April 3, 2003, and, accordingly, the financial statements included herein include the results of operations of Convergion during the quarter ended November 30, 2003. All significant inter-company transactions and balances have been eliminated. In February 2003, the Company effected a one-for-ten reverse stock split of its outstanding shares of common stock. All references in the condensed consolidated financial statements and notes to financial statements, numbers of shares and share amounts have been restated to reflect the reverse split. 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 charge 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. The Company has adopted the annual disclosure provisions of SFAS No. 148 in its financial reports for the year ended August 31, 2003 and for the subsequent periods. 6 MARKET CENTRAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2003 UNAUDITED NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued) Stock Based Compensation (Continued) 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 E):
For the three month ended November 30, 2003 2002 --------- --------- Net loss - as reported $(827,020) $(128,592) 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) (11,663) (207) --------- --------- Net loss - Pro Forma $(838,683) $(128,799) Net loss attributable to common stockholders - Pro forma $(838,683) $(138,999) Basic (and assuming dilution) loss per share - as reported $ (0.06) $ (0.08) Basic (and assuming dilution) loss per share - Pro forma $ (0.06) $ (0.08)
Reclassification Certain reclassifications have been made to conform to prior periods' data to the current presentation. These reclassifications had no effect on reported losses. New Accounting Pronouncements In December 2003, the FASB issued SFAS No. 132 (revised), EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB STATEMENTS NO. 87, 88, AND 106. This statement retains the disclosure requirements contained in FASB statement no. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which it replaces. It requires additional disclosures to those in the original statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. The revision applies for the first fiscal or annual interim period ending after December 15, 2003 for domestic pension plans and June 15, 2004 for foreign pension plans and requires certain new disclosures related to such plans. The adoption of this statement will not have a material impact on the Company's results of operations or financial positions. NOTE B - BUSINESS COMBINATIONS U.S. Convergion, Inc. On April 3, 2003, the Company acquired all of the issued and outstanding common shares of U.S. Convergion, Inc. ("Convergion"), through an Agreement and Plan of Exchange ("Agreement"). Pursuant to the Agreement, the Company acquired Convergion, in exchange for $671,899 consisting of 374,630 shares of the Company's restricted common stock in a transaction accounted for using the purchase method of accounting. 7 MARKET CENTRAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2003 UNAUDITED NOTE B - BUSINESS COMBINATIONS (Contineud) U.S. Convergion, Inc. (Contineud) The following summarizes the acquisition of Convergion: Assets acquired $ 2,588,152 Liabilities assumed (5,817,256) Goodwill 4,062,003 Acquisition costs (161,000) ------------- $ (671,899) The Company valued the common stock issued to the Convergion shareholders at $1.79 per share, which approximated the fair value of the Company's common stock at the date of acquisition. The Company has recorded the carryover basis of the net assets acquired, which did not differ materially from their fair value and its operating results have been included in the Company's consolidated financial statements since the date of purchase. Pliant Technologies, Inc. In July 2003, the Company acquired certain assets from Pliant Technologies, Inc. ("Pliant") in a transaction accounted for using the purchase method of accounting. The following summarizes the asset purchase agreement with Pliant: Assets acquired $ 128,358 Liabilities assumed (872,408) Goodwill 745,050 --------- Cash paid $ (1,000) ========= The Company has recorded the carryover basis of the net assets acquired, which did not differ materially from their fair value and its operating results have been included in the Company's consolidated financial statements since the date of purchase. Pursuant to a separate agreement between the Company and the holders of Pliant's previously incurred debt assumed by the Company, the Company issued an aggregate of 228,351 shares of its restricted common stock and warrants to purchase an aggregate of 182,681 shares of its common stock in exchange for the discharge and cancellation of $830,150 of assumed liabilities. The remaining amount ($42,258) of the assumed debt remains outstanding and is secured by a lien on the purchased assets. The unaudited pro-forma combined historical results, as if Convergion and Pliant had been acquired on September 1, 2002, are estimated to be:
For the Three Months Ended November 30, 2003 2002 ----------- ----------- Revenues $ 3,647,036 $ 7,040,722 Net loss attributable to common shareholders $ (823,854) $(1,437,779) Loss per share: Basic and diluted $ (.06) $ (.86)
The unaudited proforma information has been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition actually been made at such a date, nor is it necessarily indicative of future operating results. 8 MARKET CENTRAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2003 UNAUDITED NOTE C - NOTES PAYABLE AND NOTES PAYABLE TO RELATED PARTIES Notes payable at November 30, 2003 and August 31, 2003 are as follows:
November 30, August 31, 2003 2003 ----------- ----------- 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 $ 536,770 $ 628,045 Note payable in monthly installments of $1,919 including interest at 7.34% per annum; unsecured; maturity date is in May 2005 36,733 40,787 Note payable in monthly installments of $2,813 including interest at 6% per annum; unsecured; maturity date is in February 2005 43,134 48,298 Note payable in weekly installments of $17,500, including interest at 4.15% per annum; unsecured; maturity date is in April 2003; the Company is currently in default under the terms of the note agreement 238,481 238,481 Note payable to Bank in monthly installments of interest only at LIBOR daily floating rate; maturity date is February 9, 2004; collateralized by Company furniture and equipment 1,250,000 1,000,000 Note payable on demand to a related party, interest payable at 6% per annum on repayment date; unsecured. (Note F) 574,724 275,954 Note payable on demand to a related party, interest payable at 6% per annum on repayment date; unsecured. (Note F) 340,000 32,742 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. (Note F) 120,000 120,000 Note payable to Bank in monthly payments; interest rate is at bank's prime lending rate plus 4.5%, secured by Company accounts receivable -- 389,833 Note payable revolving agreement secured by accounts receivable with interest payable monthly at approximately 16%, maximum borrowing capacity of $2,000,000 1,063,859 -- Note payable; liabilities assumed pursuant to Assets Purchase Agreement with Pliant (see Note B); interest payable at 12% per annum, interest due and principal due in March 2004; unsecured 41,133 41,133 ----------- ----------- 4,244,834 2,815,273 Less: current portion (4,055,259) (2,526,457) ----------- ----------- $ 189,575 $ 288,816 =========== ===========
Aggregate maturities of notes payable as of November 30, 2003 are as follows: Year Amount ---- ---------- 2004 $4,055,259 2005 189,575 ---------- Total $4,244,834 ========== NOTE D - 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 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. 9 MARKET CENTRAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2003 UNAUDITED NOTE D - CAPITAL STOCK (Continued) As of November 30, 2003, the Company has 13,268,969 shares of common stock issued and outstanding. No preferred stock was issued and outstanding at November 30, 2003. NOTE E - STOCK OPTIONS AND WARRANTS 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 November 30, 2003, after giving effect to 1:10 reverse split in common stock in February 2003:
Options Outstanding Options Exercisable ------------------- ------------------- Weighted Average Number Contractual Life Weighted Average Number Weighted Average Exercise Price Outstanding (Years) Exercise Price Exercisable Exercise Price -------------- ----------- ------- -------------- ----------- -------------- $ 2.00 - $ 2.98 201,000 3.00 $ 2.45 75,667 $ 2.48 $ 7.00 - $ 9.50 20,000 1.10 $ 8.25 20,000 $ 8.25 $10.25 - $11.40 68,335 1.17 $ 10.26 68,335 $ 10.26 $15.60 - $25.00 6,375 0.10 $ 25.00 6,375 $ 25.00 -------- ---- ------- ----- ------- 295,710 1.67 $ 5.13 170,377 $ 7.12 ======== ==== ======= ======= =======
Transactions involving the Company's options issuance are summarized as follows: Number Weighted Average of shares Exercise Price --------- -------------- Outstanding at August 31, 2001 210,693 $11.60 Granted 16,000 .10 Exercised -- -- Cancelled (18,950) 24.80 -------- ------ Outstanding at August 31, 2002 207,743 9.00 ======== ====== Granted 185,000 2.30 Exercised -- -- Cancelled (90,533) 3.66 -------- ------ Outstanding at August 31, 2003 302,210 $ 5.22 ======== ====== Granted -- -- Exercised -- -- Cancelled (6,500) 4.11 -------- ------ Outstanding at November 30, 2003 295,710 $ 5.13 ======== ====== The weighted-average fair value of stock options granted to shareholders during the periods ended November 30, 2003 and 2002 and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes option pricing model are as follows: 2003 2002 ---- ---- Significant assumptions (weighted-average): Risk-free interest rate at grant date 1.01% 1.28% Expected stock price volatility 38% 38% Expected dividend payout - - Expected option life-years (a) 3.0 to 4.0 3.0 to 4.0 (a)The expected option life is based on contractual expiration dates. 10 MARKET CENTRAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2003 UNAUDITED NOTE E - 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 November 30, 2003 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 Weighted Average Exercise Prices: Outstanding (Years) Exercise Price Number Exercisable Exercise Price - ---------------- ----------- ------- -------------- ------------------ -------------- $ 2.20 - $ 7.81 3,905,892 3.90 $ 2.79 3,905,892 $ 2.79 $10.00 - $11.88 163,183 1.32 $11.26 163,183 $ 11.26 $12.81 - $17.50 21,350 1.97 $15.13 21,350 $ 15.13 $25.00 - $33.75 32,851 0.60 $27.86 32,851 $ 28.14 --------- ---- ------ --------- ------- 4,123,276 3.76 $ 3.39 4,123,276 $ 3.39 ========= ==== ====== ========= =======
Transactions involving the Company's warrants issuance are summarized as follows: Number Weighted Average of shares Exercise Price --------- -------------- Outstanding at August 31, 2001 868,056 $25.60 Granted -- 0.00 Exercised -- 0.00 Cancelled (265,622) 12.50 ---------- ------ Outstanding at August 31, 2002 602,434 $17.00 ========== ====== Granted 3,891,014 2.83 Exercised -- -- Cancelled (358,272) 7.94 ---------- ------ Outstanding at August 31, 2003 4,135,176 $ 3.43 ========== ====== Granted -- -- Exercised -- -- Cancelled (11,900) 19.24 ---------- ------ Outstanding at November 30, 2003 4,123,276 $ 3.39 ========== ====== The weighted-average fair value of stock warrants granted to shareholders during the periods ended November 30, 2003 and 2002 and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes option pricing model are as follows: 2003 2002 ---- ---- Significant assumptions (weighted-average): Risk-free interest rate at grant date 1.01% 1.28% Expected stock price volatility 38% 38% Expected dividend payout - - Expected warrant life-years (a) 3.0 to 4.0 3.0 to 4.0 (a)The expected warrant life is based on contractual expiration dates. 11 MARKET CENTRAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2003 UNAUDITED NOTE E - STOCK OPTIONS AND WARRANTS (Continued) 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 and net loss per share would have been $838,683 and $(.06) in for the period ended November 30, 2003 and $128,799 and $(.08) for the period ended November 30, 2002, respectively. The estimated value of the options 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 and warrants was $3,166 and $0 during the period ended November 30, 2003 and 2002, respectively. NOTE F - RELATED PARTY TRANSACTIONS During the three month periods ended November 30, 2003 and 2002, the Company recognized $409,546 and $1,071,375 of sales in connection with services provided Gibraltar Publishing, Inc., ("Gibraltar") representing 11% and 43% of the Company's sales for the three months ended November 30, 2003 and 2002, respectively. Gibraltar was indebted to the Company for services in the amount of $295,679 (net of allowance for doubtful account of $60,000) and $592,208 at November 30, 2003 and 2002, respectively. An individual that is an officer, director and significant shareholder of the Company owns Gibraltar. The Company also provides services to J&C Nationwide, Inc. and Cheapseats, Inc., companies owned by a director and significant shareholder of the Company. The Company recognized $215,108 of sales in connection with services provided J&C Nationwide, Inc. and Cheapseats, Inc., representing 6% of the Company's sales for the three month period ended November 30, 2003. J&C Nationwide, Inc. and Cheapseats, Inc. were indebted to the Company for services in the amount of $270,144 at November 30, 2003. During the three month period ended November 30, 2003, two of the Company's principal shareholders advanced funds in the form of unsecured notes, interest payable at 6% per annum, to the Company for working capital purposes. As of November 30, 2003, the amount due to the shareholders is $914,724 (Note C). Additionally, a Company principal shareholder advanced funds in the form of an unsecured, non-interest bearing note to the Company for working capital purposes. As of November 30, 2003, the amount due to the shareholder is $120,000 (Note C). The Company shall repay the note with common stock at the rate of 100,000 shares of common stock per $120,000 of advances. NOTE G - SEGMENT INFORMATION The Company's two reportable segments are managed separately based on fundamental differences in their operations. During 2003 and the first quarter of 2004, the Company operated in the following two reportable segments: o Outsourced contact center solutions and Customer Relationship Management (CRM) services to customers primarily in the United States of America. o Systems design, integration, sales and service of internal contact centers and reselling MicroSoft's MS CRM solution primarily in the United States of America. During 2002, the Company's sole reportable business segment was the outsourced contact center solutions and CRM services Segment operating income is total segment revenue reduced by operating expenses identifiable with the business segment. Corporate includes general corporate administrative costs. The Company evaluates performance and allocates resources based upon operating income. The accounting policies of the reportable segments are the same as those described in the summary of accounting policies. There are no inter-segment sales. 12 MARKET CENTRAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 2003 UNAUDITED NOTE G - SEGMENT INFORMATION (Continued) The following table summarizes segment asset and operating balances by reportable segment.
November 30, 2003 November 30, 2002 ----------------- ----------------- Net Sales to External Customers: Outsourced contact center services $ 2,029,618 $ 2,475,050 Systems design and integration 1,617,415 -- Corporate -- -- ----------- ----------- Total Sales to External Customers $ 3,647,033 $ 2,475,050 =========== =========== Depreciation and Amortization: Outsourced contact center services $ 240,066 $ 248,454 Systems design and integration 24,723 -- Corporate -- -- ----------- ----------- Total Depreciation and Amortization $ 264,789 $ 248,454 =========== =========== General and Administrative Expense: Outsourced contact center services $ 776,563 $ 589,367 Systems design and integration 466,505 -- Corporate 362,876 187,431 ----------- ----------- Total General and Administrative Expense $ 1,605,944 $ 776,798 =========== =========== Capital Expenditures: Outsourced contact center services $ 3,541 $ 12,671 Systems design and integration -- -- Corporate -- -- ----------- ----------- Total Capital Expenditures $ 3,541 $ 12,671 =========== =========== Operating income (losses): Outsourced contact center services $ (523,036) $ 58,839 Systems design and integration 58,892 -- Corporate (362,876) (187,431) ----------- ----------- Total Segment Operating Losses $ (827,020) $ (128,592) =========== ===========
November 30, 2003 August 31, 2003 ----------------- --------------- Segment Assets: Outsourced contact center services $7,241,394 $7,477,919 Systems design and integration 2,157,468 1,719,831 Corporate 33,221 35,421 ---------- ---------- Total Segment Assets $9,432,083 $9,233,171 ========== ==========
NOTE H - SUBSEQUENT EVENTS In December 2003, the Company approved a private placement offering of up to $3,000,000 of its newly authorized Series A Convertible Preferred Stock. This offering, at a share price of $1.3325 per share for the Series A Preferred is convertible into one share of the Company's common stock after a one-year period from the date of issuance. 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 December 31, 2003, the Company had received $175,000 of proceeds from this offering. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Market Central, Inc. is a full service Customer Relationship Management (CRM) provider. The Company has developed a next-generation suite of CRM solutions that include proprietary, patented software for data capture, cleansing, mining, integration, search, and intelligent document recognition. The Company is also a Microsoft development partner for MS CRM solutions. Market Central provides other CRM services, such as campaign management, and operates a 900-seat contact center to support the software line of business and provide outsourced contact center services to select clients as part of their overall CRM effort. Through its wholly owned subsidiary, US Convergion, the Company offers in-house contact center design, sales, implementation and service for clients that seek an internal support function for their CRM program. 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. The Company maintains business relationships with three related businesses, Gibralter Publishing, Inc. ("Gibralter"), Cheapseats, Inc. and J&C Nationwide, Inc. Each of these companies has call center contracts with the Company's ecom subsidiary and is owned or controlled by an officer and/or board member of the Company. These three related companies accounted for approximately $624,654 or 17% of the revenues for the three-month period ended November 30, 2003. RESULTS OF OPERATIONS The following table sets forth the percentage relationship to the total revenues of principal items contained in the Company's Unaudited Condensed Consolidated Statements of Operations for the three months ended November 30, 2003 and November 30, 2002, respectively. The percentages discussed throughout this analysis are stated on an approximate basis. Three months Ended November 30, 2003 2002 (UNAUDITED) Total revenues 100% 100% Cost of revenues 67.6% 57.7% ----- ----- Gross profit 32.4% 42.3% Operating expenses 51.4% 41.4% ----- ----- Operating income (loss) (19.0%) .9% Interest expense 3.7% 6.1% ----- ----- Net loss (22.7%) (5.2%) ----- ----- 14 COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 2003 TO THE THREE MONTHS ENDED NOVEMBER 30, 2002 Revenue for the three months ended November 30, 2003 and 2002 were $3,647,033, and $2,475,050, respectively; this represents an increase of 47.3% in sales. This increase of $1,171,983 is due entirely to the acquisition of U.S. Convergion, Inc. in April 2003. Revenue from Convergion for the three months ended November 30, 2003 was $1,617,415. Revenue from the Company's ecom subsidiary declined from the three months ended November 30, 2002 to 2003 by $445,432 or 18.0%. This decline was due entirely to the reduction in the volume of the Gibralter contract from $1,071,375 to $409,546 for the three months ended November 2002 and 2003, respectively. This decline of $662,129 in the Gibralter contract from the three months ended November 2002 to 2003 is offset by increases in Cheapseats, Inc. and J&C Nationwide, Inc. volume of $215,108 and other third party contracts of $5,365. Cost of revenues of $2,469,036 and $1,426,876, respectively for the three months ended November 30, 2003 and 2002 were 67.6% and 57.7% of revenue for the periods. The increase in cost of sales of $1,042,160 or 73% from 2002 to 2003 is attributable primarily to the acquisition of U.S. Convergion, Inc. in April 2003 which accounted for $1,028,562 of the cost of revenues increase and the ecom subsidiary accounting for $13,598 of the increase. The percentage increase in cost of revenue when compared to revenue amounted to 9.9% from 57.7% to 67.6% for the three months ended November 2002 and 2003, respectively. This growth in cost of revenue, and corresponding decline in gross profit percent is due to several factors. The cost of revenue for sales from the Company's Convergion subsidiary amounted to 63% of revenue resulting in a gross profit of 37% from this subsidiary's revenues. Convergion's revenue accounted for 44% of total revenue for the quarter ended November 2003 so this contributed to the increase in cost of revenue and corresponding decline in gross profit as a percentage of revenue from the quarter ended November 30, 2002 to 2003. Convergion's cost of revenue and gross profit at 63% and 37% respectively, accounts for approximately 2.3% of the 9.9% increase in cost of revenue. In addition to the effect of Convergion, the ecom subsidiary's cost of revenue increased significantly as a percentage of revenue. Cost of revenue, as a percentage of sales at ecom increased from 57.7% to 71.7% for the three months ended November 30, 2002 and 2003, respectively. This increase is responsible for 7.6% of the 9.9% increase in cost of revenue. This increase in cost of revenue, and corresponding decline in gross profit at ecom is due primarily to changes in the Gibralter contract and increased phone costs during the three months ended November 30, 2003 compared to the same period in 2002. Gibralter's contract volume has declined significantly from 2002 to 2003 and the effectiveness of ecom's execution of Gibralter's campaign has declined for general economic reasons. This situation resulted in changes in Gibralter contract that have reduced revenue thereby increasing the cost of revenue when compared to revenue totals. The reduction in charges to Gibralter accounted for approximately 5% of the 9.9% increase in cost of revenue. Increased telephone costs for all campaigns accounted for approximately 2.6% of the total Company increase of 9.9%. Gross profit was $1,177,997 and $1,048,174, respectively for the three months ended November 30, 2003 and 2002 and was 32.4% and 42.3% of revenue for the periods. The decrease in gross profit percentage is due to the increases in costs of revenue discussed above. Operating expenses, including depreciation and amortization, have increased from $1,025,252 to $1,870,733, respectively for the three months ended November 30, 2003 and 2002. This increase of $845,481 is due primarily to Convergion's inclusion in the 2003 quarter. Convergion accounted for $491,228 of the increase, the remaining increase of $354,253 is due to increased payroll, benefits and travel within the ecom subsidiary and general corporate operations. The increase as a percentage of revenue was from 41.4% for the three months ended November 30, 2002 to 51.4% for the three months ended November 30, 2003. This increase, as a percentage of revenue, is due primarily to sales growth not keeping pace with the increased payroll, benefit and travel costs incurred in 2003. Interest expense, as percentage of revenue, decreased from 6.1% to 3.7% during the three months ended November 30, 2002 as compared to the three months ended November 30,2003. The decrease from $151,514 to $134,284 is due primarily to the conversion of the $5,000,000 of notes payable to Gibralter which were converted into capital stock in December 2002. Additional borrowings since December 2002 have significantly offset the decline as a result of the Gibralter note conversion. 15 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. This situation has been present for a period of time, and together with the anticipated need for additional working capital for the Company to increase its marketing and revenue base, the Board of Directors continues to take actions intended to stabilize the Company and enhance its operations going forward. The Company's two principal shareholders (who took control of the Company in the February 2003 transaction) have also consistently provided the Company with additional capital in the form of loans throughout the year, on a discretionary basis. Advances have been in response to a pressing need to meet a critical obligation of the Company. As of November 30, 2003, these shareholders had provided the Company with advances of $914,724. The Company expects that the need to rely on these loans will be greatly diminished with the success of other capital raising activities. The Company's principal cash requirements are for selling, general and administrative expenses, employee costs, funding of accounts receivable and capital expenditures. During the three month period ended November 30, 2003, the Company obtained $606,028 in loans from individuals who were principals in the proposed transaction described above. Cash used in operating activities was $1,486,222 for the three months ended November 30, 2003. 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 $3,541 in computers and leasehold improvements during this period. The Company met its cash requirements during the three months ended November 30, 2003 mainly through the receipt of $1,520,614 in loan proceeds from its accounts receivable financing and advances from the two principal shareholders. While the Company has raised capital to meet its working capital requirements in the past, additional financing is required in order to meet current and projected cash flow deficits from operations. The Company is seeking financing in the form of equity through a private placement of its preferred stock. 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. INFLATION In the opinion of management, inflation has not had a material effect on the operations of the Company. RISK FACTORS AND CAUTIONARY STATEMENTS Forward-looking statements in this report are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Company wishes to advise readers that actual results may differ substantially from such forward-looking statements. 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 following: the ability of the Company to provide for its debt obligations and to provide for working capital needs from operating revenue, and other risks detailed in the Company's periodic report filings with the Securities and Exchange Commission. 16 ITEM 3. CONTROLS AND PROCEDURES (a) On November 30, 2003, 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. 17 PART II ITEM 1. Legal Proceedings None ITEM 2. Changes in Securities and Use of Proceeds None ITEM 3. Defaults Upon Senior Securities None ITEM 4. Submission of Matters to a Vote of Security Holders None ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits No. Description 4 Certificate of Designations, Powers, Preferences and Relative, Participating, Optional and Other Special Rights of the Series A Convertible Preferred Stock of Market Central, Inc. (filed herewith) 31.1 Certification of Terrence Leifheit Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of Clifford A. Clark Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). (b) Reports on Form 8-K filed during the three months ended November 30, 2003. None ITEM 6. OTHER INFORMATION None 18 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: January 15, 2004 By /s/ Terrence Leifheit ------------------------- Terrence Leifheit President Date: January 15, 2004 By /s/ Clifford Clark -------------------------- Clifford Clark Chief Financial Officer 19 CERTIFICATION I, Terrence Leifheit, certify that: 1. I have reviewed this quarterly report on Form 10QSB of Market Central, Inc., 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls an procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls, and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 15, 2004 /s/ Terrence J. Leifheit ----------------------------- Terrence J. Leifheit President 20 CERTIFICATION I, Clifford A. Clark, certify that: 1. I have reviewed this quarterly report on Form 10QSB of Market Central, Inc., 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls an procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls, and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation including any corrective actions with regard to significant deficiencies and material weaknesses. Date: January 15, 2004 /s/ Clifford A. Clark ----------------------------- Clifford A. Clark Chief Financial Officer (only to be consistent) 21 EX-4 3 ex4.txt Exhibit 4 CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF THE SERIES A CONVERTIBLE PREFERRED STOCK OF MARKET CENTRAL, INC. Pursuant to Section 151 of the Delaware General Corporation Law Market Central, Inc. (the "Corporation"), organized and existing under the General Corporation Law of the State of Delaware does, by its President and its Secretary and under its corporate seal, hereby certify that pursuant to the authority contained in Article IV of its Certificate of Incorporation, and in accordance with the provisions of Section 151 of the Delaware General Corporation Law, its Board of Directors has adopted the following resolution creating the following classes and series of the Corporation's $.001 par value Convertible Preferred Stock and determining the voting powers, designations, powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof, of such classes and series: RESOLVED, that, pursuant to authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the Corporation (the "Certificate of Incorporation"), there is hereby created the following class of Convertible Preferred Stock: o 2,251,407 shares shall be designated Series A Convertible Preferred Stock, par value $.001 per share (the "Series A Preferred Stock"). The designations, powers, preferences, and relative, participating, optional and other special rights and the qualifications, limitations and restrictions of the Series A Preferred Stock in addition to those set forth in the Certificate of Incorporation shall be as follows: 1. Voting Rights. Except as otherwise required by law, no holder of Series A Preferred Stock shall be entitled to vote on any matter. 2. Dividends. Holders of Series A Preferred Stock are entitled to a four percent (4%) cumulative annual dividend on the Series A Liquidation Value, payable when, as and if declared by the Board of Directors of the Corporation, in additional shares of Series A Preferred Stock determined by dividing the amount of such dividend by the Series A Liquidation Value. Such dividends shall begin to accrue on December 15, 2003, except to the extent that dividends accrue on the portion of a holder's Series A Liquidation Value resulting from the issuance of additional shares of Series A Preferred Stock as dividends, in which event such dividends shall accrue from the date of issuance of such additional shares of Series A Preferred Stock. All dividends declared upon the Series A Preferred Stock shall be declared pro rata per share. Further, the Corporation may make distributions on the Junior Securities, provided that no distributions (as defined below) shall be declared or paid with respect to the Common Stock or other securities that are pari pasu or junior to the Series A Preferred Stock (the "Junior Securities") without there being contemporaneously declared and paid a dividend on the Series A Preferred Stock (with the same record and payment date) so that each share of Series A Preferred Stock shall receive a dividend equal to the distribution paid per share of the Junior Securities times the number of shares of the Junior Securities into which such share of Series A Preferred Stock is then convertible. For the purpose of this Section 2, unless the context otherwise requires, "distribution" shall mean the transfer of cash or property by the Corporation without consideration, whether by way of dividend or otherwise, payable other than in Junior Securities, or the purchase or redemption of shares of the Corporation for cash or property, including any such transfer, purchase or redemption by a subsidiary of the Corporation. 22 3. Liquidation. (a) Liquidation Value. In the event of any Liquidation Event prior to a Qualified Offering, the holders of the Series A Preferred Stock shall be entitled pari passu to be paid, before any distribution or payment is made upon any Common Stock, an amount in cash equal to the Series A Liquidation Value of each share of Series A Preferred Stock held by them, and no more. If such payment shall have been made in full to the holders of Series A Preferred Stock, the remaining assets of the Corporation shall be distributed among the holders of Junior Securities. If upon any Liquidation Event prior to a Qualified Offering, the Corporation's assets to be distributed among the holders of the Series A Preferred Stock are insufficient to permit payment in full of the Series A Liquidation Value to such holders, such assets shall be distributed ratably among them based upon the aggregate Series A Liquidation Value of the Series A Preferred Stock held by each holder. (b) Notice of Liquidation Event. At least thirty (30) days' previous notice by mail, postage prepaid, shall be given to the holders of record of the Series A Preferred Stock of any Liquidation Event, such notice to be addressed to each such holder at the address of such holder appearing on the books of the Corporation or given by such holder to the Corporation for the purpose of notice, or if no such address appears or is so given, at the place where the principal office of the Corporation is located. Such notice shall state the anticipated date fixed for the Liquidation Event, the Series A Liquidation Value, and shall call upon such holder to surrender to the Corporation on said date at the place designated in the notice such holder's certificate or certificates representing their Series A Preferred Stock; provided, however, that failure to so surrender such certificate or certificates shall not affect such holder's rights under this Section 3. (c) Adjustment to Series A Liquidation Value. If the Corporation subdivides (by any stock split, stock dividend, recapitalization or otherwise) Series A Preferred Stock into a greater number of shares, the Series A Liquidation Value of such Series A Preferred Stock will be proportionately reduced, and if the Corporation combines (by reverse stock split or otherwise) Series A Preferred Stock into a lesser number of shares, the Series A Liquidation Value of such Series A Preferred Stock will be proportionately increased. 4. Conversion. (a) Conversion and Conversion Ratio. Effective at any time after one year from the date of issuance (the "Conversion Date"), each share of Series A Preferred Stock may, at the sole discretion of the holder of such shares of Series A Preferred Stock, be converted into one (1) share of Common Stock (the "Conversion Ratio"). Such Conversion shall be exercised by the holder giving the Corporation written notice of the Conversion. Thereafter, the Corporation shall deliver to the holder a certificate evidencing such shares of Common Stock against delivery to the Corporation at its principal office of the certificate, duly endorsed, representing the shares of Series A Preferred Stock held by such holder. Notwithstanding anything to the contrary herein, upon receipt of notice of a Liquidation Event before a Qualified Offering, each holder of shares of Series A Preferred Stock, at his sole discretion, shall have not less than thirty (30) days to provide such written notice and deliver such certificates to the Corporation as set forth above for conversion. (b) Reorganization, Reclassification, Consolidation, Merger or Sale, etc. (i) If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of its Common Stock into a greater number of shares, the Conversion Ratio in effect immediately prior to such subdivision will be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of its Common Stock, the Conversion Ratio in effect immediately prior to such combination will be proportionately increased concurrently with the effectiveness of such event. (ii) In case the Corporation shall declare a dividend or make any other distribution upon any stock of the Corporation payable in Common Stock or options to purchase shares of Commons Stock or securities convertible into shares of Common Stock for no consideration without making a ratable distribution thereof to holders of Series A Preferred Stock (based upon the number of shares of Common Stock into which such Series A Preferred Stock would be convertible, assuming Conversion), then the Conversion Ratio in effect immediately prior to the declaration of such dividend or distribution shall be proportionately reduced, concurrently with the effectiveness of such declaration. 23 (iii) Any capital reorganization, reclassification, consolidation, merger or sale of all or substantially all of the Corporation's assets to another Person which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an "Organic Change." Prior to the consummation of any Organic Change, the Corporation will make appropriate provisions to insure that each of the holders of Series A Preferred Stock will thereafter have the right to acquire and receive such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted its Series A Preferred Stock immediately prior to such Organic Change. The Corporation will not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from consolidation or merger or the Corporation purchasing such assets assumes by written instrument the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (c) Fractional Shares. No payment or adjustment shall be made upon any conversion on account of any cash dividends paid or payable on the Common Stock issued upon such conversion. If any fractional interest in a share of Common Stock is deliverable upon any such conversion, the Corporation, in lieu of delivering fractional shares thereof, shall pay to the holder surrendering the Series A Preferred Stock for conversion an amount in cash equal to the Market Value of such fractional interest as of the date of conversion. (d) Stock to be Reserved. The Corporation will at all times reserve and keep available out of its authorized Common Stock or its treasury shares, solely for the purpose of issue upon the conversion of the Series A Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series A Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all liens and charges with respect to the issue thereof. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation. (e) No Reissuance of Series A Preferred Stock. Shares of Series A Preferred Stock which are converted into shares of Common Stock as provided herein or which are repurchased by the Corporation shall not be reissued and the authorized number of Series A Preferred Stock shall be reduced upon the conversion of such Series A Preferred Stock or the repurchase thereof by the Corporation by the number of shares of such converted or repurchased Series A Preferred Stock. (f) Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of the Series A Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any income or similar taxes of a holder arising in connection with a conversion or any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificates in a name other than that of the holder of the Series A Preferred Stock which is being converted. (g) Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Series A Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series A Preferred Stock in any manner that interferes with the timely conversion of such Series A Preferred Stock. 5. Optional Redemption. At any time after December 14, 2005, the Company may redeem all, but not less than all, of the Series A Preferred Shares by delivery of written notice (the "Redemption Notice") to each holder of Series A Preferred Shares of such redemption. On the effective date set forth in the Optional Redemption Notice, but not later than thirty (30) days following the date of the Optional Redemption Notice, the then outstanding shares of Series A Preferred Shares shall become immediately redeemable and the Company shall purchase each holder's outstanding share of Series A Preferred Shares in exchange for cash in an amount per share equal to the Series A Liquidation Value. Notwithstanding anything to the contrary herein, upon receipt of a Redemption Notice, each holder of shares of Series A Preferred Stock, at his sole discretion, shall have the right to give the Corporation written notice of the Conversion of their shares of Series A Preferred Stock in accordance with the terms of Section 4(a). 24 6. Incidental Registrations. If the Corporation at any time proposes to conduct a Qualified Offering, it will give prompt written notice to all holders of Series A Preferred Stock of its intention to do so. Upon the written request of any such holder made within 30 days after the receipt of any such notice (which request shall specify the number of Common Stock intended to be disposed of by such holder and the intended method or methods of disposition thereof) and the Conversion of such shares of Series A Preferred Stock in accordance with the terms of Section 3(a) hereof, the Corporation will use its best efforts to effect the registration under the Securities Act of 1933, as amended, of all such Common Stock in accordance with such intended method or methods of disposition, provided that: (a) if, at any time after giving written notice of its intention to register any equity securities and prior to the effective date of the registration statement filed in connection with such registration, the Corporation shall determine for any reason not to register such equity securities, the Corporation may, at its election, give written notice of such determination to each holder of Series A Preferred Stock and, thereupon, shall not be obligated to register any such Common Stock in connection with such registration (but shall nevertheless pay the Registration Expenses in connection therewith); and (b) if a registration pursuant to this Section 6 involves an underwritten offering, and the managing underwriter (or, in the case of an offering that is not underwritten, an investment banker) shall advise the Corporation in writing (with a copy to each holder of Series A Preferred Stock requesting registration thereof) that, in its opinion, the number of securities requested and otherwise proposed to be included in such registration exceeds the number which can be sold in such offering, the Corporation will include in such registration to the extent of the number which the Corporation is so advised can be sold in such offering, first, the securities if any, being sold by the Corporation, and second, the Common Stock of the holders of Series A Preferred Stock requested to be included in such registration pro rata, among such holders, on the basis of the number of such Common Stock requested to be included. The Corporation will pay all registration expenses in connection with each registration of Common Stock requested pursuant to this Section 6, provided that any seller thereunder shall pay all registration expenses to the extent required to be paid by such seller under applicable law and provided further that underwriting commissions shall be paid pro rata by the sellers in such registration, based on the number of shares of Common Stock being sold. 7. Definitions. For purposes herein, the following terms shall have the meanings indicated: "Board of Directors" shall mean the Board of Directors of the Corporation. "Common Stock" means, collectively, the Corporation's Common Stock, par value $.001 per share, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation. "Liquidation Event" shall mean any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary. "Market Value" of any security means the average of the closing prices of such security's sale on all securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the Nasdaq System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the Nasdaq System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization. If at any time such security is not listed on any securities exchange or quoted in the Nasdaq System or the over-the-counter market, the "Market Value" will be the fair value thereof determined jointly by the Corporation and the holders of a majority of the Series A Preferred Stock then outstanding. If such parties are unable to reach agreement within a reasonable period of time, such fair value will be determined by an independent appraiser jointly selected by the Corporation and the holders of a majority of the Series A Preferred Stock then outstanding. If such Persons are unable to agree upon an appraiser, such appraiser will be selected by (i) an independent appraiser selected by the Corporation, and (ii) an independent appraiser selected by the holders of a majority of the outstanding Series A Preferred Stock; the cost of such independent appraiser determining the fair value of such consideration shall be borne by the Corporation. 25 "Person" means an individual, a partnership, a corporation, a trust, a joint venture, an unincorporated organization or any department or agency thereof. "Qualified Offering" means the closing of a public offering of shares of the Common Stock of the Corporation in an amount of not less than $5,000,000 prior to commissions and offering expenses pursuant to an effective registration statement on a form prescribed by the SEC Commission (other than Form S-4 or Form S-8 or any successor or replacement form for any such form). "Series A Liquidation Value" of any share of Series A Preferred Stock as of any particular date will be equal to $1.3325, subject to adjustment as provided for herein. "Series A Preferred Stock" shall mean the Corporation's Series A Convertible Preferred Stock, par value $.001 per share. 26 IN WITNESS WHEREOF, Market Central, Inc. has caused this Certificate to be duly executed by the undersigned this 4th day of December, 2003. Market Central, Inc. By: /s/ Terrance J. Liefheit ---------------------------------------- Name: Terrance J. Liefheit -------------------------------------- Title: President ------------------------------------- 27 EX-32 4 ex33_1.txt Exhibit 33.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Market Central, Inc. (the "Company") on Form 10-QSB for the period ending November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Terrence J. Leifheit President and Chief Executive Officer, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Terrence J. Leifheit - ----------------------------- Terrence J. Leifheit President and Chief Executive Officer January 15, 2004 28 EX-32 5 ex33_2.txt Exhibit 33.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Market Central, Inc. (the "Company") on Form 10-QSB for the period ending November 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Clifford A. Clark, VP of Finance, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Clifford A. Clark - ----------------------------- Clifford A. Clark Chief Financial Officer January 15, 2004 -----END PRIVACY-ENHANCED MESSAGE-----