**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

**FORM 10-QSB**

**x****     QuarterlyReport Under Section 13 or 15(d) of the Securities Exchange Act of1934.**

**For the Quarterly Period Ended May 31,2006**

**or**

**o****     TransitionReport Under Section 13 or 15(d) of the Securities Exchange Act of1934.**

**For the Transition Period From                         To                         **

**Commission File Number:  0-22969**

**SCIENTIGO, INC.**

(Exact name ofsmall business issuer as specified in its charter)

| **Delaware**                                                     |   | **59-3562953**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **6701  Carmel Road, Suite 205  Charlotte, NC**             |   | **28226**                             |
| (Address of  principal executive offices)                        |   | (Zip Code)                            |

 

Issuer’s telephonenumber: **(704) 837-0500**

**Market Central, Inc.**

(Former Name, Former Address and Former Fiscal Year, if ChangesSince Last Report

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to the filing requirements for the past 90 days.   Yes xNo o

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). o Yes xNo

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.
| Class                                   | ** ** | **Outstanding at July 12, 2006** |
|-----------------------------------------|------------|---------------------------------------|
| Common Stock, $.001 par value per share |       | 20,787,784  shares                    |

 

Transitional Small Business Disclosure Format (checkone):                       oYes x No

 

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PART I.

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

The following unaudited Condensed ConsolidatedFinancial Statements for the nine monthsended May 31, 2006 and May 31, 2005 have been prepared byScientigo, Inc., a Delaware corporation.

**Scientigo, Inc.**

**Condensed Consolidated Balance Sheets**
| ** **                                                                                                                                        | ** ** | **Unaudited**              | ** ** | ** **                                            | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------------------------------|------------|
| ** **                                                                                                                                        | ** ** | **May 31, 2006** | ** ** | **  August 31, 2005  ** | ** ** |
| ASSETS                                                                                                                                            |       |                       |       |                                                  |       |
| Current Assets:                                                                                                                                   |       |                       |       |                                                  |       |
| Cash and cash  equivalents                                                                                                                        |       | $                          | 165,783    |                                                  | $          | 2,124,029 |   |
| Accounts receivable,  net of allowance for doubtful accounts of $0 at May 31, 2006 and  August 31, 2005                                 |       | 15,379                     |       | 10,000                                                |       |
| Other receivable  related party                                                                                                                   |       | —                     |       | 81,090                                                |       |
| Notes receivable  related parties (Note C)                                                                                                        |       | 184,732                    |       | 378,003                                               |       |
| Prepaid expenses and  other current assets                                                                                                        |       | 46,000                     |       | 124,777                                               |       |
| Total Current Assets                                                                                                                              |       | 411,894                    |       | 2,717,899                                             |       |
|                                                                                                                                              |       |                       |       |                                                  |       |
| Property and Equipment:                                                                                                                           |       |                       |       |                                                  |       |
| Furniture, fixtures and  office equipment                                                                                                         |       | 100,157                    |       | 69,526                                                |       |
| Leasehold improvements                                                                                                                            |       | 7,657                      |       | —                                                |       |
| Computers and software                                                                                                                            |       | 274,332                    |       | 185,985                                               |       |
|                                                                                                                                              |       | 382,146                    |       | 255,511                                               |       |
| Less: accumulated  depreciation                                                                                                                   |       | (143,338                   | )          | (120,349                                              | )          |
| Property and equipment,  net                                                                                                                      |       | 238,808                    |       | 135,162                                               |       |
|                                                                                                                                              |       |                       |       |                                                  |       |
| Other Assets:                                                                                                                                     |       |                       |       |                                                  |       |
| Goodwill                                                                                                                                          |       | 745,050                    |       | 745,050                                               |       |
| Deposits and other                                                                                                                                |       | —                     |       | 2,524                                                 |       |
| Intangible assets, net  of accumulated amortization of $138,283 and $64,880 at May 31, 2006 and  August 31, 2005, respectively (Note J) |       | 449,759                    |       | 32,338                                                |       |
|                                                                                                                                              |       |                       |       |                                                  |       |
| Total Other Assets                                                                                                                                |       | 1,194,809                  |       | 779,912                                               |       |
|                                                                                                                                              |       |                       |       |                                                  |       |
| Total Assets                                                                                                                                      |       | $                          | 1,845,511  |                                                  | $          | 3,632,973 |   |

 

**Seeaccompanying footnotes to the unaudited condensed consolidated financialstatements.**

2

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** **

**Scientigo, Inc.**

CondensedConsolidated Balance Sheets
| ** **                                                                                                                                                                                             | ** ** | **Unaudited**              | ** ** | ** **                                | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                                                                                             | ** ** | **May 31, 2006** | ** ** | ** August 31, 2005 ** | ** ** |
| **LIABILITIES  AND DEFICIENCY IN STOCKHOLDERS’ EQUITY**                                                                                                                                           |       |                       |       |                                      |       |
| Current  Liabilities:                                                                                                                                                                                  |       |                       |       |                                      |       |
| Accounts payable  and accrued liabilities                                                                                                                                                              |       | $                          | 3,486,227  |                                      | $          | 2,123,810 |   |
| Note payable to  related parties (Note D)                                                                                                                                                              |       | 438,435                    |       | 365,148                                   |       |
| Senior  convertible notes payable (Note E)                                                                                                                                                             |       | 442,129                    |       | —                                    |       |
| Unearned income                                                                                                                                                                                        |       | 30,000                     |       | 181,101                                   |       |
| Total Current  Liabilities                                                                                                                                                                             |       | 4,396,791                  |       | 2,670,059                                 |       |
| Senior  convertible notes payable (Note E)                                                                                                                                                             |       | —                     |       | 1,354,770                                 |       |
| Notes payable  long-term (Note D)                                                                                                                                                                      |       | 610,060                    |       | 793,921                                   |       |
| Other long-term  liabilities                                                                                                                                                                           |       | 755                        |       | 546                                       |       |
|                                                                                                                                                                                                   |       |                       |       |                                      |       |
| Deficiency in  Stockholders’ Equity:                                                                                                                                                              |       |                       |       |                                      |       |
| Preferred stock,  par value $.001 per share; 10,000,000 shares authorized; Series B  350,000 shares issued and outstanding at May 31, 2006 and August 31,  2005 (Note F)                |       | 350                        |       | 350                                       |       |
|                                                                                                                                                                                                   |       |                       |       |                                      |       |
| Common stock,  par value $.001 per share; 75,000,000 shares authorized; 20,341,518 and  13,320,992 shares issued and outstanding at May 31, 2006 and  August 31, 2005, respectively (Note F) |       | 20,342                     |       | 13,321                                    |       |
| Stock subscription  payable                                                                                                                                                                            |       | —                     |       | 102,064                                   |       |
| Additional  paid-in-capital                                                                                                                                                                            |       | 52,271,952                 |       | 43,278,143                                |       |
| Accumulated  deficit                                                                                                                                                                                   |       | (55,454,739                | )          | (44,580,201                               | )          |
| Total Deficiency  in Stockholders’ Equity                                                                                                                                                         |       | (3,162,095                 | )          | (1,186,323                                | )          |
| Total Liabilities and  Deficiency in Stockholders’ Equity                                                                                                                                         |       | $                          | 1,845,511  |                                      | $          | 3,632,973 |   |

 

See accompanying footnotes to the unaudited condensed consolidatedfinancial statements.

3

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**SCIENTIGO, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF LOSSES**

**FOR THE THREE MONTHS ENDED MAY 31, 2006 AND 2005**

**(UNAUDITED)**
| ** **                                                                        | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-----------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues, net                                                                     |       | $          | 83,160     |       | $          | 4,893 |   |
| Cost of sales                                                                     |       | 26,715     |       | —     |       |
| Gross profit                                                                      |       | 56,445     |       | 4,893      |       |
|                                                                              |       |       |       |       |       |
| Operating  expenses:                                                              |       |       |       |       |       |
| Selling, general  and administrative                                              |       | 1,620,541  |       | 1,028,964  |       |
| Share-based  compensation expense                                                 |       | 559,529    |       | —     |       |
| Depreciation and  amortization                                                    |       | 40,425     |       | 18,615     |       |
| Total operating  expenses                                                         |       | 2,220,495  |       | 1,047,579  |       |
|                                                                              |       |       |       |       |       |
| Loss from  operations                                                             |       | (2,164,050 | )          | (1,042,686 | )          |
|                                                                              |       |       |       |       |       |
| Other income  (expenses), net                                                     |       | 181,092    |       | (9,983     | )          |
| Interest income  (expenses), net                                                  |       | (3,683,623 | )          | (1,091,054 | )          |
| Total other  expenses                                                             |       | (3,502,531 | )          | (1,101,037 | )          |
|                                                                              |       |       |       |       |       |
| Loss from  continuing operations, before income taxes and discontinued operations |       | (5,666,581 | )          | (2,143,723 | )          |
|                                                                              |       |       |       |       |       |
| Provision for  income taxes                                                       |       | —     |       | —     |       |
|                                                                              |       |       |       |       |       |
| Loss from  continuing operations, before discontinued operations                  |       | (5,666,581 | )          | (2,143,723 | )          |
|                                                                              |       |       |       |       |       |
| Loss from  discontinued operations (Note B)                                       |       | —     |       | (543,329   | )          |
| Gain from sale  of discontinued operation (Note B)                                |       | —     |       | 552,491    |       |
|                                                                              |       |       |       |       |       |
| Net loss                                                                          |       | $          | (5,666,581 | )          | $          | (2,134,561 | ) |
|                                                                              |       |       |       |       |       |
| Cumulative  convertible preferred stock dividend requirements (Note F)            |       | —     |       | (304,523   | )          |
|                                                                              |       |       |       |       |       |
| Net loss  attributable to common shareholders                                     |       | $          | (5,666,581 | )          | $          | (2,439,084 | ) |
|                                                                              |       |       |       |       |       |
| Net loss per  common share (basic and assumed diluted)                            |       | $          | (0.32      | )          | $          | (0.20 | ) |
| Continuing  operations:                                                           |       | (0.32      | )          | (0.20      | )          |
| Discontinued  operations:                                                         |       | —     |       | (0.00      | )          |
|                                                                              |       |       |       |       |       |
| Weighted average  shares outstanding                                              |       |       |       |       |       |
| Basic and assumed  diluted                                                        |       | 17,934,970 |       | 12,456,895 |       |

 

Seeaccompanying footnotes to the unaudited condensed consolidated financialstatements.

4

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** **

**SCIENTIGO, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF LOSSES**

**FOR THE NINE MONTHS ENDED MAY 31, 2006 AND 2005**

**(UNAUDITED)**
| ** **                                                                        | ** ** | **2006**    | ** **  | **2005**   | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------|-------------|------------|------------|
|                                                                              |       |        |        |       |       |
| Revenues, net                                                                     |       | $           | 125,610     |       | $          | 11,677 |   |
| Cost of sales                                                                     |       | 44,285      |        | —     |       |
| Gross profit                                                                      |       | 81,325      |        | 11,677     |       |
|                                                                              |       |        |        |       |       |
| Operating expenses:                                                               |       |        |        |       |       |
| Selling, general  and administrative                                              |       | 4,789,738   |        | 2,424,898  |       |
| Share-based  compensation expense                                                 |       | 559,529     |        | —     |       |
| Depreciation and  amortization                                                    |       | 96,390      |        | 41,579     |       |
| Total operating  expenses                                                         |       | 5,445,657   |        | 2,466,477  |       |
|                                                                              |       |        |        |       |       |
| Loss from  operations                                                             |       | (5,364,332  | )           | (2,454,800 | )          |
|                                                                              |       |        |        |       |       |
| Other income  (expenses), net                                                     |       | 89,556      |        | 223,822    |       |
| Interest income  (expenses), net                                                  |       | (5,599,762  | )           | (1,193,145 | )          |
| Total other  expenses                                                             |       | (5,510,206  | )           | (969,323   | )          |
|                                                                              |       |        |        |       |       |
| Loss from  continuing operations, before income taxes and discontinued operations |       | (10,874,538 | )           | (3,424,123 | )          |
|                                                                              |       |        |        |       |       |
| Provision for  income taxes                                                       |       | —      |        | —     |       |
|                                                                              |       |        |        |       |       |
| Loss from  continuing operations, before discontinued operations                  |       | (10,874,538 | )           | (3,424,123 | )          |
|                                                                              |       |        |        |       |       |
| Loss from  discontinued operations (Note B)                                       |       | —      |        | (1,085,432 | )          |
| Gain from sale  of discontinued operation (Note B)                                |       | —      |        | 552,491    |       |
|                                                                              |       |        |        |       |       |
| Net loss                                                                          |       | $           | (10,874,538 | )          | $          | (3,957,064 | ) |
|                                                                              |       |        |        |       |       |
| Cumulative  convertible preferred stock dividend requirements (Note F)            |       | —      |        | (382,712   | )          |
|                                                                              |       |        |        |       |       |
| Net loss  attributable to common shareholders                                     |       | $           | (10,874,538 | )          | $          | (4,339,776 | ) |
|                                                                              |       |        |        |       |       |
| Net loss per  common share (basic and assumed diluted)                            |       | $           | (0.70       | )          | $          | (0.35 | ) |
| Continuing  operations:                                                           |       | (0.70       | )           | (0.31      | )          |
| Discontinued  operations:                                                         |       | —      |        | (0.04      | )          |
|                                                                              |       |        |        |       |       |
| Weighted average  shares outstanding                                              |       |        |        |       |       |
| Basic and  assumed diluted                                                        |       | 15,444,917  |        | 12,456,895 |       |

 

Seeaccompanying footnotes to the unaudited condensed consolidated financialstatements.

5

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**SCIENTIGO,INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE NINE MONTHS ENDED MAY 31, 2006 AND 2005(UNAUDITED)**
| ** **                                                                                                                                    | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Net cash used in  operating activities                                                                                                        |       | $          | (3,009,158 | )          | $          | (3,165,184 | ) |
|                                                                                                                                          |       |       |       |       |       |
| Net cash used in  investing activities                                                                                                        |       | (602,348   | )          | (46,130    | )          |
|                                                                                                                                          |       |       |       |       |       |
| Net cash provided by  financing activities                                                                                                    |       | 1,653,261  |       | 4,584,028  |       |
|                                                                                                                                          |       |       |       |       |       |
| Net increase (decrease)  in cash and cash equivalents                                                                                         |       | (1,958,245 | )          | (1,372,714 | )          |
| Cash and cash  equivalents at beginning of year                                                                                               |       | 2,124,029  |       | 344,099    |       |
|                                                                                                                                          |       |       |       |       |       |
| Cash and cash  equivalents at end of period                                                                                                   |       | $          | 165,784    |       | $          | 1,716,813 |   |
|                                                                                                                                          |       |       |       |       |       |
| Supplemental  Disclosures of Cash Flow Information:                                                                                           |       |       |       |       |       |
| Cash paid during the  period for interest                                                                                                     |       | $          | 314,199    |       | $          | 123,867 |   |
| Non-cash employee  stock-based compensation expense                                                                                           |       | 559,529    |       |       |       |
| Compensation paid in  shares to employees                                                                                                     |       | 135,300    |       |       |       |
| Non-cash interest  expense on convertible notes related to amortization and write-off of  beneficial conversion feature and value of warrants |       | 5,209,962  |       | 983,558    |       |
| Cash from private stock  sale                                                                                                                 |       | 180,000    |       |       |       |
| Cash from exercise of  warrants/options                                                                                                       |       | 1,447,413  |       |       |       |
| Common stock issued in  exchange for services rendered                                                                                        |       | 48,000     |       | 218,416    |       |
| Common stock issued in  exchange for conversion of notes payable 6.4% notes                                                                   |       | 250,000    |       |       |       |
| Common stock issued in  exchange for conversion of notes payable 10% notes                                                                    |       | 3,951,498  |       |       |       |
| Common stock issued in  connection with acquisition of intangible assets                                                                      |       | 140,713    |       |       |       |
| Common stock issued in  exchange for officer compensation                                                                                     |       | 135,300    |       |       |       |
| Common stock issued in  settlement agreement                                                                                                  |       | 199,950    |       |       |       |
| Warrants issued in  exchange for services rendered                                                                                            |       | 4,250      |       | 203,020    |       |
| Beneficial conversion  feature on convertible notes payable recorded as debt discount on the balance  sheet                                   |       | 2,561,279  |       | 2,388,603  |       |
| Value of warrants  attached to convertible notes recorded as debt discount on the balance sheet                                               |       | 1,439,929  |       | 1,397,234  |       |
| Cash from private  issuance of convertible notes                                                                                              |       | 150,000    |       |       |       |
| Preferred shares issued  in exchange for debt                                                                                                 |       |       |       | 1,051,028  |       |
|                                                                                                                                          |       |       |       |       |       |
| Disposal of call center  assets:                                                                                                              |       |       |       |       |       |
| Notes receivable                                                                                                                              |       |       |       | 971,000    |       |
| Cash                                                                                                                                          |       |       |       | 129,000    |       |
| Debts assumed by buyer                                                                                                                        |       |       |       | 85,234     |       |
| Assets disposed                                                                                                                               |       |       |       | 562,743    |       |
| Net gain on disposal segment                                                                                                                  |       |       |       | 552,491    |       |

 

See accompanying footnotes to the unaudited condensedconsolidated financial statements.

6

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**SCIENTIGO, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMay 31, 2006**

**NOTE A -SUMMARY OF ACCOUNTING POLICIES**

General

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with the instructions to Form 10-QSBand, therefore, do not include all the information necessary for a fairpresentation of financial position, results of operations and cash flows inconformity with generally accepted accounting principles.

In the opinion of management, all adjustments(consisting of normal recurring accruals) considered necessary for a fairpresentation have been included. Accordingly, the results from operations forthe three  and nine month periods ending May 31,2006 are not necessarily indicative of the results that may be expected for theyear ended August 31, 2006. The unaudited consolidated financialstatements should be read in conjunction with the consolidated August 31,2005 financial statements and footnotes thereto included in the Company’s SEC Form 10-KSB.

Businessand Basis of Presentation 

Scientigo, Inc.(the “Company”) is a software and intellectual property enterprise withproducts in the area of next-generation enterprise search and intelligententerprise content management. The Company holds multiple patents andpatent-pending technologies and has developed a suite of products that providessolutions for managing the significant quantities of electronic informationavailable today, particularly in the area of Enhanced Directory Assistanceproducts.

The consolidated financial statements include theaccounts of the Company and its wholly-owned subsidiary, Convey SystemsInternational, Inc. (“CSI”), and majority-owned subsidiary, Tigo Search, Inc.(“TSI”).  TSI was a wholly-ownedsubsidiary until November 28, 2005 when the Company acquired the Find.comURL and related intangible assets in a transaction which included issuing theseller 49% of TSI’s common stock. This transaction resulted in the Companybeing the majority owner, owning 51% of the issued shares of TSI (Note B). TheTSI subsidiary was established for the acquisition and development of theFind.com URL and business related to that URL. The business became active inNovember, 2005. Convey Systems International, Inc. was essentiallyinactive during the period being reported and was formally dissolved in June,2006.

TheCompany sold its ecom subsidiary in August, 2005. The ecom business segment isaccounted for as discontinued operations, and accordingly, amounts in thefinancial statements and related notes for the nine months ended May 31,2005 have been restated to reflect discontinued operations accounting (Note B).All significant inter-company transactions and balances have been eliminated inconsolidation.

Minority Interest in Subsidiaries

The minority interest in Tigo Search, Inc. is a deficit and, in accordance with Accounting Research Bulletin No. 51, subsidiary losses should not be charged against the minority interest to the extent of reducing it to a negative amount. As such, any losses will be charged against the Company’s operations as majority owner. Therefore, the balance sheet does not currently include a balance for minority interest.

Stock-based Compensation

In December 2002,the FASB issued FAS No. 148, *Accountingfor Stock-Based Compensation — Transition and Disclosure* — *an amendment of FAS 123*. This statement amends FAS No. 123,*Accounting for Stock-Based Compensation*,to provide alternative methods of transition for a voluntary change to the fairvalue-based method of accounting for stock-based employee compensation. Inaddition, this statement amends the disclosure requirements of FAS No. 123to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results. Prior to the quarterending May 31, 2006, the Company chose to continue to account forstock-based compensation using the intrinsic value method prescribed in APBOpinion No. 25 and related interpretations. Accordingly, prior to thequarter ending May 31, 2006, compensation expense for stock options wasmeasured as the excess, if any, of the fair market value of the Company’s stockat the date of the grant over the exercise price of the related option.

The Company has adopted the annual disclosureprovisions of FAS No. 148 in its financial reports for the years ended August 31,2005 and 2004 and will adopt the interim disclosure provisions for itsfinancial reports for the subsequent periods. The Company used theBlack-Scholes pricing model prior to August 31, 2005.  Effective September 1, 2005, the Companyadopted the Binomial pricing model.

Effective March 1, 2006, the Company adoptedStatement of Financial Accounting Standard No. 123R, *Share BasedPayment* (“FAS 123R”), which requires all share-based payments,including grants of stock options, to be recognized in the income statement ascompensation expense based on their fair values. Accordingly, no stock-basedcompensation expense was recognized during the first two quarters of thecurrent fiscal year. Under the provisions of FAS 123R, the estimated fair valueof options granted to employees 

7

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andDirectors under the Company’s Stock Option Plan are recognized as compensationexpense over the option vesting period. The Company is using the modifiedprospective method, in which compensation expense is recognized beginning withthe effective date of adoption of FAS 123R for all share-based payments (i) grantedafter the effective date of adoption and (ii) granted prior to theeffective date of adoption that were unvested on the date of adoption. TheCompany only recognized compensation expense for the six months ended February 28,2006 on its income statement as required under APB 25 under the intrinsic valuemethod; however, the Company has provided footnote disclosure of what theexpense would have been had FAS 123R been adopted at the beginning of thecurrent fiscal year.

 

Had compensation costs for the Company’s stock optionsbeen determined based on the fair value at the grant dates for the awards, theCompany’s net loss and losses per share would have been as follows(transactions involving stock options issued to employees and Black-Scholes andBinomial pricing model assumptions are presented in Note G):
| ** **                                                                                                | ** ** | **For the Three Months Ended  May 31,** | ** ** | **For the Nine Months Ended  May 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                                                                                | ** ** | **2006**                                                         | ** ** | **2005**                                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net loss - as  reported                                                                                   |       | $                                                                | (5,666,581 | )                                                               | $          | (2,134,561 | ) | $ | (10,874,538 | ) | $ | (3,957,064 | ) |
| Deduct: Total  stock-based employee compensation expense as determined under fair  value-based method (1) |       | —                                                           |       | (247,937                                                        | )          | (2,184,026 | ) | (557,082 | ) |
| Net loss - Pro  forma                                                                                     |       | $                                                                | (5,666,581 | )                                                               | $          | (2,382,498 | ) | $ | (13,058,564 | ) | $ | (4,514,146 | ) |
| Net loss  attributable to common stockholders - Pro forma                                                 |       | $                                                                | (5,666,581 | )                                                               | $          | (2,687,021 | ) | $ | (13,058,564 | ) | $ | (4,896,858 | ) |
| Basic (and  assuming dilution) loss per share - as reported                                               |       | $                                                                | (0.32      | )                                                               | $          | (0.20 | ) | $ | (0.70 | ) | $ | (0.35 | ) |
| Basic (and assuming  dilution) loss per share - Pro forma                                                 |       | $                                                                | (0.32      | )                                                               | $          | (0.22 | ) | $ | (0.85 | ) | $ | (0.39 | ) |

 

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(1)             Netloss for the three and nine months ended May 31, 2006 already included$559,529 of stock-based compensation expense

Under the modifiedprospective method of transition under FAS 123R, the Company is not required torestate its prior-period financial statements to reflect expensing ofshare-based compensation under FAS 123R. Therefore, the income statementresults for the 2006 periods are not directly comparable to the same periods inthe prior year.

The Company did notrealize any tax benefits from the exercise of stock options during the threeand nine month periods ended May 31, 2006.

For more detail on stockoptions and warrants and the assumptions used in applying the binomial model,see footnote G.

Reclassifications

Certain reclassificationshave been made in prior years’ financial statements to conform toclassifications used in the current year.

**NOTE B – ACQUISITIONS,DIVESTITURES AND DISCONTINUED OPERATIONS**

Tigo Search, Inc.

Tigo Search, Inc.was formed as a wholly-owned subsidiary of the Company during the year ended August 31,2005. On November 28, 2005, the Company entered into a transaction wherebyin exchange for 49% of Tigo Search, Inc. and $250,000 in cash, issuance ofa promissory note in the amount of $100,000 (Note D) and 112,570 shares of theCompany’s common stock, valued at $140,713 (Note F), the Find.com URL andcertain other related intangible assets would be owned by Tigo Search, Inc.Tigo Search, Inc. had no assets or liabilities prior to this transaction.

For the three and nine month periods ended May 31, 2006, the minority interest in Tigo Search, Inc. is a deficit and, in accordance with Accounting Research Bulletin No. 51, the Company’s consolidated net loss, as majority owner, included the net loss from Tigo Search, Inc. This net loss attributable to Tigo Search Inc. was $49,066 and $127,053 for the three and nine month periods ended May 31, 2006, respectively.

ecommerce supportcenters, inc.

OnMay 23, 2005, the Company sold substantially all the assets that compriseits call center operations (“ecom”). On August 31, 2005, the Companyentered into an agreement to sell all of the outstanding capital stock of ecomto Lion Development Group II, Inc. The financial statements for the ninemonths ended May 31, 2005 reflect the operating results of thediscontinued operations separately from continuing operations. The gain fromthe sale of the ecom discontinued operation was $552,491 for the periods ended May 31,2005.

Operating results for theecommerce support centers, inc. discontinued operations for the three and ninemonths ended May 31, 2005 were:

8

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| ** **                                                                                                     | ** ** | **Three Months Ended**May 31, 2005 | ** ** | **Nine Months Ended** May 31, 2005 | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------|------------|
|                                                                                                           |       |                                                   |       |                                                        |       |
| Revenues                                                                                                       |       | $                                                      | 1,100,100  |                                                        | $          | 3,977,112 |   |
| Costs and  expenses                                                                                            |       | (1,595,729                                             | )          | (4,875,844                                                  | )          |
| Net loss before  tax                                                                                           |       | (495,629                                               | )          | (898,732                                                    | )          |
| Income tax  provision (benefit)                                                                                |       | —                                                 |       | —                                                      |       |
| Net loss                                                                                                       |       | (495,629                                               | )          | (898,732                                                    | )          |
| Costs related to  U.S. Convergion, which was sold by the Company during the fiscal year ended  August 31, 2004 |       | (47,700                                                | )          | (186,700                                                    | )          |
| Net loss from  discontinued operations                                                                         |       | $                                                      | (543,329   | )                                                           | $          | (1,085,432 | ) |

 

**NOTE C - NOTES RECEIVABLE -RELATED PARTIES**

At May 31, 2006 and August 31,2005, the Company has a note receivable from one of its largest shareholderswith a balance of $184,732 and $378,003, respectively. This note, which had anoriginal balance of $400,000, matured on May 31, 2006 and is secured byapproximately 1,100,000 shares of the Company’s common stock owned by theshareholder. The note does not provide for interest except that the Companyreceived 159,630 shares of its common stock as an inducement to make this loan.These shares were valued at $239,445 and this amount was amortized over theone-year life of the note. Unearned income includes $-0- and$181,101 of unamortized value of these shares at May 31, 2006 and August 31,2005, respectively. Other income includes $179,584 and $-0- relatedto this share value for the nine months ended May 31, 2006 and 2005,respectively. The Company has issued the debtor a default notice as the notewas not collected as of May 31, 2006. The Company believes it will be ableto reach a mutually acceptable payment agreement to collect the remainingoutstanding balance of $184,732; therefore, a reserve for bad debts has notbeen recorded. See Note H for a related note payable to this shareholder.

**NOTE D -NOTES PAYABLE TO RELATED PARTIES**

Notes Payable at May 31, 2006 and August 31, 2005 are asfollows:
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | **May 31,  2006** | ** ** | **August 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|---------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                   |       |                      |       |
| Note payable to  a related party in monthly installments of $20,429 plus interest at LIBOR  monthly floating rate plus 2.75%; unsecured; all remaining unpaid amount  becomes due in May 2008 (Note H)                                                                                                                                                                                                                                                                                          |       | $                      | 855,208    |                      | $          | 1,039,069 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                   |       |                      |       |
| Note payable due  sixty days after the exchange period (Note B) specified in the Company’s  registration statement on Form S-4, with interest at 4.75% secured  by a portion of the common stock of Tigo Search, Inc. The expiration  date of the exchange offer was March 30, 2006 which results in an  original maturity date of this note of May 29, 2006. The parties have  agreed to extend the maturity to August 1, 2006 and progress payments  are being made. |       | 100,000                |       | —                    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                   |       |                      |       |
| Note payable on  demand to a related party, non-interest bearing; unsecured; maturity date was  in May, 2004. The Company repaid the note with Company common stock on  May 4, 2006.                                                                                                                                                                                                                                                                                                            |       | —                 |       | 120,000                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                   |       |                      |       |
| Note payable  with interest at 6% due June 8, 2006, secured by the Company’s portion,  if any, of note receivable from CustomerLinx of NC held by Lion Development,  LLC which was part of the Company’s sale of its call center operations and  subsequent sale of the stock in the subsidiary which had contained the call  center operations                                                                                                                                       |       | 93,287                 |       | —                    |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       | 1,048,495              |       | 1,159,069                 |       |
| Less: current  portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |       | (438,435               | )          | (365,148                  | )          |
| Long-term portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       | $                      | 610,060    |                      | $          | 793,921 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                   |       |                      |       |
| Aggregate  maturities of notes payable as of May 31, 2006 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                       |       |                   |       |                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                   |       |                      |       |
| Fiscal  years ended:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |       |                   |       |                      |       |
| August 31,  2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                   |       | $                         | 254,574    |   |
| August 31,  2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                   |       | 245,148                   |       |
| August 31,  2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                   |       | 548,773                   |       |
| Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                   |       | $                         | 1,048,495  |   |

 

9

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**NOTE E -SENIOR CONVERTIBLE NOTES PAYABLE**

The Company began offering a 6.4% convertible note (“6.4%Notes”) in April 2005 with an aggregate face value of $6,250,000 and amaturity of May 2007. Subsequent to April 2005, the Companyauthorized offering up to $7,187,500 aggregate face value of the notes. The6.4% Notes were offered with a 20% discount, resulting in net proceeds beforecommissions of $5,000,000 to the Company of the initial offering amount and upto $5,750,000 if fully subscribed. The 6.4% Notes were initially offered onlyto holders of the Company’s Series A Preferred Stock. Included with the6.4% Notes were warrants to purchase one share of the Company’s common stockfor each $2 of face value of 6.4% Notes sold at an exercise price of $1.00 pershare and a term which expires in June, 2010. The 6.4% Notes provide forconversion of the face amount of the notes into the Company’s common stock at$1.3325 per share and they provide for interest to be paid quarterly. Therepayment of the 6.4% Notes was secured by a first priority security interestin the Company’s intellectual property granted pursuant to a security agreemententered into by the Company. Upon the payment or conversion of $5,000,000 ofthe total Principal Amount of the 6.4% Notes, the XML patents owned byScientigo are to be released from such security interest.

Duringthe nine months ended May 31, 2006, the Company sold an additional$187,500 of 6.4% Notes, and two note holders of the outstanding 6.4% Noteselected to convert $250,000 of the notes into 187,716 shares of the Company’scommon stock. As of May 31, 2006 and August 31, 2005, the Companysold 6.4% Notes with a face value of $6,633,950 and $6,446,450 and received netproceeds of $5,307,160 and $5,157,160, respectively. In connection withissuance of the 6.4% Notes, the Company issued warrants to its placement agentin exchange for services and commissions. The exercise prices of these warrantswere below the fair market value of the Company’s common stock. The Company hascharged an aggregate of $4,250 and $-0- to operations during thenine months ended May 31, 2006 and 2005, respectively in connection withthe warrants issued to its placement agent and $7,500 and $-0- incash payments of commissions on sales of 6.4% Notes during the nine monthsended May 31, 2006 and 2005, respectively. Additionally, the Companyaccounted for and charged to interest expense $37,500 and $-0-during the nine months ended May 31, 2006 and 2005, respectively, inconnection with the original 20% discount on 6.4% Notes issued during theperiod.

Duringthe quarter ended May 31, 2006, holders of $6,214,375 of the 6.4%convertible notes exchanged their notes for a new 10% convertible note (“10%Notes”) with a face amount which did not include the 20% discount that was partof the 6.4% convertible notes. Holders of $3,951,498 of the new 10% convertiblenotes elected to convert these notes into the Company’s common stock during thequarter ended May 31, 2006.

A summary of convertible notes payable at May 31, 2006 and August 31,2005 is as follows:
| ** **                                                                                                                                                                                                                                                                                                                       | ** ** | **May 31,  2006** | ** ** | **August 31,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|---------------------------|------------|
| Convertible  notes payable; 6.4% per annum payable quarterly; due May 31, 2007; note  holders have the option to convert unpaid note principal into the Company’s  common stock at $1.3325 per share. The note holders are secured by a first  priority security interest in the Company’s intellectual property. |       | $                      | 169,575    |                      | $          | 6,446,450 |   |
|                                                                                                                                                                                                                                                                                                                             |       |                   |       |                      |       |
|  Debt Discount – beneficial conversion  feature, net of accumulated amortization and write-off of $3,453,451 and  $471,439 at May 31, 2006 and August 31, 2005, respectively                                                                                                                                 |       | (33,098                | )          | (2,948,358                | )          |
|                                                                                                                                                                                                                                                                                                                             |       |                   |       |                      |       |
|  Debt Discount – value attributable to  warrants attached to notes, net of accumulated amortization and write-off of  $2,532,648 and $338,766 at May 31, 2006 and August 31, 2005,  respectively                                                                                                             |       | (24,999                | )          | (2,143,322                | )          |
| Total of 6.4%  convertible notes                                                                                                                                                                                                                                                                                                 |       | 111,478                |       | 1,354,770                 |       |
| Less: current  portion                                                                                                                                                                                                                                                                                                           |       | 111,478                |       | —                    |       |
| Long-term  portion of 6.4% convertible notes                                                                                                                                                                                                                                                                                     |       | $                      | —     |                      | $          | 1,354,770 |   |
|                                                                                                                                                                                                                                                                                                                             |       |                   |       |                      |       |
| Convertible  notes payable; 10% per annum payable quarterly; due May 31, 2007; note holders  have the option to convert unpaid note principal into the Company’s common  stock at $.90 per share. The note holders are secured by a first priority  security interest in the Company’s intellectual property.     |       | $                      | 1,020,002  |                      | $          | — |   |
| Debt Discount –  beneficial conversion feature, net of accumulated amortization and write-off  of $2,220,802 and $0 at May 31, 2006 and August 31, 2005,  respectively                                                                                                                                            |       | (340,477               | )          | —                    |       |
| Debt Discount –  value attributable to warrants attached to notes, net of accumulated  amortization and write-off of $1,091,055 and $0 at May 31, 2006 and  August 31, 2005, respectively                                                                                                                         |       | (348,874               | )          | —                    |       |
| Total of 10%  convertible notes                                                                                                                                                                                                                                                                                                  |       | 330,651                |       | —                    |       |
| Less: current  portion                                                                                                                                                                                                                                                                                                           |       | 330,651                |       | —                    |       |
| Long-term  portion of 10% convertible notes                                                                                                                                                                                                                                                                                      |       | $                      | —     |                      | $          | — |   |
| Combined  long-term convertible notes                                                                                                                                                                                                                                                                                            |       | $                      | —     |                      | $          | 1,354,770 |   |
| Combined current  portion of convertible notes                                                                                                                                                                                                                                                                                   |       | $                      | 442,129    |                      | $          | — |   |

 

10

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Inaccordance with Emerging Issues Task Force Issue 98-5, Accounting forConvertible Securities with Beneficial Conversion Features or Contingently AdjustableConversion Ratios (“EITF 98-5”), the Company recognized an embeddedbeneficial conversion feature present in the 6.4% and 10% Notes. The Companyallocated to additional paid-in capital a portion of the proceeds equal to theintrinsic value of the beneficial conversion feature. The Company recognizedand measured an aggregate of $3,486,549 of the proceeds on the 6.4% Notes and$2,561,279 on the 10% Notes, which is equal to the intrinsic value of theembedded beneficial conversion feature, to additional paid-in capital and adiscount against the notes. The debt discount attributed to the beneficialconversion feature is amortized over the 6.4% Note’s maturity period (21 to 25months) and the 10% Note’s maturity period (14 months) as interest expense unlessconverted sooner.

Inaccordance with Emerging Issues Task Force Issue 00-27, Application ofIssue No. 98-5 to Certain Convertible Instruments (“EITF - 00-27”),the Company recognized the value attributable to the warrants in the amount of$2,557,647 to additional paid-in capital and a discount against the 6.4% Noteand $1,439,929 to additional paid-in capital and a discount against the 10%Note. The Company valued the 6.4% Note warrants in accordance with EITF 00-27using a binomial pricing model (Black-Scholes pricing model prior to August 31,2005) and the following assumptions: contractual terms of 5 years, an averagerisk-free interest rate of 3.93%, a dividend yield of 0%, and volatility of93.3675%. The debt discount attributed to the value of the warrants issued isamortized over the 6.4% Note’s maturity period (21 to 25 months) as interestexpense. For the 10% Note warrants, the Company used a binomial pricing modeland the following assumptions: contractual terms of 0.4 years, an averagerisk-free interest rate of 4.33%, a dividend yield of 0%, and volatility of119.7067%.

TheCompany amortized the 6.4% Note debt discount attributed to the beneficialconversion feature and the value of the attached warrants and recorded non-cashinterest expense of $248,747 and $151,433 for the three months ended May 31,2006 and 2005, respectively and $1,885,605 and $151,433 for the nine monthsended May 31, 2006 and 2005, respectively. The conversion of the $250,000in face value of the convertible notes resulted in the write-off of theunamortized portion of the debt discount totaling $179,148 which is alsorecorded as non-cash interest expense during the nine month period ended May 31,2006.

TheCompany amortized the 10% Note debt discount attributed to the beneficialconversion feature and the value of the attached warrants and recorded non-cashinterest expense of $3,311,857 for both the three months and nine months ended May 31,2006 and $0 for both the three months and nine months ended May 31, 2005. Theconversion of $3,926,497 of the convertible notes resulted in the write-off ofthe unamortized portion of the debt discount totaling $3,196,965, which is alsorecorded as non-cash interest expense during the three month and the nine monthperiods ended May 31, 2006.

Aggregate maturities of senior convertible notes as of May 31, 2006are as follows:
|        | ** ** | **6.4%** | ** ** | **10%** | ** ** |
|--------|------------|----------|------------|---------|------------|
|   |       |     |       |    |       |
| 2007   |       | $        | 169,575    |    | $          | 1,020,002 |   |
| Total  |       | $        | 169,575    |    | $          | 1,020,002 |   |

 

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**NOTE F - CAPITAL STOCK**

Common Stock

The Company is authorized to issue 75,000,000 sharesof common stock with $.001 par value per share and 10,000,000 shares ofpreferred stock with $.001 par value per share. As of May 31, 2006 and August 31,2005, the Company had 20,341,518 and 13,320,992 shares of common stock issuedand outstanding, respectively, an increase of 7,020,526 shares, and 350,000 and350,000 shares of Series B Preferred Stock issued and outstanding,respectively. Below is a chart detailing the shares issued since August 31,2005.
| Description                                                                                                                                                                                                                             | ** ** | **Number  of Shares** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|
| Conversion of  $3,951,498 of 10% convertible notes at $.90 per share                                                                                                                                                                    |       | 4,390,553                  |       |
| Exercise of “A”  warrants at $.85 per share                                                                                                                                                                                   |       | 1,066,420                  |       |
| Exercise of  other warrants at $.85 per share                                                                                                                                                                                           |       | 568,002                    |       |
| Shares issued as  new subscription in private sale at $.80 per share                                                                                                                                                                    |       | 225,000                    |       |
| Conversion of  $250,000 face value of 6.4% convertible notes at $1.3325 per share (Note E)                                                                                                                                              |       | 187,617                    |       |
| Shares issued to  former employee and charged to compensation expense; valued at $92,300                                                                                                                                                |       | 130,000                    |       |
| Shares issued at  $.96 per share in settlement agreement with related party that resulted in  elimination of note payable of $120,000                                                                                                   |       | 125,000                    |       |
| Shares issued in  conjunction with the acquisition of Find.com valued at $140,713 (Note B)                                                                                                                                              |       | 112,570                    |       |
| Shares issued in  conjunction with lawsuit settlement for which accrual was made at  August 31, 2005 valued at $79,950                                                                                                             |       | 60,000                     |       |
| Exercise of  preferred stock warrants at $.85 per share                                                                                                                                                                                 |       | 55,460                     |       |
| Shares issued in  conjunction with a financial consulting and services agreement valued at  $48,000                                                                                                                                     |       | 50,000                     |       |
| Shares issued to  a third party and included in compensation expense and treated as  compensation to one of the Company’s executive officers; valued at prices ranging  from $.942 to $1.30 per share for a total value of $43,000 |       | 36,906                     |       |
| Exercise of  warrants at $1.00 per share                                                                                                                                                                                                |       | 11,562                     |       |
| Exercise of  stock options by former employees                                                                                                                                                                                          |       | 1,436                      |       |
|                                                                                                                                                                                                                                    |       |                       |       |
| **TOTAL**                                                                                                                                                                                                                               | ** ** | **7,020,526**              | ** ** |

 

#### Preferred Stock

InDecember 2003, the Company’s Board of Directors designated 2,251,407shares of Series A Convertible Preferred Stock, par value $.001 per share(the “Series A Preferred Stock”) and 350,000 shares of Series BConvertible Preferred Stock, par value $.001 per share (the “Series BPreferred Stock”). Both Series A Preferred Stock and Series BPreferred Stock have a liquidation preference that is senior to the Company’sCommon Stock. In December 2003, the Company approved a private placementoffering of up to $3,000,000 of its authorized Series A Preferred Stock at$1.3325 per share. The Series A Preferred Stock was convertible into oneshare of the Company’s common stock after a one-year period from the date ofissuance.

TheSeries A Preferred Stock provided for a 4% annual cumulative dividend, thatwas payable when declared by the Company’s Board of Directors and was payablein shares of the Series A Preferred Stock. In August 2005, pursuantto an exchange offer, the Company converted all of the previously issued andoutstanding Series A Preferred Stock and accrued unpaid dividends intoCommon Stock. The issuance of common stock settled in full the cumulativepreferred stock dividends; during the three months ended November 30,2004, these dividends totaled $32,552.

The Series B PreferredStock is convertible into common stock at the lesser of $1.75 per share or 80%of the lowest bid price for the common stock in the 10 business days precedingthe conversion but it cannot be less than 50% of the $1.75 or $.875. Thisresults in the conversion of a maximum of 4,000,000 shares and a minimum of2,000,000 shares of the Company’s common stock. The Series B PreferredStock holders also have an option to acquire additional common shares in anamount to permit the conversion rights plus this option to result in a total of4,000,000 shares of the Company’s common stock.

12

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**NOTE G - STOCK OPTIONS AND WARRANTS**

Options

The following table summarizes the changes inoptions outstanding and the related prices for the shares of the Company’scommon stock issued to employees, consultants and shareholders at May 31,2006, after giving effect to 1:10 reverse split in common stock in February,2003:
| ** **              | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|-------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **              | ** ** | ** **                   | ** ** | **Weighted Average**    | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **              | ** ** | ** **                   | ** ** | **Contractual Life**    | ** ** | **Weighted Average** | ** ** | ** ** | ** ** | **Weighted Average** | ** ** |
| **Exercise Price** | ** ** | **Number Outstanding**  | ** ** | **(Years)**                  | ** ** | **Exercise Price** | ** ** | **Number Exercisable** | ** ** | **Exercise Price** | ** ** |
| $ .01-$3.35        |       | 8,073,821                    |       | 2.98                         |       | $ | 1.84 |   | 4,082,990 |   | $ | 1.67 |   |
|                         |            |                              |            |                              |            |  |  |  |  |  |  |  |  |

 

Transactions involving the Company’s optionsissuance are summarized as follows:
|                                 | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|---------------------------------|------------|----------------------------|------------|------------------------------------------------|------------|
| Outstanding at  August 31, 2004 |       | 1,065,927                  |       | $                                              | 2.06       |   |
| Granted                         |       | 5,400,802                  |       | 2.03                                           |       |
| Exercised                       |       | (235,970                   | )          | .01                                            |       |
| Cancelled                       |       | (429,335                   | )          | 2.88                                           |       |
| Outstanding at  August 31, 2005 |       | 5,801,424                  |       | $                                              | 2.03       |   |
| Granted                         |       | 2,875,000                  |       | 1.44                                           |       |
| Exercised (Note  F)             |       | (1,436                     | )          | .01                                            |       |
| Cancelled                       |       | (601,167                   | )          | 1.98                                           |       |
| Outstanding at May 31,  2006    |       | 8,073,821                  |       | $                                              | 1.84       |   |

 

Total stock-basedcompensation expense recognized in the consolidated statement of losses for thethree and nine months ended May 31, 2006 was $559,529, net of tax effect.

Warrants

Thefollowing table summarizes the changes in warrants outstanding and the relatedprices for the shares of the Company’s common stock issued to employees,consultants and shareholders at May 31, 2006 after giving effect to 1:10reverse split in common stock in February, 2003.
| ** **              | ** ** | **Warrants Outstanding** | ** ** | **Warrants Exercisable** | ** ** |
|-------------------------|------------|-------------------------------|------------|-------------------------------|------------|
| ** **              | ** ** | ** **                    | ** ** | **Weighted Average**     | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **              | ** ** | ** **                    | ** ** | **Contractual Life**     | ** ** | **Weighted Average** | ** ** | ** ** | ** ** | **Weighted Average** | ** ** |
| **Exercise Price** | ** ** | **Number Outstanding**   | ** ** | **(Years)**                   | ** ** | **Exercise Price** | ** ** | **Number Exercisable** | ** ** | **Exercise Price** | ** ** |
| $0.00 - $.84            |       | 25,000                        |       | 2.73                          |       | $ | 0.01 |   | 25,000 |   | $ | .01 |   |
| $0.85 - $2.99           |       | 10,106,022                    |       | 1.35                          |       |                           0.96 |   | 10,106,022 |   |                           0.96 |   |
| $3.00 - $11.88          |       | 1,000,000                     |       | 1.27                          |       |                           3.24 |   | 1,000,000 |   |                           3.24 |   |
|                    |       | 11,131,022                    |       | 1.35                          |       | $ | 1.16 |   | 11,131,022 |   | $ | 1.16 |   |

 

Transactions involving the Company’s warrantsissuance are summarized as follows:
|                                 | ** ** | Number of  Shares | ** ** | **Weighted Average  Exercise Price** | ** ** |
|---------------------------------|------------|------------------------|------------|------------------------------------------------|------------|
| Outstanding at  August 31, 2004 |       | 4,746.997              |       | $                                              | 3.12       |   |
| Granted                         |       | 10,568,118             |       | 1.23                                           |       |
| Exercised                       |       | (461,300               | )          | 0.89                                           |       |
| Cancelled                       |       | (2,681,170             | )          | 0.45                                           |       |
| Outstanding at  August 31, 2005 |       | 12,172,645             |       | $                                              | 1.29       |   |
| Granted                         |       | 3,940,314              |       | .86                                            |       |
| Exercised (Note  F)             |       | (1,701,444             | )          | 0.85                                           |       |
| Cancelled                       |       | (3,280,493             | )          | 1.38                                           |       |
| Outstanding at May 31,  2006    |       | 11,131,022             |       | $                                              | 1.16       |   |

13

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TheCompany used the Black-Scholes pricing model prior to August 31, 2005. EffectiveSeptember 1, 2005, the Company adopted the binomial option price model. Theweighted-average fair value of stock options and warrants granted to employees,consultants and shareholders during the three months ended May 31, 2006and 2005 and the weighted-average significant assumptions used to determinethose fair values are as follows:
|                                              | ** ** | **2006**         | ** ** | **2005**       | ** ** |
|----------------------------------------------|------------|------------------|------------|----------------|------------|
| Significant  assumptions (weighted average): |       |             |       |           |       |
| Risk free  interest rate at grant date       |       | 3.94 – 4.34 | %          | 2.04           | %          |
| Expected stock  price volatility             |       | 119 – 176   | %          | 122            | %          |
| Expected  dividend payout                    |       | —           |       | —         |       |
| Expected life-years (a)                      |       | 0.3 – 5.0   |       | 4.0 – 8.0 |       |

 

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(a) The expected option/warrant life is based on theanticipated expected lives.

Duringthe nine month periods ended May 31, 2006 and 2005, the Company charged tooperations compensation expenses in connection with granting warrants inexchange for services rendered in the amount of $4,250 and $0, respectively. Duringthe period ended May 31, 2006, the Company also granted 93,750 and3,623,558 warrants to the noteholders in connection with issuance of its 6.4%convertible notes and 10% convertible notes, respectively (Note E). The Companyrecognized the value attributable to the warrants in the amount of $75,560 and$1,439,929 to additional paid-in capital and a discount against the 6.4% convertiblenotes and the 10% convertible notes, respectively (Note E).

During the three months ended May 31, 2006, the Company issued 3,623,558 A warrants and 3,080,000 B warrants in conjunction with the Exchange Offer of 6.4% convertible notes for 10% convertible notes (which is more fully described in Note E). The A warrants have an exercise price of $.85 and an expiration date of August 27, 2006. For each A warrant exercised, one B warrant expires. The B warrants are exercisable beginning March 30, 2007, have an exercise price of $1.00 and an expiration date of June 30, 2010.

**NOTE H – OTHER RELATED PARTY TRANSACTIONS**

InNovember, 2004, a series of transactions and agreements with two significantshareholders of the Company resulted in one of these shareholders assuming$1,250,000 of the Company’s bank debt. In exchange for this note assumption,the Company issued a $1,250,000 unsecured note payable to the shareholder. Thisnote payable had a balance of $855,208 and $1,039,069 at May 31, 2006 and August 31,2005 respectively. This note assumption also provided for the Company to make a$400,000 loan to this shareholder. See Note C for further information on thisnote receivable.

Duringthe nine months ended May 31, 2005, the Company provided services throughits ecom subsidiary to a company owned by a former director of the Company. Allof the revenue from these services was included in the loss from discontinuedoperations during the year ended August 31, 2005. The amount of revenueincluded in this loss from discontinued operations is $151,616 from Cheapseats, Inc.

JonesByrd & Attkisson, Inc. (“JBA”) has acted as placement agent forthe Company’s Series A Preferred Stock, the 6.4% Senior Convertible NotesPayable, the 10% Senior Convertible Notes Payable and private stock sales. Oneof JBA’s principals is a director of the Company. In connection with suchofferings, as well as warrant exercise solicitation services,  the Placement Agent received $227,305 in cashcommissions and warrants to purchase 15,000 shares of the Company’s common stockat a cashless exercise price of $1.00 during the nine months ended May 31,2006. For the fiscal year ended August 31, 2005, this placement agentreceived $803,207 in cash compensation and warrants to purchase 1,817,887shares of common stock at cashless exercise prices ranging from $1.00 to$1.3325. Additionally,we have agreed to pay fees to JBA, if allowed by applicable state law, in theevent that holders convert certain notes or exercise certain warrants.  JBA’s former CFOis an investor in the Company’s 10% Senior Convertible Notes ($150,000) andjoined the Company as its Chief Operating Officer in September, 2005. 

OnMay 2, 2006, J. Pope Jones, a principal of JBA, and the Company enteredinto an agreement providing for Mr. Jones to provide investor relationsservices to us. Pursuant to this agreement, we will issue warrants to Mr. Jonesfor 300,000 common stock shares for a term expiring May 1, 2011 at anexercise price of $1.35 per share. Such warrants vest 25,000 per month duringeach month that such agreement remains in effect, beginning June 1, 2006. Theagreement is terminable by either party at its sole discretion upon one day’snotice.

Asof May 31, 2006, our officers and senior management have advanced cash tothe Company; such advances have an outstanding balance of approximately $79,500.Additionally, certain of our officers and managers have deferred salary in theaggregate gross amount of $163,332.

**NOTE I - COMMITMENTS AND CONTINGENCIES**

Litigation

In April, 2004, iGate, Inc.(“iGate”) filed a complaint against Gibralter Publishing, Inc. (“Gibralter”)and the Company in the U.S. District of the Eastern District of North Carolina,Southern Division, claiming that the Company was liable to iGate in the amountof approximately $725,000. iGate asserted that Gibralter owed this sum to iGateand by virtue of an alleged fraudulent conveyance,

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iGateasserts that a fraudulent conveyance occurred when Gibralter forgave $5,000,000in liabilities of a wholly-owned subsidiary of the Company which wereguaranteed by the Company in exchange for the Company’s issuing to Gibraltershares of its Common Stock and warrants to purchase Common Stock. In May, 2004,a default was entered against the Company. In November, 2004, the court vacatedthe default and granted the Company leave to answer to the complaint. TheCompany filed its answer and asserted affirmative defenses alleging absolutedefenses to the claims of iGate. In May, 2006, the Company signed a SettlementAgreement with iGate, Gibralter, Edward Bohn, and Terrance Leifheit. As part ofthe settlement, the Company agreed to pay iGate $325,000 on or before June 30,2006. As of the date of this filing, the Company has not paid the settlementamount due iGate and has defaulted on the Settlement Agreement. In the event itis not paid within a 15-day cure period, the Company is required to pay$400,000. The Company was also required to issue 125,000 common shares toEdward Bohn. Also, as part of the settlement, Mr. Leifheit and/orGibralter are required to pay $25,000 to iGate. During the nine months ended May 31,2006, the Company has accrued $325,000 per the terms of the settlementagreement.

Edward Arthur Bohn vs. Terrence Jude Leifheit; E-Commerce SupportCenter, Inc.; Gibralter Publishing, Inc; Global Demand Publishing, Inc.;Sky Investments of Jacksonville, Inc.; Jan Kaster and Market Central, Inc.

Ina litigation related to the iGate complaint, Edward Bohn filed a Complaint inJune, 2005, to initiate the above-captioned action, and obtained a TemporaryRestraining Order on the same day. Subsequently, Edward Bohn modified theTemporary Restraining Order to limit its effort against the Company, to enjointhe Company from issuing its stock to Terrence Jude Leifheit. Subsequently, anAmended Complaint was filed by Edward Bohn to dismiss all counts against theCompany and ecom, except for injunctive relief relating to the issuance of theCompany’s stock. As was noted above, the Company signed a joint SettlementAgreement with iGate, Mr. Bohn, Gibralter and Mr. Leifheit whereby125,000 shares of common stock were issued to Mr. Bohn. 

InMay, 2005, the Company was notified by a software license monitoring group thatit was not in compliance with certain computer software licensing agreements. TheCompany believes that it has meritorious defenses to the allegations andintends to vigorously defend itself against the claims. Management believes theultimate outcome of this matter will not have a material adverse effect on theCompany’s consolidated financial position or results of operations. 

InJune 2005, a former employee of U. S. Convergion, Inc., a subsidiaryof Scientigo, who was employed in 2002, filed a complaint against the Companyin the Circuit Court of Mobile County, Alabama: *Lucius L.Patterson v. Market Central, Inc.*, Case No. CV-04-0263. Thesuit seeks unpaid salary, wages, other compensation and expenses. Punitivedamages are also sought. In June 2006, an amended complaint was filedadding two additional former employees (Tom Maddux and David McKeever), whohave made essentially the same claims against the Company. The Company intendsto vigorously defend itself against these claims. Because very little discoveryhas been conducted, it is too early to make any assessments concerningfinancial exposure.

TheCompany is subject to other legal proceedings and claims which arise in theordinary course of its business. Although occasional adverse decisions orsettlements may occur, the Company believes that the final disposition of suchmatters should not have a material adverse effect on its financial position,results of operations or liquidity.

**NOTE J - INTANGIBLE ASSETS AND GOODWILL**

The Company has adopted FAS No. 142, Goodwill and Other IntangibleAssets, whereby the Company periodically tests its intangible assets forimpairment. On an annual basis, and when there is reason to suspect that theirvalues have been diminished or impaired, these assets are tested forimpairment, and write-downs will be included in results from operations. Theestimate of fair value of the intangible assets acquired was based onmanagement’s estimates. Goodwill relates to the acquisition of PliantTechnologies in July, 2003.

OnNovember 28, 2005, the Company entered into a transaction whereby, inexchange for 49% of Tigo Search, Inc. and $250,000 in cash, issuance of apromissory note in the amount of $100,000 (Note D) and 112,570 shares of theCompany’s common stock, valued at $140,713 (Note F), the Find.com URL andcertain other related intangible assets would be owned by the Company’smajority-owned subsidiary, Tigo Search, Inc. The Find.com URL acquired is determined tohave an estimated useful life of five years. The Company amortizes the acquiredintangible assets on a straight-line basis over the estimated useful lives ofthe assets.  

Totalidentifiable intangible assets acquired and their carrying values at May 31,2006 and August 31, 2005 are:
| ** **             | ** ** | **May 31, 2006**  | ** ** | **August 31, 2005** | ** ** |
|------------------------|------------|-----------------------------|------------|-------------------------------|------------|
| ** **             | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Book  Value** | ** ** | **Wtd Avg  Amortization  in Years** | ** ** | **Gross  Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net Book  Value** | ** ** | **Wtd Avg  Amortization  in Years** | ** ** |
| Patents and trademarks |       | $                           | 97,319     |                          | $          | 89,212 |   | $ | 8,107 |   | 3.0 |   | $ | 97,218 |   | $ | 64,880 |   | $ | 32,338 |   | 3.0 |   |
| Domain name and other  |       | 490,723                     |       | 49,071                        |       | 441,652 |   | 5.0 |   | — |   | — |   | — |   | 5.0 |   |
|                   |       |                        |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                  |       | $                           | 588,042    |                          | $          | 138,283 |   | $ | 449,759 |   |   |   | $ | 97,218 |   | $ | 64,880 |   | $ | 32,338 |   |   |   |

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Estimatedamortization expense as of May 31, 2006 is as follows:
| 2006           |   | $      | 98,143  |   |
|----------------|--------|--------|---------|--------|
| 2007           |   | 98,143 |    |
| 2008           |   | 98,143 |    |
| 2009           |   | 98,143 |    |
| 2010 and after |   | 57,187 |    |
| Total          |   | $      | 449,759 |   |

** **

**NOTE K – OTHER INCOME (EXPENSE)**

During the nine months ended May 31, 2006 and 2005 other income (expense) totals $89,556 and $223,822, respectively, which includes other income of $250,303 and $235,661 during the periods, respectively, relating 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 originally had been agreed to. During the nine months ended May 31, 2006, income of $179,584 is included in other income related to the amortization of the $239,445 prepayment of interest on the related party note receivable (Note C). Anticipated settlement costs relating to certain litigation of $339,950 is included in the nine months ended May 31, 2006.

**NOTE L – SUBSEQUENT EVENTS**

EffectiveJune 5, 2006, Mr. Dennis H. Bunt joined the Company as ChiefFinancial Officer. Effective June 5, 2006, Mr. Clifford A. Clarkresigned from the Company as Chief Financial Officer and from employment withthe Company. These events are more fully described in an 8-K filed with the SECby the Company on May 19, 2006, which is incorporated by reference herein.

OnJune 8, 2006, the Company entered into a definitive license agreement withGlobal Directory Solutions, LLC pursuant to which the Company acquired aworldwide, perpetual license to certain technology of the licensor.  In consideration of the licenses granted tothe Company, Global Directory Solutions, LLC is to receive 181,250 shares of theCompany’s common stock and a cash license fee following the Company’scompletion of a financing transaction.

**ITEM 2. MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Overview**

Scientigo, Inc. (the“Company”) is a software and intellectual property enterprise with products inthe area of next-generation enterprise search and intelligent enterprisecontent management. The Company holds multiple patents and patent-pendingtechnologies and has developed a suite of products that provides solutions formanaging the significant quantities of electronic information available today,particularly in the area of Enhanced Directory Assistance products.

The Company has one wholly-owned subsidiary, ConveySystems International, Inc. and one majority-owned subsidiary, TigoSoftware, Inc. Convey Systems International, Inc. was essentiallyinactive during the period being reported and was formally dissolved in June,2006.

The Company’s unaudited condensed consolidatedfinancial statements are presented on a going-concern basis, which contemplatesthe realization of assets and satisfaction of liabilities in the normal courseof business. As with any new venture, concerns must be considered in light ofthe normal problems, expenses and complications encountered by entrance intoestablished markets and the competitive environment in which the Companyoperates. The unaudited condensed consolidated financial statements do notinclude, nor does management feel it necessary to include, any adjustments toreflect any possible future effects on the recoverability and classification ofassets or the amounts and classification of liabilities that may result fromthe possible inability of the Company to continue as a going concern.

**COMPARISON OF THE THREE MONTHS ENDED MAY 31,2006 TO THE THREE MONTHS ENDED MAY 31, 2005**

Revenues from continuing operations for the threemonths ended May 31, 2006 and 2005 were $83,160 and $4,893, respectively. Thesales during 2006 are attributable to professional services provided by the Company.Sales during 2005

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 related to software products and the relatedsales of certain preliminary licenses and “proof of concept” work for clients. Increasesor decreases from the prior period are not meaningful at this level of activity.Cost of sales during 2006 of $26,715 related directly to third-party vendorsengaged in professional services work. The Company’s focus on its Find.comasset and the exploitation of its intellectual property and related softwareproducts has just begun to provide revenu e. Operated by the Company’ssubsidiary, Tigo Search, Inc., Find.com’s easy-to-remember website isdesigned to use topification technology and intelligent search to help users “find”information over the Internet faster and more efficiently.

The net loss increased from $2,134,561 for the threemonths ended May 31, 2005 to $5,666,581 for the three months ended May 31,2006. The major reasons for the loss increase are 1) increase in non-cashinterest expense of $2,589,546; 2) non-cash share-based compensation expense of$559,529; and 3) increase in selling, general and administrative expenses of$591,577. See details below.

Operating expenses were $2,220,495 and $1,047,579during the three month periods ended May 31, 2006 and 2005, respectively. Theincrease in operating expenses from 2005 to 2006 is $1,172,916 or 112% over theprior year period, and relates to growth in expenses in several areas which isconsistent with the Company’s increased activities related to commercializationof its products, intellectual property and acquisition of Find.com, as well asa new expense beginning this quarter, share-based compensation expense of$559,529, a non-cash expense recognized per FAS123 and 123R. Salaries andrelated personnel costs (including share-based compensation expense) increasedfrom $404,240 to $1,358,604 from 2005 to 2006 and account for $954,364 or 81%of the growth in operating expenses since the prior year. This growth isattributable to increases in management and marketing personnel, fieldengineers and additional development staff needed to exploit the Company’s newFind.com asset and expanded development efforts related to the Company’ssoftware products, as well as share-based compensation expense, as disclosedabove. Legal expenses increased from $264,430 in 2005 to $294,582 in 2006. Thisincrease of $30,152 is 3% of the increase in operating expenses. Expensesrelated to business and sales consultants and outsourced software developmentefforts grew from $147,995 in the 2005 period to $164,245 in 2006; this growthof $16,250 represents 1% of the total growth in operating expenses. Administrativecosts relating to investor and public relations, director and officersinsurance, director compensation and related costs increased from $142,477 in2005 to $314,627 in 2006. This growth of $172,150 is 15% of the increase inoperating expenses from the prior year’s quarter.

Depreciation and amortization were $40,425 and $18,615for the three month periods ended May 31, 2006 and 2005, respectively. Thisexpense includes $8,109 of amortization expenses related to the Company’spatent portfolio and $24,536 related to amortization of the Company’s Find.comURL.

Interest expense increased significantly from$1,091,054 to $3,683,623 during the three months ended May 31, 2005 and2006, respectively. This increase of $2,592,569 is attributable to non-cashinterest expense related to debt discount and the beneficial conversion featureof $3,573,104 in the current year versus $983,558 of non-cash interest expensein the prior year, which is more fully disclosed in Note E.

Other income (expense) was $181,092 and $(9,983) for the three months ended May 31, 2006 and 2005, respectively. In the 2006 quarter, other income includes $59,861 of income related to the amortization of the loan discount and related interest on the $400,000 loan to a shareholder over the one-year life of the loan (NOTE C), $200,303 of income related to the Company’s settlement of vendor obligations for amounts less than originally expensed in prior years, and $4,181 of payments from a factor for receivables related to one of the Company’s former subsidiaries, and is net of $75,000 of expense recorded in the current quarter related to settlement of the iGate litigation. 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 originally had been agreed to.

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**COMPARISON OF THE NINE MONTHS ENDED MAY 31,2006 TO THE NINE MONTHS ENDED MAY 31, 2005**

Revenues from continuingoperations for the nine months ended May 31, 2006 and 2005 were $125,610and $11,677, respectively. The sales during 2006 are attributable toprofessional services provided by the Company. Sales during 2005 related tosoftware products and the related sales of certain preliminary licenses and “proofof concept” work for clients. Cost of sales during 2006 of $44,285 relatedprimarily to third-party vendors engaged in professional services work. TheCompany’s focus on its Find.com asset and the exploitation of its intellectual propertyand related software products has just begun to provide revenue. Operated bythe Company’s subsidiary, Tigo Search, Inc., Find.com’s easy-to-rememberwebsite is designed to use topification technology and intelligent search tohelp users “find” information over the Internet faster and more efficiently.

The net loss from continuing operations increased from$3,424,123 to $10,874,538 for the three months ended May 31, 2005 and May 31,2006, respectively. The major reasons for the increase are 1) an increase of$4,226,404 in non-cash interest expense; 2) $559,529 of non-cash stock-basedcompensation expense; and 3) $2,364,840 in increased selling, general andadministrative expenses. The details of these increases are more fullyexplained below.

Operating expenses were $5,445,657 and $2,466,477during the nine month periods ended May 31, 2006 and 2005, respectively. Theincrease in operating expenses from 2005 to 2006 is $2,979,180, or 121% overthe prior year period, and relates to growth in expenses in several areas whichis consistent with the Company’s increased activities related tocommercialization of its products, intellectual property and acquisition ofFind.com. Salaries and related personnel costs increased from $954,349 to$2,629,105 from 2005 to 2006 and account for $1,674,756 or 56% of the growth inoperating expenses since the prior year. The $1,674,576 increase includes$559,529 of non-cash share-based compensation expense, incurred for the firsttime by the Company as it applies FAS 123 and 123R accounting standards (NoteA). This growth is also attributable to increases in management and marketingpersonnel, field engineers and additional development staff needed to exploitthe Company’s new Find.com asset and expanded development efforts related tothe Company’s software products, as well as share-based compensation expense,as disclosed above. Legal expenses increased from $563,667 in 2005 to$1,184,592 in 2006. This increase of $620,925 is 21% of the increase inoperating expenses and is attributable primarily to significant legal workrelated to the Company’s registration statements on Form S-4/SB-2and intellectual property-related services.  Expenses related to business and salesconsultants and outsourced software development efforts decreased from $554,794in the 2005 period to $466,855 in 2006. This decrease of $87,939 represents -3%of the increase in operating expenses. Administrative costs relating toinvestor and public relations, director and officers insurance, director compensationand related costs increased from $415,597 in 2005 to $1,187,035 in 2006. Thisgrowth of $771,438 from 2005 to 2006 is 26% of the increase in operatingexpenses from the prior year’s quarter.

Depreciation and amortization were $96,390 and $41,579for the nine month periods ended May 31, 2006 and 2005, respectively. Thisexpense includes $24,330 of amortization expenses related to the Company’spatent portfolio during both periods shown and $49,071 related to amortizationof the Company’s Find.com URL.

Interest expense increased significantly from$1,193,145 to $5,599,762 during the nine months ended May 31, 2006compared to the nine months ended May 31, 2005. This increase of$4,406,617 is attributable to non-cash interest expense related to debt discountand the beneficial conversion feature write-offs of $5,209,962 which relate tothe 6.4% convertible notes and the 10% convertible notes more fully describedin Note E. This compares to non-cash interest expense related to debt discountand beneficial conversion feature write-offs on the 6.4% Notes of $983,558 inthe prior year.

Other income (expense) was $89,556 and $223,822 for the nine months ended May 31, 2006 and 2005, respectively. In 2006, other income (expense) includes $325,000 of expense related to settlement of the iGate litigation and $179,584 of income related to the amortization of the loan discount and related interest on the $400,000 loan to a shareholder over the one-year 

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life of the loan (NOTE C). Also included in 2006 is $250,303 of income related to Company’s settlement of vendor obligations for amounts less than originally expensed in prior years. 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 originally had been agreed to.

**LIQUIDITY AND CAPITAL RESOURCES**

The Company is not currently generating positive cashflow and has been able to obtain only enough capital to pay critical operatingcosts for the current fiscal year. Despite these factors, the Company believesthat plans are in place that will provide the foundation to stabilize thecurrent situation and provide capital to continue the development of theCompany’s products, commercialize its enterprise search and content managementsoftware products and progress with the intellectual property opportunities. Forthe nine months ended May 31, 2006, proceeds of $1,447,413 were receivedfrom the exercise of 1,701,444 common stock warrants and 1,436 options and$180,000 was received from the sale of 225,000 common shares in a privatetransaction. Subsequent to May 31, 2006, the Company has received $363,472in cash from exercises of warrants to purchase 239,379 shares and private salesof 200,000 shares of common stock. Continued exercise of warrants and sales ofstock cannot be assured, and past exercises and stock sales were only aninterim solution for the Company’s capital needs. The Company needs to attractnew capital sources in the near future or it may need to curtail or ceaseoperations.

The Company’s principal cash requirements are forselling, general and administrative expenses, employee costs and capitalexpenditures. The Company’s cash balance as of May 31, 2006 was $165,783. Cashused in operating activities was $3,009,158 and $574,543 for the nine and threemonths ended May 31, 2006 respectively. This primarily was as a result ofoperating losses, caused by the revenue levels that are at less than abreakeven volume. A significant financing, increased revenues or cost cuttingwhich will necessitate an alteration in the Company’s strategic plans will berequired in the immediate future. The Company invested cash of $602,348 in theFind.com URL purchase, computers and furniture, and other investing activitiesduring this period. The Company met its cash requirements during the ninemonths ended May 31, 2006 mainly through the use of its cash on hand,receipt of $1,447,413 in warrants and options proceeds, $180,000 in privatestock sales, and $93,287 in note proceeds from Lion Development, LLC (NOTE D).

On April 3, 2006, weannounced the results of our exchange offer to all holders of our 2005 6.4%Senior Convertible Notes and Warrants to Purchase Common Stock. Out of the $6,633,950in face value of the 6.4% Notes sold, $6,383,950 were outstanding at the timeof the exchange offer. Of those, the holders of $6,214,375 face value tenderedtheir 6.4% Notes for exchange, constituting 97.3% of the outstanding Notes. Alltendered 6.4% Notes were accepted by Scientigo and $4,971,500 face value of its10% A Notes were issued in exchange. Additionally, holders of 3,080,000warrants to purchase Common Stock, that were issued with the 6.4% ConvertibleNotes, tendered their warrants (97.3% of those outstanding) and received3,623,558 A Warrants and 3,080,000 B Warrants in exchange. As of May 31,2006, $3,951,498 of our 10% A Notes had been converted into 4,390,553 shares ofcommon stock at the $0.90 per share conversion price. This conversionrepresents 79% of the A Notes that were issued on March 30, 2006, inexchange for 6.4% Senior Convertible Notes. No conversions have occurredsubsequent to May 31, 2006. As of May 31, 2006, 1,066,420“A” Warrants were exercised at a per share price of $.85 and we issued anaggregate of 1,066,420 shares of common stock.

Theaccompanying financial statements have been prepared assuming that the Companycontinues as a going concern that contemplates the realization of assets andthe satisfaction of liabilities in the normal course of business. However, theability of the Company to continue as a going concern on a longer-term basiswill be dependent upon its ability to generate sufficient cash flow fromoperations to meet its obligations on a timely basis, to obtain additionalfinancing and, ultimately, to attain profitability.

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While the Company has continued to raise capital tomeet its working capital requirements, additional financing is required inorder to meet future needs. The Company can not be certain that additionalcapital can be attracted or that it will be available. Future offerings, ifsuccessful in raising the funds, may be dilutive to existing shareholders whodo not participate (pro rata) in these offerings.

Management believes it has plans in place to attractcapital to meet projected cash flow deficits. However, if we are not successfulin raising sufficient capital resources, this will have a material adverseeffect on our business, results of operations liquidity and financialcondition.

**INFLATION**

In the opinion of management, inflation has not had amaterial effect on the operations of the Company.

****CriticalAccounting Estimates****

We identified, in our Annual Report on Form 10-KSBfor the year ended August 31, 2005, our most critical accounting policiesand estimates upon which our financial status depends. We reviewed our policiesand determined that those policies remain our most critical accounting policiesfor the quarter ended May 31, 2006.

**Off-Balance Sheet Arrangements**

We do not have any off-balance sheet arrangements.

**DISCLOSURE REGARDING FORWARD LOOKINGSTATEMENTS**

Certain statements made in this report, and otherwritten or oral statements made by or on behalf of the Company, may constitute “forward-lookingstatements” under the Private Securities Litigation Reform Act of 1995. Whenused in this report, the words “believes,” “expects,” “estimates,” “intends,” “will”and similar expressions are intended to identify forward-looking statements. Statementsregarding future events and developments and our future performance, as well asthe Company’s expectations, beliefs, plans, intentions, estimates orprojections relating to the future, are forward-looking statements within themeaning of these laws. Examples of such statements in this report include theCompany’s current plans for improving liquidity and its future acquisitionplans. Forward-looking statements involve risks and uncertainties that couldcause actual results to differ materially from those expressed in or implied bythe statements, including, but not limited to, the ability of the Company toprovide for its debt obligations and to provide for working capital needs fromoperating revenue; general economic conditions; the ability to integrateacquisitions successfully and without disruptions to normal operations; andother risks detailed in the Company’s periodic report filings with theSecurities and Exchange Commission. The Company believes that theseforward-looking statements are reasonable; however, investors should not placeundue reliance on such statements. These statements are based on currentexpectations and speak only as of the date of such statements. The Companyundertakes no obligation to publicly update or revise any forward-lookingstatement, whether as a result of future events, new information or otherwise.

**ITEM 3. CONTROLS AND PROCEDURES**

*Disclosure Controls*

As of the end of theperiod covered by this report, we carried out an evaluation, under thesupervision and with the participation of our management, including the chiefexecutive officer and chief financial officer, of the effectiveness of ourdisclosure controls and procedures as defined in Exchange Act Rule 13a-15(e).In designing and evaluating the disclosure controls and procedures, managementrecognized that any controls and procedures, no matter how well designed and operated,can provide only reasonable assurance of achieving the desired controlobjectives, and management is required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.

 

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Based on that evaluation,our chief executive officer and chief financial officer concluded that ourdisclosure controls and procedures were effective as of the end of the periodcovered by this report to provide reasonable assurance that information we arerequired to disclose in reports that we file or submit under the SecuritiesExchange Act of 1934, as amended, is accurately recorded, processed, summarizedand reported within the time periods specified in Securities and ExchangeCommission rules and forms, and that such information is accumulated andcommunicated to our management, including our chief executive officer and chieffinancial officer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

*InternalControls*

 

As previously reported,on June 5, 2006, Dennis H. Bunt became our new Chief Financial Officer. Inherentwith changes in management is a change in understanding of the controlenvironment, the business processes and internal controls. Management believesthat the integration of the new Chief Financial Officer has been successful.

 

Other than as describedabove, there was no change in our system of internal control over financialreporting (as defined in Rule 13a-15(f) under the SecuritiesExchange Act of 1934) during our fiscal quarter ended May 31, 2006 thathas materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

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**PART II**

**ITEM 1. LEGAL PROCEEDINGS**

Except as describedbelow, we are not currently a party to any lawsuit or proceeding which, in theopinion of our management, is likely to have a material adverse effect on us.

In April, 2004, iGate, Inc. (“iGate”) filed acomplaint against Gibralter Publishing, Inc. (“Gibralter”) and us in theU.S. District of the Eastern District of North Carolina, Southern Division,claiming that we were liable to iGate in the amount of approximately $725,000. iGateasserted that Gibralter owed this sum to iGate and by virtue of an allegedfraudulent conveyance, iGate asserts that a fraudulent conveyance occurred whenGibralter forgave $5,000,000 in liabilities of a wholly-owned subsidiary ofours which we guaranteed in exchange for our issuing to Gibralter shares of ourCommon Stock and warrants to purchase Common Stock. In May, 2004, a default wasentered against us. In November, 2004, the court vacated the default andgranted us leave to answer the complaint. We filed our answer and assertedaffirmative defenses alleging absolute defenses to the claims of iGate. In May,2006, we signed a Settlement Agreement with iGate, Gibralter, Edward Bohn, andTerrance Leifheit. As part of the settlement, we agreed to pay iGate $325,000on or before June 30, 2006. As of the date of this filing, we had not paidthe settlement amount due iGate and have defaulted on the Settlement Agreement.In the event this amount is not paid within a 15-day cure period, we arerequired to pay $400,000. We were also required to issue 125,000 common sharesto Edward Bohn. Also, as part of the settlement, Mr. Leifheit and/orGibralter are required to pay $25,000 to iGate. During the nine months ended May 31,2006, we accrued $325,000 per the terms of the settlement agreement.

Edward Arthur Bohn vs. Terrence Jude Leifheit;E-Commerce Support Center, Inc.; Gibralter Publishing, Inc; Global DemandPublishing, Inc.; Sky Investments of Jacksonville, Inc.; Jan Kasterand Market Central, Inc. In a litigationrelated to the iGate complaint, Edward Bohn filed a Complaint in June, 2005, toinitiate the above-captioned action, and obtained a Temporary Restraining Orderon the same day. Subsequently, Edward Bohn modified the Temporary RestrainingOrder to limit its effect against us to enjoin the Company from issuing itsstock to Terrence Jude Leifheit. Subsequently, an Amended Complaint was filed byEdward Bohn to dismiss all counts against us and ecom, except for injunctiverelief relating to the issuance of shares of our stock. As described above, wesigned a joint Settlement Agreement with iGate, Mr. Bohn, Gibralter and Mr. Leifheitwhereby 125,000 shares of common stock were issued to Mr. Bohn.

In May 2005, the Company was notified by a softwarelicense monitoring group that it was not in compliance with certain computersoftware licensing agreements. The Company believes that it has meritoriousdefenses to the allegations and intends to vigorously defend itself against theclaims. Management believes the ultimate outcome of this matter will not have amaterial adverse effect on the Company’s consolidated financial position orresults of operations.

In June 2005, a former employee of U. S.Convergion, Inc., a subsidiary of Scientigo, who was employed in 2002,filed a complaint against the Company in the Circuit Court of Mobile County,Alabama: Lucius L. Patterson v. Market Central, Inc., Case No. CV-04-0263.The suit seeks unpaid salary, wages, other compensation and expenses. Punitivedamages are also sought. In June 2006, an amended complaint was filedadding two additional former employees (Tom Maddux and David McKeever), whohave made essentially the same claims against the Company. The Company intendsto vigorously defend itself against these claims. Because very little discoveryhas been conducted, it is too early to make any assessments concerningfinancial exposure.

We are subject to other legal proceedings and claimswhich arise in the ordinary course of its business. Although occasional adversedecisions or settlements may occur, we believe that the final disposition ofsuch matters should not have a material adverse effect on our financialposition, results of operations or liquidity.

**ITEM 2. UNREGISTERED SALES OF EQUITY****SECURITIES AND USE OF PROCEEDS**

(a)  Since February 28,2006, we issued the following unregistered equity securities:

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·                  71,450 shares issued on exercise ofwarrants. Such restricted shares were issued pursuant to Section 4 (2) ofthe Securities Act of 1933, as amended.

·                  425,000 shares issued on new sales ofcommon stock and 106,250 warrants in a private sale. Such restricted shareswere issued pursuant to Section 4 (2) of the Securities Act of 1933,as amended.

·                  187,617 shares issued to 6.4%convertible note holders on conversion of their notes to common stock. Suchrestricted shares were issued pursuant to Section 3(a)(9) of theSecurities Act of 1933, as amended.

·                  Pursuant to a technology licenseagreement we entered into with Global Directory Solutions LLC, datedJune 8, 2006, we issued them 181,250 shares of our common stock. We issuedthese options pursuant to Section 4 (2) of the Securities Act of1933, as amended.

·                  130,000 shares valued at$.71 per share issued to a former employee and charged to operations ascompensation expense. Such restricted shares were issued pursuantto Section 4 (2) of the Securities Act of 1933, as amended.

·                  125,000 shares issued to a relatedparty in a settlement agreement. Such restricted shares were issued pursuant toSection 4 (2) of the Securities Act of 1933, as amended.

·                  50,000 shares issued in conjunctionwith a financial consulting and services agreement. Such restricted shares wereissued pursuant to Section 4 (2) of the Securities Act of 1933, asamended.

·                  36,906 shares issued to a third partyand included as compensation to one of the Company’s officers. Such restrictedshares were issued pursuant to Section 4 (2) of the Securities Act of1933, as amended.

·                  OnMay 2, 2006, we issued warrants to Mr. J. Pope Jones, aprincipal of JBA, to purchase 300,000 shares of common stock at a per shareexercise price of $1.35 for a term expiring May 1, 2011. Such warrantsvest in installments of 25,000 per month during each month that such agreementremains in effect, beginning June 1, 2006. We issued these securities inreliance on the exemption from registration provided by Section 4 (2)of the Securities Act of 1933, as amended.

(b) None

(c) The following table provides information aboutpurchases by us and our affiliated purchasers during the quarter ended May 31,2006 of equity securities that are registered by us pursuant to Section 12of the Securities Exchange Act of 1934:

**ISSUER PURCHASES OF EQUITYSECURITIES**

 
| ** **              | ** ** | **(a)**                                                           | ** ** | **(b)**                                                          | ** ** | **(c)**                                                                                                                                                    | ** ** | **(d)**                                                                                                                                                                                                | ** ** |
|-------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Period**              | ** ** | **Total Number  of Shares (or  Units)  Purchased** | ** ** | **Average Price  Paid per Share  (or Unit)** | ** ** | **Total Number of  Shares (or Units)  Purchased as Part  of Publicly  Announced Plans  or Programs (1)** | ** ** | **Maximum Number  (or Approximate  Dollar Value of  Shares (or Units)  that May Yet Be  Purchased Under  the Plans or  Programs (1)** | ** ** |
|                    |       |                                                              |       |                                                             |       |                                                                                                                                                       |       |                                                                                                                                                                                                   |       |
| 3/01/06 –  3/31/06 |       | 0                                                                 |       | $                                                                | 0          |                                                                                                                                                       | 0          |                                                                                                                                                                                                   | 0          |   |
| 4/01/06 –  4/30/06 |       | 0                                                                 |       | $                                                                | 0          |                                                                                                                                                       | 0          |                                                                                                                                                                                                   | 0          |   |
| 5/01/06 – 5/31/06  |       | 0                                                                 |       | $                                                                | 0          |                                                                                                                                                       | 0          |                                                                                                                                                                                                   | 0          |   |
|                         |            |                                                                   |            |                                                                  |            |                                                                                                                                                            |            |                                                                                                                                                                                                        |            |  |  |  |

 

**ITEM 3. DEFAULTS ON SENIOR SECURITIES**

None

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**ITEM 4. SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS**

(a) None

**ITEM 5. OTHER INFORMATION**

Effective June 5, 2006, Mr. Clifford Clarkresigned as Chief Financial Officer of the Company to pursue other professionalopportunities. Further, on June 5, 2006, Mr. Dennis H. Bunt, CPA wasappointed the new Chief Financial Officer of the Company. Pursuant to the termsof an offer letter, Mr. Bunt will receive a starting salary of $120,000annually. He also will be entitled to up to $30,000 per year inperformance-based incentives and was granted options to purchase 300,000 sharesat a per share exercise price of $1.35. An additional management incentiveoption of up to 300,000 shares based upon performance and contributions to theCompany’s success will also be granted to Mr. Bunt at a later date.Mr. Bunt is also eligible for standard benefits and a moving/relocationallowance of $7,500.

**ITEM 6. EXHIBITS**

The following exhibits are filed herewith or incorporated by reference.
| Exhibit  Number | ** **                   | ** **                                                                                                                                                     | ** ** | **Incorporated by Reference** | ** ** | **Filed  Herewith** |
|-----------------|------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|---------------------|
| ** **      | **Exhibit Description** | ** **                                                                                                                                                     | **Form**   | ** **                    | **Dated**  | ** **          | **Exhibit** | ** ** |
|            |                         |                                                                                                                                                           |       |                          |       |                |   |   |   |   |
| 10.1            |                         | Offer Letter to Dennis H. Bunt, dated May 9,  2006                                                                                                        |       |                          |       |                |   |   |   | X |
|            |                         |                                                                                                                                                           |       |                          |       |                |   |   |   |   |
| 31.1            |                         | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                       |       |                          |       |                |   |   |   | X |
|            |                         |                                                                                                                                                           |       |                          |       |                |   |   |   |   |
| 31.2            |                         | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002                                                       |       |                          |       |                |   |   |   | X |
|            |                         |                                                                                                                                                           |       |                          |       |                |   |   |   |   |
| 32.1            |                         | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |       |                          |       |                |   |   |   | X |
|            |                         |                                                                                                                                                           |       |                          |       |                |   |   |   |   |
| 32.2            |                         | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |       |                          |       |                |   |   |   | X |

 

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**SIGNATURES**

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
|                                 | **SCIENTIGO, INC.** |
|---------------------------------|---------------------|
|                            | ** **          |
|                            | ** **          |
| Date:  July 17,  2006 | By:                 | /s/ Doyal G. Bryant |   |
|                            |                | Name: | Doyal G. Bryant |
|                            |                | Title: | President and Chief Executive Officer |
|                            |                |   |
|                            |                |   |
| Date:   July 17, 2006 | By:                 | /s/ Dennis H. Bunt |   |
|                            |                | Name: | Dennis H. Bunt |
|                            |                | Title: | Chief Financial Officer |
|                                 |                     |  |  |  |  |

 

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