UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,September 30, 2021
OR
[ ] ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 000-56006
GALAXY NEXT GENERATION, INC.
(Exact(Exact Name of Registrant as Specified in Its Charter)
Nevada | 61-1363026 | ||
(State of Incorporation) | (IRS Employer Identification No.) | ||
285 N Big A Road Toccoa, Georgia | 30577 | ||
(Address of Principal Executive Offices) | (Zip Code) |
|
(706) 391-5030
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (None)
Title of each class | Trading Symbol(s) | Name of each exchange on which | ||
N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]☒ No [ ]
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes[X] No[ ]
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
| Accelerated filer | |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
☐
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Act). Yes [ ]☐ No [X]
☒
The number of shares outstanding of the issuer's Common Stock, as of May 7,November 10, 2021 was 3,040,944,203.3,367,382,882.
-i-
FORM 10-Q
GALAXY NEXT GENERATION, INC.
Table of Contents
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| Page | |
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PART I. Financial Information | |||
Item 1. | Unaudited Condensed Consolidated Financial Statements and Footnotes | 2 | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
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Item 4. | Controls and Procedures |
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PART II. Other Information | |||
Item 1. | Legal Proceedings |
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Item 1A. | Risk Factors |
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3. | Defaults Upon Senior Securities |
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Item 4. | Mine Safety Disclosures |
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Item 5. | Other Information |
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Item 6. Exhibits |
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| Signatures |
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The accompanying unaudited interim condensed consolidated financial statements included herein, have been prepared by Galaxy Next Generation, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated statements have been prepared in accordance with the Company's accounting policies described in the Company's Annual Report on Form 10-K for the year ended June 30, 20202021 and should be read in conjunction with the audited consolidated financial statements and the notes thereto included in that report. Unless the context indicates otherwise, references to the "Company," "we, " "us," "our" or "Galaxy" means Galaxy Next Generation, Inc. and its subsidiaries.
-1-
PART I – FINANCIAL INFORMATION
Item 1 – Unaudited Condensed Consolidated Financial Statements and Footnotes
The following unaudited condensed consolidated financial statements are included herein:
Condensed Consolidated Balance Sheets as of | 3 | ||
Condensed Consolidated Statements of Operations for the Three | 4 | ||
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the | 5 | ||
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the | 6 | ||
Condensed Consolidated Statements of Cash Flows for the |
| 7 | |
Notes to the Condensed Consolidated Financial Statements (unaudited) |
| 8-22 | |
-2-
GALAXY NEXT GENERATION, INC. | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
March 31, 2021 | June 30, 2020 | |||||||
Assets | (Unaudited) | (Audited) | ||||||
Current Assets | ||||||||
Cash | $ 742,382 | $ 412,391 | ||||||
Accounts receivable, net | 1,302,764 | 798,162 | ||||||
Inventories, net | 2,207,885 | 738,091 | ||||||
Prepaid and other current assets | 3,950 | 2,800 | ||||||
Total Current Assets | 4,256,981 | 1,951,444 | ||||||
Property and Equipment, net (Note 3) | 58,290 | 52,049 | ||||||
Intangibles, net (Notes 4 and 14) | 1,335,928 | 1,436,315 | ||||||
Goodwill (Notes 4 and 14) | 834,220 | 834,220 | ||||||
Operating right of use asset (Note 9) | 176,624 | 223,982 | ||||||
Total Assets | $ 6,662,043 | $ 4,498,010 | ||||||
Liabilities and Stockholders' Equity (Deficit) | ||||||||
Current Liabilities | ||||||||
Line of credit (Note 5) | $ 991,598 | $ 1,236,598 | ||||||
Convertible notes payable, net of discount (Note 6) | - | 1,101,900 | ||||||
Derivative liability, convertible debt features and | 3,376,000 | 246,612 | ||||||
warrants (Note 7) | ||||||||
Current portion of long-term notes payable (Note 6) | 940,011 | 512,425 | ||||||
Accrued legal settlement payable (Note 12) | 600,000 | 1,282,000 | ||||||
Accounts payable | 906,228 | 1,804,269 | ||||||
Accrued expenses | 434,165 | 371,912 | ||||||
Deferred revenue | 815,214 | 1,133,992 | ||||||
Short term portion of related party notes and payables (Note 8) | 3,984,760 | 1,272,812 | ||||||
Total Current Liabilities | 12,047,976 | 8,962,520 | ||||||
Noncurrent Liabilities | ||||||||
Long term portion of related party notes payable | - | 2,075,000 | ||||||
(Note 8) | ||||||||
Long term portion of accrued legal settlement payable | 318,240 | 718,000 | ||||||
(Note 12) | ||||||||
Notes payable, less current portion (Note 6) | 398,853 | 482,553 | ||||||
Total Liabilities | 12,765,069 | 12,238,073 | ||||||
Stockholders' Equity (Deficit) | ||||||||
Common stock | 252,850 | 59,539 | ||||||
Preferred stock - Series E, non-redeemable | 50 | 50 | ||||||
Additional paid-in-capital | 40,934,014 | 15,697,140 | ||||||
Accumulated deficit | (47,289,940) | (23,496,792) | ||||||
Total Stockholders' Equity (Deficit) | (6,103,026) | (7,740,063) | ||||||
Total Liabilities and Stockholders' Equity (Deficit) | $ 6,662,043 | $ 4,498,010 | ||||||
GALAXY NEXT GENERATION, INC.
Condensed Consolidated Balance Sheets
September 30, 2021 | June 30, 2021 | |||||
Assets | (Unaudited) | (Audited) | ||||
Current Assets | ||||||
Cash | $ | 354,291 | $ | 541,591 | ||
Accounts receivable, net | 927,774 | 866,091 | ||||
Inventories, net | 3,377,069 | 3,267,667 | ||||
Other current assets | 3,950 | 3,950 | ||||
Total Current Assets | 4,663,084 | 4,679,299 | ||||
Property and Equipment, net (Note 2) | 81,544 | 86,812 | ||||
Intangibles, net (Notes 1 and 12) | 1,396,098 | 1,516,815 | ||||
Goodwill (Notes 1 and 12) | 834,220 | 834,220 | ||||
Operating right of use asset (Note 7) | 222,336 | 208,051 | ||||
Total Assets | $ | 7,197,282 | $ | 7,325,197 | ||
Liabilities and Stockholders' Equity (Deficit) | ||||||
Current Liabilities | ||||||
Line of credit (Note 3) | $ | 986,599 | $ | 991,598 | ||
Derivative liability, convertible debt features (Note 5) | 834,000 | 1,842,000 | ||||
Current portion of long-term notes payable (Note 4) | 445,232 | 552,055 | ||||
Accounts payable | 838,280 | 830,433 | ||||
Accrued expenses | 596,635 | 213,772 | ||||
Deferred revenue | 314,589 | 453,862 | ||||
Short term portion of related party notes and payables (Note 6) | 3,457,757 | 3,471,755 | ||||
Total Current Liabilities | 7,473,092 | 8,355,475 | ||||
Noncurrent Liabilities | ||||||
Notes payable, less current portion (Note 4) | 421,752 | 405,007 | ||||
Total Liabilities | 7,894,844 | 8,760,482 | ||||
Stockholders' Equity (Deficit) | ||||||
Common stock | 289,994 | 280,744 | ||||
Preferred stock - Series E, non-redeemable | 50 | 50 | ||||
Additional paid-in-capital | 47,329,549 | 46,215,049 | ||||
Accumulated deficit | (48,317,155) | (47,931,128) | ||||
Total Stockholders' Equity (Deficit) | (697,562) | (1,435,285) | ||||
Total Liabilities and Stockholders' Equity (Deficit) | $ | 7,197,282 | $ | 7,325,197 | ||
See accompanying notes to the condensed consolidated financial statements (unaudited).
-3-
GALAXY NEXT GENERATION, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
| For the Three Months | For the Nine Months | ||||||||||
| Ended March 31, | Ended March 31, | ||||||||||
| 2021 | 2020 | 2021 |
| 2020 | |||||||
Revenues | $ | 777,457 | $ | 349,247 | $ | 2,754,463 | $ | 1,850,673 | ||||
Cost of Sales | 356,731 | 130,614 | 1,660,971 |
| 1,116,398 | |||||||
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Gross Profit | 420,726 | 218,633 | 1,093,492 |
| 734,275 | |||||||
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General and Administrative Expenses |
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Stock compensation and stock issued for services | 2,350 | 48,034 | 2,778,550 |
| 2,055,726 | |||||||
Asset impairment expense | - | 2,000,287 | - | 2,000,287 | ||||||||
General and administrative | 1,697,410 | 1,662,359 | 4,347,555 |
| 4,263,887 | |||||||
Total General and Administrative Expenses | 1,699,760 | 3,710,680 | 7,126,105 |
| 8,319,900 | |||||||
Loss from Operations | (1,279,034) | (3,492,047) | (6,032,613) |
| (7,585,625) | |||||||
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Other Income (Expense) |
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Other income | 141,017 | - | 141,017 |
| 3,049 | |||||||
Expenses related to convertible notes payable: |
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Change in fair value of derivative liability | 343,000 | 695,300 | (3,153,583) |
| 2,717,557 | |||||||
Interest accretion | - | (603,852) | (766,603) |
| (1,412,705) | |||||||
Interest expense related to Equity Purchase Agreement (Note 13) | (1,805,687) | - | (6,807,587) |
| - | |||||||
Interest expense | (289,585) | (1,860,498) | (7,173,779) |
| (3,822,927) | |||||||
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Total Other Income (Expense) | (1,611,255) | (1,769,050) | (17,760,535) |
| (2,515,026) | |||||||
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Net Loss before Income Taxes | (2,890,289) | (5,261,097) | (23,793,148) |
| (10,100,651) | |||||||
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Income Taxes (Note 11) | - | - | - |
| - | |||||||
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Net Loss | $ | (2,890,289) | $ | (5,261,097) | $ | (23,793,148) | $ | (10,100,651) | ||||
Net Basic and Fully Diluted Loss Per Share | $ | (0.001) | $ | (0.150) | $ | (0.008) | $ | (0.470) | ||||
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Weighted average common shares outstanding |
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Basic | 2,822,806,425 | 35,520,434 | 2,221,202,596 |
| 21,547,126 | |||||||
Fully diluted | 3,387,367,710 | 585,972,958 | 3,433,133,044 |
| 339,856,357 | |||||||
For the Three Months Ended September 30, | ||||||
2021 | 2020 | |||||
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Revenues | $ | 1,684,771 | $ | 1,178,213 | ||
Cost of Sales | 1,018,763 | 833,177 | ||||
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Gross Profit | 666,008 | 345,036 | ||||
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General and Administrative Expenses | ||||||
Stock issued for services | 32,750 | 2,763,000 | ||||
General and administrative | 1,498,124 | 1,392,227 | ||||
Total General and Administrative Expenses | 1,530,874 | 4,155,227 | ||||
Loss from Operations | (864,866) | (3,810,191) | ||||
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Other Income (Expense) | ||||||
Expenses related to convertible notes payable: | ||||||
Change in fair value of derivative liability | 1,008,000 | (1,053,895) | ||||
Interest accretion | (8,750) | (399,936) | ||||
Interest expense related to Equity Purchase Agreement (Note 11) | (252,900) | (4,006,900) | ||||
Interest expense | (267,511) | (3,863,856) | ||||
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Total Other Income (Expense) | 478,839 | (9,324,587) | ||||
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Net Loss before Income Taxes | (386,027) | (13,134,778) | ||||
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Income Taxes (Note 9) | 0- | 0- | ||||
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Net Loss | $ | (386,027) | $ | (13,134,778) | ||
Net Basic and Fully Diluted Loss Per Share | $ | (0.0001) | $ | (0.0080) | ||
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Weighted average common shares outstanding | ||||||
Basic | 3,145,498,699 | 1,642,915,407 | ||||
Fully diluted | 3,878,859,458 | 2,633,468,281 | ||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
-4-
GALAXY NEXT GENERATION, INC. Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) Nine Months Ended March 31, 2021 (Unaudited) Total Common Stock Preferred Stock - Class E Additional Accumulated Stockholders' Shares Amount Shares Amount Paid-in Capital Deficit Deficit Balance, July 1, 2020 628,039,242 $ 59,539 500,000 $50 $15,697,140 $(23,496,792) $ (7,740,063) Common stock issued for services 105,800,000 10,580 - - 2,767,970 - 2,778,550 Common stock issued in exchange for debt reduction 1,382,812,744 138,281 - - 12,892,954 - 13,031,235 Issuance of common stock to warrant holders 249,792,217 - - - - - - Commitment shares issued 57,500,000 5,750 - - 1,171,250 - 1,177,000 Common stock issued under Equity Purchase Agreement 377,000,000 37,700 - - 8,254,700 - 8,292,400 Common stock issued as collateral 50,000,000 - - - - - - Common stock issued in acquisition 10,000,000 1,000 - - 150,000 151,000 Consolidated net loss - - - - - (23,793,148) (23,793,148) Balance March 31, 2021 2,860,944,203 $252,850 500,000 $50 $40,934,014 $(47,289,940) $ (6,103,026)
GALAXY NEXT GENERATION, INC.
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit)
Nine Months Ended September 30, 2021
(Unaudited)
Common Stock | Preferred Stock - Class E | Additional Paid-in | Accumulated | Total Stockholders' | |||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||
| |||||||||||||||||||||
Balance, July 1, 2021 | 3,139,882,882 | $ | 280,000 | 500,000 | $ | 50 | $ | 46,215,049 | $ | (47,931,128) | $ | (1,435,285) | |||||||||
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Common stock issued for services | 2,500,000 | 250 | - | - | 32,500 | - | 32,750 | ||||||||||||||
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Common stock issued under Put Purchase Agreement | 90,000,000 | 9,000 | - | - | 1,082,000 | - | 1,091,000 | ||||||||||||||
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Consolidated net loss | - | - | - | - | - | (386,027) | (386,027) | ||||||||||||||
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Balance, September 30, 2021 | 3,232,382,882 | $ | 289,994 | 500,000 | $ | 50 | $ | 47,329,549 | $ | (48,317,155) | $ | (697,562) | |||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
-5-
GALAXY NEXT GENERATION, INC. | |||||||||||||
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) | |||||||||||||
Nine Months Ended March 31, 2020 | |||||||||||||
(Unaudited) | |||||||||||||
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| Total |
| Common Stock |
| Preferred Stock - Class E |
| Additional |
| Accumulated |
| Stockholders' | ||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Deficit |
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Balance, July 1, 2019 | 11,318,901 | $ 1,072 | - | $ - | $ 4,859,731 | $ (9,470,685) | $ (4,609,882) | ||||||
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Common stock issued for services | 3,119,912 | 314 | - | - | 1,995,900 | - | 1,996,214 | ||||||
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Common stock issued for debt reduction |
95,988,567 | 9,598 | - | - | 4,137,688 | - | 4,147,286 | ||||||
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Settlement of conversion features | - | - | - | - | 152,374 | - | 152,374 | ||||||
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Issuance of common stock to warrant holders | 23,142,794 | - | - | - | - | - | - | ||||||
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Common stock issued as compensation | 144,511 | 14 | - | - | 59,497 | - | 59,511 | ||||||
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Common stock issued in acquisition of Ehlert Solutions | |||||||||||||
and Interlock Concepts, Inc. | 1,350,000 | 135 | - | - | 1,720,216 | - | 1,720,351 | ||||||
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Common stock issued for convertible notes | 500,000 | 50 | - | - | 219,950 | - | 220,000 | ||||||
Commitment shares issued | 25,000 | 3 | - | - | 6,997 | - | 7,000 | ||||||
Issuance of Preferred Stock- Class E | - | - | 500,000 | 50 | 499,950 | - | 500,000 | ||||||
Consolidated net loss | - | - | - | - | - | (10,100,651) | (10,100,651) | ||||||
Balance March 31, 2020 | 135,589,685 | $ 11,186 | 500,000 | $ 50 | $ 13,652,303 | $ (19,571,336) | $ (5,907,797) | ||||||
GALAXY NEXT GENERATION, INC.
Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit)
Nine Months Ended September 30, 2021
(Unaudited)
Common Stock | Preferred Stock - Class E | Additional Paid-in | Accumulated | Total Stockholders' | |||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||
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Balance, July 1, 2020 | 628,039,242 | $ | 59,539 | $ | 500,000 | $ | 50 | $ | 15,697,140 | $ | (23,496,792) | $ | (7,740,063) | ||||||||
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Common stock issued for services | 103,750,000 | 10,375 | - | - | 2,752,625 | - | 2,763,000 | ||||||||||||||
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Common stock issued for debt reduction | 968,475,442 | 96,847 | - | - | 7,877,359 | - | 7,974,206 | ||||||||||||||
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Issuance of common stock to warrant holders | 249,792,217 | - | - | - | - | - | - | ||||||||||||||
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Commitment shares issued | 2,500,000 | 250 | - | - | 54,750 | - | 55,000 | ||||||||||||||
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Common stock issued under Put Purchase Agreement | 242,000,000 | 24,200 | - | - | 3,927,700 | - | 3,951,900 | ||||||||||||||
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Consolidated net loss | - | - | - | - | - | (13,134,778) | (13,134,778) | ||||||||||||||
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Balance, September 30, 2020 | 2,194,556,901 | $ | 191,211 | 500,000 | $ | 50 | $ | 30,309,574 | $ | (36,631,570) | $ | (6,130,735) | |||||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
-6-
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| Nine Months Ended March 31, | ||
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| 2021 |
| 2020 |
Cash Flows from Operating Activities |
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Net loss |
| $ (23,793,148) |
| $ (10,100,651) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
| 278,949 |
| 563,855 |
Goodwill and intangible assets impairment charge | - | 2,000,287 | ||
Loss on disposal of property and equipment | - | 13,236 | ||
Amortization of convertible debt discounts |
| 265,953 |
| 308,062 |
Accretion and settlement of financing instruments |
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and change in fair value of derivative liability |
| 3,827,600 |
| (389,331) |
Stock compensation and stock issued for services |
| 2,789,130 |
| - |
Stock issued for payment of interest | 13,826,684 | - | ||
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Changes in assets and liabilities: |
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Accounts receivable |
| (472,892) |
| 323,444 |
Inventories |
| (1,260,363) |
| (194,699) |
Prepaid expenses and other assets | - | 18,098 | ||
Accounts payable |
| (1,979,801) |
| 217,307 |
Accrued expenses |
| 62,253 |
| (365,562) |
Deferred revenue |
| (318,778) |
| 167,404 |
Net cash used in operating activities |
| (6,774,413) |
| (7,438,550) |
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Cash Flows from Investing Activities |
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Acquisition of business, net of cash |
| 38,836 |
| 2,967,918 |
Purchased capitalized development costs | (120,404) | - | ||
Purchases of property and equipment |
| - |
| (17,636) |
Net cash provided by (used in) investing activities |
| (81,568) |
| 2,950,282 |
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Cash Flows from Financing Activities |
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Proceeds from notes payable |
| 332,500 |
| - |
Principal payments on financing lease obligations | - | (5,721) | ||
Principal payments on notes payable |
| (1,878) |
| (48,331) |
Payments on advances from stockholder, net |
| (140,596) |
| - |
Payments on convertible notes payable | (110,000) | (655,076) | ||
Proceeds from convertible notes payable |
| 1,956,000 |
| 4,550,684 |
Proceeds from notes payable related parties | 543,613 | 672,084 | ||
Payments on line of credit, net |
| (245,000) |
| (100) |
Proceeds from sale of common stock under Equity Purchase Agreement |
| 4,851,333 |
| - |
Net cash provided by financing activities |
| 7,185,972 |
| 4,513,540 |
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Net Increase in Cash and Cash Equivalents |
| $ 329,991 |
| $ 25,272 |
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Cash, Beginning of Period |
| 412,391 |
| 169,430 |
Cash, End of Period |
| $ 742,382 |
| $ 194,702 |
-7-GALAXY NEXT GENERATION, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Supplemental and Non Cash Disclosures | ||||
Noncash additions related to convertible debt | $ 228,020 | $ 268,350 | ||
Cash paid for interest | $ 163,314 | $ 176,379 | ||
Interest on shares issued under Equity Purchase Agreement | $ 6,807,587 | $ - | ||
Related party note payable issued for acquisition of business | $ 194,526 | $ 1,484,473 | ||
Acquisition of goodwill and intangibles | $ 46,869 | $ 3,760,287 | ||
Stock compensation and stock issued for services | $ 2,778,550 | $ 2,055,873 | ||
Property leased with financing lease | $ 25,317 | $ 37,979 | ||
Accretion of discount and change in fair value of derivatives | $ 3,895,991 | $ - | ||
Common stock issued in exchange for convertible debt reduction | $ 4,117,650 | $ 3,447,912 |
Three Months Ended March 31, | ||||||
2021 | 2020 | |||||
Cash Flows from Operating Activities | ||||||
Net loss | $ | (386,027) | $ | (13,134,778) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation and amortization | 130,145 | 84,940 | ||||
Amortization of convertible debt discounts | 8,750 | 74,775 | ||||
Change in fair value of derivative liability | (1,008,000) | 1,381,363 | ||||
Stock issued for services | 32,750 | 2,870,472 | ||||
Stock issued under Equity Purchase Agreement | 252,900 | 7,865,077 | ||||
| ||||||
Changes in assets and liabilities: | ||||||
Accounts receivable | (61,683) | (696,710) | ||||
Inventories | (109,402) | (78,919) | ||||
Right of use assets | 16,321 | 0- | ||||
Accounts payable | 7,847 | (1,462,072) | ||||
Accrued expenses | 382,863 | (158,601) | ||||
Deferred revenue | (139,273) | 431,147 | ||||
Net cash used in operating activities | (872,809) | (2,823,306) | ||||
| ||||||
Cash Flows from Investing Activities | ||||||
Purchases of capitalized development costs | (4,160) | 0- | ||||
| ||||||
Cash Flows from Financing Activities | ||||||
Principal payments on financing lease obligations | (1,392) | 0- | ||||
Principal payments on notes payable | (128,042) | (774) | ||||
Payments on advances from stockholder, net | (13,998) | (33,110) | ||||
Proceeds from convertible notes payable | 0- | 840,000 | ||||
Payments on line of credit, net | (4,999) | (300,000) | ||||
Proceeds from sale of common stock under Equity Purchase Agreement | 838,100 | 2,316,520 | ||||
Net cash provided by financing activities | 689,669 | 2,822,636 | ||||
| ||||||
Net Decrease in Cash and Cash Equivalents | (187,300) | (670) | ||||
| ||||||
Cash, Beginning of Period | 541,591 | 412,391 | ||||
| ||||||
Cash, End of Period | $ | 354,291 | $ | 411,721 | ||
Supplemental and Non Cash Disclosures | ||||||
Noncash additions related to convertible debt | $ | 0- | $ | 34,250 | ||
Cash paid for interest | $ | 37,079 | $ | 19,986 | ||
Interest on shares issued under Equity Purchase Agreement | $ | 252,900 | $ | 4,006,900 | ||
Stock issued for services | $ | 32,750 | $ | 2,763,000 | ||
Property leased with financing lease | $ | 0- | $ | 25,317 | ||
Accretion of discount and change in fair value of derivatives | $ | 999,250 | $ | 1,029,700 | ||
Common stock issued in exchange for convertible debt reduction | $ | 0- | $ | 1,799,510 |
See accompanying notes to the condensed consolidated financial statements (unaudited).
-8-
-7-
Note 1 - Summary of Significant Accounting Policies
Corporate History, Nature of Business, Mergers and Acquisitions
Galaxy is a manufacturer and U.S. distributor of interactive learning technology hardware and software that allows the presenter and participant to engage in a fully collaborative instructional environment. Galaxy's products include Galaxy's own private-label interactive touch screen panel its own Intercom, Bell, and Paging solution, as well as numerous other national and international branded peripheral and communication devices for safety and security purposes.devices. New technologies like Galaxy's own touchscreen panels are sold along with renowned brands such as Google Chromebooks, Microsoft Surface Tablets, Lenovo and Acer computers,Verizon WiFi and more. Galaxy's distribution channel consists of approximately 37 resellers across the U.S. who primarily sell its products within the commercial and educational market. Galaxy does not control where the resellers focus their resell efforts; however, the K-12 education market is the largest customer base for Galaxy products comprising nearly 90% of Galaxy's sales. In addition, Galaxy also possesses its own OEM divisionreseller channel where it manufacturers products for other vendors in their industrysells directly to the K-12 market, primarily throughout the Southeast region of the United States.
Ehlert Solutions Group, Inc. ("Solutions") and white labels the products under other brands.
Solutions andInterlock Concepts, Inc. ("Concepts") are Arizona-based audio design and manufacturing companies creating innovative products that provide fundamental tools for building notification systems primarily to K-12 education market customers located primarily in the north and northwest United States. TheseSolutions and Concepts' products and services allow institutions access to intercom, scheduling, and notification systems with improved ease of use. The products provide an open architecture solution to customers which allows the products to be used in both existing and new environments. Intercom, public announcement (PA), bell and control solutions are easily added and integrated within the open architecture design and software model. These products combine elements over a common internet protocol (IP) network, which minimizes infrastructure requirements and reduces costs by combining systems.
On October 15, 2020, the Company entered into an Asset Purchase Agreement (AP), to acquireGalaxy acquired the assets of Classroom Technologies Solutions, Inc. ("Classroom Tech") for consideration of (a) paying off a secured Classroom Tech loan, not to exceed the greater of 50% of the value of the Classroom Tech assets acquired or $120,000; (b) the issuance of a promissory note in the amount of $44,526 to a Classroom Tech designee; and (c) the issuance of 10 million shares of common stock to the seller of Classroom Tech. Classroom Tech provides cutting-edge presentation products to schools, training facilities, churches, corporations and retail establishments. Their high qualityhigh-quality solutions are customized to meet a variety of needs and budgets in order to provide the best in education and presentation technology. Classroom Tech direct-sources and imports many devices and components which allows the Company to be innovative, nimble, and capable of delivering a broad range of cost-effectivecosteffective solutions. Classroom Tech also offers in-house service and repair facilities and carries many top brands.
Impact of Coronavirus Aid, Relief, and Economic Security Act
COVID-19 Update
The Coronavirus Aid, ReliefCovid-19 Pandemic that began in early 2020 caused shelter-in-place policies, unexpected factory closures, supply chain disruptions, and Economic Security Act (the "CARES Act") was enacted in March 2020 in response tomarket volatilities across the globe. As a result of the economic disruptions and unprecedented market volatilities and uncertainties driven by the Covid-19 outbreak, the Company experienced some supply chain disruptions. However, the Company has not experienced any significant payment delays or defaults by our customers as a result of the COVID-19 pandemic.
The CARES Actfull impact of the Covid-19 outbreak continues to evolve as of the date of this report. The depth and related rules and guidelines include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments, and estimated income tax payments that we are deferring to future periods. As a result,duration of the Company delayed paymentpandemic remains unknown. Despite the availability of certain payroll tax paymentsvaccines, recent surges in the amount of $19,517 as of March 31, 2021 and June 30, 2020, respectively.
In April 2020, the Company applied for an unsecured loan (the "PPP Loan") under the Paycheck Protection Program (PPP). The PPP was established under The CARES Act and is administered by the U.S. Small Business Administration (SBA). The PPP loan was approved and funded,infection rate and the Company entered into an unsecured loandetection of approximately $311,000. The PPP loan matures in April 2022 and accrues interest at an annual rate of 0.98%. The promissory note evidencing the PPP Loan contains customary events of default relating to, among other things, payment defaults and provisionsnew variants of the promissory note. In accordance withvirus have reinforced the requirementsgeneral consensus that the containment of Covid-19 remains a challenge. Management is actively monitoring the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs. See Note 6.
In May 2020, the Company received a loan from the SBA under Section 7(b) of the Small Business Act. The $150,000 secured loan matures in May 2050global situation and accrues interest at an annual rate of 3.75%. The promissory note is collateralized by a security interest in substantially all assets of the Company. The loan proceeds are to fund working capital needs due to economic injury caused by the COVID-19 pandemic. See Note 6.
-9-its effect on its financial condition, liquidity, operations, suppliers, industry, and workforce.
-8-
Basis of Presentation and Interim Financial Information
The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission (the "SEC") pertaining to interim financial information. Accordingly, these interim financial statements do not include all information or footnote disclosures required by GAAP for complete financial statements and, therefore, should be read in conjunction with the Consolidated Financial Statements and notes thereto in our June 30, 20202021 Annual Report on Form 10-K and other current filings with the SEC. In the opinion of management, all adjustments, consisting of those of a normal recurring nature, necessary to present fairly the results of the periods presented have been included. The results of operations for the interim periods presented may not necessarily be indicative of the results to be expected for the full year.
Principles of Consolidation
The financial statements include the consolidated assets and liabilities of the combined company (collectively Galaxy Next Generation, Inc., Classroom Technology Solutions Inc., Interlock Concepts, Inc., and Ehlert Solutions Group, Inc. referred to collectively as the "Company"). See Note 14.
12.
All intercompany transactions and accounts have been eliminated in the consolidation.
The Company’s common stockCompany is traded onan over-the-counter marketspublic company traded under the stock symbol GAXY.listing GAXY (formerly FLCR).
Capital Structure
In accordance with ASC 505, Equity, theThe Company's capital structure is as follows:
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| March 31, 2021 |
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| Common stock |
| 4,000,000,000 |
| 2,860,944,203 |
| 2,810,905,578 |
| $.0001 par value, one vote per share
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| Preferred stock |
| 200,000,000 |
| - |
| - |
| $.0001 par value, one vote per share
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| Preferred stock - Class A |
| 750,000 |
| - |
| - |
| $.0001 par value; no voting rights
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| Preferred stock - Class B |
| 1,000,000 |
| - |
| - |
| Voting rights of 10 votes for Preferred B share; 2% preferred dividend payable annually
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Preferred stock - Class C |
| 9,000,000 |
| - |
| - |
| $.0001 par value; 500 votes per share, convertible to common stock
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| Preferred stock - Class D |
| 1,000,000 | - |
| - |
| $.0001 par value; no voting rights, convertible to common stock, mandatory conversion to common stock 18 months after issue
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| Preferred stock - Class E |
| 500,000 |
| 500,000 |
| 500,000 |
| $.0001 par value; no voting rights, convertible to common stock | ||||||||||||||||
-10-
September 30, 2021 |
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Authorized | Issued | Outstanding | ||||||
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Common stock | 4,000,000,000 | 3,232,382,882 | 3,182,344,257 | $.0001 par value, one vote per share | ||||
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Preferred stock | 200,000,000 | - | - | $.0001 par value, one vote per share | ||||
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Preferred stock - Class A | 750,000 | - | - | $.0001 par value; no voting rights | ||||
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Preferred stock - Class B | 1,000,000 | - | - | Voting rights of 10 votes for Preferred B share; 2% preferred dividend payable annually | ||||
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Preferred stock - Class C | 9,000,000 | - | - | $.0001 par value; 500 votes per share, convertible to common stock | ||||
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Preferred stock - Class D | 1,000,000 | - | - | $.0001 par value; no voting rights, convertible to common stock, mandatory conversion to common stock 18 months after issue | ||||
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Preferred stock - Class E | 500,000 | 500,000 | 500,000 | $.0001 par value; no voting rights, convertible to common stock | ||||
-9-
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| June 30, 2020 |
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Common stock |
| 4,000,000,000 | 628,039,242 | 628,000,617 |
| $.0001 par value, one vote per share | |||||||||||||||||||
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| Voting rights of 10 votes for 1 Preferred B share; 2% preferred dividend payable annually | |||||||||||||||||||
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Preferred stock - Class C |
| 9,000,000 | - | - |
| $.0001 par value; 500 votes per share, convertible to common stock | |||||||||||||||||||
Preferred stock - Class D |
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1,000,000 |
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Preferred stock - Class E |
| 500,000 | 500,000 | 500,000 |
| $.0001 par value; no voting rights, convertible to common stock | |||||||||||||||||||
June 30, 2021 |
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Authorized | Issued | Outstanding | ||||||
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Common stock | 4,000,000,000 | 3,139,882,882 | 3,089,844,257 | $.0001 par value, one vote per share | ||||
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Preferred stock | 200,000,000 | - | - | $.0001 par value, one vote per share | ||||
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Preferred stock - Class A | 750,000 | - | - | $.0001 par value; no voting rights | ||||
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Preferred stock - Class B | 1,000,000 | - | - | Voting rights of 10 votes for 1 Preferred B share; 2% preferred dividend payable annually | ||||
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Preferred stock - Class C | 9,000,000 | - | - | $.0001 par value; 500 votes per share, convertible to common stock | ||||
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Preferred stock - Class D | 1,000,000 | - | - | $.0001 par value; no voting rights, convertible to common stock, mandatory conversion to common stock 18 months after issue | ||||
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Preferred stock - Class E | 500,000 | 500,000 | 500,000 | $.0001 par value; no voting rights, convertible to common stock | ||||
There is no publicly traded market for the preferred shares.
There are 399,163,143169,163,143 common shares reserved at March 31,September 30, 2021 under terms of the convertible debt agreements, Stock Plan and Equity Purchase Agreement (see Notes 6, 1311 and 15)13).
There are 194,683,30692,264,231 issued common shares that are restricted as of March 31,September 30, 2021. The shares may become free-trading upon satisfaction of certain terms and regulatory conditions.
Supplier Agreement
Contract assets and contract liabilities are as follows:
September 30, 2021 | June 30, 2021 | |||||
Contract assets | $ | 46,824 | $ | 46,460 | ||
Contract liabilities | 240,775 | 285,514 | ||||
For the quarter ended September 30, 2021 and 2020, the Company recognized $433,609 and $54,939 of revenues related to supplier agreements.
Accounts Receivable
Management deemed no allowance for doubtful accounts was necessary at March 31,September 30, 2021 and June 30, 2020.2021. At March 31,September 30, 2021 and June 30, 2020, $758,4812021, $73,814 and $670,031$190,779 of total accounts receivable were considered unbilled and recorded as deferred revenue.
The Company factored approximately $600,000 and $0 of accounts receivable during the nine months ended March 31, 2021 and year ended June 30, 2020, respectively. For the three months and nine months ended March 31, 2021, expenses on sale of trade receivables was inconsequential.
Inventories
Management estimates $67,635 of inventory reserves at March 31,September 30, 2021 and June 30, 2020.2021, respectively.
-10-
Goodwill, Intangible Assets and Product Development Costs
Goodwill and Intangible Assets
Managementintangible assets are comprised of the Company determined that a triggering event to assess goodwill impairment occurred duringfollowing at September 30, 2021:
Cost | Accumulated Amortization | Total | |||||||
Goodwill | $ | 834,220 | $ | 0- | $ | 834,220 | |||
Finite-lived assets: | |||||||||
Customer list | $ | 922,053 | $ | (360,267) | $ | 561,786 | |||
Vendor relationships | 484,816 | (192,715) | 292,101 | ||||||
Product development costs | 794,277 | (252,066) | 542,211 | ||||||
$ | 2,201,146 | $ | (805,048) | $ | 1,396,098 | ||||
Goodwill and intangible assets are comprised of the year endedfollowing at June 30, 2020 due2021:
Cost | Accumulated Amortization | Total | |||||||
Goodwill | $ | 834,220 | $ | 0- | $ | 834,220 | |||
Finite-lived assets: | |||||||||
Customer list | $ | 922,053 | $ | (314,166) | $ | 607,887 | |||
Vendor relationships | 484,816 | (168,474) | 316,342 | ||||||
Product development costs | 790,118 | (197,532) | 592,586 | ||||||
$ | 2,196,987 | $ | (680,172) | $ | 1,516,815 | ||||
Intangible assets such as customer lists and vendor relationships are stated at the lower of cost or fair value. They are amortized on a straight-line basis over periods ranging from three to six years, representing the separationperiod over which the Company expects to receive future economic benefits from these assets. Amortization of these intangible assets amounted to $70,343 and $68,000 for the three months ended September 30, 2021 and 2020.
Costs incurred in designing and developing classroom technology products are expensed as research and development until technological feasibility has been established. Technological feasibility is established upon completion of a key executive associated with their acquisitiondetail product design, or in its absence, completion of Conceptsa working model. Upon the achievement of technological feasibility, development costs are capitalized and Solutions. While there was no single determinative event,subsequently reported at the considerationlower of unamortized cost or net realizable value. Management's judgment is required in totalitydetermining whether a product provides new or additional functionality, the point at which various products enter the stages at which costs may be capitalized, assessing the ongoing value and impairment of several factors that developed led managementthe capitalized costs and determining the estimated useful lives over which the costs are amortized.
Annual amortization expense is calculated based on the straight-line method over the product's estimated economic lives, which are typically three to conclude that it was more likely than not thatsix years. Amortization of product development costs incurred begins when the fair valuesrelated products are available for general release to customers. Amortization of certain intangible assetsproduct development costs of $54,534 and goodwill acquired as part$12,512 for the three months ended September 30, 2021 and 2020, is included in cost of that acquisition were below their carrying amounts. These factors included: a) former key executive separating from the Company; b) respective former key executive violating his noncompete changing the use and value of it; c) sustained decreaserevenues in the Company's share price which reduced market capitalization; and d) uncertainty in the United States and global economies due to Covid-19. As a result, the Company recorded a non-cash impairment lossconsolidated statements of approximately $2,000,000, including $800,287 related to goodwill and $1,200,000operations.
Estimated amortization expense related to finite-lived intangible assets. No such impairment charge was recorded duringassets for the three or nine months ended March 31, 2021. next five years is: $510,082 for fiscal year 2022, $487,945 for fiscal year 2023, $332,962 for fiscal year 2024, $45,912 for fiscal year 2025, and $9,607 for fiscal year 2026 and $9,590 thereafter.
-11-
Recent Accounting Pronouncements
In January 2020, the FASBFinancial Accounting Standards Board (FASB) issued ASUAccounting Standards Update (ASU) No. 2020-01, "Investments“Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815."” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2020-012016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impacts of adoption of the new guidance toadopted this ASU on July 1, 2021 with no significant impact on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12 "Income“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12") by removing certain exceptions to the general principles. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company is currently evaluating the impacts of adoption of the new guidance toadopted this ASU on July 1, 2021 with no significant impact on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity", which simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity and modifies the guidance on diluted EPS calculations as a result of these changes. The guidance in this ASU can be adopted using either a full or modified retrospective approach and becomes effective for annual reporting periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating theadopted this ASU on July 1, 2021 with no significant impact of this standard on its consolidated financial statements and disclosures.
statements.
The Company has implemented all new applicable accounting pronouncements that are in effect and applicable. These pronouncements did not have any material impact on the consolidated financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Reclassification
Certain amounts in the current period financial statements have been reclassified in order to conform to the current year presentation.
Note 2 - Contract Balances
Contract assets and contract liabilities are as follows:
| March 31, 2021 |
| June 30, 2020 |
Contract assets | $ - |
| $ - |
Contract liabilities | 217,134 |
| 463,961 |
For the three and nine months ended March 31, 2021, the Company recognized $214,992 and $715,067 of revenue.
-12-
Note 32 - Property and Equipment
Property and equipment are comprised of the following at:
| March 31, 2021 |
| June 30, 2020 |
Vehicles | $ 115,135 |
| $ 115,135 |
Equipment | 22,877 |
| 6,097 |
Furniture and fixtures | 25,085 |
| 24,335 |
| 163,097 |
| 145,567 |
Accumulated depreciation | (104,807) |
| (93,518) |
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Property and equipment, net | $ 58,290 |
| $ 52,049 |
Depreciation expense was $4,641 and $10,011 for the three months ended March 31, 2021 and 2020, respectively.
September 30, 2021 | June 30, 2021 | |||||
Vehicles | $ | 115,135 | $ | 115,135 | ||
Equipment | 25,115 | 25,115 | ||||
Leasehold Improvements | 31,000 | 31,000 | ||||
Furniture and fixtures | 25,085 | 25,085 | ||||
196,335 | 196,335 | |||||
Accumulated depreciation | (114,791) | (109,523) | ||||
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Property and equipment, net | $ | 81,544 | $ | 86,812 | ||
Depreciation expense was $11,289 and $27,855 for the nine months ended March 31, 2021 and 2020, respectively.
Note 4 - Intangible Assets
Customer Lists and Vendor Relationships
Intangible assets are stated at the lower of cost or fair value. Customer lists and vendor relationships are amortized on a straight-line basis over five years, representing the period over which the Company expects to receive future economic benefits from these assets. Amortization of customer lists and vendor relationships was $70,343 and $0 for the three months ended March 31, 2021 and 2020, respectively. Amortization of customer lists and vendor relationships was $208,296 and $0 for the nine months ended March 31, 2021 and 2020, respectively. Amortization of these costs are included in general and administrative expenses in the Company's condensed consolidated statements of operations.
Product Development Costs
Annual amortization expense is calculated based on the straight-line method over the product's estimated economic life. Amortization of product development costs incurred begins when the related products are available for sale to customers. Amortization of product development costs was $26,436 and $0 for the three months ended March 31, 2021 and 2020, respectively. Amortization of product development costs was $59,364 and $0 for the nine months ended March 31, 2021 and 2020, respectively. Amortization of these costs are included in cost of sales in the Company's condensed consolidated statements of operations.
The following tables shows goodwill, finite-lived intangible assets, accumulated amortization, and the impairment charges:
March 31, 2021 |
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| Cost |
| Accumulated Amortization |
| Net Book Value |
| Impairment |
| Total |
Goodwill | $ 834,220 |
| $ - | $ 834,220 | $ - | $ 834,220 | |||
Finite-lived assets: |
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Customer list | $ 922,053 | $ (268,063) | $ 653,990 | $ - | $ 653,990 | ||||
Vendor relationships | 484,816 | (144,233) | 340,583 | - | 340,583 | ||||
Capitalized product development costs | 402,255 | (60,900) | 341,355 | - | 341,355 | ||||
| $ 1,809,124 | $ (473,196) | $ 1,335,928 | $ - | $1,335,928 | ||||
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June 30, 2020 | |||||||||
| Cost | Accumulated Amortization | Net Book Value | Impairment | Total | ||||
Goodwill | $ 1,634,507 | $ - | $ 1,634,507 | $ (800,287) | $ 834,220 | ||||
Finite-lived assets: | |||||||||
Customer list | $ 881,000 | $ (132,147) | $ 748,853 | $ - | $ 748,853 | ||||
Vendor relationships | 479,000 | (71,847) | 407,153 | - | 407,153 | ||||
Noncompete agreements | 1,600,000 | (400,000) | 1,200,000 | (1,200,000) | - | ||||
Capitalized product development costs | 281,845 | (1,536) | 280,309 | - | 280,309 | ||||
| $ 3,241,845 | $ (605,530) | $ 2,636,315 | $(1,200,000) | $1,436,315 |
-13--12-
Estimated amortization expense related to intangible assets for the next five years is as follows:
Period ending March 31, |
|
2022 | $ 387,118 |
2023 | 387,118 |
2024 | 347,598 |
2025 | 187,885 |
2026 | 26,209 |
| $ 1,335,928 |
Note 53 - Lines of Credit
The Company has an availablea $1,000,000 and $1,250,000 line of credit at March 31, 2021 and June 30, 2020, respectively, bearing interest at prime plus 0.5% (3.75% at March 31, 2021 and 4.25% at September 30, 2021 and June 30, 2020). The line of credit was renewed in October 2020 at a reduced available credit line, change in collateral, and a new expiration date of2021, respectively) which expires October 29, 2021. However, the bank provided a 30-day grace period extension. The renewed line of credit is collateralized by certain real estate owned by stockholders and a family member of a stockholder, 50,000,0007,026,894 shares of the Company's common stock par value $0.0001 per share (the "Common Stock") and theowned by two stockholders, personal stockguarantees of two stockholders, and a key man life insurance policy. A minimum average bankIn addition, a 20% curtailment of the outstanding balance of $50,000 was required on the line of credit agreement at June 30, 2020, but this requirement was removed in October 2020.may occur anytime prior to maturity. The outstanding balance iswas $986,599 and $991,598 and $1,236,598 at March 31,September 30, 2021 and June 30, 2020,2021, respectively.
The Company has aup to $1,000,000 available credit line under an accounts receivable factoring agreement through July 30, 2022. No amounts were outstandingTotal available credit under the factoring agreement was $844,328 and $1,000,000 as of March 31, 2021.September 30, 2021 and June 30, 2021, repectively. See Note 13.11.
-14-
Note 64 - Notes Payable
Long Term Notes Payable
| March 31, 2021 |
| June 30, 2020 |
Note payable with a bank bearing interest at 4% and maturing on June 26, 2020. The note was renewed by the lender with a revised maturity of June 26, 2021 and a lowered interest rate to 3%. The renewal provides for monthly interest payments and a balloon payment of outstanding principal and interest at maturity. The note is collateralized by a certificate of deposit owned by a related party. |
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$274,539 |
| $274,900 | |
Long term PPP loan under the CARES Act bearing interest at 0.98% and maturing in April 2022. Monthly installments of principal and interest of $13,137 begin in October 2020. Payments on the loan are subject to application for SBA forgiveness submitted in 2021. | 310,832 |
| 310,832 |
Long term loan under Section 7(b) of the Economic Injury Disaster Loan program bearing interest at 3.75% and maturing in May 2050. Monthly installments of principal and interest of $731 begin in May 2021. | 150,000 |
| 150,000 |
Note payable to an investor bearing interest of 10% and maturing on January 13, 2022 with monthly installments of principal and interest of $45,294 beginning in June 2021. | 385,000 | - | |
Financing lease liabilities for offices and warehouses with monthly installments of $12,449 (ranging from $1,083 to $3,524) over terms expiring through July 2023. | 186,119 |
| 223,982 |
Financing leases with a related party for delivery vehicles with monthly installments totaling $813, including interest, over five year terms expiring through July 2020. | - |
| 1,245 |
Note payable with a finance company for delivery vehicle with monthly installments totaling $679 including interest at 8.99% over a six year term expiring in December 2025. | 32,374 |
| 34,019 |
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Total Notes Payable | 1,338,864 |
| 994,978 |
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Current Portion of Notes Payable | 940,011 |
| 512,425 |
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Long-term Portion of Notes Payable | $ 398,853 |
| $ 482,553 |
-15-
September 30, 2021 | June 30, 2021 | |||||
Note payable with a bank bearing interest at 4% and maturing on June 26, 2021 and a lowered interest rate to 3%. In July 2021, the note was renewed by the lender with a revised maturity date of July 7, 2026. The renewal provides for monthly interest payments and a balloon payment of outstanding principal and interest at maturity. The note is collateralized by a certificate of deposit owned by a related party. | $ | 237,039 | $ | 237,039 | ||
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Note payable to an investor bearing interest at 10% and maturing on January 13, 2022 with monthly installments of principal and interest of $45,294 beginning in June 2021. | 236,726 | 348,456 | ||||
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Long term loan under Section 7(b) of the Economic Injury Disaster Loan program bearing interest at 3.75% and maturing in May 2050. Monthly installments of principal and interest of $731 begin upon notification by the SBA regarding note servicing. | 150,000 | 150,000 | ||||
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Financing lease liabilities for offices and warehouses with monthly installments of $24,091 (ranging from $245 to $9,664) over terms expiring through December 2024. | 222,336 | 208,051 | ||||
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Note payable with a finance company for delivery vehicle with monthly installments totaling $679 including interest at 8.99% over a 6 year term expiring in December 2025. | 29,633 | 31,016 | ||||
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Total Notes Payable | 875,734 | 974,562 | ||||
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Less: Unamortized original issue discount | 8,750 | 17,500 | ||||
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Current Portion of Notes Payable | 445,232 | 552,055 | ||||
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Long-term Portion of Notes Payable | $ | 421,752 | $ | 405,007 | ||
-13-
Future minimum principal payments on the long-term notes payable to unrelated parties are as follows:
Period ending March 31, |
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2022 | $ 940,011 |
2023 | 149,076 |
2024 | 26,305 |
2025 | 16,035 |
2026 | 14,662 |
Thereafter | 192,775 |
| $ 1,338,864 |
Convertible Notes
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-16-
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-17-
The original issue discount is being amortized over the terms of the convertible notes using the effective interest method. During the three months ended March 31, 2021 and 2020, the Company amortized $8,750 and $91,338, respectively, of debt discounts to interest expense and $0 and $603,852, respectively, to interest accretion. During the nine months ended March 31, 2021 and 2020, the Company amortized $256,452 and $247,794, respectively, of debt discounts to interest expense and $766,603 and $1,412,705, respectively, to interest accretion.
Convertible notes are subordinate to the bank debt of the Company.
Accrued but unpaid interest on the notes is convertible by the lender into, and payable by the Company in common shares at a price per common share equal to the most recent closing price of the Company's common shares prior to the delivery to the Company of a request to convert interest, or the due date of interest, as applicable. Interest, when due, is payable either in cash or common shares.
The conversion features meet the definition of a derivative liability instrument because the conversion rate is variable and therefore does not meet the "fixed-for-fixed" criteria outlined in ASC 815-40-15. As a result, the conversion features of the notes are recorded as a derivative liability at fair value and marked-to-market each period with the changes in fair value each period charged or credited to other income (expense).
Period ending September 30, | ||||
2022 | $ | 445,232 | ||
2023 | 122,692 | |||
2024 | 62,413 | |||
2025 | 62,481 | |||
2026 | 182,916 | |||
Thereafter | 0- | |||
$ | 875,734 | |||
Note 75 - Fair Value Measurements
The following table presents information about the assets and liabilities that are measured at fair value on a recurring basis at March 31,September 30, 2021 and June 30, 20202021 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
At March 31, 2021 |
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| Total | Level 1 | Level 2 | Level 3 |
Assets |
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| Customer list | $653,990 | - | - | $653,990 |
| Vendor relationship | 340,583 | - | - | 340,583 |
| Development costs | 341,355 | - | - | 341,355 |
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| $1,335,928 | - | - | $1,335,928 |
Liabilities |
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| Original issue discount, convertible debt | $3,376,000 | - | - | $3,376,000 |
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At June 30, 2020 |
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| Total | Level 1 | Level 2 | Level 3 |
Assets |
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| Customer list | $748,853 | - | - | $748,853 |
| Vendor relationship | 407,153 | - | - | 407,153 |
| Development costs | 280,309 | - | - | 280,309 |
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| $1,436,315 | - | - | $1,436,315 |
Liabilities |
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| Original issue discount, convertible debt | $213,300 | - | - | $213,300 |
| Derivative liability warrants | 33,312 | - | - | 33,312 |
Total |
| $246,612 | - | - | $246,612 |
At September 30, 2021 | ||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||
Original issue discount, convertible debt | $ | 834,000 | 0- | 0- | $ | 834,000 | ||||||
At June 30, 2021 | ||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||
Original issue discount, convertible debt | $ | 1,842,000 | 0- | 0- | $ | 1,842,000 | ||||||
As of March 31,September 30, 2021, and June 30, 2020,2021, the only asset required to be measured on a nonrecurring basis was goodwill and the fair value of the asset amounted to $834,220 using level 3 valuation techniques.
The Company measures the fair market value of the Level 3 liability components using the Monte Carlo model and projected discounted cash flows, as appropriate. These models were prepared by an independent third party and consider management's best estimate of the conversion price of the stock, an estimate of the expected time to conversion, an estimate of the stock's volatility, and the risk-free rate of return expected for an instrument with a term equal to the duration of the convertible note.
-18-
The derivative liability was valued using the Monte Carlo pricing model with the following inputs:
At | |||
Risk-free interest rate: |
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Expected dividend yield: | 0.00% | ||
Expected stock price volatility: |
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Expected option life in years: |
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At June 30, | |||
Risk-free interest rate: |
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Expected dividend yield: | 0.00% | ||
Expected stock price volatility: |
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Expected option life in years: |
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-14-
The following table sets forth a reconciliation of changes in the fair value of the Company's convertible debt components classified as Level 3 in the fair value hierarchy at March 31,September 30, 2021 and June 30, 2020:2021:
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-19-
Balance at June 30, 2021 | $ | 1,842,000 | |
Realized | 0- | ||
Unrealized | (1,008,000) | ||
Balance at September 30, 2021 | $ | 834,000 | |
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Balance at July 1, 2020 | $ | 246,612 | |
Convertible securities at inception | 4,000 | ||
Realized | (80,924) | ||
Unrealized | 1,672,312 | ||
Balance at June 30, 2021 | $ | 1,842,000 |
Note 86 - Related Party Transactions
Notes Payable
| March 31, 2021 |
| June 30, 2020 |
Note payable to a stockholder in which the $200,000 principal plus $10,000 of interest was payable in December 2019. Borrowings under the note increased to $400,000 and the maturity was extended to November 2021. The note bears interest at 6% interest and is payable in cash or common stock, at the Company's option. If interest is paid in common stock, the conversion price will be the market price at the time of conversion. Principal on the note at maturity is convertible into 400,000 shares of Series D Preferred Stock. If principal is paid prior to maturity, the right of conversion is terminated. |
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$400,000 | $400,000 | ||
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Fair value of unsecured notes payable to seller of Concepts and Solutions, a related party, bearing interest at 3% per year, payable in annual installments through November 30, 2021. Payments are subject to adjustment based on the achievement of minimum gross revenues and successful completion of certain pre-acquisition withholding tax issues of Concepts and Solutions. | 1,030,079 | 1,030,079 | |
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Note payable to a stockholder in which the note principal plus 6% interest is payable in November 2021. Note was amended in March 2020 by increasing the balance to $1,225,000 and extending the maturity to March 2022. Interest is payable in cash or common stock, at the holder's option. If interest is paid in common stock, the conversion price will be the market price at the time of conversion. Principal on the note at maturity is convertible into 1,000,000 shares of Series D Preferred Stock. If principal is paid prior to maturity, the right of conversion is terminated. | 1,225,000 | 1,225,000 |
-20-
September 30, 2021 | June 30, 2021 | |||||
Note payable to a stockholder in which the $200,000 principal plus $10,000 of interest was payable in December 2019. Borrowings under the note increased to $400,000 and the maturity was extended to November 13, 2021. The note bears interest at 6% per annum and is payable in cash or common stock, at the Company's option. If interest is paid in common stock, the conversion price will be the market price at the time of conversion. Principal on the note at maturity is convertible into 400,000 shares of Series D Preferred Stock. If principal is paid prior to maturity, the right of conversion is terminated. | $ | 400,000 | $ | 400,000 | ||
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Fair value of unsecured notes payable to seller of Concepts and Solutions, a related party, bearing interest at 3% per year, payable in annual installments through November 30, 2021. Payment is subject to adjustment based on the achievement of minimum gross revenues and successful completion of certain pre-acquisition withholding tax issues of Concepts and Solutions. | 1,030,079 | 1,030,079 | ||||
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Note payable to a stockholder in which the note principal plus 6% interest is payable in November 7, 2021. Note was amended in March 2020 by increasing the balance to $1,225,000. Interest is payable in cash or common stock, at the holder's option. If interest is paid in common stock, the conversion price will be the market price at the time of conversion. Principal on the note at maturity is convertible into 1,225,000 shares of Series D Preferred Stock. If principal is paid prior to maturity, the right of conversion is terminated. | 1,225,000 | 1,225,000 | ||||
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Note payable to a stockholder in which the note principal plus 6% interest is payable in November 2021. Interest is payable in cash or common stock, at the Company's option. If interest is paid in common stock, the conversion price will be the market price at the time of conversion. Principal on the note at maturity is convertible into 200,000 shares of Series D Preferred Stock. If principal is paid prior to maturity, the right of conversion is terminated. | 200,000 | 200,000 | |
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Note payable to a stockholder in which the note principal plus interest at 10% is payable the earlier of 60 days after invoicing a certain customer, or December 31, 2021, due to an extension granted by the lender. The note is collateralized by a security interest in a certain customer purchase order. | 385,000 | 385,000 | |
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Note payable to a stockholder which is, upon the option of the stockholder, immediately convertible into restricted common shares. | 500,000 | - | |
Note payable related to acquisition of Classroom Tech in which the note principal is payable in 2021 with no interest obligations, upon the shareholder's resolution of a pre-acquisition liability with a bank. | 111,164 | - | |
Note payable related to the acquisition of Classroom Tech in which the note principal is payable in 2021 with no interest obligations. | 44,526 | - | |
Other short-term payables due to stockholders and related parties | 88,991 | 107,733 | |
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Total Related Party Notes Payable and Other Payables | 3,984,760 | 3,347,812 | |
Current Portion of Related Party Notes Payable and Other Payables | 3,984,760 | 1,272,812 | |
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Long-term Portion of Related Party Notes Payable and Other Payables | $ - | $2,075,000 |
-21--15-
Leases
Note payable to a stockholder in which the note principal plus 6% interest is payable in November 13, 2021. Interest is payable in cash or common stock, at the Company's option. If interest is paid in common stock, the conversion price will be the market price at the time of conversion. Principal on the note at maturity is convertible into 200,000 shares of Series D Preferred Stock. If principal is paid prior to maturity, the right of conversion is terminated. | 200,000 | 200,000 | ||||
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Note payable to a stockholder in which the note principal plus interest at 15% is payable the earlier of 60 days after invoicing a certain customer, or April 2022 due to an extension granted by the lender. The note is collateralized by a security interest in a certain customer purchase order. | 385,000 | 385,000 | ||||
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Note payable related to the acquisition of Classroom Tech in which the note principal is payable in 2021 with no interest obligations, upon the shareholder’s resolution of a pre-acquisition liability with a bank. | 155,690 | 155,690 | ||||
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Other short-term payables due to stockholders and related parties | 61,988 | 75,986 | ||||
Total Related Party Notes Payable and Other Payables | 3,457,757 | 3,471,755 | ||||
Current Portion of Related Party Notes Payable and Other Payables | 3,457,757 | 3,471,755 | ||||
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Long-term Portion of Related Party Notes Payable and Other Payables | $ | 0- | $ | 0- |
The Company is negotiating renewals of the stockholder notes that mature on November 7, 2021 and November 13, 2021. The negotiations are expected to be complete by November 30, 2021.
Related Party Leases
The Company leases property used in operations from a related party under terms of a financing lease. The term of the lease expires on December 31, 2021. The monthly lease payment is $1,500$9,664 plus maintenance and property taxes, as defined in the lease agreement. The lease was amended, and the monthly lease payment increased to $9,664 per month. Rent expense for this lease was $89,500$28,992 and $98,500$4,500 for the three and nine months ended March 31,September 30, 2021 and 2020, respectively.
Other Related Party Agreements
A related party collateralizes the Company's short-term note with a certificate of deposit in the amount of $274,900, held at the same bank. The related party will receive a $7,500 collateral fee for this service (see Note 6)4).
-16-
Note 97 - Lease Agreements
Financing Lease Agreements
The Company hasleases offices, warehouses and equipment under financing lease liabilities for offices and warehousesagreements with monthly installments of $12,449$20,674 (ranging from $1,083$245 to $3,524) including imputed interest (ranging from 0% to 2%),$9,664) over 2-year terms, plus extensions, expiring through July 2023.December 2024.
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Right-of-use assets: | |||
Operating right-of-use assets | $ | 222,336 | |
Operating lease liabilities: | |||
Current portion of long term payable | 153,273 | ||
Financing leases payable, less current portion | 69,063 | ||
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Total financing lease liabilities | $ | 222,336 |
As of March 31,September 30, 2021, financing lease maturities are as follows:
Period ending March 31, |
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2022 | $110,099 | |
2023 | 76,020 | |
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| $186,119 | |
Period ending September 30, | |||
2022 | $ | 153,273 | |
2023 | 65,388 | ||
2024 | 2,940 | ||
2025 | 735 | ||
$ | 222,336 |
As of March 31,September 30, 2021, the weighted average remaining lease term was 1.21.46 years.
Note 108 - Equity
During the ninethree months ended March 31,September 30, 2021, the Company issued 105,800,0002,500,000 shares of common stock for professional consulting services. The shares were valued at $32,750 upon issuance.
During the three months ended September 30, 2021, the Company issued 90,000,000 shares of common stock in exchange for proceeds under the Equity Purchase Agreement. These shares were valued at $1,091,000 upon issuance.
During the three months ended September 30, 2020, the Company issued 103,750,000 shares of common stock for professional consulting services. These shares were valued at $2,778,550$2,763,000 upon issuance during the nine months ended March 31, 2021.
issuance.
During the ninethree months ended March 31, 2021,September 30, 2020, the Company issued 1,382,812,744968,475,442 shares of common stock for debt reduction. These shares were valued at $13,031,235.$7,974,206 upon issuance.
-17-
During the ninethree months ended March 31, 2021,September 30, 2020, the Company issued 249,792,217 shares of common stock to warrant holders in six cashless transactions.
During the ninethree months March 31, 2021,ended September 30, 2020, the Company issued 52,500,0002,500,000 shares of common stock for commitment shares under a two-yeartwo year purchase agreement entered into on May 31, 2020 between the Company and thean investor, as amended and restated on July 9, 2020 and December 29, 2020 (the "Equity"Put Purchase Agreement"). These shares were valued at $1,050,000$55,000 upon issuance during the nine months ended March 31, 2021.
issuance.
During the ninethree months ended September 30, 2020, the Company issued 5,000,000 shares of common stock for commitment shares under a one year note payable issued on January 13, 2021 to an investor.
During the nine months ended March 31, 2021, the Company issued 377,000,000242,000,000 shares of common stock in exchange for proceeds under the EquityPut Purchase agreement.Agreement. These shares were valued at $8,292,400$3,951,900 upon issuance during the ninethree months ended March 31, 2021.September 30, 2020.
DuringSee the nine months ended March 31, 2021,capital structure section in Note 1 for disclosure of the Company issued 50,000,000 shares of common stock as collateral for the line of credit. The shares are heldequity components included in the Company’s name and serve as collateral.Company's consolidated financial statements.
During the nine months ended March 31, 2021, the Company issued 10,000,000 shares of common stock for the acquisition of Classroom Technology Solutions, Inc. These shares were valued at $151,000 upon issuance during the nine months ended March 31, 2021.
-22-
Note 119 - Income Taxes
The Company's effective tax rate differed from the federal statutory income tax rate for the ninethree months ended March 31,September 30, 2021 and 2020 as follows:
Federal statutory rate |
| % | |
State tax, net of federal tax effect |
| % | |
Valuation allowance |
| % | |
Effective tax rate |
| % |
The Company had no federal or state income tax (benefit) for the ninethree months ended March 31,September 30, 2021 or 2020.
The Company's deferred tax assets and liabilities as of March 31,September 30, 2021 and June 30, 2020,2021, are summarized as follows:
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| Deferred tax assets | $ 9,719,000 | $ 4,825,100 | |
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| State |
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| Deferred tax assets | 2,595,300 | 1,290,900 | |
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| Less valuation allowance | (2,595,300) | (1,290,900) | |
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| Deferred tax liabilities | - | - | |
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| Net Deferred Tax Assets | $ - | $ - | |
September 30, 2021 | June 30, 2021 | |||||
Federal | ||||||
Deferred tax assets | $ | 10,700,000 | $ | 10,226,700 | ||
Less valuation allowance | (10,700,000) | (10,226,700) | ||||
Deferred tax liabilities | 0- | 0- | ||||
| 0- | 0- | ||||
State | ||||||
Deferred tax assets | 2,704,300 | 2,730,800 | ||||
Less valuation allowance | (2,704,300) | (2,730,800) | ||||
Deferred tax liabilities | 0- | 0- | ||||
| - | - | ||||
Net Deferred Tax Assets | $ | 0- | $ | 0- | ||
-18-
The Company's policy is to provide for deferred income taxes based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates that will be in effect when the differences are expected to reverse. The Company has not generated taxable income and has not recorded any current income tax expense at March 31,September 30, 2021 and 2020, respectively.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred taxes is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment.
The Company's deferred tax assets are primarily comprised of net operating losses ("NOL") that give rise to deferred tax assets. The NOL carryforwards expire over a range from 2021 to 2037, with certain NOL carryforwards that have no expiration. There is no tax benefit for goodwill impairment, which is permanently non-deductible for tax purposes. Additionally, due to the uncertainty of the utilization of NOL carry forwards, a valuation allowance equal to the net deferred tax assets has been recorded.
The significant components of deferred tax assets as of March 31,September 30, 2021 and June 30, 2020,2021, are as follows:
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| June 30, 2020 | |
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Net operating loss carryforwards | $ 11,962,800 | $ 5,767,000 | |||
Valuation allowance | (12,314,300) | (6,116,000) | |||
Goodwill | 256,800 | 278,900 | |||
Property and equipment | (13,500) | (10,500) | |||
Intangible assets | 63,400 | 35,800 | |||
Inventory allowance | 17,800 | 17,800 | |||
Warranty accrual and other | 27,000 | 27,000 | |||
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| Net Deferred Tax Assets | $ - | $ - | ||
September 30, 2021 | June 30, 2021 | |||||
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Net operating loss carryforwards | $ | 13,007,900 | $ | 12,579,200 | ||
Valuation allowance | (13,404,300) | (12,957,500) | ||||
Goodwill | 243,800 | (20,400) | ||||
Property and equipment | (19,200) | 251,600 | ||||
Development costs | 31,500 | 27,900 | ||||
Intangible assets | 94,500 | 72,900 | ||||
Inventory allowance | 17,600 | 17,800 | ||||
Warranty accrual and other | 28,200 | 28,500 | ||||
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Net Deferred Tax Assets | $ | 0- | $ | 0- | ||
As of March 31,September 30, 2021, the Company does not believe that it has taken any tax positions that would require the recording of any additional tax liability nor does it believe that there are any unrealized tax benefits that would either increase or decrease within the next twelve months. As of March 31,September 30, 2021, the Company's income tax returns generally remain open for examination for three years from the date filed with each taxing jurisdiction.
-23-
Note 1210 - Commitments, Contingencies, and Concentrations
Contingencies
Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company's management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's condensedCompany’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
-19-
On September 4, 2020,2019, the Company recorded a pre-acquisition liability for approximately $591,000 relative to unpaid payroll tax liabilities and associated penalties and fees of Concepts and Solutions. The liability is included with the seller note payable.
On August 14, 2021, the Company entered into a legal settlement agreement and recorded a liability for $2,000,000 related to a lawsuit by a previous creditor of Galaxy CO. The liability of $918,240 and $2,000,000 is included in the consolidated balance sheetsnote payable to seller of $1,030,079 at March 31,September 30, 2021 and June 30, 2021. This legal settlement was fully repaid subsequent to March 31, 2021 (Note 17)6).
Concentrations
Galaxy contracts the manufacturermanufacture of its products with overseas suppliers. The Company's sales could be adversely impacted by a supplier's inability to provide Galaxy with an adequate supply of inventory.
Galaxy has two vendors that accounted for approximately 97% and three vendors that accounted for approximately 75% of purchases as of September 30, 2021 and 2020, respectively.
Galaxy has two customers that accounted for approximately 79% of accounts receivable at September 30, 2021 and two customers that accounted for approximately 73% of accounts receivable at March 31, 2021, andJune 30, 2021. Galaxy has three customers that accounted for approximately 79% of accounts receivable at June 30, 2020. Galaxy has four customers that accounted for approximately 52%59% and two customers that accounted for 34%approximately 48% of total revenue for the ninethree months ended March 31,September 30, 2021 and 2020, respectively.
From time to time, the Company has on deposit, in institutions whose accounts are insured by the Federal Deposit Insurance Corporation, funds in excess of the insured maximum. The at-risk amount is subject to significant daily fluctuation. The Company has never experienced any losses related to these balances, and as such, the Company does not believe it is exposed to any significant risk.
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Note 1311 - Material Agreements
Manufacturer and Distributorship Agreement
On September 15, 2018, the Company signed an agreement with a company in China for the manufacture of Galaxy’s SLIM series of interactive panels. The manufacturer agreed to manufacture, and the Company agreed to be the sole distributor of the interactive panels in the United States for a term of two years. The agreement includes a commitment by Galaxy to purchase $2 million of product during the first year beginning September 2018. If the minimum purchase is not met, the manufacturer can require the Company to establish a performance improvement plan, and the manufacturer has the right to terminate the agreement. The payment terms are 20% in advance, 30% after the product is ready to ship, and the remaining 50% 45 days after receipt. The manufacturer provides Galaxy with the product, including a three-year manufacturer’s warranty from the date of shipment. The agreement renews automatically in two year increments unless three months’ notice is given by either party.
Equity Purchase Agreement
On May 31, 2020, the Company entered into a two-yeartwo year purchase agreement (the "Equity Purchase Agreement") with an investor, which was amended and restated on July 9, 2020 and then again on December 29, 2020. Pursuant to the terms of the Equity Purchase Agreement, the investor agreed to purchase up to $10 million of the Company's common stock (subject to certain limitations) from time to time during the term of the Equity Purchase Agreement. TheDuring the three months ended September 30, 2021 and 2020, the Company issued a total of 50,000,00090,000,000 and 242,000,000 shares of common stock to the investor as considerationin exchange for its commitment to purchase shares of the Company's common stock. Pursuant to the terms and conditions of the second amended and restated agreement on December 29, 2020, the Company sold, and the investor purchased 100 million shares of the Company’s common stock for an aggregate purchase price of $500,000. These shares are not yet issued and therefore, the purchase price is recorded as a related party payable to the investor (Note 8). The Company will use proceeds from shares issued to the investor for working capital and general and administrative expenses.capital.
Accounts Receivable Factoring Agreement
On July 30, 2020, the Company entered into a two-year accounts receivable factoring agreement with a financial services company to provide working capital. Pursuant the agreement, the financial services company will pay the Company as the purchase price for the purchased accounts, an amount up to eighty percent (80%). Factoring fees are 2.5% of the face value of the account receivable sold to the factoring agent per month until collected. For collections over 90 days from the invoice date, the fee increases to 3.5%. The agreement contains a credit line of $1,000,000 and requires a minimum of $300,000 of factored receivables per calendar quarter. The agreement includes early termination fees and is guaranteed by the Company and the by two of the stockholders individually. The Company factored approximately $600,000paid collection fees of $22,981 and $0 of accounts receivable as of March 31,$5,736 during the three months ended September 30, 2021 and June 30, 2020, respectively.
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Employment Agreements
On January 1, 2020, the Company entered into an employment agreement with the Chief Executive Officer (CEO) of the Company for a two-year term which was amended on September 1, 2020. Under the amended employment agreement, the CEO will receive annual compensation of $500,000, and an annual discretionary bonus based on profitability and revenue growth.growth and preferred stock to maintain, together with the CFO, a minimum 25.5% of the total voting rights. The agreement includes a non-compete agreement and severance benefits of $90,000.
On January 1, 2020, the Company entered into an employment agreement with the Chief Finance Officer/Chief Operations Officer (CFO)(CFO/COO) of the Company who then also served as our Chief Operating Officer, for a two-year term, which was amended on September 1, 2020. Under the amended employment agreement, the CFOCFO/COO will receive annual compensation of $250,000, and an annual discretionary bonus based on profitability and revenue growth.growth growth and preferred stock to maintain, together with the CEO, a minimum 25.5% of the total voting rights.. The agreement includes a non-compete agreement and severance benefits of $72,000.
On February 1, 2021, the Company entered into an employment agreement with the Chief Operations Officer (COO) of the Company for a one-year term. Under the employment agreement, the COO, will receive annual compensation of $140,000, and quarterly and annual discretionary bonus based on profitability and revenue growth. The agreement includes an initial issuance of common stock in the form of Rule 144 stock. Subsequent stock issuances to be available on an annual basis upon renewal of agreement.
SupplySupplier Agreement
The Company is party to a one-yearone year supplier agreement to manufacture and sell audio products to a buyer that is effective until July 2021.buyer. The initial order under this supplier agreement is for 4,000 units, at a discounted total price of $3,488,000, to be delivered over the agreement period. If the buyer does not meet the minimum floor of 4,000 units, then the contract becomes void and the buyer must pay the difference between the units sold and the total floor pricing of the $3,488,000. The buyer will pay tooling costs of $25 per unit shipped to them. The Company supplied 1,0513,484 units under this agreement as of March 31,September 30, 2021, with 615 of the units during the three month period ending September 30, 2021. The agreement was extended in July 2020 for a one-year term. The agreement can be extended for one additional year.
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Note 14 - Acquisition
Concepts and Solutions
On September 4, 2019, Galaxy entered into a stockCompany will continue to supply audio products under individual purchase agreement with Concepts and Solutions. Under the terms of the stock purchase agreement, 100% of the outstanding capital for both Concepts and Solutions was purchased by Galaxy. Concurrent with this acquisition, the Company applied pushdown accounting; therefore, the consolidated financial statements after completion of the acquisition include the assets, liabilities, and results of operations of the combined company from andorders after the closing date. As part of the stock purchase agreement, Galaxy issued 1,350,000 shares of common stock to the seller with a value of $1,485,000. In addition to the issuance of shares of common stock, the Company entered into three promissory notes with the sellerinitial order for a total note payable of $3,000,000. Payments under the notes are subject to adjustment based on the achievement of minimum gross revenues and successful resolution of certain pre-acquisition payroll withholding tax issues of Concepts and Solutions. The Company believes future earnings goals will not be met and valued the note payable at $1,484,473. The balance of the note payable4,000 units is $1,030,079 at March 31, 2021 and June 30, 2020.complete.
Management of the Company determined that a triggering event to assess the impairment of goodwill associated with the acquisition of Concepts and Solutions occurred during the year ended June 30, 2020. While there was no single event, the consideration in totality of several factors that developed during this year led management to conclude that it was more likely than not that the fair values of certain intangible assets and goodwill acquired as part of the acquisition were below their carrying amounts. See Note 4.
The following table summarizes the preliminary allocation of the fair value of the assets and liabilities as of the acquisition date through pushdown accounting. The preliminary allocation to certain assets and/or liabilities may be adjusted by material amounts as the Company finalizes fair value estimates.
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Classroom Technologies Solutions, Inc.
12 - Acquisition
On October 15, 2020, the Company entered into an Asset Purchase Agreement, to acquire the assets of Classroom Technologies Solutions, Inc. ("Classroom Tech") for consideration of (a) paying off a secured Classroom Tech loan, not to exceed the greater of 50% of the value of the Classroom Tech assets acquired or $120,000; (b) the issuance of a promissory note in the amount of $44,526 to a Classroom Tech designee; and (c) the issuance of 10 million shares of common stock to the seller of Classroom Tech.
The following table summarizes the allocation of the fair value of the assets as of the acquisition date through pushdown accounting.
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Assets | |||
Cash | $ | 38,836 | |
Accounts receivable | 31,710 | ||
Inventory | 209,431 | ||
Property and equipment | 17,530 | ||
Other assets | 1,150 | ||
Goodwill and other intangibles | 46,869 | ||
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Total Assets | $ | 345,526 | |
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Consideration | |||
Notes payable to seller and related party of seller | $ | 164,526 | |
Bonus program | 30,000 | ||
Stock | 151,000 | ||
$ | 345,526 |
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Note 1513 - Stock Plan
An Employee, Directors, and Consultants Stock Plan was established by the Company (the "Plan"). The Plan is intended to attract and retain employees, directors and consultants by aligning the economic interest of such individuals more closely with the Company's stockholders by paying fees or salaries in the form of shares of the Company's common stock. The Plan is renewed annually or earlier. The 2020 Plan is effective September 16, 2020 and expires December 15, 2021. The 2019 Plan is effective December 13, 2018 and expiresexpired June 1, 2020. 99,250,000 SharesCommon shares of Common Stock99,250,000 are reserved for stock awards under the Plans. There were 98,857,857 and 965,000 shares awarded under the Plans as of March 31,September 30, 2021 and June 30, 2020, respectively.2021.
Note 1614 - Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the accompanying consolidated financial statements, the Company had negative working capital of approximately $7,791,000$2,800,000, an accumulated deficit of approximately $47,290,000,$48,000,000, and cash used in operations of approximately $6,895,000$900,000 at March 31,September 30, 2021.
The Company's operational activities has primarily been funded through issuance of common stock for services, related party advances, equity purchase agreement transactions for proceeds, accounts receivable factoring, debt financing and through the deferral of accounts payable and other expenses. The Company intends to raise additional capital through the sale of equity securities or borrowings from financial institutions and investors and possibly from related and nonrelated parties who may in fact lend to the Company on reasonable terms. Management believes that its actions to secure additional funding will allow the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving any of these objectives. These sources of working capital are not assured, and consequently do not sufficiently mitigate the risks and uncertainties disclosed above. The ability of the Company to continue as a going concern is dependent upon management's ability to raise capital from the sale of its equity and, ultimately, the achievement of operating revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 1715 - Subsequent Events
On April 7, 2021, approximately $950,000 was paid to settle the legal settlement agreement discussed in Note 12.
On April 5,In October and November 2021, the Company issued 50,000,000135,000,000 shares to an investor in exchange for proceeds of approximately $500,000$1,200,000 under the Equity Purchase Agreement dated May 2020, as amended and restated on July 9, 2020 and on December 29, 2020 (Note 13).2020.
Management has evaluated subsequent events through November 15, 2021, the date on which the financial statements were available to be issued.
On April 19, 2021, the Company issued 30,000,000 shares to an investor in exchange for expected proceeds of approximately $472,000 under the Purchase Agreement dated May 2020, as amended and restated on July 9, 2020 and on December 29, 2020 (Note 13).-22-
On April 29, 2021, the Company issued 100,000,000 shares to an investor to satisfy a $500,000 note payable to related party investor (Note 8).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note on Forward Looking Statements
This Quarterly Report on Form 10-Q (this "Report"), including the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In particular statements regarding future events and the future results of Galaxy Next Generation, Inc., which we refer to as "we," "us," "our", "Galaxy," or the "Company," thatincluding but not limited to, statements regarding the sufficiency of our cash, our ability to finance our operations and business initiatives and obtain funding for such activities and the timing of any such financing, our future results of operations and financial position, business strategy and plan prospects are forward-looking statements. These forward-looking statements are based on our current expectations, estimates, forecasts, and projections about our business, economic and market outlook, our results of operations, the industry in which we operate and the beliefs and assumptions of our management. Words such as "expects," "anticipates," "targets," "goals," "projects," "would," "will," "could," "may," "intends," "plans," "believes," "seeks," "estimates," variations of such words, and similar expressions are intended to identify such forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, and these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including the duration, extent, and impact of the COVID-19 pandemic, and our ability to successfully manage the demand, supply, and operational challenges associated with the COVID-19 pandemic. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this Report under the section entitled "Risk Factors" in Item 1A of Part II, Part I Item 1A of our Annual Report on Form 10-K for the year ended June 30, 20202021 (as amended, the "Annual Report"), and in other reports we file with the U.S. Securities and Exchange Commission (the "SEC"). In addition, many of the foregoing risks and uncertainties are, and could be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result of the pandemic. While forward-looking statements are based on reasonable expectations of our management at the time that they are made, you should not rely on them. We undertake no obligation to revise or update publicly any forward-looking statements for any reason, except as required by applicable law. We cannot at this time predict the extent of the impact of the COVID-19 pandemic and any resulting business or economic impact, but it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The following discussion is based upon our unaudited condensed consolidated financial statements included in Part 1, Item I, of this Report, which were prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). In the course of operating our business, we routinely make decisions as to the timing of the payment of invoices, the collection of receivables, the manufacturing and shipment of products, the fulfillment of orders, the purchase of supplies, and the building of inventory, among other matters. In making these decisions, we consider various factors, including contractual obligations, customer satisfaction, competition, internal and external financial targets and expectations, and financial planning objectives. Each of these decisions has some impact on the financial results for any given period. To aid in understanding our operating results for the periods covered by this Report, we have provided an executive overview, which includes a summary of our business and market environment along with a financial results and key performance metrics overview. These sections should be read in conjunction with the more detailed discussion and analysis of our condensed consolidated financial condition and results of operations in this Item 2, our "Risk Factors" section included in Item 1A of Part II of this Report, and our unaudited condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this Report, as well as our audited consolidated financial statements and notes included in Item 8 of Part II of our Annual Report.
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BusinessThe following discussion and Market Environment
Galaxy works hand-in-handanalysis should be read in conjunction with educators to help them evolve how teachingour consolidated financial statements and learning happens in their 21st century classroom. This new approach leverages digital content, learning data, and one-of-a-kind technologies in order to create an immersive and interactive experience.
We help the administrators, teachers, students,notes thereto and the IT staff incorporate meaningful digital content, leverageother financial data appearing elsewhere in this Quarterly Report.
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Business Overview
Galaxy is a manufacturer and U.S. distributor of interactive learning data,technology hardware and creatively use our productssoftware that allows the presenter and participant to create an immersive and interactive experience.
engage in a fully collaborative instructional environment. Galaxy's productsproduct offerings include Galaxy's own private-label interactive touch screen panel, its own Intercom, Bell, and Paging solution, as well as numerous other national and international branded peripheral and communication devices.an audio amplification line of products that is currently supported by OEM relationships. Galaxy's distribution channel consists of a direct sales model, as well as approximately 37 resellers across the U.S. who primarily sell the Company's products offered by Galaxy within the commercial and educational market. Galaxy does not control where the resellers focus their resell efforts, although generally,reselling efforts; however, the K-12 education market is the largest customer base for Galaxy products - comprising nearly 90% of Galaxy's sales. In addition, Galaxy’s OEM division also manufacturers products for other vendors in its industry and white labels the products under other brands.
We believe the market space for interactive technology in the classroom is a perpetual highway of business opportunity, especially in light of the COVID-19 pandemic as school systems have sought to expand their ability to operate remotely. Public and private school systems are in a continuous race to modernize their learning environments. Our acquisitiongoal is to be an early provider of the best and most modern technology available.
We are striving to become the leader in the market for interactive flat panel technology, associated software, and peripheral devices for classrooms. Our goal is to provide an intuitive system to enhance the learning environment and create easy to use technology for the teacher, increasing student engagement and achievement. Our products are developed and backed by a management team with more than 30 combined years in the classroom technology space.
We were originally organized as a corporation in 2001. Our principal executive offices are located at 285 Big A Road Toccoa, Georgia 30577, and our telephone number is (706) 391-5030. Our website address is www.galaxynext.us. Information contained in our website does not form part of this Annual Report and is intended for informational purposes only.
On June 22, 2018, we consummated a reverse triangular merger whereby Galaxy Next Generation, Inc., a private company (co-founded by our now executives, Gary LeCroy (CEO) and Magen McGahee (CFO)), merged with and into our newly formed subsidiary, Galaxy MS, Inc. (Galaxy MS or Merger Sub), which was formed specifically for the transaction. Under the terms of the merger, the private company shareholders transferred all their outstanding shares of common stock to Galaxy MS, in return for shares of our Series C Preferred Stock. Prior to the merger, we operated under the name Full Circle Registry, Inc.’s (FLCR) and our operations were based upon our ownership of Georgetown 14 Cinemas, a fourteen-theater movie complex located on approximately seven acres in Indianapolis, Indiana. Prior to the merger, our sole business and source of revenue was from the operation of the theater, and as part of the merger agreement, we had the right to spinout the theater to the prior shareholders of FLCR. Effective February 6, 2019, we sold our interest in the theater to focus our resources on our technology operations.
On September 3, 2019, we acquired 100% of the outstanding capital stock of both Interlock Concepts, Inc. ("Concepts")(Concepts) and Ehlert Solutions Group, Inc. ("Solutions") in September 2019 increased our line(Solutions) pursuant to the terms of product offerings.a stock purchase agreement that we entered into with Concepts and Solutions. The purchase price for the acquisition was 1,350,000 shares of common stock and a two year note payable to the seller in the principal amount of $3,000,000. The note payable to the seller is subject to adjustment based on the achievement of certain future earnings goals and successful completion of certain pre-acquisition withholding tax issues of Concepts and Solutions.
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Solutions and Concepts are Arizona-based audio design and manufacturing companies creating innovative products that provide fundamental tools and products for building notification systems primarily to K-12 education market customers located primarily in the north and northwest United States. These products and services allow institutions access to intercom, scheduling, and notification systems with improved ease of use. The products provide an open architecture solution to customers which allows the products to be used in both existing and new environments. Intercom, public announcement (PA), bell and control solutions are easily added and integrated within the open architecture design and software model. These products combine elements over a common internet protocol (IP) network, which minimizes infrastructure requirements and reduces costs by combining systems.
In fiscal year 2021, we continued to execute on our product and solutions strategy and closed on an asset purchase of Classroom Technology Solutions ("CTS"), a designer, manufacturer, importer and integrator of audio-visual products, with headquarters in Jacksonville, Florida.
We expect the purchase of CTS's assets will prove to be accretive to Galaxy's bottom line. As part of the purchase agreement, Galaxy is gaining access to not only years of customer support to the CTS brands, but also years of buying power from the CTS president, Cy Marshall. The new relationships with global vendors have already proven to be helpful to Galaxy's import activity by decreasing Galaxy's cost of goods, by an average of 50%, on several products sold under the G2 brands. G2 is the Company’s self-branded product line. This is an important step for the Company as management strives towards profitability in the coming quarters.
During the three months ended March 31, 2021, we continued to experience strong demand for our products and services. We remain confident in our strategy and we are executing against our innovation roadmap. We believe our understanding of high-performance interactive technology products position us to effectively capitalize on the industry transition to remote classrooms. We have also continued to work on eliminating outstanding liabilities and keeping payables current and aligned with receivables and inventory. As listed in the subsequent events section of the condensed consolidated financial statements, we have eliminated approximately $1 million in liabilities as disclosed in Notes 12 and 17.
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COVID-19 Pandemic Update
The ongoing outbreak of Coronavirus (COVID-19) has caused significant disruptions to national and global economies and government activities. However, during this time, we have continued to conduct our operations to the fullest extent possible, while responding to the outbreak with actions that include:
● coordinating closely with our suppliers and customers;
● instituting various aspects of our business continuity programs;
● planning for and working aggressively to mitigate disruptions that may occur; and
● supporting our communities and schools in addressing the challenges of the pandemic, such as the production and installation of COVID shields and providing products that allow educators to operate in a remote teaching environment.
As such, we have experienced strong revneues during the last three quarters as our customers face a greater need and willingness to spend on information technology. While we cannot guarantee this trend will continue, we believe our education customers have prioritized their budgets towards IT spending creating a more robust customer demand for remote enablement.
The pandemic has not had a substantial negative impact to our consolidated operating results or our liquidity position so far in fiscal year 2021. However, we have experienced supply chain delays due to the pandemic. In addition, increased product demand has resulted in our increased need for additional funding. We continue to meet our short-term liquidity needs from revenue derived from product sales supplemented with proceeds from issuances of debt and equity, and we expect to maintain access to the capital markets. To date in fiscal year 2021, we have not observed any impairments of our assets or a significant change in the fair value of assets due to the pandemic. We intend to continue to work with our employees and customers to implement safety measures to ensure that we are able to continue manufacturing and installing our products.
However, given the global economic slowdown, and the other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. The extent to which the COVID-19 pandemic impacts our business, the business of our suppliers and other commercial partners, our corporate development objectives, our ability to access capital and the value of and market for our common stock par value $0.0001 per share (the "Common Stock"), will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States and other countries, and the effectiveness of actions taken globally to contain and treat the disease.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the unaudited condensed consolidated financial statements and the accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions. These estimates and assumptions are based on current facts, historical experience, and various other factors that we believe are reasonable under the circumstances to determine reported amounts of assets, liabilities, revenues, and expenses that are not readily apparent from other sources.
During the three and nine months ended March 31, 2021, there were no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report.
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Recent Accounting Pronouncements and Accounting Policies
See Note 1, Basis of Presentation and Summary of Significant Accounting Policies, in the notes to the unaudited condensed consolidated financial statements in Item 1 of Part I of this Report, for a full description of the recent accounting standards not yet adopted, including the actual and expected dates of adoption and estimated effects on our consolidated results of operations and financial condition, which is incorporated herein by reference.
Recent Business Developments
On October 15, 2020, we continued to execute on our product and solutions strategy and entered into an Asset Purchase Agreement (APA), to acquireacquired the assets of Classroom Technologies Solutions, Inc. ("Classroom Tech"), for consideration of (a) paying off a secured Classroom Tech loan, not to exceed the greater of 50% of the value of the Classroom Tech assets acquired or $120,000; (b) the issuance of a promissory note in the amount of $44,526 to a Classroom Tech designee; and (c) the issuance of 10 million shares of our common stock to the seller of Classroom Tech. Classroom Tech provides cutting-edge presentation products to schools, training facilities, churches, corporations and retail establishments. Their high-quality solutions are customized to meet a variety of needs and budgets in order to provide the best in education and presentation technology. Classroom Tech direct-sources and imports many devices and components which allows us to be innovative, nimble, and capable of delivering a broad range of cost-effective solutions. Classroom Tech also offers in-house service and repair facilities and carries many top brands.
Recent Financial DevelopmentsThis Report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Report, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
The Company has approximately $6,000,000 availablefinancial statements after the completion of the merger and acquisition include the consolidated assets and liabilities of the combined company (collectively Galaxy Next Generation, Inc., Interlock Concepts, Inc., Ehlert Solutions Group, Inc. and Classroom Tech referred to collectively as the “Company”).
All intercompany transactions and accounts have been eliminated in the consolidation.
Galaxy’s common stock is traded on over-the-counter markets under a $10,000,000 Equity Linethe stock symbol GAXY.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis discusses our consolidated financial statements which have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). The preparation of Creditthese consolidated financial statements requires us to make estimates and assumptions that was registered under Form S-1 in January 2021. The equity line is with an institutional investoraffect the reported amounts of assets and allowsliabilities and the Company to draw equity downdisclosure of contingent assets and liabilities at the amountbalance sheet date and timereported amounts of revenue and expenses during the Company’s discretion. reporting period. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on historical experience and on various other factors that are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The Company believescritical accounting estimates that this will be a great back stop foraffect the Companycondensed consolidated financial statements and will eliminate the needjudgments and assumptions used are consistent with those described in Note 1 to raise money from multiple investorsour audited consolidated financial statements contained in the convertible debt market. During the three and nine months ended March 31, 2021, we issued approximately 135,000,000 and 377,000,000 shares of our common stock, respectively pursuant to the terms of the equity line purchase agreement and received net proceeds from such issuances of $2,534,813 and $4,851,333, respectively.Annual Report.
The Company has an available $1,000,000 and $1,250,000 line of credit at March 31, 2021 and June 30, 2020, respectively, bearing interest at prime plus 0.5% (3.75% at March 31, 2021 and 4.25% at June 30, 2020). The line of credit was renewed in October 2020 at a reduced available credit line and change in collateral, and now expires on October 29, 2021. The renewed line of credit is collateralized by certain real estate owned by a family member of a stockholder, 50,000,000 shares of the Company's common stock, the personal stock of two stockholders, and a key man life insurance policy. A minimum average bank balance of $50,000 was required on the line of credit agreement at June 30, 2020, but requirement was removed as of March 31, 2021. The outstanding balance is $991,598 and $1,236,598 at March 31, 2021 and June 30, 2020, respectively.
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Financial Results and Performance Metrics Overview
The table below presents an analysis of selected line items period-over-period in our interim Condensed Consolidated Statements of Operations for the periods indicated.
Net loss less stock compensation, and General and administrative expense, less stock compensation and impairment expenses, noted below, are non-GAAP measures and do not have standardized definitions under GAAP. The tables below provide a reconciliation of the non-GAAP financial measures, presented herein, to the most directly comparable financial measures calculated and presented in accordance with GAAP. These non-GAAP financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the non- GAAP financial measures provide additional perspective and insights when analyzing the core operating performance of the business. The non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented.
Three months ended | March 31, 2021 | December 31, 2020 | September 30, 2020 |
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Revenue | $777,457 | $ 798,793 | $ 1,178,213 |
Gross profit | 420,726 | 327,730 | 345,036 |
General and administrative expense, less stock compensation and impairment expenses |
1,697,410 |
1,257,118 |
1,392,227 |
Net Loss less stock compensation | (1,276,684) | (930,188) | (1,047,191) |
Revenue
Revenue
Total revenues recognized were $2,754,463$1,684,771 and $1,850,673$1,178,213 for the ninethree months ended March 31,September 30, 2021 and 2020, respectively, an increase of approximately 49%43%. Additionally, deferred revenue amounted to $815,214$314,589 and $1,133,992$453,862 as of March 31,September 30, 2021 and June 30, 2020,2021, respectively. Total revenues recognized were $777,457 and $349,247 for the three months ending March 31, 2021 and 2020, respectively, an increase of approximately 123%. Revenues increased during the three and nine months ended March 31,September 30, 2021 due to the increase in the customer base for interactive panels and related products as well as additional revenues from OEM customers and COVID related new products.customers.
Cost of Sales and Gross Margin
Our cost of sales was $356,731$1,018,763 and $130,614$833,177 for the three months ended March 31,September 30, 2021 and 2020, respectively, an increase of approximately 173%. Our cost of sales was $1,660,971 and $1,116,398 for the nine months ended March 31, 2021 and 2020, respectively, an increase of approximately 49%22%. Cost of sales consists primarily of manufacturing, freight, and installation costs. There are no significant overhead costs which impact cost of sales. Cost of sales increased from the three and nine months ended March 31, 2020September 30, 2021 due to increased cost incurred to support revenues related to new products and new relationships.
General and Administrative
Three months ended | March 31, 2021 |
| March 31, 2020 |
Stock compensation and stock issued for services | $ 2,350 |
| $ 48,034 |
General and administrative | 1,697,410 |
| 1,662,359 |
Asset impairment expense | - |
| 2,000,287 |
Total General and Administrative Expenses | $ 1,699,760 |
| $ 3,710,670 |
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Three months ended | September 30, 2021 |
| September 30, 2020 | ||
Stock compensation and stock issued for services | $ | 32,750 |
| $ | 2,763,000 |
General and administrative | 1,498,124 |
| 1,392,227 | ||
Total General and Administrative Expenses | $ | 1,530,874 |
| $ | 4,155,227 |
Total general and administrative expenses (including stock compensation expenses) were $1,699,760$1,530,874 and $3,710,670$4,155,227 for the three months ended March 31,September 30, 2021 and 2020, respectively, a decrease of approximately 54%.
Nine months ended | March 31, 2021 |
| March 31, 2020 |
Stock compensation and stock issued for services | $ 2,778,550 |
| $ 2,055,726 |
General and administrative | 4,347,555 |
| 4,263,887 |
Asset impairment expense | - |
| 2,000,287 |
Total General and Administrative Expenses | $ 7,126,105 |
| $ 8,319,900 |
Total general and administrative expenses (including63%, primarily due to a deacrese in stock compensation expenses)based compensation. During the three months ended September 30, 2020 several debt obligations were $7,126,105 and $8,319,900settled in return for the nineissuance of our common stock which inflated the total expenses for that quarter. We have widely reduced our debt and the need to issuance our common stock in exchange for operating cash, therefore reducing our quarterly expenses greatly.
Other Income (Expense)
Three months ended | September 30, 2021 |
|
September 30, 2020 | ||
Expenses related to convertible notes payable: |
|
|
|
| |
Change in fair value of derivative liability | $ | 1,008,000 |
| $ | (1,053,895) |
Interest accretion | (8,750) |
|
| (399,936) | |
Interest related to equity purchase agreement | (252,900) |
|
| (4,006,900) | |
Interest expense | (267,511) |
|
| (3,863,856) | |
|
|
|
|
| |
Total Other Income (Expense) | $ | 478,839 |
| $ | (9,324,587) |
Interest expense amounted to $520,411 and $7,870,756 for the three months ended March 31,September 30, 2021 and 2020, respectively, a decrease of approximately 14%. General and administrative expenses consist primarily of salaries and stock compensation expense, office rent, travel expense, amortization expense, impairment charges and professional fees. Of this amount, $2,350 represent consulting fees and employee compensation paid through the issuance of stock, which did not impact cash, for the three months ended March 31, 2021. Consulting fees and employee compensation paid through the issuance of stock, which did not impact cash, was $2,778,550 for the nine months ended March 31, 2021.
Other Income (Expense)
Three months ended | March 31, 2021 |
|
| March 31, 2020 |
Other income | $ 141,017 | $ - | ||
Expenses related to convertible notes payable: | ||||
Change in fair value of derivative liability | 343,000 | 695,300 | ||
Interest accretion | - | (603,852) | ||
Interest related to equity purchase agreement | (1,805,687) | - | ||
Interest expense | (289,585) | (1,860,498) | ||
| ||||
Total Other Income (Expense) | $ (1,611,255) | $ (1,769,050) |
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Interest expense amounted to $2,095,272 and $1,860,498 for the three months ended March 31, 2021 and 2020, respectively, an increase of 13%93%. Interest expense of $1,805,687$252,900 during the three months ended March 31,September 30, 2021, was due to sales of our common stock to investors under the Equity Purchase Agreement in exchange for proceeds of $2,534,813.$838,100. Reduced interest expense of $289,585$7,350,345 during the three months ended March 31,September 30, 2021, is attributed to the decrease in our overall debt.
Nine months ended | March 31, 2021 |
|
| March 31, 2020 |
Other income | $ 141,017 | $ 3,049 | ||
Expenses related to convertible notes payable: | ||||
Change in fair value of derivative liability | (3,153,583) | 2,717,557 | ||
Interest accretion | (766,603) | (1,412,705) | ||
Interest expenses related to equity purchase agreement | (6,807,587) | - | ||
Interest expense | (7,173,779) | (3,822,927) | ||
| ||||
Total Other Income (Expense) | $ (17,760,535) | $ (2,515,026) |
Interest expense amounted to $13,981,366 and $3,822,927 for the nine months ended March 31, 2021 and 2020, respectively, an increase of 266%. Interest expense of $6,807,587 during the nine months ended March 31, 2021, was due to sales of our common stock to investors under the Equity Purchase Agreement in exchange for proceeds of $4,851,333. Interest expense increased by $10,158,439 primarily due to interest on the Equity Purchase Agreement and change in overall debt during the nine months ended March 31, 2021.-27-
The outstanding conversion features in our ‘related party’ preferred convertible notes payable meet the definition of a derivative liability instrument because the exercise price of the conversion rates. As a result, the outstanding conversion features of the notes are recorded as a derivative liability at fair value and marked-to-market each period with the change in fair value charged or credited to income. A derivative liability of $3,376,000$834,000 and $246,612$1,842,000 is recorded at March 31,September 30, 2021 and June 30, 2020. During the nine months ended March 31, 2021 and 2020, we amortized $766,603 and $1,412,705 of original issue debt discount on derivative instruments to interest accretion, respectively.2021. Changes in these amounts do not impact cash.
Net Loss for the Period
Net loss incurred for the three months ended March 31,September 30, 2021 and 2020 was $2,890,289$386,027 and $5,261,097,$13,134,778, respectively, a decrease of approximately 45%. Net loss incurred for the nine months ended March 31, 2021 and 2020 was $23,793,148 and $10,100,651, respectively, a increase of approximately 136%97%. Noncash contributing factors for the net loss incurred for the three and nine months ended March 31,September 30, 2021 and 2020 are as follows:
a) $2,350. $32,750 and $48,034$2,763,000 represent consulting fees and employee compensation paid through the issuance of stock for the three months ended March 31,September 30, 2021 and 2020, respectively; and $2,778,550 and $2,055,726 represent consulting fees and employee compensation paid through the issuance of stock for the nine months ended March 31, 2021 and 2020, respectivelyrespectively.
b). Interest expenses related to the equity purchase agreement of $1,805,687$252,900 and $0$4,006,900 for the three months ended March 31, 2021 and March 31, 2020, respectively; and $6,807,587 and $0 for the nine months ended March 31,September 30, 2021 and 2020, respectivelyrespectively.
c) Impairment charges taken. Depreciation and amortization expenses related to intangibles and capitalized development costs of $0$130,145 and $2,000,287$84,940 for the three and nine months ended March 31,September 30, 2021 and March 31, 2020, respectively.
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Liquidity and Capital Resources
OurAlthough our revenues generated from operations have been insufficientbecome more sufficient in order to support our operational activities and have beenat times may still need to be supplemented by the proceeds from the issuance of securities, including equity and debt issuances. At September 30, 2021, we had a working capital deficit of $2,810,008 and an accumulated deficit of $48,317,155. As stated in Note 1614 to the notes to the unaudited condensed consolidated financial statements included in this Report, our ability to continue as a going concern is dependent upon management's ability to raise capital from the sale of its equity and, ultimately, the achievement of operating revenues. If our revenues continue to be insufficient to support our operational activities, we intend to raise additional capital through the sale of equity securities or borrowings from financial institutions and possibly from related and nonrelated parties who may in fact lend to us on reasonable terms and ultimately generating sufficient revenue from operations. Management believes that its actions to secure additional funding will allow us to continue as a going concern. We currently do not have any committed sources of financing other than our line of credits, our Equity Purchase Agreement, and accounts receivable factoring agreement, each of which requires us to meet certain requirements to utilize. Under the Amended and Restated Equity Purchase Agreement, we can issue up to an aggregate of $10 million worth of shares of our common stock at March 31, 2021. There can be no assurance that we will meet all or any of the requirements pursuant to our line of credit, our Equity Purchase Agreement, and accounts receivable factoring agreement, and therefore those financing options may be unavailable to us. There is no guarantee we will be successful in raising capital outside of our current sources, and if so, that we will be able to do so on favorable terms.
Our cash totaled $742,382$354,291 at March 31,September 30, 2021, as compared with $412,391$541,591 at June 30, 2020, an increase2021, a decrease of $329,991.$187,300. Net cash of $6,894,817$872,809 and $4,160 was used byin operations and investing activities, respectively, for the ninethree months ended March 31,September 30, 2021. Cash used in operating activities for the three months ended September 30, 2021 was $972,809 as compared to $2,823,306 for the three month ended September 30, 2020. The decrease was primarily due to a decrease in stock issued under the Equity Purchase Agreement.
Net cash of $7,185,972$689,669 was provided from financing activities for the ninethree months ended March 31,September 30, 2021, primarily due to proceeds from the Equity Purchase Agreement and to a lesser extent convertibleof $838,100 primarily offset by payment on notes payable.
Forpayable of $128,042. Net cash of $2,823,306 was provided from financing activities for the ninethree months ended March 31, 2021, we had $38,836 cash provided by investing activities, and for the nine months ended March 31,September 30, 2020, we had net cash provided by investing activities of $2,950,282 which resulted from our acquisition of Concepts and Solutions.
For the nine months ended March 31, 2021, we had $7,185,972 of cash provided by financing activities primarily relateddue to $4,851,333 of proceeds from the sale of common stock under the Equity Purchase Agreement $1,956,000 of $2,316,520 and proceeds of $840,000 from the sale of convertible notes and approximately $544,000 of related party note proceeds offset by payments of approximately $245,000 under the line of credit. Total current liabilities are $12,047,976 and $8,962,520 as of March 31, 2021 and June 30, 2020, respectively, an increase of 34%. Our liabilities primarily consist of borrowings under a line of credit, related party notes payable, derivative liability, deferred revenue, accrued expenses and accounts payable.issued.
To implement our business plan, we willmay require additional financing. Further, current or future adverse capital and credit market conditions could limit our access to capital. We may be unable to raise capital or bear an unattractive cost of capital that could reduce our financial flexibility.
Our long-term liquidity requirements will depend on many factors, including the rate at which we grow our business and footprint in the industries. To the extent that the funds generated from operations are insufficient to fund our activities in the long term, we may be required to raise additional funds through public or private financing. No assurance can be given that additional financing will be available or that, if it is available, it will be on terms acceptable to us.
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Off-Balance Sheet Arrangements
The Company did not have off-balance sheet arrangements or transactions as of and for the three and nine months ended March 31,September 30, 2021 and 2020.
-35-Non-GAAP Disclosure
To provide investors with additional insight and allow for a more comprehensive understanding of the information used by management in its financial and decision-making surrounding pro forma operations, Galaxy supplements its consolidated financial statements presented on a basis consistent with U.S. generally accepted accounting principles, or GAAP, Adjusted EBITDA as a non-GAAP financial measures of earnings. The tables below provide a reconciliation of the non-GAAP financial measures, presented herein, to the most directly comparable financial measures calculated and presented in accordance with GAAP. Adjusted EBITDA represents EBITDA (earnings before income taxes depreciation and amortization). Galaxy management uses Adjusted EBITDA as financial measures to evaluate the profitability and efficiency of the business model. The Company uses these non-GAAP financial measures to assess the strength of the underlying operations of the business. These adjustments, and the non-GAAP financial measures that are derived from them, provide supplemental information to analyze its operations between periods and over time. Galaxy finds this especially useful when reviewing pro forma results of operations, which include large non-cash expenses including interest on the Equity Purchase Agreement, amortization of intangible assets and capitalized development costs and stock-based compensation. Investors should consider its non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. The non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented.
Non-GAAP Adjusted EBITDA financial results for the three months ended September 30, 2021 and 2020:
During the three months ended September 30, 2021, we issued 90,000,000 shares of common stock in exchange for proceeds under the Equity Purchase Agreement. These shares were valued at $1,091,000 upon issuance.
These sales were made pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"). The shares have not been registered under the Securities Act and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements of the Securities Act.
Three months ended | September 30, 2021 | September 30, 2020 | |||
Revenue | 1,684,771 | 1,178,213 | |||
Gross Profit | 666,008 | 345,036 | |||
General and Administrative Expenses | 1,530,874 | 4,155,227 | |||
Loss from Operations | (864,866) | (3,810,191) | |||
Other Income (Expense) | 478,839 | (9,324,587) | |||
Net Loss | (386,027) | (13,134,778) | |||
Interest, Taxes, Depreciation, Stock Compensation and Amortization | 424,545 | 7,254,776 | |||
Non-GAAP Adjusted EBITDA | $ | $ 38,518 | $ | $ (5,880,002) | |
Non-GAAP Adjusted EBITDA was net positive for the three months ended September 30, 2021 at $38,518 compared to the a loss of $5,880,002 for the three months ended September 30, 2020.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under this Item is not required to be provided by smaller reporting companies.
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ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial and accounting officer), we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this Report.
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures ("Disclosure Controls") as of the end of the period covered by this Report. The Disclosure Controls evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial and accounting officer). Disclosure Controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure Controls are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation our Chief Executive Officer and Chief Financial Officer have concluded that, because of a material weakness in our internal control over financial reporting that existing at June 30, 20202021 and had not been remediated by the end of the period covered by this Report, our disclosure controls and procedures were not effective as of the end of the period covered by this Report. This material weakness in the Company's internal control over financial reporting and the Company's remediation efforts are described below.
The material weakness relates to the fact that our management is relying on external consultants for purposes of preparing its financial reporting package; however, the officers may not be able to identify errors and irregularities in the financial reporting package before its release as a continuous disclosure document. As a result of the deficiencies, we have discovered it is reasonably possible that internal controls over financial reporting may not have prevented or detected errors from occurring that could have been material, either individually or in the aggregate.
Remediation Measures
We continue to engage an outside CPA with SEC related experience to assist in correction of these material weaknesses. In addition, we continue to appoint an accountant to provide financial statements on a monthly basis and to assist with the preparation of our SEC financial reports, which allows for proper segregation of duties as well as additional manpower for proper documentation.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of business litigation, regardless of the outcome could have a material adverse impact on us because of the defense and settlement costs, diversion of management resources and other factors. We are not currently subject to any legal proceedings that we believe will have a material impact on our business at this time.
In 2016, a previous creditor of Galaxy Co. filed a lawsuit alleging default on money owed and sought $4,000,000 in damages. On August 14, 2020, the Company entered into a legal settlement agreement and recorded a liability for $2,000,000. The liability of $918,240 and $2,000,000 is included in the consolidated balance sheets at March 31, 2021 and June 30, 2020. This liability has been eliminated as of April 7, 2021 and is listed as a subsequent event in our financial reports included in this Current Report on Form 10-Q. This legal proceeding will no longer be reported as a liability on future financial reports.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should consider carefully the following risks, together with the risks specified in Item 1A of Part I of our Annual Report for the year ended June 30,202030, 2021 and all the other information in this Report, including our condensed consolidated financial statements and notes thereto. If any of the following risks materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline, and you could lose part or all of your investment.The following information updates should be read in conjunction with the information disclosed in Part 1, Item 1A, "Risk Factors," contained in our Annual Report for the year ended June 30,2020.30, 2021. Except as disclosed below, there have been no material changes from the risk factors and uncertainties disclosed in our Annual Report for the year ended June 30,2020.30, 2021.
We have incurred losses for the three months ended September 30, 2021 and 2020 and there can be no assurance that we will generate net income.
For the three months ended September 30, 2021 and 2020 we had a net loss of $386,027 and $13,134,778, respectively, and for the year ended June 30, 2021, we had a net loss of $24,434,336. For the year ended June 30, 2020, we had a net loss of $14,026,107. There can be no assurance that our losses will not continue in the future, even if our revenues and expenditures for the products and solutions we sell and distribute increase. In addition, as of September 30, 2021, we had stockholders' deficit of approximately $700,000 and cash used in operations of approximately $872,809. In addition, as of June 30, 2021, we had stockholders' deficit of approximately $1,400,000 and cash used in operations of approximately $6,300,000. These factors raise substantial doubt regarding our ability to continue as a going concern.
We require funds to operate and expand our business.
During the three months ended September 30, 2021, our operating activities used net cash of $872,809 and our cash and cash equivalents were $354,291. During the year ended June 30, 2021, our operating activities used net cash of approximately $6.3 million and our cash and cash equivalents were $541,591. As of September 30, 2021, our accumulated stockholders' deficit totaled approximately $48 million on a consolidated basis. Although we have been able to mitigate our losses during the three months ended September 30, 2021, we expect to incur additional operating losses in the future and therefore expect our cumulative losses to increase. We will require funds to purchase additional inventories, pay our vendors, and build our marketing and sales staff. If we do not succeed in raising additional funds on acceptable terms, we may be unable to expand our business and could default on our obligations. There can be no assurance that such financing will be available and that the equity interests of all of our stockholders would not be ablesubstantially diluted. Any additional sources of financing will likely involve the issuance of our equity or debt securities, which will have a dilutive effect on our stockholders. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that may impact our ability to accessconduct our business. Our ability to raise capital through the full amounts available undersale of securities may be limited by the rules of the SEC and the terms of the agreements that we enter into. We currently do not have any committed sources of financing other than our line of credit, the Amended and Restated Equity Purchase Agreement which could prevent us from accessing the capitalthat we need to continue our operations, which could have an adverse effect on our business.
We intend to rely on the Amended and Restated Purchase Agreement for our near-term capital needs. We may directentered into with Tysadco Partners to purchase up to $10.0 millionLLC on December 29, 2020, and accounts receivable factoring agreement, each of shares of our common stock over a 24-month period, commencing upon the satisfaction of certain conditions. On any trading day selected by us, we may sell shares of common stock to Tysadco Partners in an amount equal to the lesser of $500,000 or 300% of the average shares traded for the 10 days prior to the closing request date, with a minimum request of $200,000. The purchase price shall be 85% of the lowest average daily traded price during the ten trading days commencing on the first trading day following delivery and clearing of the delivered shares (in each case, to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse split or other similar transaction that occurs on or after the date of the Amended and Restated Purchase Agreement).
In addition, Tysadco partners will not be required to purchase any shares of our common stock if such sale would result in its beneficial ownership exceeding 4.99% of the then outstanding shares of our common stock. Our inability to access a portion or the full amount available under the Amended and Restated Purchase Agreement, in the absence of any other financing sources, could have a material adverse effect on our business.
The sale or issuance of our common stock to Tysadco Partners may cause dilution and the sale of the shares of common stock acquired by Tysadco Partners, or the perception that such sales may occur, could cause the price of our common stock to fall.
Upon the execution of the Amended and Restated Purchase Agreement, we issued 50,000,000 Commitment Shares to Tysadco Partners in consideration for its commitment to purchase shares of our common stock under the Amended and Restated Purchase Agreement. The remaining shares of our common stock that may be issued under the Amended and Restated Purchase Agreement may be sold bywhich requires us to Tysadco Partners at our discretion from time to time over a 24-month period commencing after the satisfaction ofmeet certain conditions set forth in the Amendedto utilize and Restated Purchase Agreement, including that the registration statement registering the shares tothere can be issued pursuant to the Amended and Restated Purchase Agreement remains effective. The purchase price for the sharesno assurance that we may sell to Tysadco Partners under the Amended and Restated Purchase Agreement will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.meet those conditions.
We generally have the right to control the timing and amount of any future sales of our shares to Tysadco Partners. Additional sales of our common stock, if any, to Tysadco Partners will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Tysadco Partners all, some, or none of the additional shares of our common stock that may be available for us to sell pursuant to the Purchase Agreement. If and when we do sell shares to Tysadco Partners, after Tysadco Partners has acquired the shares, Tysadco Partners may resell all or some of those shares at any time or from time to time in its discretion. Therefore, sales to Tysadco Partners by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Tysadco Partners, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.-31-
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We may not be able to access the full amounts available under the Amended and Restated Purchase Agreement, which could prevent us from accessing the capital we need to continue our operations, which could have an adverse effect on our businessbusiness.
At March 31, 2021, we had cash of $742,382. We had an accumulated deficit of $47,289,940 at March 31, 2021, and at June 30, 2020, an accumulated deficit of $23,496,792. We have generated significant losses to date and expect to continue to incur significant operating losses. To date, our revenue from operations have been insufficient to support our operational activities and has been supplemented by the proceeds from the issuance of securities. There is no guarantee that additional equity, debt or other funding will be available to us on acceptable terms, or at all.
Our ability to direct Tysadco Partners to purchase up to $10.0 million of shares of our common stock over a 24-month period is subject to the satisfaction of certain conditions. The extent we rely on Tysadco Partners as a source of funding will depend on a number of factors, including the prevailing market price of our common stock and the extent to which we are able to secure funding from other sources. If obtaining sufficient funding from Tysadco Partners were to prove unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital needs. Even if we sell all $10.0 million under the Amended and Restated Purchase Agreement to Tysadco Partners, we may still need additional capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.
Our inability to access a portion or the full amount available under the Amended and Restated Purchase Agreement, in the absence of any other financing sources, could have a material adverse effect on our business.
It is not possible to predict the actual number of shares we will sell under the Amended and RestatedPurchase Agreement to the Selling Stockholder, or the actual gross proceeds resulting from those sales.
Subject to certain limitations in the Amended and Restated Purchase Agreement and compliance with applicable law, we have the discretion to deliver notices to the Selling Stockholder at any time throughout the term of the Amended and Restated Purchase Agreement. The actual number of shares that are sold to the Selling Stockholder may depend based on a number of factors, including the market price of the common stock during the sales period. Actual gross proceeds may be less than $10.0 million, which may impact our future liquidity. Because the price per share of each share sold to the Selling Stockholder will fluctuate during the sales period, it is not currently possible to predict the number of shares that will be sold or the actual gross proceeds to be raised in connection with those sales.
Sales of sharespursuant to the terms of the Amended and Restated Purchase will be sold at different times at different prices.
In connection with the sale of our common stock pursuant to the terms of the Amended and Restated Purchase Agreement, we will have discretion, subject to market demand, to vary the timing, prices, and numbers of shares sold to the Selling Stockholder. Similarly, the Selling Stockholder may sell such shares at different times and at different prices. Investors may experience a decline in the value of the shares they purchase from the Selling Stockholder in this offering as a result of sales made by us in future transactions to Selling Stockholder at prices lower than the prices they paid.
-38-Risks Relating to the COVID-19 Pandemic
Pandemics, including the COVID-19 pandemic, could have a material adverse effect on our operations, liquidity, financial condition, and financial results.
A serious global pandemic, including the current COVID-19 pandemic and variants of COVID-19, can adversely impact, shock and weaken the global economy. These impacts can amplify other risk factors and could have a material impact on our operations, liquidity, financial conditions, and financial results.
COVID-19 pandemic-related risk may impact our exposure to global regulatory, geopolitical, and societal changes; rapid degradation of global economic conditions, creating an increase in the volatility and the timing and level of orders; supply chain disruptions, material shortages, and increases in the costs of components; changes in labor force availability, which could reduce our ability to operate across our business in development, sales and marketing, production, installation, and ongoing service and support; an increased risk being subjected to contract performance claims if we are unable to deliver according to the terms of our contract or commitments and cannot claim force majeure to mitigate or eliminate our exposure to such claims; increased geographic work restrictions that could impact our ability to market, sell, manufacture and/or install our products; an increase in our exposure to claims or litigation related to the pandemic; limitations on our ability to meet the terms of our bank credit agreements that cause restrictions on our ability to access the liquidity under such agreements; reduced access to and an increase in the cost of capital; reduced access to surety bonds or bank guarantees to secure customer orders; volatility and changes in foreign currency rates; delayed timing of collections and/or decreased collectability of receivables and contract assets; and a material reduction to the values of our assets including, but not limited to, inventory, deferred tax assets, goodwill, intangibles, and property and equipment.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31,September 30, 2021, the Companywe issued 50,0002,500,000 shares of common stock for professional consulting services. The shares were valued at $32,750 upon issuance.
During the three months ended September 30, 2021, we issued 90,000,000 shares of common stock in exchange for proceeds under the Equity Purchase Agreement. These shares were valued at $2,350$1,091,000 upon issuance during the three months ended March 31, 2021.issuance.
During the three months ended March 31, 2021, the Company issued 5,000,000 shares of common stock for commitment shares under a one year note payable issued on January 13, 2021These sales were made pursuant to an investor.exemption from the registration requirements under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"). The shares have not been registered under the Securities Act and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
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ITEM 6. EXHIBITS
Exhibit No. | Description | |||||||||
Amended and Restated Articles of Incorporation (incorporated herein by reference to Exhibit 3.1 to Amendment No. 1 to the Annual Report on Form 10-K/A, File No. 000-56006, filed with the Securities and Exchange Commission on October 16, 2020 ) | ||||||||||
Bylaws (incorporated herein by reference to Exhibit 3.2 to the Registrant's Form 8A-12G, File No. 000-56006, filed with the Securities and Exchange Commission on December 3, 2018) | ||||||||||
Certificate of Designation for Series D Preferred Stock (incorporated herein by reference to Exhibit 3.3 to the Annual Report on Form 10-K, File No. 000-56006, filed with the Securities and Exchange Commission on filed on September 28, 2020) | ||||||||||
Certificate of Designation for Series E Preferred Stock (incorporated herein by reference to Exhibit 3.4 to the Annual Report on Form 10-K, File No. 000-56006, filed with the Securities and Exchange Commission on filed on September 28, 2020) | ||||||||||
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||||
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||||
Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||||
Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||||
| 101.INS* | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.* | |||||||||
| 101.SCH* | XBRL Taxonomy Extension Schema* | |||||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase** | |||||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase* | |||||||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase* | |||||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase* | |||||||||
| Cover Page Interactive Data File (formatted as Inline XBRL | |||||||||
*Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GALAXY NEXT GENERATION, INC.
Date: May 13,November 15, 2021
/s/ Gary LeCroy
Gary LeCroy
Chief Executive Officer (Principal Executive Officer)
Date: May 13,November 15, 2021
/s/Magen McGahee
Magen McGahee
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Gary LeCroy, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (this "report") of Galaxy Next Generation, Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: May 13, 2021
Galaxy Next Generation, Inc.
By:/s/ Gary LeCroy
Gary LeCroy
Chief Executive Officer
(Principal Executive Officer)
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Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Magen McGahee, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (this "report") of Galaxy Next Generation, Inc. (the "registrant");
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonable likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: May 13, 2021
Galaxy Next Generation, Inc.
By: /s/ Magen McGahee
Magen McGahee
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Galaxy Next Generation, Inc. (the "Company") for the quarter ending March 31, 2021, I, Gary LeCroy, Chief Executive Officer of the Company hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
1.Such Quarterly Report on Form 10-Q for the fiscal quarter ending March 31, 2021, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in such Quarterly Report on Form 10-Q for the quarter ending March 31, 2021, fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 13, 2021
Galaxy Next Generation, Inc.
By:/s/ Gary LeCroy
Gary LeCroy
Chief Executive Officer
(Principal Executive Officer)
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Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Galaxy Next Generation, Inc. (the "Company") for the quarter ending March 31, 2021, I, Magen McGahee, Chief Financial Officer of the Company hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:
1.Such Quarterly Report on Form 10-Q for the fiscal quarter ending March 31, 2021, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in such Quarterly Report on Form 10-Q for the quarter ending March 31, 2021, fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 13, 2021
Galaxy Next Generation, Inc.
By:/s/ Magen McGahee
Magen McGahee
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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