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GAXY Galaxy Next Generation

Filed: 13 May 21, 4:04pm

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, 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 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
registered

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[ ]

 

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 [ ]

Non-accelerated filer   [ ]

Accelerated filer   [  ]

Smaller reporting company [X]

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, 2021 was 3,040,944,203.

-i-


   
 

                                                 FORM 10-Q

GGALAXY NEXT GENERATION, INC.

 

 

Table of Contents

 

 

 

Page

 

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

28

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

36

Item 4.

Controls and Procedures

36

 

PART II. Other Information

 

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

39

Item 6.

Exhibits

40

 

Signatures

40

 

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, 2020 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 March 31, 2021 (unaudited) and June 30, 2020 (audited)

3

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2021 and 2020 (unaudited)

4

Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the Nine Months Ended March 31, 2021 (unaudited)

5

Condensed Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the Nine Months Ended March 31, 2020 (unaudited)

6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2021 and 2020 (unaudited)

7-8

Notes to the Condensed Consolidated Financial Statements (unaudited)

9

 

-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

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

 

 

 

   

 

 

 

Gross Profit

 

420,726 

 

218,633

 

1,093,492

 

734,275

 

 

 

   

 

 

 

General and Administrative Expenses

 

 

   

 

 

 

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)

 

 

 

   

 

 

 

Other Income (Expense)

 

 

   

 

 

 

Other income

 

141,017 

 

-

 

141,017

 

3,049

Expenses related to convertible notes payable:

 

 

   

 

 

 

        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)

 

 

 

   

 

 

 

Total Other Income (Expense)

 

(1,611,255) 

 

(1,769,050)

 

(17,760,535)

 

(2,515,026)

 

 

 

   

 

 

 

Net Loss before Income Taxes

 

(2,890,289) 

 

(5,261,097)

 

(23,793,148)

 

(10,100,651)

 

 

 

   

 

 

 

Income Taxes (Note 11)

 

 

-

 

-

 

-

 

 

 

   

 

 

 

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)

 

 

 

   

 

 

 

Weighted average common shares outstanding

 

 

   

 

 

 

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

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)

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Common Stock

 

Preferred Stock - Class E

 

Additional

 

Accumulated

 

Stockholders'

 

Shares

 

Amount

 

Shares

 

Amount

 

Paid-in Capital

 

Deficit

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, July 1, 2019

11,318,901

 

$   1,072

 

-

 

$     -

 

$   4,859,731

 

$ (9,470,685)

 

$ (4,609,882)

 

             

Common stock issued for services

3,119,912

 

314

 

-

 

-

 

1,995,900

 

-

 

1,996,214

 

             

Common stock issued for debt reduction

       

95,988,567

 

9,598

 

-

 

-

 

4,137,688

 

-

 

4,147,286

 

             

Settlement of conversion features

-

 

-

 

-

 

-

 

152,374

 

-

 

152,374

 

             

Issuance of common stock to warrant holders

23,142,794

 

-

 

-

 

-

 

-

 

-

 

-

 

             

Common stock issued as compensation

144,511

 

14

 

-

 

-

 

59,497

 

-

 

59,511

 

             

Common stock issued in acquisition of Ehlert Solutions

             

and Interlock Concepts, Inc.

1,350,000

 

135

 

-

 

-

 

1,720,216

 

-

 

1,720,351

 

             

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)

See accompanying notes to the condensed consolidated financial statements (unaudited).

-6-

GALAXY NEXT GENERATION, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

Nine Months Ended March 31,

 

 

2021

 

2020

Cash Flows from Operating Activities

 

 

 

 

Net loss

 

$ (23,793,148)

 

 $ (10,100,651)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

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

 

 

 

 

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

 

-

 

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

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)

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

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

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

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

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

$        329,991

 

$          25,272

 

 

 

 

 

Cash, Beginning of Period

 

412,391

 

169,430

Cash, End of Period

 

$        742,382

 

$        194,702

     

-7-

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

See accompanying notes to the condensed consolidated financial statements (unaudited).

-8-

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. 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 division where it manufacturers products for other vendors in their industry and white labels the products under other brands.

 

Solutions and 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. 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.

 

On October 15, 2020, the Company entered into an Asset Purchase Agreement (AP), 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. 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 the Company 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.

 

Impact of Coronavirus Aid, Relief, and Economic Security Act

 

The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in March 2020 in response to the COVID-19 pandemic. The CARES Act 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, the Company delayed payment of certain payroll tax payments 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, and the Company entered into an unsecured loan 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 provisions of the promissory note. In accordance with the requirements of 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 2050 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-

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, 2020 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.

 

All intercompany transactions and accounts have been eliminated in the consolidation.

 

The Company’s common stock is traded on over-the-counter markets under the stock symbol GAXY.

 

Capital Structure

 

In accordance with ASC 505, Equity, the Company's capital structure is as follows:

                      

 

 

 

March 31, 2021

 

 

 

 

 

 

 

Authorized

 

Issued

 

Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

     4,000,000,000

 

2,860,944,203

 

   2,810,905,578

 

$.0001 par value, one vote per share

 

 

Preferred stock

 

        200,000,000

 

                  -   

 

                      -   

 

$.0001 par value, one vote per share

 

 

Preferred stock - Class A

 

               750,000

 

                  -   

 

                      -   

 

$.0001 par value; no voting rights

 

 

Preferred stock - Class B

 

            1,000,000

 

                  -   

 

                      -   

 

Voting rights of 10 votes for

Preferred B share; 2% preferred dividend payable annually

 

 

 

 

 

 

 

 

 

 

Preferred stock - Class C

 

            9,000,000

 

                  -   

 

                      -   

 

$.0001 par value; 500 votes per share, convertible to common stock

 

         
         
         

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock - Class E

 

               500,000

 

          500,000

 

             500,000

 

$.0001 par value; no voting

rights, convertible to common

stock

-10-

 

 

 

June 30, 2020

 

 

 

 

 

 

Authorized

 

Issued

 

Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

       4,000,000,000

 

628,039,242

 

628,000,617

 

$.0001 par value, one vote per share

 

 

     

 

 

 

 

Preferred stock

 

         200,000,000

 

                  -   

 

                      -   

 

$.0001 par value, one vote per share

 

 

     

 

 

 

 

Preferred stock - Class A

 

               750,000

 

                  -   

 

                      -   

 

$.0001 par value; no voting rights

 

 

     

 

 

 

 

Preferred stock - Class B

 

             1,000,000

 

                  -   

 

                      -   

 

Voting rights of 10 votes for 1 Preferred B share; 2% preferred dividend payable annually

 

 

     

 

 

 

 

Preferred stock - Class C

 

             9,000,000

 

                  -   

 

                      -   

 

$.0001 par value; 500 votes per share, convertible to common stock

 

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

 

 

     

 

 

 

     

 

 

 

 

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 399,163,143 common shares reserved at March 31, 2021 under terms of the convertible debt agreements, Stock Plan and Equity Purchase Agreement (see Notes 6, 13 and 15).

 

There are 194,683,306 issued common shares that are restricted as of March 31, 2021. The shares may become free-trading upon satisfaction of certain terms and regulatory conditions.

 

Accounts Receivable

 

Management deemed no allowance for doubtful accounts was necessary at March 31, 2021 and June 30, 2020. At March 31, 2021 and June 30, 2020, $758,481 and $670,031 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, 2021 and June 30, 2020.

 

Goodwill and Intangible Assets

 

Management of the Company determined that a triggering event to assess goodwill impairment occurred during the year ended June 30, 2020 due to the separation of a key executive associated with their acquisition of Concepts and Solutions. While there was no single determinative event, the consideration in totality of several factors that developed 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 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 decrease 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 loss of approximately $2,000,000, including $800,287 related to goodwill and $1,200,000 related to finite-lived intangible assets. No such impairment charge was recorded during the three or nine months ended March 31, 2021. 

 

-11-

Recent Accounting Pronouncements

 

In January 2020, the FASB issued ASU No. 2020-01, "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 2020-01 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 to its consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12 "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 to 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 the impact of this standard on its consolidated financial statements and disclosures.

 

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 3 - 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)

 

 

 

 

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.

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

 

 

 

 

 

 

 

 

 

 

Cost

 

Accumulated Amortization

 

Net Book Value

 

Impairment

 

Total

Goodwill

 $                834,220

 

 $                      -

 

 $        834,220

 

 $                  -

 

 $ 834,220

Finite-lived assets:

 

 

 

 

     

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

 

         

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-

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 5 - Lines of Credit

 

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, change in collateral, and a new expiration date of 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 par value $0.0001 per share (the "Common Stock") and 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 this requirement was removed in October 2020. The outstanding balance is $991,598 and $1,236,598 at March 31, 2021 and June 30, 2020, respectively.

 

The Company has a $1,000,000 available credit line under an accounts receivable factoring agreement through July 30, 2022. No amounts were outstanding as of March 31, 2021. See Note 13.

 

-14-

Note 6 - 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.

 

 

 

 

 

 

$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

 

 

 

 

Total Notes Payable

1,338,864

 

994,978

 

 

 

 

Current Portion of Notes Payable

940,011

 

512,425

 

 

 

 

Long-term Portion of Notes Payable

$                     398,853

 

$                      482,553

-15-

Future minimum principal payments on the long-term notes payable to unrelated parties are as follows:

  

Period ending March 31,

 

2022

 $        940,011

2023

149,076

2024

               26,305

2025

               16,035

2026

14,662

Thereafter

             192,775

 

 $      1,338,864

 

 

Convertible Notes

 

March 31, 2021

 

June 30, 2020

 

 

 

 

On March 28, 2019, the Company signed a convertible promissory note with an investor. The $225,000 note was issued at a discount of $20,000 and bears interest at 10% per year. The Company issued 25,000 common shares to the investor. Three draws of $56,250, $112,500, and $56,250 were borrowed under this note. The note principal and interest were convertible into shares of common stock at the lower of (a) 70% of the lowest traded price of the common stock during the 20 trading days immediately preceding the notice of conversion or (b) $3 per share, beginning in September 2019. The note had prepayment penalties ranging from 110% to 125% of the principal and interest outstanding if repaid within 60 to 180 days from issuance. The note matured in three intervals in March 2020, June 2020, and November 2020. The note was repaid by conversion to stock.

 

 

 

 

 

 

 

 

 

$                                    -

 

$24,150

 

 

 

 

On November 18, 2019, the Company signed a convertible promissory note with an investor. The $110,000 note was issued at a discount of $10,000 and bore interest at 8% per year. The note principal and interest were convertible into shares of common stock at the lower of (a) 70% of the lowest traded price of common stock during the 15 trading days prior to the issue date or (b) 70% of the lowest traded price for the common stock during the 15 trading days prior to conversion of the note. The note matured in November 2020. The note had prepayment penalties between 115% and 125% of the principal and interest outstanding if repaid before 180 days from issuance. The note was repaid by conversion to stock.

   
   
   
   
   

                                                               -

 

                                               1,000

 

On December 11, 2019, the Company signed a convertible promissory note with an investor. The $220,430 note was issued at a discount of $15,430 and bore interest at 8% per year. The note principal and interest were convertible into shares of common stock at the lower of (a) $0.46 per share or (b) 75% of the lowest trading price of common stock during the 10 trading days prior to conversion beginning in June 2020. The note matured in December 2020. The note had prepayment penalties between 120% and 130% of the principal and interest outstanding if repaid before 180 days from issuance.  The note was repaid by conversion to stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                               -

 

                                          121,200

 

-16-

On November 25, 2019, the Company signed a convertible promissory note with an investor. The $1,000,000 note was issued at a discount of $70,000 and bore interest at 8% per year. The note principal and interest up to $250,000 every 30-day calendar period were convertible into shares of common stock at the lower of (a) 75% of the lowest traded price of the common stock during the 10 trading days immediately preceding the notice of conversion or (b) $0.46 per share. The note matured in November 2020. The note had a redemption premium of 115% of the principal and interest outstanding if repaid before maturity. The note was repaid by conversion to stock.

  
  
  
  
  

                                                               -

                                          825,000

   

 

On January 9, 2020, the Company entered into a $225,000 convertible note. The $225,000 note was issued at a discount of $13,500 and bore interest at 8% per year. The note principal and interest were convertible into shares of common stock at the lower of (a) 75% of the lowest traded price of the common stock during the 10 trading days immediately preceding the notice of conversion or (b) the lowest traded price of the common stock during the 10 trading days prior to the issuance of this note. The note matured in October 2020. The note had prepayment penalties of 110% to 125% of the principal and interest outstanding if repaid before 180 days from issuance. The principal amount of the note was increased by $25,000 due to the value of the stock price at conversion. The note was repaid by conversion to stock.

                                                               -

                                          250,000

   

 

On March 25, 2020, the Company signed a convertible promissory note with an investor. The $338,625 note was issued at a discount of $23,625 and bore interest at 8% per year. The note principal and interest were convertible into shares of common stock at the lower of (a) $0.46 per share or (b) 75% of the lowest trading price of common stock during the 10 trading days prior to conversion. The note matured in March 2021. The note had prepayment penalties between 120% and 130% of the principal and interest outstanding if repaid before 180 days from issuance. The note was repaid by conversion to stock.

-

 338,625

   

On June 26, 2020, the Company signed a convertible promissory note with an investor. The $430,000 note was issued at a discount of $30,000 and bears interest at 8% per year. The note principal and interest were convertible into shares of common stock at the lower of (a) $0.47 per share or (b) 70% of the lowest trading price of common stock during the 10 trading days prior to conversion. The had note maturity of June 2021. The note had prepayment penalties between 120% and 130% of the principal and interest outstanding if repaid before 180 days from issuance. The note was repaid by conversion to stock.

                                                 -

  430,000

 

 

 

Total Convertible Notes Payable

                                              -

1,989,975

Less: Unamortized original issue discounts

-

888,075

Current Portion of Convertible Notes Payable

-

                                       1,101,900

 

 

 

Long-term Portion of Convertible Notes Payable

$                        -

$                                                   -

-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).

 

Note 7 - 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, 2021 and June 30, 2020 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

      

At March 31, 2021

 

 

 

 

 

 

 

Total

Level 1

Level 2

Level 3

Assets

 

 

 

 

 

 

Customer list

$653,990

-

-

$653,990

 

Vendor relationship

340,583

-

-

340,583

 

Development costs

341,355

-

-

341,355

 

 

 

 

 

 

 

 

$1,335,928

-

-

$1,335,928

Liabilities

 

 

 

 

 

 

Original issue discount, convertible debt

$3,376,000

-

-

$3,376,000

 

 

 

 

 

 

At June 30, 2020

 

 

 

 

 

 

 

Total

Level 1

Level 2

Level 3

Assets

 

 

 

 

 

 

Customer list

$748,853

-

-

$748,853

 

Vendor relationship

407,153

-

-

407,153

 

Development costs

280,309

-

-

280,309

 

 

 

 

 

 

 

 

$1,436,315

-

-

$1,436,315

Liabilities

 

 

 

 

 

 

Original issue discount, convertible debt

$213,300

-

-

$213,300

 

Derivative liability warrants

33,312

-

-

33,312

Total

 

$246,612

-

-

$246,612

 

As of March 31, 2021, and June 30, 2020, 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 March 31, 2021

 

 

 

Risk-free interest rate:

 

0.05%

 

Expected dividend yield:

 

0.00%

 

Expected stock price volatility:

 

305.00%

 

Expected option life in years:

 

0.62 to 0.95 years

    

At June 30, 2020

 

 

 

Risk-free interest rate:

 

0.09%

 

Expected dividend yield:

 

0.00%

 

Expected stock price volatility:

 

300.00%

 

Expected option life in years:

 

.089 to 1.69 years

 

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, 2021 and June 30, 2020:

 

    

Balance at June 30, 2020

 

 $            246,612

Additional convertible securities at inception

 

       2,000

Realized

 

(55,612)

Unrealized

 

3,183,000

Ending balance at March 31, 2021

 

$        3,376,000

 

 

 

Balance at June 30, 2019

 

 $        1,025,944

Additional convertible securities at inception

 

 2,027,000

Settlement of conversion features and warrants

 

     (152,374)

Realized

 

        (240,903)

Unrealized

 

   (2,413,055)

Ending balance at June 30, 2020

 

 $          246,612

-19-

 

Note 8 - 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.

 

 

 

 

 

 

 

 

 

 

 

 

$400,000

 

$400,000

 

   

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

 

   

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-

 

 

   

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

 

   

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

 

   

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

 

 

 

 

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

 

   

Long-term Portion of Related Party Notes Payable and Other Payables

$                -

 

$2,075,000

-21-

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 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 and $98,500 for the three and nine months ended March 31, 2021 and 2020, respectively. 

 

Other 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).

 

Note 9 - Lease Agreements

 

The Company has financing lease liabilities for offices and warehouses with monthly installments of $12,449 (ranging from $1,083 to $3,524) including imputed interest (ranging from 0% to 2%), over 2-year terms plus extensions, expiring through July 2023.

 

   

Right-of-use assets:

 

 

Operating right-of-use assets

$176,624

Operating lease liabilities:

 

 

Current portion of long term payable

110,099

 

Financing leases payable, less current portion

76,020

 

 

 

 

Total financing lease liabilities

$186,119

 

As of March 31, 2021, financing lease maturities are as follows:

  

Period ending March 31,

 

2022

$110,099

2023

76,020

 

 

 

$186,119

 

As of March 31, 2021, the weighted average remaining lease term was 1.2 years.

 

Note 10 - Equity

 

During the nine months ended March 31, 2021, the Company issued 105,800,000 shares of common stock for professional consulting services. These shares were valued at $2,778,550 upon issuance during the nine months ended March 31, 2021.

 

During the nine months ended March 31, 2021, the Company issued 1,382,812,744 shares of common stock for debt reduction. These shares were valued at $13,031,235.

 

During the nine months ended March 31, 2021, the Company issued 249,792,217 shares of common stock to warrant holders in six cashless transactions.


During the nine months March 31, 2021, the Company issued 52,500,000 shares of common stock for commitment shares under a two-year agreement entered into on May 31, 2020, between the Company and the investor, as amended and restated on July 9, 2020 and December 29, 2020 (the "Equity Purchase Agreement"). These shares were valued at $1,050,000 upon issuance during the nine months ended March 31, 2021.

 

During the nine months ended, 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 377,000,000 shares of common stock in exchange for proceeds under the Equity Purchase agreement. These shares were valued at $8,292,400 upon issuance during the nine months ended March 31, 2021.

 

During the nine months ended March 31, 2021, the Company issued 50,000,000 shares of common stock as collateral for the line of credit. The shares are held in the Company’s name and serve as collateral.

 

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 11 - Income Taxes

  

The Company's effective tax rate differed from the federal statutory income tax rate for the nine months ended March 31, 2021 and 2020 as follows:

   

Federal statutory rate

 

21%

State tax, net of federal tax effect

 

5.31%

Valuation allowance

 

-26%

Effective tax rate

 

0%

 

The Company had no federal or state income tax (benefit) for the nine months ended March 31, 2021 or 2020.

 

The Company's deferred tax assets and liabilities as of March 31, 2021 and June 30, 2020, are summarized as follows:

      

 

 

 

March 31, 2021

 

June 30, 2020

 

 

 

 

 

 

 

Federal

 

 

 

 

 

Deferred tax assets

 $              9,719,000

 

 $                      4,825,100

 

 

Less valuation allowance

                (9,719,000)

 

                        (4,825,100)

 

 

Deferred tax liabilities

                              -

 

                                     -

 

 

 

                              -

 

                                     -

 

State

 

 

  

 

 

Deferred tax assets

                 2,595,300

 

                         1,290,900

 

 

Less valuation allowance

                (2,595,300)

 

                        (1,290,900)

 

 

Deferred tax liabilities

                              -

 

-

 

 

 

                              -

 

                                     -

 

 

Net Deferred Tax Assets

 $                           -

 

 $                                   -

 

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, 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, 2021 and June 30, 2020, are as follows:

      

 

 

March 31, 2021

 

June 30, 2020

 

 

 

 

 

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

 

 

   

 

Net Deferred Tax Assets

 $                           -

 

 $                                   -

 

As of March 31, 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, 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 12 - 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 condensed 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.

 

On September 4, 2020, 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 sheets at March 31, 2021 and June 30, 2021. This legal settlement was fully repaid subsequent to March 31, 2021 (Note 17).

 

Concentrations

 

Galaxy contracts the manufacturer 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 customers that accounted for approximately 73% of accounts receivable at March 31, 2021, and three customers that accounted for approximately 79% of accounts receivable at June 30, 2020. Galaxy has four customers that accounted for approximately 52% and two customers that accounted for 34% of total revenue for the nine months ended March 31, 2021, 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.

 

-24-

 

Note 13 - Material Agreements

 

Equity Purchase Agreement

 

On May 31, 2020, the Company entered into a two-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. The Company issued a total of 50,000,000 shares of common stock to the investor as consideration 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.

 

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 $600,000 and $0 of accounts receivable as of March 31, 2021 and June 30, 2020, respectively.

 

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. 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 (CFO) 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 CFO will receive annual compensation of $250,000, and an annual discretionary bonus based on profitability and revenue growth. 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.

 

Supply Agreement

 

The Company is party to a one-year supplier agreement to manufacture and sell audio products to a buyer that is effective until July 2021. 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 1,051 units as of March 31, 2021. The agreement was extended in July 2020 for a one-year term. The agreement can be extended for one additional year.

-25-

Note 14 - Acquisition

  

Concepts and Solutions

 

On September 4, 2019, Galaxy entered into a stock 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 and 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 seller 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 payable is $1,030,079 at March 31, 2021 and June 30, 2020.

 

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.

   

Assets

 

 

Cash

 $             201,161

 

Accounts receivable

             1,165,953

 

Inventory

                 94,360

 

Property and equipment

                 20,904

 

Other assets

                   2,800

 

Goodwill and other intangibles

             3,760,287

 

 

 

 

Total Assets

             5,245,465

 

 

 

Liabilities

 

 

Accounts payable

             1,225,734

 

Accrued expenses

               783,540

 

Short-term debt

                 96,941

 

Deferred revenue

               518,900

 

 

 

 

Total Liabilities

             2,625,115

 

 

 

 

Net Assets

 $          2,620,350

 

 

 

Consideration

 

 

Fair value of anti-dilution clause in employment agreement

 $             235,350

 

Note payable to seller

               900,000

 

Stock

             1,485,000

 

 

 

 

 

 $          2,620,350

-26-

Classroom Technologies Solutions, Inc.

 

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.

 

 

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

   
  

Total Assets

 $            345,526

 

Consideration

 

 

Notes payable to seller and related party of seller

 $             164,526

 

Bonus program

30,000

 

Stock

151,000

 

 

 $            345,526

Note 15 - 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 expires June 1, 2020. 99,250,000 Shares of Common Stock 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, 2021 and June 30, 2020, respectively.

 

Note 16 - 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 an accumulated deficit of approximately $47,290,000, and cash used in operations of approximately $6,895,000 at March 31, 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 17 - Subsequent Events

  

On April 7, 2021, approximately $950,000 was paid to settle the legal settlement agreement discussed in Note 12.

 

On April 5, 2021, the Company issued 50,000,000 shares to an investor in exchange for proceeds of approximately $500,000 under the Purchase Agreement dated May 2020, as amended and restated on July 9, 2020 and on December 29, 2020 (Note 13).

 

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).

 

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).

 

-27-

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") 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," that 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, 2020 (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.

 

-28-


Business and Market Environment

 

Galaxy works hand-in-hand with educators to help them evolve how teaching 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, and the IT staff incorporate meaningful digital content, leverage learning data, and creatively use our products to create an immersive and interactive experience.

 

Galaxy's products include Galaxy's own private-label interactive touch screen panel as well as numerous other national and international branded peripheral and communication devices. Galaxy's distribution channel consists of approximately 37 resellers across the U.S. who primarily sell the Company's products within the commercial and educational market. Galaxy does not control where resellers focus their resell efforts, although generally, the K-12 education market is the largest customer base for Galaxy products - comprising nearly 90% of Galaxy's sales.

 

Our acquisition of Interlock Concepts, Inc. ("Concepts") and Ehlert Solutions Group, Inc. ("Solutions") in September 2019 increased our line of product offerings. Concepts and Solutions 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, 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 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.

 

-29-

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.

 

-30-


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 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 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.

 

Recent Financial Developments

 

The Company has approximately $6,000,000 available under a $10,000,000 Equity Line of Credit that was registered under Form S-1 in January 2021. The equity line is with an institutional investor and allows the Company to draw equity down at the amount and time of the Company’s discretion. The Company believes that this will be a great back stop for the Company and will eliminate the need to raise money from multiple investors 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.

 

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.

 

-31-

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

 

 

 

 

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

 

Total revenues recognized were $2,754,463 and $1,850,673 for the nine months ended March 31, 2021 and 2020, respectively, an increase of approximately 49%. Additionally, deferred revenue amounted to $815,214 and $1,133,992 as of March 31, 2021 and June 30, 2020, 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, 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.

 

Cost of Sales and Gross Margin

 

Our cost of sales was $356,731 and $130,614 for the three months ended March 31, 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%. 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, 2020 due to increased 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

 

-32-


 

Total general and administrative expenses (including stock compensation expenses) were $1,699,760 and $3,710,670 for the three months ended March 31, 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 (including stock compensation expenses) were $7,126,105 and $8,319,900 for the nine months ended March 31, 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)

 

-33-


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%. Interest expense of $1,805,687 during the three 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 $2,534,813. Reduced interest expense of $289,585 during the three months ended March 31, 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.

 

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 and $246,612 is recorded at March 31, 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. Changes in these amounts do not impact cash.

 

Net Loss for the Period

 

Net loss incurred for the three months ended March 31, 2021 and 2020 was $2,890,289 and $5,261,097, 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%. Noncash contributing factors for the net loss incurred for the three and nine months ended March 31, 2021 and 2020 are as follows:

 

a) $2,350 and $48,034 represent consulting fees and employee compensation paid through the issuance of stock for the three months ended March 31, 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, respectively

 

b) Interest expenses related to equity purchase agreement of $1,805,687 and $0 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, 2021 and 2020, respectively

 

c) Impairment charges taken of $0 and $2,000,287 for the three and nine months ended March 31, 2021 and March 31, 2020

 

-34-


Liquidity and Capital Resources

 

Our revenues generated from operations have been insufficient to support our operational activities and have been supplemented by the proceeds from the issuance of securities, including equity and debt issuances. As stated in Note 16 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 at March 31, 2021, as compared with $412,391 at June 30, 2020, an increase of $329,991. Net cash of $6,894,817 was used by operations for the nine months ended March 31, 2021. Net cash of $7,185,972 was provided from financing activities for the nine months ended March 31, 2021, primarily due to proceeds from the Equity Purchase Agreement and to a lesser extent convertible notes payable.

 

For the nine months ended March 31, 2021, we had $38,836 cash provided by investing activities, and for the nine months ended March 31, 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 related to $4,851,333 of proceeds from the sale of common stock under the Equity Purchase Agreement, $1,956,000 of proceeds 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.

 

To implement our business plan, we will 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.

 

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, 2021 and 2020.

 

-35-


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The information under this Item is not required to be provided by smaller reporting companies.

 

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, 2020 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.

 

-36-


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 30,2020 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. 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.

 

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 business.

 

We intend to rely on the Amended and Restated Purchase Agreement for our near-term capital needs. We may direct Tysadco Partners to purchase up to $10.0 million 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 by us to Tysadco Partners at our discretion from time to time over a 24-month period commencing after the satisfaction of certain conditions set forth in the Amended and Restated Purchase Agreement, including that the registration statement registering the shares to be issued pursuant to the Amended and Restated Purchase Agreement remains effective. The purchase price for the shares 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.

 

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.

-37-


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 business

 

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 Restated Purchase 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 shares pursuant 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-


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

During the three months ended March 31, 2021, the Company issued 50,000 shares of common stock for professional consulting services. These shares were valued at $2,350 upon issuance during the three months ended March 31, 2021.

 

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, 2021 to an investor.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

Not applicable.

 

-39-


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 )

3.2

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

XBRL Interactive Tables

*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, 2021

 

/s/ Gary LeCroy

Gary LeCroy

Chief Executive Officer (Principal Executive Officer)

 

Date: May 13, 2021

 

/s/Magen McGahee

Magen McGahee

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

-40-


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)

-42-


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)

-43-


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)

 

-44-