During the three and nine-month periods ended March 31, 2019, the Company recorded interest expense of $40,578 and $45,022 of amortization of debt discount, included in interest expense.
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 5 - Related Party Transactions:
Notes Payable
The Company's notes payable obligations to related parties assumed in the acquisition (Note 11) are as follows as of March 31, 2019 and June 30, 2018:
|
|
|
|
|
|
|
March 31, 2019
|
|
June 30, 2018
|
|
Various notes payable to a related party in which the notes accrue interest on the original principal balance at a rate of 8% interest annually and is due on demand. Five of these notes were converted into common stock in accordance with a board resolution at a rate of $.01 per share. One note did not convert.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ -
|
|
$ 15,000
|
|
|
|
|
|
|
Various notes payable to a related party in which the note accrues interest on the original principal balance at a rate of 6.25% interest annually and was scheduled to mature in October 2017 and is currently due on demand.
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
91,000
|
|
|
|
|
|
|
Note payable to a related party in which the note accrues interest on the original principal balance at a rate of 6.25% interest annually and is due in August 2019.
|
|
|
|
|
|
|
|
|
-
|
|
8,000
|
|
|
|
|
|
|
Notes payable to a related party in which the note bears no interest and is scheduled to mature on demand.
|
|
|
|
|
-
|
|
25,000
|
|
Note payable to a related party in which the note accrues interest on the original principal balance at a rate of 9% interest annually and is scheduled to mature in October 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
125,000
|
|
|
|
|
|
|
Note payable to an individual executed February 2018 in which the note accrues interest on the original principal balance at a rate of 18% annually and is due on demand.
|
|
|
|
|
|
|
|
|
-
|
|
10,000
|
|
Various notes payable to a related party in which the note accrues interest on the original principal balance at a rate of 10% interest annually through December 31, 2016 at which time the interest rate was reduced to 6.25% interest annually. The notes are scheduled to mature at various dates through July 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
211,534
|
|
|
|
|
|
|
Total Related Party Notes Payable
|
-
|
|
485,534
|
|
|
|
|
|
|
Current Portion of Related Party Notes Payable
|
-
|
|
485,534
|
|
|
|
|
|
|
Long-term Portion of Related Party Notes Payable
|
$ -
|
|
$ -
|
-22-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
As disclosed in Note 11, the Entertainment segment was sold effective February 6, 2019 in exchange for 38,625 Galaxy common shares. As a result of the sale, the notes payable belonging to this segment was reduced to zero.
Note 5 - Related Party Transactions (Continued):
Other Advances and Commitments
In support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that it can support its operations or attain adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by officers, directors or shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are unsecured, due on demand, and the amounts outstanding at March 31, 2019 and June 30, 2018 is $0 and $260,173, respectively.
Galaxy pays a related party $7,500 as a collateral fee for securing the Company’s short-term note payable with a certificate of deposit (see Note 4).
Leases
The Company’s technology segment leases property used in operations from a related party under terms of an operating lease. The term of the lease expired on December 31, 2018 when the lease changed to a month-to-month operating lease. The monthly lease payment is $1,500 plus maintenance and property taxes, as defined in the lease agreement. Rent expense for this lease, as well as other month-to-month leases, totaled $21,646 and $10,500 for the three-month periods ended March 31, 2019 and 2018, respectively. Rent expense totaled $24,634 and $14,169 for the nine-month periods ended March 31, 2019 and 2018, respectively.
The Company leases three vehicles from related parties under capital leases. The Company is paying the lease payments directly to the creditors, rather than the lessor. The leased vehicles are used in operations for deliveries and installations.
Other Agreements
A stockholder’s family member collateralizes the Company’s short-term note with a CD in the amount of $375,000, held at the same bank. The family member will receive a $7,500 collateral fee for this service. In May 2018, 50,000 shares of stock were issued in exchange for a $100,000 reduction in the short-term note balance.
Notes Payable Converted to Common Stock
On June 22, 2018, various board members and executives of FLCR exchanged their outstanding related party debt and accrued interest for 4% of the Company’s common stock as described in Note 11.
-23-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 6 - Lease Agreements:
Capital Lease Agreements
Capital lease agreements for vehicles (disclosed in Note 4) require monthly payments totaling $1,066 (ranging from $253 to $461), including interest (ranging from 4.0% to 4.75%), over 5-year terms expiring between April 2019 and July 2020.
Operating Lease Agreements
The Company leases office, retail shop and warehouse facilities under operating leases from a related party (disclosed in Note 5) which require monthly payments of $1,500 and subsequent to December 2018, became a month-to-month operating lease. Rent expense for this lease, as well as other month-to-month leases, totaled $21,646 and $10,500 for the three-month periods ended March 31, 2019 and 2018, respectively. Rent expense totaled $24,634 and $14,169 for the nine-month periods ended March 31, 2019 and 2018, respectively.
-24-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 7 - Equity:
Certain equity transactions related to the reverse triangular merger occurred in September 2018, but have been reflected as of June 30, 2018, in the consolidated financial statements due to FLCR effectively transferring control to Galaxy as of June 22, 2018 (see Note 11). The following equity transactions occurred simultaneously, and are treated in these consolidated financial statements as being effective on that date:
•
Galaxy shareholders transferred all the outstanding shares of common stock to the Merger Sub;
•
Preferred Class C shares were converted into common stock in an amount equivalent to 89% ownership in the outstanding shares of the merged company;
•
Common shares were issued to common stockholders in an amount equivalent to 7% ownership in the outstanding shares of the merged company;
•
Common shares were issued to convertible debt holders in an amount equivalent to 4% ownership in the outstanding shares of the merged company (See Note 5).
•
A reverse stock split was approved at a ratio of one new share for every 350 shares of common stock outstanding (1:350 Reverse Stock Split).
Private Placement
In March 2018, the Company offered 1,500,000 common shares to qualified investors at $2 per share in a private placement memorandum (“PPM”). The private placement offering period expired in September 2018. Proceeds were raised to purchase inventory, pay merger costs and provide working capital. As a result of the PPM, the Company issued 1,374,850 shares to new investors resulting in proceeds of $2,004,500. The shares issued in the PPM are prior to the Reverse Stock Split.
In May 2018, 50,000 shares of stock (143 shares post-Reverse Stock Split) were issued to the related party in exchange for a $100,000 reduction in the short-term note balance (see Note 4).
On December 19, 2018, the Company issued 75,511 shares as a bonus to a board member for consulting services and as a performance incentive to a key employee.
In December 2018, January 2019 and February 2019, the Company issued commitment fees in the form of 252,271 returnable common shares under convertible notes. These shares are issued but not outstanding at March 31, 2019. These shares will be considered outstanding upon the exercise of the conversion rights specified in the convertible notes.
During the three-month period ended March 31, 2019, the Company issued 300,000 shares for professional consulting services.
During the three-month period ended March 31, 2019, the Company acquired 38,625 shares from an entity with a common board member under a Share Purchase Agreement related to the sale of Entertainment. These shares are issued but not outstanding at March 31, 2019.
-25-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
See the capital structure section in Note 1 for disclosure of the equity components included in the Company’s consolidated financial statements.
Note 8 - Income Taxes:
The U.S. Tax Cuts and Jobs Act (TCJA) legislation, enacted on December 22, 2017, reduces the U.S. federal corporate income tax rate from 35.0% to 21.0% and is effective January 1, 2018 for the Company. The Company has not generated any taxable income and has not recorded any current income tax expense at March 31, 2019. Consequently, the tax rate change has had no impact on the Company’s current tax expense but impacts the deferred tax assets and liabilities and will impact future deferred tax assets and liabilities to be recognized.
The Company’s deferred tax assets are primarily comprised of net operating losses (“NOL”) that give rise to deferred tax assets. Estimated net operating losses available at March 31, 2019 amounted to approximately $2,500,000, set to expire through 2038. 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 net operating loss carry forwards a valuation allowance equal to the net deferred tax assets has been recorded.
The Company’s effective tax rate differed from the federal statutory income tax rate for the period ended March 31, 2019 is as follows:
|
|
|
|
|
Federal statutory rate
|
|
21%
|
|
State tax, net of federal tax effect
|
|
5.25%
|
|
Valuation allowance
|
|
-26.25%
|
|
Effective tax rate
|
|
0%
|
|
|
|
|
As of March 31, 2019, 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, 2019, the Company’s income tax returns generally remain open for examination for three years from the date filed with each taxing jurisdiction.
-26-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 9 - Commitments, Contingencies, and Concentrations:
Contingencies
Certain conditions may exist as of the date the 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 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.
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 three customers that accounted for approximately 76% of accounts receivable at March 31, 2019 and
87% of accounts receivable at June 30, 2018. Galaxy has three customers that accounted for approximately 67% and 42% of revenues for the three-month periods ended March 31, 2019 and March 31, 2018, respectively. Galaxy has three customers that accounted for approximately 57% and 52% of revenues for the nine-month periods ended March 31, 2019 and 2018, respectively.
The Company routinely assesses the financial strength of its customers and, consequently, believes that its accounts receivable credit risk exposure is limited.
-27-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 10 - Material Agreements:
Manufacturing and Distributorship Agreement
In December 2016, Galaxy executed an agreement with a company in South Korea. Pursuant to such distribution agreement, the manufacturer agreed to manufacture, and the Company agreed to be the sole distributor of the interactive panels in the United States for a term of one year, with automatic annual renewals. The Company must submit a three-month rolling sales forecast (which acts as a purchase order) to the manufacturer, updated monthly. The manufacturer has three days to accept the purchase order and once accepted, the Company must pay the manufacturer 105% of the cost shown on the purchase order, 10% at the time the order is accepted and the remaining 95% within 120 days if the Company has sold the panels and been paid by the end customer. The manufacturer also provides a warranty for any defects in material and workmanship for a period of 26 months from the date of shipment to the Company.
There was a $4 million minimum purchase commitment for the 12-month period ended December 31, 2017. This minimum purchase commitment was not met; however, the manufacturer and the Company extended the agreement for an additional year under the same terms. Because the Company did not meet the minimum purchase commitment, the manufacturer can require the Company to work with their sales representative to establish a performance improvement plan, and the manufacturer has the right to terminate the agreement. The agreement expires December 31, 2019.
Consulting Agreement
Galaxy entered into a consulting agreement in May 2017 with two consultants for advisory services through July 2019. In exchange for consulting services provided, these consultants are entitled to receive consulting fees of $15,000 per month and a 5.5% combined equity interest in Galaxy. The 5.5% equity interest was converted to common stock upon the commencement of the Common Controlled Merger Agreement of R&G and Galaxy CO (as described in Note 1). The Company paid the consultants $161,500 and $374,500 in fees and expenses for consulting services provided during the three-month and nine-month periods ended March 31, 2019. No consulting fees were paid under this agreement during the periods ended March 31, 2018. The consulting agreement was renewed effective May 1, 2019 (as described in Note 15).
Consulting Agreement – Magellan FIN, LLC
The Company entered into a consulting agreement in May 2018 for advisory services such as maintaining ongoing stock market support such as drafting and delivering press releases and handling investor requests. The program will be predicated on accurate, deliberate and direct disclosure and information flow from the Company and dissemination to the appropriate investor audiences. In exchange for these consulting services provided, the advisor received $15,000 at contract inception, an additional $4,000 monthly through the term of the agreement, which is April 2019, and 10,000 shares of common stock. The Company incurred no amounts for consulting fees during the three-month period and $23,000 during the nine-month period ended March 31, 2019. No consulting fees were paid under this agreement during the periods ended March 31, 2018.
-28-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 10 - Material Agreements (Continued):
KLIK Distribution Agreement
In September 2018, the Company signed a 1-year distributor agreement with KLIK Communications to be the sole distributor of KLIK products to US educational market. The agreement will automatically renew annually, unless three months’ notice is given by either party. The agreement will end upon successful acquisition of KLIK by Galaxy, per the Letter of Intent signed in July 2018. Payment terms are 45 days after invoice. Delivery terms are FOB Deliver location. The KLIK product will replace the VIVI product (specialized interactive router) previously sold with the Galaxy panels. KLIK will provide a 2-year manufacturer’s warranty from the date of shipment, and free software updates. The agreement provides KLIK with the option of storing the manufacturer’s inventory at the Galaxy warehouse.
Distribution Agreement
Effective September 15, 2018, the Company signed a 2-year distribution agreement for Galaxy’s SLIM series of interactive panels, a new Galaxy product. Galaxy outsourced the manufacturing to a vendor as manufacturing costs are less, and customers prefer an Android operating system. The agreement includes a commitment by Galaxy to purchase $2 million of product during the first year beginning September 2018. The manufacturer will provide Galaxy with the product, including a three-year manufacturer’s warranty from the date of shipment. The agreement renews automatically in two-year increments unless three months’ notice is given by either party.
Agency Agreement
Effective December 11, 2018, the Company entered into a contract with Carter, Terry and Company (“CTC”) to act as an agent in raising capital. CTC will have the opportunity to receive a finder’s fee ranging from 4 to 8% relative to the amount of capital raised, if successful. No fees were paid during the three-month or nine-month periods ended March 31, 2019. No fees were paid under this agreement during the periods ended March 31, 2018.
Master Service Agreement
Effective January 2, 2019, the Company entered into a 3 month contract with Invictus Resources for advisory services including among other services, presenting and introducing the Company to the financial community of investors. The Company paid $75,000 and issued 300,000 common stock shares under this agreement during the three-month period ended March 31, 2019. No advisory fees were paid under this agreement during the period ended March 31, 2018.
-29-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 11 - Reverse Acquisition:
On June 22, 2018, Galaxy consummated a reverse triangular merger whereby Galaxy merged with and into FLCR’s newly formed subsidiary, Galaxy MS, Inc. which was formed specifically for the transaction. Under the terms of the merger, Galaxy’s shareholders transferred all their outstanding shares of common stock to Galaxy MS, in return for FLCR’s Series C Preferred Shares, which were equivalent to approximately 3,065,000,000 shares of the common stock of FLCR on a pre-reverse stock split basis. This represents approximately 89% of the outstanding common stock of FLCR, with the remaining 11% of common stock distributed as follows: (a) an ownership interest of seven percent (7%) to the holders of common stock, pro rata; and (b) four percent (4%) of the common stock to the holders of convertible debt, pro rata.
Concurrent with the reverse triangular merger, the Company applied pushdown accounting; therefore, the consolidated financial statements after completion of the reverse merger include the assets, liabilities, and results of operations of the combined company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity remaining in the consolidated financial statements.
There was no cash consideration paid by Galaxy to FLCR on the date of the reverse triangular merger. Instead, shares of stock were issued and exchanged, and the Company acquired $1,511,844 of net assets of FLCR. At the closing of the merger, all of FLCR’s convertible promissory notes were converted into FLCR’s common shares. The merger agreement contains potential future tax advantages of the net operating loss carryforward available to offset future taxable income of the combined company, up to a maximum of $150,000, over a 5-year period beginning June 22, 2018. There is a valuation allowance reducing this tax benefit to zero.
-30-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 11 - Reverse Acquisition (Continued):
The following table summarizes the preliminary allocation of the fair value of the assets and liabilities as of the merger date through pushdown accounting. The preliminary allocation to certain assets and/or liabilities may be adjusted by material amounts as the Company continues to finalize the fair value estimates.
|
|
|
|
|
Assets
|
|
|
|
Cash
|
$ 22,205
|
|
|
Property and equipment
|
4,209,995
|
|
|
Other
|
20,716
|
|
|
Other assets
|
1,511,844
|
|
|
Goodwill
|
834,220
|
|
|
|
|
|
|
Total Assets
|
6,598,980
|
|
|
|
|
|
Liabilities
|
|
|
|
Accounts payable
|
208,763
|
|
|
Long-term debt
|
4,593,851
|
|
|
Short-term debt
|
799,534
|
|
|
Accrued interest
|
78,948
|
|
|
Other
|
83,664
|
|
|
|
|
|
|
Total Liabilities
|
5,764,760
|
|
|
|
|
|
|
Net Assets
|
$ 834,220
|
|
|
|
|
|
|
Consideration
|
$ -
|
|
|
Fair value of noncontrolling interests
|
834,220
|
|
|
|
|
|
|
|
$ 834,220
|
|
|
|
|
As a result of the Company pushing down the effects of the acquisition, certain accounting adjustments are reflected in the consolidated financial statements, such as goodwill recognized amounting to $834,220 and reflected in the balance sheet. Goodwill recognized is primarily attributable to the acquisition of the fair value of the public company structure and other intangible assets that do not qualify for separate recognition.
Other assets noted in the table above consist of the differences between the acquired assets and liabilities of Full Circle Entertainment to be distributed to pre-acquisition FLCR shareholders. The Company expects to exercise its option to spin out the Entertainment subsidiary within one year to focus on its primary business plan as discussed herein and distribute all respective Entertainment assets and liabilities to these shareholders. As a result, the Company does not anticipate receiving any economic benefit from the related assets in the table above, nor incurring any obligations from the corresponding liabilities.
-31-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 11 - Reverse Acquisition (Continued):
The Company sold the Entertainment subsidiary to an entity related by common board member on February 6, 2019. The sale of Entertainment enabled the Company to focus its resources into the operations of the Technology segment. The consideration received for the sale of Entertainment was 38,625 shares of Galaxy common stock at the fair value on the date of the transaction, or $92,700. The fair value of the Galaxy common shares received offset the assets and liabilities of Entertainment, with the difference recorded as a gain on the sale for the nine-months ended March 31, 2019. The gain on the sale has been recorded in general and administrative expenses in the Consolidated Statement of Operations.
The following table presents a summary of Entertainment’s identifiable assets and liabilities at February 6, 2019, the date of the sale:
|
|
|
|
|
Assets
|
|
|
|
Cash
|
$ 36,290
|
|
|
Property and equipment, net
|
4,006,426
|
|
|
Receivables
|
4,500
|
|
|
Inventories
|
5,610
|
|
|
Other assets
|
1,522,714
|
|
|
|
|
|
|
Total Assets
|
5,575,540
|
|
|
|
|
|
Liabilities
|
|
|
|
Accounts payable
|
22,424
|
|
|
Debt
|
5,393,620
|
|
|
Accrued expenses
|
127,484
|
|
|
|
|
|
|
Total Liabilities
|
5,543,528
|
|
|
|
|
|
|
|
|
|
|
Net Assets
|
32,012
|
|
|
|
|
|
|
Noncash consideration for net assets of Entertainment
|
92,700
|
|
|
|
|
|
|
Gain on Sale
|
$ 60,688
|
|
|
|
|
Note 12 – Stock Plan
An Employee, Directors, and Consultants Stock Plan for the Year 2019 (“Plan”) was established by the Company. 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 effective December 28, 2018, and expires December 31, 2019. Common shares of 1,000,000 are reserved for stock awards under the Plan. There were no shares awarded under the Plan as of March 31, 2019.
-32-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 13 - Segment Reporting
The Company has identified two reportable segments due to the merger that occurred on June 22, 2018: Technology and Entertainment.
The Technology segment sells 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 as well as numerous other national and international branded peripheral and communication devices.
The Entertainment segment owns and operates Georgetown 14 Cinemas, a fourteen-theater movie complex located in Indianapolis, Indiana. Entertainment generates revenues from movie ticket sales and concessions. As part of the merger agreement, the parties have the right to spinout the Entertainment segment to the prior shareholders of FLCR. Management plans to implement the pinout in order to focus on its primary business plan, which is Galaxy. As disclosed in Note 11, the Entertainment segment was sold effective February 6, 2019.
The following table presents a summary of operating information for the nine-month period ended March 31, 2019 for technology and the period from January 1, 2019 to February 6, 2019 for entertainment:
|
|
|
|
|
Revenues
|
Technology
|
Entertainment
|
|
Technology
|
$ 1,106,540
|
$ -
|
|
Entertainment
|
-
|
589,705
|
|
|
|
|
|
Cost of Sales
|
|
|
|
Technology
|
948,073
|
-
|
|
Entertainment
|
-
|
217,638
|
|
|
|
|
|
Gross Profit
|
158,467
|
372,067
|
|
|
|
|
|
General and Administrative Expenses
|
|
|
|
Technology
|
3,897,139
|
-
|
|
Entertainment
|
-
|
511,812
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
Technology
|
(100,672)
|
-
|
|
Entertainment
|
-
|
109,811
|
|
|
|
|
|
Net Loss
|
$ (3,839,344)
|
$ (29,934)
|
-33-
GALAXY NEXT GENERATION, INC.
Notes to Consolidated Financial Statements
Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)
Note 14 - 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 $3,000,000, an accumulated deficit of approximately $2,100,000, and cash used in operations of approximately $2,400,000 at March 31, 2019.
The Company’s operational activities and the payment for such has primarily been funded through related party advances, debt financing, a private placement offering of common stock 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 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 15 - Subsequent Events:
The Company has evaluated subsequent events through the date on which the consolidated financial statements were available to be issued.
On April 18, 2019, the Company signed a $200,000 promissory note with a stockholder and board member. Principal and fixed interest, of $10,000, on the note are due at maturity in July 2019. Note is personally guaranteed by a different stockholder.
On April 29, 2019, the Company signed a convertible promissory note with an investment firm. The $1,325,000 note was issued at a discount of $92,750 and bears interest at 8% per year. The loan principal and interest are 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) $2.75 per share. The note matures in April 2020.
Effective May 1, 2019, the Company renewed a consulting contract with TPI Business Consultants, Inc. The contract calls for an initial payment of 450,000 common shares and then $15,000 monthly. The contract renews annually, unless either party cancels with a 30 day notice.
On May 1, 2019, two convertible notes totaling $736,484 were paid off prior to maturity or conversion.
-34-
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto and the other financial data appearing elsewhere in this Form 10-Q. Management’s discussion and analysis contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements that are not historical are forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
General:
Where this Form 10-Q includes “forward-looking” statements within the meaning of Section 27A of the Securities Act, we desire to take advantage of the “safe harbor” provisions thereof. Therefore, Galaxy, is including this statement for the express purpose of availing itself of the protections of the safe harbor provisions with respect to all such forward-looking statements. The forward-looking statements in this Form 10-Q reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ from those anticipated. In this Form 10-Q, the words “anticipates,” “believes,” “expects,” “intends,” “future” and similar expressions identify forward-looking statements. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that may arise after the date hereof. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section. We have based these forward-looking statements on our current expectations and projections about future events, including, among other things:
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Attracting new financing to fund our operations and new business development
;
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Focusing on increasing traditional sales and gross profit;
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Closely managing operational costs; and
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Improving the functionality and usefulness of our products and services.
Subsequent Events
Galaxy has secured additional funding totaling $1,325,000, which will allow them to continue product expansion, marketing efforts and increase inventory for future sales. The Company is in verbal discussions with a developer for potential new products to launch in the summer of 2019. Galaxy has recently increased their sales channel with the addition of three new resellers and have added a new regional sales rep to their team. Management believes these subsequent events will position them well within the industry.
Sale of Entertainment
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On February 6, 2019 Galaxy Next Generation, Inc (“Galaxy” or the “Company”) sold its wholly owned subsidiary FullCircle Entertainment, Inc. (“Entertainment”). This was done in fulfilment of the Company’s agreement to transfer the ownership of Entertainment, which was contained in that certain merger agreement the Company entered on June 6, 2018 with FullCircle Registry, Inc. Entertainment owns a cinema complex in Indianapolis, Indiana, and as a result of the sale of Entertainment the Company no longer indirectly owns the cinema complex and does not earn, on a consolidated basis, revenue from that business. This event should be considered while reviewing the discussion below, especially in relation to the discussion of the entertainment segment.
Revenue recognition
Theater Ticket Sales and Concessions – Entertainment Segment:
Revenues are generated principally through admissions and concessions sales with proceeds received in cash or via credit card at the point of sale.
Interactive Panels and Related Products – Technology Segment:
The Company derives revenue from the sale of interactive panels and other related products. Sales of these panels may also include optional equipment, accessories and services (installation, training and other services, including maintenance services and/or an extended warranty). Product sales and installation revenue are recognized when all of the following criteria have been met: (1) products have been shipped or customers have purchased and accepted title to the goods; service revenue for installation of products sold is recognized as the installation services are performed, (2) persuasive evidence of an arrangement exists, (3) the price to the customer is fixed, and (4) collectability is reasonably assured.
Deferred revenue consists of customer deposits and advance billings of the Company’s products where sales have not yet been recognized. Shipping and handling costs billed to customers are included in revenue in the accompanying statements of operations. Costs incurred by the Company associated with shipping and handling are included in cost of sales in the accompanying statements of operations. Sales are recorded net of sales returns and discounts, and sales are presented net of sales-related taxes.
Because of the nature and quality of the Company’s products, the Company provides for the estimated costs of warranties at the time revenue is recognized for a period of five years after purchase as a secondary warranty. The manufacturer also provides a warranty against certain manufacturing and other defects. As of the period ended March 31, 2019 and the June 30, 2018, the Company accrued $1,350 for estimated product warranty claims, which is included in accrued expenses in the accompanying balance sheets. The accrued warranty costs are based primarily on historical experience of actual warranty claims as well as current repair costs. There were no warranty claim expenses during the three-month and nine-month periods ended March 31, 2019 and 2018.
Product sales resulting from fixed-price contracts involve a signed contract for a fixed price or a binding purchase order to provide the Company’s interactive panels and accessories. Contract arrangements exclude a right of return for delivered items. Product sales resulting from fixed-price contracts are generated from multiple-element arrangements that require separate units of accounting and estimates regarding the fair value of individual elements. The Company has determined that its multiple-element arrangements that qualify as separate units of accounting are (1) product sales and (2) installation and related services. There is objective and reliable evidence of fair value for both the product sales and installation services and allocation of arrangement consideration for each of these units is based on their relative fair values. Each of these elements represent individual units of accounting, as the delivered item has value to a customer on a stand-alone basis. The Company’s products can be sold on a stand-alone basis to customers which provides objective evidence of the fair value of the product portion of the multi-element contract, and thus represents the Company’s best estimate of selling price.
The fair value of installation services is separately calculated using expected costs of installation services. Many times the value of installation services is calculated using price quotations from subcontractors to the Company who perform installation services on a stand-alone basis.
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The Company sells equipment with embedded software to its customers. The embedded software is not sold separately and it is not a significant focus of the Company’s marketing effort. The Company does not provide post-contract customer support specific to the software or incur significant costs that are within the scope of Financial Accounting Standards Board (“FASB”) guidance on accounting for software to be leased or sold. Additionally, the functionality that the software provides is marketed as part of the overall product. The software embedded in the equipment is incidental to the equipment as a whole.
Business Combinations
The Company accounts for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions.
Concurrent with the reverse triangular merger with Full Circle Registry, Inc. on June 22, 2018, the Company applied pushdown accounting. Pushdown accounting refers to the use of the acquirer’s basis in the preparation of the acquiree’s separate financial statements as the new basis of accounting for the acquiree.
Goodwill
Goodwill is not amortized, but is reviewed for impairment at least annually, or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments regarding indicators of potential impairment are based on market conditions and operational performance of the business.
At each fiscal year-end, the Company performs an impairment analysis of goodwill. The Company may assess its goodwill for impairment initially using a qualitative approach to determine whether conditions exist to indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If management concludes, based on its assessment of relevant events, facts and circumstances that it is more likely than not that a reporting unit’s carrying value is greater than its fair value, then a goodwill impairment charge is recognized for the amount in excess, not to exceed the total amount of goodwill allocated to that reporting unit.
If the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and no further testing is required. An impairment charge is recorded as a general and administrative expense within the Company’s statement of operations.
Product Warranty
We generally warrant our product against certain manufacturing and other defects. These product warranties are provided for specific periods of time, depending on the nature of the product, the geographic location of its sales and other factors. As of the periods ended March 31, 2019 and June 30, 2018, we accrued approximately $1,350 for estimated product warranty claims, which is included in accrued expenses in the accompanying balance sheets. The accrued warranty costs are based primarily on historical experience of actual warranty claims as well as current information on repair costs. There were no warranty claims for the three-month and nine-month periods ended March 31, 2019. There was $1,350 in warranty claims for the three-month and nine-month periods ended March 31, 2018.
Recent Accounting Pronouncements Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02,
Leases
. This ASU is intended to improve the reporting of leasing transactions to provide users of financial statements with more decision-useful information. This ASU will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. The Company is evaluating the potential impact that adoption will have on its consolidated financial statements and related disclosures.
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Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
Revenue
Technology:
Revenues recognized were $270,062 and $304,947 for the three-month periods ended March 31, 2019 and 2018, respectively. Revenues recognized were $1,127,648 and $2,148,955 for the nine-month periods ended March 31, 2019 and 2018, respectively. Additionally, deferred revenue amounted to $0 and $219,820 as of March 31, 2019 and June 30, 2018. Revenue fluctuates based on cash flows available for purchases of inventory. During the period being reported, the timeline for inventory orders from overseas manufacturing taking approximately 30 days from order to delivery, with additional time required to deliver and install, impacted when sales were recorded.
Entertainment (see previously mentioned Sale of Entertainment):
Revenues were $78,661 and $0 for the period from January 1, 2019 through February 6, 2019 and three-months ended March 31, 2018, respectively. Revenues were $589,705 and $0 for the period from July 1, 2018 through February 6, 2019 and nine-months period ended March 31, 2018, respectively. Revenues fluctuate based on attendance by customers. Attendance at the theater fluctuates based on viewing options.
Cost of Revenue and Gross Profit Summary
Technology:
Our cost of revenue was $230,833 and $236,243 for the three-month periods ended March 31, 2019 and 2018, respectively. Our cost of revenue was $948,073 and $1,767,601 for the nine month periods ended March 31, 2019 and 2018, respectively. Cost of revenue consists primarily of manufacturing, freight, and installation costs. There are no significant overhead costs which impact cost of revenue.
Our gross margin percentage was 12% and 23% for the three-month periods ended March 31, 2019 and 2018, respectively, excluding office supplies. Our gross margin percentage was 14% and 18% for the nine-month periods ended March 31, 2019 and 2018, respectively, excluding office supplies.
Entertainment (see previously mentioned Sale of Entertainment):
Our cost of revenue was $54,315 and $0 for the period from January 1, 2019 through February 6, 2019 and three-months ended March 31, 2018, respectively. Our cost of revenue was $217,638 and $0 for the period from July 1, 2018 through February 6, 2019 and nine months period ended March 31, 2018, respectively. Cost of revenues represent film rental costs and concession food costs primarily.
Our gross margin percentage was 31% for the period from January 1, 2019 through February 6, 2019. Our gross margin percentage was 63% for the period from July 1, 2018 through February 6, 2019.
Technology
General and Administrative
General and administrative expenses were $1,956,557 and $566,137 for the three-month periods ended March 31, 2019 and 2018, respectively. General and administrative expenses were $3,897,139 and $1,562,009 for the nine-month periods ended March 31, 2019 and 2018, respectively. General and administrative expenses consist primarily of salaries and stock compensation expense, office rent, insurance premiums, and professional fees. The increase in general and administrative expenses is directly related to Company growth and the desire to take advantage of market opportunity.
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General and administrative expenses include sales and marketing expenses of $6,511 and $1,250 for the three-month and nine-month periods ended March 31, 2019, and 2018, respectively. Sales and marketing expenses consists primarily of advertising expenses and technology trade shows. The Company expects increased marketing efforts moving forward as they are introducing two new products to the market.
Interest Expense
Interest expenses amounted to $98,940 and $22,207 for the three-month periods ended March 31, 2019 and 2018, respectively. Interest expenses amounted to $121,780 and $37,238 for the nine-month periods ended March 31, 2019 and 2018, respectively.
Net Loss for the Period
As a result of the foregoing, net loss incurred for the three-month periods ended March 31, 2019 and 2018 was $(2,016,268) and $(519,463), respectively. As a result of the foregoing, net loss incurred for the nine-month period ended March 31, 2019 and 2018 was $(3,839,344) and $(1,216,837), respectively.
Entertainment (see previously mentioned Sale of Entertainment):
General and Administrative
General and administrative expenses during the period from January 1, 2019 through February 6, 2019 and three-months ended March 31, 2018 was $86,624 and $0, respectively. General and administrative expenses during the period from July 1, 2018 through February 6, 2019 and nine-months period ended March 31, 2018 was $511,812 and $0, respectively. General and administrative expenses consist primarily of salaries expense, utilities, depreciation and professional fees.
Interest Expense
Interest expense was $1,953 and $0 for the period from January 1, 2019 through February 6, 2019 and period from July 1, 2018 through February 6, 2019, respectively and primarily related to interest on debt, including the mortgage on the theater building (See Subsequent Events). Interest expense amounted to $41,478 and $0 during the period from July 1, 2018 through February 6, 2019 and the nine-months period ended March 31, 2018, respectively.
Net Income for the Period
As a result of the foregoing, net income for the period from January 1, 2019 through February 6, 2019 and three-months ended March 31, 2018 was $33,240 and $0, respectively. As a result of the foregoing, net loss for the period from July 1, 2018 through February 6, 2019 and nine-months period ended March 31, 2018 was $(29,934) and $0, respectively.
Liquidity and Capital Resources
Consolidated
The Company’s cash totaled $57,899 at March 31, 2019, as compared with $184,255 at June 30, 2018, a decrease of $126,356. Net cash of $2,408,441 was used by operations for the nine-month period ended March 31, 2019. Net cash of $2,282,085 was provided from financing activities for the nine-month period ended March 31, 2019, primarily derived from the issuance of common stock and the proceeds from line of credit and the convertible note payable.
Total current liabilities totaled $3,248,928 and $2,958,369 as of March 31, 2019 and June 30, 2018, respectively, which primarily consists of a line of credit, short term notes payable (June), shareholder payables (June), short term related party payables (June), accrued expenses, accounts payable, deferred revenue (June) and convertible notes payable (March).
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To implement our business plan, we may require additional financing. Additional financings may come from future equity or debt offerings that could result in dilution to our stockholders. Further, current 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
Other than office lease commitments discussed in Note 6 and commitments discussed in Note 9 to our consolidated financial statements, we do not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2019.
Our management, with the participation of our president (our principal executive officer, principal accounting officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, our president (our principal executive officer, principal accounting officer and principal financial officer) has concluded that, as of the end of such period, our disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our president (our principal executive officer and our principal accounting officer and principal financial officer), as appropriate, to allow timely decisions regarding required disclosure. The reason or these deficiencies are as follows:
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1)
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We have an inadequate number of administrative personnel.
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2)
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We do not have sufficient segregation of duties within our accounting functions.
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3)
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We have insufficient written policies and procedures over our disclosures.
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Evaluation of Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is a process designed by, or under the supervision of, our president (our principal executive officer and our principal accounting officer and principal financial officer), to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of our Company are being made only in accordance with authorizations of management and directors of our Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
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Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our president, our principal executive officer and our principal accounting officer and principal financial officer, an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2019 in accordance with the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control — Integrated Framework. Based on this assessment, management concluded that as of March 31, 2019, our Company’s internal control over financial reporting was not effective based on present Company activity. Our Company is in the process of adopting specific internal control mechanisms. Future controls, among other things, will include more checks and balances and communication strategies between the management and the board to ensure efficient and effective oversight over Company activities as well as more stringent accounting policies to track and update our financial reporting.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting identified in connection with the evaluation described above during the quarter ended March 31, 2019 that has materially affected or is reasonably likely to materially affect our internal controls over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no pending legal proceedings.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS
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Exhibit No.
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Description
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31.1
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Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
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Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
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Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101
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XBRL Interactive Data Tables
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SIGNATURES
Pursuant to the requirement of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
GALAXY NEXT GENERATION, INC.
Date: May 15, 2019
/s/ Gary LeCroy
Gary LeCroy
Chief Executive Officer and Director
Date: May 15, 2019
/s/Magen McGahee
Magen McGahee
Chief Financial Officer and Director
Date: May 15, 2019
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Gary Lecroy, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Galaxy Next Generation, Inc.;
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 15, 2019
Galaxy Next Generation, Inc.
By:
/s/ Gary Lecroy
Gary Lecroy
Chief 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 of Galaxy Next Generation, Inc.;
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 15, 2019
Galaxy Next Generation, Inc.
By: /s/ Magen McGahee
Magen McGahee
Chief Financial Officer
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Exhibit 32.1
CERTIFICATION
OF
CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Quarterly Report on Form 10-Q of Galaxy Next Generation, Inc. (the "Company") for the quarter ending March 31, 2019, 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, 2019, 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, 2019, fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 15, 2019
Galaxy Next Generation, Inc.
By: Gary Lecroy
Gary Lecroy
-45-
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, 2019, 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, 2019, 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, 2019, fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: May 15, 2019
Galaxy Next Generation, Inc.
By: /s/ Magen McGahee
Magen McGahee
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