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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No.1 to Form
10-Q)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period
ended December 31,
2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 ☒ 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 ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company" and "emerging growth company" in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer
|
☐
|
Accelerated filer ☐
|
|
Non-accelerated filer
|
☒
|
Smaller reporting company
|
☒
|
|
|
Emerging growth company
|
☐
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell Company
(as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The number of shares outstanding of the issuer's Common Stock, as
of February 11, 2022 was 3,492,086,272.
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant was $19,833,487 as
of December 31, 2021, based upon the average bid and asked price on
the OTCQB.
EXPLANATORY NOTE
The Amendment no. 1 to Form 10-Q is
being file to include the iXBRL InteractiveTable
Exhibits
FORM 10-Q
GALAXY 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
|
26
|
Item 3.Quantitative and Qualitative Disclosures
about Market Risk
|
33
|
Item 4.Controls and Procedures
|
33
|
PART
II. Other Information
|
|
Item 1.Legal Proceedings
|
34
|
Item 1A.Risk Factors
|
34
|
Item 2.Unregistered Sales of Equity Securities and
Use of Proceeds
|
36
|
Item 3.Defaults Upon Senior Securities
|
36
|
Item 4.Mine Safety Disclosures
|
36
|
Item 5.Other Information
|
36
|
Item 6.Exhibits
|
37
|
Signatures
|
38
|
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, 2021 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.
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 December
31, 2021 (unaudited) and June 30, 2021 (audited)
|
|
3
|
Condensed Consolidated Statements of Operations for
the Three and Six Months Ended December 31, 2021 and 2020
(unaudited)
|
|
4
|
Condensed Consolidated Statement of Changes in
Stockholders' Equity (Deficit) for the Six Months Ended December
31, 2021 (unaudited)
|
|
5
|
Condensed Consolidated Statement of Changes in
Stockholders' Equity (Deficit) for the Six Months Ended December
31, 2020 (unaudited)
|
|
6
|
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended December 31, 2021 and 2020
(unaudited)
|
|
7-8
|
Notes to the Condensed Consolidated Financial
Statements (unaudited)
|
|
9-25
|
GALAXY NEXT GENERATION, INC.
Condensed Consolidated Balance
Sheets
|
|
December 31, 2021
|
|
June 30, 2021
|
Assets
|
|
(Unaudited)
|
|
(Audited)
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
354,727
|
|
$
|
541,591
|
Accounts receivable, net
|
|
|
305,810
|
|
|
866,091
|
Inventories, net
|
|
|
1,379,853
|
|
|
3,267,667
|
Other current assets
|
|
|
3,950
|
|
|
3,950
|
Total Current Assets
|
|
|
2,044,340
|
|
|
4,679,299
|
|
|
|
|
|
|
|
Property and Equipment, net
(Note 2)
|
|
|
370,057
|
|
|
86,812
|
Intangibles, net (Notes 1
and 12)
|
|
|
1,471,142
|
|
|
1,516,815
|
Goodwill (Note 1)
|
|
|
834,220
|
|
|
834,220
|
Operating right of use asset
(Note 7)
|
|
|
222,336
|
|
|
208,051
|
Total Assets
|
|
$
|
4,942,095
|
|
$
|
7,325,197
|
|
|
|
|
|
|
|
Liabilities and Stockholders'
Equity (Deficit)
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Line of credit (Note 3)
|
|
$
|
-
|
|
$
|
991,598
|
Derivative liability, convertible debt features (Note 5)
|
|
|
-
|
|
|
1,842,000
|
Current portion long term notes payable (Note 4)
|
|
|
1,147,856
|
|
|
552,055
|
Accounts payable
|
|
|
634,057
|
|
|
830,433
|
Accrued expenses
|
|
|
589,898
|
|
|
213,772
|
Deferred revenue
|
|
|
137,351
|
|
|
453,862
|
Short term portion of related party notes and payables (Note 6)
|
|
|
1,296,310
|
|
|
3,471,755
|
Total Current Liabilities
|
|
|
3,805,472
|
|
|
8,355,475
|
Noncurrent Liabilities
|
|
|
|
|
|
|
Related party notes payable, less current portion (Note 6)
|
|
|
287,947
|
|
|
-
|
Notes payable, less current portion (Note 4)
|
|
|
774,558
|
|
|
405,007
|
Total Liabilities
|
|
|
4,867,977
|
|
|
8,760,482
|
|
|
|
|
|
|
|
Stockholders' Equity
(Deficit)
|
|
|
|
|
|
|
Common stock
|
|
|
309,744
|
|
|
280,744
|
Preferred stock - Series E, non-redeemable
|
|
|
-
|
|
|
50
|
Preferred stock - Series F, non-redeemable
|
|
|
11
|
|
|
-
|
Additional paid-in-capital
|
|
|
50,543,538
|
|
|
46,215,049
|
Accumulated deficit
|
|
|
(50,779,175)
|
|
|
(47,931,128)
|
Total Stockholders' Equity (Deficit)
|
|
|
74,118
|
|
|
(1,435,285)
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity (Deficit)
|
|
$
|
4,942,095
|
|
$
|
7,325,197
|
See accompanying notes to the condensed consolidated financial
statements (unaudited).
GALAXY NEXT GENERATION, INC.
Condensed Consolidated Statements
of Operations
(Unaudited)
|
|
For the Three Months
Ended December 31,
|
|
For the Six Months Ended
December 31,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Revenues
|
|
$
|
904,055
|
|
$
|
798,793
|
|
$
|
2,588,826
|
|
$
|
1,977,006
|
Cost of Sales
|
|
|
848,099
|
|
|
471,063
|
|
|
1,866,862
|
|
|
1,304,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
55,956
|
|
|
327,730
|
|
|
721,964
|
|
|
672,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation and stock issued for services
|
|
|
-
|
|
|
13,200
|
|
|
32,750
|
|
|
2,776,200
|
Impairment expense
|
|
|
46,869
|
|
|
-
|
|
|
46,869
|
|
|
-
|
General and administrative
|
|
|
1,049,993
|
|
|
1,257,918
|
|
|
2,548,117
|
|
|
2,650,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total General and Administrative Expenses
|
|
|
1,096,862
|
|
|
1,271,118
|
|
|
2,627,736
|
|
|
5,426,345
|
Loss from Operations
|
|
|
(1,040,906)
|
|
|
(943,388)
|
|
|
(1,905,772)
|
|
|
(4,753,579)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
5,878
|
|
|
-
|
|
|
5,878
|
|
|
-
|
Expenses related to convertible notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liability
|
|
|
834,000
|
|
|
(2,442,688)
|
|
|
1,842,000
|
|
|
(3,496,583)
|
Interest accretion
|
|
|
(15,540)
|
|
|
(366,667)
|
|
|
(24,290)
|
|
|
(766,603)
|
Interest expense related to Equity Purchase Agreement (Note
11)
|
|
|
(1,890,600)
|
|
|
(995,000)
|
|
|
(2,143,500)
|
|
|
(5,001,900)
|
Interest expense
|
|
|
(354,852)
|
|
|
(3,020,338)
|
|
|
(622,363)
|
|
|
(6,884,194)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
|
(1,421,114)
|
|
|
(6,824,693)
|
|
|
(942,275)
|
|
|
(16,149,280)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss before Income
Taxes
|
|
|
(2,462,020)
|
|
|
(7,768,081)
|
|
|
(2,848,047)
|
|
|
(20,902,859)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (Note 9)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(2,462,020)
|
|
$
|
(7,768,081)
|
|
$
|
(2,848,047)
|
|
$
|
(20,902,859)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Basic and Fully Diluted Loss
Per Share
|
|
$
|
(0.0007)
|
|
$
|
(0.0034)
|
|
$
|
(0.0009)
|
|
$
|
(0.0106)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,352,600,273
|
|
|
2,314,084,953
|
|
|
3,270,956,252
|
|
|
1,978,500,180
|
Fully diluted
|
|
|
3,352,600,620
|
|
|
2,776,901,944
|
|
|
3,270,956,598
|
|
|
3,205,073,044
|
See accompanying notes to the condensed consolidated financial
statements (unaudited).
GALAXY NEXT GENERATION, INC.
Consolidated Statement of Changes
in Stockholders' Equity (Deficit)
Six Months Ended December 31,
2021
(Unaudited)
|
|
Common Stock
|
|
Preferred Stock Series E
|
|
Preferred Stock Series F
|
|
Additional
Paid-in
|
|
Accumulated
|
|
Total
Stockholders'
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, July 1, 2021
|
|
|
3,139,882,882
|
|
$
|
280,744
|
|
|
500,000
|
|
$
|
50
|
|
|
-
|
|
$
|
-
|
|
$
|
46,215,049
|
|
$
|
(47,931,128)
|
|
$
|
(1,435,285)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock issued for services
|
|
|
2,500,000
|
|
|
250
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,500
|
|
|
-
|
|
|
32,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued under Equity Purchase Agreement
|
|
|
225,000,000
|
|
|
22,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,121,000
|
|
|
-
|
|
|
2,143,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Series F issued in exchange for debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,414
|
|
$
|
11
|
|
|
1,824,989
|
|
|
-
|
|
|
1,825,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of Preferred Series E
|
|
|
-
|
|
|
-
|
|
|
(500,000)
|
|
|
(50)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(50)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock cancelled
|
|
|
(50,000,000)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment shares issued
|
|
|
62,500,000
|
|
|
6,250
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
350,000
|
|
|
-
|
|
|
356,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
(2,848,047)
|
|
|
(2,848,047)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2021
|
|
|
3,379,882,882
|
|
$
|
309,744
|
|
|
-
|
|
$
|
-
|
|
$
|
11,414
|
|
$
|
11
|
|
$
|
50,543,538
|
|
$
|
(50,779,175)
|
|
$
|
74,118
|
See accompanying notes to the condensed consolidated financial
statements (unaudited).
GALAXY NEXT GENERATION, INC.
Condensed Consolidated Statement of
Changes in Stockholders' Equity (Deficit)
Six Months Ended December 31,
2020
(Unaudited)
|
|
Common Stock
|
|
Preferred Stock -
Class E
|
|
Additional
Paid-in
|
|
Accumulated
|
|
Total
Stockholders'
|
|
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
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
|
|
|
105,750,000
|
|
|
10,375
|
|
|
-
|
|
|
-
|
|
|
2,765,625
|
|
|
-
|
|
|
2,776,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued 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
|
|
|
52,500,000
|
|
|
5,250
|
|
|
-
|
|
|
-
|
|
|
1,044,750
|
|
|
-
|
|
|
1,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued under Equity Purchase Agreement
|
|
|
242,000,000
|
|
|
24,200
|
|
|
-
|
|
|
-
|
|
|
3,927,700
|
|
|
-
|
|
|
3,951,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(20,902,859)
|
|
|
(20,902,859)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2020
|
|
|
2,720,894,203
|
|
$
|
238,645
|
|
|
500,000
|
|
$
|
50
|
|
$
|
36,478,169
|
|
$
|
(44,399,651)
|
|
$
|
(7,682,787)
|
See accompanying notes to the condensed consolidated financial
statements (unaudited).
GALAXY NEXT GENERATION, INC.
Consolidated Statements of Cash
Flows
(Unaudited)
|
|
|
Six Months Ended December
31,
|
|
|
|
2021
|
|
|
2020
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,848,047)
|
|
$
|
(20,902,859)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
241,785
|
|
|
177,529
|
Amortization of convertible debt discounts
|
|
|
24,290
|
|
|
247,702
|
Impairment expense
|
|
|
46,869
|
|
|
-
|
Change in fair value of derivative liability
|
|
|
(3,273,253)
|
|
|
4,126,813
|
Stock issued for services
|
|
|
32,961
|
|
|
2,786,775
|
Stock issued under Equity Purchase Agreement
|
|
|
2,166,000
|
|
|
11,893,497
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
|
|
560,281
|
|
|
(401,935)
|
Inventories
|
|
|
1,887,814
|
|
|
(526,227)
|
Intangibles
|
|
|
-
|
|
|
(120,404)
|
Right of use assets
|
|
|
(14,285)
|
|
|
-
|
Accounts payable
|
|
|
(196,376)
|
|
|
(1,463,810)
|
Accrued expenses
|
|
|
376,126
|
|
|
(175,384)
|
Deferred revenue
|
|
|
(316,511)
|
|
|
(161,221)
|
Net cash provided by (used in) operating activities
|
|
|
(1,312,346)
|
|
|
(4,519,524)
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
|
Acquisition of business, net of cash
|
|
|
-
|
|
|
38,836
|
Capitalization of development costs
|
|
|
(221,430)
|
|
|
-
|
Purchases of property and equipment
|
|
|
(194,326)
|
|
|
-
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(415,756)
|
|
|
38,836
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities
|
|
|
|
|
|
|
Principal payments on notes payable
|
|
|
(157,364)
|
|
|
(932)
|
Payments on advances from stockholder, net
|
|
|
(18,500)
|
|
|
(121,663)
|
Proceeds from convertible notes payable
|
|
|
1,075,000
|
|
|
1,956,000
|
Proceeds from convertible notes payable related party
|
|
|
-
|
|
|
535,963
|
Payments on line of credit, net
|
|
|
(991,598)
|
|
|
(245,000)
|
Proceeds from sale of common stock under Equity Purchase
Agreement
|
|
|
1,633,700
|
|
|
2,316,520
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
1,541,238
|
|
|
4,440,888
|
|
|
|
|
|
|
|
Net Decrease in Cash and Cash
Equivalents
|
|
|
(186,864)
|
|
|
(39,800)
|
|
|
|
|
|
|
|
Cash, Beginning of Period
|
|
|
541,591
|
|
|
412,391
|
Cash, End of Period
|
|
$
|
354,727
|
|
$
|
372,591
|
Supplemental and Non Cash
Disclosures
|
|
|
|
|
|
|
Noncash additions related to convertible debt
|
|
$
|
25,000
|
|
$
|
210,520
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
51,401
|
|
$
|
35,888
|
|
|
|
|
|
|
|
Interest on shares issued under Equity Purchase Agreement
|
|
$
|
2,143,500
|
|
$
|
5,001,900
|
|
|
|
|
|
|
|
Related party note payable issued for acquisition of business
|
|
$
|
-
|
|
$
|
194,526
|
Acquisition of goodwill and intangibles
|
|
$
|
-
|
|
$
|
46,869
|
Stock issued for services
|
|
$
|
32,750
|
|
$
|
2,776,200
|
|
|
|
|
|
|
|
Property leased with financing lease
|
|
$
|
97,253
|
|
$
|
25,317
|
|
|
|
|
|
|
|
Change in fair value of derivatives
|
|
$
|
1,842,000
|
|
$
|
4,238,991
|
|
|
|
|
|
|
|
Common stock issued in exchange for convertible debt reduction
|
|
$
|
-
|
|
$
|
4,117,650
|
|
|
|
|
|
|
|
Preferred stock issued in exchange for convertible debt
reduction
|
|
$
|
1,825,000
|
|
$
|
-
|
See accompanying notes to the condensed consolidated financial
statements (unaudited).
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 as well as numerous other national
and international branded peripheral and communication devices. New
technologies like Galaxy's own touchscreen panels are sold along
with renowned brands such as Google Chromebooks, Microsoft Surface
Tablets, Lenovo and Acer computers,Verizon WiFi and more. Galaxy's
distribution channel consists of approximately 37 resellers across
the U.S. who primarily sell its products within the commercial and
educational market. Galaxy does not control where the resellers
focus their resell efforts; however, the K-12 education market is
the largest customer base for Galaxy products comprising nearly 90%
of Galaxy's sales. In addition, Galaxy also possesses its own
reseller channel where it sells directly to the K-12 market,
primarily throughout the Southeast region of the United States.
Ehlert Solutions Group, Inc. ("Solutions") and Interlock Concepts,
Inc. ("Concepts") are Arizona-based audio design and manufacturing
companies creating innovative products that provide fundamental
tools for building notification systems primarily to K-12 education
market customers located primarily in the north and northwest
United States. Solutions and Concepts' products and services allow
institutions access to intercom, scheduling, and notification
systems with improved ease of use. The products provide an open
architecture solution to customers which allows the products to be
used in both existing and new environments. Intercom, public
announcement (PA), bell and control solutions are easily added and
integrated within the open architecture design and software model.
These products combine elements over a common internet protocol
(IP) network, which minimizes infrastructure requirements and
reduces costs by combining systems.
On October 15, 2020, Galaxy acquired the assets of Classroom
Technologies Solutions, Inc. ("Classroom Tech") for consideration
of (a) paying off a secured Classroom Tech loan, not to exceed the
greater of 50% of the value of the Classroom Tech assets acquired
or $120,000; (b) the issuance of a promissory note in the amount of
$44,526 to a Classroom Tech designee; and (c) the issuance of 10
million shares of common stock to the seller of Classroom Tech.
Classroom Tech provides cutting-edge presentation products to
schools, training facilities, churches, corporations and retail
establishments. Their high-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.
COVID-19 Update
The Covid-19 Pandemic that began in early 2020 caused
shelter-in-place policies, unexpected factory closures, supply
chain disruptions, and market volatilities across the globe. As a
result of the economic disruptions and unprecedented market
volatilities and uncertainties driven by the Covid-19 outbreak, the
Company experienced some supply chain disruptions. However, the
Company has not experienced any significant payment delays or
defaults by our customers as a result of the COVID-19 pandemic.
The full impact of the Covid-19 outbreak continues to evolve as of
the date of this report. The depth and duration of the pandemic
remains unknown. Despite the availability of vaccines, recent
surges in the infection rate and the detection of new variants of
the virus have reinforced the general consensus that the
containment of Covid-19 remains a challenge. Management is actively
monitoring the global situation and its effect on its financial
condition, liquidity, operations, suppliers, industry, and
workforce.
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, 2021 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 12.
All intercompany transactions and accounts have been eliminated in
the consolidation.
The Company’s common stock is traded on the over-the-counter public
company traded under the stock symbol listing GAXY (formerly
FLCR).
Capital Structure
The Company's capital structure is as follows:
|
|
December 31, 2021
|
|
|
|
|
Authorized
|
|
Issued
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
4,000,000,000
|
|
3,379,882,882
|
|
3,379,844,257
|
|
$.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 F
|
|
15,000
|
|
11,414
|
|
11,414
|
|
$.001 par value; no voting rights, convertible to common stock at a
fixed price of $0.37 per share; stated value is $1,000 per
share
|
|
|
June 30, 2021
|
|
|
|
|
Authorized
|
|
Issued
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
4,000,000,000
|
|
3,139,882,882
|
|
3,089,844,257
|
|
$.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.
The Preferred Series D and E were retired in December 2021.
Preferred Series F certificate of designation was filed on February
10, 2022.
There are 434,891,143 common shares reserved at December 31, 2021
under terms of the convertible debt agreements, Stock Plan and
Equity Purchase Agreement (see Notes 6, 11 and 13).
There are 104,764,231 issued common shares that are restricted as
of December 31, 2021. The shares may become free-trading upon
satisfaction of certain terms and regulatory conditions.
Supplier Agreement
Contract assets and contract liabilities are as follows:
|
|
December 31,
2021
|
|
June 30,
2021
|
Contract assets
|
|
$
|
12,409
|
|
$
|
43,360
|
Contract liabilities
|
|
|
137,351
|
|
|
228,514
|
For the three months ended December 31, 2021 and 2020, the Company
recognized $219,309 and $445,136 of revenues related to supplier
agreements. For the six months ended December 31, 2021 and 2020,
the Company recognized $637,746 and $500,075 of revenues related to
supplier agreements.
Accounts Receivable
Management deemed no allowance for doubtful accounts was necessary
at December 31, 2021 and June 30, 2021. At December 31, 2021 and
June 30, 2021, $0 and $190,779 of total accounts receivable were
considered unbilled and recorded as deferred revenue.
Inventories
Management estimates $67,635 of inventory reserves at December 31,
2021 and June 30, 2021, respectively.
Goodwill, Intangible Assets and
Product Development Costs
Goodwill, intangible assets, and product development costs are
comprised of the following at December 31, 2021:
|
|
Cost
|
|
Accumulated Amortization
|
|
Net Book Value
|
|
Impairment
|
|
Total
|
Goodwill
|
|
$
|
834,220
|
|
$
|
-
|
|
$
|
834,220
|
|
$
|
-
|
|
$
|
834,220
|
Finite-lived assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list
|
|
$
|
922,053
|
|
$
|
(376,351)
|
|
$
|
545,702
|
|
$
|
(41,053)
|
|
$
|
504,649
|
Vendor relationships
|
|
|
484,816
|
|
|
(215,550)
|
|
|
269,266
|
|
|
(5,816)
|
|
|
263,450
|
Capitalized product development cost
|
|
|
1,015,707
|
|
|
(312,664)
|
|
|
703,043
|
|
|
-
|
|
|
703,043
|
|
|
$
|
2,422,576
|
|
$
|
(904,565)
|
|
$
|
1,518,011
|
|
$
|
(46,869)
|
|
$
|
1,471,142
|
Goodwill, intangible assets, and product development costs are
comprised of the following at June 30, 2021:
|
|
Cost
|
|
Accumulated Amortization
|
|
Total
|
Goodwill
|
|
$
|
834,220
|
|
$
|
-
|
|
$
|
834,220
|
Finite-lived assets:
|
|
|
|
|
|
|
|
|
|
Customer list
|
|
$
|
922,053
|
|
$
|
(314,166)
|
|
$
|
607,887
|
Vendor relationships
|
|
|
484,816
|
|
|
(168,474)
|
|
|
316,342
|
Product development costs
|
|
|
790,118
|
|
|
(197,532)
|
|
|
592,586
|
|
|
$
|
2,196,987
|
|
$
|
(680,172)
|
|
$
|
1,516,815
|
Intangible assets such as customer lists and vendor relationships
are stated at the lower of cost or fair value. They are amortized
on a straight-line basis over periods ranging from three to six
years, representing the period over which the Company expects to
receive future economic benefits from these assets. Amortization of
these intangible assets amounted to $44,700 and $69,953 for the
three months ended December 31, 2021 and 2020. Amortization of
these intangible assets amounted to $118,243 and $137,953 for the
six months ended December 31, 2021 and 2020.
Costs incurred in designing and developing classroom technology
products are expensed as research and development until
technological feasibility has been established. Technological
feasibility is established upon completion of a detail product
design, or in its absence, completion of a working model. Upon the
achievement of technological feasibility, development costs are
capitalized and subsequently reported at the lower of unamortized
cost or net realizable value. Management's judgment is required in
determining whether a product provides new or additional
functionality, the point at which various products enter the stages
at which costs may be capitalized, assessing the ongoing value and
impairment of the capitalized costs and determining the estimated
useful lives over which the costs are amortized.
Annual amortization expense is calculated based on the
straight-line method over the product's estimated economic lives,
which are typically three to six years. Amortization
of product development costs incurred begins when the related
products are available for general release to customers.
Amortization of product development costs of $44,761 and $20,416
for the three months ended December 31, 2021 and 2020, and $115,134
and $32,927 for the six months ended December 31, 2021 and 2020, is
included in cost of revenues in the Company's unaudited condensed
consolidated statements of operations.
Estimated amortization expense related to finite-lived intangible
assets for the next five years is: $555,920 for fiscal year 2023,
$483,959 for fiscal year 2024, $314,272 for fiscal year 2025,
$60,400 for fiscal year 2026, and $40,207 for fiscal year 2027 and
$16,384 thereafter.
Recent Accounting
Pronouncements
In January 2020, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (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 2016-01 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 adopted this ASU on July 1,
2021 with no significant impact on its unaudited condensed
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 adopted this ASU on
July 1, 2021 with no significant impact on its unaudited condensed
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 adopted this ASU on July 1, 2021 with no
significant impact on its unaudited condensed consolidated
financial statements.
The Company has implemented all new applicable accounting
pronouncements that are in effect and applicable. These
pronouncements did not have any material impact on the consolidated
financial statements unless otherwise disclosed, and the Company
does not believe that there are any other new accounting
pronouncements that have been issued that might have a material
impact on its financial position or results of operations.
Note 2 - Property and
Equipment
Property and equipment are comprised of the following at:
|
|
December 31, 2021
|
|
June 30, 2021
|
Vehicles
|
|
$
|
212,658
|
|
$
|
115,135
|
Building
|
|
|
201,823
|
|
|
-
|
Equipment
|
|
|
16,192
|
|
|
25,115
|
Leasehold improvements
|
|
|
31,000
|
|
|
31,000
|
Furniture and fixtures
|
|
|
28,321
|
|
|
25,085
|
|
|
|
489,994
|
|
|
196,335
|
Accumulated depreciation
|
|
|
(119,937)
|
|
|
(109,523)
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
370,057
|
|
$
|
86,812
|
Note 3 - Lines of Credit
The Company had $1,000,000 available under a line of credit bearing
interest at prime plus 0.5% (3.75% at June 30, 2021) which expired
October 29, 2021. The bank provided a 30-day grace period to repay
the line to November 29, 2021. The line of credit was
collateralized by certain real estate owned by stockholders and a
family member of a stockholder, 7,026,894 shares of the Company's
common stock owned by two stockholders, personal guarantees of two
stockholders, and a key man life insurance policy. In addition, a
20% curtailment of the outstanding balance may occur any time prior
to maturity. The outstanding balance was $0 and $991,598 at
December 31, 2021 and June 30, 2021, respectively. The line of
credit was completely paid off in November of 2021.
The Company has up to $1,000,000 available credit line under an
accounts receivable factoring agreement through July 30, 2022.
Total available credit under the factoring agreement was $989,680
and $1,000,000 as of December 31, 2021 and June 30, 2021,
respectively. See Note 11.
Note 4 - Notes Payable
Long Term Notes
Payable
|
|
December 31, 2021
|
|
June 30, 2021
|
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 an interest rate of 3%. In July 2021,
the note was renewed by the lender with a revised maturity date of
July 7, 2026. The renewal provides for monthly interest payments
and a balloon payment of outstanding principal and interest at
maturity. The note is collateralized by a certificate of deposit
owned by a related party.
|
|
$
|
223,823
|
|
$
|
237,039
|
|
|
|
|
|
|
|
Note payable to an investor bearing interest at 10% and maturing on
January 13, 2022 with monthly installments of principal and
interest of $45,294 beginning in June 2021.
|
|
|
100,845
|
|
|
348,456
|
|
|
|
|
|
|
|
Long term loan under Section 7(b) of the Economic Injury Disaster
Loan program bearing interest at 3.75% and maturing in May 2050. Monthly installments of
principal and interest of $731 begin upon notification by the SBA
regarding note servicing.
|
|
|
150,000
|
|
|
150,000
|
|
|
|
|
|
|
|
Financing lease liabilities for offices and warehouses with monthly
installments of $22,723 (ranging from $245 to $9,664) over terms
expiring through December
2024.
|
|
|
222,336
|
|
|
208,051
|
|
|
|
|
|
|
|
Note payable with a finance company for delivery vehicle with
monthly installments totaling $679 including interest at 8.99% over
a 6 year term expiring in December 2025.
|
|
|
28,241
|
|
|
31,016
|
|
|
|
|
|
|
|
Note payable with a bank for delivery vehicle with monthly
installments totaling $844 including interest at 6% over a 4 year
term expiring in August
2025.
|
|
|
33,662
|
|
|
-
|
|
|
|
|
|
|
|
Note payable with a finance company for delivery vehicle with
monthly installments totaling $948 including interest at 5.9% over
a 6 year term expiring in January 2027.
|
|
|
56,717
|
|
|
-
|
|
|
|
|
|
|
|
Note payable to an investor bearing interest at 12% and maturing on
May 26, 2023 with monthly installments of principal and interest of
$120,185 beginning in May 2022.
|
|
|
1,222,222
|
|
|
-
|
|
|
|
|
|
|
|
Total Notes Payable
|
|
|
2,037,846
|
|
|
974,562
|
|
|
|
|
|
|
|
Less: Unamortized original issue discount
|
|
|
115,432
|
|
|
17,500
|
|
|
|
|
|
|
|
Current Portion of Notes Payable
|
|
|
1,147,856
|
|
|
552,055
|
|
|
|
|
|
|
|
Long-term Portion of Notes Payable
|
|
$
|
774,558
|
|
$
|
405,007
|
Future minimum principal payments on the long-term notes payable to
unrelated parties are as follows:
Period ending December 31,
|
|
|
|
|
2022
|
|
$
|
1,147,856
|
|
2023
|
|
|
513,508
|
|
2024
|
|
|
103,336
|
|
2025
|
|
|
86,431
|
|
2026
|
|
|
42,149
|
|
Thereafter
|
|
|
144,566
|
|
|
|
$
|
2,037,846
|
Note 5 - Fair Value
Measurements
The following table presents information about the liabilities that
are measured at fair value on a recurring basis at December 31,
2021 and June 30, 2021 and indicates the fair value hierarchy of
the valuation techniques the Company utilized to determine such
fair value.
At December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
|
|
Derivative liability, convertible note features
|
|
$
|
-
|
$
|
-
|
$
|
-
|
|
$
|
-
|
At June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
|
|
Derivative liability, convertible note features
|
|
$
|
1,842,000
|
$
|
-
|
$
|
-
|
|
$
|
1,842,000
|
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. In December 2021,
the derivative liability was eliminated when we entered into an
agreement to convert the convertible debt. (See Note 6).
The derivative liability was valued using the Monte Carlo pricing
model with the following inputs:
At June 30, 2021
|
|
|
Risk-free interest rate:
|
|
0.17%
|
Expected dividend yield:
|
|
0.00%
|
Expected stock price volatility:
|
|
295.00%
|
Expected option life in years:
|
|
.037 to .70 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 December 31, 2021 and
June 30, 2021:
Balance at June 30, 2021
|
|
$
|
1,842,000
|
Realized
|
|
|
(1,842,000)
|
Unrealized
|
|
|
-
|
Balance at December 31, 2021
|
|
$
|
-
|
|
|
|
|
Balance at June 30, 2020
|
|
$
|
246,612
|
Convertible securities at inception
|
|
|
4,000
|
Realized
|
|
|
(80,924)
|
Unrealized
|
|
|
1,672,312
|
Balance at June 30, 2021
|
|
$
|
1,842,000
|
As of December 31, 2021 and June 30, 2021, the only asset required
to be measured on a nonrecurring basis was goodwill and the fair
value of the asset amounted to $834,220 using level 3 valuation
techniques.
Note 6 - Related Party
Transactions
Notes
Payable
|
|
December 31, 2021
|
|
June 30, 2021
|
Note payable to a stockholder in which the $200,000 principal plus
$10,000 of interest was payable in December 2019. Borrowings under
the note increased to $400,000 and the maturity was extended to
November 13, 2021. The note bears interest at 6% per annum and is
payable in cash or common stock, at the Company's option. If
interest is paid in common stock, the conversion price will be the
market price at the time of conversion. Principal on the note at
maturity is convertible into 400,000 shares of Series D Preferred
Stock. If principal is paid prior to maturity, the right of
conversion is terminated. Extinguished by exchange for Series F
Preferred Stock on December 28, 2021.
|
|
$
|
-
|
|
$
|
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. Payment
is subject to adjustment based on the achievement of minimum gross
revenues and successful completion of certain pre-acquisition
withholding tax issues of Concepts and Solutions.
|
|
|
1,030,079
|
|
|
1,030,079
|
|
|
|
|
|
|
|
Note payable to a stockholder in which the note principal plus 6%
interest was payable on November 7, 2021. Note was amended in March
2020 by increasing the balance to $1,225,000. Interest is payable
in cash or common stock, at the holder's option. If interest is
paid in common stock, the conversion price was to be the market
price at the time of conversion. Principal on the note at maturity
is convertible into 1,225,000 shares of Series D Preferred Stock.
If principal was paid prior to maturity, the right of conversion is
terminated. Extinguished by exchange for Series F Preferred Stock
on December 27, 2021.
|
|
|
-
|
|
|
1,225,000
|
|
|
|
|
|
|
|
Note payable to a stockholder in which the note principal plus 6%
interest is payable in November 13, 2021. Interest was payable in
cash or common stock, at the Company's option. If interest was 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 was paid prior to maturity, the right of conversion is
terminated. Extinguished by exchange for Series F Preferred Stock
on December 20, 2021.
|
|
|
-
|
|
|
200,000
|
Note payable to a stockholder in which the note principal plus
interest at 15% is payable the earlier of 60 days after invoicing a
certain customer, or April
2022 due to an extension granted by the lender. On December
23, 2021, an amendment extended the maturity to March 30, 2025,
changed the interest rate to 10% with monthly payments of principal
and interest of $8,823. The note is collateralized by a security
interest in a certain customer purchase order.
|
|
|
385,000
|
|
|
385,000
|
|
|
|
|
|
|
|
Note payable related to the acquisition of Classroom Tech in which
the note principal is payable in 2021 with no interest obligations,
upon the shareholder’s resolution of a pre-acquisition liability
with a bank.
|
|
|
125,690
|
|
|
155,690
|
|
|
|
|
|
|
|
Other short-term payables due to stockholders and related
parties
|
|
|
43,488
|
|
|
75,986
|
Total Related Party Notes Payable and Other Payables
|
|
|
1,584,257
|
|
|
3,471,755
|
Current Portion of Related Party Notes Payable and Other
Payables
|
|
|
1,296,310
|
|
|
3,471,755
|
|
|
|
|
|
|
|
Long-term Portion of Related Party Notes Payable and Other
Payables
|
|
$
|
287,947
|
|
$
|
-
|
As of December 31, 2021, related party notes payable maturities are
as follows:
Period ending December 31,
|
|
|
|
|
2022
|
|
$
|
1,296,310
|
|
2023
|
|
|
105,876
|
|
2024
|
|
|
105,876
|
|
2025
|
|
|
76,195
|
|
|
|
$
|
1,584,257
|
In December of 2021, $1,825,000 of related party convertible notes
and 500,000 shares of Series E preferred stock were eliminated upon
the execution of an agreement to exchange them for Series F
preferred shares. In addition, the agreement of the exchange of the
notes resulted in the elimination of the derivative liability
related to the conversion features of the notes into Series D
Preferred stock. The derivative liability was reduced by $1,842,000
resulting in additional paid in capital of approximately
$1,825,000. On December 31, 2021, the recorded derivative liability
is $0.
Related Party
Leases
The Company leases property used in operations from a related party
under terms of a financing lease. The term of the lease expires on
December 31, 2021. The monthly lease payment is $9,664 plus
maintenance and property taxes, as defined in the lease agreement.
Rent expense for this lease was $28,992 and $4,500 for the three
months ended December 31, 2021 and 2020, respectively and $57,984
and $9,000 for the six months ended December 31, 2021 and 2020
respectively.
Other Related
Party Agreements
A related party collateralizes the Company's short-term note with a
certificate of deposit in the amount of $274,900, held at the same
bank. The related party will receive a $7,500 collateral fee for
this service (see Note 4).
Note 7 - Lease
Agreements
Financing Lease
Agreements
The Company leases offices, warehouses and equipment under
financing lease agreements with monthly installments of $22,723
(ranging from $245 to $9,664), expiring through December 2024.
Right-of-use assets:
|
|
|
|
Operating right-of-use assets
|
|
$
|
222,336
|
Operating lease liabilities:
|
|
|
|
Current portion of long term payable
|
|
|
134,095
|
Financing leases payable, less current portion
|
|
|
82,594
|
|
|
|
|
Total operating lease liabilities
|
|
$
|
216,689
|
As of December 31, 2021, financing lease maturities are as
follows:
Period ending December 31,
|
|
|
|
2022
|
|
$
|
134,095
|
2023
|
|
|
57,186
|
2024
|
|
|
25,408
|
|
|
$
|
216,689
|
As of December 31, 2021, the weighted average remaining lease term
was 1.67 years.
Note 8 - Equity
For the six month ended December
31, 2021:
During the six months ended December 31, 2021, the Company issued
2,500,000 shares of common stock for services.
During the six months ended December 31, 2021, the Company issued
225,000,000 shares of common stock in exchange for proceeds under
the Equity Purchase Agreement. These shares were valued at
$2,143,500 upon issuance.
During the six months ended December 31, 2021, the Company issued
62,500,000 shares of common stock as commitment shares in a
structured loan agreement. These shares were valued at $356,250
upon issuance.
During the six months ended December 31, 2021, the Company
cancelled 50,000,000 shares of common stock which were previously
held as collateral for a line of credit.
During the six months ended December 31, 2021, the Company entered
into exchange agreements to issue 11,414 shares of Preferred Series
F stock.
During the six months ended December 31, 2021, the Company
cancelled 500,000 shares of Preferred Series E stock.
For six month ended December 31,
2020:
During the six months ended December 31, 2020, the Company issued
105,750,000 shares of common stock for professional consulting
services. These shares were valued at $2,776,200 upon issuance
during the six months ended December 31, 2020.
During the six months ended December 31, 2020, the Company issued
1,382,812,744 shares of common stock for debt reduction. These
shares were valued at $13,031,235 upon issuance during the six
months ended December 31, 2020.
During the six months ended December 31, 2020, the Company issued
249,792,217 shares of common stock to warrant holders in six
cashless transactions.
During the six months ended December 31, 2020, the Company issued
52,500,000 shares of common stock for commitment shares under the
Equity Purchase Agreement. These shares were valued at $1,050,000
upon issuance during the six months ended December 31, 2020.
During the six months ended December 31, 2020, the Company issued
50,000,000 shares of common stock as collateral for the line of
credit. The shares were held in the Company's name and serve as
collateral for a line of credit with a bank.
During the six months ended December 31, 2020, 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 six months ended December 31, 2020.
During the six months ended December 31, 2020, the Company issued
242,000,000 shares of common stock in exchange for proceeds under
the Equity Purchase Agreement. These shares were valued at
$3,951,900 upon issuance during the six months ended December 31,
2020.
See the capital structure section in Note 1 for disclosure of the
equity components included in the Company's consolidated financial
statements.
Note 9 - Income Taxes
The Company's effective tax rate differed from the federal
statutory income tax rate for the six months ended December 31,
2021 as follows:
Federal statutory rate
|
|
21
|
%
|
State tax, net of federal tax effect
|
|
5.04
|
%
|
Valuation allowance
|
|
-26
|
%
|
Effective tax rate
|
|
0
|
%
|
The Company had no federal or state income tax (benefit) for the
six months ended December 31, 2021 or 2020.
The Company's deferred tax assets and liabilities as of December
31, 2021 and June 30, 2021, are summarized as follows:
|
|
December 31, 2021
|
|
June 30, 2021
|
Federal
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
11,226,100
|
|
$
|
10,226,700
|
Less valuation allowance
|
|
|
(11,226,100)
|
|
|
(10,226,700)
|
Deferred tax liabilities
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
State
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
2,837,200
|
|
|
2,730,800
|
Less valuation allowance
|
|
|
(2,837,200)
|
|
|
(2,730,800)
|
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 December 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 2022 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 December
31, 2021 and June 30, 2021, are as follows:
|
|
December 31, 2021
|
|
June 30, 2021
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
13,675,000
|
|
$
|
12,579,200
|
Valuation allowance
|
|
|
(14,063,300)
|
|
|
(12,957,500)
|
Goodwill
|
|
|
238,700
|
|
|
(20,400)
|
Property and equipment
|
|
|
(36,300)
|
|
|
251,600
|
Development costs
|
|
|
33,100
|
|
|
27,900
|
Intangible assets
|
|
|
106,300
|
|
|
72,900
|
Inventory allowance
|
|
|
17,600
|
|
|
17,800
|
Warranty accrual and other
|
|
|
28,200
|
|
|
28,500
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$
|
-
|
|
$
|
-
|
As of December 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 December 31, 2021, the
Company's income tax returns generally remain open for examination
for three years from the date filed with each taxing
jurisdiction.
Note 10 - Commitments,
Contingencies, and Concentrations
Contingencies
Certain conditions may exist as of the date the unaudited 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 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, 2019, the Company recorded a pre-acquisition
liability for approximately $591,000 relative to unpaid payroll tax
liabilities and associated penalties and fees of Concepts and
Solutions. The liability is included in the note payable to seller
of $1,030,079 at December 31, 2021 and June 30, 2021 (Note 6).
Concentrations
Galaxy contracts the manufacture of its products with domestic and
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 one vendor that accounted for
approximately 36% of purchases as of December 31, 2021.
Galaxy has four customers that accounted for approximately 78% of
accounts receivable at December 31, 2021 and two customers that
accounted for approximately 73% of accounts receivable at June 30,
2021. Galaxy has two customers that accounted for approximately 69%
of total revenue for the three months ended December 31, 2020.
Galaxy has two customers that accounted for approximately 55% and
three customers that accounted for approximately 51% of total
revenue for the six months ended December 31, 2021 and 2020,
respectively.
Note 11 - Material
Agreements
Manufacturer and
Distributorship Agreement
On September 15, 2018, the Company signed an agreement with a
company in China for the manufacture of Galaxy’s SLIM series of
interactive panels. The manufacturer agreed to manufacture, and the
Company agreed to be the sole distributor of the interactive panels
in the United States for a term of two years. The agreement
includes a commitment by Galaxy to purchase $2 million of product
during the first year beginning September 2018. If the minimum
purchase is not met, the manufacturer can require the Company to
establish a performance improvement plan, and the manufacturer has
the right to terminate the agreement. The payment terms are 20% in
advance, 30% after the product is ready to ship, and the remaining
50% 45 days after receipt. The manufacturer provides Galaxy with
the product, including a three-year manufacturer’s warranty from
the date of shipment. The agreement renews automatically in two
year increments unless three months’ notice is given by either
party.
Equity Purchase
Agreement
On May 31, 2020, the Company entered into a two 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. During the three
months ended December 31, 2021 and 2020, the Company issued
90,000,000 and 68,938,679 shares of common stock to the investor in
exchange for proceeds for working capital. During the six months
ended December 31, 2021 and 2020, the Company issued 225,000,000
and 242,000,000 shares of common stock to the investor in exchange
for proceeds for working capital.
Accounts
Receivable Factoring Agreement
On July 30, 2020, the Company entered into a two-year accounts
receivable factoring agreement with a financial services company to
provide working capital. Pursuant the agreement, the financial
services company will pay the Company 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 paid collection fees of $13,243 and $16,602 during the
three months ended December 31, 2021 and 2020, respectively. The
Company paid collection fees of $36,224 and $21,377 during the six
months ended December 31, 2021 and 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 and preferred stock to
maintain, together with the CFO, a minimum 25.5% of the total
voting rights. The agreement includes a non-compete agreement and
severance benefits of $90,000.
On January 1, 2020, the Company entered into an employment
agreement with the Chief Finance Officer/Chief Operations Officer
(CFO/COO) of the Company for a two-year term, which was amended on
September 1, 2020. Under the amended employment agreement, the
CFO/COO will receive annual compensation of $250,000, and an annual
discretionary bonus based on profitability and revenue growth and
preferred stock to maintain, together with the CEO, a minimum 25.5%
of the total voting rights.. The agreement includes a non-compete
agreement and severance benefits of $72,000.
Supplier
Agreement
The Company is party to a one-year supplier agreement to
manufacture and sell audio products to a buyer. The initial order
under this supplier agreement is for 4,000 units, at a discounted
total price of $3,488,000, to be delivered over the agreement
period. If the buyer does not meet the minimum floor of 4,000
units, then the contract becomes void and the buyer must pay the
difference between the units sold and the total floor pricing of
the $3,488,000. The buyer will pay tooling costs of $25 per unit
shipped to them. The Company supplied 3,729 units under this
agreement as of December 31, 2021, with 860 units during the six
months ended December 31, 2021 and 245 of the units during the
three months period ended December 31, 2021. The Company will
continue to supply audio products under individual purchase orders
after the initial order for 4,000 units is complete.
Note 12 - Acquisition
On October 15, 2020, the Company entered into an Asset Purchase
Agreement, to acquire the assets of Classroom Technologies
Solutions, Inc. ("Classroom Tech") for consideration of (a) paying
off a secured Classroom Tech loan, not to exceed the greater of 50%
of the value of the Classroom Tech assets acquired or $120,000; (b)
the issuance of a promissory note in the amount of $44,526 to a
Classroom Tech designee; and (c) the issuance of 10 million shares
of common stock to the seller of Classroom Tech.
The following table summarizes the allocation of the fair value of
the assets as of the acquisition date through pushdown
accounting.
Assets
|
|
|
|
Cash
|
|
$
|
38,836
|
Accounts receivable
|
|
|
31,710
|
Inventory
|
|
|
209,431
|
Property and equipment
|
|
|
17,530
|
Other assets
|
|
|
1,150
|
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
|
Impairment expense relates to the Company's purchase price
adjustment for the Classroom Tech acquisition on October 15, 2020.
During the acquisition, customer lists and vendor relationship
intangible assets were recorded in the amount of $46,869. In
October 2021, the Company moved its Florida operations to a new
leased location. Management discovered inventory items with missing
parts that could not be sold. As a result, the bonus payable of
$30,000 to the seller of Classroom Tech was removed, the inventory
was written down and the intangible assets were impaired.
Note 13 - 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 2020 Plan was effective
September 16, 2020 and expired December 15, 2021. The 2019 Plan was
effective December 13, 2018 and expired June 1, 2020. Common shares
of 99,250,000 are reserved for stock awards under the Plans. There
were 98,857,857 shares awarded under the Plans as of December 31,
2021 and June 30, 2021. No additional shares were awarded during
the three or six months ended December 31, 2021.
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 $1,700,000, an accumulated deficit of approximately
$51,000,000, and cash used in operations of approximately
$1,300,000 at December 31, 2021. Shareholders equity increased by
approximately $1,500,000 to almost break even at December 31,
2021.
The Company's operational activities have 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 15 - Subsequent
Events
On January 18, 2022, the Company issued 100,000,000 shares under a
stock purchase agreement in exchange for $500,000.
On February 4, 2022 the Company issued 12,203,390 common shares for
services.
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") contains
forward-looking within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). In particular statements regarding future events
and the future results of Galaxy Next Generation, Inc., which we
refer to as "we," "us," "our", "Galaxy," or the "Company,"
including but not limited to, statements regarding the sufficiency
of our cash, our ability to finance our operations and business
initiatives and obtain funding for such activities and the timing
of any such financing, our future results of operations and
financial position, business strategy and plan prospects are
forward-looking statements. These forward-looking statements are
based on our current expectations, estimates, forecasts, and
projections about our business, economic and market outlook, our
results of operations, the industry in which we operate and the
beliefs and assumptions of our management. Words such as "expects,"
"anticipates," "targets," "goals," "projects," "would," "will,"
"could," "may," "intends," "plans," "believes," "seeks,"
"estimates," variations of such words, and similar expressions are
intended to identify such forward-looking statements.
Forward-looking statements by their nature address matters that
are, to different degrees, uncertain, and these forward-looking
statements are only predictions and are subject to risks,
uncertainties, and assumptions that are difficult to predict,
including the duration, extent, and impact of the COVID-19
pandemic, and our ability to successfully manage the demand,
supply, and operational challenges associated with the COVID-19
pandemic. Therefore, actual results may differ materially and
adversely from those expressed in any forward-looking statements.
Factors that might cause or contribute to such differences include,
but are not limited to, those discussed in this Report under the
section entitled "Risk Factors" in Item 1A of Part II, Part I Item
1A of our Annual Report on Form 10-K for the year ended June 30,
2021 (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.
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 Quarterly
Report.
-26-
Business Overview
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 product offerings include Galaxy's own
private-label interactive touch screen panel, its own Intercom,
Bell, and Paging solution, as well as an audio amplification line
of products that is currently supported by OEM relationships.
Galaxy's distribution channel consists of a direct sales model, as
well as approximately 37 resellers across the U.S. who primarily
sell the products offered by Galaxy within the commercial and
educational market. Galaxy does not control where the resellers
focus their reselling efforts; however, the K-12 education market
is the largest customer base for Galaxy products comprising nearly
90% of Galaxy's sales. In addition, Galaxy’s OEM division also
manufacturers products for other vendors in its industry and white
labels the products under other brands.
We
believe the market space for interactive technology in the
classroom is a perpetual highway of business opportunity,
especially in light of the COVID-19 pandemic as school systems have
sought to expand their ability to operate remotely. Public and
private school systems are in a continuous race to modernize their
learning environments. Our goal is to be an early provider of the
best and most modern technology available.
We
are striving to become the leader in the market for interactive
flat panel technology, associated software, and peripheral devices
for classrooms. Our goal is to provide an intuitive system to
enhance the learning environment and create easy to use technology
for the teacher, increasing student engagement and achievement. Our
products are developed and backed by a management team with more
than 30 combined years in the classroom technology space.
We
were originally organized as a corporation in 2001. Our principal
executive offices are located at 285 Big A Road Toccoa, Georgia
30577, and our telephone number is (706) 391-5030. Our website
address is www.galaxynext.us. Information contained in our
website does not form part of this Quarterly Report and is intended
for informational purposes only.
On
June 22, 2018, we consummated a reverse triangular merger whereby
Galaxy Next Generation, Inc., a private company (co-founded by our
now executives, Gary LeCroy (CEO) and Magen McGahee (CFO)), merged
with and into our newly formed subsidiary, Galaxy MS, Inc. (Galaxy
MS or Merger Sub), which was formed specifically for the
transaction. Under the terms of the merger, the private company
shareholders transferred all their outstanding shares of common
stock to Galaxy MS, in return for shares of our Series C Preferred
Stock. Prior to the merger, we operated under the name Full Circle
Registry, Inc.’s (FLCR) and our operations were based upon our
ownership of Georgetown 14 Cinemas, a fourteen-theater movie
complex located on approximately seven acres in Indianapolis,
Indiana. Prior to the merger, our sole business and source of
revenue was from the operation of the theater, and as part of the
merger agreement, we had the right to spinout the theater to the
prior shareholders of FLCR. Effective February 6, 2019, we sold our
interest in the theater to focus our resources on our technology
operations.
On
September 3, 2019, we acquired 100% of the outstanding capital
stock of both Interlock Concepts, Inc. (Concepts) and Ehlert
Solutions Group, Inc. (Solutions) pursuant to the terms of a
stock purchase agreement that we entered into with Concepts and
Solutions. The purchase price for the acquisition was 1,350,000
shares of common stock and a two year note payable to the seller in
the principal amount of $3,000,000. The note payable to the seller
is subject to adjustment based on the achievement of certain future
earnings goals and successful completion of certain pre-acquisition
withholding tax issues of Concepts and Solutions.
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.
-27-
On
October 15, 2020, we acquired the assets of Classroom Technologies
Solutions, Inc. ("Classroom Tech") for consideration of (a) paying
off a secured Classroom Tech loan, not to exceed the greater of 50%
of the value of the Classroom Tech assets acquired or $120,000; (b)
the issuance of a promissory note in the amount of $44,526 to a
Classroom Tech designee; and (c) the issuance of 10 million shares
of common stock to the seller of Classroom Tech. Classroom Tech
provides cutting-edge presentation products to schools, training
facilities, churches, corporations and retail establishments. Their
high-quality solutions are customized to meet a variety of needs
and budgets in order to provide the best in education and
presentation technology. Classroom Tech direct-sources and imports
many devices and components which allows us to be innovative,
nimble, and capable of delivering a broad range of cost-effective
solutions. Classroom Tech also offers in-house service and repair
facilities and carries many top brands.
This Report contains references to our trademarks and to trademarks
belonging to other entities. Solely for convenience, trademarks and
trade names referred to in this Report, including logos, artwork
and other visual displays, may appear without the ® or TM symbols,
but such references are not intended to indicate, in any way, that
we will not assert, to the fullest extent under applicable law, our
rights or the rights of the applicable licensor to these trademarks
and trade names. We do not intend our use or display of other
companies' trade names or trademarks to imply a relationship with,
or endorsement or sponsorship of us by, any other companies.
The financial statements after the completion of the merger and
acquisition include the consolidated assets and liabilities of the
combined company (collectively Galaxy Next Generation, Inc.,
Interlock Concepts, Inc., Ehlert Solutions Group, Inc. and
Classroom Tech referred to collectively as the “Company”).
All intercompany transactions and accounts have been eliminated in
the consolidation.
Galaxy’s common stock is traded on over-the-counter markets under
the stock symbol GAXY.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis discusses our consolidated
financial statements which have been prepared in accordance with
United States Generally Accepted Accounting Principles (U.S. GAAP).
The preparation of these consolidated financial statements requires
us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the balance sheet date and reported
amounts of revenue and expenses during the reporting period. On an
ongoing basis, we evaluate our estimates and judgments. We base our
estimates and judgments on historical experience and on various
other factors that are reasonable under the circumstances, the
results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The critical accounting policies and estimates that affect the
condensed consolidated financial statements and the judgments and
assumptions used are consistent with those described in Note 1 to
our audited consolidated financial statements contained in our
Annual Report.
-28-
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.
Revenue
Total revenues recognized were $904,055 and $798,793 for the three
months ended December 31, 2021 and 2020, respectively, an increase
of approximately 13%. Total revenues recognized were $2,588,826 and
$1,977,006 for the six months ended December 31, 2021 and 2020
respectively, an increase of approximately 31%. Additionally,
deferred revenue amounted to $137,351 and $453,862 as of December
31, 2021 and June 30, 2021, respectively. Revenues increased during
the three months and six months ended December 31, 2021 due to the
increase in the customer base for interactive panels and related
products as well as additional revenues from OEM customers.
Cost of Sales and Gross Margin
Our cost of sales was $848,099 and $471,063 for the three months
ended December 31, 2021 and 2020, respectively, an increase of
approximately 80%. Our cost of sales was $1,866,862 and $1,304,240
for the six months ended December 31, 2021 and 2020, respectively,
an increase of approximately 43%. 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 six months ended December 31,
2021 due to increased cost incurred to support revenues related to
new products and new relationships as well as an increase in
freight cost.
General and Administrative
|
|
|
|
Six
months ended
|
December 31, 2021
|
|
December 31, 2020
|
Stock
compensation and stock issued for services
|
$ 32,750
|
|
$ 2,776,200
|
Impairment
|
46,869
|
|
-
|
General and administrative
|
2,548,117
|
|
2,650,145
|
Total
General and Administrative Expenses
|
$ 2,627,736
|
|
$ 5,426,345
|
Total general and administrative expenses (including stock
compensation expenses) were $1,096,862 and $1,271,118 for the three
months ended December 31, 2021 and 2020, respectively. General and
administrative expenses (including stock compensation expenses)
were $2,627,736 and $5,426,345 for the six months ended December
31, 2021 and 2020, respectively, a decrease of approximately 52%.
-29-
Other Income (Expense)
|
|
|
|
|
Six
months ended
|
December 31, 2021
|
|
|
December 31, 2020
|
Other
Income
|
$ 5,878
|
|
|
$ -
|
Expenses related to convertible notes payable:
|
|
|
|
|
Change in fair value of derivative liability
|
1,842,000
|
|
|
(3,496,583)
|
Interest accretion
|
(24,290)
|
|
|
(766,603)
|
Interest related to equity purchase agreement
|
(2,143,500)
|
|
|
(5,001,900)
|
Interest expense
|
(622,363)
|
|
|
(6,884,194)
|
|
|
|
|
|
Total
Other Income (Expense)
|
$ (942,275)
|
|
|
$ (16,149,280)
|
Interest expense amounted to $622,363 and $6,884,194 for the six
months ended December 31, 2021 and 2020, respectively, a decrease
of 90%. Interest expense of $2,143,500 during the six months ended
December 31, 2021, was due to sales of our common stock to
investors under the Equity Purchase Agreement in exchange for
proceeds of $1,633,700. Reduced interest expense of $9,120,231
during the six months ended December 31, 2021, is attributed to the
decrease in our overall debt.
The conversion features in our related party preferred convertible
notes payable meet the definition of a derivative liability
instrument because the conversion feature is for a variable number
of shares at a variable price. 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 $0 and $1,842,000 is recorded at December 31, 2021 and
June 30, 2021. The derivative liability was reduced due to the
extinguishment of the related party preferred convertible notes by
the agreed upon exchange for Series F Preferred Stock in December,
2021.
Net Loss for the Period
Net loss incurred for the three months ended December 31, 2021 and
2020 was $2,462,020 and $7,768,081, respectively, a decrease of
approximately 68%. Net loss incurred for the six months ended
December 31, 2021 and 2020 was $2,848,047 and $20,902,859,
respectively, a decrease of approximately 86%. Noncash contributing
factors for the net loss incurred for the three months ended
December 31, 2021 and 2020 are as follows:
a). $13,200 and $2,776,000 represent consulting fees paid through
the issuance of stock for the three months ended December 31, 2021
and 2020, respectively. $32,750 and $2,776,200 represent consulting
fees paid through the issuance of stock for the six months ended
December 31, 2021 and 2020, respectively.
b). Interest expenses related to the equity purchase agreement of
$1,890,600 and $995,000 for the three months ended December 31,
2021 and 2020, respectively. Interest expense related to the equity
purchase agreement of $2,143,500 and $5,001,900 for the six months
ended December 31, 2021 and 2020, respectively.
c). Depreciation and amortization expenses related to intangibles
and capitalized development costs of $92,661 and $90,369 for the
three months ended December 31, 2021 and 2020, respectively.
Depreciation and amortization expenses related to intangibles and
capitalized development costs of $233,377 and $170,880 for the six
months ended December 31, 2021 and 2020, respectively.
-30-
Liquidity and Capital Resources
Although our revenues generated from operations have become more
sufficient, in order to support our operational activities our
revenues we may still need to be supplemented by the proceeds from
the issuance of securities, including equity and debt issuances. At
December 31, 2021, we had a working capital deficit of $1,761,132
and an accumulated deficit of $50,779,175. As stated in Note 14 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 sufficient operating revenues. We anticipate that
our current cash and revenue generated from operations will be
sufficient for day-to-ay operations; however, we anticipate that we
will need additional capital for business expansion and new product
development. 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. Our operating loss
continues to shrink, and investments will allow us to continue for
several months until sufficient revenue is met. 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 accounts receivable factoring
agreement, each of which requires us to meet certain requirements
to utilize. 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 $354,727 at December 31, 2021, as compared with
$541,591 at June 30, 2021, a decrease of $186,864. Net cash of
$1,312,346 and $415,756 was used in operations and investing
activities, respectively, for the six months ended December 31,
2021. Cash used in operating activities for the six months ended
December 31, 2021 was $1,312,346 as compared to $4,519,524 for the
six month ended December 31, 2020. The decrease was primarily due
to a decrease in inventories, accounts receivables, derivative
liabilities and an overall decrease in operational expenses.
Net cash of $1,541,238 was provided from financing activities for
the six months ended December 31, 2021, primarily due to proceeds
from the Equity Purchase Agreement of $1,633,700 and proceeds of
$1,075,000 from notes issued.
To
implement our business plan, we may 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.
-31-
Off-Balance Sheet Arrangements
The Company did not have off-balance sheet arrangements or
transactions as of and for the six months ended December 31, 2021
and 2020.
Non-GAAP Disclosure
To
provide investors with additional insight and allow for a more
comprehensive understanding of the information used by management
in its financial and decision-making surrounding pro forma
operations, Galaxy supplements its consolidated financial
statements presented on a basis consistent with U.S. generally
accepted accounting principles, or GAAP, Adjusted EBITDA as a
non-GAAP financial measures of earnings. The tables below provide a
reconciliation of the non-GAAP financial measures, presented
herein, to the most directly comparable financial measures
calculated and presented in accordance with GAAP. Adjusted EBITDA
represents EBITDA (earnings before income taxes depreciation and
amortization) . Galaxy management uses Adjusted EBITDA as financial
measures to evaluate the profitability and efficiency of the
business model. The Company uses these non-GAAP financial measures
to assess the strength of the underlying operations of the
business. These adjustments, and the non-GAAP financial measures
that are derived from them, provide supplemental information to
analyze our operations between periods and over time. Galaxy finds
this especially useful when reviewing pro forma results of
operations, which include large non-cash expenses including
interest on the Equity Purchase Agreement, amortization of
intangible assets and capitalized development costs and stock-based
compensation. Investors should consider its non-GAAP financial
measures in addition to, and not as a substitute for, financial
measures prepared in accordance with GAAP. The non-GAAP financial
measures should not be considered superior to, as a substitute for,
or as an alternative to, and should be considered in conjunction
with, the GAAP financial measures presented.
Non-GAAP Adjusted EBITDA financial results for the three months
ended December 31, 2021 and 2020:
During the three and six months ended December 31, 2021, we issued
135,000,000 and 225,000,000 shares of common stock respectively, in
exchange for proceeds under the Equity Purchase Agreement. We
received proceeds of $1,633,700 and recorded additional paid in
capital of $2,121,000 upon issue.
These sales were made pursuant to an exemption from the
registration requirements under Section 4(a)(2) of the Securities
Act of 1933, as amended (the "Securities Act"). The shares have not
been registered under the Securities Act and may not be offered or
sold in the United States in the absence of an effective
registration statement or exemption from the registration
requirements of the Securities Act.
|
|
|
|
Three months ended
|
December 31, 2021
|
|
December 31, 2020
|
|
|
|
|
Revenue
|
$ 904,055
|
|
$ 798,793
|
Gross Profit
|
55,956
|
|
327,730
|
General and Administrative Expenses
|
1,096,862
|
|
1,271,118
|
Loss from Operations
|
(1,040,906)
|
|
(943,388)
|
Other Income (Expense)
|
(1,421,114)
|
|
(6,824,693)
|
Net Loss
|
(2,462,020)
|
|
(7,768,081)
|
Interest, Taxes, Depreciation, Stock Compensation and
Amortization
|
2,005,260
|
|
1,109,539
|
Non-GAAP Adjusted EBITDA
|
$ (456,760)
|
|
$ (6,658,542)
|
Non-GAAP Adjusted EBITDA was a loss of $456,760 for the three
months ended December 31, 2021 compared to the loss of $6,658,542
for the three months ended December 31, 2020.
-32-
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, 2021 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
Management began to discontinue outsourcing its bookkeeping
beginning July 1, 2021. Outsourced bookkeeping was still
utilized to a lesser extent for bookkeeping services through
September 30, 2021 and we will continue to outsource the
preparation of the Company's tax returns and tax provisions.
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.
-33-
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.
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, 2021 and all the other information in this
Report, including our condensed consolidated financial statements
and notes thereto. If any of the following risks materializes, our
operating results, financial condition and liquidity could be
materially adversely affected. As a result, the trading price of
our common stock could decline, and you could lose part or all of
your investment. The following information updates should be read
in conjunction with the information disclosed in Part 1, Item 1A,
"Risk Factors," contained in our Annual Report for the year ended
June 30, 2021. Except as disclosed below, there have been no
material changes from the risk factors and uncertainties disclosed
in our Annual Report for the year ended June 30, 2021.
We have incurred losses for the six months ended December 31,
2021 and 2020 and there can be no assurance that we will generate
net income
For the three months ended December 31, 2021 and 2020 we had a net
loss of $2,462,020 and $7,768,081, respectively. For the six months
ended December 31, 2021 and 2020 we had a net loss of $2,848,047
and $20,902,859 respectively and for the year ended June 30, 2021,
we had a net loss of $24,434,336. For the year ended June 30, 2020,
we had a net loss of $14,026,107. There can be no assurance that
our losses will not continue in the future, even if our revenues
and expenditures for the products and solutions we sell and
distribute increase. In addition, as of December 31, 2021, we had
stockholders' equity of approximately $74,000 and cash used in
operations of approximately $1,300,000. In addition, as of June 30,
2021, we had stockholders' deficit of approximately $1,400,000 and
cash used in operations of approximately $6,300,000. These factors
raise substantial doubt regarding our ability to continue as a
going concern.
We require funds to operate and expand our
business.
During the six months ended December 31, 2021, our operating
activities used net cash of $1,312,346 and our cash was $354,727.
During the year ended June 30, 2021, our operating activities used
net cash of approximately $6.3 million and our cash and cash
equivalents was $541,591. As of December 31, 2021, our accumulated
deficit totaled approximately $51 million on a consolidated basis.
Although we have been able to mitigate our losses during the three
months ended December 31, 2021, we expect to incur additional
operating losses in the future and therefore expect our cumulative
losses to increase. We will require funds to purchase additional
inventories, pay our vendors, and build our marketing and sales
staff. If we do not succeed in raising additional funds on
acceptable terms, we may be unable to expand our business and could
default on our obligations. There can be no assurance that such
financing will be available and that the equity interests of all of
our stockholders would not be substantially diluted. Any additional
sources of financing will likely involve the issuance of our equity
or debt securities, which will have a dilutive effect on our
stockholders. To the extent that we raise additional funds by
issuing equity securities, our stockholders may experience
significant dilution. Any debt financing, if available, may involve
restrictive covenants that may impact our ability to conduct our
business. Our ability to raise capital through the sale of
securities may be limited by the rules of the SEC and the terms of
the agreements that we enter into. We currently do not have
any committed sources of financing other than our accounts
receivable factoring agreement, which requires us to meet certain
conditions to utilize and there can be no assurance that we will
meet those conditions.
-34-
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
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
expired. We may 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 other financing sources, could have a
material adverse effect on our business.
Risks Relating to the COVID-19 Pandemic
Pandemics, including the COVID-19 pandemic, could have a material
adverse effect on our operations, liquidity, financial condition,
and financial results.
A
serious global pandemic, including the current COVID-19 pandemic
and variants of COVID-19, can adversely impact, shock and weaken
the global economy. These impacts can amplify other risk factors
and could have a material impact on our operations, liquidity,
financial conditions, and financial results.
COVID-19 pandemic-related risks may impact our exposure to global
regulatory, geopolitical, and societal changes; rapid degradation
of global economic conditions, creating an increase in the
volatility and the timing and level of orders; supply chain
disruptions, material shortages, and increases in the costs of
components; changes in labor force availability, which could reduce
our ability to operate across our business in development, sales
and marketing, production, installation, and ongoing service and
support; an increased risk being subjected to contract performance
claims if we are unable to deliver according to the terms of our
contract or commitments and cannot claim force majeure to mitigate
or eliminate our exposure to such claims; increased geographic work
restrictions that could impact our ability to market, sell,
manufacture and/or install our products; an increase in our
exposure to claims or litigation related to the pandemic;
limitations on our ability to meet the terms of our bank credit
agreements that cause restrictions on our ability to access the
liquidity under such agreements; reduced access to and an increase
in the cost of capital; reduced access to surety bonds or bank
guarantees to secure customer orders; volatility and changes in
foreign currency rates; delayed timing of collections and/or
decreased collectability of receivables and contract assets; and a
material reduction to the values of our assets including, but not
limited to, inventory, deferred tax assets, goodwill, intangibles,
and property and equipment.
-35-
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
For the six month ended December 31, 2021:
During the six months ended December 31, 2021, the Company issued
2,500,000 shares of common stock for services.
During the six months ended December 31, 2021, the Company issued
225,000,000 shares of common stock in exchange for proceeds under
the Equity Purchase Agreement. These shares were valued at
$2,143,500 upon issuance.
During the six months ended December 31, 2021, the Company issued
62,500,000 shares of common stock as commitment shares in a
structured loan agreement. These shares were valued at $356,250
upon issuance.
During the six months ended December 31, 2021, the Company
cancelled 50,000,000 shares of common stock which were previously
held as collateral for a line of credit.
During the six months ended December 31, 2021, the Company entered
into exchange agreements to issue 11,414 shares of Preferred Series
F stock.
During the six months ended December 31, 2021, the Company
cancelled 500,000 shares of Preferred Series E stock.
For six month ended December 31, 2020:
During the six months ended December 31, 2020, the Company issued
105,750,000 shares of common stock for professional consulting
services. These shares were valued at $2,776,200 upon issuance
during the six months ended December 31, 2020.
During the six months ended December 31, 2020, the Company issused
1,382,812,744 shares of common stock for debt reduction. These
shares were valued at $13,031,235 upon issuance during the six
months ended December 31, 2020.
During the six months ended December 31, 2020, the Company issued
249,792,217 shares of common stock to warrant holders in six
cashless transactions.
During the six months ended December 31, 2020, the Company issued
52,500,000 shares of common stock for commitment shares under the
Equity Purchase Agreement. These shares were valued at $1,050,000
upon issuance during the six months ended December 31, 2020.
During the six months ended December 31, 2020, the Company issued
50,000,000 shares of common stock as collateral for the line of
credit. The shares were held in the Company's name and serve as
collateral for a line of credit with a bank.
During the six months ended December 31, 2020, 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 six months ended December 31, 2020.
During the six months ended December 31, 2020, the Company issued
242,000,000 shares of common stock in exchange for proceeds under
the Equity Purchase Agreement. These shares were valued at
$3,951,900 upon issuance during the six months ended December 31,
2020
See the capital structure section in Note 1 for disclosure of the
equity components included in the Company's consolidated financial
statements.
-36-
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS
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Exhibit No.
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Description
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3.1
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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 )
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3.2
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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)
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3.3
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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)
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3.4
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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)
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3.5
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Certificate of Designation of Series F Convertible Preferred Stock
(incoporated herein by reference to Exhibit 3.1 to the Current
Report on Forn 8-K filed with the Securities and Exchange
Commission filed February 14, 2022).
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10.1
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Exchange Agreement dated December 27,
2021 by and between Galaxy Next Generation, Inc and Watson
Properties, LLC (incorporated herein as referenced filed as Exhibit
10.1 on Form 10-Q filed February 14, 2022).
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10.2
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Exchange Agreement dated December 20,
2021 by and between Galaxy Next Generation, Inc and Mark Fulbright
(incorporated herein as referenced filed as Exhibit 10.2 on Form
10-Q filed February 14, 2022).
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10.3
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Exchange Agreement dated December 28,
2021 by and between Galaxy Next Generation, Inc and Carl Austin
(incorporated herein as referenced filed as Exhibit 10.3 on Form
10-Q filed February 14, 2022).
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31.1*
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Amended Certification of CEO pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2*
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Amended Certification of CFO pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1*
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Amended 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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Amended 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.INS*
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XBRL Instance Document - the instance document does not appear in
the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document.*
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101.SCH*
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Inline XBRL Taxonomy Extension Schema
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101.CAL*
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Inline XBRL Taxonomy Extension Calculation Linkbase
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101.DEF*
|
Inline XBRL Taxonomy Extension Definition Linkbase
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101.LAB*
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Inline XBRL Taxonomy Extension Label Linkbase
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101.PRE*
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Inline XBRL Taxonomy Extension Presentation Linkbase
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104*
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Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101)
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*Filed herewith
-37-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Amended report to be
signed on its behalf by the undersigned thereunto duly
authorized.
GALAXY NEXT GENERATION, INC.
Date: February 15, 2022
/s/ Gary LeCroy
Gary LeCroy
Chief Executive Officer (Principal Executive Officer)
Date: February 15, 2022
/s/Magen
McGahee
Magen McGahee
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
-38-