The following unaudited condensed consolidated financial statements are included herein:
See accompanying notes to the condensed consolidated financial statements (unaudited).
See accompanying notes to the condensed consolidated financial statements (unaudited).
See accompanying notes to the condensed consolidated financial statements (unaudited).
See accompanying notes to the condensed consolidated financial statements (unaudited).
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 costeffective 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 is an over-the-counter public company traded under the stock symbol listing GAXY (formerly FLCR).
Capital Structure
The Company's capital structure is as follows:
|
|
September 30, 2021
|
|
|
|
|
Authorized
|
|
Issued
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
4,000,000,000
|
|
3,232,382,882
|
|
3,182,344,257
|
|
$.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 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
|
|
|
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.
There are 169,163,143 common shares reserved at September 30, 2021 under terms of the convertible debt agreements, Stock Plan and Equity Purchase Agreement (see Notes 6, 11 and 13).
There are 92,264,231 issued common shares that are restricted as of September 30, 2021. The shares may become free-trading upon satisfaction of certain terms and regulatory conditions.
Supplier Agreement
Contract assets and contract liabilities are as follows:
|
|
September 30, 2021
|
|
June 30, 2021
|
Contract assets
|
|
$
|
46,824
|
|
$
|
46,460
|
Contract liabilities
|
|
|
240,775
|
|
|
285,514
|
For the quarter ended September 30, 2021 and 2020, the Company recognized $433,609 and $54,939 of revenues related to supplier agreements.
Accounts Receivable
Management deemed no allowance for doubtful accounts was necessary at September 30, 2021 and June 30, 2021. At September 30, 2021 and June 30, 2021, $73,814 and $190,779 of total accounts receivable were considered unbilled and recorded as deferred revenue.
Inventories
Management estimates $67,635 of inventory reserves at September 30, 2021 and June 30, 2021, respectively.
Goodwill, Intangible Assets and Product Development Costs
Goodwill and intangible assets are comprised of the following at September 30, 2021:
|
|
Cost
|
|
Accumulated Amortization
|
|
Total
|
Goodwill
|
|
$
|
834,220
|
|
$
|
-
|
|
$
|
834,220
|
Finite-lived assets:
|
|
|
|
|
|
|
|
|
|
Customer list
|
|
$
|
922,053
|
|
$
|
(360,267)
|
|
$
|
561,786
|
Vendor relationships
|
|
|
484,816
|
|
|
(192,715)
|
|
|
292,101
|
Product development costs
|
|
|
794,277
|
|
|
(252,066)
|
|
|
542,211
|
|
|
$
|
2,201,146
|
|
$
|
(805,048)
|
|
$
|
1,396,098
|
Goodwill and intangible assets are comprised of the 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 $70,343 and $68,000 for the three months ended September 30, 2021 and 2020.
Costs incurred in designing and developing classroom technology products are expensed as research and development until technological feasibility has been established. Technological feasibility is established upon completion of a 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 $54,534 and $12,512 for the three months ended September 30, 2021 and 2020, is included in cost of revenues in the Company's consolidated statements of operations.
Estimated amortization expense related to finite-lived intangible assets for the next five years is: $510,082 for fiscal year 2022, $487,945 for fiscal year 2023, $332,962 for fiscal year 2024, $45,912 for fiscal year 2025, and $9,607 for fiscal year 2026 and $9,590 thereafter.
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 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 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 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:
|
|
September 30, 2021
|
|
June 30, 2021
|
Vehicles
|
|
$
|
115,135
|
|
$
|
115,135
|
Equipment
|
|
|
25,115
|
|
|
25,115
|
Leasehold Improvements
|
|
|
31,000
|
|
|
31,000
|
Furniture and fixtures
|
|
|
25,085
|
|
|
25,085
|
|
|
|
196,335
|
|
|
196,335
|
Accumulated depreciation
|
|
|
(114,791)
|
|
|
(109,523)
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
81,544
|
|
$
|
86,812
|
Note 3 - Lines of Credit
The Company has a $1,000,000 line of credit bearing interest at prime plus 0.5% (3.75% and 4.25% at September 30, 2021 and June 30, 2021, respectively) which expires October 29, 2021. However, the bank provided a 30-day grace period extension. The line of credit is 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 anytime prior to maturity. The outstanding balance was $986,599 and $991,598 at September 30, 2021 and June 30, 2021, respectively.
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 $844,328 and $1,000,000 as of September 30, 2021 and June 30, 2021, repectively. See Note 11.
Note 4 - Notes Payable
Long Term Notes Payable
|
|
September 30, 2021
|
|
June 30, 2021
|
Note payable with a bank bearing interest at 4% and maturing on June 26, 2021 and a lowered interest rate to 3%. In July 2021, the note was renewed by the lender with a revised maturity date of July 7, 2026. The renewal provides for monthly interest payments and a balloon payment of outstanding principal and interest at maturity. The note is collateralized by a certificate of deposit owned by a related party.
|
|
$
|
237,039
|
|
$
|
237,039
|
|
|
|
|
|
|
|
Note payable to an investor bearing interest at 10% and maturing on January 13, 2022 with monthly installments of principal and interest of $45,294 beginning in June 2021.
|
|
|
236,726
|
|
|
348,456
|
|
|
|
|
|
|
|
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 $24,091 (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.
|
|
|
29,633
|
|
|
31,016
|
|
|
|
|
|
|
|
Total Notes Payable
|
|
|
875,734
|
|
|
974,562
|
|
|
|
|
|
|
|
Less: Unamortized original issue discount
|
|
|
8,750
|
|
|
17,500
|
|
|
|
|
|
|
|
Current Portion of Notes Payable
|
|
|
445,232
|
|
|
552,055
|
|
|
|
|
|
|
|
Long-term Portion of Notes Payable
|
|
$
|
421,752
|
|
$
|
405,007
|
Future minimum principal payments on the long-term notes payable to unrelated parties are as follows:
Period ending September 30,
|
|
|
|
|
2022
|
|
$
|
445,232
|
|
2023
|
|
|
122,692
|
|
2024
|
|
|
62,413
|
|
2025
|
|
|
62,481
|
|
2026
|
|
|
182,916
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
875,734
|
Note 5 - Fair Value Measurements
The following table presents information about the liabilities that are measured at fair value on a recurring basis at September 30, 2021 and June 30, 2021 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
At September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
|
|
Original issue discount, convertible debt
|
|
$
|
834,000
|
|
-
|
|
-
|
|
$
|
834,000
|
At June 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
|
|
Original issue discount, convertible debt
|
|
$
|
1,842,000
|
|
-
|
|
-
|
|
$
|
1,842,000
|
As of September 30, 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.
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.
The derivative liability was valued using the Monte Carlo pricing model with the following inputs:
At September 30, 2021
|
|
|
Risk-free interest rate:
|
|
0.06%
|
Expected dividend yield:
|
|
0.00%
|
Expected stock price volatility:
|
|
280.00%
|
Expected option life in years:
|
|
0.12 to 0.44 years
|
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 September 30, 2021 and June 30, 2021:
Balance at June 30, 2021
|
|
$
|
1,842,000
|
Realized
|
|
|
-
|
Unrealized
|
|
|
(1,008,000)
|
Balance at September 30, 2021
|
|
$
|
834,000
|
|
|
|
|
Balance at July 1, 2020
|
|
$
|
246,612
|
Convertible securities at inception
|
|
|
4,000
|
Realized
|
|
|
(80,924)
|
Unrealized
|
|
|
1,672,312
|
Balance at June 30, 2021
|
|
$
|
1,842,000
|
Note 6 - Related Party Transactions
Notes Payable
|
|
September 30, 2021
|
|
June 30, 2021
|
Note payable to a stockholder in which the $200,000 principal plus $10,000 of interest was payable in December 2019. Borrowings under the note increased to $400,000 and the maturity was extended to November 13, 2021. The note bears interest at 6% per annum and is payable in cash or common stock, at the Company's option. If interest is paid in common stock, the conversion price will be the market price at the time of conversion. Principal on the note at maturity is convertible into 400,000 shares of Series D Preferred Stock. If principal is paid prior to maturity, the right of conversion is terminated.
|
|
$
|
400,000
|
|
$
|
400,000
|
|
|
|
|
|
|
|
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 is payable in November 7, 2021. Note was amended in March 2020 by increasing the balance to $1,225,000. Interest is payable in cash or common stock, at the holder's option. If interest is paid in common stock, the conversion price will be the market price at the time of conversion. Principal on the note at maturity is convertible into 1,225,000 shares of Series D Preferred Stock. If principal is paid prior to maturity, the right of conversion is terminated.
|
|
|
1,225,000
|
|
|
1,225,000
|
Note payable to a stockholder in which the note principal plus 6% interest is payable in November 13, 2021. Interest is payable in cash or common stock, at the Company's option. If interest is paid in common stock, the conversion price will be the market price at the time of conversion. Principal on the note at maturity is convertible into 200,000 shares of Series D Preferred Stock. If principal is paid prior to maturity, the right of conversion is terminated.
|
|
|
200,000
|
|
|
200,000
|
|
|
|
|
|
|
|
Note payable to a stockholder in which the note principal plus interest at 15% is payable the earlier of 60 days after invoicing a certain customer, or April 2022 due to an extension granted by the lender. The note is collateralized by a security interest in a certain customer purchase order.
|
|
|
385,000
|
|
|
385,000
|
|
|
|
|
|
|
|
Note payable related to the acquisition of Classroom Tech in which the note principal is payable in 2021 with no interest obligations, upon the shareholder’s resolution of a pre-acquisition liability with a bank.
|
|
|
155,690
|
|
|
155,690
|
|
|
|
|
|
|
|
Other short-term payables due to stockholders and related parties
|
|
|
61,988
|
|
|
75,986
|
Total Related Party Notes Payable and Other Payables
|
|
|
3,457,757
|
|
|
3,471,755
|
Current Portion of Related Party Notes Payable and Other Payables
|
|
|
3,457,757
|
|
|
3,471,755
|
|
|
|
|
|
|
|
Long-term Portion of Related Party Notes Payable and Other Payables
|
|
$
|
-
|
|
$
|
-
|
The Company is negotiating renewals of the stockholder notes that mature on November 7, 2021 and November 13, 2021. The negotiations are expected to be complete by November 30, 2021.
Related Party Leases
The Company leases property used in operations from a related party under terms of a financing lease. The term of the lease expires on December 31, 2021. The monthly lease payment is $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 September 30, 2021 and 2020, respectively.
Other Related Party Agreements
A related party collateralizes the Company's short-term note with a certificate of deposit in the amount of $274,900, held at the same bank. The related party will receive a $7,500 collateral fee for this service (see Note 4).
Note 7 - Lease Agreements
Financing Lease Agreements
The Company leases offices, warehouses and equipment under financing lease agreements with monthly installments of $20,674 (ranging from $245 to $9,664) over 2-year terms, expiring through December 2024.
Right-of-use assets:
|
|
|
|
Operating right-of-use assets
|
|
$
|
222,336
|
Operating lease liabilities:
|
|
|
|
Current portion of long term payable
|
|
|
153,273
|
Financing leases payable, less current portion
|
|
|
69,063
|
|
|
|
|
Total financing lease liabilities
|
|
$
|
222,336
|
As of September 30, 2021, financing lease maturities are as follows:
Period ending September 30,
|
|
|
|
2022
|
|
$
|
153,273
|
2023
|
|
|
65,388
|
2024
|
|
|
2,940
|
2025
|
|
|
735
|
|
|
$
|
222,336
|
As of September 30, 2021, the weighted average remaining lease term was 1.46 years.
Note 8 - Equity
During the three months ended September 30, 2021, the Company issued 2,500,000 shares of common stock for professional consulting services. The shares were valued at $32,750 upon issuance.
During the three months ended September 30, 2021, the Company issued 90,000,000 shares of common stock in exchange for proceeds under the Equity Purchase Agreement. These shares were valued at $1,091,000 upon issuance.
During the three months ended September 30, 2020, the Company issued 103,750,000 shares of common stock for professional consulting services. These shares were valued at $2,763,000 upon issuance.
During the three months ended September 30, 2020, the Company issued 968,475,442 shares of common stock for debt reduction. These shares were valued at $7,974,206 upon issuance.
During the three months ended September 30, 2020, the Company issued 249,792,217 shares of common stock to warrant holders in six cashless transactions.
During the three months ended September 30, 2020, the Company issued 2,500,000 shares of common stock for commitment shares under a two year purchase agreement entered into on May 31, 2020 between the Company and an investor, as amended and restated on July 9, 2020 (the "Put Purchase Agreement"). These shares were valued at $55,000 upon issuance.
During the three months ended September 30, 2020, the Company issued 242,000,000 shares of common stock in exchange for proceeds under the Put Purchase Agreement. These shares were valued at $3,951,900 upon issuance during the three months ended September 30, 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 three months ended September 30, 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 three months ended September 30, 2021 or 2020.
The Company's deferred tax assets and liabilities as of September 30, 2021 and June 30, 2021, are summarized as follows:
|
|
September 30, 2021
|
|
June 30, 2021
|
Federal
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
10,700,000
|
|
$
|
10,226,700
|
Less valuation allowance
|
|
|
(10,700,000)
|
|
|
(10,226,700)
|
Deferred tax liabilities
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
State
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
2,704,300
|
|
|
2,730,800
|
Less valuation allowance
|
|
|
(2,704,300)
|
|
|
(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 September 30, 2021 and 2020, respectively.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred taxes is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment.
The Company's deferred tax assets are primarily comprised of net operating losses ("NOL") that give rise to deferred tax assets. The NOL carryforwards expire over a range from 2021 to 2037, with certain NOL carryforwards that have no expiration. There is no tax benefit for goodwill impairment, which is permanently non-deductible for tax purposes. Additionally, due to the uncertainty of the utilization of NOL carry forwards, a valuation allowance equal to the net deferred tax assets has been recorded.
The significant components of deferred tax assets as of September 30, 2021 and June 30, 2021, are as follows:
|
|
September 30, 2021
|
|
June 30, 2021
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
13,007,900
|
|
$
|
12,579,200
|
Valuation allowance
|
|
|
(13,404,300)
|
|
|
(12,957,500)
|
Goodwill
|
|
|
243,800
|
|
|
(20,400)
|
Property and equipment
|
|
|
(19,200)
|
|
|
251,600
|
Development costs
|
|
|
31,500
|
|
|
27,900
|
Intangible assets
|
|
|
94,500
|
|
|
72,900
|
Inventory allowance
|
|
|
17,600
|
|
|
17,800
|
Warranty accrual and other
|
|
|
28,200
|
|
|
28,500
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$
|
-
|
|
$
|
-
|
As of September 30, 2021, the Company does not believe that it has taken any tax positions that would require the recording of any additional tax liability nor does it believe that there are any unrealized tax benefits that would either increase or decrease within the next twelve months. As of September 30, 2021, the Company's income tax returns generally remain open for examination for three years from the date filed with each taxing jurisdiction.
Note 10 - Commitments, Contingencies, and Concentrations
Contingencies
Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company's management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company's legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.
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 September 30, 2021 and June 30, 2021 (Note 6).
Concentrations
Galaxy contracts the manufacture of its products with overseas suppliers. The Company's sales could be adversely impacted by a supplier's inability to provide Galaxy with an adequate supply of inventory. Galaxy has two vendors that accounted for approximately 97% and three vendors that accounted for approximately 75% of purchases as of September 30, 2021 and 2020, respectively.
Galaxy has two customers that accounted for approximately 79% of accounts receivable at September 30, 2021 and two customers that accounted for approximately 73% of accounts receivable at June 30, 2021. Galaxy has three customers that accounted for approximately 59% and two customers that accounted for approximately 48% of total revenue for the three months ended September 30, 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 September 30, 2021 and 2020, the Company issued 90,000,000 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 as the purchase price for the purchased accounts, an amount up to eighty percent (80%). Factoring fees are 2.5% of the face value of the account receivable sold to the factoring agent per month until collected. For collections over 90 days from the invoice date, the fee increases to 3.5%. The agreement contains a credit line of $1,000,000 and requires a minimum of $300,000 of factored receivables per calendar quarter. The agreement includes early termination fees and is guaranteed by the Company and the by two of the stockholders individually. The Company paid collection fees of $22,981 and $5,736 during the three months ended September 30, 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 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 3,484 units under this agreement as of September 30, 2021, with 615 of the units during the three month period ending September 30, 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
|
Goodwill and other intangibles
|
|
|
46,869
|
|
|
|
|
Total Assets
|
|
$
|
345,526
|
|
|
|
|
Consideration
|
|
|
|
Notes payable to seller and related party of seller
|
|
$
|
164,526
|
Bonus program
|
|
|
30,000
|
Stock
|
|
|
151,000
|
|
|
$
|
345,526
|
Note 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 is effective September 16, 2020 and expires December 15, 2021. The 2019 Plan is 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 September 30, 2021 and June 30, 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 $2,800,000, an accumulated deficit of approximately $48,000,000, and cash used in operations of approximately $900,000 at September 30, 2021.
The Company's operational activities has primarily been funded through issuance of common stock for services, related party advances, equity purchase agreement transactions for proceeds, accounts receivable factoring, debt financing and through the deferral of accounts payable and other expenses. The Company intends to raise additional capital through the sale of equity securities or borrowings from financial institutions and investors and possibly from related and nonrelated parties who may in fact lend to the Company on reasonable terms. Management believes that its actions to secure additional funding will allow the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving any of these objectives. These sources of working capital are not assured, and consequently do not sufficiently mitigate the risks and uncertainties disclosed above. The ability of the Company to continue as a going concern is dependent upon management's ability to raise capital from the sale of its equity and, ultimately, the achievement of operating revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 15 - Subsequent Events
In October and November 2021, the Company issued 135,000,000 shares to an investor in exchange for proceeds of approximately $1,200,000 under the Equity Purchase Agreement dated May 2020, as amended and restated on July 9, 2020 and on December 29, 2020.
Management has evaluated subsequent events through November 15, 2021, the date on which the financial statements were available to be issued.