<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
GALAXY ENTERPRISES, INC.
(Name of Small Business Issuer in its charter)
Nevada 88-0315212
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
890 North Industrial Park Drive, Orem, Utah 84057
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 227-0004
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of class)
INFORMATION REQUIRED IN REGISTRATION
STATEMENT
PART I
Item 1. Description of Business.
(a) Business Development
(1) Form and year of organization
Galaxy Enterprises, Inc. ("Issuer", "Company" or "Galaxy") was
incorporated as a Nevada corporation on March 3, 1994 as Cipher Voice, Inc.
On December 4, 1996 the Issuer (then known as Cipher Voice, Inc.) acquired all
of the outstanding common stock of Galaxy Mall, Inc. ("GMI") in exchange for
3,600,000 shares of the Issuer's common stock. GMI, a Wyoming corporation
incorporated June 7, 1996, thus became a wholly-owned subsidiary of the
Issuer. On December 16, 1996 Cipher Voice, Inc. changed its name to Galaxy
Enterprises, Inc.
(2) Bankruptcy, receivership or similar proceedings.
Galaxy has not been the subject of any bankruptcy, receivership or
similar proceeding.
(3) Material reclassifications, mergers, consolidation, or
purchase or sale of a significant amount of assets not in the ordinary
course of business.
Effective October 1, 1997 the Issuer, through its wholly-owned
subsidiary GMI, acquired the assets and liabilities of Profit Education
Systems, ("PES"), a Wyoming corporation organized April 26, 1993. The Issuer
previously had used the services of PES as a marketer of the Issuer's services
and as a provider and conductor of the Issuer's Internet education seminars.
As part of the PES acquisition, the Issuer acquired PES's marketing
strategies and products, employees and assets.
Also effective October 1, 1997 the Issuer, again through GMI, acquired
the assets and liabilities of CO-OP Business Services, Inc., ("CO-OP"), a
Utah corporation organized August 31, 1989. CO-OP previously had provided
GMI with customer support, electronic storefront programming, and merchant and
client interface programs for GMI's storefronts on the Galaxy Mall. As part
of the transaction, the Issuer agreed to assume all of CO-OP payables and
liabilities, and assumed future payment of certain existing equipment and
other leases. CO-OP agreed to transfer to GMI its assets including computers,
office equipment, customer service systems and procedures, and inventory.
(b) Business of Issuer
(1) Principal products or services and their markets
The Issuer was originally organized to engage in the research and
development, production and marketing of equipment related to computer
hardware security, known as a digital voice encryption-decryption electronic
device. The business was not successful, the Issuer having expended its
available capital without completing research and development necessary to
produce the computer hardware desired.
Since the acquisition of Galaxy Mall, Inc., the Issuer has been engaged
in the business of selling to its customers electronic home pages, or
"storefronts", on its Galaxy Mall, an Internet shopping mall, and hosts those
storefront sites on its Internet server. The customer thus acquires a
presence on the Internet to advertise its products or services. Storefronts
designed by or for the customers are then programmed by the Issuer for display
on the Mall. The Galaxy Mall is located at http://www.galaxymall.com.
The Issuer contracts with consultants and independent contractors, or
creates and produces in-house, various products which it markets. Such
products include the following:
Commercial Web Sites/Web Hosting: The Company programs commercial
web sites with the most current and up to date types of Internet programming,
such as HTML, JavaScript, and Perl. Each site programmed for its
customer/merchants has available on-line ordering capabilities. All orders
processed on-line are supported by encrypted security, which provides
merchants and their customers confidence in the safety of ordering products
and services on-line. Galaxy either hosts the sites on its own infrastructure
(servers), or provides virtual hosting, which give the customer/merchant's
site the appearance of having its own web pages hosted by such
customer/merchant.
Auto-responders: Galaxy sets up e-mail based services for its
merchants that send back to the individual requesting information an instant
reply, then forwards the original message to the owner of the auto-responder.
Similar to fax-on-demand, auto-responders are a powerful marketing tool for
merchants offering products or services. A merchant can write advertising
copy for its product and when someone inquires to the merchant's e-mail
address, the ad copy immediately is sent to the potential customer.
Tracking Software: The Company provides software for a merchant's
web site which tracks the volume of traffic to that web site. It also
provides the merchant with information concerning the derivation of its
potential customer and such person's referring universal resource locator.
This enables the merchant to track its marketing efforts to determine if its
potential customer found the merchant through the merchant's Internet
advertisements or its listings in search directories.
Internet Classified Advertisements: Galaxy sells 200 word
classified ads on its classified ad network. Each classified ad runs on the
network for 90 days. This network is comprised of thousands of listings.
Merchant Accounts: Galaxy sells merchant accounts combined with
software which allows the customer to have real time on-line processing for
credit cards and checks.
Banner Course/Banner License: The Banner Course consists of over
200 pages and 10 audio cassettes of instruction. Banners are the equivalent
of billboards. They are graphical images placed throughout the Internet
advertising specific web pages. Internet users simply click on the image and
they are taken immediately to the site the image is advertising. The purpose
of this course is to help merchants better understand how banner advertising
works on the Internet. It helps them benefit their own Internet business by
learning how to properly use banner advertising to promote their Internet
site. The banner license, which is sold in conjunction with the course,
allows the customer to put banners on multiple sites within the Galaxy Mall,
as well as benefit from ongoing discounts for future impression and banner
purchases.
Banner/Impressions: Galaxy designs and programs banners for its
customers. These banners are then advertised on Galaxy's network of over
20,000 Internet sites. The number of banner impressions is determined by the
number of times the banner advertisement is uploaded, or displayed, on one of
Galaxy's Internet sites. Galaxy's customer purchases a number of impressions
based upon its specific marketing and advertising needs.
Executive Mentor Program: Galaxy's mentoring program is a one-
year program in which a select number of Galaxy's customers become involved.
This program provides a personal coach to the customer who works with the
customer one-on-one to help the customer build its business on the Internet.
(2) Distribution methods of the products or services
The Issuer attracts its customers through Internet marketing workshops
presented periodically. The Issuer rents on a daily basis hotel conference
rooms from time to time in various cities throughout the United States and
Canada in which it hosts its preview sessions and Internet training workshops.
The Issuer uses an informational seminar representing a 90-minute preview of
the Galaxy Mall and the Internet. Preview attendees are then invited to
attend a one day workshop at which the Issuer provides an intensive training
course on Internet and e-mail use, news groups, auto-responders, classified
ads, and search engines used to market their products and services on the
Galaxy Mall. Interested attendees are then offered the opportunity to acquire
a "storefront" presence on the Galaxy Mall to market their products and
services. As a customer of the Issuer, the customer acquires a website hosted
by Galaxy Mall created and maintained by the Issuer for which it charges the
customer a fee.
The Issuer advertises its preview sessions and workshops in direct mail
solicitations targeted to certain potential customers meeting certain
demographic criteria established by the Issuer, which solicitations are mailed
to persons and small businesses located in cities scheduled to be visited by
the Issuer's workshop personnel. Mailing lists approximating the demographics
established by the Issuer are obtained from list brokers. Announcements of
upcoming preview sessions and workshops also appear in newspaper
advertisements in scheduled cities.
The Issuer uses a telemarketing company to advertise and/or market
Galaxy products and services, including advertising preview sessions and
workshops at selected locations.
(3) Status of any publicly announced new product or service
On May 27, 1998 Galaxy announced the introduction of a new product known
as BannerSource. BannerSource is a means by which merchants with storefronts
on the Internet can increase traffic to their sites by using banner
advertising on the World Wide Web. The Galaxy BannerSource network currently
markets in excess of one million banner impressions daily to businesses doing
commerce on the Internet. (www.bannersource.com).
On December 1, 1998 Galaxy announced the completion of successful testing
of a new search engine developed by the Company called MatchSite. This search
engine allows Internet users to browse the Web and find sites of interest.
When a Web user types in a search request, MatchSite sends the query to
several different resources, including the leading major search engines. The
responses are then returned to the user organized into a uniform format and
ranked by relevance. (www.matchsite.com).
(4) Competitive business conditions and the small business
issuer's competitive position in the industry and methods of
competition
Prior to the creation of GMI, and while associated with PES, certain of
Galaxy's principals were instrumental in creating in 1995 what is now know as
the Internet marketing workshop industry. To the knowledge of Galaxy there
were no other businesses engaged in the Internet marketing workshop industry
at that time. Also to the knowledge of Galaxy it enjoys a strong competitive
position in the industry. According to the December, 1998 edition of Internet
World, Galaxy is considered "one of the large general malls".
Galaxy is aware of several companies previously active in the Internet
marketing workshop industry that no longer are connected with the industry.
Galaxy is aware of only three companies currently in the industry with which
it competes, and to the knowledge of Galaxy, only one of such competitors has
been engaged in the industry as long as has Galaxy.
Anticipated and expected technological advances associated with the
Internet itself, increasing use of the Internet, and new software products,
are welcome advancements expected to attract more interest in the Internet and
broaden its potential as a viable marketplace and industry. Galaxy
anticipates it can compete successfully, building on its three-year head start
in its segments of the industry by relying on its infrastructure, existing
marketing strategies and techniques, systems and procedures, and by adding
additional products and services in future and by periodic revision of such
methods of doing business as deemed necessary.
(5) Sources and availability of raw materials and the names of
principal suppliers
Galaxy does not rely on any raw materials for its business operation.
(6) Dependence on one or a few major customers
The Issuer does not rely nor is it dependent on one or a few major
customers.
(7) Patents, trademarks, licenses, franchises, concessions,
royalty agreements or labor contracts, including duration
Galaxy claims no patents, trademarks, licenses, franchises, concessions
or royalty agreements. It has no labor contracts.
(8) Need for any government approval of principal products or
services
The Issuer does not require any government approval for its business
operation.
(9) Effect of existing or probable governmental regulations on
the business
The Issuer is unaware of any existing or probable governmental
regulations of its business as presently conducted. Currently sales on the
Internet are not taxed. Whether or when governmental agencies impose sales
taxes on Internet sales, it is expected they will be passed on to the consumer
as in traditional marketing and sales.
(10) Estimate of amount spent during each of the last two fiscal
years on research and development activities, and the cost
thereof borne directly by customers
During the last two fiscal years Galaxy has engaged in extensive
research and development activities, developing the various products and
services described above. Galaxy also has developed the following:
(a) An on-line order processing system allowing its customers to
have real time verification and processing of all their orders.
(b) A "shopping cart" system allowing unlimited products to be
added to an on-line order. It calculates the product price totals and adds
shipping, handing and other applicable charges.
(c) Specialized "bridges" allowing faster access to on-line
processing of credit cards by credit card processors.
(d) A "window shopping" feature allowing users to surf through
random storefronts with greater ease.
(e) Automated auto-responder software allowing a Galaxy customer
to log in to make changes to the customer's auto-responder, rather than
relying on Galaxy's programmers to make such changes manually.
(f) A database driven merchant registration service allowing
Galaxy to monitor and keep secure its "Merchants Only" section of the Galaxy
Mall.
(g) Integrated directory database and billing database, providing
Galaxy with faster and easier billing of its customers.
(h) New banner exchange software and search engine software
allowing Galaxy to sell advertising space based upon the impressions each site
generates. The banner exchange is located at bannersource.com and the search
engine is located at matchsite.com.
The Issuer estimates that it spent approximately $150,000 during 1997 and
$250,000 during 1998 on such research and development activities. In
addition, the Issuer spent during such time in excess of $100,000 in marketing
research, development and market testing to introduce its products and
services to the Canadian market.
(11) Costs and effects of compliance with environmental laws
(federal, state and local)
Galaxy's business operations are not regulated by environmental laws and
regulations.
(12) Number of total employees and number of full time employees
Galaxy has 84 employees, 55 of whom work full time. Of the total
employees, three are executive personnel, 35 are technical personnel, and 24
are in marketing and sales and 22 were administrative, accounting, information
systems, and clerical personnel.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Management's Discussion and Analysis of Financial Condition and Results
of Operation
Revenues. Galaxy sales for the calendar year ending December 31, 1998 were
$11,448,392 as compared to $2,495,096 for the twelve months ending December
31, 1997. This increase was due in part to the purchase by the Company of the
assets and business interests of PES and CO-OP. Both companies were acquired
on October 1, 1997 and, therefor, the revenues from them were included in 1998
for the full year, but in 1997 for only the fourth quarter. The Company does
not break down sales for the business acquired from PES and CO-OP, and
consequently the Company cannot give meaningful comparisons of the revenue
attributable to the fourth quarter of each year.
Cost of Services/Products Sold. Cost of sales during 1998 was $5,105,614
which is equal to 44.6% of revenues. Cost of sales during 1997 totaled
$1,056,579, which is equal to 42.3% of revenues. This increase in the cost of
sales as a percentage of revenues is primarily due to the increase in
telemarketing sales which have lower margins. Cost of sales is made up of the
cost of tangible products sold, the cost to conduct Internet training
workshops, the cost to program customer storefronts and contract and
telemarketing services. Cost of sales does not include any depreciation.
Selling, General and Administrative Expenses. Selling, General and
Administrative Expenses plus depreciation were equal to $6,244,453 in 1998
compared to $1,167,880 in 1997. The increase in these expenses as a percentage
of sales is attributable to increases in royalty payments, legal expenses,
telephone expenses and rent for larger quarters, as well as postage and
mailing expenses to solicit persons to attend the Company's preview sessions
and workshops that are disproportionately higher than the increase in
revenues. The Company anticipates that such expenses, as a percentage of
sales, will stay the same because the Company had a significant moving expense
in 1998 which will not occur in 1999 and mailing costs are anticipated to stay
substantially the same.
Amortization. During 1998 amortization of Goodwill and Deferred Charges was
$80,175 compared to $36,826 in 1997. Total Goodwill at the end of 1998 was
$794,753 and Deferred Charges were $67,127 (net of the amortization). The
Goodwill arose through the purchase by GMI of PES and CO-OP. The Company
believes the combination of the three companies will reduce costs and provide
the Company with greater control over its business activities.
Non-Recurring Expenses. An expense item in the income statement for the
fiscal year 1997 called "Merger Expenses" was a one time, nonrecurring charge
relative to an investment in Books Now, Inc. ("Books Now"). The Company
entered into an agreement to purchase Books Now in a stock for
stock exchange and to provide working capital for the implementation of its
business plan. Pursuant to the purchase agreement, $108,000 was advanced to
Books Now. A settlement was negotiated and the companies signed a mutual
release of claims against each other. The advance was written off the
financial records of the Company.
Income Taxes. Income tax benefit for 1998 was $15,951. The net benefit arose
as a result of tax refunds from prior years and a reversal of a prior year
over-accrual, offset by the current year income tax liability.
Net Income/Loss. The Company reported Net Income of $35,375 for the calendar
year ending December 31, 1998 as compared to Net Income of $87,328 for the
twelve-month period ending December 31, 1997. On a per share basis this
amounted to a profit of $.0067 per share in 1998 as compared to a profit of
$.02 per share in 1997.
Capital Resources
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New Investments. Since the end of fiscal year 1998 the Company (i) sold a
$500,000 convertible note to the Augustine Fund through Augustine Capital
Management, an institutional investor based in Chicago, Illinois, and (ii)
entered into an agreement with Invest Linc Capital Corp. ("Invest Linc")
whereby Invest Linc, through certain related funds, will invest up to
$1,000,000 in exchange for equity in the Company. During January and
February, 1999, The Augustine Fund converted the note into 169,189 shares of
the Company's common stock at a weighted average price of $2.96 per share.
Invest Linc has invested a total of $1,000,000 in exchange for 250,000 shares
of the Company's common stock and a two-year stock purchase warrant for
purchase of up to 250,000 shares at $2.84 per share. This capital infusion
has significantly improved the Company's liquidity and its ability to meet
ongoing working capital needs.
Cash. Cash on hand at December 31, 1998 totaled $24,718 as compared to
$113,144 at the end of 1997. Total current assets were $268,292 and $202,042,
respectively.
Accounts Payable. Accounts payable at December 31, 1998 were $651,473. There
was also a bank overdraft of $179,301 bringing the total payable to $830,774
as compared to $738,004 at the end of 1997. Some of the proceeds of the sale
of the convertible note were used to retire the overdraft. Total current
liabilities at December 31, 1998 were $1,068,270 compared to $1,052,555 at
December 31, 1997.
Equipment and Property. Equipment increased during 1998 from $121,702, to
$171,868 net of depreciation of $6,592 in 1997 and $59,773 in 1998. This was
due to the need for additional computer and other equipment to conduct the
Company' s business. Additional capital equipment purchases will be necessary
as the company grows. The Company also leases equipment. Leasing allows the
Company the use of equipment without the need to disburse cash at the time of
acquisition. As of December 31, 1998 future aggregate minimum obligations
under leases for the year 1999 were $141,027. This includes both the corporate
offices and equipment leases.
Stockholders' Equity. Total Stockholders' Equity increased to $256,285 during
1998 from $207,160 at December 31, 1997, an increase of $49,125. This
resulted from net income together with the sale of 10,000 shares of stock to a
member of the board of directors for $13,750.
Liquidity.
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Ratios. At December 31, 1998 the Company's current ratio, current assets
compared to current liabilities, was a negative 4 to 1 compared to a negative
5.2 to 1 as of December 31, 1997. This out-of-balance situation is being
corrected by projected profitable operations and through the sale of Company
stock.
Financing Arrangements. The Issuer has worked out extended payment plans with
hotels and other vendors and is meeting its commitments to them under such
plans. On July 30, 1998 the Company was able to arrange a bank line of credit
for $100,000 with Far West Bank of Provo, Utah. This line is intended to
assist the Company through seasonal slow periods it experiences. From July 15
through Labor Day and again from Thanksgiving Day until January 15 of the
following year, the Issuer's business is slower than at other times during the
year. This is the result of fewer attendees at the Company's Internet
training seminars during these traditional vacation and holiday periods.
Cash Flows. Current cash flow from operations plus cash from the sale of
Company stock will allow the Company to meet its current obligations. The
Company has worked with two financial consultants to raise equity, e.g.,
Bridgewater Capital Corporation and Invest Linc Capital Corporation. Through
these sources $1,500,000 in equity financing were obtained by the Company in
February and March, 1999. A finder's fee of $50,000 was paid to Bridgewater
Capital Corporation, for net proceeds to the Company of $1,450,000. (See
under caption New Investments, above). This cash inflow enabled the Company
to begin implementing its strategic plan for future growth, but it will not be
sufficient to fund the entire business plan. Thus it will be necessary for
the Issuer to obtain long-term financing from commercial banks or other
financial institutions or seek additional equity funding to meets its long
term growth goals. The Company anticipates it will sell additional stock
through either private or registered public offerings during 1999, and will
continue its efforts to improve its financial condition in order to qualify
for long-term loans from commercial banking institutions.
Business Development.
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In October, 1997 the Company embarked on a campaign to increase sales by
telemarketing to its customers and other interested parties. Independent
firms under contract to the Company provided the telemarketing services. The
program was successful and sales during fiscal year 1998 from telemarketing
efforts were $4,338,663 compared to $74,320 for the fourth quarter 1997.
After the end of fiscal year 1998 the Company signed a letter of intent to
acquire Impact Media L.L.C. ("Impact"). Impact is a product development
company and produces products that can be sold to the Company's customers.
The Company estimates that one-half of these additional sales will occur via
telemarketing. With the acquisition of Impact, the Company believes it will
be able to significantly increase sales.
Year 2000 Compliance
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In general, the Year 2000 issue related to computers and other systems
being unable to distinguish between the years 1900 and 2000 because they use
two digits, rather than four, to define the applicable year. Systems that
fail to properly recognize such information likely will generate erroneous
data or cause a system to fail possibly resulting in a disruption of
operations. The Company's products and services to incorporate such date
coding so the Company's efforts to address the Year 2000 issue fall in the
following three areas: (i) the Company's information technology ("IT")
systems; (ii) the Company's non-IT systems (i.e., machinery, equipment and
devices which utilize technology which is "Built in" such as embedded
microcontrollers); and (iii) third-party suppliers. Management has initiated
a program to prepare for compliance in these three areas and expects such
program to be implemented and completed by June 1999. Costs will be expensed
as incurred and currently are not expected to be material.
The Company believes its current IT systems, with a few exceptions which
are being addressed are year 2000 compliant. The Company is currently
conducting an inventory of non-IT systems which may have inadequate date
coding and will commence efforts to remedy any non-compliant systems by the
end of the first quarter 1999. Third party suppliers and customers present a
different problem in that the Company cannot control the efforts of such third
parties. The Company has requested confirmations from third party suppliers
that they are year 2000 compliant to avoid disruptions of services and
supplies. However, any failure on the part of such companies with whom the
Company transacts business to be year 2000 compliant on a timely basis may
adversely affect the operations of the Company.
The foregoing statements are based upon management's current assumptions.
Item 3. Description of Property.
(a) Principal property
The Issuer's principal office is located at 890 North Industrial Park
Drive, Orem, Utah 84057. The property is an unfurnished two-story office
building having approximately 8,000 square feet, and includes landscaping and
a paved parking area adequate for employee and customer vehicle parking. The
property is leased from an unaffiliated third party for a period of three
years for an annual rental of $72,000, payable monthly in the amount of
$6,000. The Issuer maintains tenant fire and casualty insurance on its
property located in such building in an amount deemed adequate by the Issuer.
Galaxy rents on a daily basis hotel conference rooms and facilities from
time to time in various cities throughout the United States and Canada at
which it hosts its preview session and Internet training workshops.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following percentages are based on 5,711,544 shares outstanding as
of June 21, 1999.
(a) Security ownership of certain beneficial owners
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(1) (2) (3) (4)
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Owner
Common Stock Sue Ann Cochran 302,000(1) 5.2
102 South Aspen Drive
Mapleton, Utah 84057
(b) Security ownership of management
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(1) (2) (3) (4)
Title of Class Name and Address of Amount and Nature of Percent of Class(3)
Beneficial Owner Beneficial Owner (2)
Common stock John J. Poelman 1,020,213(4) 17.8
4009 N. Quail Run Drive
Provo, Utah 84604
Common stock Brandon B. Lewis 41,000(5) .7
2952 W. 1060 North
Provo, Utah 84601
Frank C. Heyman 30,000(5) .5
8468 Jardim Way
Sandy, Utah 84093
Darral G. Clarke 10,000(6) .2
4102 N. Quail Run Drive
Provo, Utah 84604
Billie Ray Anderson 11,500 .2
300 Plaza Alicante #800
Garden Grove, California 92804
All officers and directors 1,112,713(7) 19.5
as a group(5 persons)
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(1) Includes 2,000 shares held by husband.
(2) Includes both voting and dispositive control. Where applicable, amounts
shown include shares subject to presently exercisable options.
(3) The percentage shown for each beneficial owner is calculated based upon
the outstanding common stock including shares subject to presently
exercisable options held by such beneficial owner which are deemed to
be outstanding.
(4) Includes 40,000 shares subject to presently exercisable options. Does
not include 300 shares owned by an adult child of Mr. Poelman who resides
with him, and as to such shares Mr. Poelman disclaims any beneficial
interest.
(5) Includes 30,000 shares subject to presently exercisable options.
(6) Includes 10,000 shares subject to presently exercisable options.
(7) Includes 110,000 shares subject to presently exercisable options.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
(a) Directors and Executive Officers
John J. Poelman, age 55. Mr. Poelman is the President, Chief Executive
Officer and a Director of Galaxy. He has served as a Director of the Issuer
since December, 1996. His present term as a Director will expire at Galaxy's
annual meeting of shareholders to be held in 1999. His past business
experience includes seventeen years with AM International, Inc. where he
served as director of manpower development and training, Chief Operating
Officer for Newcastle Financial Corporation, a regional company specializing
in estate and financial planning for the very wealthy. From April, 1993 until
October 1, 1997 Mr. Poelman was the president and chief executive officer of
Profit Education Systems. From December, 1996 until the present he has been
the president and chief executive officer of Galaxy Enterprises, Inc.
Brandon B. Lewis, age 27. Mr. Lewis the Executive Vice President, Chief
Operating Officer and a Director of the Issuer, having served as a Director
since September, 1997. His term as a Director will expire at Galaxy's annual
meeting of shareholders to be held in 1999. He is a graduate of Brigham
Young University with a B.S. degree in English. His past business experience
includes employment from May 1992 to August, 1994 as Collection Manager for
Co-Op Communications, Inc., a company specializing in "dial-one long
distance". From August, 1994 to September, 1997 he was employed as Vice
President of Marketing and Director of Sales for Profit Education Systems,
Inc. From October, 1997 to the present he has been employed by the Issuer in
the above described positions. His term as a Director will expire at the
annual meeting of shareholders to be held in 1999.
Frank C. Heyman, age 61. Mr. Heyman is a Vice President, the Secretary,
Treasurer and Chief Financial Officer and a Director of Galaxy. He is a
graduate of the University of Utah with a B.S. degree in accounting. Prior to
1992 Mr. Heyman served for twelve years as Chief Financial Officer for Scan-
Tron Corporation, a manufacturer of optical mark reading equipment used in
test scoring by the educational community, followed by employment for five
years as Vice President and Chief Financial Officer of GC Industries, Inc., a
manufacturer of calibration systems for toxic gas monitors. From June, 1992
to May, 1996 he served as Financial Vice President and Chief Financial Officer
and a Director of NYB Corporation, a manufacturer of women's sports clothing.
From June, 1996 to April, 1997 he was employed as Controller of Provider
Solutions, Inc., a business consulting firm. Since July, 1997 he has been
employed by Galaxy. Mr. Heyman became a member of Issuer's Board of
Directors on July 15, 1997. His term as a Director will expire at the annual
meeting of shareholders to be held in 1999.
Darral G. Clarke, age 58. Mr. Clarke, a Director of the company,
obtained his A.B. from the University of Utah, M.S. from Ohio State University
and a Ph.D. from Purdue University. During the periods 1972 to 1976 and from
1981 to 1986, Mr. Clarke was a faculty professor at Harvard University's
School of Business, and has served as a visiting professor at the University
of Chicago. From 1986 to the present, he has been the G. Dennis O'Brien
Professor of Management at Brigham Young University, and served as the
Director of its MBA program during 1990-1992. His term as a Director will
expire at the annual meeting of shareholders to be held in 1999.
B. Ray Anderson, age 65. Mr. Anderson is a Director of the Company. He
obtained his B.S. degree from Brigham Young University and his J.D. from
George Washington University School of Law. From 1988 to 1992 he was the
president of Fenton Enterprises, a confections manufacturer. From March, 1992
to the present, he served as general counsel to Western Dental Services,
Inc., a dental health maintenance organization. He is currently engaged in
the private practice of law. His term as a Director will expire at the annual
meeting of shareholders to be held in 1999.
Galaxy has no material employment agreements with management or any key
employee.
Item 6. Executive Compensation.
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Other Rest- Under- LTIP Other
Name and Annual rictedlying Pay- Comp-
Principal Salary Bonus Compen-Stock Optionsouts ensat'n
Postition Year ($) ($) sation$(1)Award /SAR#($) ($)(2)
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Jay
Poelman, 1998 75,000 0 0 0 200,000 0 3,638
Chairman,1997 0 0 0 0 0 0 3,638
President1996 0 0 0 0 0 0 0
CEO
</TABLE>
No other officer of the Company received total salary and bonus of $100,000 or
more.
(1) The Company provides health, dental and other perquisites to each of its
officers but they do not exceed the lesser of $50,000 or 10% of the
officer's total annual salary and bonus.
(2) Included are amounts contributed by the Company for life insurance
premiums.
Stock Option Plan.
------------------
1997 Stock Option Plan. The 1997 Stock Option Plan (the "Plan")
authorizes the grant of incentive and nonqualified stock options to officers,
directors, key employees, consultants and advisers. The 1997 Plan covers a
maximum of 1,000,000 shares of the Company's common stock, subject to
adjustment. Options issued under the Plan may have an exercise price at the
fair market value on the date of grant and a term of not more than 10 years.
Options are generally not transferable and are exercisable in accordance with
vesting schedule established by the Compensation Committee of the Board of
Directors administering the Plan.
On March 23, 1998 the Company issued pursuant to such Plan stock options
to certain Directors. Mr. Poelman was issued 200,000 stock options, and Mr.
Lewis and Mr. Heyman each were issued 150,000 stock options. (See under the
caption "Recent Sales of Unregistered Securities", Part II, Item 4 of this
Registration Statement). During 1998 the Company granted a total of 908,250
options under the Plans. On April 23, 1999 there were 832,250 shares subject
to options outstanding and 167,760 shares available for further issuance. The
difference between the options granted and currently outstanding is
represented by 76,000 options forfeited by employees having terminated their
employment.
Option Grants in Last Fiscal Year
The following table sets forth a summary of certain stock options granted
to certain of the Company's named officers during 1998.
Individual Grants
(a) (b) (c) (d) (e)
No. of % of 908,250
Options Options granted Exercise Price Expiration
Name Granted to Employees Per Share Date
John J. Poelman 200,000 22 $0.83 3/22/08
Option Exercises During 1998 and
1998 Year-End Value Table
The following table sets forth certain information regarding the exercise
and value of stock options held by the named officers during the 1998.
Aggregated Option Exercises in 1998 and 1998 Year-End Value Table
(a) (b) (c) (d) (e)
Value of unexercised
# of unexercised In-The Money Options
Options at Fiscal at Fiscal year-end
Shares Acquired Value year-end exercisable/ exercisable/
Name on exercise realized unexercisable unexercisable
John J.
Poelman -0- -0- 40,000/160,000 $126,800/$507,200
- ---------------------
On August 10, 1998 the Issuer granted to Messrs. Clarke and Anderson
10,000 stock options each. (See under the caption "Recent Sales of
Unregistered Securities", Part II, Item 4 of this Registration Statement).
Mr. Anderson since has exercised his option at a price of $1.375 per share.
Item 7. Certain Relationships and Related Transactions.
(a) Transactions during the last two years involving:
(1) Any Director or Executive Officer of Galaxy:
On December 4, 1996 the Issuer issued 3,600,000 shares of its common
stock for all the issued and outstanding shares of Galaxy Mall, Inc., a
Wyoming corporation. Galaxy Mall, Inc. ("GMI") thus became a wholly-owned
subsidiary of the Issuer. As a result of that transaction, the following
officers and/or directors of the Issuer acquired shares of the Issuer in the
following amounts:
Name of Director Number of
or Executive Officer Shares Issued
Brandon B. Lewis 8,000
John J. Poelman 980,213
C. Parker Garlitz* 273,126
______________________
* C. Parker Garlitz served as President of the Company from December, 1996 to
November, 1997 and as a Director from December, 1996 to June 17, 1998.
On August 1, 1996 GMI entered into an exclusive marketing agreement with
Profit Education Systems, Inc. ("PES"), a Wyoming corporation, whereby PES
agreed to provide marketing services for GMI in return for 90% of the gross
receipts from all GMI Internet training events. Such marketing services
included the creation of sales and marketing materials and the conducting of
Internet workshops for GMI.
Effective October 1, 1997 GMI purchased all the assets and business
interests of PES and agreed to assume all its liabilities. GMI assumed
approximately $1,017,000 of outstanding payables of PES, and acquired assets
consisting of approximately $224,000 which included pre-paid marketing costs,
computers and miscellaneous office equipment, merchant account deposits, and
other miscellaneous inventory. GMI also acquired PES employees and obtained
all PES created marketing programs and materials. The exclusive PES marketing
agreement was canceled, and all GMI marketing and workshop functions were
assumed by GMI. The effective consideration paid by GMI to PES was $793,393.
John J. Poelman, President, Chief Executive Officer and a Director of the
Issuer, was a 50% stockholder of PES. The Valuation of assets acquired by
GMI from PES in this transaction was based on fair market value on October 1,
1997 as determined by Mr. Frank Heyman, the Treasurer of the Company. Cash
and receivables were valued at actual value and other assets were valued at
estimated fair value.
In addition to its direct sales efforts, the Issuer utilizes the
services of American Marketing Systems, Inc. ("AMS"), a Nevada corporation.
AMS provides telemarketing services to its various clients, including Galaxy.
It sells coaching (mentoring) services to Galaxy Mall merchants, and coaching
services and Galaxy products to prospects who have not previously purchased
Galaxy products. During the year ended December 31, 1998 and 1997 Galaxy paid
AMS $1,441,800 and $220,237, respectively. John J. Poelman, President, Chief
Executive Officer and a Director of the Issuer is a 30% shareholder of AMS.
Galaxy utilizes the services of Electronic Commerce International, Inc.
("ECI"), a Utah corporation, which provides merchant accounts and leasing
services to small businesses. ECI processes the financing of Galaxy
merchants' storefront leases and also wholesales software to Galaxy used for
on-line processing of credit card transactions. For the year ended December
31, 1998 Galaxy paid ECI $306,400 for credit card processing software in lease
processing fees. The Company also has receivable from ECI for leases in
process at December 31, 1998 of $38,910. John J. Poelman, President, Chief
Executive Officer and a Director of the Issuer is the sole stockholder of ECI.
(2) Transactions with others:
Effective October 1, 1997 GMI acquired all the assets and assumed all
the liabilities of CO-OP Business Services, Inc., a Utah corporation "(CO-
OP"). Commencing August 1, 1996 CO-OP became the exclusive customer service
and computer programming provider to GMI customers and clients, and storefront
merchants on The Galaxy Mall. At October 1, 1997 CO-OP had liabilities of
approximately $135,000 which GMI assumed in exchange for CO-OP assets
consisting of computers, office equipment and miscellaneous inventory having a
value of approximately $61,000. The prior agreement of August 1, 1996 was
terminated and GMI assumed all customer service and programming functions for
merchants and clients of GMI and/or The Galaxy Mall. Vicki B. Poelman was the
sole stockholder of CO-OP. She is the wife of John Jay Poelman, Company
President, CEO and Director. The valuation of assets acquired by GMI from CO-
OP in this transaction was based on fair market value on October 1, 1997 as
determined by Mr. Frank Heyman, the Treasurer of the Company. Cash was valued
at actual value, and other assets were valued at estimated fair value.
Also effective October 1, 1997 Galaxy entered into a nonexclusive three
year consulting and marketing agreement with Gary Cochran ("Cochran"), the
husband of Sue Ann Cochran who owns in excess of 5% of the Issuer's
outstanding stock. Such consulting and marketing agreement requires Mr.
Cochran to provide services to improve existing marketing programs of Galaxy,
assist in developing brochures, advertisements and other marketing materials,
training potential sales personnel and evaluating future business products,
opportunities or strategies. Compensation payable to Mr. Cochran is $60,000
per year commencing January 1, 1998, and increasing 10% per year commencing
the second year and subsequent years. The agreement is automatically
renewable unless terminated prior thereto by consent of the parties. The
Issuer further agrees to pay Cochran royalties in various amounts on its sales
of Cochran created training and Internet educational materials. Payments to
Cochran under this agreement totaled $63,000 in 1998.
Effective May 1, 1998 Galaxy entered into a royalty and consulting
agreement with Cochran in which Galaxy agrees to pay Cochran a royalty on
Galaxy's sales of training manuals, audio tape presentations and related
educational items on marketing techniques for the Internet user created by
Cochran. Such items are designed to explain Internet banner advertising and
are used by Galaxy to promote sales of its banner impressions, BannerWeb
License, and BannerWeb Network. The term of the agreement is for three years,
and is renewable yearly thereafter provided Galaxy continues to use or
distribute such Cochran created materials. The agreement can be canceled at
any time upon consent of both parties. During 1998 the Company paid Cochran
$60,500 pursuant to this agreement.
During the years ended December 31, 1996 and 1997, PES paid a total of
$196,815 to Sue Ann Cochran, who owns in excess of 5% of the Issuer's
outstanding securities. Such payments were for marketing and consulting
services provided by her to the Company. During the year ended December 31,
1998 the Company paid her $46,586.64 for similar services. (See under caption
"Security Ownership of Certain Beneficial Owners and Management", Part I, Item
4 of this Registration Statement.
Estimated combined payments during 1999 to Sue Ann and Gary Cochran under
existing agreements will be approximately $171,000.
The Company has no policy prohibiting it from entering into future
transactions with control persons or related parties.
Item 8. Description of Securities.
The Issuer is authorized to issue 25,000,000 shares of common stock of
$.007 par value per share, of which 5,700,841 shares were outstanding as of
April 23, 1999. Each share is entitled to one vote on all matters on which
shareholders are entitled to vote. Cumulative voting is not allowed. Holders
of common stock share ratably in all dividends declared by the Issuer's board
of directors out of funds legally available therefore, and share ratably in
company assets available for distribution upon liquidation, dissolution or
winding up of the company. Fully-paid shares are not liable to further calls
or assessments, and holders of common stock are not liable for any liabilities
of the company. The common stock has no preemptive or other subscription
rights, conversion rights or redemption or sinking fund provisions.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
(a) Market information.
The Issuer's common stock is traded over-the-counter on the OTC Bulletin
Board, stock symbol GLXY.
The price range of high and low bid for the Issuer's common stock for
the periods shown is set forth below:
Period High Low
January 1, 1999-March 31, 1999 $6.50 $2.75
October 1 - December 31, 1998 6.815 .5625
July 1 - September 30, 1998 2.375 .6875
April 1 - June 30, 1998 2.125 .75
January 1 - March 31, 1998 2.50 .75
October 1 - December 31, 1997 3.00 1.375
July 1 - September 30, 1997 3.875 1.50
April 1 - June 30, 1997 5.25 3.00
January 6 - March 31, 1997 6.00 2.50
January 1 - January 5, 1997 Stock not traded - no quote available
October 1 - December 31, 1996 " " " " " "
July 1 - September 30, 1996 " " " " " "
May 7 - June 30, 1996 " " " " " "
April 1 - May 6, 1996 .01 .01
January 1 - March 31, 1996 .016 .01
The source of the above market information has been obtained from Stock
Cite, found on the Internet at http://www.stockcite.com. Such quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
(b) Stockholders.
As of June 21, 1999 there were approximately 148 shareholders of
record of Galaxy common stock.
(c) Dividends.
The Issuer has never declared a cash dividend.
Article VIII, Section 2(e) of the Issuer's articles of incorporation
authorizes the Board of Directors to determine whether any, and if so, what
part, of the Issuer's earned surplus shall be paid in dividends to
shareholders.
Nevada Revised Statutes Section 78.288 limits the Issuer's ability to pay
dividends on its common stock if any such dividend would render the company
insolvent.
Item 2. Legal Proceedings.
On May 14, 1998 the Issuer initiated legal action against a competitor,
certain of its officers and employees, and others, in the Third Judicial
District Court of Salt Lake County, State of Utah in a proceeding entitled
Galaxy Enterprises, Inc. vs. Cyberworks Institute, Inc., The Commercium, Inc.,
Scott Alexander, Marek Shon, Curtis Matsko, Adam Maher, and John Does I
through XX, case number 980904883. In this action, the Issuer asserts claims
of breach of contract, misappropriation of trade secrets, common law unfair
competition, interference with contract and economic advantage, breach of duty
of good faith and fair dealing, breach of fiduciary duty and common law duty
of loyalty, and conspiracy for which the Company seeks a minimum of
$3,000,000. The case is still in the discovery stage and no trial date has
yet been scheduled.
On June 18, 1998 the Commonwealth of Kentucky filed an action against
Galaxy Mall, Inc., a wholly-owned subsidiary of the Issuer, in a proceeding
filed in the Fayette County Circuit Court entitled Commonwealth of Kentucky,
ex rel. A.B. Chandler III, Attorney General, vs. Galaxy Mall, Inc., civil
action number 98CI2257. The action alleges Galaxy Mall, Inc. offered for sale
in Kentucky business opportunities without first registering with the Attorney
General or posting a surety bond as required by Kentucky law. The suit seeks
to enjoin Galaxy Mall, Inc. from further sales unless first registered, $2,000
civil penalty, and cancellation of any contracts made in Kentucky and return
of funds to Kentucky purchasers. Galaxy Mall, Inc. has denied all
allegations. On December 15, 1998 an Order of Dismissal was entered based on
Galaxy agreeing to advise the Kentucky Attorney General's office of any
complaints from Galaxy customers in Kentucky for a period of twelve months
from the date of entry of the Order of Dismissal.
In December, 1998 the Issuer and Galaxy Mall, Inc. were served as
defendants in a purported class action filed in the Superior Court of Orange
County, State of California, in a case entitled Pamela Chang, vs. Busting Out,
Inc., De'Nae Walker, New Body, Inc., Steven Olschwanger, Natural Curves LLC,
New Woman, Ltd, Galaxy Enterprises, Inc., Galaxy Mall, Inc., The Barnstead
Trust, East Bay Products, LLC, Rick Raynford, et al., in which the plaintiff
claims to have been damaged in that she was offered the opportunity to
purchase a certain product from various web sites on the Internet operated by
defendants. Plaintiff alleges the product was offered for sale through
unfair, deceptive, untrue or misleading advertising intended to result in the
sale of the product, in violation of applicable California law. Plaintiff
seeks to enjoin the use of such alleged deceptive practices, an accounting of
all money received and all profits acquired as a result of such practices, an
order of restitution to all persons of funds acquired by such alleged
practices, a distribution of any moneys recovered, unspecified actual damages,
unspecified punitive damages, attorney's fees and costs. Galaxy Mall, Inc.
has denied all allegations and has asserted numerous affirmative defenses.
Galaxy Enterprises, Inc. has filed a motion to quash service of the summons
for lack of jurisdiction. On March 17,1999 the Superior Court granted such
motion to quash. Consequently, the Superior Court has no jurisdiction over
the Company. However, Galaxy Mall, Inc. remains as a defendant in the action,
which is just entering the discovery stage.
Item 3. Changes in and Disagreements with Accountants.
The Issuer changed accountants for the year ended December 31, 1996.
There have been no changes in or disagreements with accountants
requiring disclosure.
Item 4. Recent Sales of Unregistered Securities.
During the period November 11, 1996 to December 2, 1996 the Issuer
publicly offered 2,000,000 common shares at $.025 per share pursuant to Rule
504 under Regulation D, for a total public offering price of $50,000. Such
offering was self-underwritten. A total of 1,130,000 shares were sold. A
total of $28,250 was received from such sales. Net proceeds were $1,757
following various expenses of the offering including legal, accounting, stock
issuance and sales expenses.
In December, 1996 the Company issued 16,300 common shares to 28
employees as a year-end stock bonus, All share certificates issued pursuant
to this stock bonus bore an appropriate restrictive legend. The Issuer relied
on an exemption from registration as provided by Section 4(2) of the
Securities Act of 1933, as amended. Recipients of such shares were familiar
with the operations of the Company and its financial condition and had access
to general corporate information.
On December 4, 1996 the Company issued a total of 3,600,000 common
shares to 37 persons in exchange for their respective stockholdings in Galaxy
Mall, Inc., thereby acquiring Galaxy Mall, Inc. as a wholly-owned subsidiary.
All share certificates issued in this transaction bore an appropriate
restrictive legend. The Issuer relied on an exemption from registration as
provided by Section 4(2) of the Securities Act of 1933, as amended. All
recipients of shares were then current employees of Galaxy Mall, Inc. or
consultants to or independent contractors of Galaxy Mall, Inc. As such, they
were familiar with the operations of Galaxy Mall, Inc. and its financial
condition, and had access to general corporate information.
During the period March 23, 1998 to December 31, 1998 the Company issued
to 35 persons pursuant to a qualified employee stock option plan a total of
908,250 stock options, 20% of which are exercisable on or after March 23,
1999, and 20% on the option grant anniversary each year thereafter, at an
exercise price of $.75 per share. The Company relied on an exemption from
registration as provided by Rule 701 under the Securities Act.
On August 10, 1998 the Company issued to two members of its board of
directors stock options for 10,000 common shares each at an exercise price of
$1.375 per share. The option expires August 10, 2008 as to any options not
exercised prior thereto. The Company relied on an exemption from registration
as provided by Section 4(2) of the Securities Act of 1933, as amended. On
December 16, 1998, one such optionee-director exercised his options. The
optionees are considered accredited investors.
During January, 1999 the Company sold to an institutional investor a
$500,000 convertible note. During January and February, 1999 the purchaser
converted the note into 169,189 common shares of the Company at a weighted
average price of $2.96 per share. Such investor was deemed to be an
accredited investor. The Company relied on the exemption from registration as
provided by Rule 504 of Regulation D of the Securities Act of 1993, as
Amended. During February and March, 1999 the Company sold 250,000 common
shares and issued a two-year, 250,000 share warrant to an institutional
investor for $1,000.000. Such investor was considered an accredited investor.
The Company relied on an exemption from registration as provided by Section
4(2) of the Securities Act of 1933, as amended.
Item 5. Indemnification of Directors and Officers.
The Nevada Revised Statutes concerning corporations, and the Issuer's
articles of incorporation and bylaws, provide for indemnification of its
officers, directors and others in most instances for any liability suffered by
them or arising out of their activities as officers, directors, employees or
agents of the Company if they were not engaged in intentional misconduct,
fraud or knowing violation of the law.
Specifically, NRS 78.7502 (1) and (2) grant discretionary authority on
corporations to indemnify such persons under certain conditions, and (3)
mandates indemnification of any such person who has successfully defended on
the merits any action, suit or proceeding, or any claim, issue or matter
therein, against expenses, including attorneys' fees, actually and reasonably
incurred in such defense. NRS 78.751 provides that any discretionary
indemnification, unless ordered by a court, may be made only as authorized in
the specific case upon a determination that indemnification of the officer,
director, officer, employee or agent is proper in the circumstances, which
determination must be made: (a) by the stockholders; (b) by the board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding; (c) if a majority of non-party
directors directs, by independent legal counsel in a written opinion; or (d)
if a quorum of non-party directors cannot be obtained, by independent legal
counsel in a written opinion. Officer and director expenses incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as incurred and in advance of final disposition of the action,
suit or proceeding, upon receipt of an undertaking by or on behalf of the
officer or director to repay the amount if it is ultimately determined by a
court that he is not entitled to be indemnified by the corporation. The
Company's articles of incorporation and bylaws are essentially the same as the
statutory provisions except that indemnification is not allowed for judgments,
fines, excise taxes or penalties imposed under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or other excise taxes or
penalties.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
GALAXY ENTERPRISES, INC.
By/s/John J. Poelman 6/29/99
- ------------------------------------ --------------------
John J. Poelman, President, Date
Chief Executive Officer and Director
