UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2000
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ to_______
Commission File Number: 0-25055
---------
Galaxy Enterprises, Inc.
-------------------------
(Exact name of small business issue as specified in its charter)
Nevada 88-031-5212
-------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
754 Technology Avenue, Orem, Utah 84097
------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 227-0004
--------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days
Yes [ X ] No [ ].
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of __April 21, 2000__
Classes of Common Stock Number of shares outstanding
-------------------------- -----------------------------
Common Stock, $.007 par value 6,218,5449
Transitional Small Business Disclosures Forms
(Check one):
Yes [ ] No [ X ]
<PAGE>
Galaxy Enterprises, Inc.
------------
INDEX TO FORM 10-QSB
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) Page
Condensed Consolidated Balance Sheets --
March 31, 2000 and December 31, 1999............................ 3
Condensed Consolidated Statements of Operations --
Three Months ended March 31, 2000 and 1999...................... 4
Condensed Consolidated Statements of Cash Flows --
Three months ended March 31, 2000 and 1999 ..................... 5
Notes to Condensed Consolidated Financial Statements............ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 12
Item 2. Changes in Securities and Use of Proceeds...................... 12
Item 3. Defaults Upon Senior Securities................................ 12
Item 4. Submission of Matters to a Vote of Security Holders............ 12
Item 5. Other Information.............................................. 12
Item 6. Exhibits and Reports on Form 8-K............................... 12
<PAGE>
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Galaxy Enterprises, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statement of Operations
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
------------------ ------------------------
<S> <C> <C>
REVENUE
Sales $ 6,282,626 $ 2,879,031
Cost of sales 4,563,186 1,944,500
------------------ ------------------------
GROSS PROFIT 1,719,440 934,531
OPERATING EXPENSES
Selling 2,405,087 1,281,558
General and administrative 1,136,359 481,693
Depreciation 33,611 25,724
Amortization 16,545 14,450
------------------ ------------------------
TOTAL OPERATING EXPENSES 3,591,602 1,803,425
------------------ ------------------------
OPERATING INCOME (LOSS) (1,872,162) (868,894)
OTHER INCOME (EXPENSES)
Interest income 35 2,229
Other income (expense) (29,130) (6,169)
Interest expense (4,856) (3,639)
------------------ ------------------------
TOTAL OTHER INCOME (EXPENSES) (33,951) (7,579)
------------------ ------------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,906,113) (876,473)
Income tax expense (benefit) 800 (45,192)
------------------ ------------------------
Income before cumulative effect of
a change in accounting principal (1,906,913) (831,281)
Cumulative effect on prior years of
accounting change (5,450,651)
NET INCOME (LOSS) $ (1,906,913) $ (6,281,932)
================== ========================
Weighted average shares outstanding:
Basic and Diluted 5,951,830 5,625,272
Net income per share:
Basic and Diluted $ (0.320) $ (1.117)
================== ========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Galaxy Enterprises, Inc. and Subsidiary
Unaudited Condensed Consolidated Balance Sheet as of:
Unaudited Audited
March 31, 2000 Dec 31, 1999
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 81,455 $ 132,741
Trade accounts receivable (net of allowance of
$984,249 and $677,551 respectively) 2,089,525 1,112,947
Related party trade accounts receivable 136,405 52,518
Inventories 87,395 102,203
Prepaid expenses 393,909 336,148
Prepaid income taxes 5,030 5,030
Employee advances 94,170 89,660
Credit card reserves 447,628 248,431
----------------- -----------------
TOTAL CURRENT ASSETS 3,335,517 2,079,678
EQUIPMENT 262,456 259,577
OTHER ASSETS
Goodwill 833,889 850,434
Other 41,342 40,940
----------------- -----------------
875,231 891,374
----------------- -----------------
TOTAL ASSETS $ 4,473,204 $ 3,230,629
================= =================
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,021,290 $ 1,808,482
Related party trade account payable 92,269
Bank overdraft 420,274 348,907
Accrued expenses 438,212 469,286
Income taxes payable 1,000 1,100
Notes payable - current portion 543,347 161,486
Deferred revenue - current portion 13,120,224 10,334,844
Customer deposits 532,439 285,226
----------------- -----------------
TOTAL CURRENT LIABILITIES 16,169,055 13,409,331
DEFERRED REVENUE 780,661 410,719
NOTES PAYABLE 4,820 4,269
STOCKHOLDERS' EQUITY
Common stock par value $.007, Authorized 25,000,000 shares,
5,965,449 and 5,947,514 issued and outstanding respectively 41,757 41,632
Additional paid-in-capital 2,048,069 2,034,923
Unearned stock compensation (153,000) (159,000)
Retained earnings (14,418,158) (12,511,245)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (12,481,332) (10,593,690)
----------------- -----------------
TOTAL LIABILITIES AND EQUITY $ 4,473,204 $ 3,230,629
================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Galaxy Enterprises, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statement of Cash Flows
For the three months ending March 31, 2000 and 1999
2000 1999
----------------------- -----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (1,906,913) $ (6,281,932)
Adjustments to reconcile net earnings to net
cash flows from (used by) operating activities:
Depreciation 33,611 25,724
Amortization 16,545 14,450
Defered Compensation 6,000
Changes in operating assets and liabilities:
Increase in accounts receivable (1,060,465) (168,781)
(Increase) decrease in inventories 14,808 (26,000)
Increase in prepaid expenses (57,761) (469,742)
(Increase) decrease in credit card reserves (199,197) (54,958)
Increase in employee advances (4,510)
Decrease (increase) in other assets (402) 19,800
Increase in bank overdraft 71,367
(Decrease) increase in accounts payable (694,924) (42,410)
Increase (decrease) in accrued expenses (31,074)
Increase in customer deposits 247,213 51,561
(Decrease) increase in accrued income taxes payable (45,192)
Increase in deferred revenue 3,155,322 6,183,745
Increase (decrease) in other current liabilities 30,784
----------------------- -----------------------
Net cash flows (used by) operating activities $ (410,380) $ (762,951)
----------------------- -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (36,589) (52,030)
----------------------- -----------------------
Net cash used by investing activities (36,589) (52,030)
----------------------- -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash from notes payable 450,000
Repayment of notes (67,588) (25,000)
Common stock issued for cash 13,271 1,454,500
----------------------- -----------------------
Net cash flows from financing activities 395,683 1,429,500
----------------------- -----------------------
NET INCREASE (DECREASE) IN CASH (51,286) 614,519
CASH AT THE BEGINNING OF THE PERIOD 132,741 24,718
----------------------- -----------------------
CASH AT THE END OF THE PERIOD $ 81,455 $ 639,237
======================= =======================
</TABLE>
<PAGE>
GALAXY ENTERPRISES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
In the opinion of management, the accompanying unaudited interim consolidated
financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position, and results of
operations and cash flows of Galaxy Enterprises, Inc. ("the "Company") for the
respective periods presented. The results of operations for an interim period
are not necessarily indicative of the results, which may be expected for any
other interim period, or for the year as a whole.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been omitted. The accompanying unaudited interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes in the Company's Form 10-KSB for the year ending December
31, 1999. All inter-company accounts and transactions have been eliminated in
consolidation.
Revenue Recognition
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 - Revenue Recognition in Financial Statements (SAB 101). SAB
101 provided guidance on various revenue recognition issues including
nonrefundable fees received upon entering into arrangements to provide products
or services. The Company receives such fees on many of the products and services
it provides. In prior years, the Company recognized such fees at the time of
sale based on the belief that its ongoing obligation did not involve significant
cost or effort and should not impact revenue recognition. Upon evaluation of the
accounting requirements of SAB 101, the Company determined that it was required
to adopt SAB 101's provisions and that revenue recognition will more closely
parallel the time period over which the revenue is earned. Adoption of the
applicable provisions of SAB 101 is to be reported as a change in accounting
principle in accordance with APB Opinion No. 20, Accounting Changes.
As a result of applying SAB 101, the Company adopted new revenue recognition
policies. Such policies are as follows:
Revenue from customer web site hosting and related products and services is
deferred and recognized over a twenty-four month period which represents the
twelve months in which a customer can activate a web site plus twelve months of
free hosting upon activation. Revenue from web site hosting rights that expire
is recognized at the point of expiration. Revenue from manufactured multimedia
products is recognized when products are shipped. Fees received from the sale of
third-party merchant credit card processing services are reported on a net
basis. On a quarterly basis, management reviews all aspects of revenue
recognition and adjusts recognition of revenue as required, based on actual
activation and expiration experience.
At the time of adoption in December 1999, the Company recorded a charge of $5.45
million, which represented the cumulative effect on prior years of the change in
accounting principle regarding revenue recognition. The adoption of this change
was reflected in the Company's annual report filed on Form 10-KSB for the year
ended December 31, 1999 and was effective for all of 1999. Therefore, the
accompanying unaudited consolidated financial statements for the quarter ended
March 31, 1999 have been adjusted to reflect the cumulative effect adjustment
and the adoption of the new revenue recognition policies.
Credit Card Reserves
Credit card reserves represent amounts of money due the Company from banks and
credit card processing companies who have handled Visa, Master Card, American
Express and Discover Card transactions. The Company establishes an account
receivable at the time the customer's credit card is charged. Later when the
cash is received from a credit card processing company and placed in a Company
bank account the receivable is credited. Some processing companies require the
Company to leave on deposit with them an amount of money equal to 5% of daily
credit card transactions until a limit is reached. The limit is normally equal
to one half month's processing volume. These deposits are also included in this
category.
Customer Deposits
Customer Deposits represent advance payments made by some customers to the
Company at the time an order is placed. The prepayment is between 33% and 67% of
the total purchase price. The customer is invoiced for the difference when title
to the products transfers to the customer.
Also included in this category are amounts withheld from sales commissions
earned by outside telemarketing companies. It is anticipated that some customer
refunds will be made from these sales and the company retains a small percentage
of the commissions earned to assure recovery of the sales commissions in the
event that the telemarketing company is no longer earning commissions. There is
a contractual limit to the amount of reserve the Company is authorized to
retain. Six months after termination of services by the telemarketing company
any unused reserve will be given to the contractor.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Unaudited Condensed
Consolidated Financial Statements and Notes thereto included elsewhere herein.
Results of Operations
Three months ended March 31, 2000 compared to the three months ended March 31,
1999.
Revenues. The Company's sales for the three-month period ending March 31, 2000
were $6,282,626 as compared to $2,879,031 for the similar period ending March
31, 1999, an increase of 118%. This sales comparison between the two periods
should only be made taking into account the change in revenue recognition
policies as described in the notes to the financial statements. The increase in
sales was partially due to increased attendance at the Company's Internet
training workshops. During the first three months of 2000 the Company conducted
83 workshops compared with 38 for the similar period in 1999. In addition the
Company's Impact Media division contributed $1,058,684 in sales. Impact Media's
assets were purchased on May 31, 1999 so there were no corresponding sales in
the first quarter of 1999.
Cost of Services/Products Sold. Cost of sales during the first quarter of 2000
totaled $4,563,186, which is equal to 72.5% of revenues. Cost of sales during
the first quarter of 1999 totaled $1,944,500, which is equal to 67.5% of
revenues. This increase in the cost of sales as a percentage of revenues is
primarily due to an increase in the cost of conducting the Internet training
workshops and programming customer storefronts. Another factor contributing to
the lower gross profit was an increase in telemarketing sales, which have lower
margins. The products sold by Impact media consist of multimedia brochures and
shaped compact disks which at current volume levels have lower gross profit
margins than the Galaxy products. 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 telemarketing services. Cost
of sales does not include depreciation.
Selling, General and Administrative Expenses. Selling expenses in the quarter
were $2,405,087 in 2000 compared to $1,281,558 in 1999. These expenses, as a
percentage of sales, decreased in 2000 to 38% from 45% in 1999. The improved
percentage was the result of the Company's increased volume of Internet training
workshops that provided economies of scale, as well as the contribution to
revenues from Impact Medial which has lower selling expenses in their business
model.
Administrative expenses were $1,136,359 during the first quarter of 2000
compared to $481,693 in the preceding year's first quarter. As a percentage of
sales these expenses increased to 18% in 2000 from 17% in 1999. The Company
moved to larger quarters and incurred other expenses that were necessary to
sustain the year to year growth. The operations of Impact Media also contributed
to higher administrative expenses. The Company anticipates that such expenses as
a percentage of sales will improve in the future, as increasing revenues will
not require proportional increases in overhead type costs.
Depreciation. Depreciation expense in the first quarter of 2000 was $33,611
compared to $25,724 in 1999. This was the result of purchases of computer
equipment, software and other long-term assets.
Amortization. During 2000 amortization of Goodwill was $16,545 compared to
$14,450 in 1999. Total Goodwill at the end of the period was $833,889 net of
amortization to date. The Goodwill arose from the purchase by the Company of the
assets and business interests of Profit Education Systems, Inc., CO-OP Business
Services, Inc. and Impact Media, LLC.
Income Taxes. Since the Company incurred a loss for the period there is no
provision for income taxes in the current year. The Company has not recorded an
income tax benefit as a result of the loss for the year or other temporary
differences since it is uncertain as to when the Company will become profitable
and thereby be able to use the benefit of such items. The income tax benefit
recorded in the first quarter of 1999 has been written off.
Net Income/Loss. The Company reported a Net Loss of $1,901,012 for the three
months ending March 31, 2000, as compared to a Net Loss of $6,281,932 for the
similar period in 1999. On a per share basis this amounted to a loss of $.32 per
share in 2000 as compared to a loss of $1.12 per share in 1999. The loss in 1999
included the cumulative effect on prior years of an accounting change. The
change was relative to revenue recognition as is more fully explained in the
notes to the financial statements. The 1999 loss before the cumulative effect
adjustment was $831,281.
Capital Resources
New Investments/Financing Activities. During 1999, the Company (i) sold a
$500,000 convertible note to the Augustine Fund through Augustine Capital
Management, an institutional investor based in Chicago, Illinois, (ii) sold
250,000 shares of the Company's common stock to Invest Linc Capital Corp.
("Invest Linc") for $1,000,000 and (iii) sold 228,570 shares of the Company's
common stock to Zylo Ltd. for $300,000. During January and February 1999, the
Augustine Fund converted the note into 169,192 shares of the Company's common
stock. During the first quarter of 2000 the company borrowed $450,000 from
Netgateway, Inc. These funds were used for merger-related expenses and working
capital. The notes are due on the earlier of June 1, 2000 or the date the merger
between the Company and Netgateway becomes effective. It is intended between the
parties to the notes to have the due date extended since it will not be possible
to have the merger effective by June 1, 2000. Should the due date not be
extended it would have a material adverse effect on the Company. These capital
infusions improved the Company's liquidity and its ability to meet ongoing
working capital needs.
Cash. Cash on hand at March 31, 2000 totaled $81,455 as compared to $132,741 at
December 31, 1999. Bank overdrafts for the same periods were $420,274 and
$348,907 respectively.
Accounts Receivable. Accounts receivable, net of allowance for doubtful
accounts, was $2,089,525 at March 31, 2000 ($1,913,456 at Galaxy and $176,069 at
IMI. Inc., which is doing business under the name of Impact Media) compared to
$1,112,947 at 1999 year's end. This increase is the result of the Company
offering to finance customer purchases with monthly payments at its Internet
training workshops and IMI, Inc. selling to customers in the normal course of
business on open account. The receivables associated with the Internet training
workshops are collected for the Company by Travelers Investment Corporation for
a fee.
Prepaid Expenses. Prepaid expenses at March 31, 2000 were $393,909 as compared
to $336,148 at December 31, 1999. These prepaid expenses are mainly the result
of payments made by Galaxy Mall for certain marketing costs incurred in the
fourth quarter of 1999 and the first quarter of 2000 that apply directly to
Internet training workshops to be held later during the year. Revenues to be
derived from these expenditures will be earned later in 2000 and 2001. These
marketing costs consist of mailings to and newspaper advertising for potential
customers for our Internet training workshops that target dates in subsequent
quarters; the travel costs, meeting rooms and supplies used by our employees to
hold "preview sessions" which will secure attendees to workshops in subsequent
quarters; and travel, hotel and other costs which must be prepaid to support
workshops in subsequent quarters.
Credit Card Reserves. Credit card reserves at March 31, 2000 were $447,628
($425,418 at Galaxy and 22,210 at IMI) as compared to $248,431 at December 31,
1999. Credit card reserves represent amounts of money due the Company from banks
and credit card processing companies who have handled Visa, Master Card,
American Express and Discover Card transactions. Some banks require the Company
to leave on deposit with them 5% of the credit card proceeds until the amount
reaches 50% of one month's transactions. This reserve earns interest at the
bank's certificate of deposit rate and will be returned to the company at a
future date.
Accounts Payable. Accounts payable at March 31, 2000 totaled $1,113,559. There
was also a bank overdraft of $420,274 bringing the total payable up to
$1,533,833 ($1,286,921 at Galaxy and $246,912 at IMI) as compared to $2,157,389
at the end of 1999.
Deferred Revenue. Deferred revenue at the end of the first quarter in 2000 was
$13,900,885 ($13,262,974 at Galaxy and $637,911 at IMI) compared to $10,745,563
at the end of last year. As explained in the notes to the financial statements
the Company has adopted a change in accounting principle as contemplated by SEC
Staff Accounting Bulletin 101, which resulted in this amount being deferred. The
Company defers revenue from the current quarter into the future, but brings into
the current quarter amounts deferred in earlier periods that have now been
earned and can thus be recognized. As long as the Company continues to grow, as
it did in the year 2000 first quarter, the amount deferred into the future will
be greater than the amount recognized from prior quarters and will have a
negative impact on revenues and earnings. The reverse would be true should sales
fall below current levels.
Customer Deposits. Customer Deposits amounted to $532,439 at March 31, 2000
(250,733 at Galaxy and 281,706 at IMI) as compared to $285,226 at December 31,
1999. This represents amounts paid to the company as deposits from customers for
orders to be delivered in the future. At the time the goods are shipped and
title transfers to the customer, the amount will be taken into income under the
Company's normal revenue recognition policies.
Equipment. Equipment increased during 2000 to $262,456 from $259,577 net of
accumulated depreciation of $190,977 in 2000 and $157,364 at December 31, 1999.
This was due to the need for additional computers 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 the entire purchase
price in cash at the time of acquisition.
Stockholders' Equity. Total Stockholders' Equity decreased to a deficit of
$14,412,158 during the first quarter of 2000 from $12,511,245 at December 31,
1999. This was mainly the result of the change in accounting principle described
earlier that established the Deferred Revenue with the resultant net loss from
operations for the year. Since the increase of the Deferred Revenue was a
non-cash transaction, and no monies were required to be repaid to customers as a
result of the change, the Company believes it can continue to operate in spite
of the negative net worth.
Liquidity
Ratios. At March 31, 2000 the Company's current ratio, current assets compared
to current liabilities, was .21 to 1 compared to .16 to 1 as of December 31,
1999. This out of balance situation is exacerbated by the deferred revenue
adjustment.
Financing Arrangements. The Company has worked out extended payment plans with
hotels and other vendors and is meeting its commitments under the 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 the seasonal slow periods it experiences. From July 15 through Labor Day
and again from Thanksgiving Day until January 15 of the following year the
business is slower than at other times. It is the result of fewer attendees at
the Company's Internet training seminars during these traditional vacation and
holiday periods.
Cash flow. Cash flows from financing activities during the first quarter of 2000
were $395,683, including a loan from Netgateway, Inc. of $450,000, which was
partially off set by repayment of a bank loan. The loan to Netgateway comes due
during the second quarter of 2000. It will be necessary to obtain additional
equity funding or long-term loans from banks or other financial institutions for
the Company to meet its long-term goals.
In conjunction with the Merger Agreement with Netgateway and upon consummation
of the merger, the Company will become a wholly owned subsidiary of Netgateway.
The merger is expected to close during the second quarter of 2000 and is subject
to the satisfaction or waiver by the parties of certain conditions. The Company
may be required to pay a substantial termination fee if the merger agreement is
terminated for certain specific reasons. If required, payment of the fee would
have a material adverse effect on the Company's business, prospects, financial
conditions, results of operations and its ability to raise future capital.
Business Development
Effective on May 31, 1999, IMI, Inc., a wholly-owned subsidiary of the Company
acquired substantially all of the assets of Impact Media, L.L.C., a Utah limited
liability company ("Impact Media") engaged in the design, manufacture and
marketing of multimedia presentations, shaped compact discs and similar products
and services intended to facilitate traditional marketing and to bridge the gap
between conventional and Internet marketing. The assets acquired include, among
other things, equipment, inventory, intellectual property, computer programs,
cash and accounts receivable, the primary use of which relates to the design,
manufacture and marketing of Impact Media's products and services. It is the
present intent of the Company to continue to devote the assets to such purposes.
The transaction is more fully described in a Form 8-K filing dated July 9, 1999.
In December 1999, the Company announced that it had signed a letter of intent to
be acquired by Netgateway. On January 7, 2000, Galaxy obtained $300,000 in
bridge financing from Netgateway for working capital purposes and for the
payment of certain professional fees incurred by Galaxy in connection with the
proposed merger. On February 4, 2000, Netgateway advanced an additional $150,000
to Galaxy for working capital purposes and for the payment of certain
professional fees incurred by Galaxy in connection with the proposed merger.
Each loan is secured by a pledge of Galaxy common stock by John J. Poelman, the
chief executive officer and largest shareholder of Galaxy. The notes bear
interest at 9.5% and are due and payable on the earlier of June 1, 2000 or the
consummation date of the merger. In the Merger Agreement Netgateway has agreed
to cause Galaxy to repay the loans following the merger.
On March 13, 2000, Galaxy Enterprises, Inc. and Netgateway, Inc., a Delaware
corporation, issued a press release concerning the execution of a Merger
Agreement between the parties and a wholly-owned subsidiary of Netgateway,
pursuant to which the subsidiary would be merged with and into Galaxy, with
Galaxy remaining as the surviving corporation in the merger and a subsidiary of
Netgateway. Upon consummation of the merger, Netgateway will acquire Galaxy for
approximately 3.9 million shares of Netgateway common stock, or approximately
six tenths of one share of Netgateway common stock for each share of Galaxy
common stock. In addition, Netgateway has agreed to assume all outstanding
options under Galaxy's 1997 Stock Option Plan. Assuming that all such options
granted as of the date of the Merger Agreement are outstanding on the date of
the merger such assumed options will, following the merger, be exercisable for
approximately 1.1 million shares of Netgateway common stock. Consummation of the
merger is subject to certain terms, conditions and termination rights specified
in the Merger Agreement, including approval of both companies' stockholders.
The foregoing statements are based upon management's current assumptions and
contain forward-looking statements (within the meaning of Section 27A of the
securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934)
regarding the Company and its business, financial condition, results of
operations and its prospects. Readers are urged to review the Company's Form
10-KSB for the year ending December 31, 1999 for a complete listing of the risk
factors associated with its business.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In January, 2000, we sold 17,935 shares of common stock to employees
exercising stock options granted under the 1997 Employee Stock Option Plan. The
proceeds totaling $13,271 were added into our working capital.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger dated as of March 10, 2000 by and
among Netgateway, Inc., Galaxy Acquisition Corp., and Galaxy
Enterprises, Inc. (incorporated by reference to Exhibit 2.1 to
the report on Form 8-K of registrant filed on March 22, 2000).
10.1 Promissory Note dated January 7, 2000 in the principal amount
of $300,00 made by Galaxy Enterprises, Inc. and John J. Poelman
and payable to Netgateway, Inc. (incorporated by reference to
Exhibit 10.1 to the report on Form 8-K of registrant filed on
March 22, 2000).
10.2 Promissory Note dated February 4, 2000 in the principal amount
of $150,000 made by Galaxy Enterprises, Inc. and John J.
Poelman and payable to Netgateway, Inc. (incorporated by
reference to Exhibit 10.2 to the report on Form 8-K of
registrant filed on March 22, 2000).
27.1 Financial Data Schedule
99.1 Voting Agreement dated as of March 10, 2000, by and among
Netgateway, Inc., Galaxy Acquisition Corp., and John J. Poelman
(incorporated by reference to Exhibit 99.1 to the report on
Form 8-K of registrant filed on March 22, 2000).
99.2 Voting Agreement dated as of March 10, 2000, by and among
Netgateway, Inc., Galaxy Acquisition Corp., and Sue Ann Cochran
(incorporated by reference to Exhibit 99.2 to the report on
Form 8-K of registrant filed on March 22, 2000).
99.3 Stock Option Agreement dated as of March 10, 2000, by and among
Netgateway, Inc. and John J. Poelman (incorporated by reference
to Exhibit 99.3 to the report on Form 8-K of registrant filed
on March 22, 2000).
99.4 Pledge Agreement, dated as of January 7, 2000, between John J.
Poelman and Netgateway, Inc. (incorporated by reference to
Exhibit 99.4 to the report on Form 8-K of registrant filed on
March 22, 2000).
99.5 Pledge Agreement, dated as of February 4, 2000, between John J.
Poelman and Netgateway, Inc. (incorporated by reference to
Exhibit 99.5 to the report on Form 8-K of registrant filed on
March 22, 2000).
(b) Reports on Form 8-K
On March 22, 2000 the registrant filed a report on Form 8-K. The Form
8-K reported on Item 5 the press release announcing the execution of the Merger
Agreement by registrant and Netgateway, Inc. See Part I, Item 2 above.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2000 GALAXY ENTERPRISES, INC.
/s/ Frank C. Heyman
-----------------------------
Frank C. Heyman
Chief Financial Officer
(As a duly authorized officer of the Company
and as principal financial officer of the
Company)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger dated as of March 10, 2000 by and
among Netgateway, Inc., Galaxy Acquisition Corp., and Galaxy
Enterprises, Inc. (incorporated by reference to Exhibit 2.1 to
the report on Form 8-K of registrant filed on March 22, 2000).
10.1 Promissory Note dated January 7, 2000 in the principal amount
of $300,00 made by Galaxy Enterprises, Inc. and John J. Poelman
and payable to Netgateway, Inc. (incorporated by reference to
Exhibit 10.1 to the report on Form 8-K of registrant filed on
March 22, 2000).
10.2 Promissory Note dated February 4, 2000 in the principal amount
of $150,000 made by Galaxy Enterprises, Inc. and John J.
Poelman and payable to Netgateway, Inc. (incorporated by
reference to Exhibit 10.2 to the report on Form 8-K of
registrant filed on March 22, 2000).
27.1 Financial Data Schedule
99.1 Voting Agreement dated as of March 10, 2000, by and among
Netgateway, Inc., Galaxy Acquisition Corp., and John J. Poelman
(incorporated by reference to Exhibit 99.1 to the report on
Form 8-K of registrant filed on March 22, 2000).
99.2 Voting Agreement dated as of March 10, 2000, by and among
Netgateway, Inc., Galaxy Acquisition Corp., and Sue Ann Cochran
(incorporated by reference to Exhibit 99.2 to the report on
Form 8-K of registrant filed on March 22, 2000).
99.3 Stock Option Agreement dated as of March 10, 2000, by and among
Netgateway, Inc. and John J. Poelman (incorporated by reference
to Exhibit 99.3 to the report on Form 8-K of registrant filed
on March 22, 2000).
99.4 Pledge Agreement, dated as of January 7, 2000, between John J.
Poelman and Netgateway, Inc. (incorporated by reference to
Exhibit 99.4 to the report on Form 8-K of registrant filed on
March 22, 2000).
99.5 Pledge Agreement, dated as of February 4, 2000, between John J.
Poelman and Netgateway, Inc. (incorporated by reference to
Exhibit 99.5 to the report on Form 8-K of registrant filed on
March 22, 2000).
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001063450
<NAME> GALAXY ENTERPRISES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1.000
<CASH> 81,455
<SECURITIES> 0
<RECEIVABLES> 2,225,930
<ALLOWANCES> (984,249)
<INVENTORY> 87,395
<CURRENT-ASSETS> 3,335,517
<PP&E> 453,433
<DEPRECIATION> (190,977)
<TOTAL-ASSETS> 4,473,204
<CURRENT-LIABILITIES> 16,169,055
<BONDS> 0
0
0
<COMMON> 41,757
<OTHER-SE> (12,523,089)
<TOTAL-LIABILITY-AND-EQUITY> 4,473,204
<SALES> 6,282,626
<TOTAL-REVENUES> 6,282,626
<CGS> 4,563,186
<TOTAL-COSTS> 8,154,788
<OTHER-EXPENSES> 33,951
<LOSS-PROVISION> 328,873
<INTEREST-EXPENSE> 4,856
<INCOME-PRETAX> (1,906,913)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,906,913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,906,913)
<EPS-BASIC> (0.320)
<EPS-DILUTED> (0.320)
</TABLE>
