-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I1xOKs48d46nDgnQ85jl4zJ6/PXY4MQZA+KU9SjNNTtHUwkeHmVgMQUoYj8fuBdI 80HxxI/cjG76+ieVaohYzw== 0001020488-00-000086.txt : 20000516 0001020488-00-000086.hdr.sgml : 20000516 ACCESSION NUMBER: 0001020488-00-000086 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALAXY ENTERPRISES INC /NV/ CENTRAL INDEX KEY: 0001063450 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 880315212 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-25055 FILM NUMBER: 635598 BUSINESS ADDRESS: STREET 1: 754 EAST TECHNOLOGY AVE CITY: OREM STATE: UT ZIP: 84057 BUSINESS PHONE: 8012270004 MAIL ADDRESS: STREET 1: 754B EAST TECHNOLOGY AVE CITY: OREM STATE: UT ZIP: 84057 10QSB 1 GALAXY ENTERPRISES, INC. FORM 10-QSB 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 ] 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 PART I -- FINANCIAL INFORMATION
Galaxy Enterprises, Inc. and Subsidiaries Unaudited Condensed Consolidated Statement of Operations Three Months Three Months Ended Ended March 31, 2000 March 31, 1999 ------------------ ------------------------ 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) ================== ========================
Galaxy Enterprises, Inc. and Subsidiary Unaudited Condensed Consolidated Balance Sheet as of: Unaudited Audited March 31, 2000 Dec 31, 1999 ----------------- ----------------- 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 ================= =================
Galaxy Enterprises, Inc. and Subsidiaries Unaudited Condensed Consolidated Statement of Cash Flows For the three months ending March 31, 2000 and 1999 2000 1999 ----------------------- ----------------------- 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 ======================= =======================
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. 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. 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) 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). EX-27.1 2 FDS
5 0001063450 GALAXY ENTERPRISES, INC. 1 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-1-2000 MAR-31-2000 1.000 81,455 0 2,225,930 (984,249) 87,395 3,335,517 453,433 (190,977) 4,473,204 16,169,055 0 0 0 41,757 (12,523,089) 4,473,204 6,282,626 6,282,626 4,563,186 8,154,788 33,951 328,873 4,856 (1,906,913) 0 (1,906,913) 0 0 0 (1,906,913) (0.320) (0.320)
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