-----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, KuRfcn3pwPaJ4/Qlg6CEDTQy4OkequRbXaGWkI+rIwK04UgDmxC6B1Pz48AVNggT uwrkW3LzSBGCT9uOCuS2xA== 0001020488-99-000100.txt : 19991117 0001020488-99-000100.hdr.sgml : 19991117 ACCESSION NUMBER: 0001020488-99-000100 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99756455 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 QUARTERLY REPORT 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 Sept. 30, 1999 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 November 15, 1999 ------------------- Classes of Common Stock Number of shares outstanding - ----------------------------- ---------------------------- Common Stock, $.007 par value 5,706,444 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 -- September 30, 1999 and December 31, 1998 ............................3 Condensed Consolidated Statements of Operations -- Nine months ended September 30, 1999 and 1998 and Three Months ended September 30, 1999 and 1998 ......................4 Condensed Consolidated Statements of Cash Flows -- Nine months ended September 30, 1999 and 1998 .......................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 6. Exhibits and Reports on Form 8-K ....................................13
Galaxy Enterprises, Inc. and Subsidiary Unaudited Condensed Consolidated Balance Sheet as of: Unaudited Audited Sept 30, 1999 Dec 31, 1998 ---------------- ---------------- Assets Current Assets: Cash 114,919 24,718 Accounts Receivable 864,739 81,620 Inventory 38,132 Prepaid Expenses 889,603 18,549 Deferred Income Taxes 14,200 14,200 Credit Card Reserves 656,924 129,205 ---------------- ---------------- Total Current Assets 2,578,517 268,292 Fixed Assets: Computer & Office Equipment 256,091 190,508 Computer Software 64,744 32,189 Furniture & Fixtures 10,885 6,104 Other 40,215 2,840 Less: Accumulated Depreciation (130,527) (59,773) ---------------- ---------------- Net Book Value 241,408 171,868 Goodwill 875,066 794,753 Organizational, Start-up, Offering Costs 67,127 Deferred Income Taxes 317,546 Other Assets 40,404 32,815 ---------------- ---------------- Total Assets 4,052,941 1,334,855 ================ ================ Liabilities & Equity Current Liabilities: Notes Payable - Short Term 207,172 115,000 Accounts Payable 1,101,066 830,774 Accrued Expenses 356,658 108,536 Deferred Revenue 996,503 Income Taxes Currently Payable 7,900 Unearned Income 6,060 ---------------- ---------------- Total Current Liabilities 2,661,399 1,068,270 Long Term Debt: Deferred Income Taxes 10,300 10,300 Vendor Reserves Retained 151,129 Shareholder Equity: Common Stock 39,985 36,971 Additional Paid-in Capital 1,547,795 91,959 Retained Earnings (357,667) 127,355 ---------------- ---------------- Total Shareholder Equity 1,230,113 256,285 Total Liabilities & Shareholders Equity 4,052,941 1,334,855 ================ ================
Galaxy Enterprises, Inc. and Subsidiaries Unaudited Condensed Consolidated Statement of Operations Three Months Three Months Nine Months Nine Months Ended Ended Ended Ended Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998 ---------------- ----------------- ---------------- ---------------- REVENUE Sales 6,257,927 2,346,950 14,425,215 8,514,968 Cost of sales 3,485,778 1,048,745 8,129,748 3,782,500 ---------------- ----------------- ---------------- ---------------- GROSS PROFIT 2,772,149 1,298,205 6,295,467 4,732,468 OPERATING EXPENSES Selling 2,139,661 1,315,198 5,148,682 3,557,049 General and administrative 634,770 360,169 1,735,806 869,313 Depreciation 27,579 11,881 70,754 36,875 Amortization 16,276 11,864 45,376 35,591 ---------------- ----------------- ---------------- ---------------- TOTAL OPERATING EXPENSES 2,818,286 1,699,112 7,000,618 4,498,828 OPERATING INCOME (46,137) (400,907) (705,151) 233,640 OTHER (INCOME) EXPENSES Interest income (606) (6,783) Other income Interest expense 1,708 223 6,275 1,003 Other expense 3,301 5,247 10,542 15,733 ---------------- ----------------- ---------------- ---------------- TOTAL OTHER (INCOME) EXPENSES 4,403 5,470 10,034 16,736 Income before income taxes (50,540) (406,377) (715,185) 216,904 Income tax expense (benefit) 2,852 (158,457) (275,145) 82,972 ---------------- ----------------- ---------------- ---------------- Income before cumulative effect of a change in accounting principal (53,392) (247,920) (440,040) 133,932 Cumulative effect on prior years of accounting change (less income taxes of $25,432) 44,982 NET INCOME (LOSS) (53,392) (247,920) (485,022) 133,932 ================ ================= ================ ================ Weighted average shares outstanding: Basic 5,706,444 5,271,652 5,706,444 5,271,652 Diluted 6,262,059 5,271,652 6,262,059 5,271,652 Net income per share: Basic (0.009) (0.047) (0.085) 0.025 Diluted (0.047) 0.025
Galaxy Enterprises, Inc. and Subsidiaries Unaudited Condensed Consolidated Statement of Cash Flows For the nine months ending September 30, 1999 and 1998 1999 1998 ---------------------- ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (485,022) 133,932 Adjustments to reconcile net earnings to net cash flows from (used by) operating activities: Depreciation 70,754 51,026 Amortization 45,376 35,591 Effect of accounting change 67,127 Changes in operating assets and liabilities: Increase in accounts receivable (783,119) (181,398) Increase in inventories (38,132) Increase in prepaid expenses (871,054) (22,500) (Increase) decrease in credit card reserves (527,719) (18,488) Increase in deferred income taxes (317,546) Decrease (increase) in other assets (7,589) (30,469) Increase in goodwill (125,689) 16,781 (Decrease) increase in accounts payable 270,292 (35,784) Increase (decrease) in accrued expenses 248,122 (200,075) Increase in deferred revenue 996,503 Increase in vendor reserves retained 151,129 14,920 (Decrease) increase in accrued income taxes payable (7,900) 82,235 Increase (decrease) in other current liabilities (6,060) (6,872) ---------------------- ---------------------- Net cash flows (used by) operating activities (1,320,527) (161,101) ---------------------- ---------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment (140,294) (80,920) ---------------------- ---------------------- Net cash used by investing activities (140,294) (80,920) ---------------------- ---------------------- CASH FLOWS FROM FINANCING ACTIVITIES Cash from notes payable 92,172 100,000 Repayment of notes Common stock issued for cash 1,458,850 ---------------------- ---------------------- Net cash flows from financing activities 1,551,022 100,000 ---------------------- ---------------------- NET INCREASE (DECREASE) IN CASH 90,201 (142,021) CASH AT THE BEGINNING OF THE PERIOD 24,718 113,144 ---------------------- ---------------------- CASH AT THE END OF THE PERIOD 114,919 (28,877) ====================== ======================
GALAXY ENTERPRISES, INC. NOTES TO UNAUDITED CONSENSED 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, 1998. All inter-company accounts and transactions have been eliminated in consolidation. 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 recognizes revenue at the time the customer's credit card is charged by establishing an account receivable. Later when the cash is received from a credit card processing company and placed in a Company bank account the receivable is credited. Deferred Revenue Deferred revenues 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. At that point the deferred revenue is recognized. Vendor Reserves Retained These reserves represent amounts withheld from sales commissions earned by contract telemarketing companies. It is anticipated that some customer refunds will be made and the company retains a small percentage of the commissions earned to assure recovery of the sales commissions in the event that the contract 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. Change in Accounting Principle In July 1998, the AICPA issued Statement of Position 98-5 "Reporting on the Costs of Start-up Activities". SOP 98-5 requires start-up costs to be expensed as incurred and requires previously capitalized organization and start-up costs to be written-off effective for fiscal years beginning after December 15, 1998. Accordingly, the Company has reported a charge of $44,982 (net of tax benefit of $25,432) or $.007 per share for write-off of previously capitalized organization costs. 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 Nine Months Ended September 30, 1999 and the third calendar quarter of 1999 compared to Nine Months Ended September 30, 1998 and the third calendar quarter of 1998 Revenues. The Company's sales for the nine-month period ending September 30, 1999 were $14,425,215 as compared to $8,514,968 for the similar period ending September 30, 1998, an increase of 69%. Sales for the third quarter of 1999 were $6,257,927 compared to 2,346,950 in 1998 an increase of 167%. The increase in both periods was partially do to increased attendance at the Company's Internet training workshops. During the first nine months of 1999 the Company conducted 121 workshops compared with 84 for the similar period in 1998. Furthermore, during the nine months of 1999 the company's telemarketing revenue was $6,478,735 compared to $3,116,976 in 1998, an increase of 108%. In addition the Company's Impact Media division contributed $1,322,168 in sales. Impact Media was purchased on May 31, 1999 so there were no corresponding sales in 1998. Cost of Services/Products Sold. Cost of sales during the first nine months of 1999 totaled $8,129,748, which is equal to 56% of revenues. Cost of sales during the first nine months of 1998 totaled $3,782,500, which is equal to 44% 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 the increase in telemarketing sales, which have lower margins. The Company is making efforts to bring more of these telemarketing sales in-house, as opposed to contracting the sales with outside companies, which will help increase these margins. During the third quarter of 1999 Cost of sales were equal to 56% of revenues compared to 45% for the same quarter in 1998. 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, General and Administrative Expenses in the first nine months of 1999 were $6,884,488 in 1999 compared to $4,426,362 in 1998. These expenses, as a percentage of sales, decreased in 1999 to 48% from 52% in 1998. The decrease in the expenses as a percentage of sales is attributable to the Company's cost control measures undertaken even as it expanded its telemarketing channel, increased customer service and programming staff, obtained larger facilities to accommodate growth and experienced increased legal fees. The Company anticipates that such expenses, as a percentage of sales, will continue to improve in the future, as increasing revenues will allow for economies of scale. Depreciation. Depreciation expense in the first nine months of 1999 was $70,754 compared to $36,875 in 1998. This was the result of purchases of computer equipment, software and other long-term assets. Amortization. During 1999 amortization of Goodwill and Deferred Charges was $115,790 compared to $35,591 in 1998. In July 1998, the AICPA issued Statement of Position 98-5 "Reporting on the Costs of Start-up Activities". SOP 98-5 requires start-up costs to be expensed as incurred and requires previously capitalized organization and start-up costs to be written-off effective for fiscal years beginning after December 15, 1998. Accordingly, the Company has reported a charge of $70,414 during this period for previously capitalized organization costs. The balance of the amortization, $45,376 results from the amortization of Goodwill. Total Goodwill at the end of the nine-month period was $875,066. 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. The income tax benefit for 1999 was $275,145 compared to an expense of $82,972 in 1998. Both amounts were calculated at statutory rates. Management believes that the Company will be profitable during the next twelve months and thus be able to use the net operating loss carry forward during that period of time. Net Income/Loss. The Company reported a Net Loss of $485,022 for the nine months ending September 30, 1999, as compared to Net Income of $133,932 for the similar period in 1998. On a per share basis this amounted to a loss of $.085 per share in 1999 as compared to a profit of $.025 per share in 1998. During the third quarter of 1999 the loss was $53,392 compared to a loss of $247,920 in the comparable period of 1998. Capital Resources New Investments. During the first quarter of 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, and (ii) sold 250,000 shares of common stock to Invest Linc Emerging Growth Fund I, L.L.C. and granted the fund a warrant to purchase up to 250,000 additional shares at an exercise price of $2.84 per share for a total consideration of $1,000,000. During January and February 1999, the Augustine Fund converted the note into 169,192 shares of the Company's common stock at a weighted average price of $2.96 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 September 30, 1999 totaled $114,919 as compared to $24,178 at December 31, 1998. Total current assets were 2,578,517 and $268,292, respectively. Accounts Receivable. Accounts Receivable were $864,739 at September 30, 1999 compared to $81,620 in 1998. This increase is the result of the Company offering to finance customer purchases with monthly payments at its Internet training workshops and the Impact Media division selling to customers in the normal course of business on open account. The workshop receivable is carried at 60% of the principal balance owed, the remainder being reserved for non-payment, while the Impact Media is carried at full value due to the credit worthiness of its customers. The net workshop receivable is $508,377 and Impact Media's is $160,290. Prepaid Expenses. Prepaid expense at September 30, 1999 were $889,603 compared to 18,549 at the end of last year. The increase is mainly the result of payments made, prior to delivery, to vendors of the Impact Media division for manufacturing custom cut compact discs. This amounted to $558,780. Impact Media's customers also make advance payments to the Company. Also Galaxy Mall recorded certain marketing costs ($310,700) incurred in the third quarter of 1999 as prepaid expenses since they apply directly to Internet training workshops to be held during the fourth and subsequent quarters of 1999 and 2000. Revenues to be derived from these expenditures will occur in the fourth or subsequent quarters of 1999 and 2000. 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 salaries, 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 September 30, 1999 were $656,924 compared to $129,205 at December 31, 1998. 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 for us. The accounting policy used is to recognize revenue at the time the customer's credit card is charged by establishing an account receivable. Later when the cash is transferred to one of our bank operating accounts the receivable is credited. The cash arrives in our bank accounts at various times depending on the nature of the transaction and can be as early as 48 hours or as late as several weeks. One bank has required 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. The balance in this account at September 30, 1999 was $138,999. Accounts Payable. Accounts payable at September 30, 1999 totaled $1,101,066 as compared to $830,774 at the end of 1998. Deferred Revenue. Deferred Revenue at September 30, 1999 was $996,503 as compared to zero at the end of last year. These are 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. At that point the deferred revenue is recognized. Vendor Reserves Retained. These reserves, $151,129 at September 30, 1999, represent amounts withheld from sales commissions earned by contract telemarketing companies. It is anticipated that some customer refunds will be made and the company retains a small percentage of the commissions earned to assure recovery of the sales commissions in the event that the contract 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. Equipment and Property. Equipment increased during the first nine months of 1999 from $231,641 to $371,935 before depreciation. 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 the entire purchase price in cash at the time of acquisition. Stockholders' Equity. Total Stockholders' Equity increased to $1,230,113 during the first nine months of 1999 from $256,285 at December 31, 1998. This resulted from the sale of Company stock as explained in New Investment above, but partially offset by the net loss for the period. Liquidity Ratios. At September 30, 1999 the Company's current ratio, current assets compared to current liabilities, was a .97 to 1 compared to a negative 4.0 to 1 as of December 31, 1998. This improvement was accomplished by the sale of Company stock. Financing Arrangements. The Company was able to arrange a bank line of credit for $200,000 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. Sale of Company stock has allowed the Company to meet its current obligations. During the first quarter of 1999 the Company sold 250,000 shares of common stock and a convertible note resulting in net proceeds to the company of $1,450,000. These cash inflows enabled the Company to begin implementing its strategic plan for future growth, but they will not be sufficient to fund the entire business plan. Therefore, it will be necessary to obtain additional equity funding and long-term loans from banks or other financial institutions to meet its long-term goals. The Company anticipates that it will sell additional stock through either private or registered public offerings during 1999, and will continue its efforts to improve its financial condition so as to qualify for long term loans from commercial banking institutions. Business Development On June 25, 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 brochure kits, shaped compact discs and similar products and services intended to facilitate conducting business over the Internet. The assets acquired include, among other things, equipment, inventory and finished goods, intellectual property, computer programs and 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. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Exhibit No. Exhibit ----------- ------------------------------------------- 27.1 Financial Data Schedule 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: September 15, 1999 GALAXY ENTERPRISES, INC. /s/ ----------------------------------- Frank C. Heyman Chief Financial Officer (As a duly authorized officer of the Company and as principal financial officer of the Company) EX-27 2 FDS --
5 0001063450 GALAXY ENTERPRISES, INC. 1 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1.000 114,919 0 864,739 0 38,132 2,578,517 371,935 (130,527) 4,052,941 2,661,399 0 0 0 39,985 1,547,795 4,052,941 14,425,215 14,425,215 8,129,748 15,130,366 10,542 0 6,275 (715,185) (275,145) (400,040) 0 0 (44,982) (485,022) (0.085) (.077)
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