Cautionary Note on Forward Looking Statements

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). In particular statements regarding future events
and the future results of Galaxy Next Generation, Inc., which we refer to as
“we,” “us,” “our”, “Galaxy,” or the “Company,” including but not limited to,
statements regarding the sufficiency of our cash, our ability to finance our
operations and business initiatives and obtain funding for such activities and
the timing of any such financing, our future results of operations and financial
position, business strategy and plan prospects are forward-looking statements.
These forward-looking statements are based on our current expectations,
estimates, forecasts, and projections about our business, economic and market
outlook, our results of operations, the industry in which we operate and the
beliefs and assumptions of our management. Words such as “expects,”
“anticipates,” “targets,” “goals,” “projects,” “would,” “will,” “could,” “may,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words,
and similar expressions are intended to identify such forward-looking
statements. Forward-looking statements by their nature address matters that are,
to different degrees, uncertain, and these forward-looking statements are only
predictions and are subject to risks, uncertainties, and assumptions that are
difficult to predict, including the duration, extent, and impact of the COVID-19
pandemic, and our ability to successfully manage the demand, supply, and
operational challenges associated with the COVID-19 pandemic. Therefore, actual
results may differ materially and adversely from those expressed in any
forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in this Report
under the section entitled “Risk Factors” in Item 1A of Part II, Part I Item 1A
of our Annual Report on Form 10-K for the year ended June 30, 2022 (the “Annual
Report”), and in other reports we file with the U.S. Securities and Exchange
(the “SEC”). In addition, many of the foregoing risks and
uncertainties are, and could be, exacerbated by the COVID-19 pandemic and any
worsening of the global business and economic conditions, including inflation.
While forward-looking statements are based on reasonable expectations of our
management at the time that they are made, you should not rely on them. We
undertake no obligation to revise or update publicly any forward-looking
statements for any reason, except as required by applicable law. We cannot at
this time predict the extent of the impact of the COVID-19 pandemic and any
resulting business or economic conditions which could have a material adverse
effect on our business, financial condition, results of operations and cash

The following discussion is based upon our unaudited condensed consolidated
financial statements included in Part 1, Item I, of this Report, which were
prepared in accordance with U.S. generally accepted accounting principles (U.S.
GAAP). In the course of operating our business, we routinely make decisions as
to the timing of the payment of invoices, the collection of receivables, the
manufacturing and shipment of products, the fulfillment of orders, the purchase
of supplies, and the building of inventory, among other matters. In making these
decisions, we consider various factors, including contractual obligations,
customer satisfaction, competition, internal and external financial targets and
expectations, and financial planning objectives. Each of these decisions has
some impact on the financial results for any given period. To aid in
understanding our operating results for the periods covered by this Report, we
have provided an executive overview, which includes a summary of our business
and market environment along with a financial results and key performance
metrics overview. These sections should be read in conjunction with the more
detailed discussion and analysis of our condensed consolidated financial
condition and results of operations in this Item 2, our “Risk Factors” section
included in Item 1A of Part II of this Report, and our unaudited condensed
consolidated financial statements and notes thereto included in Item 1 of Part I
of this Report, as well as our audited consolidated financial statements and
notes included in Item 8 of Part II of our Annual Report.

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and notes thereto and the other financial data
appearing elsewhere in this Quarterly Report.

Business Overview

Galaxy is a manufacturer and U.S. distributor of interactive learning technology
hardware and software that allows the presenter and participant to engage in a
fully collaborative instructional environment. Galaxy’s product offerings
include Galaxy’s own private-label interactive touch screen panel, its own
Intercom, Bell, and Paging solution, as well as an audio amplification line of
products that is currently supported by OEM relationships. Galaxy’s distribution
channel consists of a direct sales model, as well as approximately 44 resellers
across the U.S. who primarily sell the products offered by Galaxy within the
commercial and educational market. Galaxy does not control where the resellers
focus their reselling efforts; however, the K-12 education market is the largest
customer base for Galaxy products comprising nearly 90% of Galaxy’s sales. In
addition, Galaxy’s OEM division also manufacturers products for other vendors in
its industry and white labels the products under other brands.

We believe the market space for interactive technology in the classroom is a
perpetual highway of business opportunity, especially in light of the COVID-19
pandemic as school systems have sought to expand their ability to operate
remotely. Public and private school systems are in a continuous race to
modernize their learning environments. Our goal is to be an early provider of
the best and most modern technology available.

We are striving to become the leader in the market for interactive flat panel
technology, associated software, and peripheral devices for classrooms. Our goal
is to provide an intuitive system to enhance the learning environment and create
easy to use technology for the teacher, increasing student engagement and
achievement. Our products are developed and backed by a management team with
more than 30 combined years in the classroom technology space.

We were originally organized as a corporation in 2001. Our principal executive
offices are located at 285 Big A Road Toccoa, Georgia 30577, and our telephone
number is (706) 391-5030. Our website address is Information
contained in our website does not form part of this Quarterly Report and is
intended for informational purposes only.


On June 22, 2018, we consummated a reverse triangular merger whereby Galaxy Next
Generation, Inc.
, a private company (co-founded by our now executives, Gary
(CEO) and Magen McGahee (CFO)), merged with and into our newly formed
subsidiary, Galaxy MS, Inc. (Galaxy MS or Merger Sub), which was formed
specifically for the transaction. Under the terms of the merger, the private
company shareholders transferred all their outstanding shares of common stock to
Galaxy MS, in return for shares of our Series C Preferred Stock. Prior to the
merger, we operated under the name Full Circle Registry, Inc.’s (FLCR) and our
operations were based upon our ownership of Georgetown 14 Cinemas, a
fourteen-theater movie complex located on approximately seven acres in
Indianapolis, Indiana. Prior to the merger, our sole business and source of
revenue was from the operation of the theater, and as part of the merger
agreement, we had the right to spinout the theater to the prior shareholders of
FLCR. Effective February 6, 2019, we sold our interest in the theater to focus
our resources on our technology operations.

On September 3, 2019, we acquired 100% of the outstanding capital stock of both
Interlock Concepts, Inc. (Concepts) and Ehlert Solutions Group, Inc. (Solutions)
pursuant to the terms of a stock purchase agreement that we entered into with
Concepts and Solutions. The purchase price for the acquisition was 1,350,000
shares of common stock and a two year note payable to the seller in the
principal amount of $3,000,000. The note payable to the seller is subject to
adjustment based on the achievement of certain future earnings goals and
successful completion of certain pre-acquisition withholding tax issues of
Concepts and Solutions. The note has been adjusted and is reflecting under
related party notes payable in the consolidated financial statements.

Solutions and Concepts are Arizona-based audio design and manufacturing
companies creating innovative products that provide fundamental tools for
building notification systems primarily to K-12 education market customers
located primarily in the north and northwest United States. These products and
services allow institutions access to intercom, scheduling, and notification
systems with improved ease of use. The products provide an open architecture
solution to customers which allows the products to be used in both existing and
new environments. Intercom, public announcement (PA), bell and control solutions
are easily added and integrated within the open architecture design and software
model. These products combine elements over a common internet protocol (IP)
network, which minimizes infrastructure requirements and reduces costs by
combining systems.

On October 15, 2020, we acquired the assets of Classroom Technologies Solutions,
(“Classroom Tech”) for consideration of (a) paying off a secured Classroom
Tech loan, not to exceed the greater of 50% of the value of the Classroom Tech
assets acquired or $120,000; (b) the issuance of a promissory note in the amount
of $44,526 to a Classroom Tech designee; and (c) the issuance of 10 million
shares (50,000 shares after reverse split) of common stock to the seller of
Classroom Tech. Classroom Tech provides cutting-edge presentation products to
schools, training facilities, churches, corporations and retail establishments.
Their high-quality solutions are customized to meet a variety of needs and
budgets in order to provide the best in education and presentation technology.
Classroom Tech direct-sources and imports many devices and components which
allows us to be innovative, nimble, and capable of delivering a broad range of
cost-effective solutions. Classroom Tech also offers in-house service and repair
facilities and carries many top brands.

This Report contains references to our trademarks and to trademarks belonging to
other entities. Solely for convenience, trademarks and trade names referred to
in this Report, including logos, artwork and other visual displays, may appear
without the ® or TM symbols, but such references are not intended to indicate,
in any way, that we will not assert, to the fullest extent under applicable law,
our rights or the rights of the applicable licensor to these trademarks and
trade names. We do not intend our use or display of other companies’ trade names
or trademarks to imply a relationship with, or endorsement or sponsorship of us
by, any other companies.

The financial statements after the completion of the merger and acquisition
include the consolidated assets and liabilities of the combined company
(collectively Galaxy Next Generation, Inc., Interlock Concepts, Inc., Ehlert
Solutions Group, Inc.
and Classroom Tech referred to collectively as the

All intercompany transactions and accounts have been eliminated in the

Galaxy’s common stock is traded on over-the-counter markets under the stock
symbol GAXY.

Reverse Stock Split

Effective March 7, 2022, we effected a one-for-two hundred reverse stock split
of our authorized and outstanding shares of common stock. All per share numbers
reflect the one-for-two hundred reverse stock split.

Critical Accounting Estimates

Management’s Discussion and Analysis discusses our consolidated financial
statements which have been prepared in accordance with United States Generally
Accepted Accounting Principles (U.S. GAAP). The preparation of these
consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet date and reported amounts
of revenue and expenses during the reporting period. On an ongoing basis, we
evaluate our estimates and judgments. We base our estimates and judgments on
historical experience and on various other factors that are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

The critical accounting policies and estimates that affect the condensed
consolidated financial statements and the judgments and assumptions used are
consistent with those described in Note 1 to our audited consolidated financial
statements contained in our Annual Report.

Financial Results and Performance Metrics Overview

The table below presents an analysis of selected line items period-over-period
in our interim Condensed Consolidated Statements of Operations for the periods



Total revenues recognized were $619,053 and $1,684,771 for the three months
ended September 30, 2022 and 2021, respectively, a decrease of approximately
63%. Additionally, deferred revenue amounted to $647,433 and $175,436 as of
September 30, 2022 and June 30, 2022, respectively. Revenues decreased during
the three months ended September 30, 2022 due to issues with delays in supply
chain issues which resulted in a large increase in deferred revenue at quarter

Cost of Sales and Gross Margin

Our cost of sales was $271,485 and $1,018,763 for the three months ended
September 30, 2022 and 2021, respectively, a decrease of approximately 73%. Cost
of sales consists primarily of manufacturing, freight, and installation costs.
There are no significant overhead costs which impact cost of sales. Cost of
sales decreased during the three months ended September 30, 2022 due to the
decrease in revenue as well as our shift to selling products that are lower cost
with higher profit margins.

General and Administrative

Three months ended                 September 30, 2022   September 30, 2021
Stock compensation and stock                                     $  32,750
issued for services                        $  188,128
General and administrative                  1,431,979            1,498,124
Total General and Administrative                              $  1,530,874
Expenses                                 $  1,620,107

Total general and administrative expenses (including stock issued for services
expenses) were $1,620,107 and $1,530,874 for the three months ended September
30, 2022
and 2021, respectively.

Other Income (Expense)

Three months ended                   September 30, 2022   September 30, 2021
Other Income                                   $  2,543                 $  -
Expenses related to notes payable:
Change in fair value of derivative
liability                                             -            1,008,000
Interest accretion                            (121,270)              (8,750)
Interest related to equity purchase
agreement                                             -            (252,900)
Interest expense                              (162,377)            (267,511)

Total Other Income (Expense)               $  (281,104)           $  478,839

Interest expense amounted to $162,377 and $520,411 for the three months ended
September 30, 2022 and 2021, respectively, a decrease of 69%. Interest expense
of $162,377 and $267,511 during the three months ended September 30, 2022 and
2021, was due to interest paid on notes payable. The change in the fair value
of the derivative was due to the elimination of the derivative in December 2021,
when convertible notes were exchanged for Series F stock.

Net Loss for the Period

Net loss incurred for the three months ended September 30, 2022 and 2021 was
$1,553,643 and $386,027, respectively, an increase of approximately 302%.
Noncash contributing factors for the net loss incurred for the three months
ended September 30, 2022 and 2021 are as follows:

a). $188,128 and $32,750 represent noncash consulting fees paid through the
issuance of stock for the three months ended September 30, 2022 and 2021,

b). Noncash interest expenses of $0 and $252,900 for the three months ended
September 30, 2022 and 2021, respectively.

c). Depreciation and amortization expenses related to intangibles and
capitalized development costs of $177,376 and $130,145 for the three months
ended September 30, 2022 and 2021, respectively.


Liquidity and Capital Resources

Although our revenues generated from operations have become more sufficient, in
order to support our operational activities our revenues still need to be
supplemented by the proceeds from the issuance of securities, including equity
and debt issuances. At September 30, 2022, we had a working capital deficit of
approximately $4,900,000 and an accumulated deficit of approximately
$55,700,000. As stated in Note 12 to the notes to the unaudited condensed
consolidated financial statements included in this Report, our ability to
continue as a going concern is dependent upon management’s ability to raise
capital from the sale of its equity and, ultimately, the achievement of
sufficient operating revenues. Subsequent to the end of the quarter ended
September 30, 2022, we raised $225,000 through the issuance of notes payable. We
anticipate that our current cash and revenue generated from operations will be
sufficient for day-to-ay operations; however, we anticipate that we will need
additional capital for business expansion and new product development. If our
revenues continue to be insufficient to support our operational activities, we
intend to raise additional capital through the sale of equity securities or
borrowings from financial institutions and possibly from related and nonrelated
parties who may in fact lend to us on reasonable terms and ultimately generating
sufficient revenue from operations. Our operating loss continues to shrink, and
investments should allow us to continue for several months until sufficient
revenue is met. Management believes that its actions to secure additional
funding will allow us to continue as a going concern. We currently do not have
any committed sources of financing other than our accounts receivable factoring
agreement, which requires us to meet certain requirements to utilize. There can
be no assurance that we will meet all or any of the requirements pursuant to our
line of credit, or accounts receivable factoring agreement, and therefore those
financing options may be unavailable to us. The Equity Purchase Agreement that
we entered into November 2022 also has several conditions that we must meet
before ClearThink Capital Partners, LLC is required to purchase shares of our
common stock and there can be no assurance that we will meet those conditions.
The There is no guarantee we will be successful in raising capital outside of
our current sources, and if so, that we will be able to do so on favorable

Our cash totaled $163,126 at September 30, 2022, as compared with $300,899 at
June 30, 2022, a decrease of $137,773. Net cash of $501,160 and $420,559 was
used in operations and investing activities, respectively, for the three months
ended September 30, 2022. Net cash of $872,809 and $4,160 was used in operations
and investing activities, respectively, for the three months ended September 30,

Net cash of $783,946 was provided from financing activities for the three months
ended September 30, 2022, primarily due to proceeds from notes payable
agreements. Net cash of $689,669 was provided from financing activities for the
three months ended September 30, 2021, primarily due to proceeds from an equity
purchase agreement.

To implement our business plan, we may require additional financing. Further,
current or future adverse capital and credit market conditions could limit our
access to capital. We may be unable to raise capital or bear an unattractive
cost of capital that could reduce our financial flexibility.

Our long-term liquidity requirements will depend on many factors, including the
rate at which we grow our business and footprint in the industries. To the
extent that the funds generated from operations are insufficient to fund our
activities in the long term, we may be required to raise additional funds
through public or private financing. No assurance can be given that additional
financing will be available or that, if it is available, it will be on terms
acceptable to us.

Off-Balance Sheet Arrangements

The Company did not have off-balance sheet arrangements or transactions as of
and for the three months ended September 30, 2022 and 2021.

Non-GAAP Disclosure

To provide investors with additional insight and allow for a more comprehensive
understanding of the information used by management in its financial and
decision-making surrounding pro forma operations, Galaxy supplements its
consolidated financial statements presented on a basis consistent with U.S.
generally accepted accounting principles, or GAAP withjAdjusted EBITDA as a
non-GAAP financial measures of earnings. The tables below provide a
reconciliation of the non-GAAP financial measures, presented herein, to the most
directly comparable financial measures calculated and presented in accordance
with GAAP. Adjusted EBITDA represents EBITDA (earnings before income taxes
depreciation and amortization). Galaxy management uses Adjusted EBITDA as
financial measures to evaluate the profitability and efficiency of the business
model. The Company uses these non-GAAP financial measures to assess the strength
of the underlying operations of the business. These adjustments, and the
non-GAAP financial measures that are derived from them, provide supplemental
information to analyze our operations between periods and over time. Galaxy
finds this especially useful when reviewing pro forma results of operations,
which include large non-cash expenses including interest on the Equity Purchase
Agreement, amortization of intangible assets and capitalized development costs
and stock-based compensation. Investors should consider its non-GAAP financial
measures in addition to, and not as a substitute for, financial measures
prepared in accordance with GAAP. The non-GAAP financial measures should not be
considered superior to, as a substitute for, or as an alternative to, and should
be considered in conjunction with, the GAAP financial measures presented.

Non-GAAP Adjusted EBITDA financial results for the three months ended September
30, 2022 and 2021:

Three months ended            September 30, 2022    September 30, 2022
Revenue                               $  619,053          $  1,684,771
Gross Profit                             347,568               666,008
General and Administrative             1,620,107             1,530,874
Loss from Operations                 (1,272,539)             (864,866)
Other Income (Expense)                     2,543               478,839
Net Loss                             (1,553,643)             (386,027)
Interest, Taxes,                         527,881               424,545
Depreciation, Stock
Compensation and Amortization
Non-GAAP Adjusted EBITDA          $  (1,025,762)             $  38,518

Non-GAAP Adjusted EBITDA was net loss of $1,025,762 and a net positive of
$38,518 for the three months ended September 30, 2022 and 2021, respectively.


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