UNITED STATES

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

March 31, 2019

OR

[   ] ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

Commission File Number: 333-51918

GALAXY NEXT GENERATION, INC.

Commission file number 333-51918

FULLCIRCLE REGISTRY, INC.

(Exact(Exact Name of Registrant as Specified in Its Charter)

417 W Peck Street, Meridian, Idaho 83646

(Address of Principal Executive Offices) (Zip Code)

(208) 803-1509(706) 391-5030

(Registrant’s Telephone Number, Including Area Code)telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) during the preceding 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 [      ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,Website, if  any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [      ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, an emerging   growth company or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check   one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [      ] No [X]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 191,953,084 Class A commonCommon shares as of November 18, 2017.

1

FORM 10-Q

FULLCIRCLE REGISTRY, INC.April 29, 2019 was 10,390,339.  

Table of Contents-1-

2

-2-

PART I – FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

ITEM 1. FINANCIAL STATEMENTS

The following unaudited consolidated financial statements are included herein:

-3-

See accompanying notes to the consolidated financial statements (unaudited)

-4-

See accompanying notes to the consolidated financial statements (unaudited)

-5-

See accompanying notes to the consolidated financial statements (unaudited)

-6-

See accompanying notes to the consolidated financial statements (unaudited)

-7-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 1 - Summary of Significant Accounting Policies:

Corporate History, Nature of Business and Mergers

Galaxy Next Generation LTD CO. (“Galaxy CO”) was organized in the state of Georgia in February 2017 while R & G Sales, Inc. (“R&G”) was organized in the state of Georgia in August 2004. Galaxy CO merged with R&G (“common controlled merger”) on March 16, 2018, with R&G becoming the surviving company. R&G subsequently changed its name to Galaxy Next Generation, Inc. (“Galaxy”).

FullCircle Registry, Inc.

Consolidated Balance Sheets

The accompanying notes are an integral part, (“FLCR”) is a holding company created for the purpose of these consolidated financial statements.

3

acquiring small profitable businesses to provide exit plans for those company’s owners. FLCR’s subsidiary, FullCircle Registry,Entertainment, Inc.

Consolidated Statement of Operations (Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

4

FullCircle Registry, Inc.

Consolidated Statement of Cash Flows (Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

5

NOTE 1. BASIS OF FINANCIAL STATEMENT PRESENTATION (“Entertainment” or “FLCE”), owns and operates Georgetown 14 Cinemas, a fourteen-theater movie complex located in Indianapolis, Indiana.

On June 22, 2018, Galaxy consummated a reverse triangular merger whereby Galaxy merged with and into Full Circle Registry, Inc.’s (FLCR) newly formed subsidiary - formed specifically for the transaction (Galaxy MS). The information furnished herein was taken frommerger resulted in Galaxy MS becoming a wholly-owned subsidiary of FLCR. For accounting purposes, the booksacquisition of Galaxy by FLCR is considered a reverse acquisition, an acquisition transaction where the acquired company, Galaxy, is considered the acquirer for accounting purposes, notwithstanding the form of the transaction. The primary reason the transaction is being treated as a purchase by Galaxy rather than a purchase by FLCR is that FLCR is a public reporting company, and recordsGalaxy’s stockholders gained majority control of the outstanding voting power of FLCR’s equity securities. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements of the Company without audit. However, such information reflects all adjustments, whichprior to the merger are inthose of Galaxy. The financial statements after the opinion of management, necessary to properly reflect the resultscompletion of the interim period presented. The information presented is not necessarily indicativemerger include the combined assets and liabilities of the resultscombined company (collectively Galaxy Next Generation, Inc., Full Circle Registry, Inc. and FullCircle Entertainment, Inc., or “the Company”).

In recognition of Galaxy’s merger with FLCR, several things occurred: (1) FLCR amended its articles of incorporation to change its name from operations expectedFullCircle Registry, Inc. to Galaxy Next Generation, Inc.; (2) Galaxy and FLCR changed its fiscal year end to June 30, effective June 2018; (3) FLCR authorized shares of preferred stock were increased to 200,000,000 and authorized shares of common stock were increased to 4,200,000,000, (prior to the Reverse Stock Split) both with a par value of $0.0001; and (4) the Board of Directors and Executive Officers approved Gary LeCroy, President and Director; Magen McGahee, Secretary and Director; and Carl Austin, Director; and (5) the primary business operated by the combined company became the business that was operated by Galaxy.

-8-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 1 - Summary of Significant Accounting Policies (Continued):

Corporate History, Nature of Business and Mergers (Continued)

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 products include Galaxy’s own private-label interactive touch screen panel as well as numerous other national and international branded peripheral and communication devices. New technologies like Galaxy’s own SAM series touchscreen panels are sold along with renowned brands such as Google Chromebooks, Microsoft Surface Tablets, Lenovo & Acer computers, Verizon WiFi and more. Galaxy’s distribution channel consists of approximately 25 resellers across the U.S. who primarily sell its products within the commercial and educational market. Galaxy does not control where the resellers focus their resell 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 also possesses its own reseller channel where it sells directly to the full fiscal year.K-12 market, primarily throughout the Southeast region of the United States.

As disclosed in Note 11, the Entertainment segment was sold effective on February 6, 2019 in exchange for 38,625 Galaxy common shares.

Basis of Presentation and Principles of Consolidation

The accompanying un-auditedconsolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordanceconformity with accounting principles generally accepted in the United States of AmericaAmerica. Any reference in these footnotes to applicable guidance is meant to refer to the authoritative U.S. generally accepted accounting principles (“GAAP”) as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Due to the change in year-end, the Company’s fiscal year 2018 is shortened from 12 months to 3 months and is ending on June 30, 2018. Further, the financial statements as of June 30, 2018 represent the financial information of the Company subsequent to the acquisition. The financial statements for the three-month and nine-month period ending March 31, 2018 represent the financial information of the Company prior to the acquisition. All intercompany transactions and accounts have been condensed or omittedeliminated in the consolidation.

The Company’s financial reporting segments are Technology (reflecting the operations of Galaxy) and Entertainment (reflecting the operations of the movie theater). The Company is an over-the-counter public company traded under the stock symbol listing GAXY (formerly FLCR).

-9-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 1 - Summary of Significant Accounting Policies (Continued):

Segment Reporting

With the reverse merger between Galaxy and FLCR on June 22, 2018, the Company has identified two reportable segments: Technology and Entertainment. Segment determination is based on the internal organization structure, management of operations and performance evaluation by management and the Company’s Board of Directors. Separate management of each segment is required because each business unit is subject to different operational issues and strategies.

The Technology segment sells interactive learning technology hardware and software that allows the presenter and participant to engage in a fully collaborative instructional environment. Galaxy’s products include Galaxy’s own private-label interactive touch screen panel as well as numerous other national and international branded peripheral and communication devices.

The Entertainment segment owns and operates Georgetown 14 Cinemas, a fourteen-theater movie complex located in Indianapolis, Indiana. Entertainment generates revenues from movie ticket sales and concessions. As part of the merger agreement, the parties have the right to spinout the Entertainment segment to the prior shareholders of FLCR. Management plans to implement the spinout in order to focus on its primary business plan, which is Galaxy. As disclosed in Note 11, the Entertainment segment was sold to an entity with a common board member, effective February 6, 2019.

Use of Estimates

The preparation of consolidated financial statements in accordance with such rulesgenerally accepted accounting principles requires management to make estimates and regulations. assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates used in preparing the consolidated financial statements include those assumed in computing the allowance for doubtful accounts, inventory reserves, product warranty liabilities, and the valuation of deferred tax assets. It is reasonably possible that the significant estimates used will change within the next year.

-10-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 1 - Summary of Significant Accounting Policies (Continued):

Capital Structure

In accordance with ASC 505, “Equity,” the Company’s capital structure is as follows:

There is no publicly traded market for the preferred shares.

Business Combinations

The information furnishedCompany accounts for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions.

-11-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Business Combinations (Continued)

Concurrent with the reverse triangular merger, the Company applied pushdown accounting. Pushdown accounting refers to the use of the acquirer’s basis in the preparation of the acquiree’s separate financial statements as the new basis of accounting for the acquiree. See Note 11 for a discussion of the merger and the related impact on the Company’s consolidated financial statements.

Revenue Recognition

Technology Interactive Panels and Related Products

The Company derives revenue from the sale of interactive panels and other related products. Sales of these panels may also include optional equipment, accessories and services (installation, training and other services, including maintenance services and/or an extended warranty). Product sales and installation revenue are recognized when all of the following criteria have been met: (1) products have been shipped or customers have purchased and accepted title to the goods; service revenue for installation of products sold is recognized as the installation services are performed, (2) persuasive evidence of an arrangement exists, (3) the price to the customer is fixed, and (4) collectability is reasonably assured.

Deferred revenue consists of customer deposits and advance billings of the Company’s products where sales have not yet been recognized. Shipping and handling costs billed to customers are included in revenue in the accompanying statements of operations. Costs incurred by the Company associated with shipping and handling are included in cost of sales in the accompanying statements of operations. Sales are recorded net of sales returns and discounts, and sales are presented net of sales-related taxes.

Because of the nature and quality of the Company’s products, the Company provides for the estimated costs of warranties at the time revenue is recognized for a period of five years after purchase as a secondary warranty. The manufacturer also provides a warranty against certain manufacturing and other defects. As of the nine-month period ended March 31, 2019 and the period ended June 30, 2018, the Company accrued $1,350 for estimated product warranty claims, which is included in accrued expenses in the accompanying balance sheets. The accrued warranty costs are based primarily on historical experience of actual warranty claims as well as current repair costs. There were no warranty claim expenses during the period ended March 31, 2019. There was $1,350 of warranty expenses for the period ended March 31, 2018.

-12-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 1 - Summary of Significant Policies (Continued):

Revenue Recognition (Continued)

Product sales resulting from fixed-price contracts involve a signed contract for a fixed price or a binding purchase order to provide the Company’s interactive panels and accessories. Contract arrangements exclude a right of return for delivered items. Product sales resulting from fixed-price contracts are generated from multiple-element arrangements that require separate units of accounting and estimates regarding the fair value of individual elements. The Company has determined that its multiple-element arrangements that qualify as separate units of accounting are (1) product sales and (2) installation and related services. There is objective and reliable evidence of fair value for both the product sales and installation services and allocation of arrangement consideration for each of these units is based on their relative fair values. Each of these elements represent individual units of accounting, as the delivered item has value to a customer on a stand-alone basis. The Company’s products can be sold on a stand-alone basis to customers which provides objective evidence of the fair value of the product portion of the multi-element contract, and thus represents the Company’s best estimate of selling price.

The fair value of installation services is separately calculated using expected costs of installation services. Many times, the value of installation services is calculated using price quotations from subcontractors to the Company who perform installation services on a stand-alone basis.

The Company sells equipment with embedded software to its customers. The embedded software is not sold separately, and it is not a significant focus of the Company’s marketing efforts. The Company does not provide post-contract customer support specific to the software or incur significant costs that are within the scope of Financial Accounting Standards Board (“FASB”) guidance on accounting for software to be leased or sold. Additionally, the functionality that the software provides is marketed as part of the overall product. The software embedded in the equipment is incidental to the equipment as a whole.

Entertainment Theater Ticket Sales and Concessions

Revenues are generated principally through admissions and concessions sales with proceeds received in cash or via credit card at the point of sale.

-13-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 1 - Summary of Significant Accounting Policies (Continued):

Cash and Cash Equivalents

The Company considers cash and cash equivalents to be cash in all bank accounts, including money market and temporary investments that have an original maturity of three months or less.

From time to time, the Company has on deposit, in institutions whose accounts are insured by the Federal Deposit Insurance Corporation, funds in excess of the insured maximum. The at-risk amount is subject to significant fluctuation daily throughout the year. The Company has never experienced any losses related to these balances, and as such, the Company does not believe it is exposed to any significant risk.

Accounts Receivable

The Company reports accounts receivable at invoiced amounts less an allowance for doubtful accounts. Interest is not charged on past due accounts. Management reviews each receivable balance and estimates that portion, if any, of the balance that will not be collected. The carrying amount of the accounts receivable is then reduced by an allowance based on management’s estimate. Management deemed no allowance for doubtful accounts was necessary at March 31, 2019 or June 30, 2018.

Inventories

Inventory is stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out (FIFO) method of accounting. All inventory at March 31, 2019 and June 30, 2018, represents goods available for sale. Galaxy inventory is mostly comprised of interactive panels and accessories while FLCR inventory consists of concession inventory such as popcorn, soft drinks, and candy. Management estimates no obsolete or slow-moving inventory reserves at March 31, 2019 or June 30, 2018.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation are removed from the related accounts and any gain or loss is reflected in operations.

-14-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 1 - Summary of Significant Accounting Policies (Continued):

Property and Equipment (Continued)

Property and equipment at March 31, 2019 and June 30, 2018, and the estimated useful lives used in computing depreciation, are as follows:

Building

40 years

Building improvements

8 years

Vehicles

5 years

Equipment

5 – 8 years

Furniture and fixtures

5 years

Depreciation is provided using the straight-line method over the estimated useful lives of the depreciable assets. Depreciation expense was $38,220 and $17,667 for the three-month periods ended March 31, 2019 and 2018, respectively. Depreciation expense was $216,642 and $14,547 for the nine-month periods ended March 31, 2019 and 2018, respectively.

Long-lived Assets

Long-lived assets to be held and used are tested for recoverability whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the excess of the asset’s carrying amount over the fair value of the asset.

Goodwill

Goodwill is not amortized, but is reviewed for impairment at least annually, or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments regarding indicators of potential impairment are based on market conditions and operational performance of the business.

At each fiscal year-end, the Company performs an impairment analysis of goodwill. The Company may assess its goodwill for impairment initially using a qualitative approach to determine whether conditions exist to indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If management concludes, based on its assessment of relevant events, facts and circumstances that it is more likely than not that a reporting unit’s carrying value is greater than its fair value, then a goodwill impairment charge is recognized for the amount in excess, not to exceed the total amount of goodwill allocated to that reporting unit.

-15-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 1 - Summary of Significant Accounting Policies (Continued):

Goodwill (Continued)

If the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and no further testing is required. An impairment charge is recorded as a general and administrative expense within the Company’s statement of operations.

Income Taxes

The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss from the current year and any adjustment to income taxes payable related to previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or subsequently enacted by the year-end date.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. Under the asset and liability method the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion or all of the deferred tax asset will not be recognized.

Prior to the merger, Galaxy was organized as a Subchapter S Corporation under the Internal Revenue Code. There was no provision for federal and state income taxes for the three-month or nine-month periods ended March 31, 2018 since the proportionate share of the taxable income or loss was included in the tax returns of the stockholders. However, upon completion of the merger, Galaxy consequently changed to a C Corporation.

Research and Development

The Company accounts for research and development (R&D) costs in accordance with the Research and Development topic of the ASC. Under the Research and Development topic of the ASC, all R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the contracted work has been performed.

Stock-based Compensation

The Company records stock-based compensation in accordance with the provisions set forth in ASC 718, “Stock Compensation” using the modified prospective method. ASC 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. The Company, from time to time, may issue common stock to acquire services or goods from non-employees. Common stock issued to persons other than employees or directors are recorded on the basis of their fair value.

-16-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 1 - Summary of Significant Accounting Policies (Continued):

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-01 Business Combinations (Topic 805)-Clarifying the Definition of a Business. This guidance changes the definition of a business to assist entities in evaluating when a set of transferred assets and activities constitutes a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in Accounting Standards Codification (ASC 606) Revenue from Contracts with Customers. The new standard is effective for public entities beginning in fiscal years starting after December 15, 2017.  We adopted this standard during the quarter ended December 31, 2018. There was no significant impact on our financial statements as a result of adopting this standard.

In August 2017, FASB issued ASU No. 2017-12 Derivatives and Hedging (Topic 815)—Targeted Improvements to Accounting for Hedging Activities. This guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. The new standard is effective for public entities in fiscal years beginning after December 15, 2018. Early adoption is permitted.  The Company is assessing the impact of this standard on it’s financial statements.

In August 2018, the U.S. Securities and Exchange Commission ("SEC") adopted the final rule under SEC Release No. 33-10532 Disclosure Update and Simplification, to eliminate or modify certain disclosure rules that are redundant, outdated, or duplicative of U.S. GAAP or other regulatory requirements. Among other changes, the amendments eliminated the annual requirement to disclose the high and low trading prices of our common stock. In addition, the amendments provide that disclosure requirements related to the analysis of shareholders' equity are expanded for interim financial statements includes normal recurring adjustments and reflects all adjustments, which,statements. An analysis of the changes in each caption of shareholders' equity presented in the opinionbalance sheet must be provided in a note or separate statement, as well as the amount of management,dividends per share for each class of shares. This rule was effective on November 5, 2018; and we adopted this guidance during the quarter ended December 31, 2018 with no impact on the financial statements presented in accordance with generally accepted accounting principles.

-17-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 2 - Property and Equipment:

Property and equipment are necessarycomprised of the following:

As disclosed in Note 11, the Entertainment segment was sold effective February 6, 2019 in exchange for 38,625 Galaxy common shares. As a result of the sale, the property and equipment belonging to this segment was reduced to zero.

Note 3 - Line of Credit:

The Company has a $1,250,000 line of credit agreement with a bank. The line of credit bears interest at prime plus 0.5% (6.0% as of March 31, 2019 and 5.5% as of June 30, 2018) and expires in December 2019. The line of credit is collateralized by all assets of the business, certain property owned by a family member of a stockholder, equity investments of two stockholders, personal guarantees of two stockholders, and a key man life insurance policy. A minimum average bank balance of $50,000 is required as part of the line of credit agreement. In addition, a 20% curtailment of the outstanding balance will occur during 2019. The outstanding balance was $1,230,550 and $547,603 at March 31, 2019 and June 30, 2018, respectively.

-18-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Notes 4 - Notes Payable:

Long Term Notes Payable

The Company's long term notes payable obligations to unrelated parties are as follows as of March 31, 2019 and June 30, 2018:

-19-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

As disclosed in Note 11, the Entertainment segment was sold effective February 6, 2019 in exchange for 38,625 Galaxy common shares. As a result of the sale, the notes payable belonging to this segment was reduced to zero.

Note 4 - Notes Payable (Continued):

Long Term Notes Payable (Continued)

Future minimum principal payments on the non-related party long term notes payable are as follows:

Short Term Notes Payable

The Company's short term notes payable obligations to unrelated parties assumed in the acquisition (Note 11) are as follows as of March 31, 2019 and June 30, 2018:

-20-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

As disclosed in Note 11, the Entertainment segment was sold effective February 6, 2019 in exchange for 38,625 Galaxy common shares. As a result of the sale, the notes payable belonging to this segment was reduced to zero.

Convertible Notes Payable

During the three and nine-month periods ended March 31, 2019, the Company recorded interest expense of $40,578 and $45,022 of amortization of debt discount, included in interest expense.

-21-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 5 - Related Party Transactions:

Notes Payable

The Company's notes payable obligations to related parties assumed in the acquisition (Note 11) are as follows as of March 31, 2019 and June 30, 2018:

-22-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

As disclosed in Note 11, the Entertainment segment was sold effective February 6, 2019 in exchange for 38,625 Galaxy common shares. As a result of the sale, the notes payable belonging to this segment was reduced to zero.

Note 5 - Related Party Transactions (Continued):

Other Advances and Commitments

In support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that it can support its operations or attain adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by officers, directors or shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are unsecured, due on demand, and the amounts outstanding at March 31, 2019 and June 30, 2018 is $0 and $260,173, respectively.

Galaxy pays a related party $7,500 as a collateral fee for securing the Company’s short-term note payable with a certificate of deposit (see Note 4).

Leases

The Company’s technology segment leases property used in operations from a related party under terms of an operating lease. The term of the lease expired on December 31, 2018 when the lease changed to a month-to-month operating lease. The monthly lease payment is $1,500 plus maintenance and property taxes, as defined in the lease agreement. Rent expense for this lease, as well as other month-to-month leases, totaled $21,646 and $10,500 for the three-month periods ended March 31, 2019 and 2018, respectively. Rent expense totaled $24,634 and $14,169 for the nine-month periods ended March 31, 2019 and 2018, respectively.

The Company leases three vehicles from related parties under capital leases. The Company is paying the lease payments directly to the creditors, rather than the lessor. The leased vehicles are used in operations for deliveries and installations.

Other Agreements

A stockholder’s family member collateralizes the Company’s short-term note with a CD in the amount of $375,000, held at the same bank. The family member will receive a $7,500 collateral fee for this service. In May 2018, 50,000 shares of stock were issued in exchange for a $100,000 reduction in the short-term note balance.

Notes Payable Converted to Common Stock

On June 22, 2018, various board members and executives of FLCR exchanged their outstanding related party debt and accrued interest for 4% of the Company’s common stock as described in Note 11.

-23-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 6 - Lease Agreements:

Capital Lease Agreements

Capital lease agreements for vehicles (disclosed in Note 4) require monthly payments totaling $1,066 (ranging from $253 to $461), including interest (ranging from 4.0% to 4.75%), over 5-year terms expiring between April 2019 and July 2020.

Operating Lease Agreements

The Company leases office, retail shop and warehouse facilities under operating leases from a related party (disclosed in Note 5) which require monthly payments of $1,500 and subsequent to December 2018, became a month-to-month operating lease. Rent expense for this lease, as well as other month-to-month leases, totaled $21,646 and $10,500 for the three-month periods ended March 31, 2019 and 2018, respectively. Rent expense totaled $24,634 and $14,169 for the nine-month periods ended March 31, 2019 and 2018, respectively.

-24-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 7 - Equity:

Certain equity transactions related to the reverse triangular merger occurred in September 2018, but have been reflected as of June 30, 2018, in the consolidated financial statements due to FLCR effectively transferring control to Galaxy as of June 22, 2018 (see Note 11). The following equity transactions occurred simultaneously, and are treated in these consolidated financial statements as being effective on that date:

•

Galaxy shareholders transferred all the outstanding shares of common stock to the Merger Sub;

•

Preferred Class C shares were converted into common stock in an amount equivalent to 89% ownership in the outstanding shares of the merged company;

•

Common shares were issued to common stockholders in an amount equivalent to 7% ownership in the outstanding shares of the merged company;

•

Common shares were issued to convertible debt holders in an amount equivalent to 4% ownership in the outstanding shares of the merged company (See Note 5).

•

A reverse stock split was approved at a ratio of one new share for every 350 shares of common stock outstanding (1:350 Reverse Stock Split).

Private Placement

In March 2018, the Company offered 1,500,000 common shares to qualified investors at $2 per share in a private placement memorandum (“PPM”). The private placement offering period expired in September 2018. Proceeds were raised to purchase inventory, pay merger costs and provide working capital. As a result of the PPM, the Company issued 1,374,850 shares to new investors resulting in proceeds of $2,004,500. The shares issued in the PPM are prior to the Reverse Stock Split.

In May 2018, 50,000 shares of stock (143 shares post-Reverse Stock Split) were issued to the related party in exchange for a $100,000 reduction in the short-term note balance (see Note 4).

On December 19, 2018, the Company issued 75,511 shares as a bonus to a board member for consulting services and as a performance incentive to a key employee.

In December 2018, January 2019 and February 2019, the Company issued commitment fees in the form of 252,271 returnable common shares under convertible notes.  These shares are issued but not outstanding at March 31, 2019. These shares will be considered outstanding upon the exercise of the conversion rights specified in the convertible notes.

During the three-month period ended March 31, 2019, the Company issued 300,000 shares for professional consulting services.

During the three-month period ended March 31, 2019, the Company acquired 38,625 shares from an entity with a common board member under a Share Purchase Agreement related to the sale of Entertainment. These shares are issued but not outstanding at March 31, 2019.

-25-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

See the capital structure section in Note 1 for disclosure of the equity components included in the Company’s consolidated financial statements.

Note 8 - Income Taxes:

The U.S. Tax Cuts and Jobs Act (TCJA) legislation, enacted on December 22, 2017, reduces the U.S. federal corporate income tax rate from 35.0% to 21.0% and is effective January 1, 2018 for the Company. The Company has not generated any taxable income and has not recorded any current income tax expense at March 31, 2019. Consequently, the tax rate change has had no impact on the Company’s current tax expense but impacts the deferred tax assets and liabilities and will impact future deferred tax assets and liabilities to be recognized.

The Company’s deferred tax assets are primarily comprised of net operating losses (“NOL”) that give rise to deferred tax assets. Estimated net operating losses available at March 31, 2019 amounted to approximately $2,500,000, set to expire through 2038. There is no tax benefit for goodwill impairment, which is permanently non-deductible for tax purposes. Additionally, due to the uncertainty of the utilization of net operating loss carry forwards a valuation allowance equal to the net deferred tax assets has been recorded.

The Company’s effective tax rate differed from the federal statutory income tax rate for the period ended March 31, 2019 is as follows:

As of March 31, 2019, the Company does not believe that it has taken any tax positions that would require the recording of any additional tax liability nor does it believe that there are any unrealized tax benefits that would either increase or decrease within the next twelve months. As of March 31, 2019, the Company’s income tax returns generally remain open for examination for three years from the date filed with each taxing jurisdiction.

-26-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 9 - Commitments, Contingencies, and Concentrations:

Contingencies

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

Concentrations

Galaxy contracts the manufacturer of its products with overseas suppliers. The Company’s sales could be adversely impacted by a supplier’s inability to provide Galaxy with an adequate supply of inventory.

Galaxy has three customers that accounted for approximately 76% of accounts receivable at March 31, 2019 and87% of accounts receivable at June 30, 2018. Galaxy has three customers that accounted for approximately 67% and  42% of revenues for the three-month periods ended March 31, 2019 and March 31, 2018, respectively. Galaxy has three customers that accounted for approximately 57% and 52% of revenues for the nine-month periods ended March 31, 2019 and 2018, respectively.The Company routinely assesses the financial strength of its customers and, consequently, believes that its accounts receivable credit risk exposure is limited.

-27-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 10 - Material Agreements:

Manufacturing and Distributorship Agreement

In December 2016, Galaxy executed an agreement with a company in South Korea. Pursuant to such distribution agreement, the manufacturer agreed to manufacture, and the Company agreed to be the sole distributor of the interactive panels in the United States for a term of one year, with automatic annual renewals. The Company must submit a three-month rolling sales forecast (which acts as a purchase order) to the manufacturer, updated monthly. The manufacturer has three days to accept the purchase order and once accepted, the Company must pay the manufacturer 105% of the cost shown on the purchase order, 10% at the time the order is accepted and the remaining 95% within 120 days if the Company has sold the panels and been paid by the end customer. The manufacturer also provides a warranty for any defects in material and workmanship for a period of 26 months from the date of shipment to the Company.

There was a $4 million minimum purchase commitment for the 12-month period ended December 31, 2017. This minimum purchase commitment was not met; however, the manufacturer and the Company extended the agreement for an additional year under the same terms. Because the Company did not meet the minimum purchase commitment, the manufacturer can require the Company to work with their sales representative to establish a performance improvement plan, and the manufacturer has the right to terminate the agreement. The agreement expires December 31, 2019.

Consulting Agreement

Galaxy entered into a consulting agreement in May 2017 with two consultants for advisory services through July 2019. In exchange for consulting services provided, these consultants are entitled to receive consulting fees of $15,000 per month and a 5.5% combined equity interest in Galaxy. The 5.5% equity interest was converted to common stock upon the commencement of the Common Controlled Merger Agreement of R&G and Galaxy CO (as described in Note 1). The Company paid the consultants $161,500 and $374,500 in fees and expenses for consulting services provided during the three-month and nine-month periods ended March 31, 2019. No consulting fees were paid under this agreement during the periods ended March 31, 2018. The consulting agreement was renewed effective May 1, 2019 (as described in Note 15).

Consulting Agreement – Magellan FIN, LLC

The Company entered into a consulting agreement in May 2018 for advisory services such as maintaining ongoing stock market support such as drafting and delivering press releases and handling investor requests. The program will be predicated on accurate, deliberate and direct disclosure and information flow from the Company and dissemination to the appropriate investor audiences. In exchange for these consulting services provided, the advisor received $15,000 at contract inception, an additional $4,000 monthly through the term of the agreement, which is April 2019, and 10,000 shares of common stock. The Company incurred no amounts for consulting fees during the three-month period and $23,000 during the nine-month period ended March 31, 2019. No consulting fees were paid under this agreement during the periods ended March 31, 2018.

-28-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 10 - Material Agreements (Continued):

KLIK Distribution Agreement

In September 2018, the Company signed a 1-year distributor agreement with KLIK Communications to be the sole distributor of KLIK products to US educational market. The agreement will automatically renew annually, unless three months’ notice is given by either party. The agreement will end upon successful acquisition of KLIK by Galaxy, per the Letter of Intent signed in July 2018. Payment terms are 45 days after invoice. Delivery terms are FOB Deliver location. The KLIK product will replace the VIVI product (specialized interactive router) previously sold with the Galaxy panels. KLIK will provide a 2-year manufacturer’s warranty from the date of shipment, and free software updates. The agreement provides KLIK with the option of storing the manufacturer’s inventory at the Galaxy warehouse.

Distribution Agreement

Effective September 15, 2018, the Company signed a 2-year distribution agreement for Galaxy’s SLIM series of interactive panels, a new Galaxy product. Galaxy outsourced the manufacturing to a vendor as manufacturing costs are less, and customers prefer an Android operating system. The agreement includes a commitment by Galaxy to purchase $2 million of product during the first year beginning September 2018. The manufacturer will provide Galaxy with the product, including a three-year manufacturer’s warranty from the date of shipment. The agreement renews automatically in two-year increments unless three months’ notice is given by either party.

Agency Agreement

Effective December 11, 2018, the Company entered into a contract with Carter, Terry and Company (“CTC”) to act as an agent in raising capital. CTC will have the opportunity to receive a finder’s fee ranging from 4 to 8% relative to the amount of capital raised, if successful. No fees were paid during the three-month or nine-month periods ended March 31, 2019. No fees were paid under this agreement during the periods ended March 31, 2018.

Master Service Agreement

Effective January 2, 2019, the Company entered into a 3 month contract with Invictus Resources for advisory services including among other services, presenting and introducing the Company to the financial community of investors.  The Company paid $75,000 and issued 300,000 common stock shares under this agreement during the three-month period ended March 31, 2019. No advisory fees were paid under this agreement during the period ended March 31, 2018.

-29-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 11 - Reverse Acquisition:

On June 22, 2018, Galaxy consummated a reverse triangular merger whereby Galaxy merged with and into FLCR’s newly formed subsidiary, Galaxy MS, Inc. which was formed specifically for the transaction. Under the terms of the merger, Galaxy’s shareholders transferred all their outstanding shares of common stock to Galaxy MS, in return for FLCR’s Series C Preferred Shares, which were equivalent to approximately 3,065,000,000 shares of the common stock of FLCR on a pre-reverse stock split basis. This represents approximately 89% of the outstanding common stock of FLCR, with the remaining 11% of common stock distributed as follows: (a) an ownership interest of seven percent (7%) to the holders of common stock, pro rata; and (b) four percent (4%) of the common stock to the holders of convertible debt, pro rata.

Concurrent with the reverse triangular merger, the Company applied pushdown accounting; therefore, the consolidated financial statements after completion of the reverse merger include the assets, liabilities, and results of operations of the combined company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity remaining in the consolidated financial statements.

There was no cash consideration paid by Galaxy to FLCR on the date of the reverse triangular merger. Instead, shares of stock were issued and exchanged, and the Company acquired $1,511,844 of net assets of FLCR. At the closing of the merger, all of FLCR’s convertible promissory notes were converted into FLCR’s common shares. The merger agreement contains potential future tax advantages of the net operating loss carryforward available to offset future taxable income of the combined company, up to a maximum of $150,000, over a 5-year period beginning June 22, 2018. There is a valuation allowance reducing this tax benefit to zero.

-30-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 11 - Reverse Acquisition (Continued):

The following table summarizes the preliminary allocation of the fair presentationvalue of the assets and liabilities as of the merger date through pushdown accounting. The preliminary allocation to certain assets and/or liabilities may be adjusted by material amounts as the Company continues to finalize the fair value estimates.

As a result of the Company pushing down the effects of the acquisition, certain accounting adjustments are reflected in the consolidated financial statements, such as goodwill recognized amounting to $834,220 and reflected in the balance sheet. Goodwill recognized is primarily attributable to the acquisition of the fair value of the public company structure and other intangible assets that do not qualify for separate recognition.

Other assets noted in the table above consist of the differences between the acquired assets and liabilities of Full Circle Entertainment to be distributed to pre-acquisition FLCR shareholders. The Company expects to exercise its option to spin out the Entertainment subsidiary within one year to focus on its primary business plan as discussed herein and distribute all respective Entertainment assets and liabilities to these shareholders. As a result, the Company does not anticipate receiving any economic benefit from the related assets in the table above, nor incurring any obligations from the corresponding liabilities.

-31-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 11 - Reverse Acquisition (Continued):

The Company sold the Entertainment subsidiary to an entity related by common board member on February 6, 2019. The sale of Entertainment enabled the Company to focus its resources into the operations of the Technology segment. The consideration received for the sale of Entertainment was 38,625 shares of Galaxy common stock at the fair value on the date of the transaction, or $92,700. The fair value of the Galaxy common shares received offset the assets and liabilities of Entertainment, with the difference recorded as a gain on the sale for the nine-months ended March 31, 2019. The gain on the sale has been recorded in general and administrative expenses in the Consolidated Statement of Operations.

The following table presents a summary of Entertainment’s identifiable assets and liabilities at February 6, 2019, the date of the sale:

Note 12 – Stock Plan

An Employee, Directors, and Consultants Stock Plan for the Year 2019 (“Plan”) was established by the Company. The Plan is intended to attract and retain employees, directors and consultants by aligning the economic interest of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim financial statements be read in conjunctionindividuals more closely with the Company’s most recent audited financial statementsstockholders, by paying fees or salaries in the form of shares of the Company’s common stock. The Plan is effective December 28, 2018, and notes thereto includedexpires December 31, 2019. Common shares of 1,000,000 are reserved for stock awards under the Plan. There were no shares awarded under the Plan as of March 31, 2019.

-32-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and Nine-Months Ended March 31, 2019 and 2018 (Unaudited)

Note 13 - Segment Reporting

The Company has identified two reportable segments due to the merger that occurred on June 22, 2018: Technology and Entertainment.

The Technology segment sells interactive learning technology hardware and software that allows the presenter and participant to engage in a fully collaborative instructional environment. Galaxy’s products include Galaxy’s own private-label interactive touch screen panel as well as numerous other national and international branded peripheral and communication devices.

The Entertainment segment owns and operates Georgetown 14 Cinemas, a fourteen-theater movie complex located in Indianapolis, Indiana. Entertainment generates revenues from movie ticket sales and concessions. As part of the merger agreement, the parties have the right to spinout the Entertainment segment to the prior shareholders of FLCR. Management plans to implement the pinout in order to focus on its Annual Report on Form 10-Kprimary business plan, which is Galaxy. As disclosed in Note 11, the Entertainment segment was sold effective February 6, 2019.

The following table presents a summary of operating information for the yearnine-month period ended DecemberMarch 31, 2016 (filed April 24, 2017). Operating results2019 for technology and the three-monthsperiod from January 1, 2019 to February 6, 2019 for entertainment:

-33-

GALAXY NEXT GENERATION, INC.

Notes to Consolidated Financial Statements

Three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending DecemberNine-Months Ended March 31, 2017.2019 and 2018 (Unaudited)

NOTE 2. GOING CONCERNNote 14 - Going Concern:

The accompanying Consolidated Financial Statementsconsolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and liquidation of liabilitiesconcern. As reflected in the normal course of business. Theaccompanying consolidated financial statements, the Company has suffered recurring losses,had negative working capital and is dependent upon raising capital to continue operations. The Company has incurred losses resulting inof approximately $3,000,000, an accumulated deficit of $12,279,852approximately $2,100,000, and $11,714,186 ascash used in operations of September 30, 2017 and Decemberapproximately $2,400,000 at March 31, 2016, respectively.2019.

The consolidated financial statements do not include any adjustments that might result fromCompany’s operational activities and the outcomepayment for such has primarily been funded through related party advances, debt financing, a private placement offering of this uncertainty. It is management’s plancommon stock and through the deferral of accounts payable and other expenses. The Company intends to generate additional working capital by increasing revenue as a result of new sales and marketing initiatives and by raisingraise additional capital from investors.

Management’s plans with regards to these issues are as follows:

Raising new investment capital in the form of loans andthrough the sale of shares of the company’s stock, sufficientequity securities or borrowings from financial institutions and possibly from related and nonrelated parties who may in fact lend to invest in theater operations improvements that will result in continual quarterly revenue growth until revenues are sufficient to meet operating expenses on an ongoing basis.  

Maintaining the Company missionon reasonable terms. Management believes that its actions to secure additional funding will allow the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving any of focusing on net profits by increasing ticket salesthese objectives. These sources of working capital are not assured, and introducing concession items with higher gross profit.  

Achieving on-going breakeven revenueconsequently do not sufficiently mitigate the risks and expenses by the middle of 2018 based on: 1) current management assumptions, 2) Hollywood film release performance, and 3) increased attendance resulting from marketing and physical theater improvements.  

uncertainties disclosed above. The ability of the Company to continue as a going concern is dependent upon itsmanagement’s ability to successfully accomplishraise capital from the plans described insale of its equity and, ultimately, the preceding paragraph and eventually attain profitable operations.

achievement of operating revenues. The accompanyingconsolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3. STOCKHOLDERS’ EQUITY

During the nine-month period ended September 30, 2017, the Company did not issue any capital stock.

6

NOTE 4. SIGNIFICANT ACCOUNTING POLICIES

Capital Structure

In accordance with ASC 505, “Equity,” the Company’s capital structure is as follows:

Preferred stock, authorized 10,000,000 shares of $.001 par value. Class A issued and outstanding is 10,000. Class A preferred shares have no voting rights. Class B issued and outstanding is 300,600 shares. The Class B shares have voting rights of 10 votes for 1 Preferred B share. There is no publicly traded market for our preferred shares.  

Common stock, authorized 200,000,000 shares of $.001 par value, issued and outstanding 191,954,084 on September 30, 2017 and 191,954,084 on December 31, 2016. The common stock has one vote per share. The common stock is traded on the OTCBB (now “OTC Pink”) under the symbol FLCR.  

The Company has not paid, nor declared, any dividends since its inception and does not intend to declare any dividends in the foreseeable future. The Company’s ability to pay dividends is subject to limitations imposed by Nevada law. Under Nevada law, dividends may be paid to the extent that the corporation’s assets exceed its liabilities and the Company can to pay its debts as they become due in the usual course of business.  

Class B Preferred shares have a 2% preferred dividend, payable annually.  

Use of Estimates in the Preparation of Consolidated Financial StatementsNote 15 - Subsequent Events:

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities atCompany has evaluated subsequent events through the date ofon which the consolidated financial statements were available to be issued.

On April 18, 2019, the Company signed a $200,000 promissory note with a stockholder and expensesboard member. Principal and fixed interest, of $10,000, on the note are due at maturity in July 2019.  Note is personally guaranteed by a different stockholder.

On April 29, 2019, the Company signed a convertible promissory note with an investment firm. The $1,325,000 note was issued at a discount of $92,750 and bears interest at 8% per year. The loan principal and interest are convertible into shares of common stock at the lower of (a) 75% of the lowest traded price of the common stock during the reporting period. In these Consolidated Financial Statements, assets, liabilities and expenses involve extensive reliance on management’s estimates. Actual results could differ from those estimates.10 trading days immediately preceding the notice of conversion or (b) $2.75 per share. The note matures in April 2020.

NOTE 5:IMPAIRMENT OF LONG-LIVED ASSETSEffective May 1, 2019, the Company renewed a consulting contract with TPI Business Consultants, Inc. The contract calls for an initial payment of 450,000 common shares and then $15,000 monthly. The contract renews annually, unless either party cancels with a 30 day notice.

The Company assesses whether certain relevant factors limit the period over which acquired assets are expectedOn May 1, 2019, two convertible notes totaling $736,484 were paid off prior to contribute directlymaturity or indirectly to future cash flows for amortization purposes. Under certain conditions the Company may assess the recoverability of the unamortized balance of its long-lived assets based on undiscounted expected future cash flows. Should the review indicate that the carrying value is not fully recoverable; the excess of the carrying value over the fair value of any intangible asset is recognized as an impairment loss.conversion.

The Company recorded an impairment charge from continuing operations of $487,562 for the year ended, December 31, 2016. The estimated aggregate fair value of the long-lived assets impaired during the year ended December 31, 2016 was $3,990,000 and consisted of the Company’s land and building. The Company’s fair value estimate was derived primarily from estimated future cash flows of the Save-A-Lot portion of the building and land associated with a planned sale of the property by the Company during the year ending December 31, 2017 as well as a third-party appraisal on both the Save-A-Lot portion and movie theater portion of the Company’s building and land. There was no additional impairment during the nine months ended September 30, 2017.-34-

NOTE 6. LEASES – LESSORS

The Company leases space to a Save-A-Lot grocery store at our Indianapolis location. Save-A-Lot corporate assumed the lease in March 2014 for seven years with three five-year options. Monthly rent charged to the tenant is $13,373 per month. Total rental income relating to this lease was $120,353 and $120,353 for the nine months ended September 30, 2017 and 2016, respectively.

The initial lease term ends September 30, 2021. Save-A-Lot reserves the right to exercise three five-year options, which would extend the maturity date to September 30, 2036. The Company intends to sell the leased property during the year ended December 31, 2017. This will result in the loss of a portion of projected rental income in 2017 once the sale is completed, as well as all other years under the lease agreement in effect. Proceeds from the sale of the property may be used to pay down the mortgage principal on the retained real estate property which includes our theater building.

7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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 Form 10-Q. Management’s discussion and analysis contains not only historical information, but also 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. Statements that are not historical are forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

General:

Where this Form 10-Q includes “forward-looking” statements within the meaning of Section 27A of the Securities Act, we desire to take advantage of the “safe harbor” provisions thereof. Therefore, FullCircle Registry, Inc.,Galaxy, is including this statement for the express purpose of availing itself of the protections of suchthe safe harbor provisions with respect to all such forward-looking statements. The forward-looking statements in this Form 10-Q reflect our current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ from those anticipated. In this Form 10-Q, the words “anticipates,” “believes,” “expects,” “intends,” “future” and similar expressions identify forward-looking statements. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that may arise after the date hereof. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section. We have based these forward-looking statements on our current expectations and projections about future events, including, among other things:

-Attracting new financing to fund theaterour operations improvements and investments in new business development targeted at increasing revenue;  ;



-Focusing on increasing traditional movie sales and concession items with higher gross profit;

Increased revenue from food and beverage sales related to our new food menu; 

-Closely managing operational costs, balancing these new revenues to achievecosts; and exceed ongoing breakeven operation;  

Better serving our target market through scheduling of Spanish language Hollywood movies, Indian films for our Hindi, and Telugu and Tamil community; 

-Improving the number of new Hollywood releases the theater receives by operating all 14 theaters at full capacityfunctionality and through the increased successusefulness of our film booking agency;products and services.

Improving

Subsequent Events

Galaxy has secured additional funding totaling $1,325,000, which will allow them to continue product expansion, marketing efforts and increase inventory for future sales. The Company is in verbal discussions with a developer for potential new products to launch in the overall attractivenesssummer of 2019. Galaxy has recently increased their sales channel with the addition of three new resellers and service ofhave added a new regional sales rep to their team. Management believes these subsequent events will position them well within the theater to better deliver on customer expectations;  industry.

Current Mission StatementSale of Entertainment

-35-

On February 6, 2019 Galaxy Next Generation, Inc (“Galaxy” or the “Company”) sold its wholly owned subsidiary FullCircle Entertainment, Inc. (“Entertainment”).  This was done in fulfilment of the Company’s agreement to transfer the ownership of Entertainment, which was contained in that certain merger agreement the Company entered on June 6, 2018 with FullCircle Registry, Inc.  Entertainment owns a cinema complex in Indianapolis, Indiana, and as a result of the sale of Entertainment the Company no longer indirectly owns the cinema complex and does not earn, on a consolidated basis, revenue from that business.  This event should be considered while reviewing the discussion below, especially in relation to the discussion of the entertainment segment.  

Revenue recognition

Our mission is to build shareholder value through new business development within the parent CompanyTheater Ticket Sales and by maximizing the potential of the Company’s movie theater holdings. The CEO and Board are presently evaluating new business and investment concepts which may allow FullCircle Registry to add another dimension to the Company in addition to its theater business.Concessions – Entertainment Segment:

HistoryRevenues are generated principally through admissions and concessions sales with proceeds received in cash or via credit card at the point of sale.

Our initial business began in 2000 with the formation of FullCircle Registry, Inc (“FullCircle” or the “Company”). At that time, FullCircle was a technology-based business that provided emergency documentInteractive Panels and health record retrieval services.

The Company’s records retrieval technology was sound, but our marketing strategy targeted individuals as our potential customers, not health-based companies. As the records and documents retrieval business model emerged, competitors seized upon the opportunity to provide retrieval services to businesses. Because of these industry trends, the Company’s individual-based records retrieval solution became unmarketable.Related Products – Technology Segment:

The Company then initiated a series of new business models intended to provide value for the Company’s shareholders. Since 2008, the Company has created four subsidiaries to focus on additional business opportunities in the distribution of insurance agency, prescription assistance services, medical supplies, and movie theater entertainment.

FullCircle Entertainment, Inc.

The Company’s entertainment subsidiary, FullCircle Entertainment, Inc. (“FullCircle Entertainment”), was established in 2010 for acquiring movie theaters and other entertainment venues. On December 31, 2010, FullCircle Entertainment purchased Georgetown 14 Cinemas, a fourteen-theater movie complex located on eight acres at 3898 Lafayette Road, Indianapolis, IN 46254 for a purchase price of $5.5 million. Currently, the operation of this theater (and the lease of a grocery store within the structure) is the Company’s sole business and source of revenue.

Movie Theater Entertainment

The motion picture exhibition industry is fragmented and highly competitive. Our theaters compete against regional and independent operators as well as the larger theatre circuit operators.

Our operations are subject to varying degrees of competition with respect to film licensing, attracting customers, and obtaining new theater sites. In those areas where real estate is readily available, there are few barriers preventing competing companiesderives revenue from opening theaters near our existing theater, which may have a material adverse effect on our revenues. Demographic changes and competitive pressures can also lead to a theater location becoming impaired.

In addition to competition with other motion picture exhibitors, our theaters face competition from several alternative motion picture exhibition delivery systems, such as cable television, satellite and pay-per-view services and home video systems. The expansion of such delivery systems could have a material adverse effect upon our business and results of operations. We also compete for the public’s leisure time and disposable income with all forms of entertainment, including sporting events, concerts, live theatre and restaurants.

The movie theater industry is dependent upon the timely release of first run movies. Ticket sales and concession sales are influenced by the availability of top producing movies. At times, our revenues are impacted by the shortage of first run movies. Through each year, we experience fewer hit film releases from the movie companies, especially between January through March and then again during the late summer between August and October.

Generally, however, the theater is seeing periodic growth in ticket sales – again, tied directly to the strength and appeal of the films we schedule. Certain films that appeal to our target African-American and Hispanic markets have been doing extremely well. Capitalizing on this growth trend, the Company’s new “Dine-In Lite” business model should fine-tune the proven dine-in cinema success model that is the future of movie theater entertainment – greater comfort with greater food selection.

Mortgage Debt Payment Reduction

In late 2016, the Company began negotiations with Kirkland Financial, holder of the real estate mortgage and the equipment note to combine the property mortgage and the equipment note into a more affordable single monthly payment. Prior to the end of December, Kirkland Financial responded with a restructured finance agreement which reduced the combined property and equipment note monthly payment from $46,094 to $15,223. As of September 30, 2017, the Company’s new capital commitments on the combined property and equipment loan to FullCircle Entertainment, Inc are $4,582,514. As a result of this loan modification, the Company recorded a $114,821 gain on forgiveness of prior accrued interest associated with the former mortgage and equipment note. The new mortgage has a balloon payment of all unpaid principal and interest on July 15, 2020. Finally, after the theater is again cash flowing to expectations, the Company plans to refinance the mortgage to maintain an acceptable monthly payment.

Potential Sale of Property

In conjunction with the debt restructuring plan, a property appraisal of both the leased property and the theater property was obtained. The appraisal estimated the value of our 40,910 square-foot theater building at $2,850,000 and the 18,000 square-foot leased property at $1,450,000. The Company has completed a survey in preparation for the sale of interactive panels and other related products. Sales of these panels may also include optional equipment, accessories and services (installation, training and other services, including maintenance services and/or an extended warranty). Product sales and installation revenue are recognized when all of the leased propertyfollowing criteria have been met: (1) products have been shipped or customers have purchased and accepted title to the goods; service revenue for installation of products sold is discussing termsrecognized as the installation services are performed, (2) persuasive evidence of sale with several potential buyers.an arrangement exists, (3) the price to the customer is fixed, and (4) collectability is reasonably assured.

It isDeferred revenue consists of customer deposits and advance billings of the Company’s intentproducts where sales have not yet been recognized. Shipping and handling costs billed to sellcustomers are included in revenue in the 18,000-square foot leased property,accompanying statements of operations. Costs incurred by the Company associated with a target sales price of $1,200,000, which is currently classified as an asset held for sale, net of estimated selling costs.

Other Debt

We have a substantial amount of indebtedness, which may adversely affect our cash flowshipping and our ability to operate our business. As of September 30, 2017, we have approximately $190,000handling are included in unsecured notes payable, $149,000 of unsecured advances from a related party and $1,544,129 of unsecured notes payable from related parties. Most unsecured notes and advances are with shareholders of the company and does not require any debt maintenance now, as interest is accrued.

We have a combined property mortgage and equipment note of approximately $4,582,514, which is secured.

Our amount of indebtedness could have important consequences. For example, it could:

increase our vulnerability to adverse economic, industry or competitive developments;  

require a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our mortgage indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;  

increase our cost of borrowing;  

restrict us from making strategic acquisitions;  

limit our ability to service our indebtedness;  

limit our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions or general corporate purposes;  

limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate, placing us at a competitive disadvantage to less highly leveraged competitors who may be able to take advantage of opportunities that our leverage prevents us from exploiting.  

Employees

FullCircle Registry, Inc., and its subsidiaries have employee levels generally ranging between 18 and 28 employees/officers depending on seasonal needs. We have never experienced employment-related work stoppages and focus on good relations with our personnel and are continuing to attract stronger talent.

Our Corporate Information

Our principal executive offices are located at 417 W Peck Street, Meridian, Idaho, 83646, and our telephone number is (208) 803-1509. The FullCircle Registry website is www.fullcircleregistry.com, which has links to all SEC filings, updates on the theaters continued conversion to our new Dine-In Cinema LITE business model and information on the Company’s other business developments. Our website and the information contained therein or connected thereto shall not be deemed to be incorporated into this report.

RESULTS OF OPERATIONS FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

Revenues during the three months ended September 30, 2017 were $281,128 with a cost of sales of $82,120, yielding a gross profit of $199,008 or 70.8%. This compares to $261,568 in revenues for the same period in 2016, with a cost of sales of $81,378, yielding a gross profit of $180,190 or 68.9%. Revenues during the nine months ended September 30, 2017 were $895,329 with a cost of sales of $312,755, yielding a gross profit of $582,574 or 65.1%. This compares to $820,667 in revenues for the same period in 2016, with a cost of sales of $236,658, yielding a gross profit of $584,009 or 71.2%. The increased cost of sales in the accompanying statements of operations. Sales are recorded net of sales returns and discounts, and sales are presented net of sales-related taxes.

Because of the nature and quality of the Company’s products, the Company provides for the estimated costs of warranties at the time revenue is recognized for a period of five years after purchase as a secondary warranty. The manufacturer also provides a warranty against certain manufacturing and other defects. As of the period ended March 31, 2019 and the June 30, 2018, the Company accrued $1,350 for estimated product warranty claims, which is included in accrued expenses in the accompanying balance sheets. The accrued warranty costs are based primarily on historical experience of actual warranty claims as well as current repair costs. There were no warranty claim expenses during the three-month and nine-month periods ended March 31, 2019 and 2018.

Product sales resulting from fixed-price contracts involve a signed contract for a fixed price or a binding purchase order to provide the Company’s interactive panels and accessories. Contract arrangements exclude a right of return for delivered items. Product sales resulting from fixed-price contracts are generated from multiple-element arrangements that require separate units of accounting and estimates regarding the fair value of individual elements. The Company has determined that its multiple-element arrangements that qualify as separate units of accounting are (1) product sales and (2) installation and related services. There is objective and reliable evidence of fair value for both the product sales and installation services and allocation of arrangement consideration for each of these units is based on their relative fair values. Each of these elements represent individual units of accounting, as the delivered item has value to a customer on a stand-alone basis. The Company’s products can be sold on a stand-alone basis to customers which provides objective evidence of the fair value of the product portion of the multi-element contract, and thus represents the Company’s best estimate of selling price.

The fair value of installation services is separately calculated using expected costs of installation services. Many times the value of installation services is calculated using price quotations from subcontractors to the Company who perform installation services on a stand-alone basis.

-36-

The Company sells equipment with embedded software to its customers. The embedded software is not sold separately and it is not a significant focus of the Company’s marketing effort. The Company does not provide post-contract customer support specific to the software or incur significant costs that are within the scope of Financial Accounting Standards Board (“FASB”) guidance on accounting for software to be leased or sold. Additionally, the functionality that the software provides is marketed as part of the overall product. The software embedded in the equipment is incidental to the equipment as a whole.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions.

Concurrent with the reverse triangular merger with Full Circle Registry, Inc. on June 22, 2018, the Company applied pushdown accounting. Pushdown accounting refers to the use of the acquirer’s basis in the preparation of the acquiree’s separate financial statements as the new basis of accounting for the acquiree.

Goodwill

Goodwill is not amortized, but is reviewed for impairment at least annually, or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments regarding indicators of potential impairment are based on market conditions and operational performance of the business.

At each fiscal year-end, the Company performs an impairment analysis of goodwill. The Company may assess its goodwill for impairment initially using a qualitative approach to determine whether conditions exist to indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If management concludes, based on its assessment of relevant events, facts and circumstances that it is more likely than not that a reporting unit’s carrying value is greater than its fair value, then a goodwill impairment charge is recognized for the amount in excess, not to exceed the total amount of goodwill allocated to that reporting unit.

If the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and no further testing is required. An impairment charge is recorded as a general and administrative expense within the Company’s statement of operations.

Product Warranty

We generally warrant our product against certain manufacturing and other defects. These product warranties are provided for specific periods of time, depending on the nature of the product, the geographic location of its sales and other factors. As of the periods ended March 31, 2019 and June 30, 2018, we accrued approximately $1,350 for estimated product warranty claims, which is included in accrued expenses in the accompanying balance sheets. The accrued warranty costs are based primarily on historical experience of actual warranty claims as well as current information on repair costs. There were no warranty claims for the three-month and nine-month periods ended March 31, 2019. There was $1,350 in warranty claims for the three-month and nine-month periods ended March 31, 2018. 

Recent Accounting Pronouncements Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02,Leases. This ASU is intended to improve the reporting of leasing transactions to provide users of financial statements with more decision-useful information. This ASU will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. The Company is evaluating the potential impact that adoption will have on its consolidated financial statements and related disclosures.

-37-

Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

Revenue

Technology:

Revenues recognized were $270,062 and $304,947 for the three-month periods ended March 31, 2019 and 2018, respectively. Revenues recognized were $1,127,648 and $2,148,955 for the nine-month periods ended March 31, 2019 and 2018, respectively. Additionally, deferred revenue amounted to $0 and $219,820 as of March 31, 2019 and June 30, 2018. Revenue fluctuates based on cash flows available for purchases of inventory. During the period being reported, the timeline for inventory orders from overseas manufacturing taking approximately 30 days from order to delivery, with additional time required to deliver and install, impacted when sales were recorded.

Entertainment (see previously mentioned Sale of Entertainment):

Revenues were $78,661 and $0 for the period from January 1, 2019 through February 6, 2019 and three-months ended March 31, 2018, respectively. Revenues were $589,705 and $0 for the period from July 1, 2018 through February 6, 2019 and nine-months period ended March 31, 2018, respectively. Revenues fluctuate based on attendance by customers. Attendance at the theater fluctuates based on viewing options.

Cost of Revenue and Gross Profit Summary

Technology:

Our cost of revenue was $230,833 and $236,243 for the three-month periods ended March 31, 2019 and 2018, respectively. Our cost of revenue was $948,073 and $1,767,601 for the nine month periods ended March 31, 2019 and 2018, respectively. Cost of revenue consists primarily of manufacturing, freight, and installation costs. There are no significant overhead costs which impact cost of revenue.

Our gross margin percentage was 12% and 23% for the three-month periods ended March 31, 2019 and 2018, respectively, excluding office supplies. Our gross margin percentage was 14% and 18% for the nine-month periods ended March 31, 2019 and 2018, respectively, excluding office supplies.

Entertainment (see previously mentioned Sale of Entertainment):

Our cost of revenue was $54,315 and $0 for the period from January 1, 2019 through February 6, 2019 and three-months ended March 31, 2018, respectively.  Our cost of revenue was $217,638 and $0 for the period from July 1, 2018 through February 6, 2019 and nine months period ended September 30, 2017 included additional food costs associated with the theater’s Dine-In Cinema LITE food service, while sales from the new food service menu items failed to cover the food expense. The theater also incurred additionalMarch 31, 2018, respectively.  Cost of revenues represent film rental costs and concession food costs primarily.

Our gross margin percentage was 31% for the period from Hollywood studios, including advances on certainJanuary 1, 2019 through February 6, 2019.  Our gross margin percentage was 63% for the period from July 1, 2018 through February 6, 2019.

Technology

General and Administrative

General and administrative expenses were $1,956,557 and $566,137 for the three-month periods ended March 31, 2019 and 2018, respectively.  General and administrative expenses were $3,897,139 and $1,562,009 for the nine-month periods ended March 31, 2019 and 2018, respectively.  General and administrative expenses consist primarily of salaries and stock compensation expense, office rent, insurance premiums, and professional fees. The increase in general and administrative expenses is directly related to Company growth and the desire to take advantage of market opportunity.

-38-

General and administrative expenses include sales and marketing expenses of $6,511 and $1,250 for the three-month and nine-month periods ended March 31, 2019, and 2018, respectively.  Sales and marketing expenses consists primarily of advertising expenses and technology trade shows. The Company expects increased marketing efforts moving forward as they are introducing two new releases, while these films did not increase attendance commensurateproducts to the advanced expense.market.

Selling, general,Interest Expense

Interest expenses amounted to $98,940 and $22,207 for the three-month periods ended March 31, 2019 and 2018, respectively.  Interest expenses amounted to $121,780 and $37,238 for the nine-month periods ended March 31, 2019 and 2018, respectively.

Net Loss for the Period

As a result of the foregoing, net loss incurred for the three-month periods ended March 31, 2019 and 2018 was $(2,016,268) and $(519,463), respectively.  As a result of the foregoing, net loss incurred for the nine-month period ended March 31, 2019 and 2018 was $(3,839,344) and $(1,216,837), respectively.

Entertainment (see previously mentioned Sale of Entertainment):

General and Administrative

General and administrative expenses during the current three-month period from January 1, 2019 through February 6, 2019 and three-months ended September 30, 2017 were $254,358, resulting in loss before depreciation of $55,350, compared to selling, generalMarch 31, 2018 was $86,624 and $0, respectively.  General and administrative expenses during the three-monthperiod from July 1, 2018 through February 6, 2019 and nine-months period ended September 30, 2016 of $194,250, resulting in an operating loss before depreciation of $14,060. Selling, general,March 31, 2018 was $511,812 and $0, respectively.  General and administrative expenses during the nine-month period ended September 30, 2017 were $799,327, resulting in loss beforeconsist primarily of salaries expense, utilities, depreciation of $216,753, compared to selling, general and administrative expenses during the nine-month period ended September 30, 2016 of $488,401, resulting in an operating income before depreciation of $95,608. Operating expenses have increased due to marketing efforts, launch of Dine-In Cinema LITE food services, Funny Friday’s Comedy Shows, increases in contract labor, increase in the number of employees, pay increases for management and staff, HVAC repairs, projector repairs & parts, roofing repairs, etc.professional fees.  

Depreciation expense totaled $73,130 resulting in operating loss of $128,480 for the three-month period ended September 30, 2017. Depreciation expense in the same period in 2016 was $75,126 resulting in an operating loss of $89,186. Depreciation expense during the nine-month period ended September 30, 2017 was $224,720, resulting in an operating loss of $441,473. Depreciation expense in the same period in 2016 was $225,378, resulting in an operating loss of $129,770.Interest Expense

Interest expense was $1,953 and $0 for the three monthsperiod from January 1, 2019 through February 6, 2019 and period from July 1, 2018 through February 6, 2019, respectively and primarily related to interest on debt, including the mortgage on the theater building (See Subsequent Events). Interest expense amounted to $41,478 and $0 during the period from July 1, 2018 through February 6, 2019 and the nine-months period ended September 30, 2017March 31, 2018, respectively.   

Net Income for the Period

As a result of the foregoing, net income for the period from January 1, 2019 through February 6, 2019 and three-months ended March 31, 2018 was $73,250, producing$33,240 and $0, respectively. As a result of the foregoing, net loss for the period of 201,730, compared to interest expense of $78,275, resulting in a net loss of $167,461 during the samefrom July 1, 2018 through February 6, 2019 and nine-months period in 2016. Interest expense during the nine months ended September 30, 2017March 31, 2018 was $239,014, producing a net loss for the period of $565,666 compared to interest expense of $255,949, resulting in a net loss of $385,719 during the same period in 2016.

10

Outside the direct theater operation expenses of FullCircle Entertainment, Inc., depreciation, interest expense, SEC compliance cost for auditors, accountants, consultants$(29,934) and attorneys continue to be the major part of our expenses.$0, respectively.

Liquidity and Capital Resources

Consolidated

The theater industry typically does well duringCompany’s cash totaled $57,899 at March 31, 2019, as compared with $184,255 at June 30, 2018, a decrease of $126,356. Net cash of $2,408,441 was used by operations for the Maynine-month period ended March 31, 2019. Net cash of $2,282,085 was provided from financing activities for the nine-month period ended March 31, 2019, primarily derived from the issuance of common stock and June months because local schools are out during these months. The monththe proceeds from line of July is considered our high season. However, Aprilcredit and May of this year, Hollywood films had a disappointing box office performance nationally, which impacted the theater’s ticket sales in our market as well.

Liquidity and Capital Resources

At September 30, 2017, the Company had total assets of $4,578,135 compared to $4,552,458 on December 31, 2016. The Company had total assets consisting of $130,770 in cash, $29,243 of other current assets, and $4,407,252 of net fixed assets in Georgetown 14, which includes accumulated depreciation of $2,155,332. Total assets of $4,552,458 as of December 31, 2016 consisted of $20,112 in cash, $24,796 of other current assets and $4,467,664 of net fixed assets in Georgetown 14, which includes accumulated depreciation of $1,930,612.

At September 30, 2017, the Company had $7,260,516 in total liabilities. Total liabilities include $235,270 in accounts payable, $99,204 in accrued expenses, $460,399 in accrued interest, $190,000 in notes payable, $1,544,129 of notes payable-related party, $63,734 of current portion of long-term debt and $4,518,780 of the long-term portion of our long-term debt.convertible note payable.

Total current liabilities at Decembertotaled $3,248,928 and $2,958,369 as of March 31, 2016 were $6,669,173,2019 and June 30, 2018, respectively, which was comprisedprimarily consists of $101,407 ina line of credit, short term notes payable (June), shareholder payables (June), short term related party payables (June), accrued expenses, accounts payable, $175,343 in accrued expenses, $470,640 in accrued interest, $80,000 indeferred revenue (June) and convertible notes payable $1,226,332 of notes payable-related party, $55,688 of current portion of long-term debt and $4,320,238 of the long-term portion of our long-term debt.(March).

Net cash used by operating activities ending September 30, 2017 was $268,894 compared-39-

To implement our business plan, we may require additional financing. Additional financings may come from future equity or debt offerings that could result in dilution to net cash provided by operating activities for the nine months ended September 30, 2016our stockholders. Further, current 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 $21,472. During the nine months ended September 30, 2017, $156,150 was used on investing activities, and $535,702 was provided by financing activities. For the same period in 2016, $11,331 was used in investing activities and $27,454 was used by financing activities.capital that could reduce our financial flexibility.

Our auditors have expressed concernlong-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 Company has experienced lossesfunds generated from operations and negative cash flows from operations since inception. We have negative working capital and a capital deficiency at September 30, 2017. As of September 30, 2017,are insufficient to fund our activities in the stockholder’s deficit is $2,682,381 comparedlong term, we may be required to a deficit of $2,116,715 on December 31, 2016. These conditions raise substantial doubt about our ability to continue as a going concern.

We are currently focused on increasing revenues from our operations and reducing debtadditional funds through converting notes payable to common stock. We may also seek funding from securities purchasespublic or from lenders offering favorable terms.private financing. No assurance can be given that weadditional financing will be ableavailable or that, if it is available, it will be on terms acceptable to obtain the total capital necessary to fund our new business plans. In such an event, this may have a materially adverse effect on our business, operating results and financial condition.us.

Factors That May Impact Future ResultsOff-Balance Sheet Arrangements

At the time of this report, we had insufficient cash reservesOther than office lease commitments discussed in Note 6 and receivables necessarycommitments discussed in Note 9 to meet forecasted operating requirements for FullCircle Registry, Inc.

The current expansion of the Company’s business demands that significant financial resources be raised to fund capital expenditures, working capital needs, conversion of the theater into a restaurant with entertainment and debt service. Current cash balances and the realization of accounts receivable will not be sufficient to fund the Company’s current business plan for the next twelve months. Consequently, the Company is currently seeking funds to provide the necessary capital to meet the Company’s expansion needs. Management continues to negotiate with existing shareholders, financial institutions, new investors, and other accredited investors to obtain working capital necessary to meet current and future obligations and commitments.

Management is confident that these efforts will produce financing to further the growth of the Company. Nevertheless, there can be no assurance that the Company will be able to raise additional capital on satisfactory terms or at all.

11

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon itsour consolidated financial statements, whichwe do not have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements may have required the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. On an ongoing basis, the Company evaluates estimates, including those related to bad debts, inventories, fixed assets, income taxes, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances; the results of which form the basis of the Company’s judgments on the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s President and Chief Financial Officer have concluded, based on an evaluationAs required by Rule 13a-15 under the Exchange Act, our management evaluated the effectiveness of the Company’sdesign and operation of our disclosure controls and procedures as of March 31, 2019.

Our management, with the participation of our president (our principal executive officer, principal accounting officer and principal financial officer), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, Rules 13a-15(e) and 15(d)-15(e)as amended (the “Exchange Act”), which such disclosure controls and procedures were not effective) as of the end of the period covered by this report. Based on this evaluation, our president (our principal executive officer, principal accounting officer and principal financial officer) has concluded that, as of the end of such period, our disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our president (our principal executive officer and our principal accounting officer and principal financial officer), as appropriate, to allow timely decisions regarding required disclosure. The reason or these deficiencies are as follows: