Crexendo, Inc. – ‘DEFM14A’ on 5/24/00

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Definitive Proxy Solicitation Material — Merger or Acquisition   —   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Definitive Proxy Solicitation Material -- Merger     270   1.39M 
                          or Acquisition                                         

Document Table of Contents

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[LOGO]
May 24, 2000

Dear Stockholder of Netgateway, Inc.:                                           

    Your board of directors has approved a merger agreement that would result in
Netgateway, Inc. acquiring Galaxy Enterprises, Inc., a provider of educational  
seminars and Web-based technology designed to help small businesses establish a 
presence on and use the Internet to conduct business. Your board of directors is
excited about this opportunity to expand and complement Netgateway's business.  
If the merger is completed, Netgateway will exchange approximately 0.63 shares  
of Netgateway common stock for each share of Galaxy Enterprises common stock, as
more fully described in this joint proxy statement/prospectus. In addition, each
outstanding option or warrant to purchase shares of Galaxy Enterprises common   
stock will be assumed by Netgateway and converted into an option or warrant,    
respectively, to purchase shares of Netgateway common stock, as more fully      
described in this joint proxy statement/prospectus. Netgateway expects to issue 
approximately 3.9 million shares of Netgateway common stock to the former       
stockholders of Galaxy Enterprises, as more fully described in this joint proxy 
statement/prospectus. Netgateway common stock is listed on The Nasdaq National  
Market under the symbol "NGWY." Galaxy Enterprises common stock is currently    
traded on the Nasdaq OTC Bulletin Board under the symbol "GLXY."                

After careful consideration, your board of directors has unanimously    
approved the terms and conditions of the merger and merger agreement and        
unanimously recommends that you vote to approve and adopt the merger and merger 
agreement.                                                                      

    Netgateway can complete the merger only if Netgateway's stockholders approve
the merger. Accordingly, Netgateway asks that you either attend the Netgateway  
special meeting or send back the enclosed proxy card.                           

To complete the merger, you are asked to vote at a special meeting of   
stockholders to be held on June 21, 2000, beginning at 9:00 a.m. California     
time. At the Netgateway special meeting, your board of directors is asking you  
to approve the merger agreement which provides for Galaxy Enterprises becoming a
wholly owned subsidiary of Netgateway. Only stockholders of record at the close 
of business on May 18, 2000 will be entitled to vote at the Netgateway special  
meeting.                                                                        

   Whether or not you plan to attend the special meeting, Netgateway urges you
to complete, sign and promptly return the enclosed proxy card to assure that    
your shares will be voted at the special meeting. Your vote is very important   
regardless of the number of shares you own. I urge you to vote in favor of the  
merger.                                                                         

    This joint proxy statement/prospectus provides you with detailed information
concerning Netgateway, Galaxy Enterprises and the merger. Please read these     
materials carefully. In particular you should carefully consider the discussion 
in the section entitled "Risk Factors" beginning on page 13.                    

                   Very truly yours,

                    /s/ Roy W. Camblin

                    Roy W. Camblin III
                           CHIEF EXECUTIVE OFFICER

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES 
COMMISSION HAS APPROVED THE MERGER DESCRIBED IN THIS JOINT PROXY                
STATEMENT/PROSPECTUS OR THE SHARES OF NETGATEWAY COMMON STOCK TO BE ISSUED IN   
CONNECTION WITH THE MERGER. FURTHERMORE, THE SECURITIES AND EXCHANGE COMMISSION 
HAS NOT DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR      
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS JOINT  
PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL AND IT IS NOT SOLICITING AN  
OFFER TO BUY SECURITIES IN ANY JURISDICTION WHERE OFFERS OR SALES ARE NOT       
PERMITTED.                                                                      

 This joint proxy statement/prospectus is dated May 24, 2000 and was first
mailed to Netgateway's stockholders on or about May 24, 2000.                   

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May 24, 2000

Dear Stockholder of Galaxy Enterprises, Inc.:                                   

   Your board of directors has unanimously approved a merger which will result
in the acquisition of Galaxy Enterprises, Inc. by Netgateway, Inc., a provider  
of eCommerce services, in exchange for shares of Netgateway's common stock. If  
the merger is completed, Netgateway will issue approximately 0.63 of a share of 
Netgateway common stock for each share of Galaxy Enterprises common stock, as   
more fully described in this joint proxy statement/prospectus. In addition, each
outstanding option or warrant to purchase shares of Galaxy Enterprises common   
stock will be assumed by Netgateway and converted into an option or warrant,    
respectively, to purchase shares of Netgateway common stock, as more fully      
described in this joint proxy statement/prospectus. Netgateway common stock is  
listed on The Nasdaq National Market under the symbol "NGWY." Galaxy Enterprises
common stock is currently traded on the Nasdaq OTC Bulletin board under the     
symbol "GLXY."                                                                  

After careful consideration, your board of directors has unanimously    
approved the terms and conditions of the merger and merger agreement and        
unanimously recommends that you vote to approve and adopt the merger and merger 
agreement.                                                                      

 Galaxy Enterprises can complete the merger with Netgateway only if Galaxy
Enterprises' stockholders approve the merger. Galaxy Enterprises is a Nevada    
corporation. Under Nevada law, the affirmative vote of a majority of the        
outstanding shares of Galaxy Enterprises common stock entitled to vote at the   
special meeting is required to approve the merger. Stockholders of Galaxy       
Enterprises owning approximately 19% of its common stock have agreed to vote all
of the shares of common stock owned by them in favor of the merger agreement.   

To complete the merger, you are asked to vote at a special meeting of   
stockholders to be held on June 21, 2000, beginning at 10:00 a.m. Utah time. At 
the Galaxy Enterprises special meeting, your board of directors is asking you to
approve the merger agreement which provides for Galaxy Enterprises becoming a   
wholly owned subsidiary of Netgateway. Only stockholders of record at the close 
of business on May 18, 2000 will be entitled to vote at the Galaxy Enterprises  
special meeting.                                                                

 Whether or not you plan to attend the special meeting, Galaxy Enterprises
urges you to complete, sign and promptly return the enclosed proxy card to      
assure that your shares will be voted at the special meeting. FAILURE TO RETURN 
A PROPERLY EXECUTED PROXY CARD AND/OR TO VOTE AT THE SPECIAL MEETING WILL HAVE  
THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL. Your vote is very important     
regardless of the number of shares you own. I urge you to vote in favor of the  
merger.                                                                         

    This joint proxy statement/prospectus provides you with detailed information
concerning Netgateway, Galaxy Enterprises and the merger. Please read these     
materials carefully. In particular you should carefully consider the discussion 
in the section entitled "Risk Factors" beginning on page 13.                    

                   Very truly yours,

                     /s/ John J. Poelman

                 John J. Poelman
                                         PRESIDENT AND CHIEF EXECUTIVE OFFICER

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES 
COMMISSION HAS APPROVED THE MERGER DESCRIBED IN THIS JOINT PROXY                
STATEMENT/PROSPECTUS OR THE SHARES OF NETGATEWAY COMMON STOCK TO BE ISSUED IN   
CONNECTION WITH THE MERGER. FURTHERMORE, THE SECURITIES AND EXCHANGE COMMISSION 
HAS NOT DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR      
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS JOINT  
PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL AND IT IS NOT SOLICITING AN  
OFFER TO BUY SECURITIES IN ANY JURISDICTION WHERE OFFERS OR SALES ARE NOT       
PERMITTED.                                                                      

 This joint proxy statement/prospectus is dated May 24, 2000 and was first
mailed to Galaxy Enterprises' stockholders on or about May 24, 2000.            

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300 OCEANGATE, 5(TH) FLOOR
LONG BEACH, CA 90802

To the Stockholders of Netgateway, Inc.:                                        

Netgateway, Inc. will hold a special meeting of the stockholders of     
Netgateway on June 21, 2000, beginning at 9:00 a.m. California time, at the     
Hilton Hotel--Long Beach, Two World Trade Center, Long Beach, California, for   
the following purposes:                                                         

   - To consider and vote upon a proposal to approve the Agreement and Plan of
     Merger dated March 10, 2000. The merger agreement provides for the merger
of a subsidiary of Netgateway into Galaxy Enterprises, Inc. and the 
issuance of approximately 0.63 shares of Netgateway common stock in 
      exchange for each outstanding share of common stock of Galaxy Enterprises,
as more fully described in this joint proxy statement/prospectus. In
     addition, each outstanding option or warrant to purchase shares of Galaxy
     Enterprises common stock will be assumed by Netgateway and converted into
an option or warrant, respectively, to purchase shares of Netgateway
common stock, as more fully described in this joint proxy           
statement/prospectus.                                               

- To transact such other business as may properly be brought before the 
Netgateway special meeting or any postponement or adjournment of the
    special meeting by its board of directors including, without limitation,
  potential adjournments or postponements of the special meeting for the
    purpose of soliciting additional proxies to approve the merger agreement
and the merger.                                                     

  Only holders of record of Netgateway common stock at the close of business
on May 18, 2000, the record date for the Netgateway special meeting, are        
entitled to notice of, and to vote at, the Netgateway special meeting and any   
adjournments or postponements of the special meeting.                           

   Your vote is very important. Netgateway can complete the merger with Galaxy
Enterprises only if holders of a majority of the shares of Netgateway common    
stock present and entitled to vote at the special meeting vote in favor of the  
merger. None of Netgateway's stockholders will have appraisal rights in         
connection with the merger.                                                     

 Whether or not you plan to attend the Netgateway special meeting, we urge
you to complete, sign and date the enclosed proxy card and return it promptly in
the enclosed postage paid envelope to ensure that your shares will be voted at  
the special meeting.                                                            

   You may revoke your proxy in the manner described in the accompanying joint
proxy statement/ prospectus at any time before it has been voted at the special 
meeting. If you attend the special meeting you may vote in person even if you   
returned a proxy.                                                               

                                    By Order of the Board of Directors
                       /s/ Craig S. Gatarz

                         Craig S. Gatarz, Esq.
                                 GENERAL COUNSEL AND CORPORATE
             SECRETARY

Long Beach, California                                                          
May 24, 2000                                                                    

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754 E. TECHNOLOGY AVENUE
OREM, UTAH 84097

To the Stockholders of                                                          
Galaxy Enterprises, Inc.:                                                       

   Galaxy Enterprises, Inc. will hold a special meeting of the stockholders of
Galaxy Enterprises on June 21, 2000, at 10:00 a.m. Utah time, at 754 E.         
Technology Avenue, Orem, Utah, for the following purposes:                      

  - To consider and vote upon a proposal to approve an Agreement and Plan of
     Merger dated March 10, 2000. The merger agreement provides for the merger
    of a wholly owned subsidiary of Netgateway, Inc. into Galaxy Enterprises
   with Galaxy Enterprises continuing as the surviving corporation and the
    exchange of approximately 0.63 of a share of Netgateway common stock for
     each share of Galaxy Enterprises common stock, as more fully described in
 this joint proxy statement/ prospectus. In addition, each outstanding
   option or warrant to purchase shares of Galaxy Enterprises common stock
  will be assumed by Netgateway and converted into an option or warrant,
      respectively, to purchase shares of Netgateway common stock, as more fully
described in this joint proxy statement/prospectus.                 

- To transact such other business as may properly be brought before the 
    Galaxy Enterprises special meeting or any postponement or adjournment of
the special meeting by its board of directors including, without    
      limitation, potential adjournments or postponements of the special meeting
    for the purpose of soliciting additional proxies in order to approve the
merger agreement and the merger.                                    

 Only holders of record of Galaxy Enterprises common stock at the close of
business on May 18, 2000, the record date for the Galaxy Enterprises special    
meeting, are entitled to notice of, and to vote at, the Galaxy Enterprises      
special meeting and any adjournments or postponements of the special meeting.   

  Galaxy Enterprises' stockholders are entitled to assert dissenters' rights
of appraisal pursuant to Sections 92A.300 ET SEQ. of the Nevada Revised         
Statutes. Galaxy Enterprises stockholders who comply with the provisions of     
applicable Nevada law relating to dissenters' rights, will be entitled to object
to the merger and make written demand that Netgateway pay them in cash the fair 
value of their shares. A copy of the dissenters' rights statute is attached to  
the enclosed joint proxy statement/prospectus as Appendix B.                    

Your vote is important. Galaxy Enterprises can complete the merger with 
Netgateway only if holders of a majority of the shares of Galaxy Enterprises    
common stock entitled to vote at the special meeting vote in favor of the       
merger. Whether or not you plan to attend the special meeting, we urge you to   
complete, sign and promptly return the enclosed proxy card to ensure that your  
shares will be voted at the special meeting.                                    

FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD AND/OR TO VOTE AT THE  
SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.       

   You may revoke your proxy in the manner described in the accompanying joint
proxy statement/prospectus at any time before it has been voted at the special  
meeting. If you attend the special meeting you may vote in person even if you   
returned a proxy.                                                               

 Please do not send your stock certificates at this time. If the merger is
completed, you will be sent instructions regarding the surrender of your stock  
certificates.                                                                   

                                  By Order of the Board of Directors

                   /s/ Frank C. Heyman

               Frank C. Heyman
                     CORPORATE SECRETARY

Orem, Utah                                                                      
May 24, 2000                                                                    

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NETGATEWAY, INC. AND
GALAXY ENTERPRISES, INC.
JOINT PROXY STATEMENT 

--------------------- 

NETGATEWAY, INC.
PROSPECTUS

--------------------- 

    Netgateway, Inc. and Galaxy Enterprises, Inc. have entered into an agreement
and plan of merger. In the merger, (1) Galaxy Enterprises will become a wholly  
owned subsidiary of Netgateway, (2) Galaxy Enterprises stockholders will receive
approximately 0.63 of a share of Netgateway common stock for each share of      
Galaxy Enterprises common stock held by them, and (3) each outstanding option or
warrant to purchase shares of Galaxy Enterprises common stock will be converted 
into an option or warrant, respectively, to purchase shares of Netgateway common
stock.                                                                          

The terms of the merger are more fully described in this joint proxy    
statement/prospectus.                                                           

This joint proxy statement/prospectus also constitutes the prospectus of
Netgateway with respect to approximately 3.9 million shares of Netgateway common
stock to be issued to Galaxy Enterprises stockholders in the merger in exchange 
for the outstanding shares of Galaxy Enterprises common stock, as more fully    
described in this joint proxy statement/prospectus.                             

  Netgateway common stock is designated for quotation on The Nasdaq National
Market under the symbol "NGWY," and will continue to trade under that symbol    
after the merger. Galaxy Enterprises common stock currently trades on the Nasdaq
OTC Bulletin Board under the symbol "GLXY." Netgateway has agreed to apply to   
have the shares of Netgateway common stock issued to the Galaxy Enterprises     
stockholders approved for trading on The Nasdaq National Market. That approval  
must be obtained before the merger is completed.                                

On December 10, 1999, the last full trading day prior to the public     
announcement of the proposed merger, the closing price of Netgateway common     
stock on The Nasdaq National Market was $10.125 per share and the closing price 
of Galaxy Enterprises common stock on the Nasdaq OTC Bulletin Board was $5.0625 
per share. On May 22, 2000, the closing price of Netgateway common stock was    
$2.4375 per share and the closing price of Galaxy Enterprises was $1.5 per      
share.                                                                          

  The merger requires the approval of both Netgateway and Galaxy Enterprises
stockholders. THE BOARDS OF DIRECTORS OF NETGATEWAY AND GALAXY ENTERPRISES      
UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF THE MERGER. YOUR VOTE IS VERY   
IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND A SPECIAL MEETING, PLEASE TAKE THE 
TIME TO VOTE BY COMPLETING AND RETURNING THE ENCLOSED PROXY CARD.               

 This joint proxy statement/prospectus provides detailed information about
the merger, a description of which begins on page 33. YOU SHOULD ALSO CAREFULLY 
READ THE SECTION ENTITLED, "RISK FACTORS," BEGINNING ON PAGE 13, FOR A          
DISCUSSION OF CERTAIN RISKS THAT YOU SHOULD CONSIDER IN DETERMINING HOW TO VOTE 
ON THE PROPOSED MERGER.                                                         

Neither the Securities and Exchange Commission nor any state securities 
commission has approved the securities to be issued in this transaction or      
determined that this joint proxy statement/prospectus is truthful or complete.  
Any representation to the contrary is a criminal offense.                       

 This joint proxy statement/prospectus is dated May 24, 2000, and is first
being mailed or delivered to stockholders of Netgateway and Galaxy Enterprises  
on or about May 24, 2000.                                                       

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TABLE OF CONTENTS 

                                                                [Download Table]
                                                                    
QUESTIONS AND ANSWERS ABOUT THE MERGER......................       v
SUMMARY.....................................................       1
  The Companies.............................................       1
  The Merger................................................       1
  Netgateway Stockholder Approval...........................       2
  Galaxy Enterprises Stockholder Approval...................       2
  Voting Agreements.........................................       2
  Voting Shares Held by Your Broker in Street Name..........       2
  Changing Your Vote........................................       2
  Completion of the Merger..................................       2
  Exchanging Your Stock Certificates........................       2
  Netgateway's Reasons for the Merger; Recommendation of            
    Netgateway's Board......................................       2
  Galaxy Enterprises' Reasons for the Merger; Recommendation        
    of Galaxy Enterprises' Board............................       3
  Opinion of Financial Advisor to Netgateway................       4
  Opinion of Financial Advisor to Galaxy Enterprises........       4
  Interests of Certain Persons in the Merger................       4
  Rights of Dissenting Stockholders.........................       4
  Conditions to the Merger..................................       4
  No Solicitation...........................................       5
  Termination of the Merger Agreement.......................       5
  Termination Fee and Expenses..............................       5
  Netgateway Stock Option...................................       5
  Federal Income Tax Consequences...........................       6
  Anticipated Accounting Treatment..........................       6
  Forward-Looking Statements May Prove Inaccurate...........       6
  Who Can Help Answer Your Questions........................       6
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION.....       7
  Netgateway Selected Historical Consolidated Financial             
    Data....................................................       7
  Galaxy Enterprises Selected Historical Consolidated               
    Financial Data..........................................       8
  Selected Unaudited Pro Forma Combined Financial Data......       9
  Comparative Per Share Data................................      10
  Recent Share Prices.......................................      12
RISK FACTORS................................................      13
  Risks Related to the Merger...............................      13
  Risks Specific to Netgateway..............................      15
  Risks Specific to Galaxy Enterprises......................      16
  Risks Related to Netgateway and Galaxy Enterprises as a           
    Combined Company........................................      17
  Investment Risks..........................................      26
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS............      28
THE NETGATEWAY, INC. SPECIAL MEETING........................      29
  Date, Time and Place of Special Meeting...................      29
  Matters to be Considered at Special Meeting...............      29
  Record Date for Voting on the Merger; Stockholders                
    Entitled to Vote........................................      29
  Voting and Revocation of Proxies..........................      29
  Stockholder Vote is Required to Approve the Merger........      30
  Board Recommendation......................................      30
THE GALAXY ENTERPRISES, INC. SPECIAL MEETING................      30
  Date, Time and Place of Special Meeting...................      30
  Matters to be Considered at Special Meeting...............      30

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  Record Date for Voting on the Merger; Stockholders                
    Entitled to Vote........................................      30
  Voting and Revocation of Proxies..........................      30
  Stockholder Vote is Required to Approve the Merger........      31
  Board Recommendation......................................      31
  Solicitation of Proxies; Expenses.........................      32
THE MERGER..................................................      33
  Background of the merger..................................      33
  Netgateway's Reasons for the Merger.......................      35
  Board Recommendation of Netgateway's Board of Directors...      37
  Galaxy Enterprises' Reasons for the Merger................      37
  Board Recommendation of Galaxy Enterprises Board of               
    Directors...............................................      40
  Opinion of Roth Capital Partners..........................      40
  Opinion of Houlihan Lokey Howard & Zukin..................      41
  Interests of Certain Persons in the Merger................      44
  Appraisal Rights of Dissenting Stockholders...............      46
  Federal Income Tax Considerations.........................      48
  Completion and Effectiveness of the Merger................      50
  Anticipated Accounting Treatment..........................      50
  Delisting and Deregistration of Galaxy Enterprises Common         
    Stock...................................................      50
  Listing of Netgateway Common Stock to be Issued in the            
    Merger..................................................      50
  Restriction on Resales of Netgateway Common Stock.........      50
  Operations After the Merger...............................      50
THE MERGER AGREEMENT........................................      51
  The Merger................................................      51
  The Effective Time........................................      51
  Directors and Officers of Galaxy Enterprises After the            
    Merger..................................................      51
  Conversion of Shares in the Merger........................      51
  Galaxy Enterprises' Stock Option and Stock Purchase               
    Plans...................................................      52
  The Exchange Agent........................................      52
  Procedures for Exchanging Stock Certificates..............      52
  Holders of Galaxy Enterprises Common Stock Should Not             
    Surrender Their Galaxy Enterprises Stock Certificates           
    Until They Receive the Letter of Transmittal From the           
    Exchange Agent..........................................      52
  Distributions with Respect to Unexchanged Shares..........      53
  No Fractional Shares......................................      53
  Dissenting Shares.........................................      53
  Representations and Warranties............................      53
  Concept of Material Adverse Effect........................      55
  Conduct of Business of Galaxy Enterprises Pending                 
    Completion of the Merger................................      55
  Conduct of Business of Netgateway Pending Completion of           
    the Merger..............................................      56
  No Solicitation...........................................      56
  Director and Officer Indemnification and Release of               
    Personal Guaranties.....................................      57
  Conditions to the Merger..................................      58
  Termination of the Merger Agreement.......................      58
  Fees and Expenses.........................................      58
  Amendment or Waiver of the Merger Amendment...............      59
NETGATEWAY STOCK OPTION AGREEMENT...........................      60
VOTING AND AFFILIATE AGREEMENTS.............................      60
  Voting Agreement..........................................      60
  Galaxy Enterprises Affiliate Agreements...................      60
eCOMMERCE SERVICES AGREEMENT................................      61
FUTURE AGREEMENT............................................      61

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FINDER'S FEE AGREEMENT......................................      61
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS...........      62
DESCRIPTION OF NETGATEWAY AND GALAXY CAPITAL STOCK..........      69
COMPARISON OF RIGHTS OF HOLDERS OF GALAXY ENTERPRISES COMMON        
  STOCK AND NETGATEWAY COMMON STOCK.........................      70
  Comparison of Rights of Netgateway's Stockholders and             
    Galaxy Enterprises' Stockholders........................      70
  Indemnification...........................................      70
  Restrictions on Business Combinations.....................      71
  Directors.................................................      71
  Amendment of Organizational Documents.....................      72
  Voting Rights.............................................      72
  Treasury Shares...........................................      72
  Stockholder Meetings......................................      73
  Dissenters' Rights........................................      73
INFORMATION REGARDING NETGATEWAY............................      74
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION         
  AND RESULTS OF OPERATIONS OF NETGATEWAY...................      76
  General...................................................      76
  Fluctuations in Quarterly Results and Seasonality.........      76
  Results of Operations.....................................      76
  Liquidity and Capital Resources...........................      78
  Recent Events.............................................      78
MARKET PRICE AND DIVIDEND INFORMATION FOR NETGATEWAY........      79
  Dividends.................................................      79
BUSINESS OF NETGATEWAY......................................      80
  General...................................................      80
  Industry Background.......................................      80
  The Netgateway Solution...................................      82
  Business Strategy.........................................      83
  Services Offered..........................................      84
  Sales and Marketing.......................................      86
  Clients and Strategic Relationships.......................      86
  Research and Development..................................      90
  Competition...............................................      90
  Intellectual Property.....................................      91
  Employees.................................................      92
  Facilities................................................      92
  Governmental Regulation...................................      93
  Legal Matters.............................................      93
MANAGEMENT OF NETGATEWAY....................................      94
  Our Directors and Executive Officers......................      94
  Director Compensation.....................................      98
  Board of Directors Meetings and Committees................      98
  Election of Officers......................................      99
  Executive Compensation....................................      99
  Employment Agreements.....................................     102
  Stock Option Grants in Last Fiscal Year...................     104
  Aggregated Stock Option Exercises in Last Fiscal Year and         
    Fiscal Year End Option Values...........................     105
  Stock Option Plans........................................     106
  Compensation Committee Interlocks and Insider                     
    Participation...........................................     110
  Limitation of Liability and Indemnification Matters.......     110

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF                  
NETGATEWAY..................................................     111
  Stockholder Return for Last Fiscal Year...................     111
RELATED PARTY TRANSACTIONS..................................     112
INFORMATION REGARDING GALAXY ENTERPRISES, INC...............     114
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION         
  AND RESULTS OF OPERATIONS OF GALAXY ENTERPRISES...........     116
  Results of Operations.....................................     116
  Capital Resources.........................................     119
  Liquidity.................................................     122
MARKET PRICE AND DIVIDEND INFORMATION FOR GALAXY                    
ENTERPRISES.................................................     123
BUSINESS OF GALAXY ENTERPRISES..............................     124
  General...................................................     124
  Services Offered..........................................     124
  IMI Business..............................................     126
  Sales and Marketing.......................................     126
  Competition...............................................     127
  Real Property.............................................     128
  Suppliers and Customers...................................     128
  Intellectual Property.....................................     128
  Governmental Regulations..................................     128
  Research and Development..................................     129
  Compliance With Environmental Laws........................     129
  Employees.................................................     129
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF GALAXY           
  ENTERPRISES...............................................     130
  Stockholders..............................................     130
  Legal Proceedings.........................................     131
  Indemnification of Directors and Officers.................     131
FUTURE STOCKHOLDER PROPOSALS................................     131
EXPERTS.....................................................     132
LEGAL MATTERS...............................................     132
WHERE YOU CAN FIND MORE INFORMATION.........................     132
APPENDICES TO THE JOINT PROXY STATEMENT/PROSPECTUS                  
  Appendix A--Agreement and Plan of Merger..................     A-1
  Appendix B--Rights of Dissenting Stockholders.............     B-1
  Appendix C--Opinion of Roth Capital Partners..............     C-1
  Appendix D--Opinion of Houlihan Lokey Howard & Zukin......     D-1

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QUESTIONS AND ANSWERS ABOUT THE MERGER

                                                                [Download Table]
                                                                  
Q:    WHAT IS THE MERGER?                                         

A.    The merger will combine the businesses of Galaxy Enterprises
      and Netgateway. After the merger, Galaxy Enterprises will be
      a wholly owned subsidiary of Netgateway. Based on the       
      capitalization of Netgateway as of March 31, 1999, the      
      former stockholders of Galaxy Enterprises will receive in   
      the merger a number of shares of Netgateway representing    
      approximately 18% of Netgateway's outstanding common stock  
      after giving effect to the merger.                          

Q:    WHY DOES NETGATEWAY PROPOSE TO ACQUIRE GALAXY ENTERPRISES?  

A:    This is a unique opportunity to acquire a complementary     
      business that markets internet solutions to small           
      businesses. Netgateway offers solutions to businesses       
      wanting to conduct commercial transactions with other       
      businesses over the Internet. The marketing and educational 
      expertise and existing client base of Galaxy Enterprises    
      will provide Netgateway the opportunity to effectively offer
      its solutions to a larger pool of potential clients.        

Q:    WHY DOES GALAXY ENTERPRISES PROPOSE TO BE ACQUIRED BY       
      NETGATEWAY?                                                 

A:    The acquisition will allow Galaxy Enterprises stockholders  
      to obtain increased liquidity and participate in the growth 
      of the combined company following the merger. In addition,  
      it will offer Galaxy Enterprises access to a number of      
      important additional channels of distribution.              

Q:    WHAT I WILL RECEIVE IN THE MERGER?                          

A:    NETGATEWAY STOCKHOLDERS:  You will not receive any          
      consideration in the merger.                                

      GALAXY ENTERPRISES STOCKHOLDERS:  You will receive          
      approximately 0.63 of a share of Netgateway common stock for
      each share of Galaxy Enterprises common stock you hold, as  
      more fully described in this joint proxy                    
      statement/prospectus. For example, if you own 100 shares of 
      Galaxy Enterprises common stock, we currently estimate that 
      you will receive approximately 63 shares of Netgateway      
      common stock in exchange for your shares. In addition, each 
      outstanding option or warrant to purchase shares of Galaxy  
      Enterprises common stock will be assumed by Netgateway and  
      converted into an option or warrant, respectively, to       
      purchase shares of Netgateway common stock, as more fully   
      described in this joint proxy statement/prospectus.         

      Netgateway will not issue fractional shares of common stock.
      Instead, Galaxy Enterprises stockholders otherwise entitled 
      to receive a fractional share of Netgateway common stock    
      will receive cash based on the average closing sale price of
      Netgateway common stock for the 20 most recent trading days 
      ending on the trading day immediately prior to the effective
      time of the merger.                                         

      The number of shares of Netgateway common stock to be issued
      in the merger will not be adjusted based upon changes in the
      value of Netgateway common stock. As a result, the value of 
      Netgateway common stock that you receive in the merger will 
      not be determined at the time you vote on the merger and its
      value will go up or down as the market price of Netgateway  
      common stock goes up or down.                               

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  The following table reflects the value of Netgateway common stock that you
will receive per share of Galaxy Enterprises common stock for various market    
prices of Netgateway common stock and assumes an exchange ratio of 0.63217.     
Netgateway's stock price is volatile and the exchange ratio may change under    
certain circumstances. The values shown are purely hypothetical, and the actual 
market price and the corresponding value of Netgateway common stock that you may
receive in the merger may be more or less than the range of values shown in the 
table.                                                                          

                                                                [Download Table]

MARKET PRICE PER SHARE OF          MERGER VALUE PER SHARE OF GALAXY
 NETGATEWAY COMMON STOCK               ENTERPRISES COMMON STOCK    
-------------------------          --------------------------------
                                                                   
         $ 1.50                                  $0.95             
         $ 2.50                                  $1.58             
         $ 5.00                                  $3.16             
         $ 7.50                                  $4.74             
         $10.00                                  $6.32             
         $12.50                                  $7.90             

                                                                [Download Table]
                                                                  
      On May 22, 2000, the closing sale price per share of        
      Netgateway common stock on The Nasdaq National Market was   
      $2.4375. Neither party is permitted to terminate the merger 
      agreement based solely on changes in the value of Netgateway
      common stock prior to the closing of the merger.            

Q.    HOW DOES MY BOARD OF DIRECTORS RECOMMEND THAT I VOTE?       

A.    Netgateway's and Galaxy Enterprises' boards of directors    
      unanimously recommend that their stockholders vote in favor 
      of the merger.                                              

Q.    WHAT RISKS SHOULD I CONSIDER IN DECIDING WHETHER TO VOTE FOR
      THE MERGER?                                                 

A.    In evaluating the merger, you should carefully read this    
      joint proxy statement/prospectus and especially consider the
      factors discussed in the section entitled "Risk Factors"    
      beginning on page 13.                                       

Q:    IF NETGATEWAY IS NOT ITSELF MERGING, WHY ARE NETGATEWAY'S   
      STOCKHOLDERS BEING ASKED TO VOTE?                           

A:    The number of shares of Netgateway common stock to be issued
      in the merger is likely to equal or exceed 20% of the number
      of shares of Netgateway common stock outstanding immediately
      before the merger is completed. Netgateway common stock is  
      traded on The Nasdaq National Market which requires         
      stockholder approval in these circumstances. In addition,   
      the merger agreement provides that Netgateway must obtain   
      stockholder approval as a condition to closing.             

Q:    CAN I CHANGE MY VOTE AFTER I HAVE SENT IN MY PROXY CARD?    

A:    Yes. You can change your vote any time before your proxy is 
      voted at the special meeting. You can do this in one of     
      three ways. You can send a written notice stating that you  
      would like to revoke your proxy. You can also complete and  
      deliver a new proxy. If you choose either of these methods, 
      you must submit your notice of revocation or your new proxy 
      card to Netgateway's or Galaxy Enterprises' secretary, as   
      the case may be, before your stockholders meeting. Finally, 
      you can attend your special meeting and vote in person.     
      Simply attending your meeting, however, will not revoke your
      proxy. If you have instructed a broker to vote your shares, 
      you must follow directions received from your broker to     
      change your vote.                                           

Q:    IF MY SHARES ARE HELD IN "STREET NAME" BY A BROKER, WILL THE
      BROKER VOTE THE SHARES FOR ME?                              

A:    Your broker will vote your shares only if you provide       
      instructions on how to vote. Follow the directions provided 
      by your broker regarding how to instruct your broker to vote
      your shares. Without instructions, your shares will not be  
      voted.                                                      

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                                                                [Download Table]
                                                                  
Q:    WHEN DO YOU EXPECT TO COMPLETE THE MERGER?                  

A:    Netgateway and Galaxy Enterprises are working to complete   
      the merger as soon as possible. Netgateway and Galaxy       
      Enterprises expect to complete the merger during the third  
      quarter of calendar year 2000.                              

Q.    AM I ENTITLED TO APPRAISAL RIGHTS?                          

A.    NETGATEWAY STOCKHOLDERS:  No.                               

      GALAXY ENTERPRISES STOCKHOLDERS:  Yes. Under Nevada law you 
      are entitled to exercise dissenters' rights of appraisal. If
      you comply with the provisions of applicable law relating to
      dissenters' rights, you will be entitled to object to the   
      merger and make a written demand that Netgateway pay you in 
      cash the fair value of your shares of Galaxy Enterprises    
      common stock. The requirements under Nevada law for         
      exercising dissenters' rights are very specific and must be 
      followed exactly.                                           

Q:    SHOULD I SEND IN MY GALAXY ENTERPRISES STOCK CERTIFICATES   
      NOW?                                                        

A:    No. Galaxy Enterprises will send you a letter of transmittal
      for surrendering certificates representing shares of Galaxy 
      Enterprises common stock. DO NOT SEND YOUR STOCK            
      CERTIFICATES UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL.   

Q.    WILL I RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION?         

A.    Netgateway and Galaxy Enterprises do not expect that you    
      will recognize gain or loss for United States Federal income
      tax purposes if the merger is completed, except with respect
      to cash received instead of fractional shares. You are urged
      to consult your own tax advisor to determine your particular
      tax consequences.                                           

Q:    WHO CAN I CALL WITH QUESTIONS?                              

                                                                [Download Table]
                                                                                
A:  NETGATEWAY STOCKHOLDERS:             GALAXY ENTERPRISES STOCKHOLDERS:       

          NETGATEWAY, INC.                         GALAXY ENTERPRISES, INC.     
          300 Oceangate, 5(th) Floor               754 E. Technology Avenue     
          Long Beach, CA 90802                     Orem, Utah 84097             
          Attention: Investor Relations            Attention: Investor Relations
          (562) 308-0010                           (801) 227-0004               

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SUMMARY 

THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION THAT IS PROVIDED IN GREATER
DETAIL ELSEWHERE IN THIS DOCUMENT. EVEN THOUGH WE HAVE HIGHLIGHTED FOR YOU WHAT 
WE BELIEVE IS THE MOST IMPORTANT INFORMATION, NETGATEWAY AND GALAXY ENTERPRISES 
ENCOURAGE YOU TO CAREFULLY READ THE ENTIRE JOINT PROXY STATEMENT/ PROSPECTUS FOR
A COMPLETE UNDERSTANDING OF THE PROPOSED MERGER.                                

THE COMPANIES                                                                   

Netgateway, Inc.                                                                
300 Oceangate, 5(th) Floor                                                      
Long Beach, CA 90802                                                            
Attention: Investor Relations                                                   
(562) 308-0010                                                                  

   Netgateway provides electronic commerce, or eCommerce, services that enable
its clients to extend their business to the Internet. The hub of the Netgateway 
eCommerce solution is its proprietary Internet Commerce Center-TM-, which       
consists of the hardware and licensed software, as well as related technical and
other services, necessary for its clients to transact business over the         
Internet. Netgateway also designs and builds custom interfaces, or spokes, to   
connect business clients to the Internet Commerce Center.                       

Galaxy Enterprises, Inc.                                                        
754 E. Technology Avenue                                                        
Orem, Utah 84097                                                                
Attention: Investor Relations                                                   
(801) 227-0004                                                                  

Galaxy Enterprises, through its subsidiary Galaxy Mall, Inc., sells     
electronic home pages, or storefronts, on its Internet shopping mall. It also   
hosts those storefront sites on its Internet server. Storefronts are designed   
and programmed by Galaxy Mall or its customers for display on the Galaxy Mall at
HTTP://WWW.GALAXYMALL.COM. Galaxy Mall also operates the portal and search      
engine, MatchSite.com, at HTTP://WWW.MATCHSITE.COM.                             

 Galaxy Enterprises' subsidiary, IMI, Inc., also designs, manufactures and
markets multimedia brochures, shaped compact disks and other products and       
services to facilitate traditional marketing and bridge the gap between         
conventional and Internet marketing.                                            

Galaxy Mall attracts its customers primarily through Internet marketing 
workshops. The workshops provide an intensive training course on Internet       
marketing using e-mail, news groups, auto-responders and other Internet tools to
market products and services.                                                   

THE MERGER (PAGE 33)                                                            

   Netgateway and Galaxy Enterprises have entered into a merger agreement that
sets forth the terms and conditions of the proposed merger of Netgateway and    
Galaxy Enterprises. If the merger is approved, Galaxy Acquisition Corp., a      
subsidiary of Netgateway, will merge with and into Galaxy Enterprises and Galaxy
Enterprises will become a wholly owned subsidiary of Netgateway. Galaxy         
Enterprises stockholders will become stockholders of Netgateway following the   
merger. We currently estimate that each share of Galaxy Enterprises will be     
exchanged for approximately 0.63 of a share of Netgateway common stock, as more 
fully described in this joint proxy statement/prospectus. In addition, each     
outstanding option or warrant to purchase shares of Galaxy Enterprises common   
stock will be assumed by Netgateway and converted into an option or warrant,    
respectively, to purchase shares of Netgateway common stock, as more fully      
described in this joint proxy statement/prospectus.                             

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NETGATEWAY STOCKHOLDER APPROVAL (PAGE 30)                                       

  The holders of a majority of the shares of Netgateway common stock present
in person or by proxy at the meeting must approve the merger. Therefore, a      
failure to vote or attend the meeting will not have the effect of a vote against
the merger. Netgateway stockholders may cast one vote for each share of         
Netgateway common stock held at the close of business on May 18, 2000.          

On that date, Netgateway's directors and executive officers and their   
affiliates beneficially owned approximately 4,331,231 shares of Netgateway      
common stock entitling them to exercise about 24.5% of the voting power of the  
Netgateway common stock entitled to vote at the special meeting.                

GALAXY ENTERPRISES STOCKHOLDER APPROVAL (PAGE 31)                               

 The holders of a majority of the outstanding shares of Galaxy Enterprises
common stock must approve the merger. Therefore, a failure to vote will have the
same effect as voting against the merger. Galaxy Enterprises stockholders may   
cast one vote for each share of Galaxy Enterprises common stock held at the     
close of business on May 18, 2000.                                              

    On that date, Galaxy Enterprises' directors and executive officers and their
affiliates beneficially owned approximately 991,213 shares of Galaxy Enterprises
common stock entitling them to exercise about 16% of the voting power of the    
Galaxy Enterprises common stock entitled to vote at the special meeting.        

VOTING AGREEMENTS (PAGE 60)                                                     

Galaxy Enterprises stockholders owning approximately 19% of Galaxy      
Enterprises' outstanding common stock have agreed to vote all of their shares of
Galaxy Enterprises common stock for approval of the merger.                     

VOTING SHARES HELD BY YOUR BROKER IN STREET NAME (PAGES 29 AND 30)              

    Your broker will vote your shares only if you provide instructions on how to
vote. If you do not instruct your broker on how to vote, your shares will not be
voted at the special meeting and, if you are a Galaxy Enterprises stockholder,  
it will have the same effect as voting against approval of the merger.          

CHANGING YOUR VOTE (PAGES 29 AND 31)                                            

 If you want to change your vote, send a later-dated, signed proxy card to
the secretary of Netgateway or Galaxy Enterprises, as applicable, before the    
respective special meeting or attend the respective special meeting in person   
and vote. You may also revoke your proxy by sending written notice to the       
secretary of Netgateway or Galaxy Enterprises, as applicable, before the        
respective special meeting of Netgateway or Galaxy Enterprises.                 

COMPLETION OF THE MERGER (PAGE 50)                                              

   Assuming approval of the merger and the satisfaction or waiver of all other
conditions of the merger agreement, we anticipate that the merger will occur on 
the date of the special meetings and in any event will occur within a few days  
following the meetings.                                                         

EXCHANGING YOUR STOCK CERTIFICATES (PAGE 32)                                    

If you are a Galaxy Enterprises stockholder, do not send in your stock  
certificates now. After the merger is completed, we will send you written       
instructions for exchanging your Galaxy Enterprises stock certificates for      
Netgateway stock certificates.                                                  

NETGATEWAY'S REASONS FOR THE MERGER; RECOMMENDATION OF NETGATEWAY'S BOARD (PAGES
35 AND 37)                                                                      

   After careful consideration, Netgateway's board of directors has determined
that the terms of the merger are fair to, and in the best interests of,         
Netgateway and its stockholders. In reaching its                                

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decision, Netgateway's board of directors identified several potential benefits 
of the merger, the most important of which included:                            

   - Netgateway's stockholders will have the opportunity to participate in the
potential growth of the combined company after the merger;          

- Netgateway will gain valuable expertise in the Internet marketing and 
     training workshop industry, which will be a key component to Netgateway's
continued growth and development;                                   

   - Being part of a combined company will reduce the risks of continuing as a
     relatively small company in an industry that is rapidly consolidating and
increasingly competitive; and                                       

- Combining with Galaxy Enterprises will increase the business services,
  advertising and eCommerce relationships and opportunities available to
Netgateway.                                                         

NETGATEWAY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR        
APPROVAL OF THE MERGER.                                                     

GALAXY ENTERPRISES' REASONS FOR THE MERGER; RECOMMENDATION OF GALAXY            
ENTERPRISES' BOARD (PAGES 37 AND 40)                                            

After careful consideration, Galaxy Enterprises' board of directors on  
March 8, 2000 determined that the terms of the merger are fair to, and in the   
best interests of, Galaxy Enterprises and its stockholders. In reaching its     
decision, Galaxy Enterprises' board of directors identified several potential   
benefits of the merger, the most important of which included:                   

   - Galaxy Enterprises' stockholders will have the opportunity to participate
in the potential growth of the combined company after the merger;   

   - Being part of a combined company will reduce the risks of continuing as a
     relatively small company in an industry that is rapidly consolidating and
increasingly competitive;                                           

   - Combining with Netgateway will increase the financial resources, business
services, advertising and eCommerce relationships and opportunities 
available to Galaxy Enterprises;                                    

   - Combining with Netgateway will give Galaxy Enterprises the opportunity to
   expand its channels of distribution by giving it access to Netgateway's
      Internet Commerce Center infrastructure, existing cable partners and other
eCommerce business relationships;                                   

- The anticipated exchange ratio in the merger represented a premium of 
    approximately 217% over the average closing price for Galaxy Enterprises
    common stock over the 20-day trading period ending on December 10, 2000,
   the last trading day before the letter of intent between Netgateway and
Galaxy Enterprises was publicly announced; and                      

  - Galaxy Enterprises stockholders will be afforded substantially increased
trading liquidity for their investment.                             

   Between March 8, 2000, the day the board of directors of Galaxy Enterprises
voted to approve the merger and recommend it to its stockholders, and May 23,   
2000, the price of Netgateway's common stock has fallen from $9.19 to $2.13.    
During this period it has also become increasingly difficult for companies such 
as Galaxy Enterprises and Netgateway to obtain new financing. Galaxy Enterprises
has not requested an update to the fairness opinion originally received by it on
March 10, 2000, which opinion does not reflect the impact of these developments 
which occurred after the date of the opinion. Accordingly, undue reliance should
not be placed on the fairness opinion. Although the price of Netgateway's common
stock has declined significantly and the market for equity financings is not as 
favorable as it was when the merger was approved, the board of directors of     
Galaxy Enterprises continues to believe that the merger is fair to and in the   
best interests of Galaxy Enterprises and its stockholders for the reasons noted 
above. Stockholders are urged to consider carefully all factors before returning
their proxy.                                                                    

GALAXY ENTERPRISES' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR 
APPROVAL OF THE MERGER.                                                     

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OPINION OF FINANCIAL ADVISOR TO NETGATEWAY (PAGE 40 AND APPENDIX C)             

In deciding to approve the merger, Netgateway's board of directors      
considered the opinion of Roth Capital Partners, its financial advisor, that, as
of the date of the merger agreement, the exchange ratio was fair, from a        
financial point of view, to the holders of Netgateway common stock. The opinion 
was provided for the information and assistance of Netgateway's board of        
directors in connection with the merger and does not constitute a recommendation
as to how any stockholder of Netgateway should vote with respect to the merger. 
The full text of the written opinion of Roth Capital Partners, which sets forth 
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Appendix C. You are urged to read   
the Roth Capital Partners opinion in its entirety.                              

OPINION OF FINANCIAL ADVISOR TO GALAXY ENTERPRISES (PAGE 41 AND APPENDIX D)     

 In deciding to approve the merger, Galaxy Enterprises' board of directors
considered the opinion of Houlihan Lokey Howard & Zukin, its financial advisor, 
that, as of the date of the merger agreement, the consideration to be received  
in the merger by Galaxy Enterprises' public stockholders was fair to them from a
financial point of view. The opinion was provided for the information and       
assistance of Galaxy Enterprises' board of directors in connection with the     
merger and does not constitute a recommendation as to how any stockholder of    
Galaxy Enterprises should vote with respect to the merger. The full text of the 
written opinion of Houlihan Lokey, which sets forth assumptions made, matters   
considered and limitations on the review undertaken in connection with the      
opinion, is attached as Appendix D. You are urged to read the Houlihan Lokey    
opinion in its entirety.                                                        

INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 44)                            

 In considering the Galaxy Enterprises' board of directors' recommendation
that you vote to approve the merger, you should note that certain officers and  
directors of Galaxy Enterprises have interests in the merger that are different 
from, or in addition to, your interests. These interests relate to, among other 
things, employment agreements, which include stock option grants and increases  
in salary, assurance that certain loans made by Netgateway to Galaxy Enterprises
will be repaid and indemnification rights. As a result, directors and officers  
may be more likely to vote to approve the merger than Galaxy Enterprises'       
stockholders generally.                                                         

RIGHTS OF DISSENTING STOCKHOLDERS (PAGE 46)                                     

  Holders of Galaxy Enterprises common stock on May 18, 2000 are entitled to
exercise dissenters' rights of appraisal pursuant to Section 92A.300 ET SEQ. of 
the Nevada Revised Statutes. A holder of Galaxy Enterprises common stock who    
complies with the provisions of applicable law relating to dissenters' rights   
will be entitled to object to the merger and make written demand that Netgateway
pay in cash the fair value of the shares of Galaxy Enterprises common stock held
by such holder as determined in accordance with statutory provisions.           
Stockholders wishing to exercise dissenters' rights of appraisal must follow    
exactly all requirements for the exercise of those rights as set forth in       
Section 92A.300 ET SEQ. of the Nevada Revised Statutes, a copy of which is      
attached as Appendix B to this joint proxy statement/prospectus.                

CONDITIONS TO THE MERGER (PAGE 58)                                              

Netgateway and Galaxy Enterprises will complete the merger only if the  
conditions specified in the merger agreement are either satisfied or waived,    
some of which include:                                                          

  - the representations and warranties of the respective parties made in the
merger agreement remain accurate;                                   

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- the parties perform their respective covenants and obligations in the 
merger agreement;                                                   

 - the Galaxy Enterprises stockholders and Netgateway stockholders approve
the merger;                                                         

   - there are no restraining orders, injunctions or administrative actions or
proceedings preventing completion of the merger;                    

- the SEC has declared this registration statement effective; and       

- the shares of Netgateway common stock to be issued in the merger are  
authorized for listing on The Nasdaq National Market.               

NO SOLICITATION (PAGE 56)                                                       

    Galaxy Enterprises has agreed not to initiate or, subject to certain limited
exceptions, engage in discussions with another party regarding any business     
combination while the proposed merger with Netgateway is pending.               

TERMINATION OF THE MERGER AGREEMENT (PAGE 58)                                   

 The boards of directors of both companies may mutually agree to terminate
the merger agreement at any time without completing the merger. Either          
Netgateway or Galaxy Enterprises may terminate the merger agreement if:         

(1) the merger is not completed by July 31, 2000;                       

 (2) the Galaxy Enterprises stockholders or Netgateway stockholders do not
approve the merger;                                               

(3) a governmental authority or legal action permanently prohibits the  
merger;                                                           

   (4) the other company breaches any representations or warranties, or any of
      the representations or warranties become inaccurate, in either case such
   that the other company is unable to satisfy certain conditions to the
     completion of the merger, and the breach or inaccuracy is not cured; or

  (5) Galaxy Enterprises' board of directors withholds, withdraws, amends or
      modifies its recommendation with respect to the merger after it receives
      an unsolicited acquisition offer from a third party that Netgateway does
not match.                                                        

In addition, Netgateway may terminate the merger agreement if:    

   (6) Galaxy Enterprises intentionally breaches its obligations under the "no
solicitation" section of the merger agreement and Netgateway is in
compliance with the merger agreement.                             

TERMINATION FEE AND EXPENSES (PAGE 58)                                          

  Galaxy Enterprises will be required to pay Netgateway a termination fee of
$1.5 million plus up to $500,000 of Netgateway's expenses incurred in connection
with the merger if the merger agreement is terminated in the circumstances      
described in paragraphs (5) or (6) above or if Netgateway terminates the merger 
agreement because (a) the Galaxy Enterprises stockholders did not approve the   
merger, (b) a third party announced and did not withdraw a proposal to acquire  
Galaxy Enterprises before the vote to approve the merger and (c) Galaxy         
Enterprises enters into a definitive agreement to be acquired within 12 months  
of the termination of the merger agreement.                                     

   Except as provided above, all fees and expenses incurred in connection with
the merger agreement and the merger will be paid by the party incurring such    
expenses, whether or not the merger is consummated.                             

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NETGATEWAY STOCK OPTION (PAGE 60)                                               

  In connection with the merger agreement, John J. Poelman, president, chief
executive officer and a principal stockholder of Galaxy Enterprises, granted    
Netgateway an option to purchase up to 980,213 shares of Galaxy Enterprises     
common stock held by Mr. Poelman at a price per share equal to the product of   
(1) the exchange ratio in the merger and (2) the average closing price of one   
share of Netgateway common stock for the 20 most recent trading days ending on  
March 9, 2000, or $8.6982. The 980,213 shares represented approximately 16% of  
Galaxy Enterprises' outstanding shares at the time the merger agreement was     
signed. The option is not currently exercisable. However, if the merger         
agreement is terminated under circumstances in which Galaxy Enterprises is      
required to pay a termination fee, Netgateway may be able to exercise the stock 
option.                                                                         

   Netgateway required Mr. Poelman to grant the stock option as a condition to
entering into the merger agreement. The stock option, the voting agreements, the
termination fee and the non-solicitation provisions of the merger agreement may 
discourage third parties who are interested in acquiring a significant stake in 
Galaxy Enterprises and were required by Netgateway to increase the likelihood   
that the merger will be completed.                                              

FEDERAL INCOME TAX CONSEQUENCES (PAGE 48)                                       

  Netgateway and Galaxy Enterprises expect that the merger will qualify as a
tax-free reorganization for federal income tax purposes. If the merger qualifies
as a tax-free reorganization, Galaxy Enterprises stockholders will not recognize
any gain or loss for federal income tax purposes upon the exchange of their     
Galaxy Enterprises common stock for Netgateway common stock, except with respect
to any cash received instead of a fractional share of Netgateway common stock.  
The availability of this tax treatment is not, however, a condition to the      
merger.                                                                         

ANTICIPATED ACCOUNTING TREATMENT (PAGE 50)                                      

  Netgateway and Galaxy Enterprises expect that the merger will be accounted
for as a pooling of interests, which means that Netgateway and Galaxy           
Enterprises will be treated as if they had always been combined for accounting  
and financial reporting purposes. The availability of this accounting treatment 
is not, however, a condition to the merger.                                     

FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 28)                       

Each of Netgateway and Galaxy Enterprises has made forward-looking      
statements in this document that are subject to risks and uncertainties.        
Forward-looking statements include expectations concerning matters that are not 
historical facts and actual results may differ materially from these            
forward-looking statements. Words such as "believes," "expects," "anticipates"  
or similar expressions indicate forward-looking statements. For more information
regarding factors that could cause actual results to differ from these          
expectations, you should refer to "Risk Factors" on page 13.                    

WHO CAN HELP ANSWER YOUR QUESTIONS                                              

If you have questions about the merger, you should contact:             

                                                                [Download Table]
                                                                       
NETGATEWAY STOCKHOLDERS:               GALAXY ENTERPRISES STOCKHOLDERS:

Netgateway, Inc.                       Galaxy Enterprises, Inc.        
300 Oceangate, 5(th) Floor             754 E. Technology Avenue        
Long Beach, California 90802           Orem, Utah 84097                
Telephone: (562) 308-0010              Telephone: (801) 227-0004       
Attention: Investor Relations          Attention: Investor Relations   

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SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION 

NETGATEWAY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA                      

    The following selected historical consolidated financial data should be read
in conjunction with Netgateway's consolidated financial statements and related  
notes thereto and "Management's Discussion and Analysis of Financial Condition  
and Results of Operations of Netgateway" which are included elsewhere in this   
document and reflect the acquisitions of Infobahn Technologies, LLC d/b/a       
Digital Genesis completed on June 2, 1998 and Spartan Multimedia, Ltd. completed
on January 15, 1999. The consolidated statement of operations data for the      
period from March 4, 1998 (inception) through June 30, 1998 and the year ended  
June 30, 1999, and the consolidated balance sheet data at June 30, 1998 and 1999
are derived from the consolidated financial statements of Netgateway which have 
been audited by KPMG LLP, independent auditors, and are included elsewhere in   
this document. The unaudited consolidated statement of operations data for the  
nine months ended March 31, 1999 and 2000, and the unaudited consolidated       
balance sheet data at March 31, 2000 are derived from the unaudited consolidated
financial statements and are included elsewhere in this document. In the opinion
of management, these statements have been prepared on the same basis as the     
audited consolidated financial statements and include all adjustments,          
consisting only of normal recurring adjustments, necessary for the fair         
statement of the results of these periods. Historical results are not           
necessarily indicative of the results to be expected in the future.             

                                                        [Enlarge/Download Table]

                                                             PERIOD FROM                                 
                                                              MARCH 4,                                   
                                                                1998                      NINE MONTHS    
                                                             (INCEPTION)     YEAR            ENDED       
                                                               THROUGH      ENDED          MARCH 31,     
                                                              JUNE 30,     JUNE 30,   -------------------
                                                                1998         1999       1999       2000  
                                                             -----------   --------   --------   --------
                                                               (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)  
                                                                                                         
CONSOLIDATED STATEMENT OF OPERATIONS DATA:                                                               
Revenue.....................................................   $     3         157        122      3,215 
Loss from operations........................................    (4,553)    (11,449)    (7,884)   (22,864)
Loss before extraordinary item..............................    (4,572)    (12,429)    (8,618)   (27,499)
Net loss....................................................    (4,572)    (10,776)    (6,965)   (27,499)
Net loss per common share                                                                                
  Basic and diluted.........................................     (0.84)      (1.21)     (0.80)     (2.02)
Weighted average common shares outstanding                                                               
  Basic and diluted.........................................     5,416       8,912      8,660     13,589 


                                                                                                    AT   
                                                                   AT JUNE 30                    MARCH 31
                                                             ----------------------              --------
                                                                1998         1999                  2000  
                                                             -----------   --------              --------
                                                                                                         
CONSOLIDATED BALANCE SHEET DATA:                                                                         
Cash........................................................   $   255         569                 8,740 
Working capital (deficit)...................................    (1,960)     (1,834)                8,525 
Total assets................................................       872       3,458                15,523 
Short-term debt.............................................     2,052       1,698                    -- 
Long-term debt..............................................       368          --                    -- 
Stockholder's equity (deficit)..............................    (1,828)        245                12,373 

Note 1--Netgateway, Inc. was formed on March 4, 1998, as a Nevada corporation.  
In June 1998, Video Calling Card, Inc., a Nevada public shell corporation,      
acquired 100% of the outstanding common stock of Netgateway. Since the          
stockholders of Netgateway received the majority voting interests in the        
combined company, Netgateway is the acquiring enterprise for financial reporting
purposes.                                                                       

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Note 2--In November and December 1999, Netgateway sold 3,795,000 shares of      
common stock in a public offering generating net proceeds of $23,057,844.       

Note 3--Netgateway changed its method of accounting for revenue from the        
completed contract method to the percentage-of-completion method in fiscal year 
1999. The percentage-of-completion method is preferable according to Statement  
of Position 81-1, Accounting for Performance of Construction-Type and Certain   
Production-Type Contracts, issued by the American Institute of Certified Public 
Accountants. The new method has been applied retroactively by restating         
Netgateway's consolidated financial statements for prior periods in accordance  
with Accounting Principles Board Opinion (APB) No. 20.                          

GALAXY ENTERPRISES SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA              

    The following selected historical consolidated financial data should be read
in conjunction with Galaxy Enterprises' consolidated financial statements and   
related notes thereto and "Management's Discussion and Analysis of Financial    
Condition and Results of Operations of Galaxy Enterprises" included elsewhere in
this document. The consolidated statement of operations data for each of the    
three years ended December 31, 1997, 1998 and 1999, and the consolidated balance
sheet data at December 31, 1998 and 1999, are derived from the consolidated     
financial statements of Galaxy Enterprises which have been audited by Wisan,    
Smith, Racker & Prescott, LLP, independent accountants, and are included        
elsewhere in this document. The unaudited consolidated statement of operations  
data for the nine months ended March 31, 1999 and 2000, are derived from the    
unaudited financial records of Galaxy Enterprises. The unaudited consolidated   
balance sheet data at March 31, 2000 is derived from the unaudited consolidated 
financial statements included elsewhere in this document. In the opinion of     
management, these statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal     
recurring adjustments, necessary for the fair statement of the results of these 
periods. Historical results are not necessarily indicative of the results to be 
expected in the future.                                                         

                                                        [Enlarge/Download Table]

                                                                                                 NINE MONTHS    
                                                               YEAR ENDED DECEMBER 31,         ENDED MARCH 31,  
                                                            ------------------------------   -------------------
                                                              1997       1998       1999       1999       2000  
                                                            --------   --------   --------   --------   --------
                                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                                
CONSOLIDATED STATEMENT OF OPERATIONS DATA:                                                                      
Revenue....................................................  $2,495     11,448     17,934      8,159     17,840 
Income (loss) from operations..............................     126         18     (7,111)    (1,485)    (6,888)
Net income (loss)..........................................      87         35    (12,639)    (6,628)    (6,927)
Net income (loss) per common share                                                                              
  Basic....................................................    0.02       0.01      (2.23)     (1.23)     (1.20)
  Diluted..................................................    0.02       0.01      (2.23)     (1.23)     (1.20)
Weighted average common shares outstanding                                                                      
  Basic....................................................   5,272      5,272      5,676      5,390      5,768 
  Diluted..................................................   5,272      5,725      5,676      5,390      5,768 

                                                        [Enlarge/Download Table]

                                                                                     AT   
                                                               AT DECEMBER 31     MARCH 31
                                                             -------------------  --------
                                                               1998       1999      2000  
                                                             --------   --------  --------
                                                                                          
CONSOLIDATED BALANCE SHEET DATA:                                                          
Cash........................................................  $   25        133        81 
Working capital (deficit)...................................    (800)   (11,330)  (12,834)
Total assets................................................   1,335      3,231     4,473 
Short-term debt.............................................     115        162       543 
Long-term debt..............................................      --          4         5 
Stockholder's equity (deficit)..............................     256    (10,594)  (12,481)

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Note 1--In calendar year 1999, Galaxy Enterprises acquired substantially all of 
the assets of Impact Media, LLC. The operations of Impact Media, LLC are        
included in the consolidated statement of operations of Galaxy Enterprises since
the date of acquisition.                                                        

Note 2--In calendar year 1997, Galaxy Enterprises purchased all of the assets of
both Profit Education Systems, Inc. (PES) and CO-OP Business Services (CO-OP).  
Galaxy Enterprises agreed to assume the liabilities of PES and CO-OP in exchange
for their assets.                                                               

Note 3--As of December 31, 1999, Galaxy Enterprises recorded a charge of        
$5.45 million ($.96 per share), which represents the cumulative effect of a     
change in accounting principle regarding revenue recognition. Upon evaluation of
the accounting requirements of Staff Accounting Bulletin (SAB) 101, Galaxy      
Enterprises determined that it is required to adopt the provisions and that     
revenue recognition will more closely parallel the time period over which the   
revenue is earned. The adoption of this modification in revenue recognition     
policy is reflected in the 1999 financial statements as of and for the year     
ended December 31, 1999.                                                        

Note 4--During 1999, Galaxy Enterprises' board of directors granted an          
additional 788,750 options pending the approval of Galaxy Enterprises'          
shareholders. Shareholder approval is necessary in order to expand the number of
shares authorized under the plan from 1,000,000 to 2,000,000. As shareholder    
approval had not been obtained as of March 31, 2000 all options granted in      
excess of the original 1,000,000 shares authorized are not considered           
outstanding and have not been included in the preceding analysis. Shareholder   
approval was obtained at the annual meeting held on May 17, 2000. For accounting
purposes the options were deemed to have been granted on that date. The fair    
market value of the stock at the closing of the market on May 16, 2000 was $1.69
per share. The difference between the option grant price given to employees and 
$1.69 gives rise to compensation expense which affects the net income (loss) for
the period over which the options become exercisable under the vesting schedule 
in the plan. As a result, approximately $24,000 of compensation expense will be 
recognized each fiscal year. Compensation expense recognized under these options
will be added to the amortization of previously issued options resulting in an  
approximate $60,000 annual increase in compensation expense. These amounts will 
be recognized over the vesting period of five years adjusted for exercises and  
cancellations.                                                                  

SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA                            

   The selected unaudited pro forma combined financial data give effect to the
proposed merger of Netgateway and Galaxy Enterprises on a pooling of interests  
basis. The Netgateway and Galaxy Enterprises unaudited pro forma combined       
financial data are based on the historical consolidated financial statements of 
Netgateway and the historical consolidated financial statements of Galaxy       
Enterprises, which are included elsewhere in this document. The Netgateway and  
Galaxy Enterprises unaudited pro forma combined balance sheet data assumes that 
the merger of Netgateway and Galaxy Enterprises took place on March 31, 2000 and
combines Netgateway's historical consolidated balance sheet with Galaxy         
Enterprises' historical consolidated balance sheet as of that date. The         
Netgateway and Galaxy Enterprises unaudited pro forma combined statements of    
operations data assume that the merger of Netgateway and Galaxy Enterprises took
place as of the beginning of the periods presented. The unaudited pro forma     
combined statement of operations combines Netgateway's audited historical       
statement of operations for the period ended June 30, 1997 and 1998 with Galaxy 
Enterprises audited historical statement of operations for the years ended      
December 31, 1997 and 1998. As Netgateway had no operations in 1997, these      
unaudited pro forma statement of operations consist solely of Galaxy            
Enterprises. The unaudited pro forma combined statement of operations for the   
year ended June 30, 1999 combines Netgateway's audited historical statement of  
operations for the year ended June 30, 1999 with Galaxy Enterprises statement of
operations for the period July 1, 1998 through June 30, 1999 which was derived  
from Galaxy Enterprises financial records. The unaudited pro forma combined     
statement of operations for the nine months end March 31, 2000 was derived from 
Netgateway and Galaxy Enterprises unaudited statements of operations for the    
same period included elsewhere in the document. This presentation is consistent 
with the periods expected to be combined after the date of the closing of the   
merger.                                                                         

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The unaudited pro forma combined financial data are not necessarily     
indicative of the combined financial position or results of operations of future
periods or the results that actually would have been realized had the entities  
been a single entity during these periods. The unaudited pro forma combined     
financial data for each of the three years in the three-year period ended       
June 30, 1999, and for the nine months ended March 31, 2000, are derived from   
the unaudited pro forma combined financial statements included elsewhere in this
document and should be read in conjunction with those statements and notes      
thereto.                                                                        

                                                        [Enlarge/Download Table]

                                                                      YEAR ENDED                NINE MONTHS
                                                          -----------------------------------      ENDED   
                                                           JUNE 30,     JUNE 30,    JUNE 30,     MARCH 31, 
                                                             1997         1998        1999         2000    
                                                          -----------   ---------   ---------   -----------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)      
                                                                                                           
COMBINED STATEMENT OF OPERATIONS DATA:                                                                     
Revenue..................................................  $    493       7,151       10,775       20,376  
Cost of sales............................................       144         386        1,345        7,577  
                                                           --------      ------      -------     --------  
Gross profit.............................................       349       6,765        9,430       12,799  
Product development......................................       150         275        1,694        4,218  
License fees.............................................        --       3,822           --           --  
Selling and marketing....................................     1,769       8,952       11,645       18,550  
General and administrative...............................       292       1,858       10,755       20,009  
Depreciation and amortization............................        48         164          457          762  
                                                           --------      ------      -------     --------  
Total operating expenses.................................     2,259      15,071       24,551       43,539  
                                                           --------      ------      -------     --------  
Loss from operations.....................................    (1,910)     (8,306)     (15,121)     (30,740) 
Loss on sale of equity securities........................        --          --          (55)          --  
Other income (expense)...................................        --           5           15          (25) 
Interest expense.........................................        --         (23)        (933)      (4,646) 
                                                           --------      ------      -------     --------  
Net loss.................................................    (1,910)     (8,324)     (16,094)     (35,411) 
Net loss per common share                                                                                  
  Basic and diluted......................................  $  (0.49)     $(0.89)     $ (1.25)    $  (2.02) 
                                                           ========      ======      =======     ========  
  Weighted average common shares outstanding.............     3,924       9,340       12,836       17,513  
                                                           ========      ======      =======     ========  

                                                        [Enlarge/Download Table]

                                                                                                 AT     
                                                                                              MARCH 31, 
                                                                                                2000    
                                                                                             -----------
                                                                                                        
COMBINED BALANCE SHEET DATA:                                                                            
Cash........................................................................................  $  8,821  
Working capital.............................................................................    (5,259) 
Total assets................................................................................    18,480  
Short-term debt.............................................................................        93  
Long-term debt..............................................................................         5  
Stockholder's equity (deficit)..............................................................    (1,174) 

COMPARATIVE PER SHARE DATA                                                      

  The following tables reflect (a) the historical net income (loss) and book
value per share of Netgateway common stock and the historical net loss and book 
value per share of Galaxy Enterprises common stock in comparison with the       
unaudited pro forma net loss and book value per share after giving effect to the
proposed merger of Netgateway with Galaxy Enterprises on a pooling of interests 
basis and (b) the equivalent historical net loss and book value per share       
attributable to the estimated 0.63217 of a share of Netgateway common stock     
which will be received for each share of Galaxy Enterprises common stock. The   
information presented in the following tables should be read in conjunction with
the unaudited pro forma combined financial statements included in this document,
the historical consolidated financial statements and related notes of Netgateway
and the historical                                                              

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consolidated financial statements and related notes of Galaxy Enterprises that  
are included elsewhere in this document.                                        

                                                        [Enlarge/Download Table]

                                          PERIOD FROM                                   
                                         MARCH 4, 1998                                  
                                          (INCEPTION)                    NINE MONTHS    
                                            THROUGH      YEAR ENDED         ENDED       
                                         JUNE 30, 1998    JUNE 30,        MARCH 31,     
                                         --------------  ----------  -------------------
NETGATEWAY PER SHARE DATA                     1998          1999       1999       2000  
-------------------------                --------------  ----------  --------   --------
                                                                                        
Netgateway supplementary historical per                                                 
  common share:                                                                         
  Net loss per common share--basic and                                                  
    diluted(2)..........................     (0.84)         (1.21)    (0.80)     (2.02) 
Book value per share(1).................     (0.34)          0.03     (0.00)      0.91  

                                                        [Enlarge/Download Table]

                                                    YEAR ENDED                NINE MONTHS    
                                                   DECEMBER 31              ENDED MARCH 31,  
                                          ------------------------------  -------------------
GALAXY ENTERPRISES PER SHARE DATA           1997       1998       1999      1999       2000  
---------------------------------         --------   --------   --------  --------   --------
                                                                                             
Galaxy Enterprises historical per common                                                     
  share:                                                                                     
  Net income (loss) per common share--                                                       
    basic(2)............................    0.02        0.01     (2.23)     (1.23)    (1.20) 
  Net income (loss) per common share--                                                       
    diluted(2)..........................    0.02        0.01     (2.23)     (1.23)    (1.20) 
Book value per share(1).................    0.04        0.05     (1.87)     (0.81)    (2.16) 

                                                        [Enlarge/Download Table]

                                              FISCAL YEAR ENDED             NINE MONTHS    
                                                   JUNE 30                ENDED MARCH 31,  
                                        ------------------------------  -------------------
PRO FORMA COMBINED PER SHARE DATA         1997       1998       1999      1999       2000  
---------------------------------       --------   --------   --------  --------   --------
                                                                                           
Pro forma combined per common share:                                                       
  Net loss per Netgateway share--basic                                                     
    and diluted(2).....................  (0.49)      (0.89)    (1.25)               (2.02) 
  Net loss per equivalent Galaxy                                                           
    Enterprises share--basic and                                                           
    diluted(2).........................  (0.31)      (0.56)    (0.79)               (1.28) 
Book value per Netgateway share(1).....                                             (0.07) 
Book value per Galaxy Enterprises                                                          
  share(3).............................                                             (0.04) 

------------------------                                                        

(1) The historical book value per share is computed by dividing stockholders'   
equity (deficit) by the number of shares of common stock outstanding for
that period. The pro forma combined book value per share is computed by 
    dividing pro forma stockholders' equity (deficit) by the pro forma number of
   shares of Netgateway common stock outstanding as of March 31, 2000 assuming
the merger had occurred as of that date.                                

(2) Basic net income (loss) per share is computed using the weighted average    
 number of common shares outstanding during the period. Diluted net income
    (loss) per share is computed using the weighted average number of common and
 common equivalent shares outstanding during the period. Common equivalent
  shares consist of the incremental common shares issuable upon the exercise
of stock options and warrants (using the treasury stock method). Common 
equivalent shares are excluded from the computations if their effect is 
antidilutive.                                                           

(3) The pro forma combined book value per Galaxy Enterprises shares is          
   calculated by dividing the pro forma combined share amounts by the exchange
   ratio of 0.63217 shares of Netgateway common stock for each share of Galaxy
Enterprises common stock.                                               

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RECENT SHARE PRICES                                                             

The following table sets forth the closing sales prices per share of    
Netgateway common stock on The Nasdaq National Market and the closing sales     
prices per share of the Galaxy Enterprises common stock on the Nasdaq OTC       
Bulletin Board on (1) December 10, 1999, the last full trading date prior to the
public announcement of the merger, and (2) May 22, 2000, the latest practicable 
trading day before the printing of this proxy statement/prospectus. The         
equivalent Galaxy Enterprises per share price as of any given date, including   
the dates indicated, is determined by multiplying the price of one share of     
Netgateway common stock as of such date by 0.63, the estimated exchange ratio   
set forth in the merger agreement, and represents what the market value of one  
share of Galaxy Enterprises' common stock would have been if the merger had been
consummated on or prior to such day.                                            

                                                                [Download Table]

                                                    GALAXY     EQUIVALENT GALAXY
                                    NETGATEWAY   ENTERPRISES    ENTERPRISES PER 
                                   COMMON STOCK  COMMON STOCK        SHARE      
                                   ------------  ------------  -----------------
                                                                                
December 10, 1999.................   $10.125        $5.062           $6.379     
May 22, 2000......................   $2.4375        $1.50            $1.536     

    No assurance can be given as to the market prices of Netgateway common stock
or Galaxy Enterprises common stock at any time before the closing of the merger 
or as to the market price of Netgateway common stock at any time thereafter. The
exchange ratio will not be adjusted to compensate Galaxy Enterprises            
stockholders for decreases in the market price of Netgateway common stock which 
could occur before the merger becomes effective. If the market price of         
Netgateway common stock decreases or increases prior to the effective time of   
the merger, the market value of Netgateway common stock to be received in the   
merger in exchange for Galaxy Enterprises common stock will correspondingly     
decrease or increase.                                                           

Stockholders of Galaxy Enterprises and Netgateway are urged to obtain   
current market quotations of Galaxy Enterprises common stock and Netgateway     
common stock.                                                                   

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RISK FACTORS

   YOU SHOULD CONSIDER THESE RISK FACTORS IN EVALUATING WHETHER TO APPROVE THE
MERGER. THESE FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER        
INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE APPENDICES  
HERETO AND THE DOCUMENTS INCORPORATED BY REFERENCE IN THIS JOINT PROXY          
STATEMENT/PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THE         
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS OF EITHER OR BOTH OF     
NETGATEWAY AND GALAXY ENTERPRISES MAY BE SERIOUSLY HARMED. IN THAT CASE, THE    
TRADING PRICE OF NETGATEWAY COMMON STOCK MAY DECLINE, AND YOU MAY LOSE ALL OR   
PART OF YOUR INVESTMENT.                                                        

RISKS RELATED TO THE MERGER                                                     

EXPECTED BENEFITS OF THE MERGER MAY NOT BE REALIZED                     

  If we are not able to effectively integrate our technology, operations and
personnel in a timely and efficient manner, then the benefits of the merger will
not be realized. In particular, if the integration is not successful:           

- our operating results may be adversely affected;                      

- we may lose key personnel; and                                        

- we may not be able to retain Netgateway's and Galaxy Enterprises'     
customers.                                                          

   In addition, the attention and effort devoted to the integration of the two
companies will significantly divert management's attention from other important 
issues, and could have a material adverse impact on the business of the combined
company. In addition, anticipated synergies from the merger may not materialize.

THE MERGER COULD ADVERSELY AFFECT COMBINED FINANCIAL RESULTS            

 If the benefits of the merger do not exceed the costs associated with the
merger, including transaction costs and the dilution to Netgateway's            
stockholders resulting from the issuance of shares in connection with the       
merger, Netgateway's financial results, including earnings per share, could be  
adversely affected. Specifically, Netgateway and Galaxy Enterprises estimate    
that they will incur direct transaction costs of approximately $700,000 and     
$550,000, respectively, in connection with the proposed merger, which will be   
charges to operations in the quarter in which the merger is consummated. These  
amounts are preliminary estimates and could change. Netgateway may incur        
additional charges in subsequent quarters to reflect costs associated with the  
proposed merger.                                                                

 GALAXY ENTERPRISES STOCKHOLDERS WILL RECEIVE APPROXIMATELY 0.63 SHARES OF
   NETGATEWAY COMMON STOCK FOR EACH SHARE OF GALAXY ENTERPRISES COMMON STOCK
    THEY HOLD, DESPITE CHANGES IN THE MARKET VALUE OF EITHER OR BOTH OF GALAXY
ENTERPRISES COMMON STOCK AND NETGATEWAY COMMON STOCK.                 

The specific dollar value of Netgateway common stock to be received by  
Galaxy Enterprises stockholders depends on the market value of Netgateway at the
time of completion of the merger. Between March 8, 2000, the day the Galaxy     
Enterprises board of directors voted to approve the merger, and May 23, 2000,   
the value of Netgateway's common stock has fallen from $9.19 to $2.13. The value
of Netgateway common stock may decrease further from the date that any Galaxy   
Enterprises stockholder submits a proxy. Each share of Galaxy Enterprises common
stock will be exchanged for approximately 0.63 of a share of Netgateway common  
stock upon completion of the merger. The actual exchange ratio will be          
calculated by dividing five million by the sum of the number of outstanding     
shares of Galaxy Enterprises common stock and the outstanding unexercised Galaxy
Enterprises employee stock options at the time of the merger. This exchange     
ratio will not be adjusted for changes in the market price of either Galaxy     
Enterprises common stock or Netgateway common stock. Neither party is permitted 
to terminate the merger agreement solely because of changes in the market price 
of Netgateway common stock or Galaxy Enterprises common stock. Stockholders are 
urged to obtain                                                                 

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recent market quotations for Netgateway common stock and Galaxy Enterprises     
common stock. We cannot predict or give any assurances as to the market price of
Netgateway common stock at any time before or after the merger and stockholders 
of Galaxy Enterprises are urged to monitor this price and to consider carefully 
developments with respect to the market for Netgateway's common stock through   
the time of the stockholders meeting to approve the merger.                     

  THE MARKET PRICE OF NETGATEWAY COMMON STOCK MAY DECLINE AS A RESULT OF THE
MERGER                                                                

  The market price of Netgateway common stock may decline as a result of the
merger, if:                                                                     

- the integration of Netgateway and Galaxy Enterprises is unsuccessful; 

 - we do not achieve the perceived benefits of the merger as rapidly or to
the extent anticipated by financial analysts or investors; or       

  - the effect of the merger on our financial results is not consistent with
the expectations of financial analysts or investors.                

   FAILURE OF THE MERGER TO QUALIFY AS A POOLING OF INTERESTS WOULD NEGATIVELY
AFFECT COMBINED FINANCIAL RESULTS                                     

   Netgateway intends to account for the merger as a pooling of interests, but
availability of this treatment is not a condition to the merger. The failure of 
the merger for any reason to qualify for pooling of interests accounting        
treatment for financial reporting purposes would materially and adversely affect
Netgateway's reported earnings and, likely, the price of Netgateway common      
stock.                                                                          

If the merger does not qualify for pooling of interests accounting      
treatment, the purchase method of accounting would apply. Under that method,    
Netgateway would record the estimated fair value of common stock issued in the  
merger as the cost of acquiring the business of Galaxy Enterprises. That cost   
would be allocated to the net assets acquired.                                  

    The availability of pooling of interests accounting treatment for the merger
depends upon circumstances and events occurring after the effective time of the 
merger. For example, there must not be any significant changes in the business  
of the combined company, including significant dispositions of assets, for a    
period of two years following the effective time of the merger. Further,        
affiliates of Netgateway and Galaxy Enterprises must not sell any shares of     
either Netgateway or Galaxy Enterprises capital stock, except certain limited   
amounts, until Netgateway publicly announces financial results covering at least
30 days of combined operations of Netgateway and Galaxy Enterprises after the   
merger. If the effective time of the merger occurs prior to August 31, 2000, we 
expect that such combined financial results would be published in November 2000.
If affiliates of Netgateway or Galaxy Enterprises sell shares of Netgateway     
common stock in excess of the limited exception prior to that time, despite a   
contractual obligation not to do so, the merger may not qualify for pooling of  
interests accounting for financial reporting purposes.                          

GALAXY ENTERPRISES MAY LOSE AN OPPORTUNITY TO ENTER INTO A MERGER OR    
    BUSINESS COMBINATION WITH ANOTHER PARTY ON MORE FAVORABLE TERMS BECAUSE OF
PROVISIONS IN THE MERGER AGREEMENT                                    

 While the merger agreement is in effect, Galaxy Enterprises is prohibited
from entering into or soliciting, initiating or encouraging any inquiries or    
proposals that may lead to a proposal or offer for a merger, with any person    
other than Netgateway. As a result of this prohibition, Galaxy Enterprises may  
lose an opportunity to enter into a transaction with another potential partner  
on more favorable terms.                                                        

SOME OF GALAXY ENTERPRISES' DIRECTORS AND OFFICERS HAVE INTERESTS THAT  
DIFFER IN SEVERAL RESPECTS FROM GALAXY ENTERPRISES STOCKHOLDERS       

In considering the recommendation of the Galaxy Enterprises board of    
directors to approve the merger agreement and the merger, you should consider   
that some of these directors and officers have                                  

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interests that differ from, or are in addition to, their interests as Galaxy    
Enterprises stockholders generally. These interests may include the receipt of  
Netgateway stock options, benefits provided to them by Netgateway under         
employment agreements, the continuation of certain indemnification arrangements,
indemnification with respect to personal guarantees given by them of certain    
obligations of Galaxy Enterprises and the agreement of Netgateway that it will  
cause Galaxy Enterprises to repay the $450,000 of loans made to it by Netgateway
with respect to which John J. Poelman is the co-obligor and for which he has    
personally provided collateral immediately following the merger.                

DEVELOPMENTS AFTER THE DATE OF THE FAIRNESS OPINION                     

The fairness opinion that the board of directors of Galaxy Enterprises  
received does not reflect recent developments in the market for the stock of    
Netgateway and Galaxy Enterprises and Galaxy Enterprises has not requested an   
update to this opinion. Stockholders should not put undue reliance on the       
fairness opinion. Between March 10, 2000, the date of the fairness opinion, and 
May 23, 2000, the price of Netgateway's common stock has fallen from $11.75 to  
$2.13. The board of directors of Galaxy Enterprises continues to believe that   
the merger is fair to and in the best interests of Galaxy Enterprises and its   
stockholders. See "The Merger--Board Recommendation of Galaxy Enterprises Board 
of Directors."                                                                  

RISKS SPECIFIC TO NETGATEWAY                                                    

   NETGATEWAY'S AUDITORS HAVE QUALIFIED THEIR REPORT ON NETGATEWAY'S FINANCIAL
STATEMENTS WITH RESPECT TO NETGATEWAY'S ABILITY TO CONTINUE AS A GOING
CONCERN                                                               

  The report of KPMG LLP, Netgateway's independent auditors, with respect to
Netgateway's financial statements and the related notes, indicate that at the   
date of their report, Netgateway had generated minimal revenues since inception 
and was continuing to incur losses. Accordingly, KPMG LLP qualified their report
as of that date to indicate that these matters raise substantial doubt about    
Netgateway's ability to continue as a going concern. Netgateway's financial     
statements do not include any adjustments that might result from this           
uncertainty.                                                                    

   NETGATEWAY HAS HAD A DEFICIT IN STOCKHOLDERS' EQUITY AND ANTICIPATES FUTURE
LOSSES                                                                

Netgateway has incurred substantial losses since its inception and      
anticipates incurring substantial losses for the foreseeable future. As of      
June 30, 1999 and March 31, 2000, Netgateway had a working capital deficit of   
$1,834,107 and $8,525,052, respectively, and stockholders' equity of $244,917   
and $12,372,775 at June 30, 1999 and March 31, 2000, respectively. Netgateway   
generated revenues of $157,282 for the year ended June 30, 1999 and $3,214,997  
for the nine months ended March 31, 2000. For the year ended June 30, 1999 and  
the nine months ended March 31, 2000, Netgateway incurred net losses of         
$10,775,703, and $27,498,958, respectively. Netgateway may never achieve        
profitability. For the year ended June 30, 1999 and the nine months ended       
March 31, 2000 Netgateway recorded negative cash flows from operations of       
$4,552,912 and $9,901,178, respectively.                                        

   To succeed, Netgateway must leverage its existing relationships and develop
new relationships to substantially increase its revenue by providing more       
comprehensive eCommerce services. Netgateway has expended and will continue to  
expend significant resources to build its internal systems, to grow its         
infrastructure, to add new clients and employees, and to establish access to the
Internet Commerce Center platform for clients, directly through systems         
integrators, who may act as resellers of Netgateway's products. Most of these   
development expenses must be incurred well in advance of the recognition of     
revenue. Netgateway intends to continue to invest heavily in infrastructure,    
development and marketing. As a result, Netgateway may not be able to achieve or
sustain profitability.                                                          

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IF NETGATEWAY IS UNABLE TO UPGRADE ITS INFRASTRUCTURE, NETGATEWAY MAY BE
UNABLE TO PROCESS AN INCREASED VOLUME OF TRANSACTIONS                 

   Netgateway may be unable to effectively upgrade and expand its hardware and
software infrastructure or to integrate smoothly any newly developed or         
purchased software with its existing systems. A key element of Netgateway's     
business strategy is to provide a cost-effective means by which its clients can 
generate a high volume of eCommerce transactions through the use of Netgateway's
hardware and software infrastructure. If the volume of transactions through     
Netgateway's infrastructure substantially increases, Netgateway will have to    
expand and further upgrade its technology, transaction processing systems and   
hardware and software infrastructure to accommodate these increases or          
Netgateway's systems may suffer from:                                           

- unanticipated system disruptions;                                     

- slower response times;                                                

- degradation in levels of customer service;                            

- impaired quality and speed of transaction processing; and             

- delays in reporting accurate financial information.                   

RISKS SPECIFIC TO GALAXY ENTERPRISES                                            

    GALAXY HAS ACHIEVED ONLY LIMITED PROFITABILITY AND ANTICIPATES FUTURE LOSSES

   Since inception, Galaxy Enterprises has achieved only limited profitability
and anticipates incurring substantial losses for the foreseeable future. Galaxy 
Enterprises may not achieve or maintain profitability in the future.            

POSSIBLE VOLATILITY OF STOCK PRICE                                      

   The trading price of Galaxy Enterprises common stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such  
as actual or anticipated variations in Galaxy Enterprises quarterly operating   
results, announcements of technological innovations, or new services by Galaxy  
Enterprises or its competitors, changes in financial estimates by securities    
analysts, conditions or trends in the Internet and on-line commerce industries, 
changes in the market valuations of other Internet or on-line service companies,
announcements by Galaxy Enterprises or its competitors of significant           
acquisitions, strategic partnerships, joint ventures or capital commitments,    
additions or departures of key personnel, sales of Galaxy Enterprises common    
stock in the open market, a termination of the merger agreement with Netgateway 
and other events or factors, many of which are beyond Galaxy Enterprises        
control. Further, the stock markets in general, and The Nasdaq Stock Market and 
the market for Internet-related and technology companies in particular, have    
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of those companies. The trading
prices of many technology companies' stocks are at or near historical highs and 
reflect valuations substantially above historical levels. There can be no       
assurance that these trading prices and valuations will be sustained. These     
broad market and industry factors may materially adversely affect the market    
price of Galaxy Enterprises common stock, regardless of Galaxy Enterprises      
operating performance. Market fluctuations, as well as general political and    
economic conditions such as recession or interest rate or currency rate         
fluctuations, may also adversely affect the market price of Galaxy Enterprises  
common stock. In the past, following periods of volatility in the market price  
of a company's securities, securities class-action litigation has often been    
instituted against that company.                                                

FAILURE TO CLOSE THE MERGER COULD ADVERSELY AFFECT GALAXY ENTERPRISES   

  If the proposed merger with Netgateway does not close, Galaxy Enterprises'
business, results of operations and financial condition will be seriously harmed
because the announcement of the merger and Galaxy's efforts to close the merger 
have:                                                                           

- disrupted Galaxy Enterprises' sales and marketing efforts;            

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- diverted the attention of Galaxy Enterprises' management; and         

- delayed certain strategic initiatives of Galaxy.                      

   Further, under certain circumstances Galaxy Enterprises will be required to
pay Netgateway a termination fee of $1.5 million plus expenses up to $500,000.  
If the merger agreement terminates under these circumstances, then Netgateway   
may exercise its option to purchase 980,213 shares of Galaxy Enterprises common 
stock currently held by John J. Poelman.                                        

RISK RELATED TO NETGATEWAY AND GALAXY ENTERPRISES AS A COMBINED COMPANY         

   The following risk factors assume that the merger is successfully completed
and describe the risks of the ongoing operations relating to the combined       
company.                                                                        

 THE COMBINED COMPANY WILL HAVE A LIMITED OPERATING HISTORY AND MAY NOT BE
ABLE TO IMPLEMENT ITS GROWTH STRATEGY                                 

  Netgateway began its operations in March 1998 and did not begin generating
significant revenues until October 1, 1999. Galaxy Enterprises was incorporated 
in March 1994 and has only achieved limited profitability on a quarterly or     
annual basis to date. Therefore, we have limited operating histories and our    
prospects are subject to the risks, expenses and uncertainties frequently       
encountered by young companies that operate exclusively in the new and rapidly  
evolving markets for Internet products and services. Successfully achieving the 
combined company's growth plan depends on our ability to:                       

- continue to develop and extend our brands;                            

- develop new media properties;                                         

- maintain and increase the levels of traffic on our Internet sites;    

- develop or acquire competitive services or products;                  

  - effectively generate revenues through sponsored services and placements;

- effectively integrate businesses or technologies into our operations; 

   - successfully develop Web-based services to meet the specific requirements
of our customers; and                                               

 - continue to identify, attract, retain and motivate qualified personnel.

  Furthermore, the growth of the combined company depends on factors outside
our control, including:                                                         

- adoption by the market of the Internet, and more specifically, the    
combined company, as an effective Internet business;                

- relative price stability for Internet-based advertising, despite      
competition and other factors that could reduce market prices for   
advertising; and                                                    

- acceptance of Netgateway's basic outsourcing business model.          

  IF THE COMBINED COMPANY IS NOT ABLE TO COMPETE EFFECTIVELY IN THE INTERNET
INDUSTRY, ITS BUSINESS WILL BE ADVERSELY AFFECTED                     

Our target market is rapidly evolving and subject to continuous         
technological change. Our competitors may be better positioned to address new   
developments or react more favorably to changes, which could have a material    
adverse effect on our business, prospects, financial condition, and results of  
operations. The market for eCommerce services is relatively new, but it is      
already highly competitive and characterized by an increasing number of         
entrants. Some of these entrants have introduced or developed products and      
services similar to those offered by the combined company. We believe that      
competition will intensify and increase in the future.                          

    We compete on the basis of a number of factors, including the attractiveness
of the eCommerce services offered, the breadth and quality of these services,   
creative design and systems engineering expertise, pricing, technological       
innovation and understanding clients' strategies and needs. A number of these   
factors are beyond our control. Existing or future competitors may develop or   
offer                                                                           

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eCommerce services that provide significant technological, creative,            
performance, price or other advantages over the services offered by the combined
company.                                                                        

Our competitors can be divided into several groups:                     

- large systems integrators;                                            

- Internet service providers and portals;                               

- large information technology consulting services providers;           

- computer hardware and service vendors;                                

- on-line malls and                                                     

- strategic consulting firms.                                           

We may also compete with telecommunications companies. Although most of 
these types of competitors have not offered a full range of Internet            
professional services to date, many have announced their intention to do so.    
These competitors at any time could elect to focus additional resources in our  
target markets, which could materially adversely affect our business, prospects,
financial condition and results of operations. Many of our current and potential
competitors have longer operating histories, larger customer bases, longer      
relationships with clients and significantly greater financial, technical,      
marketing and public relations resources than we do. Competitors that have      
established relationships with large companies, but have limited expertise in   
providing Internet solutions, may nonetheless be able to successfully use their 
client relationships to enter our target market or prevent our penetration into 
their client accounts. We believe that our primary competitors currently        
include, without limitation, Broadvision, Open Market, Commerce One, Intel,     
Microsoft, AT&T, Intershop, MCI, Yahoo! Stores, iCAT, GE Information Services,  
IBM, The Internet Mall, iMall Cybreash, Clean Commerce and other smaller        
Internet services providers.                                                    

Additionally, in pursuing acquisition opportunities, we may compete with
other companies with similar growth strategies. Some of these may be larger and 
have greater financial and other resources than we have. Competition for these  
acquisition targets likely could also result in increased prices of acquisition 
targets and a diminished pool of companies available for acquisition.           

There are relatively low barriers to entry into our business. We have no
patented, and only a limited amount of other proprietary, technology that would 
preclude or inhibit competitors from entering the eCommerce services market.    
Therefore, we must rely on the skill of our personnel and the quality of our    
client services. The costs to develop and provide eCommerce services are        
relatively low. Therefore, we expect that we will continually face additional   
competition from new entrants into the market in the future. There is also the  
risk that our employees may leave and start competing businesses. The emergence 
of these enterprises could have a material adverse effect on our business,      
prospects, financial condition, and results of operations.                      

THE COMBINED COMPANY'S ABILITY TO MEET ITS WORKING CAPITAL NEEDS WILL BE
LIMITED IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING WHEN NEEDED   

   We will require additional financing in the near future to meet our working
capital needs. Our working capital requirements in the foreseeable future will  
depend on a variety of factors including our ability to implement our business  
plan. We may not be able to successfully negotiate or obtain additional         
financing on favorable terms, or at all. Our ability to obtain additional       
capital depends on market conditions, the national economy and others factors   
beyond our control.                                                             

FLUCTUATIONS IN THE COMBINED COMPANY'S OPERATING RESULTS MAY AFFECT ITS 
STOCK PRICE AND ABILITY TO RAISE CAPITAL                              

   As a result of our limited operating history and the emerging nature of the
markets in which it will compete, our operating results may fluctuate           
materially. As a result, quarter-to-quarter comparisons of our results of       
operations may not be meaningful. If, in some future quarter, whether as a      
result of those fluctuations or otherwise, our results of operations fall below 
the expectations of financial analysts and investors, the trading price of our  
common stock would likely be materially and adversely                           

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affected and our ability to raise capital could be impaired. You should not rely
on Netgateway's or Galaxy Enterprises' results for any interim period as an     
indication of future performance. Additionally, our quarterly results of        
operations may fluctuate significantly as a result of a variety of factors, many
of which are outside our control. Factors that may cause our quarterly results  
to fluctuate include, among others:                                             

    - our ability to retain existing clients, to attract new clients and partner
      with eCommerce systems integrators at a steady rate and to maintain client
satisfaction;                                                       

    - the announcement or introduction of new services and products by us or our
competitors;                                                        

- price competition or higher prices in the industry;                   

- pricing of hardware and software required for the transaction of      
eCommerce;                                                          

- Internet and online services usage levels and the rate of market      
acceptance of these services for transacting commerce;              

- our ability to upgrade and develop our systems and infrastructure in a
timely and effective manner;                                        

 - our ability to attract, train and retain skilled management, strategic,
technical and creative professionals;                               

- technical difficulties, system downtime or Internet brownouts;        

    - the amount and timing of operating costs and capital expenditures relating
to expansion of our business, operations and infrastructure;        

    - unanticipated technical, legal and regulatory difficulties with respect to
use of the Internet; and                                            

  - general economic conditions and economic conditions specific to Internet
technology usage and eCommerce.                                     

INCREASED COMPETITION MAY EXERT DOWNWARD PRICING PRESSURE ON ECOMMERCE  
SERVICES                                                              

We believe that the number of companies selling eCommerce services has  
recently increased substantially. Accordingly, we may face increased pricing    
pressure for the sale of our services and products, which could reduce our      
revenues. In addition, our sales may be adversely affected to the extent that   
our competitors offer superior services that better target users.               

    THE COMBINED COMPANY'S SUCCESS WILL DEPEND ON CONTINUED GROWTH IN THE USE OF
ECOMMERCE                                                             

    The eCommerce industry must achieve widespread acceptance by a broad base of
customers for the combined company to attain success. If the Internet does not  
prove to be a viable commercial marketplace, the combined company's business    
will be adversely affected.                                                     

THE MARKET FOR THE COMBINED COMPANY'S PRODUCTS IS NEW, AND THE GROWTH IN
MARKET ACCEPTANCE FOR THESE PRODUCTS IS UNCERTAIN                     

The markets for our products and services have only recently begun to   
develop, are rapidly evolving and are increasingly competitive. Demand and      
market acceptance for recently introduced products and services are subject to a
high level of uncertainty and risk. We could be adversely affected if the market
develops more slowly than expected or becomes saturated with competitors, or if 
our products and services do not sustain market acceptance.                     

    THE COMBINED COMPANY MUST ATTRACT AND EXPAND ITS USER AND ADVERTISER BASE TO
BE SUCCESSFUL                                                         

   We must develop and maintain a brand identity for the Netgateway and Galaxy
Enterprises products. The failure to establish and maintain the Netgateway and  
Galaxy Enterprises brands could adversely affect our efforts to attract and     
expand our user and advertiser base. We also believe that the importance of     
brand recognition will increase due to the growing number of eCommerce services 
providers and the relatively low barriers to entry. Promotion and enhancement of
our brands will depend largely on our success in providing high-quality products
and services. To attract and retain Internet users and to promote and maintain  
our brands, we may need to increase expenditures for                            

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creating and maintaining brand loyalty. If there is a breach or alleged breach  
of security or privacy involving our services, or if any third party undertakes 
illegal or harmful actions using our community, communications or eCommerce     
services, our brands and reputation could suffer substantial adverse publicity  
and impairment.                                                                 

    THE COMBINED COMPANY MUST SUCCESSFULLY MANAGE ITS GROWTH AND THE INTEGRATION
OF RECENTLY ACQUIRED COMPANIES TO ACHIEVE ITS DESIRED RESULTS         

Our recent growth has placed a significant strain on our managerial,    
operational and financial resources. To manage our growth, we must continue to  
implement and improve our operational and financial systems and to expand, train
and manage our employee base. Further, we will need to maintain relationships   
with various merchants and other third parties to be successful.                

The process of managing advertising within large, high traffic Web sites
such as Netgateway's StoresOnline.com is an increasingly important and complex  
task. Netgateway relies on both internal and licensed third-party advertising   
inventory management and analysis systems. To the extent that any extended      
failure of its advertising management system results in incorrect advertising   
insertions, Netgateway may be exposed to "make good" obligations, which, by     
displacing advertising inventory, could defer advertising revenues. Failure of  
Netgateway's advertising management systems to effectively scale to higher      
levels of use or to effectively track and provide accurate and timely reports on
advertising results also could negatively affect its relationships with         
advertisers.                                                                    

    As part of their business strategies, Netgateway and Galaxy Enterprises have
completed several recent acquisitions, including Netgateway's acquisition of    
Spartan Multimedia, Ltd., and Galaxy Enterprises' acquisitions of Galaxy        
Malls, Inc. and IMI, Inc. Furthermore, Netgateway expects to enter into         
additional business combinations and acquisitions. Acquisition transactions are 
accompanied by a number of risks, including:                                    

- the difficulty of assimilating the operations and personnel of the    
acquired companies;                                                 

- the potential disruption of its ongoing business and distraction of   
management;                                                         

   - the difficulty of incorporating acquired technology or content and rights
into its products and media properties;                             

- the negative impact on reported earnings if any of these transactions 
which are expected to qualify for pooling of interests accounting   
treatment for financial reporting purposes fail to so qualify;      

   - the correct assessment of the relative percentages of in-process research
    and development expense which can be immediately written off as compared
  to the amount which must be amortized over the appropriate life of the
asset;                                                              

- the failure to successfully develop an acquired in-process technology 
      resulting in the impairment of amounts currently capitalized as intangible
assets;                                                             

- unanticipated expenses related to technology integration;             

  - the maintenance of uniform standards, controls, procedures and policies;

  - the impairment of relationships with employees and customers as a result
of any integration of new management personnel; and                 

- the potential unknown liabilities associated with acquired businesses.

We may not be successful in addressing these risks or any other problems
encountered in connection with such acquisitions.                               

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THE COMBINED COMPANY'S OPERATIONS COULD BE SIGNIFICANTLY HINDERED BY THE
OCCURRENCE OF A NATURAL DISASTER OR OTHER CATASTROPHIC EVENT          

Our operations will be susceptible to outages due to fire, floods, power
loss, telecommunications failures, break-ins and similar events. In addition,   
substantially all of Netgateway's network infrastructure is located in southern 
California, an area susceptible to earthquakes. Netgateway does not have        
multiple site capacity in the event of any catastrophic event and, although     
Netgateway does have a redundant network instructive system, this system does   
not guarantee continued reliability if a catastrophic event occurs. Despite     
implementation of network security measures, our servers may be vulnerable to   
computer viruses, break-ins and similar disruptions from unauthorized tampering 
with its computer systems. Netgateway does not carry sufficient business        
interruption insurance at this time to compensate it for losses that may occur  
as a result of any of these events.                                             

    THE COMBINED COMPANY'S INTELLECTUAL PROPERTY RIGHTS ARE COSTLY AND DIFFICULT
TO PROTECT                                                            

    We regard our copyrights, trademarks, trade dress, trade secrets and similar
intellectual property as critical to our success. We rely upon trademark and    
copyright law, trade secret protection and confidentiality or license agreements
with our employees, customers, partners and others to protect our proprietary   
rights. Effective trademark, copyright and trade secret protection may not be   
available in every country in which our products and media properties are       
distributed or made available through the Internet. In addition, while we       
attempt to ensure that the quality of our brand is maintained by our licensees, 
our licensees may take actions that could materially and adversely affect the   
value of our proprietary rights or the reputation of our products and media     
properties. We are aware that third parties have, from time to time, copied     
significant portions of our directory listings for use in competitive Internet  
navigational tools and services. Protection of our distinctive elements may not 
be available under copyright law. We cannot guarantee that the steps we have    
taken to protect our proprietary rights will be adequate.                       

 THE COMBINED COMPANY MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT
CLAIMS, WHICH ARE COSTLY TO DEFEND AND COULD LIMIT ITS ABILITY TO USE 
CERTAIN TECHNOLOGIES IN THE FUTURE                                    

  Many parties are actively developing search, indexing, eCommerce and other
Web-related technologies. We believe that these parties will continue to take   
steps to protect these technologies, including seeking patent protection. As a  
result, we believe that disputes regarding the ownership of these technologies  
are likely to arise in the future. For example, we are aware that a number of   
patents have been issued in the areas of:                                       

- eCommerce;                                                            

- online auctions;                                                      

  - Web-based information indexing and retrieval, including patents recently
issued to one of its direct competitors;                            

- online direct marketing;                                              

- fantasy sports;                                                       

- common Web graphics formats;                                          

- mapping technologies; and                                             

- custom cut CDs.                                                       

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WE MAY INCUR SUBSTANTIAL EXPENSES IN DEFENDING AGAINST THIRD-PARTY      
INFRINGEMENT CLAIMS REGARDLESS OF THE MERIT OF SUCH CLAIMS            

    The combined company anticipates that additional third-party patents will be
issued in the future. From time to time, parties may assert patent infringement 
claims against the combined company in the form of letters, lawsuits and other  
forms of communications. Third parties may also assert claims against the       
combined company alleging infringement of copyrights, trademark rights, trade   
secret rights or other proprietary rights or alleging unfair competition. If we 
decide to license patents or other proprietary rights, we cannot guarantee that 
we will be able to do so on reasonable terms or at all. If there is a           
determination that we have infringed third-party proprietary rights, we could   
incur substantial monetary liability and be prevented from using the rights in  
the future.                                                                     

   We are aware of lawsuits filed against two of our competitors regarding the
presentment of advertisements in response to search requests on "keywords" that 
may be trademarks of third parties. It is not clear what, if any, impact an     
adverse ruling in these recently filed lawsuits would have on us.               

    THE COMBINED COMPANY WILL DEPEND ON KEY PERSONNEL THAT IT MAY NOT BE ABLE TO
RETAIN                                                                

If we do not succeed in attracting new personnel, or retaining and      
motivating existing personnel, our business will be adversely affected.         
Netgateway depends on the continued services of its key personnel, including its
founders, chief executive officer, president and chief operating officer, chief 
financial officer, chief information officer, executive vice president--sales   
and marketing and senior engineers. Galaxy Enterprises also substantially       
depends upon the continued services of its key personnel, including its         
president and chief executive officer, executive vice president--sales and      
marketing, vice president and chief operating officer and vice president and    
chief financial officer, as well as the chief executive officer and chief       
financial officer of its wholly owned subsidiary, IMI.                          

    Each of these individuals has acquired specialized knowledge and skills with
respect to Netgateway, Galaxy Enterprises and IMI, and their respective         
operations. As a result, if any of these individuals were to leave Netgateway or
Galaxy Enterprises following the merger, we could face substantial difficulty in
hiring qualified successors and could experience a loss in productivity while   
any such successor obtains the necessary training and experience. We expect that
we will need to hire additional personnel in all areas. The competition for     
qualified personnel is intense, and has particularly intensified in the Los     
Angeles area, where Netgateway's corporate headquarters is located. At times,   
Netgateway has experienced difficulties in hiring personnel with the necessary  
training or experience, particularly in technical areas.                        

THE COMBINED COMPANY WILL BE SUBJECT TO U.S. AND FOREIGN GOVERNMENT     
 REGULATION OF THE INTERNET, THE IMPACT OF WHICH IS DIFFICULT TO PREDICT

Any existing or new legislation applicable to the combined company could
expose it to substantial liability, including significant expenses necessary to 
comply with such laws and regulations. There are currently few laws or          
regulations directly applicable to the Internet. The application of new or      
existing laws and regulations to the combined company relating to issues such as
user privacy, defamation, pricing, advertising, taxation, gambling, sweepstakes,
promotions, content regulation, quality of products and services, and           
intellectual property ownership and infringement is unclear.                    

 Other nations, including Germany, have taken actions to restrict the free
flow of material deemed to be objectionable on the Internet. The European Union 
has recently adopted privacy and copyright directives that may impose additional
burdens and costs on the combined company's international operations. In        
addition, several telecommunications carriers, including America's Carriers'    
Telecommunications Association, are seeking to have telecommunications over the 
Web regulated by the FCC in the same manner as other telecommunications         
services. Many areas with high Internet use have begun to experience            
interruptions in phone service, and local telephone carriers, such as Pacific   
Bell, have petitioned the FCC to regulate ISPs and OSPs and to impose access    
fees. A number of                                                               

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proposals have been made at the federal, state and local level that would impose
additional taxes on the sale of goods and services through the Internet.        

REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS              

  We are not currently subject to direct regulation by any government agency
other than laws or regulations applicable generally to eCommerce. Any new       
legislation or regulation, the application of laws and regulations from         
jurisdictions whose laws do not currently apply to our business, or the         
application of existing laws and regulations to the Internet and other online   
services, could have a material adverse effect on our business, prospects,      
financial condition and results of operations. Due to the increasing popularity 
and use of the Internet and other online services, federal, state and local     
governments may adopt laws and regulations, or amend existing laws and          
regulations, with respect to the Internet or other online services covering     
issues such as taxation, user privacy, pricing, content, copyrights,            
distribution and characteristics and quality of products and services.          

 In 1998, the United States Congress established the Advisory Committee on
eCommerce which is charged with investigating, and making recommendations to    
Congress regarding, the taxation of sales by means of the Internet. Furthermore,
the growth and development of the market for eCommerce may prompt calls for more
stringent consumer protection laws to impose additional burdens on companies    
conducting business online. The adoption of any additional laws or regulations  
upon the recommendation of this Advisory Committee or otherwise may decrease the
growth of the Internet or other online services, which could, in turn, decrease 
the demand for our products and services and increase our cost of doing         
business, or otherwise have a material adverse effect on our business,          
prospects, financial condition and results of operations. Moreover, the relevant
governmental authorities have not resolved the applicability to the Internet and
other online services of existing laws in various jurisdictions governing issues
such as property ownership and personal privacy and it may take time to resolve 
these issues definitively.                                                      

 IF ANY GOVERNMENT PROPOSALS FOR REGULATING THE INTERNET ARE ADOPTED, THEY
    COULD SUBSTANTIALLY IMPAIR THE GROWTH OF THE INTERNET AND ADVERSELY AFFECT
THE COMBINED COMPANY                                                  

  Several recently passed federal laws could have an impact on our business.
The Digital Millennium Copyright Act is intended to reduce the liability of     
online service providers for listing or linking to third-party Internet sites   
that include materials that infringe copyrights or other rights of others. The  
Children's Online Protection Act and the Children's Online Privacy Protection   
Act are intended to restrict the distribution of certain materials deemed       
harmful to children and impose additional restrictions on the ability of online 
services to collect user information from minors. In addition, the Protection of
Children From Sexual Predators Act of 1998 requires online service providers to 
report evidence of violations of federal child pornography laws under certain   
circumstances. We cannot currently predict the effect, if any, that this        
legislation will have on our business. The legislation may impose significant   
additional costs on our business or subject it to additional liabilities.       

   We post policies concerning the use and disclosure of user data. Any of our
failures to comply with our posted privacy policies could adversely affect our  
business, results of operations and financial condition. Due to the global      
nature of the Internet, it is possible that the governments of other states and 
foreign countries might attempt to regulate its transmissions or prosecute the  
combined company for violations of their laws. We might unintentionally violate 
such laws. Such laws may be modified, or new laws enacted, in the future. Any   
such developments could have a material adverse effect on our business, results 
of operations and financial condition.                                          

THE COMBINED COMPANY MAY BE SUBJECT TO LEGAL LIABILITY FOR ITS ONLINE   
SERVICES                                                              

We host a wide variety of services that enable individuals to exchange  
information, generate content, conduct business and engage in various online    
activities, including services relating to online                               

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auctions and homesteading with and without our prior review of the content of   
such activities. The law relating to the liability of providers of these online 
services for activities of their users is currently unsettled. Claims could be  
made against us for defamation, negligence, copyright or trademark infringement,
unlawful activity, tort, including personal injury, fraud or other theories     
based on the nature and content of information that we provide links to or that 
may be posted online or generated by our users or with respect to materials     
bought and sold by our users. These types of claims have been brought, and      
sometimes successfully pressed, against online service providers in the past. In
addition, we are aware that governmental agencies are currently investigating   
the conduct of online auctions.                                                 

  It is also possible that, if any information we provide contains errors or
is otherwise negligently provided to users, third parties could make claims     
against us. For example, Netgateway offers Web-based e-mail services, which     
expose Netgateway to potential risks, such as liabilities or claims resulting   
from unsolicited email, lost or misdirected messages, illegal or fraudulent use 
of email, or interruptions or delays in email service. Investigating and        
defending any of these types of claims is expensive, even to the extent that the
claims do not result in liability.                                              

ECOMMERCE ACTIVITIES MAY EXPOSE THE COMBINED COMPANY TO UNCERTAIN LEGAL 
RISKS AND POTENTIAL LIABILITIES                                       

As part of our business, we enter into agreements with sponsors, content
providers, service providers and merchants under which we are entitled to       
receive a share of revenue from the purchase of goods and services by users of  
our online properties. In addition, we provide hosting and other services to    
online merchants. These types of arrangements may expose us to additional legal 
risks and uncertainties, including potential liabilities relating to the        
products and services offered by those third parties.                           

Although we maintain liability insurance, insurance may not cover these 
claims or may not be adequate. Even to the extent these types of claims do not  
result in material liability, investigating and defending the claims is         
expensive.                                                                      

INTERNET SECURITY POSES RISKS TO THE BUSINESS OF THE COMBINED COMPANY   

The compromise of our security or misappropriation of proprietary       
information could have a material adverse effect on our business prospects,     
financial condition and results of operations. The processing of eCommerce      
transactions by means of our hardware and software infrastructure involves the  
transmission and analysis of confidential and proprietary information of the    
consumer, the merchant, or both, as well as our own confidential and proprietary
information. We rely on encryption and authentication technology licensed from  
other companies to provide the security and authentication necessary to effect  
secure Internet transmission of confidential information, such as credit        
information and proprietary consumer information. Advances in computer          
capabilities, new discoveries in the field of cryptography, or other events or  
developments may result in a compromise or breach of the technology used by us  
to protect client transaction data. Anyone who is able to circumvent our        
security measures could misappropriate proprietary information or cause         
interruptions in our operations, as well as the operations of the merchant. We  
may be required to expend significant capital and other resources to protect    
against security breaches or to minimize problems caused by security breaches.  

    Concerns over the security of the Internet and other electronic transactions
and the privacy of consumers and merchants may also inhibit the growth of the   
Internet and other online services generally, especially as a means of          
conducting commercial transactions. To the extent that our activities or the    
activities of others involve the storage and transmission of proprietary        
information, security breaches could damage our reputation and expose us to a   
risk of loss or litigation and possible liability. Our security measures may not
prevent security breaches. Our failure to prevent these security breaches may   
have a material adverse effect on our business, prospects, financial condition, 
and results of operations.                                                      

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   WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF ECOMMERCE CONTINUES TO
GROW                                                                  

Our future revenues and any future profits depend substantially upon the
widespread acceptance and use of the Internet and other online services as an   
effective medium of commerce by merchants and consumers. If Internet use and    
other online services do not continue to grow or grow more slowly than we       
expect, our business, prospects, financial condition, and results of operations 
could be materially adversely affected. Our business could also be adversely    
impacted if the infrastructure for the Internet and other online services does  
not effectively support the growth that may occur, or if the Internet and other 
online services do not become a viable commercial marketplace.                  

Rapid growth in the use of, and interest in, the Internet, the Web, and 
online services is a recent phenomenon, and may not continue on a lasting basis.
In addition, customers may not adopt and continue to use the Internet and other 
online services as a medium of commerce. Demand and market acceptance for       
recently introduced services and products over the Internet are subject to a    
high level of uncertainty, and few services and products have generated profits.
For us to be successful, consumers of both retail and business to business      
services must be willing to accept and use novel and cost efficient ways of     
conducting business and exchanging information.                                 

In addition, the public in general may not accept the Internet and other
online services as a viable commercial marketplace for a number of reasons,     
including potentially inadequate development of the necessary network           
infrastructure or delayed development of enabling technologies and performance  
improvements. To the extent that the Internet and other online retail and       
business to business services continue to experience significant growth in the  
number of users, their frequency of use, or in their bandwidth requirements, the
infrastructure for the Internet and online services may be unable to support the
demands placed upon them. In addition, the Internet or other online services    
could lose their viability due to delays in the development or adoption of new  
standards and protocols required to handle increased levels of Internet         
activity, or due to increased governmental regulation. Significant issues       
concerning the commercial use of the Internet and online services technologies, 
including security, reliability, cost, ease of use and quality of service,      
remain unresolved and may inhibit the growth of Internet business solutions that
utilize these technologies. Changes in, or insufficient availability of,        
telecommunications services to support the Internet or other online services    
also could result in slower response times and adversely affect usage of the    
Internet and other online services generally and our product and services in    
particular.                                                                     

 THE COMBINED COMPANY MAY NOT BE ABLE TO ADAPT AS THE INTERNET, ECOMMERCE,
 THE ECOMMERCE SERVICES INDUSTRY AND CUSTOMER DEMANDS CONTINUE TO EVOLVE

  Our failure to respond in a timely manner to changing market conditions or
client requirements would have a material adverse effect on the combined        
company's business, prospects, financial condition and results of operations.   
The Internet, eCommerce and the eCommerce services industry are characterized   
by:                                                                             

- rapid technological change;                                           

- changes in user and customer requirements and preferences;            

    - frequent new product and service introductions embodying new technologies;
and                                                                 

 - the emergence of new industry standards and practices that could render
     proprietary technology and hardware and software infrastructure obsolete.

The combined company's success will depend, in part, on its ability to: 

- enhance and improve the responsiveness and functionality of our online
transaction processing services;                                    

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   - license or develop technologies useful in our business on a timely basis,
   enhance our existing services, develop new services and technology that
      address the increasingly sophisticated and varied needs of our prospective
or current customers;                                               

- respond to technological advances and emerging industry standards and 
practices on a cost-effective and timely basis; and                 

 - provide services and products on a timely and acceptable basis and meet
the customer support expectation of its customers.                  

INVESTMENT RISKS                                                                

   SOME PROVISIONS OF NETGATEWAY'S CERTIFICATE OF INCORPORATION AND BYLAWS MAY
DETER TAKEOVER ATTEMPTS WHICH MAY LIMIT THE OPPORTUNITY OF OUR STOCKHOLDERS TO  
SELL THEIR SHARES AT A FAVORABLE PRICE                                          

Some of the provisions of Netgateway's certificate of incorporation and 
bylaws could make it more difficult for a third party to acquire Netgateway,    
even if doing so might be beneficial to Netgateway's stockholders by providing  
them with the opportunity to sell their shares at a premium to the then market  
price. Netgateway's bylaws contain provisions regulating the introduction of    
business at annual stockholders' meetings by anyone other than the board of     
directors. These provisions may have the effect of rendering more difficult,    
delaying, discouraging, preventing or rendering more costly an acquisition of or
a change in control in Netgateway.                                              

 In addition, the Netgateway board of directors has approved a proposal to
amend Netgateway's bylaws to create a classified board. The proposal will be    
submitted to Netgateway stockholders for their consideration at a special       
meeting to be held on May 24, 2000. If the proposal is approved by Netgateway   
stockholders, Netgateway's board of directors will be divided into two classes. 
The term of the first class will expire at the annual meeting following         
Netgateway's fiscal year 2000 and the term of the second class will expire at   
the annual meeting following Netgateway's fiscal year 2001. At each annual      
meeting following this initial classification and election, the terms of        
one-half of the directors will expire, and new directors will be elected to     
serve two years. This proposed amendment will extend the time required to effect
a change in control of the board of directors and may discourage hostile        
takeover bids for Netgateway. Currently, a change in control of the board of    
directors can be made by stockholders holding a plurality of the votes cast at a
single annual meeting. If Netgateway successfully implements a classified board 
of directors, it will take at least two annual meetings to effectuate a change  
in control of the board of directors because a majority of the directors cannot 
be elected at a single meeting. These effects are somewhat mitigated by the fact
that a majority of the stockholders can remove any or all directors, with cause,
at a special meeting of stockholders or by written consent.                     

Further, Netgateway's certificate incorporation authorizes the board of 
directors to issue up to 5,000,000 shares of preferred stock, which may be      
issued in one or more series, the terms of which may be determined at the time  
of issuance by the board of directors, without further action by stockholders,  
and may include voting rights, including the right to vote as a series on       
particular matters, preferences as to dividends and liquidation, conversion and 
redemption rights, and sinking fund provisions. No shares of preferred stock are
currently outstanding, and Netgateway has no present plans for the issuance of  
any preferred stock. However, the issuance of any preferred stock could         
materially adversely affect the rights of holders of Netgateway common stock,   
and therefore could reduce its value. In addition, specific rights granted to   
future holders of preferred stock could be used to restrict Netgateway's ability
to merge with, or sell its assets to, a third party. The ability of the board of
directors to issue preferred stock could have the effect of rendering more      
difficult, delaying, discouraging, preventing or rendering more costly an       
acquisition or change in control of Netgateway, thereby preserving the current  
stockholders' control of Netgateway.                                            

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  NETGATEWAY'S STOCK PRICE HAS HISTORICALLY BEEN VOLATILE, WHICH MAY MAKE IT
  MORE DIFFICULT FOR YOU TO RESELL SHARES WHEN YOU WANT AT PRICES YOU FIND
ATTRACTIVE                                                            

  The trading price of Netgateway common stock has been, and may continue to
be, subject to wide fluctuations. For the period from November 18, 1999 (the    
date on which Netgateway's stock began trading on The Nasdaq National Market)   
through May 22, 2000, the closing sale prices of Netgateway common stock on The 
Nasdaq National Market ranged from $2.4375 to $12.25. The stock price may       
fluctuate in response to a number of events and factors, such as quarterly      
variations in operating results, announcements of technological innovations or  
new products and services by Netgateway or its competitors, changes in financial
estimates and recommendations by financial analysts, the operating and stock    
price performance of other companies that investors may deem comparable, and    
news reports relating to trends in its markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,    
have experienced extreme volatility that often has been unrelated to the        
operating performance of such companies. These broad market and industry        
fluctuations may adversely affect the price of Netgateway's stock, regardless of
its operating performance.                                                      

 AFTER THE MERGER, MANAGEMENT WILL BENEFICIALLY OWN APPROXIMATELY 22.1% OF
 NETGATEWAY'S COMMON STOCK AND THEIR INTERESTS COULD CONFLICT WITH YOURS

Following the merger, Netgateway's directors and executive officers will
beneficially own approximately 22.1% of Netgateway's outstanding common stock,  
assuming approximately 3.9 million shares are issued in the merger. As a result 
of their ownership, the directors and executive officers of Netgateway          
collectively are able to substantially influence all matters requiring          
stockholder approval, including the election of directors and approval of       
significant corporate transactions. Such concentration of ownership may also    
have the effect of delaying or preventing a change in control of Netgateway.    

 FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY
AFFECT OUR STOCK PRICE                                                

  The market price of Netgateway's common stock could decline as a result of
sales of a large number of shares of its common stock in the market after the   
merger is completed, or the perception that these sales could occur. These sales
also might make it more difficult for Netgateway to sell equity securities in   
the future at a time and at a price that it deems appropriate. As of May 18,    
2000, Netgateway had outstanding 17,683,043 shares of common stock. As of       
May 18, 2000, 8,356,602 of these shares are freely tradeable. Giving effect to  
applicable legal restrictions, the number of shares of common stock and the     
dates when the remainder these shares will become freely tradeable in the market
is as follows:                                                                  

                                                                [Download Table]

NUMBER OF SHARES                             DATE                          
----------------   --------------------------------------------------------
                                                                           
  8,790,991        Within six months from the date of this prospectus      

  535,450          Between six and twelve months from the date of          
                     this prospectus                                       

    As of the date of this joint proxy statement/prospectus, we have reserved an
aggregate of 3,133,402 shares of common stock issuable upon the exercise of     
outstanding warrants and convertible or exchangeable securities. Netgateway has 
filed a registration statement to register for issuance and resale 9,877,002    
shares of common stock reserved for issuance under our existing stock option    
plans, warrants and stock grants. Shares issued upon the exercise of stock      
options granted under our stock option plans will be eligible for resale in the 
public market from time to time subject to vesting and, in the case of some     
options, the expiration of the lock-up agreements referred to in the preceding  
paragraph.                                                                      

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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

   Netgateway and Galaxy Enterprises have each made forward-looking statements
in this document, all of which are subject to risks and uncertainties.          
Forward-looking statements include information concerning possible or assumed   
future business success or financial results. The forward-looking statements    
include, but are not limited to, statements as to expectations regarding:       

- future revenue opportunities;                                         

- the integration of Galaxy Enterprises;                                

- the development of the business-to-business eCommerce market and the  
future growth of our customer base;                                 

- future expense levels, including research and development, selling,   
 general and administrative expenses, and amortization of goodwill and
other tangibles;                                                    

- strategic relationships and distribution relationships;               

- future capital needs;                                                 

- the emergence of new technologies;                                    

- expansion of marketing and sales forces;                              

- investment in new product development and enhancements;               

- expansion into new markets;                                           

- new distribution and customer acquisition models;                     

 - acquisition of complementary products, technologies and businesses; and

- future financial pronouncements.                                      

 When Netgateway or Galaxy Enterprises use words like "believe," "expect,"
"anticipate" or similar words or terms, they are making forward-looking         
statements.                                                                     

    You should note that an investment in Netgateway common stock involves risks
and uncertainties that could affect our future business success or financial    
results. Netgateway actual results could differ materially from those           
anticipated expressly or implicitly in these forward-looking statements as a    
result of many factors, including those set forth in "Risk Factors" and         
elsewhere in this document.                                                     

   Netgateway believes that it is important to communicate its expectations to
its investors. However, there may be events in the future that Netgateway is not
able to predict accurately or over which Netgateway has no control. You should  
be aware that the occurrence of the events described in the risk factors and    
elsewhere in this document could materially and adversely affect the business,  
financial condition and operating results of Netgateway. Netgateway undertakes  
no obligation to publicly update any forward-looking statements for any reason, 
even if new information becomes available or other events occur in the future.  

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THE NETGATEWAY, INC. SPECIAL MEETING

DATE, TIME AND PLACE OF SPECIAL MEETING                                         

   The special meeting will be held on June 21, 2000, at 9:00 a.m., California
time, at the Hilton Hotel--Long Beach, Two World Trade Center, Long Beach,      
California. This joint proxy statement/ prospectus is being furnished in        
connection with the solicitation by the Netgateway board of directors of proxies
to be used at the special meeting and at all adjournments and postponements of  
the special meeting.                                                            

MATTERS TO BE CONSIDERED AT SPECIAL MEETING                                     

   At the special meeting, stockholders of Netgateway will be asked to approve
the merger and to transact such other business as may properly come before the  
special meeting or any postponements or adjournments thereof.                   

RECORD DATE FOR VOTING ON THE MERGER; STOCKHOLDERS ENTITLED TO VOTE             

Only stockholders of record of Netgateway common stock at the close of  
business on May 18, 2000 are entitled to notice of and to vote at the special   
meeting. As of the close of business on that date, there were 17,683,043 shares 
of Netgateway common stock outstanding and entitled to vote, held of record by  
380 stockholders. A majority of those shares, present in person or represented  
by proxy, will constitute a quorum for the transaction of business. If a quorum 
is not present, it is expected that the special meeting will be adjourned or    
postponed to solicit additional proxies. Each Netgateway stockholder is entitled
to one vote for each share of Netgateway common stock held as of the record     
date.                                                                           

VOTING AND REVOCATION OF PROXIES                                                

   The proxy accompanying this document is solicited on behalf of Netgateway's
board of directors. Stockholders are requested to complete, date and sign the   
accompanying proxy and promptly return it in the accompanying envelope or       
otherwise mail it to Netgateway. If your shares are held in "street name" by    
your broker, your broker will vote your shares for you only if you provide      
instructions on how to vote. Your broker will provide directions regarding how  
to instruct your broker to vote your shares. All properly executed proxies      
received by Netgateway prior to the special meeting that are not revoked will be
voted at the special meeting in accordance with the instructions indicated on   
the proxies or, if no direction is indicated, to approve the merger.            

    Netgateway's board of directors does not presently intend to bring any other
business before the special meeting and, so far as is known as of the date of   
this document, no other matters are to be brought before the special meeting.   
Any other business that properly comes before the special meeting, will be voted
in accordance with the judgment of the persons voting such proxies.             

A Netgateway stockholder who has given a proxy may revoke it at any time
before it is exercised at the special meeting by (1) delivering a written       
notice, dated later than the date of the proxy, stating that the proxy is       
revoked, (2) signing and delivering a proxy relating to the same shares with a  
later date than the date of the previous proxy or (3) attending the special     
meeting and voting in person. Attendance at the special meeting does not in     
itself constitute the revocation of a proxy. Any written notice of revocation or
subsequent proxy should be sent to Netgateway, Inc., 300 Oceangate, 5th Floor,  
Long Beach, California 90802, Attention: Secretary, or hand delivered to the    
secretary of Netgateway at or before the taking of the vote at the special      
meeting. Stockholders that have instructed a broker to vote their shares must   
follow directions received from that broker in order to change their vote or to 
vote at the special meeting.                                                    

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STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER                              

Approval of the merger by Netgateway's stockholders is required by The  
Nasdaq National Market rules because the number of shares of Netgateway common  
stock to be issued in the merger potentially represents more than 20% of        
Netgateway's outstanding shares of common stock. Approval requires the          
affirmative vote of the holders of a majority of the shares of Netgateway common
stock constituting a quorum at the Netgateway special meeting, by attendance in 
person or by proxy.                                                             

BOARD RECOMMENDATION                                                            

 NETGATEWAY'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AND BELIEVES THAT
THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE MERGER IS IN THE    
BEST INTERESTS OF, NETGATEWAY AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS THAT
THE HOLDERS OF NETGATEWAY COMMON STOCK VOTE FOR APPROVAL OF THE MERGER.         

   THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF NETGATEWAY. ACCORDINGLY, NETGATEWAY'S STOCKHOLDERS ARE   
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS DOCUMENT 
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE  
ENCLOSED POSTAGE-PAID ENVELOPE.                                                 

THE GALAXY ENTERPRISES, INC. SPECIAL MEETING

DATE, TIME AND PLACE OF SPECIAL MEETING                                         

    The special meeting will be held on June 21, 2000, at 10:00 a.m., Utah time,
at the offices of Galaxy Enterprises, 754 E. Technology Avenue, Orem, Utah. This
joint proxy statement/prospectus is being furnished in connection with the      
solicitation by the Galaxy Enterprises board of directors of proxies to be used 
at the special meeting and at all adjournments and postponements of the special 
meeting.                                                                        

MATTERS TO BE CONSIDERED AT SPECIAL MEETING                                     

   At the special meeting, stockholders of Galaxy Enterprises will be asked to
approve the merger and to transact such other business as may properly come     
before the special meeting or any postponements or adjournments thereof.        

RECORD DATE FOR VOTING ON THE MERGER; STOCKHOLDERS ENTITLED TO VOTE             

   Only stockholders of record of Galaxy Enterprises common stock at the close
of business on May 18, 2000 are entitled to notice of and to vote at the special
meeting. As of the close of business on that date, there were 6,218,449 shares  
of Galaxy Enterprises common stock outstanding and entitled to vote, held of    
record by 145 stockholders. A majority of those shares, present in person or    
represented by proxy, will constitute a quorum for the transaction of business. 
If a quorum is not present, it is expected that the special meeting will be     
adjourned or postponed to solicit additional proxies. Each Galaxy Enterprises   
stockholder is entitled to one vote for each share of Galaxy Enterprises common 
stock held as of the record date.                                               

VOTING AND REVOCATION OF PROXIES                                                

The proxy accompanying this document is solicited on behalf of Galaxy   
Enterprises' board of directors. Stockholders are requested to complete, date   
and sign the accompanying proxy and promptly return it in the accompanying      
envelope or otherwise mail it to Galaxy Enterprises. If your shares are held in 
"street name" by your broker, your broker will vote your shares for you only if 
you provide instructions on how to vote. Your broker will provide directions    
regarding how to instruct your broker to vote your shares. All properly executed
proxies received by Galaxy Enterprises prior to the special                     

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meeting that are not revoked will be voted at the special meeting in accordance 
with the instructions indicated on the proxies or, if no direction is indicated,
to approve the merger.                                                          

 Galaxy Enterprises' board of directors does not presently intend to bring
any other business before the special meeting and, so far as is known as of the 
date of this document, no other matters are to be brought before the special    
meeting. Any other business that properly comes before the special meeting, will
be voted in accordance with the judgment of the persons voting such proxies.    

   A Galaxy Enterprises stockholder who has given a proxy may revoke it at any
time before it is exercised at the special meeting by (1) delivering a written  
notice, dated later than the date of the proxy, stating that the proxy is       
revoked, (2) signing and delivering a proxy relating to the same shares with a  
later date than the date of the previous proxy or (3) attending the special     
meeting and voting in person. Attendance at the special meeting does not in     
itself constitute the revocation of a proxy. Any written notice of revocation or
subsequent proxy should be sent to Galaxy Enterprises Inc., 754 E. Technology   
Avenue, Orem, Utah 84097, Attention: Secretary, or hand delivered to the        
secretary of Galaxy Enterprises at or before the taking of the vote at the      
special meeting. Stockholders that have instructed a broker to vote their shares
must follow directions received from that broker in order to change their vote  
or to vote at the special meeting.                                              

STOCKHOLDER VOTE IS REQUIRED TO APPROVE THE MERGER                              

 Approval of the merger by Galaxy Enterprises' stockholders is required by
the Nevada General Corporation Law. Such approval requires the affirmative vote 
of the holders of a majority of the shares of Galaxy Enterprises common stock   
outstanding and entitled to vote at the special meeting. Abstentions and broker 
non-votes are not affirmative votes and will have the same effect as votes      
against approval of the merger. ACCORDINGLY, THE REQUIRED VOTE OF THE           
STOCKHOLDERS OF GALAXY ENTERPRISES IS BASED UPON THE NUMBER OF OUTSTANDING      
SHARES OF GALAXY ENTERPRISES COMMON STOCK RATHER THAN UPON THE SHARES ACTUALLY  
VOTED IN PERSON OR BY PROXY AT THE SPECIAL MEETING. THEREFORE, IF THE HOLDERS OF
ANY SUCH SHARES FAIL TO EITHER SUBMIT A PROXY OR VOTE IN PERSON AT THE SPECIAL  
MEETING, SUCH FAILURE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL OF   
THE MERGER.                                                                     

    THE ACTION PROPOSED IN THIS JOINT PROXY STATEMENT/PROSPECTUS CANNOT BE VOTED
ON BY BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS WITHOUT THE OWNERS' SPECIFIC 
INSTRUCTIONS. ACCORDINGLY, YOU ARE URGED TO RETURN THE ENCLOSED PROXY CARD      
MARKED TO INDICATE YOUR VOTE.                                                   

  As of May 18, 2000, directors, executive officers and affiliates of Galaxy
Enterprises as a group beneficially owned approximately 16% of the outstanding  
shares of Galaxy Enterprises common stock. On the day the merger agreement was  
signed, two stockholders of Galaxy Enterprises who collectively own             
approximately 19% of Galaxy Enterprises' outstanding common stock entered into  
voting agreements with Netgateway, agreeing to vote their shares of Galaxy      
Enterprises common stock in favor of the merger and granting Netgateway a proxy 
to vote all of their shares of Galaxy Enterprises stock for approval of the     
merger. As of the record date and the date of this joint proxy statement/       
prospectus, Netgateway beneficially owns 980,213 shares of Galaxy Enterprises   
common stock pursuant to an option to purchase shares owned by John J. Poelman. 

BOARD RECOMMENDATION                                                            

   GALAXY ENTERPRISES' BOARD OF DIRECTORS HAS APPROVED THE MERGER AND BELIEVES
THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE MERGER IS IN   
THE BEST INTERESTS OF, GALAXY ENTERPRISES AND ITS STOCKHOLDERS AND THEREFORE    
RECOMMENDS THAT GALAXY ENTERPRISES STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER.

   THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF GALAXY ENTERPRISES. ACCORDINGLY, GALAXY ENTERPRISES'     
STOCKHOLDERS ARE URGED TO READ AND CAREFULLY                                    

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CONSIDER THE INFORMATION PRESENTED IN THIS DOCUMENT AND TO COMPLETE, DATE, SIGN 
AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID        
ENVELOPE.                                                                       

SOLICITATION OF PROXIES; EXPENSES                                               

   All expenses of Galaxy Enterprises solicitation of proxies will be borne by
Galaxy Enterprises. The cost of preparing and mailing this joint proxy          
statement/prospectus to Galaxy Enterprises stockholders will be shared equally  
by Galaxy Enterprises and Netgateway. In addition to solicitation by the use of 
the mails, proxies may be solicited from Galaxy Enterprises stockholders by     
directors, officers and employees of Galaxy Enterprises in person or by         
telephone, facsimile or other means of communication. These directors, officers 
and employees will not be additionally compensated, but may be reimbursed for   
reasonable out-of-pocket expenses in connection with this solicitation.         
Arrangements will also be made with brokerage houses, custodians, nominees and  
fiduciaries for forwarding of proxy solicitation materials to beneficial owners 
of shares held of record by such brokerage houses, custodians, nominees and     
fiduciaries. Galaxy Enterprises will reimburse these brokerage houses,          
custodians, nominees and fiduciaries for their reasonable expenses incurred in  
forwarding such materials.                                                      

YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD. A   
transmittal form with instructions for the surrender of your Galaxy Enterprises 
stock certificates will be mailed to you as soon as practicable after completion
of the merger. For more information regarding the procedures for exchanging your
Galaxy Enterprises stock certificates for Netgateway stock certificates, please 
see the section entitled "The Merger Agreement--Procedures for Exchanging Stock 
Certificates" on page 52 of this joint proxy statement/prospectus.              

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THE MERGER

THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN  
ASPECTS OF THE PROPOSED MERGER THAT WE CONSIDER IMPORTANT. THE DISCUSSION OF THE
MERGER IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE DESCRIPTION OF THE      
PRINCIPAL TERMS OF THE MERGER AGREEMENT ARE ONLY SUMMARIES OF THE MATERIAL TERMS
OF THE PROPOSED MERGER. YOU CAN OBTAIN A MORE COMPLETE UNDERSTANDING OF THE     
MERGER BY READING THIS ENTIRE JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING THE   
MERGER AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS DOCUMENT AS APPENDIX A AND
CERTAIN PROVISIONS OF NEVADA LAW RELATING TO THE RIGHTS OF DISSENTING           
STOCKHOLDERS, A COPY OF WHICH IS ATTACHED HERETO AS APPENDIX B. YOU ARE         
ENCOURAGED TO READ THE MERGER AGREEMENT AND THE OTHER APPENDICES TO THIS        
DOCUMENT IN THEIR ENTIRETY.                                                     

BACKGROUND OF THE MERGER                                                        

In August 1999, John Wendel, a former employee of Netgateway, contacted 
John J. Poelman, Galaxy Enterprises' chief executive officer, to introduce      
himself and Netgateway to Galaxy Enterprises. Their meeting did not include the 
exchange of confidential information, lead to any further discussions or include
a proposal for an acquisition of Galaxy Enterprises by Netgateway. The parties  
had no further direct or indirect contact with respect to a merger or other     
business combination until on or about November 18, 1999.                       

  On November 12, 1999, Donald Danks, a stockholder of Netgateway, contacted
Red Rock Capital LLC on behalf of Netgateway to ask Red Rock Capital to contact 
Galaxy Enterprises to inquire if Galaxy Enterprises had any interest in         
exploring whether Galaxy Enterprises and Netgateway could better execute their  
respective business plans by working together through a merger, joint venture or
other relationship. Thereafter, Kirby Cochran of Red Rock Capital contacted Mr. 
Poelman to determine if Galaxy Enterprises had any interest in exploring whether
Netgateway and Galaxy Enterprises could better execute their respective business
plans by working together through a merger, joint venture or other relationship.
Messrs. Poelman and Cochran met on November 18, 1999. At that meeting,          
Mr. Poelman indicated that Galaxy Enterprises was interested in pursuing this   
possibility. Mr. Cochran reported Galaxy Enterprises' interest to Mr. Danks.    

   Between November 18, 1999 and December 3, 1999, Mr. Poelman and Mr. Cochran
spoke telephonically on several occasions with respect to the possible terms of 
such a transaction. The management of Netgateway also met to discuss the        
possible form and terms of a business relationship between Netgateway and Galaxy
Enterprises.                                                                    

On December 3, 1999, Alex Chaffetz, Netgateway's senior                 
vice-president--cable, and the head of its CableCommerce division, flew to Orem,
Utah to meet with Mr. Poelman and Frank Heyman, Galaxy Enterprises' chief       
financial officer, at the offices of Galaxy Enterprises, to begin discussions   
concerning a potential business combination between Netgateway and Galaxy       
Enterprises. The meetings began in the morning and lasted throughout the day. It
was Mr. Chaffetz's intent to gather as much information as possible about Galaxy
Enterprises' business so that he could then review it with Netgateway           
executives, and a decision could be made as to whether or not a business        
combination was feasible. After Mr. Chaffetz's visit, he reported his findings  
to Netgateway's management. Management considered and evaluated the benefits and
risks attendant to a business combination with Galaxy Enterprises.              

On December 6, 1999, at approximately 11 a.m., California time,         
Mr. Chaffetz called Mr. Poelman to inform him that Netgateway was interested in 
moving forward with discussions concerning a possible business combination, and 
that Roy W. Camblin III and Donald M. Corliss, Jr., Netgateway's chief executive
officer and president, respectively, would contact Mr. Poelman to continue      
discussions.                                                                    

On December 6, 1999, at approximately 2 p.m., California time,          
Messrs. Camblin and Corliss initiated a call with Mr. Poelman to discuss a      
possible business transaction and the terms of a letter of intent. The parties  
also scheduled a meeting in Orem, Utah for the following morning. Thereafter,   

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Craig S. Gatarz, Netgateway's general counsel, drafted a letter of intent for   
submission to Mr. Poelman the following day.                                    

 On December 7, 1999, at 10:00 a.m., Utah time, Messrs. Danks, Camblin and
Corliss met in Orem, Utah with Mr. Poelman and various other Galaxy Enterprises 
employees and consultants to discuss Galaxy Enterprises' business, Netgateway's 
business, the terms of a proposed business combination and the proposed letter  
of intent. The meeting lasted all day.                                          

   From December 8 through December 11, 2000, negotiations between the parties
concerning the letter of intent continued in earnest. There were several        
telephone conferences and meetings between the parties and their respective     
financial and legal advisors. The letter of intent was executed on December 12, 
1999.                                                                           

On December 13, 1999, the parties issued a press release announcing the 
signing of the letter of intent.                                                

During the week of December 13, 1999, a team of Netgateway management   
representatives and employees, an attorney from Nida & Maloney and a            
representative of KPMG met at Galaxy Enterprises' offices to begin a due        
diligence review of Galaxy Enterprises. This due diligence review continued     
through the signing of the merger agreement on March 10, 2000.                  

  On December 13, 1999, Messrs. Corliss and Gatarz flew to Salt Lake City to
begin negotiations on a definitive merger agreement with Mr. Poelman and his    
attorneys at the offices of Parsons Biehle & Latimer. They were joined on       
December 14, 1999 by C. Thomas Hopkins, Netgateway's outside counsel, and by    
Mr. Camblin later in the day.                                                   

 On December 13, 1999, Netgateway retained Roth Capital Partners to act as
its financial advisor in connection with the merger.                            

  On December 15, 1999, the board of directors of Netgateway met to consider
the merger. At this meeting, representatives of Nida & Maloney discussed with   
the Netgateway board their fiduciary duties as directors under Delaware law with
respect to the merger and other legal matters. In addition, they made a         
presentation to the board of directors concerning the status of negotiations    
with Galaxy Enterprises, the terms of the proposed merger agreement and the     
financial performance of Galaxy Enterprises during 1999. No action was taken at 
this meeting to vote on or approve the merger.                                  

   On January 5, 2000, Netgateway's board of directors agreed to provide up to
$300,000 of bridge financing to Galaxy Enterprises to allow Galaxy Enterprises  
to fund costs associated with the merger and for working capital. On January 17,
2000 Galaxy Enterprises retained Houlihan Lokey Howard & Zukin as its financial 
advisor. On February 4, 2000, Netgateway's board of directors agreed to provide 
an additional $150,000 of bridge financing to fund costs associated with the    
merger and for working capital.                                                 

After the letter of intent was signed, negotiations and discussions     
regarding the transaction continued on a daily basis between the parties, their 
counsel and other professional advisors. The issues included:                   

   - providing a fiduciary out in the merger agreement for Galaxy Enterprises;

  - the amount of the termination fee and circumstances under which it would
be payable;                                                         

  - the elimination of Netgateway's requirement that the former stockholders
      of Galaxy Enterprises indemnify Netgateway for breaches of representations
and warranties in the merger agreement by Galaxy Enterprises;       

- the treatment of employee stock options;                              

- the termination of management's existing employment agreements and    
     replacement of those agreements with agreements acceptable to Netgateway;

- Netgateway's requirement that Mr. Poelman and Sue Ann Cochran agree to
vote in favor of the merger; and                                    

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 - Netgateway's requirement that Mr. Poelman grant Netgateway an option to
purchase his shares of Galaxy Enterprises common stock in certain   
circumstances.                                                      

On January 28, 2000, the board of directors of Galaxy Enterprises met to
consider the merger. At this meeting, representatives of Parsons, Behle &       
Latimer discussed with the Galaxy Enterprises board their fiduciary duties as   
directors under Nevada law with respect to the merger and other legal matters   
and the board received presentations concerning the status of negotiations with 
Netgateway, the terms of the proposed merger agreement and the financial        
performance of Galaxy Enterprises during 1999. No action was taken at this      
meeting to vote on or approve the merger.                                       

 On February 18, 2000, the board of directors of Galaxy Enterprises met to
receive a presentation from representatives of Houlihan Lokey concerning the    
fairness of the merger from a financial point of view. At this meeting, Houlihan
Lokey delivered its oral opinion to the Galaxy Enterprises board of directors,  
subsequently confirmed in writing, that as of that date, and based on the       
assumptions made, matters considered and the scope of review as set forth in    
such letter, the consideration to be received in the merger was fair to the     
public stockholders of Galaxy Enterprises from a financial point of view.       

    On February 16, 2000, Mr. Poelman and Darryl Clark conducted a due diligence
review of Netgateway at Netgateway's offices. This review included meetings with
Messrs. Freadhoff, Camblin and Corliss of Netgateway.                           

  On March 2, 2000, the board of directors of Netgateway met to consider the
merger. At this meeting, Roth Capital delivered its oral opinion to the         
Netgateway board of directors, subsequently confirmed in writing, that as of    
that date, and based on the assumptions made, matters considered and the scope  
of review as set forth in such letter, the exchange ratio in the merger was fair
to the stockholders of Netgateway from a financial point of view. At the        
meeting, the board also reviewed developments in the negotiation of, and open   
issues on, the merger agreement as well as the reasons for the merger. At this  
meeting, the board approved the merger and authorized the execution of the      
merger agreement subject to the satisfactory resolution of the open issues.     

On March 8, 2000, the board of directors of Galaxy Enterprises met to   
consider the merger. At the meeting, the board reviewed developments in the     
negotiation of, and open issues on, the merger agreement as well as the reasons 
for the merger. The board members were also informed that Houlihan Lokey        
continued to believe that the consideration to be received in the merger was    
fair to the public stockholders of Galaxy Enterprises from a financial point of 
view. At this meeting, the board approved the merger and authorized the         
execution of the merger agreement subject to the satisfactory resolution of the 
open issues.                                                                    

The merger agreement was signed on March 10, 2000.                      

NETGATEWAY'S REASONS FOR THE MERGER                                             

   Netgateway's board of directors has determined that the terms of the merger
and the merger agreement are fair to, and in the best interests of, Netgateway  
and its stockholders. Accordingly, Netgateway's board of directors has approved 
the merger agreement and the consummation of the merger and recommends that you 
vote FOR approval of the merger agreement and the merger.                       

    In reaching its decision, Netgateway's board of directors identified several
potential benefits of the merger, the most important of which included:         

   - Netgateway's stockholders will have the opportunity to participate in the
potential growth of the combined company after the merger.          

- Netgateway will gain valuable expertise in the Internet marketing and 
    training workshop industry which will be a key component to Netgateway's
continued growth and development.                                   

   - Being part of a combined company will reduce the risks of continuing as a
relatively small independent company in an industry that is rapidly 
consolidating and increasingly competitive.                         

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    - Combining with Galaxy Enterprises will allow Netgateway to share synergies
      with respect to business services, advertising and eCommerce relationships
in addition to opportunities available to Netgateway.               

   - Combining with Galaxy Enterprises will give Netgateway the opportunity to
   expand the channels of distribution for its products, particularly with
respect to its CableCommerce products and offerings.                

 Netgateway's Board considered a number of potentially negative factors in
its deliberation of the merger, including:                                      

 - The risk that the synergies and opportunities in the merger will not be
achieved.                                                           

- The limited operating history of Galaxy Enterprises.                  

  - The risk that the merger will not be completed and the potential adverse
effects of the public announcement of the merger on:                

- Netgateway's sales and operating results;                       

- Netgateway's ability to attract and retain key employees;       

- the progress of certain strategic initiatives; and              

- Netgateway's overall competitive position.                      

- The risk that key technical, sales and management personnel might not 
 remain employees of Netgateway or Galaxy Enterprises after the merger
closes.                                                             

- The transaction costs expected to be incurred in connection with the  
merger.                                                             

- The other risks described under "Risk Factors--Risks Related to the   
Merger" beginning on page 13.                                       

Netgateway's board of directors consulted with Netgateway's senior      
management, as well as its legal counsel, independent accountants and financial 
advisers, in reaching its decision to approve the merger. Among the factors     
considered by Netgateway's board in its deliberations were the following:       

- Historical information concerning Netgateway's and Galaxy Enterprises'
respective financial performance, results of operations, assets,    
  liabilities, operations, technology, brand development, management and
   competitive position, including public reports covering the most recent
fiscal year and fiscal quarter for each company filed with the SEC. 

- Netgateway's management's view of the financial condition, results of 
   operations, assets, liabilities, businesses and prospects of Netgateway
and Galaxy Enterprises after giving effect to the merger.           

   - Current market conditions and historical trading information with respect
to Netgateway and Galaxy Enterprises common stock.                  

   - Comparable merger transactions in Netgateway's market and alternatives to
   the transaction proposed by Galaxy Enterprises available to Netgateway.

- Current industry, market and economic conditions.                     

 - The impact the merger might be expected to have on customers, suppliers
and employees.                                                      

- The possibility of other strategic alternatives to the merger for     
enhancing stockholder value.                                        

   - The opinion of Roth Capital Partners dated March 2, 2000, including their
 related financial analyses, to the effect that, as of the date of the
    merger agreement and based upon and subject to the facts and assumptions
  set forth in their opinion (as described more fully in the text of the
      entire opinion attached as Appendix C to this document), the consideration
     to be paid in the merger by Netgateway was fair from a financial point of
view.                                                               

   After due consideration, Netgateway's board of directors concluded that the
risks associated with the proposed merger were outweighed by the potential      
benefits of the merger.                                                         

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   Netgateway's board of directors does not intend the foregoing discussion of
information and factors to be exhaustive but believes the discussion includes   
all of the material factors that it considered. In view of the complexity and   
wide variety of information and factors, both positive and negative, that it    
considered, Netgateway's board of directors did not find it practical to        
quantify or otherwise assign relative or specific weights to the specific       
factors it considered in making its determination. The determination was made   
after taking into consideration all of the factors as a whole. In addition,     
individual members of the Netgateway board may have given different weights to  
the different factors.                                                          

BOARD RECOMMENDATION OF NETGATEWAY'S BOARD OF DIRECTORS                         

 NETGATEWAY'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AND BELIEVES THAT
THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE MERGER IS IN THE    
BEST INTERESTS OF, NETGATEWAY AND ITS STOCKHOLDERS AND THEREFORE RECOMMENDS THAT
NETGATEWAY'S STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER.                      

GALAXY ENTERPRISES' REASONS FOR THE MERGER                                      

   Galaxy Enterprises' board of directors on March 8, 2000 determined that the
terms of the merger and the merger agreement are fair to, and in the best       
interests of, Galaxy Enterprises and its stockholders. Accordingly, Galaxy      
Enterprises' board of directors has approved the merger agreement and the       
consummation of the merger and recommends that you vote FOR approval of the     
merger agreement and the merger.                                                

   In reaching its decision, Galaxy Enterprises' board of directors identified
several potential benefits of the merger, the most important of which included: 

   - Galaxy Enterprises' stockholders will have the opportunity to participate
in the potential growth of the combined company after the merger.   

 - The balance of the benefits of being part of a combined company and the
    risks of continuing to be an independent company, especially in light of
    trends with respect to consolidation and competition in the Internet and
eCommerce industries and particularly in light of Galaxy Enterprises
relatively small and increasingly, in relative terms, smaller size. 

- Increasing the financial resources available to Galaxy Enterprises and
allowing it to share synergies with respect to business services,   
advertising and eCommerce relationships in addition to opportunities
available to Galaxy Enterprises.                                    

- Giving Galaxy Enterprises the opportunity to expand its channels of   
     distribution of its products by giving it access to Netgateway's Internet
    Commerce Center infrastructure and Netgateway's existing cable and other
    eCommerce business relationships. Galaxy Enterprises' board of directors
    considered favorably that the former Galaxy Enterprises stockholders, as
      stockholders of Netgateway, would share these synergies and opportunities.

- The anticipated exchange ratio in the merger represented a premium of 
    approximately 217% over the average closing price for Galaxy Enterprises
    common stock over the 20-day trading period ending on December 10, 1999,
     the last trading day prior to the day the letter of intent between Galaxy
Enterprises and Netgateway was publicly announced.                  

   - Galaxy Enterprises' stockholders will be afforded substantially increased
trading liquidity for their investment.                             

 Galaxy Enterprises' board of directors considered a number of potentially
negative factors in its deliberation of the merger, including:                  

    - The risk to Galaxy Enterprises' stockholders that the value to be received
      in the merger could decline significantly due to the fixed exchange ratio.

 - The risk that the synergies and opportunities in the merger will not be
achieved.                                                           

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- The limited operating history of Netgateway.                          

- The risk that the merger will not be completed, including the         
     circumstances under which Netgateway could terminate the merger agreement
     and the circumstances under which Galaxy Enterprises could be required to
pay a termination fee to Netgateway.                                

    - The potential adverse effects of the public announcement of the merger on:

- Galaxy Enterprises' sales and operating results;                

- Galaxy Enterprises' ability to attract and retain key employees;

- the progress of certain strategic initiatives; and              

- Galaxy Enterprises' overall competitive position.               

- The risk that key technical, sales and management personnel might not 
 remain employees of Netgateway or Galaxy Enterprises after the merger
closes.                                                             

- The loss of control over the future operations of Galaxy Enterprises  
following the merger.                                               

- The impact of the loss of Galaxy Enterprises' status as an independent
      company on Galaxy Enterprises' stockholders, employees, Web site visitors,
business services clients, advertisers and sponsors.                

- The transaction costs expected to be incurred in connection with the  
merger.                                                             

- The other risks described under "Risk Factors--Risks Related to the   
Merger" beginning on page 13.                                       

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 Galaxy Enterprises' board of directors consulted with Galaxy Enterprises'
senior management, as well as its legal counsel, independent accountants and    
financial advisers, in reaching its decision to approve the merger. Among the   
factors considered by Galaxy Enterprises' board of directors in its             
deliberations were the following:                                               

- Historical information concerning Netgateway's and Galaxy Enterprises'
respective financial performance, results of operations, assets,    
  liabilities, operations, technology, brand development, management and
   competitive position, including public reports covering the most recent
fiscal year and fiscal quarter for each company filed with the SEC. 

   - Galaxy Enterprises' management's view of the financial condition, results
      of operations, assets, liabilities, businesses and prospects of Netgateway
and Galaxy Enterprises after giving effect to the merger.           

   - Current market conditions and historical trading information with respect
to Netgateway and Galaxy Enterprises common stock.                  

    - Comparable merger transactions in Galaxy Enterprises' market and strategic
      alternatives to the transaction proposed by Netgateway available to Galaxy
Enterprises.                                                        

 - The opinion of Houlihan Lokey Howard and Zukin Financial Advisors, Inc.
    dated March 10, 2000, including their related financial analyses, to the
  effect that, as of the date of the merger agreement and based upon and
subject to the facts and assumptions set forth in their opinion (as 
described more fully in the text of the entire opinion attached as  
Appendix D to this document) the consideration to be received in the
     merger by Galaxy Enterprises' public stockholders was fair to them from a
financial point of view.                                            

- The high costs that Galaxy Enterprises had experienced in acquiring   
     customers and the long term viability of certain of those methods and the
experience to date with other methods of acquiring customers.       

- The difficulties Galaxy Enterprises experienced in attracting needed  
capital.                                                            

- The expected tax-free treatment to Galaxy Enterprises' stockholders.  

- The ability of Galaxy Enterprises' board of directors to enter into   
 discussions with another party in response to an unsolicited superior
     offer to the merger if Galaxy Enterprises' board of directors believed in
   good faith, after consultation with its legal counsel, that such action
was required in order to comply with its fiduciary obligations.     

- Galaxy Enterprise's prospects if it were to continue as an independent
company.                                                            

- Current industry, market and economic conditions.                     

 - The impact the merger might be expected to have on customers, suppliers
and employees.                                                      

- The principal terms of the merger agreement.                          

 After due consideration, Galaxy Enterprises' board of directors concluded
that the risks associated with the proposed merger were outweighed by the       
potential benefits of the merger.                                               

   Between March 8, 2000, the day the board of directors of Galaxy Enterprises
voted to approve the merger and recommend it to its stockholders, and May 23,   
2000, the price of Netgateway's common stock has fallen from $9.19 to $2.13.    
During this period it has also become increasingly difficult for companies such 
as Galaxy Enterprises and Netgateway to obtain new financing. Galaxy Enterprises
has not requested an update to the fairness opinion originally received by it on
March 10, 2000, which opinion does not reflect the impact of these developments 
which occurred after the date of the opinion. Accordingly, undue reliance should
not be placed on the fairness opinion. Although the price of Netgateway's common
stock has declined significantly and the market for equity financings is not as 
favorable as it was when the merger was approved, the board of directors of     
Galaxy Enterprises continues to believe that the merger is fair to and in the   
best interests of Galaxy Enterprises and its                                    

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stockholders for the reasons noted above. Stockholders are urged to consider    
carefully all factors before returning their proxy.                             

Galaxy Enterprises' board of directors does not intend the foregoing    
discussion of information and factors to be exhaustive but believes the         
discussion to include all of the material factors that it considered. In view of
the complexity and wide variety of information and factors, both positive and   
negative, that it considered, Galaxy Enterprises' board of directors did not    
find it practical to quantify or otherwise assign relative or specific weights  
to the specific factors it considered in making its determination. The          
determination was made after taking into consideration all of the factors as a  
whole. In addition, individual members of Galaxy Enterprises' board of directors
may have given different weights to the different factors.                      

BOARD RECOMMENDATION OF GALAXY ENTERPRISES BOARD OF DIRECTORS                   

   GALAXY ENTERPRISES' BOARD OF DIRECTORS HAS APPROVED THE MERGER AND BELIEVES
THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE MERGER IS IN   
THE BEST INTERESTS OF, GALAXY ENTERPRISES AND ITS STOCKHOLDERS AND THEREFORE    
RECOMMENDS THAT GALAXY ENTERPRISES STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER.

OPINION OF ROTH CAPITAL PARTNERS                                                

Netgateway engaged Roth Capital Partners to render an opinion as to the 
fairness, from a financial point of view, of the consideration to be received in
the merger, to Netgateway's stockholders. Roth Capital is a nationally          
recognized investment banking firm that provides financial advisory services in 
connection with mergers and acquisitions, leveraged buyouts, business valuations
for a variety of regulatory and planning purposes, recapitalizations, financial 
restructurings, and private placements of debt and equity securities.           

   Netgateway agreed to pay Roth Capital a fee of $210,000 for its preparation
and delivery of the fairness opinion. No portion of Roth Capital's fee is       
contingent upon the successful completion of the merger. Netgateway retained    
Roth Capital solely to deliver its fairness opinion. Netgateway agreed to       
indemnify Roth Capital and its affiliates against certain liabilities, including
liabilities under federal securities laws that arise out of the engagement of   
Roth Capital. Netgateway's board of directors did not limit Roth Capital in any 
way in the investigations it made or the procedures it followed in rendering its
opinion.                                                                        

 The full text of Roth Capital's opinion, which sets forth the assumptions
made, general procedures followed, factors considered and limitations on the    
review undertaken by Roth Capital in rendering its opinion is attached as       
Appendix C and is incorporated herein by reference. We urge you to read the     
opinion in its entirety.                                                        

Roth Capital did not, and was not requested by Netgateway to, make any  
recommendations as to the form or amount of consideration to be paid by         
Netgateway, the public market values or realizable value of Netgateway's common 
stock given as consideration in the merger or the prices at which Netgateway's  
common stock may trade in the future following the merger, and does not express 
any opinion as to the fairness of any aspect of the merger not expressly        
addressed in its fairness opinion.                                              

In arriving at its opinion, among other things, Roth Capital:           

  - reviewed certain interim reports of Netgateway and Galaxy Enterprises to
their respective stockholders and Quarterly Reports on Form 10-Q of 
Netgateway and Galaxy Enterprises;                                  

   - reviewed certain internal financial analyses and forecasts for Netgateway
and Galaxy Enterprises prepared by their respective management;     

  - reviewed certain publicly available documents relating to Netgateway and
Galaxy Enterprises;                                                 

  - reviewed internal budgets and projections, marketing materials and press
releases provided by Netgateway;                                    

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- reviewed a draft copy of the agreement and plan of merger in the form 
provided by Netgateway;                                             

  - held discussions with members of the senior management of Netgateway and
   Galaxy Enterprises regarding the strategic rationale for, and potential
  benefits of, the transaction contemplated by the agreement and plan of
     merger, and the past and current business operations, financial condition
  and future prospects of their respective companies and of the combined
operations of Netgateway and Galaxy Enterprises;                    

    - reviewed available research reports for companies that it determined to be
comparable to Netgateway and Galaxy Enterprises;                    

- reviewed the financial terms of other recent business combinations;   

- reviewed publicly available data and information for companies that it
deemed to be comparable to Netgateway and Galaxy Enterprises; and   

- conducted such other financial analysis as Roth Capital deemed        
appropriate.                                                        

OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN                                        

Galaxy Enterprises engaged Houlihan Lokey to render an opinion as to the
fairness, from a financial point of view, of the consideration to be received in
the merger, to Galaxy Enterprises' public stockholders. Houlihan Lokey is a     
nationally recognized investment banking firm that provides financial advisory  
services in connection with mergers and acquisitions, leveraged buyouts,        
business valuations for a variety of regulatory and planning purposes,          
recapitalizations, financial restructurings, and private placements of debt and 
equity securities. Galaxy Enterprises selected Houlihan Lokey as its financial  
advisor because of its reputation and experience. At the meeting of Galaxy      
Enterprises board of directors on February 18, 2000, Houlihan Lokey presented   
its analysis and valuation methodology and an oral opinion with respect to the  
merger. Houlihan Lokey delivered its written opinion on March 10, 2000.         

 Galaxy Enterprises agreed to pay Houlihan Lokey a fee of $160,000 for its
preparation and delivery of the fairness opinion. No portion of Houlihan Lokey's
fee is contingent upon the successful completion of the merger. Galaxy          
Enterprises retained Houlihan Lokey solely to deliver its fairness opinion.     
Galaxy Enterprises agreed to indemnify Houlihan Lokey and its affiliates against
certain liabilities, including liabilities under federal securities laws that   
arise out of the engagement of Houlihan Lokey. Galaxy Enterprises' board of     
directors did not limit Houlihan Lokey in any way in the investigations it made 
or the procedures it followed in rendering its opinion. Houlihan Lokey was not  
requested to, and did not, solicit third party indications of interest in       
acquiring all or any part of Galaxy Enterprises.                                

   The full text of Houlihan Lokey's opinion, which sets forth the assumptions
made, general procedures followed, factors considered and limitations on the    
review undertaken by Houlihan Lokey in rendering its opinion is attached as     
Appendix D and is incorporated herein by reference. We urge you to read the     
opinion in its entirety.                                                        

    Houlihan Lokey did not, and was not requested by Galaxy Enterprises to, make
any recommendations as to the form or amount of consideration to be received by 
the Galaxy Enterprises public stockholders, the public market values or         
realizable value of Galaxy Enterprises' common stock given as consideration in  
the merger or the prices at which Netgateway's common stock may trade in the    
future following the merger, and does not express any opinion as to the fairness
of any aspect of the merger not expressly addressed in its fairness opinion.    

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In arriving at its opinion, among other things, Houlihan Lokey:         

  - reviewed Galaxy Enterprises' annual report on Form 10-KSB for the fiscal
    year ended December 31, 1998 and quarterly report on Form 10-QSB for the
period ended September 30, 1999;                                    

- reviewed Netgateway's Form S-1 dated November 18, 1999;               

- reviewed the draft Agreement and Plan of Merger by and among          
   Netgateway, Inc., Galaxy Acquisition Corp. and Galaxy Enterprises, Inc.
dated as of March 8, 2000;                                          

   - reviewed the draft Registration Statement of Netgateway on Form S-4 dated
February   , 2000;                                                  

 - met with certain members of the senior management of Galaxy Enterprises
      and Netgateway to discuss the merger, the operations, financial condition,
future prospects and projected operations and performance of Galaxy 
Enterprises and Netgateway;                                         

- visited the headquarters and operating facilities of both Galaxy      
Enterprises and Netgateway in Orem, Utah and Long Beach, California,
respectively;                                                       

- reviewed the Galaxy Enterprises Business Plan dated February 16, 1999;

- reviewed financial projections for Galaxy Enterprises prepared by CSK 
      Securities Research and approved by Galaxy Enterprises' management for the
years ending December 31, 2001;                                     

    - reviewed Netgateway's pro-forma projections provided by management for the
two years ending December 31, 2002;                                 

 - analyzed historical stock performance and trading volume of both Galaxy
Enterprises' and Netgateway's common stock;                         

    - reviewed various industry and research reports for the Internet--eBusiness
industry;                                                           

 - reviewed transcripts of chat rooms of Galaxy Enterprises and Netgateway
during the period before the merger announcement date;              

- reviewed certain other publicly available financial data for certain  
     companies that it deemed comparable to Galaxy Enterprises and Netgateway;
and                                                                 

- conducted such other studies, analyses and inquiries as Houlihan Lokey
deemed appropriate.                                                 

Houlihan Lokey used various methodologies to assess the fairness, from a
financial point of view, of the consideration to be received in the merger to   
Galaxy Enterprises' public stockholders.                                        

COMPARISON OF GALAXY ENTERPRISES' VALUE TO CONSIDERATION                

Houlihan Lokey employed methodologies that provided estimates as to the 
aggregate value of Galaxy Enterprises. The analyses required studies of the     
overall market, economic and industry conditions in which Galaxy Enterprises    
operates and the operating results of Galaxy Enterprises. Each methodology      
provided an estimate as to the value of Galaxy Enterprises and thus provided a  
basis of comparison to the merger consideration to be received by the           
stockholders in connection with the merger.                                     

The primary methodologies Houlihan Lokey used to estimate the value of  
Galaxy Enterprises' operations were the discounted cash flow approach and the   
comparable transaction approach. The discounted cash flow analysis considered   
the projected income stream of Galaxy Enterprises, as provided by Galaxy        
Enterprises' management, and then discounted that stream to the present using a 
market-based, risk-adjusted discount rate. Galaxy Enterprises' terminal value,  
which represents the on-going value of the entity past the time frame of the    
projected income stream, was determined by                                      

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capitalizing 2001 projected revenues by an appropriate "exit" multiple. This    
multiple was based mainly on the implied multiples observed in similar          
transactions. Houlihan Lokey also analyzed certain financial performance        
measures for numerous merger and acquisition transactions, which we deemed to be
most comparable to the transaction, involving companies in the                  
eCommerce/Internet enabling industry, including Houlihan Lokey clients whose    
transactions were not publicly disclosed.                                       

Houlihan Lokey also considered a public trading price value analysis of 
Galaxy Enterprises' common stock. However, given that (1) there is no investment
analyst coverage for Galaxy Enterprises, (2) there are no institutional         
stockholders and (3) Galaxy Enterprises' common stock is thinly traded relative 
to the comparable public companies, Houlihan Lokey did not rely on the public   
valuation of Galaxy Enterprises.                                                

PRO FORMA ACCRETION ANALYSIS                                            

    In addition to the valuation analysis of Galaxy Enterprises described above,
Houlihan Lokey performed a similar valuation of Netgateway on a pro forma basis 
reflecting the merger. This pro forma valuation analysis consisted of a         
discounted cash flow approach and comparable transaction approach, as described 
above, using the projected performance of the combined entities, which was      
provided by Netgateway's management, as the basis for the valuation. Houlihan   
Lokey also considered a comparative market multiple approach, which considers   
the trading multiples for certain income and cash flows of a peer group of      
companies. Based on a comparative financial analysis of Netgateway and the peer 
group of companies, an appropriate multiple was selected and applied to future  
revenues of Netgateway, since Netgateway is not projecting to generate positive 
cash flows or earnings. In the comparable company analysis, Houlihan Lokey      
analyzed the trading statistics of (1) Internet enablers, such as Agency.com,   
iXL Enterprises, Galaxy Enterprises, Razorfish, USWeb/CKS and Viant, and        
(2) Internet software companies, such as Broadvision, CheckFree Holdings,       
Harbinger, HNC Software, Inktomi, Net Perceptions and Vignette.                 

Houlihan Lokey also considered a public trading price value analysis of 
Netgateway's common stock. The common stock price of Netgateway was $9.188 as of
March 8, 2000 and was $8.698 per share based upon a 20-day moving average as of 
March 8, 2000. Netgateway common stock is traded in volumes similar to the      
comparable public companies, however, there is limited investment analyst       
coverage of Netgateway.                                                         

FAIRNESS OF CONSIDERATION                                               

 In the opinion, Houlihan Lokey made its determination as to the fairness,
from a financial point of view, as of the date of the merger agreement, of the  
consideration to be received in the merger by Galaxy Enterprises' public        
stockholders.                                                                   

 Houlihan Lokey has advised Galaxy Enterprises' board of directors that it
used several methodologies to assess the fairness, from a financial point of    
view, of the merger consideration. In each of the analyses, the estimated value 
of Galaxy Enterprises' common stock was lower than the merger consideration,    
leading Houlihan Lokey to conclude that the merger consideration was fair to the
Galaxy Enterprises public stockholders, from a financial point of view.         

CONDITIONS AND LIMITATIONS                                              

   The aforementioned analyses required studies of the overall market, and the
economic and industry conditions in which Galaxy Enterprises and Netgateway     
operate. Research into, and consideration of, these conditions were incorporated
into the analyses. The opinion is based on the business, economic, market and   
other conditions as they existed as of March 9, 2000. Specifically, Houlihan    
Lokey relied upon the assurances of both Galaxy Enterprises and Netgateway that 
the financial projections and pro forma statements and adjustments provided to  
Houlihan Lokey were                                                             

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reasonably prepared reflecting the best currently available estimates and good  
faith judgments, and that there have been no material changes in the information
reviewed between the date the information was provided and the date of the      
opinion or in the assets, financial condition, business or prospects of Galaxy  
Enterprises or Netgateway. Houlihan Lokey did not independently verify the      
accuracy or completeness of the information supplied to it with respect to      
Galaxy Enterprises or Netgateway and does not assume responsibility for the     
accuracy or completeness of such information. Additionally, Houlihan Lokey      
relied without independent verification upon the accuracy and completeness of   
all of the financial and other information reviewed by them for purposes of the 
fairness opinion.                                                               

  The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The   
preparation of a fairness opinion is a complex analytical process involving     
various determinations as to the most appropriate and relevant methods of       
financial analysis and application of those methods to the particular           
circumstances and is therefore not readily susceptible to summary description.  
In arriving at its opinion, Houlihan Lokey has advised Galaxy Enterprises' board
of directors that it did not attribute any particular weight to any analysis or 
factor considered by it, but rather made qualitative judgements as to the       
significance and relevance of each analysis and factor. Accordingly, Houlihan   
Lokey believes that its analyses and the summary set forth herein must be       
considered as a whole and that selecting portions of its analyses, without      
considering all analyses, or portions of this summary, without considering all  
factors and analyses, could create an incomplete view of the processes          
underlying the analyses undertaken by it in connection with the opinion.        

 Houlihan Lokey has advised Galaxy Enterprises' board of directors that in
its analyses, Houlihan Lokey made numerous assumptions with respect to Galaxy   
Enterprises' and Netgateway's industry performance, general business, economic, 
market and financial conditions and other matters, many of which are beyond     
Galaxy Enterprises' and Netgateway's control. The estimates contained in such   
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be more or less favorable than suggested by such   
analyses. Additionally, analyses relating to the value of businesses or         
securities are not appraisals. Accordingly, such analyses and estimates are     
inherently subject to substantial uncertainty.                                  

INTERESTS OF CERTAIN PERSONS IN THE MERGER                                      

   In considering the recommendation of Galaxy Enterprises' board of directors
with respect to the merger, you should be aware that some members of Galaxy     
Enterprises' board of directors and management have interests in the merger that
are in addition to, and that may be different from, your interests as a holder  
of Galaxy Enterprises common stock generally. Galaxy Enterprises' board of      
directors was aware of these interests and considered the following matters,    
among others, in approving the merger.                                          

EMPLOYMENT AGREEMENTS                                                   

   In connection with the merger, John J. Poelman, Brandon Lewis, Frank Heyman
and David Wise entered into employment agreements with Galaxy Enterprises. In   
addition, Robert Green and Benjamin Roberts entered into employment agreements  
with Galaxy Enterprises' wholly owned subsidiary IMI, Inc. These employment     
agreements will become effective upon consummation of the merger. At that time, 
Messrs. Poelman, Lewis, Heyman, Wise, Green and Roberts' current employment     
agreements will be terminated.                                                  

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   The following table summarizes the key provisions of the Galaxy Enterprises
employment agreements.                                                          

                                                        [Enlarge/Download Table]

                                      PER ANNUM                                                         
NAME/POSITION                 TERM      SALARY        ADDITIONAL OPTIONS          BONUS ARRANGEMENTS    
-------------               --------  ----------  --------------------------  --------------------------
                                                                                                        
John J. Poelman...........  2 years   $143,000    30,440, pursuant to         $21,450 if still in employ
President of Galaxy                                 Netgateway's 1999 Stock   on September 1, 2000; then
  Enterprises                                       Option Plan for Senior      entitled to participate 
                                                    Executives                  in bonus plan           
Frank C. Heyman...........  2 years   $ 90,000    12,500, pursuant to         $13,605 if still in employ
Chief Financial Officer of                          Netgateway's 1999 Stock   on September 1, 2000; then
  Galaxy Enterprises                                Option Plan for Non-        entitled to participate 
                                                    Executives                  in bonus plan           
Brandon B. Lewis..........  2 years   $114,125    20,000, pursuant to         $17,119 if still in employ
Vice President--Sales and                           Netgateway's 1999 Stock   on September 1, 2000; then
  Marketing of Galaxy                               Option Plan for Non-        entitled to participate 
  Enterprises                                       Executives                  in bonus plan           

David Wise................  2 years   $110,650    15,000, pursuant to         $16,598 if still in employ
Vice President--Operations                          Netgateway's 1999 Stock   on September 1, 2000; then
  of Galaxy Enterprises                             Option Plan for Non-        entitled to participate 
                                                    Executives                  in bonus plan           
Robert Green..............  2 years   $104,100    12,500, pursuant to         $15,615 if still in employ
President of IMI, Inc.                              Netgateway's 1999 Stock   on September 1, 2000; then
                                                    Option Plan for Non-        entitled to participate 
                                                    Executives                  in bonus plan           
Benjamin Roberts..........  2 years   $ 94,000    11,000, pursuant to         $14,115 if still in employ
Executive Vice President                            Netgateway's 1999 Stock   on September 1, 2000; then
  of IMI, Inc.                                      Option Plan for Non-        entitled to participate 
                                                    Executives                  in bonus plan           

BRIDGE LOAN AND PLEDGE AGREEMENT                                        

In connection with the merger, on January 7, 2000 Netgateway advanced   
$300,000 in bridge financing to Galaxy Enterprises for working capital purposes 
and for the payment of certain professional fees incurred by Galaxy Enterprises 
in connection with the merger. On February 4, 2000, Netgateway advanced an      
additional $150,000 to Galaxy Enterprises for working capital purposes and for  
the payment of certain professional fees incurred by Galaxy Enterprises in      
connection with the merger.                                                     

    Each loan is evidenced by a promissory note between Galaxy Enterprises, John
J. Poelman, the chief executive officer and largest stockholder of Galaxy       
Enterprises (as co-obligor), and Netgateway. The notes bear interest at 9.5% and
are due and payable on the earlier of June 1, 2000 or the effective time of the 
merger.                                                                         

In addition, on the date of each loan, Mr. Poelman entered into a pledge
agreement whereby Mr. Poelman pledged as collateral for the loans a total of    
300,000 of his shares of Galaxy Enterprises common stock. If Galaxy Enterprises 
fails to repay the loans on time, Netgateway has the option, among other things,
to sell the stock Mr. Poelman pledged as collateral.                            

INDEMNIFICATION                                                         

The merger agreement provides that following the merger, Netgateway will
indemnify the directors and officers of Galaxy Enterprises with respect to any  
litigation with respect to the merger and all personal guarantees of Galaxy     
Enterprises obligations they have given and cause such persons to be released   
from such guarantees. In addition, for six years after the effective time of the
merger,                                                                         

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Netgateway will cause the surviving corporation to fulfill and honor Galaxy     
Enterprises' obligations under any indemnification agreements with its directors
and officers that existed as of the effective time of the merger and any        
indemnification provisions under Galaxy Enterprises' organizational documents   
that were in effect on the date of the merger agreement.                        

APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS                                     

Under Section 92A.300 ET SEQ. of the Nevada Revised Statutes, Galaxy    
Enterprises stockholders are entitled to exercise the rights of a dissenting    
stockholder to object to the merger and make written demand that Netgateway pay 
in cash the fair value of the shares of Galaxy Enterprises common stock held as 
determined in accordance with all pertinent provisions of Galaxy Enterprises'   
articles of incorporation, bylaws and statutory provisions.                     

   In order to exercise dissenters' rights, a dissenting stockholder of Galaxy
Enterprises must strictly comply with the statutory procedures of               
Section 92A.300 ET SEQ. of the Nevada Revised Statutes, which are summarized    
below. A copy of the text provisions of these statutes is attached hereto as    
Appendix B. Stockholders of Galaxy Enterprises are urged to read these statutes 
in their entirety and to consult with their legal advisors. Nevada law requires 
that holders of Galaxy Enterprises common stock follow certain prescribed       
procedures in the exercise of their statutory right to dissent in connection    
with the merger. The failure to follow such procedures on a timely basis and in 
the precise manner required by Nevada law may result in a loss of a             
stockholder's dissenters' rights.                                               

 Section 92A.320 of the Nevada Revised Statutes provides that a dissenting
stockholder will be entitled to receive for each share of Galaxy Enterprises    
common stock as to which dissenters' rights are perfected, the fair value       
thereof. "Fair value" is defined as the value of the shares immediately before  
the special meeting approving the merger, excluding any appreciation or         
depreciation in anticipation of the merger unless exclusion would be            
inequitable, Section 92A.340 of the Nevada Revised Statutes further provides    
that the fair value be paid together with interest computed from the effective  
date of the merger until the date of payment, at the average rate currently paid
by Galaxy Enterprises on its loans or at a rate that is fair and equitable under
all the circumstances. The following summary does not purport to be a complete  
statement of the dissenters rights provision of Nevada law and is qualified in  
its entirety by reference to the full text provisions of the of the Nevada      
Revised Statutes pertaining to dissenters' rights attached hereto as            
Appendix B.                                                                     

OVERVIEW                                                                

  Holders of Galaxy Enterprises common stock have the right under Nevada law
to dissent from the merger and obtain payment of the fair value of his or her   
shares. Fair value means the value of the shares immediately before the special 
meeting, excluding any appreciation or depreciation in anticipation of the      
corporate action unless exclusion would be inequitable. If Netgateway and a     
dissenting stockholder are not able to agree on a fair value, Netgateway must   
petition a court for a determination of fair value.                             

PROCEDURE FOR DISSENTING                                                

A stockholder wishing to dissent from the merger must deliver to Galaxy 
Enterprises, before the Galaxy Enterprises special meeting, written notice of   
his or her intent to demand payment for his or her shares if the merger is      
consummated. The written notice should be sent to Galaxy Enterprises at         
754 E. Technology Avenue, Orem Utah 84097; Attn: Investor Relations. A          
stockholder wishing to dissent may not vote in favor of the merger. If a        
stockholder's written notice of intent to demand payment is not received by     
Galaxy Enterprises before the Galaxy Enterprises special meeting, or if the     
stockholder votes in favor of the merger, that stockholder will not have the    
right to dissent and will be required to participate in the merger.             

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    Within 10 days after the special meeting, Galaxy Enterprises will deliver to
each dissenting stockholder a written notice instructing the dissenting         
stockholder to demand payment and send his or her Galaxy Enterprises common     
stock certificates to Galaxy Enterprises. The notice will include a copy of     
Section 92A.300 ET SEQ. of the Nevada Revised Statutes and a form for demanding 
payment. The notice will show the deadline for submitting the payment demand    
form and the Galaxy Enterprises common stock certificates. The form will also   
show the date that the merger was first announced to the news media or the      
stockholders and the dissenting stockholder will be required to state whether or
not he or she acquired his or her shares before that date.                      

   The dissenting stockholder must then properly complete and sign the payment
demand form and submit it to Galaxy Enterprises along with his or her Galaxy    
Enterprises common stock certificates by the deadline shown in the notice from  
Galaxy Enterprises. If the payment demand form and the Galaxy Enterprises common
stock certificates are not submitted by the deadline, the stockholder will no   
longer be a dissenting stockholder and will not be entitled to receive payment  
of the fair value of his or her shares. Instead, that stockholder will be       
required to participate in the merger. The payment demand form and Galaxy       
Enterprises common stock certificates should be sent to Galaxy Enterprises at   
754 E. Technology Avenue, Orem, Utah 84097; Attn.: Investor Relations.          

PAYMENT FOR SHARES                                                      

Within 30 days after receiving a dissenting stockholder's payment demand
form and Galaxy Enterprises common stock certificates, Netgateway will pay such 
dissenting stockholder, in accordance with Nevada law, Netgateway's estimate of 
the fair value of the Galaxy Enterprises common stock for which certificates    
were submitted, plus accrued interest. Accompanying the payment will be         
financial information for Galaxy Enterprises as of the end of a fiscal year     
ending not more than 16 months before the date of payment, and for the year then
ended, as well as the latest available interim financial information. Also      
accompanying the payment will be a statement of Netgateway's estimate of the    
fair value of the shares, an explanation of how the interest was calculated, a  
statement of the dissenting stockholder's rights to demand additional payment   
and a copy of the relevant Nevada statutes. Netgateway's obligation to pay fair 
value may be enforced by a court. However, if the dissenting stockholder did not
own the shares before the date the merger was first announced to the news media 
or to the stockholders, Netgateway will have the right to withhold payment, and 
instead to offer to pay Netgateway's estimate of the fair value of the shares.  

   An offer will be accompanied by a statement of Netgateway's estimate of the
fair value of the shares, an explanation of how the interest was calculated and 
a statement of the dissenting stockholder's rights to demand payment.           

 If a dissenting stockholder estimates the fair value of his or her shares
and the amount of accrued interest to be higher than the amount paid by         
Netgateway, the dissenting stockholder may send a notice to Netgateway demanding
payment of the difference between the dissenting stockholder's estimate and the 
amount paid by Netgateway. Or, if the dissenting stockholder was only entitled  
to receive Netgateway's offer to pay fair value, the dissenting stockholder may 
reject the offer and demand payment of the dissenting stockholder's estimate of 
the fair value of his or her shares and accrued interest. If a dissenting       
stockholder does not send a notice demanding payment within 30 days after       
Netgateway has made its payment or offer, the dissenting stockholder will not   
have the right to receive any amount in excess of the fair value plus interest  
already paid or offered by Netgateway.                                          

COURT PROCEEDING TO DETERMINE FAIR VALUE.                               

If a demand for payment remains unsettled for 60 days following Galaxy  
Enterprises' receipt of the demand, Netgateway will petition a court to         
determine the fair value of the shares and accrued interest. Court costs will be
paid by Netgateway unless the court finds that one or more dissenting           
stockholders                                                                    

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acted arbitrarily, vexatiously or not in good faith in demanding payment, in    
which case, some or all court costs may be allocated to such dissenting         
stockholder or stockholders. Attorneys' and experts' fees may be assessed       
against Netgateway if the court finds that Netgateway did not comply with the   
applicable statute or acted arbitrarily, vexatiously or not in good faith, or   
such fees may be assessed against one or more dissenting stockholders if those  
stockholders acted arbitrarily, vexatiously or not in good faith.               

   Holders of Galaxy Enterprises common stock considering seeking appraisal by
exercising their dissenters' rights should be aware that the fair value of their
Galaxy Enterprises common stock determined pursuant to Nevada law could be more 
than, the same as, or less than the value of the securities that they are       
entitled to receive pursuant to the merger agreement if they do not seek        
appraisal of their Galaxy Enterprises common stock.                             

   THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES
TO BE FOLLOWED BY HOLDERS OF GALAXY ENTERPRISES COMMON STOCK DESIRING TO        
EXERCISE DISSENTERS' RIGHTS, AND, IN VIEW OF THE FACT THAT EXERCISE OF SUCH     
RIGHTS REQUIRES STRICT ADHERENCE TO THE RELEVANT PROVISIONS OF THE NEVADA       
REVISED STATUTES, EACH STOCKHOLDER WHO MAY DESIRE TO EXERCISE APPRAISAL RIGHTS  
IS ADVISED INDIVIDUALLY TO CONSULT THE LAW (AS SET FORTH IN APPENDIX B HERETO)  
AND COMPLY WITH THE PROVISIONS THEREOF.                                         

   The foregoing discussion is only a summary of the provisions of Nevada law,
does not purport to be complete and is qualified in its entirety by reference to
Section 92A.300 ET SEQ. of the Nevada Revised Statutes, which is attached hereto
as Appendix B. Any stockholder who intends to dissent from the merger should    
review the text of Section 92A.300 ET SEQ. of the Nevada Revised Statutes,      
carefully and should also consult with his or her own legal counsel. Any        
stockholder who fails to follow strictly the procedures set forth in said       
statute will forfeit his or her dissenters' rights.                             

Any dissenting stockholder who perfects his or her right to be paid the 
value of his or her shares will recognize gain or loss, if any, for federal     
income tax purposes upon the receipt of cash for such shares. The amount of gain
or loss and its character as ordinary or capital gain or loss will be determined
in accordance with applicable provisions of the Internal Revenue Code.          

 BECAUSE OF THE COMPLEXITY OF THE PROVISIONS OF THE NEVADA LAW RELATING TO
DISSENTERS' APPRAISAL RIGHTS, STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM  
THE MERGER ARE URGED TO CONSULT THEIR OWN LEGAL ADVISORS TO ENSURE THAT THEY    
FULLY AND PROPERLY COMPLY WITH THE REQUIREMENTS OF NEVADA LAW.                  

FEDERAL INCOME TAX CONSIDERATIONS                                               

The following is a discussion of the material federal income tax        
considerations of the merger that are generally applicable to holders of Galaxy 
Enterprises common stock.                                                       

    This discussion does not deal with all income tax considerations that may be
relevant to particular Galaxy Enterprises stockholders in light of their        
particular circumstances, those stockholders who are dealers in securities,     
foreign persons, banks, insurance companies or tax-exempt entities, stockholders
who hold their shares as part of a hedging, straddle, conversion or other risk  
reduction transaction, stockholders who acquired their shares in connection with
stock option or stock purchase plans or in other compensatory transactions, or  
stockholders who exercise their dissenters' rights under Nevada law. In         
addition, the following discussion does not address the tax consequences of     
transactions effectuated prior to or after the merger, whether or not such      
transactions are in connection with the merger, including transactions in which 
shares of Galaxy Enterprises common stock were or are acquired or in which      
shares of Netgateway common stock were or are disposed of. Furthermore, no      
foreign, state or local tax considerations are addressed in this joint proxy    
statement/prospectus. The discussion is based on federal income tax law in      
effect as of the date of this joint proxy statement/ prospectus, which could    
change at any time, possibly with retroactive effect. Accordingly, Galaxy       
Enterprises stockholders are urged to consult their own tax advisors as to the  
specific tax consequences                                                       

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of the merger, including the applicable federal, state, local and foreign tax   
consequences to them of the merger and applicable tax return reporting          
requirements.                                                                   

   Although it is not a condition to the closing of the merger that the merger
constitute a "reorganization" within the meaning of Section 368 of the Internal 
Revenue Code or that either Netgateway or Galaxy Enterprises receive an opinion 
from its tax advisor to that effect, they each intend to seek such opinions. If 
the merger qualifies as a reorganization, the following federal income tax      
consequences will result:                                                       

    - No gain or loss will be recognized by holders of Galaxy Enterprises common
     stock solely upon their receipt of Netgateway common stock in the merger,
except as described below with respect to cash received instead of a
fractional share of Netgateway common stock;                        

- The aggregate tax basis of the Netgateway common stock received in the
      merger by a Galaxy Enterprises stockholder, including any fractional share
     not actually received, will be the same as the aggregate tax basis of the
Galaxy Enterprises common stock surrendered in exchange for such    
Netgateway common stock;                                            

  - The holding period of the Netgateway common stock received in the merger
    by a Galaxy Enterprises stockholder will include the period during which
   the stockholder held the Galaxy Enterprises common stock surrendered in
exchange for such Netgateway common stock, so long as the Galaxy    
  Enterprises common stock is held as a capital asset at the time of the
merger;                                                             

- Cash payments received by holders of Galaxy Enterprises common stock  
    instead of a fractional share of Netgateway common stock will be treated
    as if the fractional share of Netgateway common stock had been issued in
the merger and then repurchased by Netgateway; a Galaxy Enterprises 
      stockholder receiving such cash will generally recognize gain or loss upon
     such payment, equal to the difference between such stockholder's basis in
the fractional share and the amount of cash received; and           

- None of Netgateway, the merger subsidiary or Galaxy Enterprises will  
recognize gain or loss solely as a result of the merger.            

  The opinions of the independent auditors that the merger will qualify as a
reorganization will be subject to the limitations and qualifications referred to
in this document. In addition, the opinions will (1) rely upon the truth and    
accuracy of representations and covenants set forth in the merger agreement and 
in certificates to be delivered prior to the effective time by Netgateway, the  
merger subsidiary and Galaxy Enterprises and (2) assume that the merger will be 
consummated in accordance with the terms of the merger agreement. The parties   
are not requesting a ruling from the Internal Revenue Service in connection with
the merger. The opinions of the independent auditors referred to above do not   
bind the IRS or prevent the IRS from adopting a contrary position. Netgateway   
and Galaxy Enterprises undertake to recirculate these proxy materials and       
resolicit proxies in the event that either Netgateway or Galaxy Enterprises is  
unable to obtain an opinion from its respective tax advisor that the merger will
be a reorganization for federal income tax purposes.                            

A successful IRS challenge to the "reorganization" status of the merger 
would result in a Galaxy Enterprises stockholder recognizing gain or loss with  
respect to each share of Galaxy Enterprises common stock surrendered equal to   
the difference between the stockholder's basis in such share and the fair market
value, as of the effective time of the merger, of the Netgateway common stock   
received in exchange therefor. In such event, a stockholder's aggregate basis in
the Netgateway common stock so received would equal its fair market value and   
his holding period for such stock would begin the day after the merger.         

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COMPLETION AND EFFECTIVENESS OF THE MERGER                                      

    The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including approval and adoption of the merger   
agreement by the stockholders of Galaxy Enterprises and the approval of the     
issuance of shares by the stockholders of Netgateway. The merger will become    
effective upon the filing of certificates of merger with the States of Delaware 
and Nevada.                                                                     

We are working to complete the merger as quickly as possible. We hope to
complete the merger during the second quarter of calendar year 2000, however, we
cannot predict the exact completion date at this time.                          

ANTICIPATED ACCOUNTING TREATMENT                                                

 The merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles, 
which means that we will treat our companies as if they had always been combined
for accounting and financial reporting purposes. The availability of this       
accounting treatment is not a condition to the merger.                          

DELISTING AND DEREGISTRATION OF GALAXY ENTERPRISES COMMON STOCK                 

If the merger is consummated, Galaxy Enterprises common stock will be   
delisted from the Nasdaq OTC Bulletin Board and will be deregistered under the  
Securities Exchange Act of 1934.                                                

LISTING OF NETGATEWAY COMMON STOCK TO BE ISSUED IN THE MERGER                   

It is a condition to the consummation of the merger that the shares of  
Netgateway common stock to be issued in the merger and the shares of Netgateway 
common stock to be reserved for issuance in connection with the assumption of   
outstanding Galaxy Enterprises stock options be approved for listing on The     
Nasdaq National Market.                                                         

RESTRICTION ON RESALES OF NETGATEWAY COMMON STOCK                               

The Netgateway common stock to be issued in the merger will have been   
registered under the Securities Act, thereby allowing such shares to be freely  
traded without restriction by all former stockholders of Galaxy Enterprises who 
are not "affiliates," as such term is defined in Rule 144 of the Securities Act,
of Galaxy Enterprises or Netgateway at the time of the special meeting. Persons 
who may be deemed to be affiliates of Netgateway or Galaxy Enterprises generally
include individuals or entities that control, are controlled by or are under    
common control with, such party and may include certain officers and directors  
of Netgateway and Galaxy Enterprises, as well as significant stockholders.      

  Shares of Netgateway common stock received by those stockholders of Galaxy
Enterprises who are deemed to be affiliates of Galaxy Enterprises or Netgateway 
at the time of the special meeting may be resold without additional registration
under the Securities Act only in the manner permitted by Rule 145 under the     
Securities Act or as otherwise permitted under the Securities Act.              

  Netgateway's registration statement on Form S-4, of which this joint proxy
statement/prospectus forms a part, does not cover resales of Netgateway common  
stock received by any person who may be deemed to be an affiliate of Netgateway 
or Galaxy Enterprises.                                                          

OPERATIONS AFTER THE MERGER                                                     

After completion of the merger, Galaxy Enterprises will continue its    
operations as a wholly owned subsidiary of Netgateway. The stockholders of      
Galaxy Enterprises will become stockholders of Netgateway and their rights as   
stockholders will be governed by Netgateway's certificate of incorporation,     
bylaws and the laws of the State of Delaware.                                   

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THE MERGER AGREEMENT

 THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS JOINT PROXY        
STATEMENT/PROSPECTUS. STOCKHOLDERS OF NETGATEWAY AND GALAXY ENTERPRISES ARE     
URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE          
DESCRIPTION OF THE MERGER. IN THE EVENT OF ANY DISCREPANCY BETWEEN THE TERMS OF 
THE MERGER AGREEMENT AND THE FOLLOWING SUMMARY, THE MERGER AGREEMENT WILL       
CONTROL.                                                                        

THE MERGER                                                                      

  Following the approval and adoption of the merger and the merger agreement
by the stockholders of Galaxy Enterprises and Netgateway, and the satisfaction  
or waiver of the other conditions to the merger, a wholly owned subsidiary of   
Netgateway will merge with and into Galaxy Enterprises and Galaxy Enterprises   
will continue as the surviving corporation and a wholly owned subsidiary of     
Netgateway.                                                                     

THE EFFECTIVE TIME                                                              

 As soon as practicable on or after the closing of the merger, the parties
will cause the merger to become effective by filing certificates of merger with 
the Nevada and Delaware Secretaries of State. The parties anticipate that this  
will occur in the third quarter of calendar year 2000.                          

DIRECTORS AND OFFICERS OF GALAXY ENTERPRISES AFTER THE MERGER                   

 After the merger, the following persons will hold the positions indicated
with Galaxy Enterprises:                                                        

                                                        [Enlarge/Download Table]

NAME                                                                POSITION                  
----                                               -------------------------------------------
                                                                                              
Keith D. Freahhoff................................ Director                                   
Roy W. Camblin III................................ Director                                   
Donald M. Corliss, Jr............................. Director                                   
John J. Poelman................................... Director and president                     
Brandon Lewis..................................... Executive vice president, sales & marketing
Frank C. Heyman................................... Controller                                 
David Wise........................................ Vice president, operations                 

CONVERSION OF SHARES IN THE MERGER                                              

    At the effective time, each share of Galaxy Enterprises common stock will be
automatically canceled and converted into the right to receive approximately    
0.63 of a share of Netgateway common stock. The actual exchange ratio will be   
calculated by dividing five million by the sum of the number of outstanding     
unexercised Galaxy Enterprises employee stock options at the time of the merger 
and the number of shares of Galaxy Enterprises common stock that are then       
outstanding. Accordingly, the exchange ratio will vary to the extent that Galaxy
Enterprises employee stock options lapse or terminate prior to the time of the  
merger or there are changes in the number of shares of Galaxy Enterprises'      
common stock that are outstanding other than as a result of the exercise of     
employee stock options. Shares of Galaxy Enterprises common stock held          
immediately prior to the effective time by Galaxy Enterprises, Netgateway or    
Netgateway's merger subsidiary will be cancelled. In addition, the exchange     
ratio will be further adjusted to reflect the effect of any stock split, stock  
dividend, reorganization, recapitalization, reclassification or other like      
change with respect to either Netgateway common stock or Galaxy Enterprises     
common stock that may occur on or after the date of this joint proxy            
statement/prospectus.                                                           

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GALAXY ENTERPRISES' STOCK OPTION AND STOCK PURCHASE PLANS                       

   At the effective time, each outstanding option to purchase shares of Galaxy
Enterprises common stock under Galaxy Enterprises' 1997 Employee Stock Option   
Plan will be assumed by Netgateway, whether or not vested and exercisable.      

 At the effective time, outstanding warrants to purchase 250,000 shares of
Galaxy Enterprises common stock at a price of $2.84 per share under the Invest  
Linc Emerging Growth Fund I Warrant dated January 18, 1999, and warrants to     
purchase 50,000 shares of Galaxy Enterprises common stock at a price of $7.05   
per share under the Bridgewater Corporation Warrants, dated as of January 12,   
1999, will be assumed by Netgateway regardless of whether they are exercisable. 

Each Galaxy Enterprises stock option and warrant that is assumed by     
Netgateway will continue to have, and be subject to, the same terms and         
conditions that were applicable to the stock option or warrant immediately prior
to the effective time, except that:                                             

 - each Galaxy Enterprises stock option or warrant will be exercisable for
     shares of Netgateway common stock, and the number of shares of Netgateway
      common stock issuable upon exercise of any given option or warrant will be
    determined by multiplying the exchange ratio in the merger by the number
  of shares of Galaxy Enterprises common stock underlying such option or
warrant; and                                                        

- the per share exercise price of any such option or warrant will be    
     determined by dividing the exercise price of the option immediately prior
to the effective time by the exchange ratio in the merger.          

THE EXCHANGE AGENT                                                              

   Within ten days after the effective time, Netgateway is required to deposit
with a bank or trust company certificates representing the shares of Netgateway 
common stock to be exchanged for shares of Galaxy Enterprises common stock and  
cash to pay for fractional shares.                                              

PROCEDURES FOR EXCHANGING STOCK CERTIFICATES                                    

   Promptly after the effective time, Netgateway will cause the exchange agent
to mail to the holders of record of Galaxy Enterprises common stock certificates
(1) a letter of transmittal and (2) instructions on how to surrender Galaxy     
Enterprises common stock certificates in exchange for certificates representing 
shares of Netgateway common stock and cash for any fractional shares.           

HOLDERS OF GALAXY ENTERPRISES COMMON STOCK SHOULD NOT SURRENDER THEIR GALAXY    
ENTERPRISES STOCK   CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL   
FROM THE EXCHANGE AGENT                                                         

   Upon surrendering their Galaxy Enterprises common stock certificates to the
exchange agent for cancellation, together with the letter of transmittal and any
other document required by the exchange agent, the holders of Galaxy Enterprises
common stock certificates will be entitled to receive a certificate representing
that number of whole shares of Netgateway common stock which that holder has the
right to receive, cash for fractional shares of Netgateway common stock and cash
for any dividends or other distributions to which the holder is entitled under  
the merger agreement. Until surrendered to the exchange agent, outstanding      
Galaxy Enterprises common stock certificates will be deemed from and after the  
effective time to evidence (1) only the right to receive the number of full     
shares of Netgateway common stock into which the shares of Galaxy Enterprises   
common stock have converted and (2) the right to receive an amount in cash for  
any fractional shares.                                                          

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DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES                                

Until each Galaxy Enterprises stockholder surrenders his or her Galaxy  
Enterprises common stock certificate in exchange for a Netgateway stock         
certificate, that stockholder will not receive any dividends or other           
distributions declared or made by Netgateway after the effective time of the    
merger. However, once that stockholder surrenders his or her Galaxy Enterprises 
stock certificate to the exchange agent, he or she will receive (1) a Netgateway
stock certificate, (2) cash as payment for fractional shares and (3) cash,      
without interest, as payment for any dividends or other distributions declared  
or made by Netgateway after the effective time of the merger.                   

NO FRACTIONAL SHARES                                                            

No fractional shares of Netgateway common stock will be issued in the   
merger. Instead, Galaxy Enterprises stockholders who would be entitled to a     
fractional share of Netgateway common stock will receive cash. The amount of    
cash to be received by those Galaxy Enterprises stockholders will be determined 
by multiplying the fraction of the share that those stockholders would have     
received by the average closing sale price of one share of Netgateway common    
stock over the 20 trading days prior to the day before the effective time of the
merger.                                                                         

DISSENTING SHARES                                                               

   Any shares of Galaxy Enterprises common stock outstanding immediately prior
to the effective time that were not voted in favor of the merger and which are  
held by stockholders who have complied with the applicable provisions of Nevada 
law with regard to dissenters' rights shall not be converted into or represent  
the right to receive Netgateway common stock and cash in lieu of any fractional 
shares or dividends or distributions holders of such stock would be entitled to 
receive. Instead, each dissenter shall be entitled only to those rights as are  
provided to holders of dissenting shares under Nevada law.                      

REPRESENTATIONS AND WARRANTIES                                                  

    In the merger agreement, Galaxy Enterprises made a number of representations
and warranties in favor of Netgateway that relate to a number of matters,       
including:                                                                      

 - the authorization, execution, delivery and enforceability of the merger
agreement;                                                          

- Galaxy Enterprises' due organization and good standing;               

  - Galaxy Enterprises' capital structure and rights or obligations relating
to Galaxy Enterprises' capital stock;                               

- identification of subsidiaries of Galaxy Enterprises;                 

    - the absence of conflict with or violation of any agreement, law or charter
 or bylaw provision and the absence of the need for filings, consents,
approvals or actions in order to consummate the merger;             

    - the accuracy of information supplied by Galaxy Enterprises with respect to
its books and records;                                              

- documents filed by Galaxy Enterprises with the SEC;                   

- the absence of certain material changes, events, litigation or        
investigations since December 31, 1998;                             

- the absence of undisclosed liabilities;                               

- identification of legal proceedings;                                  

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- Galaxy Enterprises' compliance with laws;                             

- Galaxy Enterprises' employee benefit plans and labor relations;       

 - Galaxy Enterprises' title to, or valid leasehold interests in, material
properties and assets;                                              

   - Galaxy Enterprises' ownership of or right to use, and non-infringement of
others' rights to, intellectual property;                           

- matters relating to contracts;                                        

   - identification of and transactions with affiliates of Galaxy Enterprises;

- matters relating to Galaxy Enterprises employees;                     

- Galaxy Enterprises accounts and notes receivable and inventory;       

- the payment of broker's or advisor's fees;                            

- disclosure of all material information concerning Galaxy Enterprises; 

- the effect of Year 2000;                                              

- change of control payments to officers and directors of Galaxy        
Enterprises;                                                        

- the receipt of a fairness opinion from Houlihan Lokey;                

- approval of the merger by Galaxy Enterprises' board of directors;     

- the filing of tax returns and the payment of taxes; and               

- pooling of interests accounting treatment for the merger.             

 The merger agreement also includes representations and warranties made by
Netgateway in favor of Galaxy Enterprises that relate to a number of matters,   
including the following:                                                        

 - the authorization, execution, delivery and enforceability of the merger
agreement;                                                          

- Netgateway's due organization and good standing;                      

- Netgateway's capital structure;                                       

    - the absence of conflict with or violation of any agreement, law or charter
 or bylaw provision and the absence of the need for filings, consents,
approvals or actions in order to consummate the merger;             

- documents filed by Netgateway with the SEC;                           

  - the accuracy of information supplied by Netgateway with respect to books
and records;                                                        

- the absence of material changes or events since September 30, 1999;   

- the absence of undisclosed liabilities;                               

- the absence of material litigation or investigations;                 

- Netgateway's compliance with laws;                                    

- the payment of broker's or advisor's fees;                            

- the filing of tax returns and the payment of taxes; and               

- disclosure of all material information concerning Netgateway.         

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CONCEPT OF MATERIAL ADVERSE EFFECT                                              

    Many of the representations and warranties contained in the merger agreement
are qualified by the concept of "material adverse effect." This concept also    
applies to some of the covenants and conditions to the merger described under   
"--Conduct of Business of Galaxy Enterprises Pending Completion of the Merger," 
"Conduct of Business of Netgateway Pending Completion of the Merger" and        
"--Conditions to the Merger" below, as well as to termination of the merger     
agreement for breaches of representations and warranties as described under     
"--Termination of the Merger Agreement." For purposes of the merger agreement,  
the concept of "material adverse effect" means any change, effect, event or     
condition that has a material adverse effect on the business, results of        
operations or financial condition of Netgateway or Galaxy Enterprises, as the   
case may be, taken as a whole, or would prevent or materially delay its ability 
to complete the merger, other than any such change, effect, event or condition  
that arises as a result of the merger or from changes in general economic       
conditions. A material adverse effect includes a determination by KPMG LLP that 
Galaxy Enterprises' revenues for fiscal year 1999 did not exceed $13 million and
a determination by Netgateway, in its sole discretion, that a certain threatened
patent infringement action involving certain IMI, Inc. intellectual property or 
a certain U.S. design patent for a shaped CD product issued on January 18, 2000 
may result in a significant patent infringement claim against IMI, Netgateway or
any of its affiliates. Changes in the market price of Netgateway or Galaxy      
Enterprises common stock, in and of itself, does not constitute a material      
adverse effect.                                                                 

    The representations and warranties of Galaxy Enterprises and Netgateway will
terminate at the effective time. The representations and warranties in the      
merger agreement are complicated and not easily summarized. You are urged to    
read carefully the relevant articles of the merger agreement.                   

CONDUCT OF BUSINESS OF GALAXY ENTERPRISES PENDING COMPLETION OF THE MERGER      

  Galaxy Enterprises has agreed that, during the period from the date of the
merger agreement until the earlier of the termination of the merger agreement or
the effective time, it will carry on its business in the ordinary course        
consistent with past practices. Galaxy Enterprises has also agreed that, prior  
to the effective time or the termination of the merger agreement, without       
Netgateway's consent, it will and will cause its subsidiaries to, refrain from: 

 - amending their articles of incorporation or bylaws or taking any action
with respect to any such amendment or any recapitalization,         
reorganization, liquidation or dissolution of any such corporation; 

- authorizing, issuing or modifying any securities;                     

 - declaring or paying any dividend or repurchasing any of its securities;

    - acquiring or disposing of, or incurring any lien on, its assets other than
in the ordinary course of business;                                 

   - entering into, modifying or terminating any material contract or license;

 - breaching or defaulting in any material respect any material license or
any contract;                                                       

- incurring indebtedness in excess of $50,000;                          

- engaging with any person in any other acquisition proposal subject to 
certain limited exceptions;                                         

- making capital expenditures in excess of $100,000;                    

- writing off or writing down any of its assets; and                    

   - engaging in any action that would prevent the merger from qualifying as a
 tax free "reorganization" or from being accounted for as a pooling of
interests.                                                          

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CONDUCT OF BUSINESS OF NETGATEWAY PENDING COMPLETION OF THE MERGER              

 Netgateway has agreed that, during the period from the date of the merger
agreement until the earlier of the termination of the merger agreement or the   
effective time, it will carry on its business in the ordinary course consistent 
with past practices. Netgateway has agreed that, during the period from the date
of the merger agreement until the earlier of the termination of the merger      
agreement or the effective time, it will refrain from:                          

- declaring or paying any dividend; and                                 

   - engaging in any action that would prevent the merger from qualifying as a
tax free "reorganization".                                          

   All of Galaxy Enterprises' and Netgateway's covenants will terminate at the
effective time of the merger, except those that by their terms survive the      
effective time of the merger.                                                   

NO SOLICITATION                                                                 

    The merger agreement provides that, except for discussions, negotiations and
due diligence with a specified placement agent for a financing, Galaxy          
Enterprises will not authorize or permit any of its officers, directors,        
affiliates or employees or any investment banker, attorney or other advisor or  
representative retained by it to:                                               

   - solicit or induce the making or announcement of any acquisition proposal;

- participate in any discussions regarding, or furnish to any person any
nonpublic information with respect to, or otherwise facilitate any  
      inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any acquisition proposal;                   

- engage in discussions with any person with respect to any acquisition 
proposal;                                                           

- approve or recommend any acquisition proposal; or                     

- enter into any letter of intent or similar document or any contract,  
agreement or commitment relating to any acquisition proposal.       

    However, the merger agreement does not prohibit the Galaxy Enterprises board
from withholding, withdrawing, amending or modifying its unanimous              
recommendation in favor of the merger if:                                       

- Galaxy Enterprises has not violated any of the restrictions set forth 
above;                                                              

  - A superior offer (as defined below) is made to Galaxy Enterprises and is
not withdrawn;                                                      

  - Galaxy Enterprises has provided written notice to Netgateway advising it
 that Galaxy Enterprises has received a superior offer, specifying the
   material terms and conditions of the superior offer and identifying the
person or entity making such superior offer;                        

   - Netgateway has not, within three business days of Netgateway's receipt of
   the notice of superior offer, made an offer that the Galaxy Enterprises
board of directors by a majority vote determines in its good faith  
judgment to be at least as favorable to the Galaxy Enterprises'     
stockholders as the superior offer;                                 

- Galaxy Enterprises' board of directors concludes in good faith, after 
 consultation with its outside counsel, that, in light of the superior
offer, the withholding, withdrawal, amendment or modification of    
recommendation of the merger is required in order for it to properly
    discharge its fiduciary obligations to Galaxy Enterprises' stockholders.

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   In addition, Galaxy Enterprises has agreed to provide Netgateway with prior
written notice of any meeting of Galaxy Enterprises' board of directors at which
the board is expected to consider a superior offer.                             

   The merger agreement defines a "superior offer" as an unsolicited bona fide
offer or proposal relating to any transaction, other than the transactions      
contemplated by the merger agreement, involving:                                

- a merger or consolidation pursuant to which the stockholders of Galaxy
    Enterprises immediately preceding such transaction hold less than 50% of
the equity interest in the surviving or resulting entity of such    
transaction;                                                        

    - the acquisition by any person or group (including by way of a tender offer
      or an exchange offer or a two step transaction involving a tender offer or
   exchange offer followed with reasonable promptness by a cash-out merger
  involving Galaxy Enterprises), directly or indirectly, of ownership of
100% of the then outstanding shares of capital stock of Galaxy      
Enterprises; or                                                     

  - the sale or disposition of all or substantially all the assets of Galaxy
Enterprises to a third party;                                       

on terms that Galaxy Enterprises board of directors determines to be more       
favorable to Galaxy Enterprises' stockholders than this merger.                 

DIRECTOR AND OFFICER INDEMNIFICATION AND RELEASE OF PERSONAL GUARANTEES         

  From and after the effective time of the merger, Netgateway will cause the
surviving corporation to fulfill and honor Galaxy Enterprises' obligations under
any indemnification agreements with its directors and officers that existed as  
of the effective time of the merger and any indemnification provisions under    
Galaxy Enterprises' organizational documents that were in effect on the date of 
the merger agreement.                                                           

   The certificate of incorporation and bylaws of Galaxy Enterprises following
the merger will contain provisions relating to indemnification that are at least
as favorable to the indemnified directors and officers as those contained in    
Galaxy Enterprises' organizational documents that were in effect on the date of 
the merger agreement. These indemnification provisions will not be amended,     
repealed or otherwise modified for six years after the effective time of the    
merger if such modification would adversely affect the rights of individuals who
were directors, officers, employees or agents of Galaxy Enterprises immediately 
prior to the effective time of the merger, unless such modification is required 
by law.                                                                         

   For six years after the effective time of the merger, Netgateway will cause
the surviving corporation to use its commercially reasonable efforts to maintain
directors' and officers' liability insurance covering those persons who are     
currently covered by Galaxy Enterprises' directors' and officers' liability     
insurance policy, on comparable terms to such policy. However, neither          
Netgateway nor the surviving corporation will be required to expend more than   
150% of the annual premium currently paid by Galaxy Enterprises for such        
coverage.                                                                       

 Netgateway has also agreed to indemnify Galaxy Enterprises' directors and
officers with respect to litigation and proceedings arising from the merger or  
any personal guarantee those directors and officers have given on behalf of     
Galaxy Enterprises or any of its subsidiaries and to use its best efforts to    
obtain a release of any such personal guarantee.                                

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CONDITIONS TO THE MERGER                                                        

 The obligations of Netgateway and Galaxy Enterprises to effect the merger
are subject to the satisfaction of the following conditions, among others:      

    - Galaxy Enterprises' stockholders and Netgateway's stockholders approval of
the merger;                                                         

- the shares of Netgateway common stock to be issued in the merger are  
approved for listing on The Nasdaq National Market;                 

- the respective representation and warranties of Galaxy Enterprises and
Netgateway must be true and correct subject to certain exceptions;  

- Galaxy Enterprises and Netgateway have complied with their respective 
obligations in the merger agreement;                                

  - no judgment, order, statute or rule may be in effect that would prohibit
  the merger or make it illegal or which could reasonably be expected to
result in a material diminution of its benefits to Netgateway and no
    action or proceeding which could reasonably be expected to result in the
issuance of any such judgement or order or promulgation of any such 
statute or rule shall be pending; and                               

- all necessary governmental consents must be obtained in a satisfactory
form.                                                               

TERMINATION OF THE MERGER AGREEMENT                                             

The merger agreement may be terminated by mutual consent or by either   
Netgateway or Galaxy Enterprises under certain circumstances as summarized      
below:                                                                          

    - if the merger is not completed, without fault of the terminating party, by
July 31, 2000;                                                      

   - if either Galaxy Enterprises' or Netgateway's stockholders do not approve
the merger at their respective special meeting;                     

- if a governmental entity permanently prohibits the merger and the     
prohibition is not appealable;                                      

   - if either party is in material breach of its obligations under the merger
 agreement, the terminating party is not in default of its obligations
    under this agreement, and the breach is not resonably likely to be cured
prior to July 31, 2000;                                             

    - a governmental entity has determined not to issue a necessary governmental
   consent and such determination has become final and non-appealable; and

- if the board of directors of Galaxy Enterprises exercizes its right to
 withhold, withdraw, amend or modify its recommendation of the merger.

In addition, the merger agreement may be terminated by Netgateway if    
Netgateway is in substantial compliance with its obligations under the merger   
agreement and Galaxy Enterprises has breached its obligation not to solicit,    
encourage, facilitate or endorse any proposal or offer by a third party to      
acquire Galaxy Enterprises.                                                     

FEES AND EXPENSES                                                               

    Except as set forth below, all fees and expenses incurred in connection with
the merger agreement and the merger will be paid by the party incurring such    
expenses, whether or not the merger is consummated.                             

If Netgateway terminates the merger agreement because Galaxy Enterprises
breached its obligation not to solicit, encourange, facilitate or endorse       
another acquisition proposal, or if Netgateway or Galaxy                        

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Enterprises terminates the merger agreement because the board of directors of   
Galaxy Enterprises withheld, withdrew, amended, or modified its recommendation  
of the merger agreement, Galaxy Enterprises must, within one day after the date 
of such termination, pay Netgateway a termination fee of $1.5 million, plus up  
to $500,000 of expenses incurred by Netgateway in connection with the merger. In
addition, if Netgateway terminates the merger agreement because (1) the Galaxy  
Enterprises stockholders did not approve the merger and (2) a third party       
announced and did not withdraw a proposal to acquire Galaxy Enterprises, before 
the vote to approve the merger, then, if Galaxy Enterprises enters into a       
definitive agreement to be acquired within 12 months of the termination of the  
merger agreement, Galaxy Enterprises will be required to pay Netgateway a       
termination fee of $1.5 million plus up to $500,000 of Netgateway's expenses    
incurred in connection with the merger.                                         

Failure to pay such amounts promptly will subject Galaxy Enterprises to 
additional payments of interest on such amounts.                                

AMENDMENT OR WAIVER OF THE MERGER AGREEMENT                                     

The merger agreement may be amended at any time in a writing signed by  
Netgateway and Galaxy Enterprises; provided, that any amendment made after the  
special meeting that would otherwise require stockholder approval under         
applicable law must be submitted to the stockholders of Galaxy Enterprises. At  
any time prior to the effective time of the merger, any party to the merger     
agreement may, to the extent legally allowed:                                   

- extend the time for the performance of any of the obligations or other
acts of the other parties to the merger agreement;                  

   - waive any inaccuracies in the representations and warranties of the other
party contained in the merger agreement; and                        

- waive compliance by the other party with any of the agreements or     
conditions for the benefit of such party as contained in the merger 
agreement.                                                          

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NETGATEWAY STOCK OPTION AGREEMENT 

 Concurrently with the execution of the merger agreement, John J. Poelman,
the chief executive officer and principal stockholder of Galaxy Enterprises, and
Netgateway entered into a stock option agreement under which Mr. Poelman granted
Netgateway an irrevocable option to purchase up to 980,213 of his shares of     
Galaxy Enterprises common stock at a cash exercise price equal to the product of
(1) the exchange ratio in the merger, or approximately 0.63, and (2) the average
closing price of one share of Netgateway common stock for the 20 most recent    
days that Netgateway common stock traded ending on March 9, 2000, or $8.6982 per
share of Galaxy Enterprises common stock. Based on the number of Galaxy         
Enterprises shares outstanding on March 10, 2000, as represented by Galaxy      
Enterprises in the merger agreement, the option may be exercisable for          
approximately 16% of Galaxy Enterprises' outstanding shares. The option was     
granted to Netgateway for no additional consideration. Netgateway may exercise  
this option, in whole or in part, at any time during a 30 calendar day period   
beginning on the day on which the merger agreement is terminated by either      
Galaxy Enterprises or Netgateway based on Galaxy Enterprises' board's           
withdrawal, amendment or modification of its recommendation of the merger in a  
manner that is adverse to Netgateway.                                           

VOTING AND AFFILIATE AGREEMENTS 

VOTING AGREEMENT                                                                

    Concurrently with the execution of the merger agreement, John J. Poelman and
Sue Ann Cochran, who collectively own approximately 19% of the outstanding      
common stock of Galaxy Enterprises, each entered into a voting agreement with   
Netgateway whereby they agreed not to offer to sell, sell or transfer, grant a  
proxy or power of attorney with respect to or enter into a voting agreement or  
voting trust arrangement with respect to and to vote, or cause their respective 
holders of record to vote, all of the shares of Galaxy Enterprises common stock 
owned, controlled by or subsequently acquired by them in favor of the merger,   
the merger agreement and the transactions contemplated by the merger agreement. 

In addition, with respect to all shares owned of record and all shares  
acquired by Mr. Poelman and Ms. Cochran at any time prior to the effective time 
of the merger, each of Mr. Poelman and Ms. Cochran have appointed Netgateway as 
his or her irrevocable proxy and lawful attorney to vote all of their shares in 
favor of the merger. The voting agreement terminates upon the earlier of the    
30th day after the termination of the merger agreement or the effective time of 
the merger.                                                                     

GALAXY ENTERPRISES AFFILIATE AGREEMENTS                                         

Concurrently with or following the execution of the merger agreement,   
John J. Poelman, Frank C. Heyman, Brandon B. Lewis, Benjamin Roberts, David Wise
and Robert Green each entered into affiliate agreements with Netgateway in which
they agreed to not sell, transfer or otherwise dispose of any of their Galaxy   
Enterprises common stock or any of the Netgateway common stock issued to them in
connection with the merger until, with certain limited exceptions, the first    
market day following the date on which Netgateway publishes financial results   
covering at least 30 days of combined operations of Netgateway and Galaxy       
Enterprises.                                                                    

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eCOMMERCE SERVICES AGREEMENT

   In connection with the merger, and to ease the transition of Netgateway and
Galaxy Enterprises into the combined company from the signing of the merger     
agreement until the effective time of the merger, Netgateway and Galaxy         
Enterprises entered into an electronic commerce services agreement dated as of  
March 1, 2000.                                                                  

 This agreement provides that Netgateway will, among other things, rebuild
and update Galaxy Enterprises' GalaxyMall.com Web site to Netgateway's software.
The services provided by Netgateway will include the conversion of all Galaxy   
Mall storefronts, enhancing the look and ease of use and adding new features to 
the GalaxyMall.com Web site. In addition, Netgateway will rebuild Galaxy        
Enterprise's search engine, Matchsite.com.                                      

The estimated payments to be made by Galaxy Enterprises to Netgateway   
include $600,000 for rebuilding the GalaxyMall.com Web site, $75 for the        
conversion of each of the approximately 3,200 storefronts on that site and      
$50,000 to rebuild the MatchSite.com search engine. Netgateway will also be paid
hosting fees of approximately $2,000 per month.                                 

FUTURE AGREEMENT

Netgateway and Galaxy Enterprises have agreed to enter into an agreement
prior to the merger that will provide for Galaxy Enterprises to develop an      
Internet training seminar in which Galaxy Enterprises will instruct Netgateway's
CableCommerce business partners in using the Internet as part of their          
businesses. This agreement will provide for the payment of a fee for the        
development of the program, as well as fees for each seminar that Galaxy        
Enterprises actually conducts.                                                  

FINDER'S FEE AGREEMENT

In connection with the merger, Netgateway and Red Rock Capital, LLC, a  
Nevada limited liability company, entered into a finder's fee agreement under   
which Netgateway agreed to pay to Red Rock a cash fee of 3% of the cash value of
the Netgateway common stock to be distributed to the former Galaxy Enterprises  
stockholders in the merger; provided, however, that in no event shall the       
purchase price on which the fee is calculated exceed $35,000,000 (i.e., the     
maximum fee payable to Red Rock is $1,050,000). Kirby Cochran, a principal of   
Red Rock, is the brother of Gary Cochran, a consultant to Galaxy Enterprises and
owner of certain intellectual property licensed to Galaxy Enterprises. Gary     
Cochran is the husband of Sue Ann Cochran, a stockholder of Galaxy Enterprises. 

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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 

    On March 10, 2000, Netgateway entered into an agreement to merge with Galaxy
Enterprises in a transaction to be accounted for as a pooling of interests.     
Under the terms of the agreement, each issued and outstanding share or common   
stock of Galaxy Enterprises will be exchanged for approximately 0.63 shares of  
Netgateway common stock. Additionally, Netgateway will assume the obligation to 
issue shares upon exercise of approximately 1,800,000 Galaxy Enterprises stock  
options which could result in the issuance of approximately 1,137,000 shares of 
Netgateway common stock.                                                        

The following unaudited pro forma combined financial statements for     
Netgateway present the effect of the proposed merger between Netgateway and     
Galaxy Enterprises to be accounted for as pooling of interests as if the merger 
had been completed on March 31, 2000 for balance sheet purposes and on July 1,  
1996 for statement of operations purposes, subject to the assumptions and       
adjustments described in the accompanying notes to unaudited pro forma combined 
financial statements.                                                           

Netgateway uses a June 30 fiscal year end and Galaxy Enterprises uses a 
December 31 fiscal year end. For purposes of preparing the unaudited pro forma  
combined statement of operations for each of the years in the years ended       
June 30, 1997 and 1998, Netgateway's operating results for the period ended     
June 30, 1997, and March 4, 1998 (inception) through June 30, 1998 have been    
combined with the operating results of Galaxy Enterprises for each of the years 
in the two years ended December 31, 1998. Netgateway had no operations for the  
year ended June 30, 1997, therefore, the statement of operations for the year   
ended June 30, 1997 are based on Galaxy Enterprises statement of operations for 
the year ended December 31, 1997. For purposes of preparing the unaudited pro   
forma combined statement of operations for the year ended June 30, 1999 and the 
nine months ended March 31, 2000, Netgateway's operating results for the period 
have been combined with the operating results of Galaxy Enterprises for the same
period.                                                                         

The unaudited pro forma combined financial statements are based on the  
estimates and assumptions set forth in the notes to those statements, which are 
preliminary and have been made solely for purposes of developing this pro forma 
information. The unaudited pro forma combined financial statements are not      
necessarily an indication of the results that would have been achieved had those
transactions been consummated as of the dates indicated or that may be achieved 
in the future.                                                                  

Netgateway and Galaxy Enterprises estimate that they will incur direct  
transaction costs of approximately $700,000 and $550,000, respectively, in      
connection with the proposed merger which will be charged to operations in the  
quarter in which the merger is consummated. These amounts are preliminary       
estimates and are therefore subject to change. There can be no assurance that   
Netgateway or Galaxy Enterprises will not incur additional charges in subsequent
quarters to reflect costs associated with the proposed merger.                  

The unaudited pro forma statements have been derived from the historical
consolidated financial statements of Netgateway and Galaxy Enterprises, which   
are included elsewhere in this document and are qualified in their entirety by  
reference to, and should be read in conjunction with, the historical            
consolidated financial statements and related notes thereto.                    

  The unaudited pro forma statements are presented for illustrative purposes
only and do not purport to be indicative of the operating results or financial  
position that would have actually occurred if the merger had occurred on the    
dates indicated, nor are they necessarily indicative of the future operating    
results or financial position of the combined company. The unaudited pro forma  
statements do not give effect to any cost savings or synergies which may result 
from the integration of the Netgateway and Galaxy Enterprises operations.       

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NETGATEWAY, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

MARCH 31, 2000

(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                    HISTORICAL                                    
                                               ---------------------    PRO FORMA       PRO FORMA 
                                               NETGATEWAY    GALAXY    ADJUSTMENTS      COMBINED  
                                               ----------   --------   -----------     -----------
                                                                                                  
ASSETS                                                                                            
Cash..........................................  $  8,740    $     81     $              $  8,821  
Net trade receivables.........................       619       2,090                       2,709  
Related party trade accounts receivable.......        --         136                         136  
Unbilled receivables..........................       679          --        (679)(9)          --  
Notes receivable..............................       450          --        (450)(9)          --  
Inventories...................................        --          87                          87  
Deferred acquisition costs....................       362          --         123 (5)         485  
Prepaid advertising...........................       290          --                         290  
Prepaid expenses and other current assets.....       535         493        (394)(6)         634  
Credit card reserves..........................        --         448                         448  
                                                --------    --------     -------        --------  
    Total current assets......................    11,675       3,335      (1,400)         13,610  
Property and equipment, net...................     2,497         263         (41)(4)       2,719  
Total intangibles, net........................     1,324         834         (75)(3)       2,083  
Other assets..................................        27          41                          68  
                                                --------    --------     -------        --------  
    Total assets..............................  $ 15,523    $  4,473     $(1,516)       $ 18,480  
                                                ========    ========     =======        ========  

LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)                                                      
Accounts payable..............................  $    813    $  1,022     $              $  1,835  
Related party trade account payable...........        --          92                          92  
Bank overdraft................................        --         420                         420  
Accrued wages and benefits....................     1,233          --                       1,233  
Accrued interest..............................        --          --                          --  
Accrued liabilities...........................       988         438                       1,426  
Income taxes due currently....................        --           1                           1  
Notes payable--current portion................        --         543        (450)(9)          93  
Deferred revenue--current portion.............       116      13,120                      13,236  
Customer deposits.............................        --         533                         533  
                                                --------    --------     -------        --------  
    Total current liabilities.................     3,150      16,169        (450)         18,869  
Deferred revenue, net of current portion......        --         780                         780  
Notes payable, net of current portion.........        --           5                           5  
                                                --------    --------     -------        --------  
    Total liabilities.........................     3,150      16,954        (450)         19,654  
                                                --------    --------     -------        --------  
Stockholders equity (deficit)                                                                     
  Common stock................................        18          42         (38)(10)         22  
  Additional-paid-in capital..................    55,950       2,048          38 (10)     58,036  
  Deferred compensation.......................      (744)       (153)                       (897) 
  Accumulated other comprehensive loss........        (4)         --                          (4) 
  Accumulated deficit.........................   (42,847)    (14,418)     (1,066)        (58,331) 
                                                --------    --------     -------        --------  
    Total stockholders' equity (deficit)......    12,373     (12,481)     (1,066)         (1,174) 
                                                --------    --------     -------        --------  
Total liabilities & stockholders' equity......  $ 15,523    $  4,473     $(1,516)       $ 18,480  
                                                ========    ========     =======        ========  

See accompanying notes to unaudited pro forma combined financial statements.

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NETGATEWAY, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

NINE MONTHS ENDED MARCH 31, 2000

(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                  HISTORICAL                                       
                                             ---------------------   PRO FORMA           PRO FORMA 
                                             NETGATEWAY    GALAXY   ADJUSTMENTS          COMBINED  
                                             ----------   --------  -----------         -----------
                                                                                                   
Revenue.....................................  $  3,215    $17,840     $  (679)(1)        $ 20,376  
Cost of sales...............................     1,399     13,780      (7,602)(2)           7,577  
                                              --------    -------     -------            --------  
Gross profit................................     1,816      4,060       6,923              12,799  
                                              --------    -------     -------            --------  
Product development.........................     4,105         --         113 (2)           4,218  
Selling and marketing.......................     3,093      7,461       7,996 (2)(6)       18,550  
General and administrative..................    16,873      2,675         461 (2)(4)(5)(6    20,009
Depreciation and amortization...............       609        137          16 (3)(4)          762  
Bad debt expense............................        --        675        (675)(2)              --  
                                              --------    -------     -------            --------  
  Total operating expenses..................    24,680     10,948       7,911              43,539  
                                              --------    -------     -------            --------  
Income (loss) from operations...............   (22,864)    (6,888)       (988)            (30,740) 
                                              --------    -------     -------            --------  
  Other income (expense):                                                                          
  Other income (expense)....................        --        (25)         --                 (25) 
Interest expense............................    (4,635)       (11)         --              (4,646) 
                                              --------    -------     -------            --------  
  Total other income (expense)..............    (4,635)       (36)         --              (4,671) 
                                              --------    -------     -------            --------  
Net income (loss) before taxes..............   (27,499)    (6,924)       (988)            (35,411) 

Income taxes................................        --          3          (3 )(7)             --  
                                              --------    -------     -------            --------  

Net income (loss)...........................  $(27,499)   $(6,927)    $  (985)           $(35,411) 
                                              ========    =======     =======            ========  
Earnings loss per common share                                                                     
  Basic and diluted(1)......................  $  (2.02)   $ (1.20)                       $  (2.02) 
                                              ========    =======                        ========  

Weighted average shares outstanding:                                                               
  Basic and diluted(1)......................    13,589      5,768                          17,513  
                                              ========    =======                        ========  

See accompanying notes to unaudited pro forma combined financial statements.

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NETGATEWAY, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1999

(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                     HISTORICAL                                         
                                                ---------------------   PRO FORMA          PRO FORMA    
                                                NETGATEWAY    GALAXY   ADJUSTMENTS          COMBINED    
                                                ----------   --------  -----------         ----------   
                                                                                                        
Revenue........................................  $    157    $13,448     $ (2,830)(1)       $ 10,775    
Cost of sales..................................        --      7,016       (5,671)(2)          1,345    
                                                 --------    -------     --------           --------    
Gross profit...................................       157      6,432        2,841 (2)          9,430    
                                                 --------    -------     --------           --------    
Product development............................        --         --        1,694 (2)          1,694    
Selling and marketing..........................        --      5,526        6,119 (2)(6)      11,645    
General and administrative.....................    11,349      1,955       (2,549)(2)(4)(5)    10,755   
Depreciation and amortization..................       257        182           18 (3)(4)         457    
Bad debt expense...............................        --         44          (44)(2)             --    
                                                 --------    -------     --------           --------    
    Total operating expenses...................    11,606      7,707        5,238             24,551    
                                                 --------    -------     --------           --------    
Income (loss) from operations..................   (11,449)    (1,275)      (2,397)           (15,121)   
                                                 --------    -------     --------           --------    

Other income (expense):                                                                                 
  Realized loss-equity securities..............       (55)        --           --                (55)   
  Other income (expense).......................        --         15           --                 15    
  Interest expense.............................      (925)        (8)          --               (933)   
                                                 --------    -------     --------           --------    
    Total other income (expense)...............      (980)         7           --               (973)   
                                                 --------    -------     --------           --------    
Net loss before taxes..........................   (12,429)    (1,268)      (2,397)           (16,094)   
Income tax expense (benefit)...................        --       (535)         535 (2)             --    
                                                 --------    -------     --------           --------    
Net loss.......................................  $(12,429)   $  (733)    $ (2,932)          $(16,094)   
                                                 ========    =======     ========           ========    
Net (loss) per common share:                                                                            
  Basic and diluted............................  $  (1.39)   $ (0.13)                       $  (1.25)   
                                                 ========    =======                        ========    

Weighted Average shares outstanding:                                                                    
  Basic........................................     8,912      5,705                          12,836 (8)
                                                 ========    =======                        ========    

See accompanying notes to unaudited pro forma combined financial statements.

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NETGATEWAY, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

YEAR ENDED JUNE 30, 1998

(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                     HISTORICAL                                       
                                                ---------------------   PRO FORMA        PRO FORMA    
                                                NETGATEWAY    GALAXY   ADJUSTMENTS        COMBINED    
                                                ----------   --------  -----------       ----------   
                                                                                                      
Revenue........................................   $     3    $11,448     $(4,300)(1)       $ 7,151    
Cost of sales..................................        --      5,105      (4,719)(2)           386    
                                                  -------    -------     -------           -------    
Gross profit...................................         3      6,343         419             6,765    
                                                  -------    -------     -------           -------    

Product development............................        --         --         275 (2)           275    
Selling and marketing..........................        --      4,759       4,193 (2)         8,952    
General and administrative.....................       721      1,389        (252)(2)(4)      1,858    
License fees...................................     3,822         --          --             3,822    
Depreciation and amortization..................        13        133          18 (3)(4)        164    
Bad debt expense...............................        --         44         (44)               --    
                                                  -------    -------     -------           -------    
  Total operating expenses.....................     4,556      6,325       4,190            15,071    
                                                  -------    -------     -------           -------    

Income (loss) from operations..................    (4,553)        18      (3,771)           (8,306)   
                                                  -------    -------     -------           -------    

Other income (expense):                                                                               
  Other income (expense).......................        --          5          --                 5    
  Interest expense.............................       (19)        (4)         --               (23)   
                                                  -------    -------     -------           -------    
  Total other income (expense).................       (19)         1          --               (18)   
                                                  -------    -------     -------           -------    

Net income (loss) before taxes.................    (4,572)        19      (3,771)           (8,324)   
Income tax expense (benefit)...................        --        (16)         16 (7)            --    

Net income (loss)..............................   $(4,572)   $    35     $(3,787)          $(8,324)   
                                                  =======    =======     =======           =======    
Earnings (loss) per common share:                                                                     
  Basic........................................     (0.84)      0.01                         (0.89)   
  Diluted......................................     (0.84)      0.01                         (0.89)   

Weighted average shares outstanding:                                                                  
  Basic........................................     5,416      5,272                         9,340 (3)
                                                  =======    =======                       =======    
  Diluted......................................     5,416      5,725                         9,340 (8)
                                                  =======    =======                       =======    

See accompanying notes to unaudited pro forma combined financial statements.

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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997

(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                        HISTORICAL                                   
                                                   ---------------------   PRO FORMA     PRO FORMA   
                                                   NETGATEWAY    GALAXY   ADJUSTMENTS    COMBINED    
                                                   ----------   --------  -----------   -----------  
                                                                                                     
Revenue...........................................   $   --      $2,495     $(2,002)(1)   $   493    
Cost of sales.....................................       --       1,057        (913)(2)       144    
                                                     ------      ------     -------       -------    
Gross profit......................................       --       1,438      (1,089)          349    
                                                     ------      ------     -------       -------    

Product development...............................       --          --         150 (2)       150    
Selling and marketing.............................       --         856         913 (2)     1,769    
General and administrative........................       --         305         (13)(2)(4)       292 
Depreciation and amortization.....................       --          44           4 (3)(4)        48 
Merger expenses...................................                  108        (108)(2)        --    
                                                     ------      ------     -------       -------    
  Total operating expenses........................       --       1,313         946         2,259    
                                                     ------      ------     -------       -------    

Income (loss) from operations.....................       --         125      (2,035)       (1,910)   

Income taxes......................................       --          38         (38)(7)        --    
                                                     ------      ------     -------       -------    
Net income (loss).................................   $   --      $   87     $(1,997)      $(1,910)   
                                                     ======      ======     =======       =======    
Earnings (loss) per common share:                                                                    
  Basic and diluted...............................   $   --      $ 0.02                   $ (0.49)   
                                                     ======      ======                   =======    

Weighted average shares outstanding:                                                                 
  Basic and diluted...............................   $   --       5,272                     3,924 (8)
                                                     ======      ======                   =======    

See accompanying notes to unaudited pro forma combined financial statements.

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The following pro forma adjustments have been made to the historical    
financial statements of Netgateway and Galaxy Enterprises. These adjustments are
based upon preliminary estimates and assumptions made by management for purposes
of preparing the unaudited pro forma combined financial statements:             

(1) Adjustment to decrease Galaxy Enterprises revenue, by $674,134,   
  $2,829,672, $4,299,735 and $2,001,834, for the nine months ended
      March 31, 2000 and for the years ended June 30, 1999, 1998 and 1997,
    respectively, to reflect the impact of the adoption of a change in
     accounting principle regarding revenue recognition in the financial
    statements as if the principle was adopted in the beginning of the
periods presented on July 1, 1996.                            

    (2) Adjustment to reclassify cost of sales and operating expenses recorded
to conform Netgateway and Galaxy Enterprises' presentation.   

   (3) Adjustment to amortization expenses recorded by Galaxy Enterprises in
       all periods presented to conform to Netgateway's policy of amortizing
      goodwill over 10 years, including additional amortization expense of
$24,482, $31,188, $28,900 and $7,225 for the nine months ended
     March 31, 2000 and in the years ended June 30, 1999, 1998 and 1997,
respectively.                                                 

     (4) Adjustment to depreciation expenses and administration expense recorded
by Galaxy Enterprises in all periods presented to conform to  
Netgateway's capitalization policy, including a decrease in   
      depreciation expenses at $8,647, $15,293, $10,002 and $2,955 for the
        nine months ended March 31, 2000 and in the years ended June 30, 1999,
   1998 and 1997, respectively. This also resulted in an increase in
      general and administrative expenses of $19,786, $28,736, $11,519 and
      $29,060 for the nine months ended March 31, 2000 and the years ended
June 30, 1999, 1998 and 1997, respectively.                   

(5) Adjustment to general and administrative expenses in the amount of
   $123,635 recorded by Galaxy Enterprises for the nine months ended
   March 31, 2000 to conform to Netgateway's policy of deferring all
merger expenses until consummation of the merger.             

   (6) Adjustment to selling and marketing expense in the amount of $393,909
       and $141,130 recorded by Galaxy Enterprises for the nine months ended
   March 31, 2000 and the year ended June 30, 1999, respectively, to
    conform to Netgateway's policy of expensing all advertising costs.

   (7) Adjustment to reduce income tax expense to reflect the benefit of net
losses from Netgateway.                                       

  (8) Pro forma combined net income (loss) per share represents Netgateway
       historical weighted average shares outstanding and Galaxy Enterprises
         historical weighted average shares outstanding converted to give effect
to an assumed exchange ratio of 0.63217.                      

  (9) Adjustment to eliminate the intercompany activity between Netgateway
and Galaxy Enterprises.                                       

   (10) Adjustment to reflect the amount of outstanding shares of stock of the
combined enterprise at par value.                             

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DESCRIPTION OF NETGATEWAY AND GALAXY CAPITAL STOCK

  Netgateway is authorized to issue up to 40,000,000 shares of common stock,
par value $0.001 per share. As described in Netgateway's proxy statement on     
Schedule 14A filed on April 26, 2000 with the SEC, Netgateway's board is        
recommending that Netgateway stockholders approve an amendment to Netgateway's  
certificate of incorporation to authorize the issuance of up to                 
250,000,000 shares of common stock. Holders of shares of Netgateway common stock
are entitled to one vote per share on all matters to be voted on by             
stockholders. The holders of Netgateway common stock are entitled to receive    
such dividends, if any, as may be declared from time to time by the Netgateway  
board of directors out of funds legally available therefor. Upon liquidation or 
dissolution of Netgateway, the holders of Netgateway common stock are entitled  
to share ratably in the distribution of assets, subject to the rights of the    
holders of Netgateway preferred stock, if any. Holders of Netgateway common     
stock have no preemptive rights, subscription rights or conversion rights. There
are no redemption or sinking fund provisions with respect to the Netgateway     
common stock. As of May 18, 2000, there were approximately 17,683,043 shares of 
Netgateway common stock outstanding, held by approximately 380 holders of       
record.                                                                         

    In addition, Netgateway is authorized to issue 5,000,000 shares of preferred
stock, $0.001 par value per share, in one or more series as determined by the   
Netgateway board of directors. No shares of Netgateway preferred stock are      
currently issued or outstanding. The Netgateway board of directors may, without 
further action by the stockholders of Netgateway, issue a series of Netgateway  
preferred stock and fix the rights and preferences of those shares, including   
the dividend rights, dividend rates, conversion rights, exchange rights, voting 
rights, terms of redemption, redemption price or prices, liquidation            
preferences, the number of shares constituting any series and the designation of
such series. The rights of the holders of Netgateway common stock will be       
subject to, and may be adversely affected by, the rights of the holders of any  
Netgateway preferred stock issued by Netgateway in the future.                  

   Galaxy Enterprises is authorized to issue up to 25,000,000 shares of common
stock, par value $0.007 per share. Holders of shares of Galaxy Enterprises      
common stock are entitled to one vote per share on all matters to be voted on by
stockholders. The holders of Galaxy Enterprises common stock are entitled to    
receive such dividends, if any, as may be declared from time to time by Galaxy  
Enterprises' board of directors out of funds legally available therefor. Upon   
liquidation or dissolution of Galaxy Enterprises, the holders of Galaxy         
Enterprises common stock are entitled to share ratably in the distribution of   
assets, subject to the rights of the holders of Galaxy Enterprises preferred    
stock, if any. Holders of Galaxy Enterprises common stock have no preemptive    
rights, subscription rights or conversion rights. As of May 18, 2000, there were
approximately 6,218,449 shares of Galaxy Enterprises common stock outstanding,  
held by approximately 145 holders of record.                                    

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COMPARISON OF RIGHTS OF HOLDERS OF GALAXY ENTERPRISES COMMON STOCK AND
NETGATEWAY COMMON STOCK 

THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES CERTAIN  
DIFFERENCES BETWEEN THE RIGHTS OF HOLDERS OF GALAXY ENTERPRISES COMMON STOCK AND
NETGATEWAY COMMON STOCK. WHILE WE BELIEVE THAT THIS DESCRIPTION COVERS THE      
MATERIAL DIFFERENCES BETWEEN THE TWO, THIS SUMMARY MAY NOT CONTAIN ALL OF THE   
INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD CAREFULLY READ THIS ENTIRE     
DOCUMENT AND THE OTHER DOCUMENTS WE REFER TO FOR A MORE COMPLETE UNDERSTANDING  
OF THE DIFFERENCES BETWEEN BEING A STOCKHOLDER OF GALAXY ENTERPRISES AND BEING A
STOCKHOLDER OF NETGATEWAY.                                                      

COMPARISON OF RIGHTS OF NETGATEWAY'S STOCKHOLDERS AND GALAXY ENTERPRISES'       
STOCKHOLDERS                                                                    

   The rights of Galaxy Enterprises stockholders are currently governed by the
Nevada Business Corporation Act and Galaxy Enterprises' articles of             
incorporation and bylaws. The rights of Netgateway stockholders are currently   
governed by the Delaware General Corporation Law and Netgateway's certificate of
incorporation and bylaws. As a Delaware corporation with significant operations 
in California, Netgateway may also be subject to certain provisions of the      
California Corporations Code. Upon completion of the merger, the rights of      
Netgateway stockholders, and of Galaxy Enterprises stockholders who become      
Netgateway stockholders as a result of the merger, will be governed by the      
Delaware General Corporation Law and Netgateway's certificate of incorporation  
and bylaws. Although the rights of stockholders of Netgateway and Galaxy        
Enterprises are in many instances comparable, there are also differences.       

INDEMNIFICATION                                                                 

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             GALAXY ENTERPRISES                                 NETGATEWAY                  
---------------------------------------------  ---------------------------------------------
                                                                                            

-  Organizational documents require            -  Organizational documents require          
   indemnification to the fullest extent of       indemnification to the fullest extent of  
   Nevada law.                                    Delaware law.                             
-  Under the Nevada Business Corporations      -  Under the General Corporation Law of the  
   Act, a corporation has the power to            State of Delaware a corporation has the   
   indemnify a director or officer, except no     power to indemnify its directors,         
   indemnification shall be allowed on            officers, employees and agents for        
   account of: (1) acts or omissions of the       expenses, judgments or settlements        
   director or officer which involve              actually and reasonably incurred by them  
   intentional misconduct, fraud, or a            in connection with suits and other legal  
   knowing violation of law; (2) the payment      actions or proceedings if they acted in   
   of distributions in violation of Nevada        good faith and in a manner reasonably     
   Revised Statutes Section78.300, which sets     believed to be in or not opposed to the   
   forth the circumstances under which            best interests of the corporation and,    
   distributions to stockholders may be made;     with respect to any criminal action or    
   or (3) any matter in which the director or     proceeding, had no reasonable cause to    
   officer has been finally adjudged to be        believe their conduct was unlawful.       
   liable to the corporation or for amounts    -  Any indemnification in any suit or action 
   paid in settlement to the corporation,         brought by or on behalf of the corporation
   unless the adjudicating court determines       is limited to expenses reasonably incurred
   that the director or officer is entitled       in defense or settlement of the suit or   
   to indemnity.                                  action.                                   
                                               -  The Delaware General Corporation Law      
                                                  permits corporations to purchase and      
                                                  maintain insurance against liability for  
                                                  expenses, judgments or settlements whether
                                                  or not the corporation would have the     
                                                  power to indemnify such persons therefor. 

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RESTRICTIONS ON BUSINESS COMBINATIONS                                           

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             GALAXY ENTERPRISES                                 NETGATEWAY                  
---------------------------------------------  ---------------------------------------------
                                                                                            

-  Nevada Revised Statutes Section 78.411 ET   -  Netgateway is subject to section 203 of   
   SEQ. generally prohibits certain            the Delaware General Corporation Law.        
   combinations between Nevada corporations    -  Section 203 prohibits mergers with,       
   and any interested stockholder for three       dispositions of assets to, the receipt of 
   years after the interested stockholder         disproportionate financial benefits by or 
   first becomes an interested stockholder.       any other transaction that would increase 
-  The term "interested stockholder" is           the interested stockholder's proportionate
   defined by NRS Section 78.423 but              ownership of any class or series of the   
   generally includes (1) beneficial owners       corporation's stock for a period of three 
   of more than 10% of the corporation's          years from the date a person became an    
   outstanding voting shares or                   interested stockholder.                   
   (2) affiliates of the corporation who were  -  A corporation may "opt out" of Section    
   beneficial owners of more than 10% of the   203.                                         
corporation's outstanding voting shares        -  Even if section 203 is triggered, a       
within the preceding three years.                 supermajority vote by stockholders may    
-  The term "combination" is defined by NRS       exempt a transaction from the restrictions
   Section 78.416, but generally includes any     contained in Section 203.                 
   kind of transaction that would allow a      -  An interested stockholder owns 15% or more
   potential acquiror to use the                  of the corporation's voting stock unless  
   corporation's assets to finance the            the transaction in which the person became
   acquisition or to benefit the acquiror's       an interested stockholder was approved by 
   interests, rather than the interests of        the corporation's board of director or    
   the corporation or its other shareholders.     66.67% of the outstanding voting stock of 
-  Nevada Revised Statutes Section 78.411 ET      the corporation, excluding shares held by 
   SEQ. also prohibits certain combinations       the interested stockholder.               
   between Nevada corporations and any                                                      
   interested stockholder after the three                                                   
   year period unless (1) the combination is                                                
   approved by the board of directors or                                                    
   interested stockholders, or (2) the                                                      
   interested stockholder satisfies certain                                                 
   fair value requirements.                                                                 
-  Although a Nevada corporation may opt out                                                
   of the requirements of NRS Section 78.411                                                
   ET SEQ., Galaxy Enterprises has not done                                                 
   so and thus remains subject to these                                                     
   requirements.                                                                            

DIRECTORS                                                                       

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             GALAXY ENTERPRISES                                 NETGATEWAY                  
---------------------------------------------  ---------------------------------------------
                                                                                            

-  One year term.                              -  One class of one year terms; proposal     
-  Any director who has been declared          before the stockholders to create a staggered
   incompetent by a court or convicted of a       board with two classes of two year terms. 
   felony may be removed by a majority vote    -  Removal only for cause, either by a       
   of (1) the board of directors or (2) the    majority vote of the entire board or by the  
   stockholders.                                  vote of the holders of a majority of the  
-  Not less than one nor more than nine.          shares entitled at the time to vote at an 
                                                  election of directors by two-thirds of the
                                               outstanding shares.                          

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             GALAXY ENTERPRISES                                 NETGATEWAY                  
---------------------------------------------  ---------------------------------------------
                                                                                            
-  Vacancies filled by majority vote of board  -  Not less than one nor more than nine.     
   or by stockholders at any regular or        -  Vacancies filled only by board until      
special meeting.                               successor elected by stockholders.           

AMENDMENT OF ORGANIZATIONAL DOCUMENTS                                           

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             GALAXY ENTERPRISES                                 NETGATEWAY                  
---------------------------------------------  ---------------------------------------------
                                                                                            

-  Articles of incorporation may be amended    -  Certificate of incorporation amended by a 
   as prescribed by Nevada law. A Nevada       vote of a majority of the shares entitled to 
   corporation which has issued stock must        vote.                                     
   follow the following procedures to amend    -  Bylaws amended by either a vote of a      
   its articles: (1) the board of directors    majority of the shares entitled to vote or a 
   must adopt a resolution setting forth the      vote of a majority of the board of        
   proposed amendment and declaring its           directors.                                
   advisability; (2) the board of directors                                                 
   must call a meeting of shareholders,                                                     
   either annual or special, to consider the                                                
   amendment; (3) notice of the meeting must                                                
   be given to each shareholder entitled to                                                 
   vote; (4) if a majority of shares entitled                                               
   to vote are voted in favor of the                                                        
   amendment, the president or vice president                                               
   must execute and file a certificate of                                                   
   amendment.                                                                               
-  Bylaws amended by entire board or majority                                               
   vote of stockholders.                                                                    

VOTING RIGHTS                                                                   

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             GALAXY ENTERPRISES                                 NETGATEWAY                  
---------------------------------------------  ---------------------------------------------
                                                                                            

-  One vote per share of common stock.         -  One vote per share of common stock,       
-  In most cases, a merger must be approved    subject to the rights of any shares of       
   by the stockholders of the corporation to      preferred stock.                          
   be acquired. In some cases, a merger must   -  120 days advance notice requirement for   
   be approved by the stockholders of the         stockholder proposals and director        
   acquiring corporation.                         nominations.                              
-  Majority vote to approve merger.            -  Majority vote to approve merger.          

TREASURY SHARES                                                                 

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             GALAXY ENTERPRISES                                 NETGATEWAY                  
---------------------------------------------  ---------------------------------------------
                                                                                            

-  Any shares repurchased are deemed to        -  Treasury shares may be reissued in the    
   revert to authorized but unissued shares       business judgment of the board.           
   upon acquisition.                           -  Shares held in treasury or owned by a     
                                                  subsidiary are not deemed to be           
                                                  outstanding and may not be voted.         

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STOCKHOLDER MEETINGS                                                            

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             GALAXY ENTERPRISES                                 NETGATEWAY                  
---------------------------------------------  ---------------------------------------------
                                                                                            

-  Special meetings may be called by the       -  Special meetings called by the board or   
   president or the board and shall be called  the holders of 40% of the capital stock      
   by the president at the written request of     entitled to vote at that special meeting. 
   the holders of not less than 51% of the     -  Advance notice requirements.              
   shares entitled to vote.                    -  Record date must be within 90 days of     
-  Record date must be within 60 days of          meeting date.                             
   meeting date.                                                                            

DISSENTERS' RIGHTS                                                              

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             GALAXY ENTERPRISES                                 NETGATEWAY                  
---------------------------------------------  ---------------------------------------------
                                                                                            

-  Stockholders of Nevada corporations may     -  Not granted under Delaware law if the     
   dissent, under certain circumstances, from     consideration consists exclusively of     
   (1) consummation of a plan of merger,          publicly traded securities.               
   (2) consummation of a plan of exchange,     -  Not granted under Delaware law for a sale 
   and (3) corporate action taken pursuant to  of all or substantially all of a             
   shareholder approval, where the articles       corporation's assets.                     
   of incorporation, bylaws, or a board                                                     
   resolution authorizes dissent.                                                           
-  Stockholders of Nevada Corporations have                                                 
   no right to dissent where their shares are                                               
   either (1) listed on a national securities                                               
   exchange, or (2) there are at least 2000                                                 
   shareholders of record. There are limited                                                
   exceptions to this rule.                                                                 

 The preceding summary of exceptions is not intended to be complete and is
qualified in its entirety by reference to the Delaware General Corporation Law, 
the Nevada Business Corporation Act, the General Corporation Law of the State of
California, where applicable, Netgateway's certificate of incorporation and     
bylaws and Galaxy Enterprises' articles of incorporation and bylaws.            

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INFORMATION REGARDING NETGATEWAY
NETGATEWAY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

    The following selected historical consolidated financial data should be read
in conjunction with Netgateway's consolidated financial statements and related  
notes thereto and Netgateway's "Management's Discussion and Analysis of         
Financial Condition and Results of Operations of Netgateway" which are          
incorporated by reference in this document and reflect the acquisition of       
Infobahn Technologies, LLC (d/b/a Digital Genesis) and Spartan Multimedia, Ltd. 
completed on June 2, 1998 and January 15, 1999, respectively. The consolidated  
statement of operations data for the period from March 4, 1998 (inception)      
through June 30, 1998 and the year ended June 30, 1999, and the consolidated    
balance sheet data at June 30, 1998 and 1999 are derived from the consolidated  
financial statements of Netgateway which have been audited by KPMG LLP,         
independent accountants, and are included elsewhere in this document. The       
unaudited consolidated statement of operations data for the nine months ended   
March 31, 1999 and 2000, and the unaudited consolidated balance sheet data at   
March 31, 2000 are derived from the unaudited consolidated financial statements 
included elsewhere in this document. In the opinion of management, these        
statements have been prepared on the same basis as the audited consolidated     
financial statements and include all adjustments, consisting only of normal     
recurring adjustments, necessary for the fair statement of the results of these 
periods. Historical results are not necessarily indicative of the results to be 
expected in the future.                                                         

                                                        [Enlarge/Download Table]

                                                 PERIOD FROM                                        
                                                MARCH 4, 1998                                       
                                                 (INCEPTION)       YEAR         NINE MONTHS ENDED   
                                                   THROUGH         ENDED            MARCH 31,       
                                                   JUNE 30,      JUNE 30,    -----------------------
                                                     1998          1999         1999         2000   
                                                --------------   ---------   ----------   ----------
                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                    
CONSOLIDATED STATEMENT OF OPERATIONS DATA:                                                          
Revenue........................................    $     3            157         122        3,215  
Loss from operations...........................     (4,553)       (11,499)     (7,884)     (22,864) 
Loss before extraordinary item.................     (4,572)       (12,429)     (8,618)     (27,499) 
Net loss.......................................     (4,572)       (10,776)     (6,965)     (27,499) 
Net loss per common share                                                                           
  Basic and diluted............................      (0.84)         (1.21)      (0.80)       (2.02) 
Weighted average common shares outstanding                                                          
  Basic and diluted............................      5,416          8,912       8,660       13,589  

                                                        [Enlarge/Download Table]

                                                                 AT JUNE 30       AT MARCH 31
                                                             -------------------  -----------
                                                               1998       1999       2000    
                                                             --------   --------  -----------
                                                                                  (UNAUDITED)
                                                                                             
CONSOLIDATED BALANCE SHEET DATA:                                                             
Cash........................................................ $   255        569       8,740  
Working capital (deficit)...................................  (1,960)    (1,834)      8,525  
Total assets................................................     872      3,458      15,523  
Short-term debt.............................................   2,052      1,698          --  
Long-term debt..............................................     368         --          --  
Stockholder's equity (deficit)..............................  (1,828)       245      12,373  

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Note 1--Netgateway, Inc. was formed on March 4, 1998, as a Nevada corporation.  
In June 1998, Video Calling Card, Inc., a Nevada public shell corporation,      
acquired 100% of the outstanding common stock of Netgateway. Since the          
stockholders of Netgateway received the majority voting interests in the        
combined company, Netgateway is the acquiring enterprise for financial reporting
purposes.                                                                       

Note 2--In November and December 1999, Netgateway sold 3,795,000 shares of      
common stock in a public offering generating net proceeds of $23,057,844.       

Note 3--Netgateway changed its method of accounting for revenue from the        
completed contract method to the percentage-of-completion method effective      
October 1, 1999. The percentage-of-completion method is preferable according to 
Statement of Position 81-1, Accounting for Performance of Construction-Type and 
Certain Production-Type Contracts, issued by the American Institute of Certified
Public Accountants. The new method has been applied retroactively by restating  
Netgateway's consolidated financial statements for prior periods in accordance  
with Accounting Principles Board Opinion (APB) No. 20.                          

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS OF NETGATEWAY 

THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF NETGATEWAY'S FINANCIAL     
CONDITION AND RESULTS OF OPERATIONS AND OTHER PORTIONS OF THIS JOINT PROXY      
STATEMENT/PROSPECTUS CONTAIN FORWARD-LOOKING INFORMATION THAT INVOLVE RISKS AND 
UNCERTAINTIES. NETGATEWAY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE   
ANTICIPATED BY THIS FORWARD-LOOKING INFORMATION. FACTORS THAT MAY CAUSE SUCH    
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE HEADING  
"RISK FACTORS" AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THIS     
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH NETGATEWAY'S FINANCIAL STATEMENTS 
AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.                    

GENERAL                                                                         

  Effective October 1, 1999, Netgateway changed its method of accounting for
revenue from the completed contract method to the percentage-of-completion      
method. Netgateway believes that the percentage-of-completion method more       
accurately reflects the current earnings process under its contracts. The       
percentage-of-completion method is preferable according to Statement of         
Position 81-1, Accounting for Performance of Construction-Type and Certain      
Production-Type Contracts, issued by the American Institute of Certified Public 
Accountants. The new method has been applied retroactively by restating our     
consolidated financial statements for prior periods in accordance with          
Accounting Principals Board Opinion No. 20.                                     

FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY                               

In view of the rapidly evolving nature of our business and its limited  
operating history, Netgateway believes that period-to-period comparisons of its 
operating results, including its gross profit and operating expenses as a       
percentage of net sales, are not necessarily meaningful and should not be relied
upon as an indication of future performance.                                    

    Netgateway cannot predict the degree to which it will experience seasonality
in its business because of its limited operating history, and the fact that it  
cannot identify which companies, if any, it will acquire in the foreseeable     
future.                                                                         

RESULTS OF OPERATIONS                                                           

REVENUE                                                                 

Service revenue includes revenue related to Web site development and the
design of electronic storefronts, internet-based shopping mall development and  
design, and transaction processing. Service revenues for the three and nine     
month periods ended March 31, 2000 increased to $2,042,315 and $3,214,997,      
respectively, from $42,208 and $122,392 in the comparable prior periods. The    
growth in service revenues was attributable primarily to the addition of several
new customers to Netgateway's Internet Commerce Center and to the licensing of  
Netgateway's software to certain customers. In addition, Netgateway's average   
price for system development increased as the scope and technical requirements  
of Netgateway's customers using the Internet Commerce Center has increased.     

GROSS PROFIT                                                            

Gross profit is calculated as net sales less the cost of sales, which   
consists of the cost of project development and customer support expenses. Gross
profit for the three and nine month periods ended March 31, 2000 increased to   
$1,533,851 and $1,815,972, respectively, from $8,683 and $19,903 in the         
comparable prior periods. Gross profit increased in absolute dollars over the   
same periods in 1999, primarily reflecting Netgateway's increased sales volume. 
Gross margin percentages increased over the same periods due to the introduction
of Netgateway's software licensing program, which has significantly higher      
margins than its existing revenue base.                                         

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PRODUCT DEVELOPMENT                                                     

Product development expenses consist primarily of payroll and related   
expenses for development, editorial, creative and systems personnel and outside 
contractors. Product development expenses for the three and nine month periods  
ended March 31, 2000 increased to $2,342,665 and $4,104,599, respectively, from 
$257,589 and $911,236 in the comparable prior periods. Product development      
expenses have increased as Netgateway continues to upgrade its Internet Commerce
Center. Netgateway's focus continues to be large corporate clients in the       
business-to-business sector; accordingly, its increased product development     
expenses are consistent with its need to meet the more complex technical        
requirements of that customer base.                                             

SELLING AND MARKETING                                                   

  Selling and marketing expenses consist of payroll and related expenses for
sales and marketing and the cost of advertising, promotional and public         
relations expenditures and related expenses for personnel engaged in sales and  
marketing activities. Selling and marketing expenses for the three and nine     
month periods ended March 31, 2000 increased to $1,356,764 and $3,093,634,      
respectively, from $306,974 and $333,437 in the comparable prior periods. The   
increases in selling and marketing expenses are primarily attributable to       
increased payroll-related and other infrastructure costs as Netgateway expands  
and incurs additional costs related to the growth of its business.              

GENERAL AND ADMINISTRATIVE                                              

   General and administrative expenses consist of payroll and related expenses
for executive, accounting and administrative personnel, professional fees and   
other general corporate expenses. General and administrative expenses for the   
three and nine month periods ended March 31, 2000 increased to $1,993,223 and   
$16,873,064, respectively, from $1,976,326 and $6,514,569 in the comparable     
prior periods. The increase in general and administrative expenses is           
attributable primarily to non-cash compensation expense from common stock issued
to executives in December 1999 valued at $11,775,000. The increases in general  
and administrative expenses are also attributable to increased payroll-related  
and other infrastructure costs as Netgateway expands and incurs additional costs
related to the growth of its business.                                          

INTEREST (INCOME) EXPENSE, NET                                          

  Interest expense consists primarily of amortization of debt issuance costs
and debt discount and interest in connection with Netgateway's $1,000,000 of    
Secured Convertible Debentures due December 31, 1999 and $6,633,500 of          
Netgateway's Series A 12% Senior Notes. The Senior Notes were issued in         
connection with Netgateway's May through October 1999 bridge financing private  
placements. Interest (income) expense, net for the nine month period ended      
March 31, 2000, increased to $4,635,012 from $679,274 in the comparable prior   
period. The increase in interest expense for the nine month period is           
attributable primarily to the amortization of promissory note discounts incurred
in conjunction with the bridge financing. The amortization of the debt discount 
aggregated $4,356,934 during the nine month period ended March 31, 2000. All of 
the Convertible Debentures were converted into common stock as of December 31,  
1999. The Senior Notes were repaid in full in November 1999. The net interest   
income for the nine month period ended March 31, 2000 is attributable to        
interest earned on cash balances.                                               

INCOME TAXES                                                            

Netgateway has not generated any taxable income to date and, therefore, 
Netgateway has not paid any federal income taxes since its inception. The use of
Netgateway's net operating loss carry forwards, which begin to expire in 2013,  
may be subject to certain limitations under Section 382 of the Internal Revenue 
Code of 1986, as amended.                                                       

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LIQUIDITY AND CAPITAL RESOURCES                                                 

    At March 31, 2000, Netgateway had $8,739,972 in cash on hand, an increase of
$8,170,500 from June 30, 1999.                                                  

Net cash used in operating activities was $9,901,178 for the nine month 
period ended March 31, 2000. Net cash used in operations was primarily          
attributable to $27,498,958 in net losses and increases in assets, partially    
offset by non-cash charges as well as increases in accounts payable and accrued 
expenses. Increases in assets included $574,674 in accounts receivable and      
$679,134 in unbilled receivables resulting from the growth in revenues during   
the nine month period ended March 31, 2000. Non-cash charges include $3,402,313 
for common stock issued for services, $8,400,000 for stock issued for           
cancellation of options and $4,022,550 from the amortization of debt discount.  
Accounts payable and accrued expenses increased $1,687,897 and resulted         
primarily from the accrual of wages and benefits and balances owed on           
expenditures.                                                                   

Net cash used in investing activities was $2,789,888 for the nine months
ended March 31, 2000 and consisted primarily of purchases of property and       
equipment for the upgrade of Netgateway's technological infrastructure.         

   Net cash provided by financing activities of $20,862,364 for the nine month
period ended March 31, 2000 resulted primarily from $1,114,950 in proceeds from 
the issuance of Senior Notes and $25,313,863 in proceeds from the issuance of   
common stock in connection with Netgateway's secondary offering, which          
Netgateway completed in November and December 1999. These proceeds were         
partially offset by $6,633,500 used to repay the bridge financing loans in their
entirety.                                                                       

As of March 31, 2000, Netgateway believes that its existing capital     
resources are adequate to meet its cash requirements for at least the next      
6 months. Netgateway anticipates that it will incur additional capital          
expenditures during the fourth quarter of its current fiscal year to continue   
upgrading its technological infrastructure.                                     

RECENT EVENTS                                                                   

 In January 2000, Netgateway reached an agreement with Intermedia Partners
Southeast, an affiliate of AT&T Media Services, to launch a local electronic    
shopping portal in Nashville, Tennessee. Under this agreement, Netgateway will  
design and develop an Internet-based shopping mall, to be branded with          
Intermedia's name, brand and image. Netgateway will also offer its storefront   
building and maintenance services to Intermedia's branded collateral material   
and periodic distribution and updating of advertising spots to promote the      
branded online shopping mall and storebuiliding services.                       

   In January 2000, Netgateway also entered into an agreement with PharMerica,
a subsidiary of Bergen Brunswig Corporation, and the nation's foremost provider 
of professional, quality and cost effective pharmacy products and services to   
the long-term care, assisted living, sub-acute and skilled nursing industries.  
Under the agreement, Netgateway will design, develop, manage and host a patient 
prospecting system, known as PMSIOnLine.com, in which sales professionals and   
claims adjustors will input prospective patient referrals directly into a       
secured browser session and submit these prospective patient referrals to       
PharMerica's legacy systems for analysis and possible sales follow-up.          

  In March 2000, Netgateway entered into a systems integrator agreement with
Complete Business Solutions, Inc., a leading systems integrator and worldwide   
provider of information technology services to large and mid-sized              
organizations. Under the terms of the agreement, Netgateway will provide CBSI   
with access to the Internet Commerce Center development environment. Netgateway 
will also allow CBSI to integrate individual business-to-business customers of  
CBSI, primarily located in North America and Mexico, into the Internet Commerce 
Center platform. Netgateway receives an upfront fee from CBSI for each CBSI     
customer integrated into to the Internet Commerce Center. CBSI provides the     
integration services for each CBSI customer and collects integration revenue    
from that customer. Netgateway and CBSI share recurring fees for hosting,       
transactions and advertising. In April 2000, Netgateway entered into a similar  
agreement with Complete Business Solutions, India, an Indian                    

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subsidiary of CBSI. This agreement contains similar terms to those described    
above and expands the customer reach available for licensing of the Internet    
Commerce Center internationally to include Europe, Asia and South America.      

In April 2000, Netgateway reached an agreement with CableRep, Inc., an  
affiliate of Cox Communications, to launch one or more electronic shopping      
portals in Cox Communications cable television markets designated by Cox        
Communications. Pursuant to this agreement, Netgateway will design and develop  
Internet-based shopping malls, to be branded with Cox Communications' name,     
brand and image, and will offer its storefront building and maintenance services
to Cox Communications' cable television subscribers. Netgateway will also be    
responsible for marketing support, including development of Cox Communications' 
branded collateral material and periodic distribution and updating of           
advertising spots to promote the branded online shopping mall and storebuilding 
services.                                                                       

MARKET PRICE AND DIVIDEND INFORMATION FOR NETGATEWAY

    Netgateway's common stock has traded on The Nasdaq National Market under the
symbol "NGWY" since November 18, 1999. From June 2, 1998 until November 18,     
1999, Netgateway's common stock traded on the Nasdaq OTC Bulletin Board under   
the symbol "NGWY." The following table sets forth the range of high and low bid 
prices reported on The Nasdaq National Market or the Nasdaq OTC Bulletin Board, 
as applicable, for Netgateway common stock for the periods indicated.           

                                                                [Download Table]

                                                               HIGH      LOW   
                                                             --------  --------
                                                                               
Fiscal 2000                                                                    
  First Quarter.............................................  $11.88    $6.50  
  Second Quarter............................................   11.56     5.13  
  Third Quarter.............................................   13.38     7.94  
Fiscal 1999                                                                    
  First Quarter.............................................   11.13     5.75  
  Second Quarter............................................   10.00     2.12  
  Third Quarter.............................................   15.25     4.50  
  Fourth Quarter............................................   16.62     8.75  

  The above bid prices indicate the prices that a market maker is willing to
pay. These quotations do not include retail markups, markdowns or other fees and
commissions and may not represent actual transactions.                          

DIVIDENDS                                                                       

Netgateway has never paid any cash dividends on its common stock and    
Netgateway anticipates that it will continue to retain any earnings for the     
foreseeable future for use in the operation of the combined company.            

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BUSINESS OF NETGATEWAY

GENERAL                                                                         

 Netgateway provides eCommerce services that allow clients to extend their
business to the Internet to conduct commercial transactions between business    
enterprises and between business enterprises and consumers. The hub of          
Netgateway's eCommerce solution is its proprietary Internet Commerce Center,    
which consists of the hardware, proprietary and licensed software, and the      
related technical services necessary for Netgateway's clients to transact       
eCommerce. Netgateway also designs and builds custom interfaces, or spokes, to  
connect business clients to the Internet Commerce Center. Netgateway's Internet 
Commerce Center permits a continuum of sophisticated and technologically        
complex, or scalable, solutions ranging from a simple Internet storefront       
advertising their products and taking orders through e-mail to a highly complex 
system of secure client extranets allowing vendors to interact and transact     
business-to-business eCommerce with one or more specific customers.             

  Netgateway, Inc. was incorporated under the laws of the State of Nevada on
April 13, 1995 under the name Video Calling Card, Inc. In June 1998, Netgateway,
Inc. acquired all of the outstanding capital stock of Netgateway, a Nevada      
corporation formerly known as eClassroom.com, in exchange for 5,900,000 shares  
of its common stock. At the same time, Netgateway, Inc. acquired the assets of  
Infobahn, LLC d/b/a Digital Genesis, an electronic commerce applications        
developer, in exchange for 400,000 shares of its common stock.                  

    In January 1999, StoresOnline.com, Ltd., a Canadian corporation and a wholly
owned subsidiary of Netgateway, Inc., acquired all of the outstanding capital   
stock of Spartan Multimedia, Ltd., an Internet storefront developer and         
storefront service provider, in exchange for 371,429 shares of Class B common   
stock of StoresOnline.com. The Class B common stock is exchangeable on a        
one-to-one basis for shares of common stock of Netgateway, Inc.                 

In November 1999, Netgateway, Inc. reincorporated under the laws of the 
State of Delaware.                                                              

INDUSTRY BACKGROUND                                                             

THE INTERNET                                                            

    The Internet has grown rapidly in recent years, spurred by developments such
as:                                                                             

- inexpensive, readily available and user-friendly Web browsers;        

- a large and growing installed base of advanced personal computers;    

- the adoption of faster and more cost efficient networks;              

  - the emergence of compelling Web-based content and commerce applications;
and                                                                 

- the growing sophistication of the people using the Internet.          

   According to International Data Corp., or IDC, a leading research firm, the
number of Internet users will grow from approximately 98 million worldwide at   
the end of 1998 to approximately 320 million by the end of 2002.                

   The broad acceptance of the Internet has led to the emergence of secure Web
sites accessible only within a given company, known as intranets. In addition,  
specialized intranets that are also available to select outsiders, such as      
clients, suppliers or vendors, known as extranets, have also emerged. These new 
global communications and commerce environments represent a significant         
opportunity for enterprises to interact in new and highly efficient ways with   
customers, employees, suppliers and partners.                                   

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ECOMMERCE                                                               

The Internet presents opportunities to transform businesses and entire  
industries as organizations exploit their potential to extend and enhance their 
business activities and gain competitive advantage. Companies are using the     
Internet to communicate and transact business on a one-to-one basis with        
existing customers and to target and acquire new customers. At the same time,   
companies are using the Internet to collaborate with their supply-chain partners
and manage distribution and other strategic relationships. The Internet has also
allowed businesses to identify new product and service offerings which extend   
and complement their core markets.                                              

A number of organizations have projected that the volume of business    
transacted by means of eCommerce will grow substantially from present levels.   
The United States Department of Commerce has estimated that business-to-business
commerce by means of the Internet will be a $300 billion dollar marketplace by  
the year 2002. IDC has estimated that the total value of goods and services     
purchased over the Internet grew from $318 million in 1995 to an annualized     
amount of $5.4 billion in December 1996. Sales are projected to increase to     
$95 billion in 2000 and to $400 billion by 2002. IDC also projects that by the  
year 2002, 78% of all Internet commerce will occur in the business-to-business  
sector.                                                                         

ECOMMERCE SERVICES MARKET                                               

   IDC forecasts that the market for Internet and eCommerce services worldwide
will grow from $4.6 billion in 1997 to $43.7 billion by 2002. Forrester         
Research, another technology industry research firm, estimates that the market  
for Internet and eCommerce services will grow from $5.4 billion in 1998 to      
$32.7 billion by 2002. These projections represent a compound annual growth rate
of more than 55% over these periods.                                            

As a result of the recent growth of eCommerce and its acceptance as a   
mainstream medium for commercial transactions, businesses are investing in the  
strategic use of Internet solutions to transform their core business and        
technology strategies. This, in turn, has created a significant and growing     
demand for third-party Internet professional services and has resulted in a     
proliferation of companies offering specialized solutions, such as connectivity,
transaction reporting, security and Web site design to business customers. This 
specialization has resulted in a fragmented market that often requires the      
business customer to seek solutions from a number of different providers using  
differing, or even contradictory, strategies, models and designs.               

Companies face significant challenges in successfully adapting their    
businesses to conduct commerce by means of the Internet. These include systems  
engineering, technical, commercial, strategic and creative design challenges and
an understanding of how the Internet transforms relationships between businesses
and their internal organizations, customers and business partners. Companies    
facing technology investment decisions often need outside technical expertise to
recognize viable Internet tools, develop feasible architectures and implement   
strategies. Companies must also be able to integrate new Internet applications  
with their existing systems. Finally, a successful solution requires that the   
Internet application, particularly the user interface, be engaging and easy to  
use.                                                                            

Netgateway believes that few of the existing eCommerce service providers
have the range of skills required to assist their clients in a coordinated      
transformation of the way they use technology and implement Internet solutions. 
Accordingly, Netgateway believes that organizations are increasingly searching  
for professional services firms offering turn-key eCommerce solutions, including
integrated strategy, technology and creative design, connectivity, transaction  
processing, data warehousing, transaction reporting, help desk and consulting   
and training. Furthermore, Netgateway believes that organizations will          
increasingly look to Internet solutions providers that can leverage industry and
client practices, increase predictability of success for Internet solutions and 
decrease risks associated with implementation by providing low-cost, scalable   
solutions with minimal lead-time.                                               

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THE NETGATEWAY SOLUTION                                                         

GENERAL                                                                 

    Netgateway has structured the Internet Commerce Center, to provide scalable,
fully integrated, customizable solutions. Netgateway develops customized        
interfaces to connect its clients' Web sites, whether created and maintained by 
Netgateway or others on behalf of the clients, with the Internet Commerce Center
and our eCommerce servers. As a result of Netgateway's hub and spoke structure, 
it can offer rapidly deployed, low cost eCommerce services which incorporate the
sales and other practices of its clients and their industries, as well as       
maintain Netgateway's clients' prior investment in creating and maintaining a   
Web presence.                                                                   

THE INTERNET COMMERCE CENTER                                            

  The Internet Commerce Center consists of hardware and software, as well as
related technical services, which are necessary to transact eCommerce.          
Netgateway has developed the Internet Commerce Center based upon an             
object-oriented, modular strategy. As a result, Netgateway is able to reuse     
functional software components of the Internet Commerce Center across different 
clients and industries, as well as allow introduction of new capabilities and   
services without adversely affecting existing systems.                          

The following features are designed to provide more complete eCommerce  
services by overcoming limitations in external systems:                         

- Inventory management                                                  

- Order status and history                                              

- Customer support forums                                               

- Purchase activity reporting                                           

- Secure, Web browser based system administration                       

- Reporting                                                             

- Universal client directory management                                 

- Sales automation                                                      

- Customer survey systems                                               

- Budget reporting                                                      

- Customer self-administration                                          

- Order management                                                      

- System status monitoring                                              

- Product catalog management                                            

THE INTERFACE SPOKE                                                     

Netgateway has the capability to rapidly design and deploy software     
interfaces. These permit client Web sites, networks and enterprises resource    
planning systems to connect with, receive relevant information from, and provide
relevant information to, the Internet Commerce Center. Data integration between 
the Internet Commerce Center and the buyer or seller is managed in the spoke.   
Product catalogs, order information, order status, customer data, etc. can be   
transferred between the hub and the buyer/seller by means of the spoke. Each    
interface or spoke is specific to a client and industry and contains knowledge  
about specific products and services as well as processes and business rules,   
including:                                                                      

- Custom pricing;                                                       

- Purchasing work flow;                                                 

- Unique order header for each customer;                                

- Product configuration;                                                

- Graphical interface;                                                  

- Special reporting needs;                                              

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- Product variation rules; and                                          

- Workflow with routing and approvals.                                  

   All spokes are developed according to a common methodology so as clients in
similar industries are added to the Internet Commerce Center, the cost and time 
of development is reduced by sharing previously created modules. Netgateway has 
developed a substantial library of spokes which are available for future use.   
Customization, or spoke development, for clients can include:                   

- Web site integration;                                                 

- Third party and customer developed systems;                           

- Order management;                                                     

- Accounting;                                                           

- Shipping; and                                                         

- Enterprises resource planning systems advantages.                     

Netgateway believes that the following are significant advantages of its
eCommerce solution over other currently available alternatives:                 

  - Netgateway's customers do not invest in hardware, software and staffing,
  but rather connect to Netgateway's existing infrastructure. Netgateway
 believes this is a highly economical method to obtain and maintain an
eCommerce presence.                                                 

- Clients with existing Web sites can maintain their investment in the  
     creation of that presence while seamlessly adding eCommerce capabilities.

   - Because Netgateway's infrastructure permits scalable eCommerce solutions,
Netgateway can offer incremental services to its clients through the
activation of additional software capabilities in response to client
growth or commercial requirements quickly and cost effectively.     

- Because Netgateway's other software resides only on its servers,      
     Netgateway can offer clients easy access to additional functionality on a
test or temporary basis in order to permit its clients to try new or
   additional services with their respective customers on their Web sites.
   Netgateway can provide real time updates, patches and fixes to software
with no additional effort by the client.                            

BUSINESS STRATEGY                                                               

Key elements of Netgateway's strategy are described below.              

- IMPLEMENT COST EFFECTIVE SERVICES WITH BROAD APPEAL. Netgateway has   
  designed its operations and business model to focus upon the eCommerce
    services of highest value to its clients. These are services which would
    require high levels of investment of resources or technical expertise by
  clients if they were to provide these services themselves. By offering
    these services to a number of clients simultaneously and by creating and
using reusable software modules, Netgateway is able to spread the   
relatively fixed costs associated with the creation, purchase, or   
     customization of the software, processes, procedures or computer hardware
      over a larger volume of eCommerce transactions. This permits Netgateway to
 offer these services to its clients on a highly cost effective basis.

- LEVERAGE RELATIONSHIPS WITH SYSTEMS INTEGRATIONS TO MAXIMIZE          
GROWTH. Netgateway has embraced a channel strategy with systems     
  integrators to expand its market reach. Netgateway has found that this
particular strategy matches well with systems integrators that have 
existing client                                                     

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 relationships where adding an eCommerce solution for that client will
strengthen the relationship.                                        

 - PROVIDE EASY ACCESS TO SCALABLE ECOMMERCE FUNCTIONALITY. Netgateway has
designed the Internet Commerce Center and its hardware and software 
 infrastructure to permit scalable eCommerce solutions. Netgateway can
offer incremental services to its clients through the activation of 
      additional software capabilities which quickly provide additional services
and added functionality in response to client growth or commercial  
requirements.                                                       

- OFFER ADDITIONAL FUNCTIONALITY OF INTERNET COMMERCE CENTER            
  SERVICES. Netgateway's hub and spoke approach constantly generates new
  features for its Internet Commerce Center clients. For example, as the
    spoke features become dominant in a particular industry, that feature is
    integrated into the hub to become a new standard feature of the Internet
     Commerce Center. This benefits all Internet Commerce Center users in that
industry.                                                           

 - USE OF TECHNOLOGY TO CREATE ECOMMERCE HUBS. Netgateway has improved the
    attractiveness of its services by creating eCommerce hubs in the form of
 (1) private label Internet-based shopping malls where eCommerce sites
      sponsored by a common reseller or of similar product offerings are grouped
  together for convenient retail use by the public, or (2) secure client
extranets.                                                          

- INCORPORATE CLIENT AND INDUSTRY PRACTICES AND MAINTAIN CLIENTS PRIOR  
      INVESTMENT. Netgateway has structured the Internet Commerce Center and its
      hardware and software infrastructure, and developed customizable, software
    to permit the easy interconnection of client Web sites with Netgateway's
      eCommerce servers, whether prepared and maintained by Netgateway or others
on behalf of Netgateway's clients. As a result, Netgateway can offer
     eCommerce services which incorporate the sales and other practices of its
clients and their industries, as well as maintain the clients' prior
investment in creating and maintaining a Web presence.              

 - SEEK STRATEGIC ACQUISITIONS AND INVESTMENTS. Netgateway intends to seek
      strategic acquisitions of, and investments in, businesses and technologies
    which Netgateway believes will enhance the functionality of Netgateway's
services, operations and competitive position.                      

SERVICES OFFERED                                                                

Netgateway offers eCommerce services which range from simple Internet   
storefronts to highly complex business-to-business eCommerce systems. Netgateway
currently offers the following specific services to our clients:                

WEB SITE DEVELOPMENT AND DESIGN; DEVELOPMENT OF ELECTRONIC STOREFRONTS  

  Netgateway believes that a professionally designed Web site is critical to
the success of business customers desiring to transact eCommerce. Netgateway    
offers Web site development, design and maintenance solutions to our business   
customers, including the development and design of graphical interfaces and     
applications necessary to fully integrate each customer's Web site with its     
order and payment processing, order confirmation and fulfillment centers.       
Netgateway's software for Web site and electronic storefront development        
features its own template system, multiple product search engines, multiple     
price sets and catalogues and support for multiple currencies. Following the    
merger, Netgateway intends to further develop and enhance this solution and to  
aggressively market these services through its cable company partners.          

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INTERNET-BASED SHOPPING MALL DEVELOPMENT AND DESIGN                     

Netgateway believes that the use of Internet-based shopping malls is    
critical to create an effective eCommerce marketplace. Through the creation and 
use of private labeled Internet malls, users of Netgateway's services can take  
advantage of both the pre-existing relationships and marketing efforts of the   
reseller sponsoring the private labeled mall, thereby increasing traffic to, and
exposure of, their site. In addition, Netgateway developed and features an      
eCommerce search engine that searches within each Internet mall, as well as     
across all Internet malls served by the Internet Commerce Center. Netgateway    
believes the use of malls and the availability of Netgateway's robust eCommerce 
search engine adds substantial value to individual stores and resellers alike.  
For Netgateway customers not otherwise affiliated with any mall, Netgateway     
provides access to Netgateway's own mall as a value-added service.              

TRANSACTION PROCESSING                                                  

Netgateway offers solutions which capture and transact customer orders  
according to the business rules and specific "back office" needs of the         
particular client. Netgateway's eCommerce system solution allows Netgateway to  
receive and process orders and payments, provide order confirmation and         
reporting and organize order fulfillment. Netgateway also has the ability to    
provide support for eCommerce transactions using checks, credit cards,          
electronic funds transfers, purchase orders and other forms of payment.         
Netgateway currently provides this capability in conjunction with certain third-
party vendors, including PaymentNet in San Jose, California, AuthorizeNet in    
Salt Lake City, Utah, Clear Commerce in Austin, Texas, eCommerce Exchange in    
Laguna Hills, California and Card Services International in Agoura Hills,       
California. Following the merger, Netgateway plans to pursue its own secured    
transaction clearing solutions as well as a strategic alliance or acquisition of
a secured transaction processing center.                                        

DATA WAREHOUSING AND TRANSACTION REPORTING                              

  Netgateway anticipates that, as its business continues to grow, Netgateway
will compile large amounts of transactional and other data with respect to      
Netgateway's clients and their businesses, markets, customers, and eCommerce    
transactions. Netgateway has the capability to automatically generate reports   
relating to order confirmation, inventory tracking, fulfillment, transaction    
details, customer data, market research and other sophisticated management      
reports based on the transactions facilitated through Netgateway's hardware and 
software infrastructure. Following the merger, Netgateway plans to further      
develop these capabilities.                                                     

CABLECOMMERCE SERVICES                                                  

    In July 1999, Netgateway formed CableCommerce, a new operating division that
focuses on providing eCommerce services and solutions to cable television       
operators. Typically, CableCommerce will design, develop, host and manage       
branded Internet-based shopping malls in the markets served by the cable        
television operator featuring businesses local to each of these markets. In     
addition, CableCommerce offers local and regional classified advertisements,    
community calendars and coupons, provides mall content, trains cable system     
salespeople and offers storefront creation and maintenance services to the cable
television system's subscribers. To date, Netgateway has entered into contracts 
to provide these services with MediaOne, CableOne, Wireless One, Frontiervision 
Media Services and Intermedia Partners Southeast, an affiliate of AT&T Media    
Services. See "--Clients and Strategic Relationships."                          

CUSTOMER SUPPORT SERVICES                                               

Netgateway provides clients with 24-hour per day and seven-day per week 
customer service and support through its customer support staff of approximately
17 individuals.                                                                 

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ADVERTISING                                                             

  Netgateway has signed agreements with 24/7 Media Services, Inc. and Engage
Technologies, Inc. to manage national banner advertising in Netgateway's        
Internet-based shopping malls. Netgateway shares advertising revenues with the  
respective mall owner on whose Web site the advertisement resides.              

CONNECTIVITY SOLUTIONS                                                  

For business customers to effectively engage in eCommerce, they must be 
connected to the Internet. Netgateway assists its business customers in         
structuring and obtaining high-speed Internet connectivity solutions to improve 
their business-to-business communications by means of the Internet. Netgateway  
provides these connectivity solutions to its business customers in conjunction  
with third party Internet access providers. Netgateway's connectivity solutions 
also include the ability to host clients' Web sites and provide clients with    
security measures necessary for secure transmissions over the Internet.         
Netgateway supports its hosted Web sites by a connectivity enhancing,           
high-performance, high-bandwidth server system.                                 

SALES AND MARKETING                                                             

Netgateway sells and markets its services by means of a combination of  
direct sales and through partnership agreements with systems integrators.       
Netgateway maintains a direct sales force of approximately 16 full-time         
employees. Netgateway anticipates increasing its sales force substantially      
following the merger, including creating a group within its sales force trained 
to assist systems integrators in marketing its products and services.           

 Netgateway has developed, and is continuing to develop, its relationships
with its cable company partners to sell entry level Internet Commerce Center    
services, such as simple Internet storefronts and services to the cable         
company's customers. Netgateway will "private label" the Internet storefront    
service and establish private branded Internet-based shopping malls to provide  
its cable partners with the means to drive traffic to these storefronts. The    
storefronts and mall will have the customized "look and feel" of the cable      
company.                                                                        

  In July 1999, Netgateway established a call center in American Fork, Utah.
The center has immediate capacity for 40 telephone salespeople with future      
expansion capabilities to add up to 130 telephone sales stations. The primary   
focus of the call center is to produce revenues by means of outbound sales call 
campaigns and selling Netgateway products and services. Netgateway believes that
the center will also produce revenues by performing outbound calling services   
for its reseller channel partners charging hourly fees and for other clients    
requiring inbound or outbound services by charging a combination of development,
activation and hourly fees. The center also supports inbound technical questions
from Netgateway's user base 24 hours per day, 7 days per week. The center is    
equipped with the latest technology, affording the operators digital            
capabilities such as queue control over voice, e-mail and fax in digital format,
rapid development and deployment of outbound marketing campaigns, database      
integration into the outbound queuing system, Web-based monitoring tools and    
drastically reduced costs as compared to other standard telephone technologies. 

CLIENTS AND STRATEGIC RELATIONSHIPS                                             

   Netgateway views its clients as both the sponsor and owner of the eCommerce
site in question and, in some cases, resellers of its products and services.    
Netgateway is currently processing eCommerce transactions for over 2,300        
clients. Netgateway's clients are geographically dispersed and represent a mix  
of businesses.                                                                  

  Each Netgateway client enters into a standard eCommerce services agreement
or subscription agreement, as appropriate. These agreements vary significantly  
based upon the terms and conditions of                                          

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the particular client transaction, the features of the proposed eCommerce site, 
the levels of service necessary for the client and other factors. The agreements
may include provisions for the payment to Netgateway of development fees,       
hosting fees, interchange fees, transaction fees and other fees related to the  
services provided by Netgateway under the agreements.                           

The following are descriptions of a number of the client contracts into 
which Netgateway has recently entered, including contracts with its             
CableCommerce operating division.                                               

XOOM.COM.  In March 1999, Netgateway entered into an agreement with     
XOOM.com, an eCommerce Web portal with over 7.8 million members. Under the terms
of the agreement:                                                               

    - Netgateway is the sole provider of a private labeled version of XOOM.com's
 products and services which permit its members to create and maintain
storefronts on the Web through XOOM.com;                            

 - Netgateway developed XOOM.com's Internet-based shopping mall located at
www.xoommemberstores.com;                                           

- Netgateway is the sole provider of eCommerce processing services to   
XOOM.com's eCommerce customers; and                                 

    - Netgateway will use XOOM.com as a Netgateway reseller to provide eCommerce
solutions and services to its member companies.                     

CB RICHARD ELLIS.  In March 1999, Netgateway entered into an eCommerce  
services agreement with CB Richard Ellis, one of the world's largest building   
management and real estate services companies with over 12,000 properties under 
management and over $1 billion in revenue during 1998. Under this agreement,    
Netgateway developed, manages and services CB Richard Ellis' Internet-based     
shopping mall and client extranet. This Web site is designed to permit CB       
Richard Ellis personnel to conduct all of their corporate materials purchasing, 
including computers and building and maintenance supplies, and all global       
facilities management by means of the Internet. In addition, CB Richard Ellis   
will offer to the tenants in the buildings they manage volume purchasing        
services on the Internet for a variety of office products and supplies.         

WIRELESS ONE.  In June 1999, Netgateway entered into a reseller and mall
agreement with Wireless One, Inc. Under the agreement, Netgateway will design   
and develop an Internet-based shopping mall, to be branded with the Wireless One
name, brand and image, and will offer its storefront creation and maintenance   
services to Wireless One's subscribers. Netgateway will also provide marketing  
support, including development of mall content, training of Wireless One sales  
people, development of Wireless One branded collateral material and periodic    
distribution and updating of advertising spots to promote their services.       
Wireless One will promote this mall with a total of 1,000 30-second spots every 
month jointly developed by Netgateway and Wireless One in all systems in which  
it is able to provide advertising.                                              

RELIANT INNOVATIONS.  In June 1999, Netgateway entered into an eCommerce
services agreement with Reliant Innovations under which Netgateway will develop 
an eCommerce site for Reliant Innovations to sell computer products to clients  
who are members of specific trade and professional associations with which      
Reliant Innovations has formed a partnership.                                   

 MEDIAONE.  In July 1999, Netgateway entered into a strategic relationship
with MediaOne, a leading cable television operator. Under the agreement         
Netgateway will design, develop, host and manage Internet-based shopping malls  
in each of MediaOne's cable television markets. These markets currently consist 
of more than five million households. These shopping malls will be branded with 
the MediaOne name, brand and image, will feature businesses local to each market
and will offer additional online services, such as classified advertisements,   
local community events calendars and                                            

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coupons. MediaOne has agreed to contribute commercial advertising time on their 
cable systems to promote these malls. In connection with this agreement,        
MediaOne acquired 50,000 shares of Netgateway common stock and a warrant        
exercisable for up to 200,000 shares of Netgateway common stock. The warrant    
vests in four installments upon the satisfaction of milestones relating to the  
scope of the launch of these Internet-based shopping malls. As of March 31,     
2000, MediaOne has launched shopping malls in six cable television markets      
representing more than 500,000 subscriber households.                           

FRONTIERVISION MEDIA SERVICES.  In July 1999, Netgateway entered into a 
reseller and mall agreement with Frontiervision Media Services, a provider of   
cable television programming services. Under the agreement, Netgateway will     
design and develop an Internet-based shopping mall, to be branded with the      
Frontiervision name, brand and image, and will offer its storefront creation and
maintenance services to Frontiervision's subscribers. Netgateway will also      
provide marketing support, including development of mall content, training of   
Frontiervision salespeople and production of advertising spots to promote their 
services. Frontiervision will promote this mall with a minimum of 1,000         
cablecasts per broadcast month in each broadcast market where the mall services 
are offered.                                                                    

   B2BSTORES.COM.  In July 1999, Netgateway entered into an eCommerce services
agreement with B2BStores.com, Inc., a catalog aggregator and procurement        
company, under which Netgateway will develop, manage and service an Internet    
commerce site for B2B Stores.com to offer and sell goods and services to        
businesses.                                                                     

    CABLEONE.  In August 1999, Netgateway entered into a cable reseller and mall
agreement with CableOne, a large cable television operator. Under the agreement,
Netgateway will design and develop an Internet-based shopping mall, to be       
branded with the CableOne name, brand and image, and will offer its storefront  
creation and maintenance services to CableOne's subscribers. Netgateway will    
also provide marketing support, including development of mall content, training 
of CableOne sales people and production of advertising to promote their         
services. CableOne will promote this mall with a minimum of 400 cablecasts per  
broadcast month in each broadcast market where the mall services are offered.   

   BUYSELLBID.COM.  In August 1999, Netgateway entered into a distributor mall
and reseller agreement with BuySellBid.com, Under the agreement, Netgateway will
design and develop Internet-based shopping malls for BuySellBid.com, which will 
in turn resell and/or sublicense these Internet-based shopping mall packages,   
custom-branded, to other resellers. In the alternative, BuySellBid.com will     
offer to brand any such Internet-based mall with the BuySellBid.com name, brand 
and image and offer Netgateway's storefront creation and maintenance services to
its own subscribers. Netgateway will provide marketing support, including       
development of mall content, and training of BuySellBid.com salespeople.        

 BERGEN BRUNSWIG CORPORATION.  In October 1999, Netgateway entered into an
internet services agreement with Bergen Brunswig Corporation, a leading supplier
of pharmaceutical, medical-surgical supplies and specialty healthcare products. 
Under this agreement, Netgateway will design, develop, manage and service an    
Internet-based shopping mall to be branded with the Bergen Brunswig name, brand 
and image and which will contain on-line storefronts for affiliated local       
pharmacies. We will also be responsible for training of Bergen Brunswig         
personnel.                                                                      

  DIVERSITY ECOMMERCE.COM, INC., FORMERLY KNOWN AS LEADING TECHNOLOGIES.  In
December 1999, Netgateway reached an agreement with Diversity                   
eCommerce.com Inc. to develop, manage and service its Internet-based mall and   
client extranet.                                                                

 AT&T MEDIA SERVICES.  In January 2000, Netgateway entered into a reseller
and mall agreement with Intermedia Partners Southeast, an affiliate of AT&T     
Media Services, to launch an electronic shopping portal in Nashville, Tennessee.
Under this agreement, Netgateway will design and develop an                     

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Internet-based shopping mall, to be branded with Intermedia's name, brand and   
image, and will offer its storefront creation and maintenance services to       
Intermedia's subscribers. Netgateway will also provide marketing support,       
including development of Intermedia's branded collateral material and periodic  
distribution and updating of advertising spots to promote the branded online    
shopping mall and storebuilding services. Intermedia will promote the mall with 
a total of 500 30-second spots every month, jointly developed by Netgateway and 
Intermedia in the Nashville market.                                             

    PHARMERICA.  In January 2000, Netgateway also entered into an agreement with
PharMerica, a subsidiary of Bergen Brunswig Corporation that provides           
professional, quality and cost effective pharmacy products and services to the  
long-term care, assisted living, sub-acute and skilled nursing industries. Under
the agreement, Netgateway will design, develop, manage and host a patient       
prospecting system, known as PMSIOnLine.com, in which sales professionals and   
claims adjustors will input prospective patient referrals directly into a       
secured browser session and submit these prospective patient referrals to       
PharMerica's legacy systems for analysis and possible sales follow-up.          

COX COMMUNICATIONS.  In April 2000, Netgateway reached an agreement with
CableRep, Inc., an affiliate of Cox Communications, to launch one or more       
electronic shopping portals in Cox Communications cable television markets      
designated by Cox Communication. Pursuant to this agreement, Netgateway will    
design and develop Internet-based shopping malls, to be branded with Cox        
Communications' name, brand and image, and will offer its storefront building   
and maintenance services to Cox Communications' cable television subscribers.   
Netgateway will also be responsible for marketing support, including development
of Cox Communications' branded collateral material and periodic distribution and
updating of advertising spots to promote the branded online shopping mall and   
storefront building services.                                                   

Netgateway has embraced a channel strategy with systems integrators to  
expand its market reach. Netgateway has found that this particular strategy     
matches well with systems integrators that have existing clients for whom adding
an eCommerce solution will strengthen the relationship.                         

The following is a description of the systems integrator agreements into
which Netgateway has recently entered:                                          

  COMPLETE BUSINESS SOLUTIONS, INC.; COMPLETE BUSINESS SOLUTIONS, INDIA.  In
March 2000, Netgateway entered into a systems integrator agreement with Complete
Business Solutions, Inc., a leading systems integrator and worldwide provider of
information technology services to large and mid-sized organizations. Under the 
terms of the agreement, Netgateway will provide CBSI with access to the Internet
Commerce Center development environment, and allow CBSI to integrate individual 
business to business customers of CBSI, primarily located in North America and  
Mexico, into the Internet Commerce Center platform. Netgateway receives an      
upfront fee from CBSI for each CBSI customer integrated into the Internet       
Commerce Center. CBSI provides the integration services for each CBSI customer  
and collects integration revenue from that customer. Netgateway and CBSI share  
recurring fees for hosting, transactions and advertising. In April 2000,        
Netgateway entered into a similar agreement with Complete Business Solutions,   
India, an Indian subsidiary of CBSI. This agreement contains similar terms to   
those described above and expands the customer reach available for licensing of 
the Internet Commerce Center internationally to include Europe, Asia and South  
America.                                                                        

   Initial customer service and support for Netgateway's customers is provided
through Netgateway's customer support staff of 17 individuals that provides     
telephone customer service and support 24 hours a day, 365 days a year.         
Netgateway can also provide customers with access to information and customer   
support services by means of the Internet.                                      

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RESEARCH AND DEVELOPMENT                                                        

    Since June 1998, Netgateway has conducted extensive research and development
with respect to Netgateway's technology. During the year ended June 30, 1999,   
and during the nine months ended March 31, 2000, Netgateway invested            
approximately $1,496,563 and $4,104,599, respectively, in the research and      
development of its technology. Netgateway's research and development efforts    
have:                                                                           

- emphasized the development of advanced technology and new services;   

    - the enhancement and refinement of existing services in response to rapidly
changing client specifications and industry needs;                  

- introduced support for evolving communications methodologies and      
 protocols, software methodologies and protocols and computer hardware
technologies; and                                                   

   - improved functionality, flexibility, ease of use and enhanced the quality
of documentation, training materials and technical support tools.   

   Netgateway intends to conduct additional research and development to, among
other things, further its strategy of developing cost effective services with   
broad appeal, provide easy access to scalable eCommerce services and offer      
additional functionality of its Internet Commerce Center services. At March 31, 
2000, Netgateway's research and development activities employed approximately   
110 computer programmers and technicians.                                       

COMPETITION                                                                     

   The eCommerce services market is intensely competitive and characterized by
rapidly evolving technologies. Netgateway currently faces substantial           
competition in all of its product and service lines. Netgateway expects such    
competition to continue and to increase in the future, as new competitors enter 
the Internet market and existing competitors expand their product and service   
offerings. Netgateway's target market is rapidly evolving and is subject to     
continuous technological change. As a result, Netgateway's competitors may be   
better positioned to address these developments or may react more favorably to  
these changes, which could have a material adverse effect on Netgateway's       
business, prospects, financial condition and results of operations. Netgateway  
competes on the basis of a number of factors, including the attractiveness of   
the eCommerce services offered, the breadth and quality of these services,      
creative design, engineering expertise, pricing, technological, innovation and  
understanding clients' strategies and needs.                                    

A number of these factors are beyond Netgateway's control. Existing or  
future competitors may develop or offer eCommerce services that provide         
significant technological, creative, performance, price or other advantages over
the services offered by Netgateway.                                             

Netgateway's current and potential competitors include:                 

  - Internet integrators, Internet service providers and Internet consulting
      service providers, such as IBM, AppNet, Braun Consulting, Calico Commerce,
      Cambridge Technology, iXL Enterprises, Luminant, Organic Online, Proxicom,
      RareMedium Group, Razorfish, Sapient, Scient Corp., Us Internetworking, US
Web Corporation and Viant Corp;                                     

- large information technology consulting service providers, such as    
Andersen Consulting, Cambridge Technology Partners and EDS;         

- Internet commerce providers, such as Internet Capital and Safeguard   
Scientific;                                                         

  - Internet marketing service providers, such as 24/7 Media Services, Inc.,
   AdForce, Ariba, Chemdex Corp., CommerceOne, Critical Path, CyberSource,
Digital River, DoubleClick, Earth Web, eBay, Fatbrain, Flycast      
Communications, Intraware, Modem Media, MyPoints.com, National Info 

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     Consortium, pcOrder.com, PurchasePro.com, RoweCm, silknet Software, uBid,
VerticalNet and Web Trends;                                         

- software development companies, such as Microsoft, Broadvision, Open  
Market and InterShop;                                               

- telecommunications companies, such as AT&T and MCI;                   

    - application service providers, such as US Internetworking and the recently
announced EDS/SAP relationships; and                                

  - Internet and online service providers, such as America Online, Lycos and
Earthlink.                                                          

Although most of these types of competitors have not yet offered a full 
range of Internet professional services, many are currently offering some of    
these services or have announced their intention to do so. These competitors at 
anytime could elect to focus additional resources in our target markets, which  
could materially adversely affect Netgateway's business, prospects, financial   
condition and results of operations. Many of Netgateway's current and potential 
competitors have longer operating histories, larger customer bases, longer      
relationships with clients and significantly greater financial, technical,      
marketing and public relations resources than Netgateway. Competitors that have 
established relationships with large companies, but have limited expertise in   
providing Internet solutions, may nonetheless be able to successfully use their 
client relationships to enter Netgateway's target market or prevent Netgateway's
penetration into their client accounts.                                         

   Additionally, in pursuing acquisition opportunities, Netgateway may compete
with other companies with similar growth strategies. Some of these competitors  
may be larger and have greater financial and other resources than Netgateway.   
Competition for these acquisition targets could also result in increased prices 
of acquisition targets and a diminished pool of companies available for         
acquisition.                                                                    

There are relatively low barriers to entry into Netgateway's business.  
Netgateway has limited proprietary technology that would preclude or inhibit    
competitors from entering the eCommerce services market. Therefore, Netgateway  
must rely on the skill of Netgateway personnel and the quality of its client    
services. The costs to develop and provide eCommerce services are low.          
Therefore, Netgateway expects that it will continually face additional          
competition from new entrants into the market in the future. In addition,       
Netgateway is subject to the risk that its employees may leave to start         
competing businesses. The emergence of these enterprises could have a material  
adverse effect on Netgateway's business, prospects, financial condition and     
results of operations.                                                          

INTELLECTUAL PROPERTY                                                           

Netgateway's success depends upon its proprietary technology and other  
intellectual property and on its ability to protect its proprietary technology  
and other intellectual property rights. In addition, Netgateway must conduct its
operations without infringing on the proprietary rights of third parties.       
Netgateway also intends to rely upon unpatented trade secrets and the know-how  
and expertise of its employees. To protect Netgateway's proprietary technology  
and other intellectual property, Netgateway relies primarily on a combination of
the protections provided by applicable copyright, trademark and trade secret    
laws as well as on confidentiality procedures and licensing arrangements.       
Netgateway has trademark applications pending with the United States Patent and 
Trademark Office for:                                                           

- CABLECOMMERCE                                                         

- NETGATEWAY                                                            

- NETGATEWAY ICC                                                        

- NETGATEWAY INTERNET COMMERCE CENTER                                   

- NETGATEWAY KNOWLEDGE AND COMMERCE FOR THE DIGITAL AGE                 

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- NETGATEWAY WHERE BUSINESS DOES BUSINESS ON THE INTERNET               

- STORESONLINE                                                          

- STORESONLINE.COM                                                      

- STORESONLINE.COM WHERE MERCHANTS DO BUSINESS ON THE INTERNET          

- MERCHANT MISSION CONTROL                                              

- two NETGATEWAY logos.                                                 

   Although Netgateway believes that it has taken appropriate steps to protect
its intellectual property rights, including requiring that its employees and    
third parties who are granted access to its intellectual property enter into    
confidentiality agreements, these measures may not be sufficient to protect     
Netgateway's rights against third parties. Others may independently develop or  
otherwise acquire unpatented technologies or products similar or superior to    
Netgateway's.                                                                   

  Netgateway licenses from third parties certain software and Internet tools
that Netgateway includes in its services and products. If any of these licenses 
were terminated, Netgateway could be required to seek licenses for similar      
software and Internet tools from other third parties or develop these tools     
internally. Netgateway may not be able to obtain such licenses or develop such  
tools in a timely fashion, on acceptable terms, or at all.                      

  Companies participating in the software and Internet technology industries
are frequently involved in disputes relating to intellectual property.          
Netgateway may in the future be required to defend its intellectual property    
rights against infringement, duplication, discovery and misappropriation by     
third parties or to defend against third-party claims of infringement. Likewise,
disputes may arise in the future with respect to ownership of technology        
developed by employees who were previously employed by other companies. Any such
litigation or disputes could result in substantial costs to, and a diversion of 
effort by, Netgateway. An adverse determination could subject Netgateway to     
significant liabilities to third parties, require Netgateway to seek licenses   
from, or pay royalties to, third parties, or require Netgateway to develop      
appropriate alternative technology. Some or all of these licenses may not be    
available to Netgateway on acceptable terms or at all. In addition, Netgateway  
may be unable to develop alternate technology at an acceptable price, or at all.
Any of these events could have a material adverse effect on Netgateway's        
business, prospects, financial condition and results of operations.             

EMPLOYEES                                                                       

As of the date of this joint proxy statement/prospectus, Netgateway had 
approximately 146 full-time employees, including 7 executive personnel,         
approximately 21 in sales and marketing, approximately 58 in the development of 
its eCommerce solutions, approximately 17 in customer support and approximately 
8 in general administration and finance. Netgateway intends to hire additional  
key personnel in the near future.                                               

FACILITIES                                                                      

Netgateway's headquarters are located at 300 Oceangate, 5th Floor, Long 
Beach, California 90802. These premises, which occupy 16,360 square feet, are   
subject to a lease between Netgateway and an unaffiliated third party. The lease
expires on July 9, 2001 and monthly payments under this lease are currently     
approximately $25,900. Netgateway believes that, in the event alternative or    
larger offices are required, such space is available at competitive rates.      

To house and support the Netgateway Internet Commerce Center, Netgateway
maintains its equipment in Exodus' state-of-the-art data center in Irvine,      
California, which provides 24-hour per day, seven days per week accessible      
operating environment with multiple redundant high-speed connections            

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to the Internet backbone. Hardware used by Netgateway at the Exodus data center 
includes Multiple Sun Spare Servers, Sun Enterprise 3500 and 4500 servers and   
EMC storage. This data center features raised floors, HVAC temperature control  
systems and seismically braced racks. All systems are connected to high capacity
uninterruptable power supplies, which are in turn backed by a high output diesel
generator. Main power is provided to the facility through connectivity to two   
separate power grids. Non-stop connectivity is provided through multiple fiber  
egresses using different bandwidth providers. Facility security includes 24-hour
per day, seven days per week key card access, video monitors, motion sensors and
staff members on-site.                                                          

GOVERNMENTAL REGULATION                                                         

  Netgateway is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to, or commerce 
on, the Internet. However, due to the increasing popularity and use of the      
Internet, it is possible that various laws and regulations may be adopted with  
respect to the Internet, covering issues such as user privacy, pricing, and     
characteristics and quality of products and services. In 1998, the United States
Congress established the Advisory Committee on eCommerce which is charged with  
investigating, and making recommendations to Congress regarding, the taxation of
sales by means of the Internet. The adoption of any such laws or regulations    
upon the recommendation of this Advisory Committee or otherwise may decrease the
growth of the Internet, which could in turn decrease the demand for Netgateway's
products or services, Netgateway's cost of doing business or otherwise have an  
adverse effect on Netgateway's business, prospects, financial condition or      
results of operations. Moreover, the applicability to the Internet of existing  
laws governing issues such as property ownership, libel and personal privacy is 
uncertain. Future federal or state legislation or regulation could have a       
material adverse effect on our business, prospects, financial condition and     
results of operations.                                                          

LEGAL MATTERS                                                                   

Netgateway is not a party to any material litigation or legal proceeding
relating to its products and services or otherwise. Except as set forth in the  
following paragraph, Netgateway is not aware of any material legal proceedings  
threatened against it.                                                          

On May 23, 2000, Netgateway received a notice from one of its customers,
Affinitee.com, alleging that Netgateway breached an Electronic Commerce Services
Agreement by and between Netgateway and Affinitee. Affinitee contends that      
Netgateway's alleged breach of the agreement has caused damages to Affinitee in 
an amount in excess of $500,000. Netgateway believes that the allegations       
contained in Affinitee's notice are without merit. As of May 24, 2000, Affinitee
had not commenced a formal legal proceeding against Netgateway in connection    
with the foregoing dispute.                                                     

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MANAGEMENT OF NETGATEWAY

OUR DIRECTORS AND EXECUTIVE OFFICERS                                            

Set forth in the table below are the names, ages and positions of the   
current directors and executive officers of Netgateway. None of the directors or
executive officers has any family relationship to any other director or         
executive officer of Netgateway.                                                

                                                        [Enlarge/Download Table]

NAME                                            AGE                         POSITION                    
----                                          --------  ------------------------------------------------
                                                                                                        
Keith D. Freadhoff...........................    41     Chairman of the Board of Directors              
Roy W. Camblin III...........................    53     Chief Executive Officer and Director            
Donald M. Corliss, Jr........................    50     President, Chief Operating Officer and Director 
Jon C. Frojen................................    41     Chief Financial Officer                         
Jill Glashow Padwa...........................    42     Executive Vice President-Sales and Marketing    
Simon Spencer................................    34     Chief Information Officer                       
Craig S. Gatarz..............................    38     General Counsel and Corporate Secretary         
David Bassett-Parkins........................    39     Director                                        
R. Scott Beebe...............................    47     Director                                        
William Brock................................    49     Director                                        
John Dillon..................................    50     Director                                        
Joseph Roebuck...............................    64     Director                                        

 Set forth below is a brief description of the business experience for the
previous five years of all current directors and executive officers of          
Netgateway.                                                                     

KEITH D. FREADHOFF                                                      

    Mr. Freadhoff has served as chairman of the board of directors of Netgateway
since its inception in March 1998. He also served as chief executive officer of 
Netgateway from March 1998 through October 1999. From November 1994 to          
November 1997, Mr. Freadhoff was the co-founder, chairman of the board of       
directors, and chief executive officer of Prosoft I-Net Solutions, a public     
company engaged in development and provision of software and Internet training  
solutions. From November 1993 to November 1994, Mr. Freadhoff has served as the 
executive director of Career Planning Center, a community based organization    
serving disadvantage populations with job training and social services. From    
1993 to 1994, he also served as president of the Focus Institute, a California  
based Microsoft Authorized Training and Education Center. From 1991 to 1992,    
Mr. Freadhoff served as a vice president of Frojen Advertising, an advertising  
and marketing firm. From 1987 to 1991, Mr. Freadhoff founded and served as      
president of Oasis Corporate Education and Training, a customized training      
company that developed courseware for manufacturing, financial, service, and    
public organizations. Mr. Freadhoff completed graduate level work at the        
University of Southern California and earned his undergraduate degree at the    
University of Nebraska.                                                         

ROY W. CAMBLIN III                                                      

Mr. Camblin has served as chief executive officer of Netgateway since   
October 1, 1999. He has been a Director of Netgateway since December 15, 1999.  
Mr. Camblin served as chief information officer of Netgateway from July 1999    
until his appointment as Chief Executive Officer. Prior to joining Netgateway,  
from May 1998 until July 1999, Mr. Camblin was the global chief information     
officer, executive vice president and executive committee member of CB Richard  
Ellis. From January 1996 to April 1998, Mr. Camblin was the head of global      
operations and technology, Investment Products Division at Citibank. From       
July 1993 to December 1995, Mr. Camblin was the chief information officer and a 
senior vice president at Oracle Corporation. From June 1989 until July 1993,    
Mr. Camblin was a senior vice president at Wells Fargo Bank, responsible for    
operations and technologies for wholesale banking and also responsible for      
credit card technologies. Prior to Wells Fargo, Mr. Camblin spent over five     
years at Charles Schwab in several management positions, where he also obtained 
his Series 7.                                                                   

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Other career experiences included twelve years as an officer and pilot in the US
Air Force, with jobs including chief of operations plans and chief of flight    
management for the Pacific region. Mr. Camblin has a Bachelor of Science degree 
in Marketing from Florida State University and a Masters in Systems Management  
from the University of Southern California. Past recognitions have included     
"Visionary of the Year", awarded by Sun Microsystems in 1992.                   

DONALD M. CORLISS, JR.                                                  

  Mr. Corliss has served as the president and a director of Netgateway since
March 1998. He was appointed chief operating officer in March 2000. From 1993 to
June 1998, Mr. Corliss was an independent investor and owned, developed and     
served in senior management positions with several business and development     
ventures. From July 1993 through June 1998, Mr. Corliss served as a vice        
president and a director of Westover Hills Development, Inc., a real estate     
development company. From August 1993 through June 1998, Mr. Corliss served as a
vice president and a director of the general partner of Brentwood Development, a
residential real estate development company, and was responsible for management 
of the development projects undertaken by this company. From August 1994 through
March 1998, Mr. Corliss served as a consultant and was a founder of Ice         
Specialty Entertainment, a developer of ice arena complexes, and was responsible
for the structuring and negotiation of the business and projects undertaken by  
this company. From June 1995 to date, Mr. Corliss served as a director and      
secretary of SHH Properties, Inc., a real estate investment company. From 1996  
to June 1998, Mr. Corliss served as a vice president and a director of Brentwood
Development III, Inc., a real estate development company, which was one of two  
corporate general partners of Inglehame Farm L.P. From 1997 through May 1998,   
Mr. Corliss served as a vice president and a director of Executive Property     
Management Services, Inc. a provider of executive management services relating  
to real estate development. As co-founder in many of these projects,            
responsibilities included the operation, management, structuring and            
implementation of business strategies and plans, as well as the development and 
implementation of the general business and accounting systems necessary for such
business operations. From 1977 to 1993, Mr. Corliss was engaged in private law  
practice. Mr. Corliss earned a LLM in Taxation from New York University, his    
Juris Doctorate degree from the University of Santa Clara, and a Bachelor of    
Arts degree from the University of California at Santa Barbara. Of the ventures 
of Mr. Corliss, two real estate development ventures, Westover Hills            
Development, Inc. and Inglehame Farms L.P. sought protection from creditors     
pursuant to Chapter 11 of the United States Bankruptcy Code in 1997 and 1998,   
respectively. Westover has since emerged from Chapter 11 and has resumed        
operations.                                                                     

JILL GLASHOW PADWA                                                      

Ms. Padwa has served as executive vice president--sales and marketing of
Netgateway since December 1999. Ms. Padwa has more than 20 years experience in  
information technology, and has worked for such leading companies as            
Hewlett-Packard and GartnerGroup, a leader in IT research and consulting        
services. Ms. Padwa held numerous senior management positions at GartnerGroup   
from January 1997 to December 1999, and directed the marketing and sales        
strategies for the company's entry into the healthcare industry market. During  
her tenure, the business recognized significant growth. Most recently,          
Ms. Padwa was responsible for managing sales operations for GartnerGroup's North
American operations. Ms. Padwa also served as the business development manager  
for Hewlett-Packard's Healthcare Information Management Division from           
October 1994 to December 1996. She managed the team that developed the worldwide
product strategies for Hewlett-Packard's successful entry and growth into new   
market segments. Ms. Padwa held numerous positions with Hewlett-Packard, ranging
from technical to sales and marketing management positions. Ms. Padwa received a
Bachelor of Science degree in Computer Science from the University of Vermont in
1979 and a Masters of Science in Public Health Policy from Boston University in 
1989.                                                                           

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SIMON SPENCER                                                           

Mr. Spencer has served as chief information officer of Netgateway since 
March 2000. From September 1999 through February 2000, he served as Netgateway's
chief technical officer. He has experience in Internet development in the       
financial services industry as well as significant experience in the software   
development industry. Mr. Spencer has been recognized internationally as a      
leader in the field of information systems and information technology. In 1998  
Mr. Spencer was included in the International Who's Who of information          
technology professionals. Prior to joining Netgateway, Mr. Spencer managed      
Emerging Technologies within CitiGroup's investment technology organization and 
was instrumental in the design and implementation of middleware and Internet    
technologies supporting CitiGroup's new investment platforms. Mr. Spencer has   
also worked with Oracle Corporation as a director of Global Productivity Systems
within their worldwide operations organization. He also was responsible for     
engineering within their Knowledge Management, InterOffice and Internet         
(www.oracle.com) organizations.                                                 

JON C. FROJEN                                                           

Mr. Frojen has served as chief financial officer of Netgateway since    
February 2000. Mr. Frojen has extensive experience in domestic and international
finance and treasury. As vice president and treasurer of Long Beach Mortgage    
from July 1999 to January 2000, Mr. Frojen directed mergers and acquisitions,   
corporate development and strategic planning. Long Beach Mortgage Company, a    
specialty finance company, originated $2.6 billion in mortgage production in    
1998. Mr. Frojen served as vice president of capital markets and strategy       
planning for Long Beach Mortgage Company from September 1998 to June 1999. Prior
to joining Long Beach Mortgage, Mr. Frojen was vice president and treasurer of  
Avco Financial Services, Inc. from April 1996 to August 1998, a $9 billion      
consumer and commercial finance company. Mr. Frojen's responsibilities included 
the funding of domestic and international finance operations, asset/liability   
management and risk management. Mr. Frojen spent eleven years in banking at     
First Interstate Bank, Ltd. and Standard Chartered Bank from January 1993 to    
March 1996. During his three years at Standard Chartered, Mr. Frojen worked for 
the Asia Pacific Merchant Banking group. He was responsible for developing      
business with U.S. based multinational companies for the Group's corporate      
finance advisory and fund raising activities in the Asia Pacific Region. At     
First Interstate, Mr. Frojen worked in a variety of areas, including corporate  
banking, loan syndication, leveraged ESOPs, leveraged buy-outs, and corporate   
finance. Mr. Frojen earned his Bachelor of Arts degree in Economics at the      
University of California at Berkeley in 1982 and a Masters of Business          
Administration degree from the University of Southern California in 1985.       

CRAIG S. GATARZ                                                         

   Mr. Gatarz has served as general counsel of Netgateway since April 1999 and
was appointed the corporate secretary of Netgateway in February 2000. From      
March 1989 until March 1999, Mr. Gatarz was an attorney at the law firm of      
Jones, Day, Reavis & Pogue and specialized in corporate law, particularly       
corporate restructurings and asset-based lending transactions. From             
September 1987 through February 1989, he was an attorney at the law firm of     
Cadwalader, Wickersham & Taft in New York, New York. Mr. Gatarz received a      
Bachelor of Arts degree in Political Science from Boston College in 1984 and his
law degree in 1987 from the University of Virginia School of Law. He is admitted
to practice in New York, New Jersey and California. Mr. Gatarz serves on the    
board of directors of BBMG Entertainment, Inc., a California-based film         
production company.                                                             

DAVID BASSETT-PARKINS                                                   

 Mr. Bassett-Parkins served as chief financial officer and chief operating
officer of Netgateway from its inception in March 1998 until February 2000. He  
has also served as a director of Netgateway since Netgateway's inception in     
March 1998. From February 1992 to May 1998, Mr. Bassett-Parkins held various    
senior management positions at Wedbush Morgan Securities, a privately held      
regional securities                                                             

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firm, including Vice President of Management Information Systems, Vice President
of Customer Services, and Vice President of Client Banking Services. From 1988  
to February 1992, Mr. Bassett-Parkins served as a Director of Automation for    
ISD, a privately held Interior Architecture firm based in Chicago. From 1985 to 
1988, Mr. Bassett-Parkins was managing partner for Architectural CADD Systems, a
privately held software developer and reseller. Mr. Bassett-Parkins holds a     
Bachelor of Science degree in Management from California State Polytechnic      
University, Pomona and an Executive Education Certificate from University of    
California at Los Angeles.                                                      

    Mr. Bassett-Parkins no longer serves as Netgateway's chief financial officer
or chief operating officer. He remains a director. On April 14, 2000, Netgateway
received notice from Mr. Bassett-Parkins of his intent to terminate his         
employment agreement for "good reason," as that term is defined in his          
employment agreement, effective as of June 7, 2000. Mr. Bassett-Parkins has     
alleged that, under his employment agreement, he is entitled to a lump sum      
severance payment as a result of terminating his employment for "good reason."  
Netgateway is in negotiations with Mr. Bassett-Parkins regarding any severance  
payments and it is not possible to determine the outcome of these negotiations  
at this time.                                                                   

JOHN DILLON                                                             

Mr. Dillon has served as a director of Netgateway since December 1999.  
Mr. Dillon was named president and chief executive officer of Salesforce.com in 
September 1999. Before joining Salesforce.com, Mr. Dillon was interim president 
and chief executive officer for Perfecto Technologies, a start-up company       
delivering solutions for ensuring Internet application security. Prior to his   
employment with Perfecto, he served as president and chief executive officer for
Hyperion, the global company formed through the merger of Arbor Software and    
Hyperion Software. Mr. Dillon also spent five years with Arbor Software as vice 
president of sales and then as president and chief executive officer. Earlier in
his career, Mr. Dillon was employed at Oracle Corporation and Grid Systems in   
various sales management capacities and at EDS as a systems engineer. A graduate
of the United State Naval Academy at Annapolis, Mr. Dillon received a bachelor's
degree in engineering and a Master of Business Administration degree from Golden
State University. He served five years of active duty in the United States Navy 
nuclear submarine service and retired with the rank of commander from the Naval 
Reserve.                                                                        

R. SCOTT BEEBE                                                          

Mr. Beebe has served as a director of Netgateway since June 1998. From  
April 1987 through June 1998, Mr. Beebe served as the managing partner of       
Steps, Inc., an investment and consulting firm specializing in technology growth
companies. Mr. Beebe was a registered representative in the securities industry 
from 1982 through 1998. Mr. Beebe received his a Bachelor of Arts degree in     
English from the University of California at Berkeley in 1973.                  

WILLIAM BROCK                                                           

Mr. Brock has served as a director of Netgateway since July 1999. Since 
May 1999, Mr. Brock has served as the president and chief operating officer of  
Marketplace Technologies, Inc., a corporate finance eCommerce company. From     
September 1996 to April 1999, Mr. Brock served as vice president and head of the
structured note group in the Fixed Income Division of Salomon SmithBarney. From 
December 1994 to August 1996, Mr. Brock served as Managing Director of Blizzard 
Capital Markets, a leveraged buyout company. From 1987 to November 1994,        
Mr. Brock served as vice president and co-head of medium term notes at Goldman, 
Sachs & Co. From 1980 to 1987, Mr. Brock served as vice president, Short Term   
Debt at The First Boston Corporation. Since April 1996, Mr. Brock has served as 
a director and owner of Middleton's, a mill working company.                    

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JOSEPH ROEBUCK                                                          

Mr. Roebuck was appointed to the board of directors in April 2000.      
Mr. Roebuck has served as vice president of strategic sales of Sun Microsystems 
Computer Systems Division since 1990. Prior to 1990, Mr. Roebuck held the       
position of vice president for U.S. and intercontinental sales for Asia, Latin  
American and Canada at Sun Microsystems. Mr. Roebuck joined Sun Microsystems as 
the vice president of sales in 1983. Prior to 1983, he served as director of    
vertical marketing for Apple Computer. Mr. Roebuck previously served as a       
lieutenant junior grade in the United States Navy. He received his Bachelor of  
Arts degree from Cornell University and completed the advanced management       
program at Harvard Business School.                                             

DIRECTOR COMPENSATION                                                           

   On December 15, 1999, the board of directors approved cash compensation for
non-employee directors in the amount of $15,000 annually, payable in four       
quarterly installments. At that time, the non-employee directors of Netgateway  
were Messrs. Beebe and Dillon, William Brock and Ronald Spire. In addition, at  
that time, as part of their compensation package for serving as directors,      
Messrs. Beebe, Dillon and Spire were each granted 20,000 options to purchase    
common stock under Netgateway's 1999 Stock Option Plan for Non-Executives. The  
options vest quarterly over a two-year period beginning on January 1, 2000. At  
the time of his appointment to the board of directors in July 1999, Mr. Brock   
was granted options to purchase 150,000 shares of common stock pursuant to      
Netgateway's 1999 Stock Option Plan for Non-Executives. Mr. Brock's options vest
as follows: 50,000 at July 20, 1999 and the remainder in equal quarterly        
increments for 2 years. At the time of his appointment to the board of directors
in April 2000, Mr. Roebuck was granted options to purchase 180,000 shares of    
common stock under Netgateway's 1999 Stock Option Plan for Non-Executives.      
Mr. Roebuck's options vest annually over a three year period from the date of   
the grant. In April 2000, Mr. Dillon was granted options to purchase an         
additional 180,000 shares of common stock under the 1999 Stock Option Plan for  
Non-Executives. Mr. Dillon's options vest quarterly over a three-year period. In
April 2000, Mr. Beebe was granted options to purchase an additional 60,000      
shares of common stock under the 1999 Stock Option Plan for Non-Executives.     
Mr. Beebe's options vest quarterly over a one-year period.                      

  Messrs. Freadhoff, Camblin and Corliss are employees of Netgateway and are
not compensated for their services as directors of the Netgateway.              

   All directors are reimbursed for reasonable expenses incurred in connection
with attending meetings of the board of directors.                              

BOARD OF DIRECTORS MEETINGS AND COMMITTEES                                      

   During fiscal year 1999, Netgateway's board of directors held one regularly
scheduled meeting and acted by unanimous written consent on 26 occasions. For   
the period from July 1, 1999 through March 31, 2000, the board of directors held
eight regularly scheduled meetings and acted by unanimous written consent on    
14 occasions. In addition to attending meetings, directors also discharge their 
responsibilities by review of management reports to directors, visits to        
Netgateway's facilities, correspondence and telephone conferences with the      
company's executive officers and others regarding matters of interest and       
concern to Netgateway.                                                          

The board of directors has standing audit, finance and compensation     
committees. All committees report their activities, actions and recommendations 
to the board of directors.                                                      

 The compensation committee currently consists of Messrs. Beebe, Brock and
Dillon. The compensation committee interprets the provisions and supervises the 
administration of Netgateway's stock option plans. It also has the authority to 
review all of Netgateway's compensation matters.                                

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    The audit committee currently consists of Messrs. Beebe and Brock. The audit
committee currently has one vacancy. The audit committee reviews the results of 
the audit with the independent auditors; reviews the adequacy, scope and results
of the internal accounting controls and procedures; reviews the independence of 
the auditors; reviews the auditors' fees; and makes recommendations concerning  
the engagement of independent public auditors.                                  

   The finance committee, currently consists of of Messrs. Freadhoff, Corliss,
Beebe, Camblin, Brock and Dillon. The finance committee reviews Netgateway's    
annual operating budgets, strategic business objectives and financial           
projections. Additionally, the finance committee reviews all proposed financing 
transactions, merger and acquisition transactions and advises the board of      
directors on all matters related to the financial condition of Netgateway.      

ELECTION OF OFFICERS                                                            

  Officers are elected annually by the board of directors and hold office at
the discretion of the board of directors. There are no family relationships     
among our directors and executive officers.                                     

EXECUTIVE COMPENSATION                                                          

  The following table and discussion summarizes the compensation for (a) the
individuals who served as chief executive officer during fiscal year 1999 and   
the four most highly compensated executive officers, other than the chief       
executive officer, who were serving as executive officers at the end of fiscal  
year 1999 (Messrs. Freadhoff, Corliss, Bassett-Parkins, Gatarz and Ms. Hanh     
Ngo), and (b) individuals who served as the chief executive officer and each of 
the five other most highly compensated executive officers through March 31, 2000
of fiscal year 2000 (Messrs. Freadhoff, Camblin, Corliss, Bassett-Parkins,      
Gatarz and Simon Spencer and Ms. Ngo) for the years indicated during which each 
person was employed by Netgateway.                                              

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FISCAL YEAR 1999
SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                        ANNUAL COMPENSATION                  LONG-TERM COMPENSATION AWARDS    
                           ---------------------------------------------  ------------------------------------
                                                               OTHER      RESTRICTED                          
                                                               ANNUAL       STOCK       STOCK                 
NAME AND                               SALARY     BONUS     COMPENSATION    AWARDS     OPTIONS     ALL OTHER  
PRINCIPAL POSITION           YEAR       ($)        ($)          ($)        (1) ($)       (#)      COMPENSATION
------------------         --------   --------   --------   ------------  ----------   --------   ------------
                                                                                                              
Keith D. Freadhoff ......    1999     100,625     57,500            --    $3,200,000(2)         (2)         --
  Chief Executive Officer                                                                                     
  and Director                                                                                                

Roy W. Camblin III(3)....    1999          --         --            --            --         --           --  

Donald M. Corliss,           1999      96,250     50,000            --    $3,200,000(4)         (4)     --    
  Jr. ...................                                                                                     
  President and Director                                                                                      

David Bassett-Parkins ...    1999      87,500     50,000            --    $3,200,000(5)         (5)         --
  Chief Financial Officer                                                                                     
  and Chief Operating                                                                                         
  Officer                                                                                                     

Simon Spencer(6).........    1999          --         --            --            --         --           --  

Hanh Ngo ................    1999      75,000     25,000            --            --    150,000(7)         -- 
  Executive Vice                                                                                              
  President of Operations                                                                                     
  and Secretary                                                                                               

Craig S. Gatarz .........    1999      30,000      7,500            --            --    161,812(8)         -- 
  General Counsel                                                                                             

--------------------------                                                      

(1) Subsequent to June 30, 1999, Netgateway terminated performance-based stock  
  options exercisable for an aggregate of 780,000 shares of common stock and
   other stock options exercisable for an aggregate 1,200,000 shares of common
  stock granted to Messrs. Freadhoff, Corliss and Bassett-Parkins and issued
in lieu of these options restricted stock awards of an aggregate of     
1,200,000 shares of common stock.                                       

(2) During the year ended June 30, 1999, Mr. Freadhoff earned performance-based 
   stock options exercisable for an aggregate of 69,000 shares of common stock
  and other options exercisable for an aggregate of 200,000 shares of common
stock. Subsequent to June 30, 1999, all performance and other options   
   granted to Mr. Freadhoff, including the options referenced in the preceding
   sentence, were terminated. In lieu of these options, Mr. Freadhoff received
a restricted stock award of 400,000 shares of common stock.             

(3) Mr. Camblin commenced his employment with Netgateway in August 1999.        

(4) During the year ended June 30, 1999, Mr. Corliss earned performance-based   
   stock options exercisable for an aggregate of 64,000 shares of common stock
  and other options exercisable for an aggregate of 200,000 shares of common
stock. Subsequent to June 30, 1999, all performance and other options   
 granted to Mr. Corliss, including the options referenced in the preceding
   sentence, were terminated. In lieu of these options, Mr. Corliss received a
restricted stock award of 400,000 shares of common stock.               

(5) During the year ended June 30, 1999, Mr. Bassett-Parkins earned             
performance-based stock options exercisable for an aggregate of 60,000  
shares of common stock and other options exercisable for an aggregate of
    200,000 shares of common stock. Subsequent to June 30, 1999, all performance
and other options granted to Mr. Bassett-Parkins, including the options 
referenced in the preceding sentence, were terminated. In lieu of these 
 options, Mr. Bassett-Parkins received a restricted stock award of 400,000
shares of common stock.                                                 

(6) Mr. Spencer commenced his employment with Netgateway in September 1999.     

(7) During the year ended June 30, 1999, Ms. Ngo earned performance-based stock 
 options exercisable for an aggregate of 50,000 shares of common stock and
other options exercisable for an aggregate of                           

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    133,333 shares of common stock. Subsequent to June 30, 1999, all performance
   options granted to Ms. Ngo, including the performance options referenced in
the preceding sentence, were terminated and all other options awarded to
Ms. Ngo were reduced so as to be exercisable for an aggregate of 150,000
  shares of common stock. As a result of this amendment, options exercisable
    for an aggregate of 75,000 shares of common stock were declared vested as of
June 30, 1999.                                                          

(8) At June 30, 1999, Mr. Gatarz held options exercisable for an aggregate of   
161,812 shares of common stock. Subsequent to June 30, 1999, Netgateway 
amended performance-based stock options exercisable for an aggregate of 
 150,000 shares of common stock granted to Mr. Gatarz so as to vest over a
  period of two years and not as a result of the satisfaction of performance
milestones. As a result of this amendment, options exercisable for an   
aggregate of 21,703 shares of common stock were declared vested as of   
June 30, 1999.                                                          

FISCAL YEAR 2000
(THROUGH MARCH 31, 2000)
SUMMARY COMPENSATION TABLE

                                                        [Enlarge/Download Table]

                                        ANNUAL COMPENSATION                  LONG-TERM COMPENSATION AWARDS    
                           ---------------------------------------------  ------------------------------------
                                                               OTHER      RESTRICTED                          
                                                               ANNUAL       STOCK       STOCK      ALL OTHER  
NAME AND                               SALARY     BONUS     COMPENSATION    AWARDS     OPTIONS    COMPENSATION
PRINCIPAL POSITION           YEAR       ($)        ($)          ($)          ($)         (#)          ($)     
------------------         --------   --------   --------   ------------  ----------   --------   ------------
                                                                                                              
Keith D. Freadhoff ......    2000     150,982     57,500            --            --         --           --  
  Chairman of the Board                                                                                       
  of Directors                                                                                                

Roy W. Camblin III ......    2000     120,299     28,750            --    $3,375,000(1)  200,000(2)         --
  Chief Executive Officer                                                                                     
  Chief Information                                                                                           
  Officer and Director                                                                                        

Donald M. Corliss,           2000     144,473     55,000            --            --         --           --  
  Jr. ...................                                                                                     
  President, Chief                                                                                            
  Operating Officer and                                                                                       
  Director                                                                                                    

David                        2000     131,288     50,000            --            --         --           --  
  Bassett-Parkins(3).....                                                                                     

Hanh Ngo(4)..............    2000     101,265     37,500            --            --    150,000(5)         -- 

Simon Spencer ...........    2000      93,785     52,500            --            --    150,000(6)         -- 
  Chief Technical Officer                                                                                     
  and Chief Information                                                                                       
  Officer                                                                                                     

Craig S. Gatarz .........    2000      98,484     37,500            --            --    161,812(7)         -- 
  General Counsel and                                                                                         
  Secretary                                                                                                   

--------------------------                                                      

(1) In November 1995, Mr. Camblin received a restricted stock award of          
500,000 shares of common stock.                                         

(2) At March 31, 2000, Mr. Camblin held options exercisable for an aggregate of 
 200,000 shares of common stock. Of these options, options exercisable for
 116,667 shares of common stock were declared vested as of March 31, 2000.

(3) Mr. Bassett-Parkins no longer serves as the chief financial officer or chief
operating officer. He remains a director. On April 14, 2000, Netgateway 
received notice from Mr. Bassett-Parkins of his intent to terminate his 
employment agreement for "good reason," as that term is defined in his  
   employment agreement, effective as of June 7, 2000. Mr. Bassett-Parkins has
  alleged that, under his employment agreement, he is entitled to a lump sum
severance payment as a result of terminating his employment for "good   
 reason." Netgateway is in negotiations with Mr. Bassett-Parkins regarding
 any severance payments and it is not possible to determine the outcome of
these negotiations at this time.                                        

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(4) Ms. Ngo no longer serves as the executive vice president--operations or     
   secretary. On April 14, 2000, we received notice from Ms. Ngo of her intent
   to terminate her employment agreement with Netgateway for "good reason," as
 that term is defined in her employment agreement, effective as of June 7,
   2000. She has alleged that, under her employment agreement, she is entitled
 to a lump sum severance payment as a result of terminating her employment
   for "good reason." Netgateway is in negotiations with Ms. Ngo regarding any
   severance payments and it is not possible to determine the outcome of these
negotiations at this time.                                              

(5) At March 31, 2000, Ms. Ngo held options exercisable for an aggregate of     
 150,000 shares of common stock. Of these options, options exercisable for
 150,000 shares of common stock were declared vested as of March 31, 2000.

(6) At March 31, 2000, Mr. Spencer held options exercisable for an aggregate of 
 150,000 shares of common stock. Of these options, options exercisable for
12,500 shares of common stock were declared vested as of March 31, 2000.

(7) At March 31, 2000, Mr. Gatarz held options exercisable for an aggregate of  
 161,821 shares of common stock. Of these options, options exercisable for
77,616 shares of common stock were declared vested as of March 31, 2000.

EMPLOYMENT AGREEMENTS                                                           

The following table summarizes the key provisions of the employment     
agreements of Netgateway's executive officers.                                  

                                                        [Enlarge/Download Table]

                              CONTRACT            CONTRACT                                                         
                            COMMENCEMENT        TERMINATION                                         BONUS          
NAME/POSITION                   DATE                DATE             PER ANNUM SALARY            ARRANGEMENTS      
-------------            ------------------  ------------------  ------------------------  ------------------------
                                                                                                                   
Keith D. Freadhoff...... January 1, 1999     December 31, 2001   $185,000 through June     $57,500 payable in June 
  Chairman of the Board                                          30, 1999 $201,500         1999; Eligible for bonus
  of Directors                                                   thereafter                of up to $28,750 for    
                                                                                           each of the three month 
                                                                                           periods ended           
                                                                                           September 30, 1999 and  
                                                                                           December 31, 1999 upon  
                                                                                           satisfaction of earnings
                                                                                           milestones; Otherwise as
                                                                                           determined by the board 
                                                                                           of directors.           

Roy W. Camblin, III..... August 13, 1999      July 25, 2000      $175,000                  As determined by board  
  Chief Executive                                                                          of directors            
  Officer                                                                                                          

Donald M. Corliss,       January 1, 1999     December 31, 2001   $185,000 through June     $55,000 payable in July 
  Jr....................                                         30, 1999; $192,500        1999; Eligible for bonus
  President, Chief                                               thereafter                for each of the three   
  Operating Officer and                                                                    month periods ended     
  Director                                                                                 September 30, 1999 and  
                                                                                           December 31, 1999 upon  
                                                                                           satisfaction of earnings
                                                                                           milestones; Otherwise as
                                                                                           determined by the board 
                                                                                           of directors            

Jill Glashow Padwa...... December 15, 1999   December 14, 2001   $180,000                  As determined by board  
  Executive Vice                                                                           of directors            
  President--Sales and                                                                                             
  Marketing                                                                                                        

Jon C. Frojen........... February 14, 2000   February 13, 2002   $160,000                  As determined by board  
  Chief Financial                                                                          of directors            
  Officer                                                                                                          

Simon Spencer...........  March 1, 2000      February 28, 2002   $200,000                  As determined by board  
  Chief Information                                                                        of directors            
  Officer                                                                                                          

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                                                        [Enlarge/Download Table]

                              CONTRACT            CONTRACT                                                         
                            COMMENCEMENT        TERMINATION                                         BONUS          
NAME/POSITION                   DATE                DATE             PER ANNUM SALARY            ARRANGEMENTS      
-------------            ------------------  ------------------  ------------------------  ------------------------
                                                                                                                   
David                    January 1, 1999     December 31, 2001   $175,000                  $25,000 payable in      
  Bassett-Parkins(1)....                                                                   December 1999; Eligible 
                                                                                           for bonus for each of   
                                                                                           the three month periods 
                                                                                           ended September 30, 1999
                                                                                           and December 31, 1999   
                                                                                           upon satisfaction of    
                                                                                           earnings milestones;    
                                                                                           Otherwise as determined 
                                                                                           by the board of         
                                                                                           directors               

Hanh Ngo(1)............. January 1, 1999     December 31, 2001   $135,000                  $25,000 payable in      
                                                                                           December 1999; Eligible 
                                                                                           for bonus for each of   
                                                                                           the three month periods 
                                                                                           ended September 30, 1999
                                                                                           and December 31, 1999   
                                                                                           upon satisfaction of    
                                                                                           earnings milestones;    
                                                                                           Otherwise as determined 
                                                                                           by the board of         
                                                                                           directors               

Craig S. Gatarz.........  April 5, 1999       April 5, 2002      $120,000 through June     As determined by the    
  General Counsel and                                            30, 1999; $150,000        board of directors.     
  Corporate Secretary                                            through March 31, 2000;                           
                                                                 $175,000 thereafter                               

------------------------------                                                  

(1) On April 14, 2000, Netgateway received notification from                    
Mr. Bassett-Parkins and Ms. Ngo of their intent to terminate their      
 employment agreements for "good reason," as that term is defined in their
   employment agreements, effective as of June 7, 2000. They have alleged that
under their employment agreements, they are each entitled to a lump-sum 
  payment as a result of their terminating their employment for good reason.
    Netgateway is in negotiations with Mr. Bassett-Parkins and Ms. Ngo regarding
 any severance payments and it is not possible to determine the outcome of
these negotiations at this time.                                        

 In the event of a change in control of Netgateway, all options previously
granted to these individuals which are then unvested will vest immediately. Upon
a termination of the employment of any of these individuals following a change  
in control for any reason other than the relevant officer's death or disability 
or for cause, as defined in each employee's employment agreement, Netgateway is 
required to pay to such individual in the case of Messrs. Freadhoff, Corliss and
Basset-Parkins, a lump sum severance payment equal to three times the sum of    
(1) his then current annual salary and (2) his highest bonus in the three year  
period preceding the change in control, and in the case of Messrs. Camblin,     
Gatarz, Frojen, Spencer and Mmes. Padwa and Ngo, a lump sum severance payment   
equal to two times the sum of (1) his or her then current annual salary and     
(2) his or her highest bonus in the three year period preceding the change in   
control. In addition, if the relevant individual's employment is terminated by  
Netgateway without cause or by the relevant individual with good reason, then   
Netgateway is required to pay the relevant individual a lump sum severance      
payment equal to his or her current annual salary for the remainder of the      
employment period. If any of these severance payments result in the imposition  
of an excise tax on the relevant individual, Netgateway is required to gross up 
this individual for such excess tax and any income taxes arising as a result of 
the gross up payment. The relevant individual may terminate his or her          
employment at any time upon at least 30 days written notice to us. Upon the     
termination of such agreement, the relevant individual is subject to            
non-competition, non-disclosure, and non-solicitation provisions for one year.  

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STOCK OPTION GRANTS IN LAST FISCAL YEAR                                         

The following table sets forth certain information concerning options to
purchase Netgateway common stock that were granted in fiscal year 1999 to the   
named executive officers. Netgateway did not grant SARs in fiscal year 1999.    

                                                        [Enlarge/Download Table]

                             INDIVIDUAL GRANTS                                                                               
                         -------------------------                                                                           
                                       PERCENT OF                                             POTENTIAL REALIZABLE VALUE AT  
                         NUMBER OF       TOTAL                                                   ASSUMED ANNUAL RATES OF     
                         SECURITIES     OPTIONS                                               STOCK PRICE APPRECIATION FOR   
                         UNDERLYING    GRANTED TO   EXERCISE                      CLOSING            OPTION TERM ($)         
                          OPTIONS     EMPLOYEES IN   OR BASE                        SALE    ---------------------------------
NAME                      GRANTED     FISCAL YEAR   PRICE ($)   EXPIRATION DATE   PRICE($)     5%          10%        0%(7)  
----                     ----------   ------------  ---------  -----------------  --------  ---------   ---------   ---------
                                                                                                                             
Keith D. Freadhoff......  276,000(1)       7.7        2.50     December 15, 2008    4.87    1,499,430   2,796,301   1,262,560
                          400,000(1)      11.1        4.87     December 15, 2008    4.87    1,225,087   3,104,610          --

Roy W. Camblin III(2)...       --           --          --                    --      --           --          --          --

Donald M. Corliss,        264,000(3)       7.3        2.50     December 15, 2008    4.87    1,434,237   2,674,723   1,207,666
  Jr....................  400,000(3)      11.1        4.87     December 15, 2008    4.87    1,225,087   3,104,610          --

David Bassett-Parkins...  240,000(4)       6.7        2.50     December 15, 2008    4.87    1,303,852   2,431,566   1,097,878
                          400,000(4)      11.1        4.87     December 15, 2008    4.87    1,225,087   3,104,610          --

Hanh Ngo................  200,000(5)       5.6        2.50     December 15, 2008    4.87    1,086,543   2,026,305     914,898
                          266,667(5)       7.4        4.87     December 15, 2008    4.87      816,726   2,069,743          --

Simon Spencer(6)........       --           --          --                    --      --           --          --          --

Craig S. Gatarz.........  150,000          4.2        6.50         April 4, 2009   12.88    2,172,024   4,036,110   1,815,921
                           11,812          0.3        5.17         April 4, 2009   12.88      186,750     333,540     144,147

------------------------------                                                  

*   Less than one percent.                                                      

(1) Subsequent to June 30, 1999, all of these options granted to Mr. Freadhoff  
were terminated.                                                        

(2) Mr. Camblin commenced his employment with us in August 1999.                

(3) Subsequent to June 30, 1999, all of these options granted to Mr. Corliss    
were terminated.                                                        

(4) Subsequent to June 30, 1999, all of these options granted to                
Mr. Bassett-Parkins were terminated.                                    

(5) Subsequent to June 30, 1999, options for an aggregate of 316,667 shares of  
common stock granted to Ms. Ngo were terminated.                        

(6) Mr. Spencer commenced his employment with Netgateway in September 1999.     

(7) Calculated using the Black Scholes pricing model with the following         
assumptions: (a) volatility--100%, (b) risk free rate--5%, (c) dividend 
yield--0% and (d) time of exercise--10 years.                           

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AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES                                                                          

 The following table sets forth information concerning the year-end number
and value of unexercised options with respect to each of the named executive    
officers. None of these individuals exercised any options during this period.   

                                                        [Enlarge/Download Table]

                                                   NUMBER OF SECURITIES                                 
                                                  UNDERLYING UNEXERCISED        VALUE OF UNEXERCISED    
                                                          OPTIONS               IN-THE-MONEY OPTIONS    
                                                   AT FISCAL YEAR END(#)      AT FISCAL YEAR END($)(1)  
                                                ---------------------------  ---------------------------
NAME                                            EXERCISABLE   UNEXERCISABLE  EXERCISABLE   UNEXERCISABLE
----                                            -----------   -------------  -----------   -------------
                                                                                                        
Keith D. Freadhoff(2)..........................        --             --             --             --  

Roy W. Camblin III(3)..........................        --             --             --             --  

Donald M. Corliss, Jr.(4)......................        --             --             --             --  

David Bassett-Parkins(5).......................        --             --             --             --  

Simon Spencer(6)...............................        --             --             --             --  

Hanh Ngo(7)....................................    75,000         75,000        478,500        478,500  

Craig S. Gatarz(8).............................    21,703        140,109        103,089        665,118  

------------------------                                                        

(1) Based on the closing sale price of Netgateway common stock on the OTC       
bulletin board at fiscal year end of $11.25 per share less the exercise 
price payable for the shares. The fair market value of Netgateway common
    stock at June 30, 1999 was determined on the basis of the closing sale price
of Netgateway common stock on June 30, 1999.                            

(2) At June 30, 1999, Mr. Freadhoff held stock options under Netgateway plans   
  exercisable for an aggregate of 676,000 shares of common stock. Subsequent
to June 30, 1999, all of these options granted to Mr. Freadhoff were    
 terminated. In lieu of these options, Mr. Freadhoff received a restricted
stock award of 400,000 shares of common stock. At June 30, 1999,        
  Mr. Freadhoff held exercisable in-the-money stock options for an aggregate
of 200,000 shares of common stock with a value of $1,276,000 and held   
   unexercisable in-the-money stock options for an aggregate of 476,000 shares
of common stock with a value of $3,036,880.                             

(3) Mr. Camblin commenced his employment with Netgateway in August 1999.        

(4) At June 30, 1999, Mr. Corliss held stock options under Netgateway plans     
  exercisable for an aggregate of 664,000 shares of common stock. Subsequent
to June 30, 1999, all of these options granted to Mr. Corliss were      
terminated. In lieu of these options, Mr. Corliss received a restricted 
stock award of 400,000 shares of common stock. At June 30, 1999,        
   Mr. Corliss held exercisable in-the-money stock options for an aggregate of
200,000 shares of common stock with a value of $1,276,000 and held      
   unexercisable in-the-money stock options for an aggregate of 464,000 shares
of common stock with a value of $2,960,320.                             

(5) At June 30, 1999, Mr. Bassett-Parkins held stock options under Netgateway   
plans exercisable for an aggregate of 640,000 shares of common stock.   
Subsequent to June 30, 1999, all of these options granted to            
Mr. Bassett-Parkins were terminated. In lieu of these options,          
  Mr. Bassett-Parkins received a restricted stock award of 400,000 shares of
common stock. At June 30, 1999, Mr. Bassett-Parkins held exercisable    
in-the-money stock options for an aggregate of 200,000 shares of common 
  stock with a value of $1,276,000 and held unexercisable in-the-money stock
  options for an aggregate of 440,000 shares of common stock with a value of
$2,807,200.                                                             

(6) Mr. Spencer commenced his employment with Netgateway in September 1999.     

(7) At June 30, 1999, Ms. Ngo held stock options under Netgateway's plans       
  exercisable for an aggregate of 466,667 shares of common stock. Subsequent
   to June 30, 1999, options exercisable for an aggregate of 316,667 shares of
common stock granted to Ms. Ngo were terminated. At June 30,            

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  1999, Ms. Ngo held exercisable in-the-money stock options for an aggregate
of 133,333 shares of common stock with a value of $850,665 and held     
   unexercisable in-the-money stock options for an aggregate of 333,334 shares
of common stock with a value of $2,126,671.                             

(8) At June 30, 1999, Mr. Gatarz held stock options under Netgateway's plans    
  exercisable for an aggregate of 161,812 shares of common stock. Subsequent
    to June 30, 1999, we amended performance-based stock options exercisable for
  an aggregate of 150,000 shares of common stock granted to Mr. Gatarz so as
   to provide that these options would vest over a period of two years and not
 as a result of the satisfaction of performance milestones. As a result of
this amendment, options exercisable for an aggregate of 21,703 shares of
common stock were declared vested as of June 30, 1999. Accordingly, at  
    June 30, 1999, Mr. Gatarz held exercisable in-the-money stock options for an
    aggregate of 21,703 shares of common stock with a value of $103,089 and held
   unexercisable in-the-money stock options for an aggregate of 140,109 shares
of common stock with a value of $665,118.                               

 In the event of a change in control of Netgateway, all options previously
granted to these individuals that remain unvested will vest immediately. Upon a 
termination of the employment of any of these individuals following a change in 
control for any reason other than the relevant officer's death or disability or 
for cause, as defined in each employee's employment agreement, Netgateway is    
required to pay to the individual, in the case of Messrs. Freadhoff, Corliss and
Bassett-Parkins, a lump sum severance payment equal to three times the sum of   
(1) his then current annual salary and (2) his highest bonus in the three-year  
period preceding the change in control, and, in the case of Messrs. Camblin,    
Gatarz and Spencer and Ms. Ngo, a lump sum severance payment equal to two times 
the sum of (1) his or her then current annual salary and (2) his or her highest 
bonus in the three year period preceding the change in control. In addition, if 
the relevant individual's employment is terminated by Netgateway without cause  
or by the relevant individual with good reason, then Netgateway is required to  
pay the relevant individual a lump sum severance payment equal to his or her    
current annual salary for the remainder of the employment period. If any of     
these severance payments result in the imposition of an excise tax on the       
relevant individual, Netgateway is required to gross up this individual for the 
excess tax and any income taxes arising as a result of the gross up payment. The
relevant individual may terminate his or her employment at any time upon at     
least 30 days written notice to Netgateway. Upon the termination of the         
agreement, the relevant individual is subject to non-competition, non-disclosure
and non-solicitation provisions for one year.                                   

STOCK OPTION PLANS                                                              

1998 STOCK OPTION PLAN FOR SENIOR EXECUTIVES                            

In December 1998, the board of directors adopted, and Netgateway's      
stockholders approved, the 1998 Stock Option Plan for Senior Executives. This   
plan provides for the grant of options to purchase up to 5,000,000 shares of    
common stock to senior executives of Netgateway. Options may be either incentive
stock options or non-qualified stock options under Federal tax laws.            

This plan is administered by the compensation committee of the board of 
directors, which currently consists of three non-employee directors of the board
of directors. The committee has appointed a plan administrator to address the   
day-to-day administration of this plan. The committee determines, among other   
things, the individuals who shall receive options, the time period during which 
the options may be partially or fully vested and exercisable, the number of     
shares of common stock issuable upon the exercise of each option and the option 
exercise price.                                                                 

   The exercise price per share of common stock subject to an incentive option
may not be less than the fair market value per share of common stock on the date
the option is granted. The per share exercise price of the common stock subject 
to a non-qualified option may be established by the compensation committee, but 
shall not be less than 50% of the fair market value per share of common stock on
the date the option is granted. The aggregate fair market value of common stock 
for which                                                                       

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any person may be granted incentive stock options which first become exercisable
in any calendar year may not exceed $100,000 on the date of grant.              

   No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution or, if permitted, pursuant to a qualified      
domestic relations order and, during the lifetime of the optionee, the option   
will be exercisable only by the optionee. In the event of termination of        
employment by reason of death, disability, or by Netgateway for cause, as       
defined in each optionee's employment agreement, the optionee will have no more 
than 365 days after such termination during which the optionee shall be entitled
to exercise the vested options, unless otherwise determined by the board of     
directors. Upon termination of employment by Netgateway without cause or by the 
optionee for good reason, as defined in the optionee's employment agreement, the
optionee's options remain exercisable to the extent the options were exercisable
on the date of such termination until the expiration date of the options        
pursuant to the option agreement.                                               

Netgateway may grant options under this plan within ten years from the  
effective date of the plan. The effective date of this plan is December 31,     
1998. Holders of incentive stock options granted under this plan cannot exercise
these options more than ten years from the date of grant. Payment of the        
exercise price may be made by (1) delivery of cash or a check, bank draft or    
money order, in United States dollars, payable to the order of Netgateway,      
(2) through delivery to Netgateway of shares of common stock already owned by   
the optionee with an aggregate fair market value on the date of exercise equal  
to the total exercise price, (3) by having shares with an aggregate fair market 
value on the date of exercise equal to the total exercise price (A) withheld by 
Netgateway or (B) sold by a broker-dealer under the circumstances meeting the   
requirements of 12 C.F.R. Section 220 or any successor thereof, (4) by any      
combination of the above methods of payment or (5) by any other means determined
by the board of directors. Therefore, if it is provided in an optionee's option 
agreement, the optionee may be able to tender shares of common stock to purchase
additional shares of common stock and may theoretically exercise all of his     
stock options with no additional investment other than the purchase of his      
original shares.                                                                

Any unexercised options that expire or that terminate upon an optionee's
ceasing to be employed by Netgateway become available again for reissuance under
this plan.                                                                      

    As of March 31, 2000, options exercisable for an aggregate of 835,714 shares
of common stock have been granted pursuant to this plan at a weighted average   
exercise price of $3.41 per share.                                              

1998 STOCK COMPENSATION PROGRAM                                         

In July 1998, the board of directors adopted the 1998 Stock Compensation
Program. This program provides for the grant of options to purchase up to       
1,000,000 shares of common stock to officers, employees, directors and          
independent contractors and agents of Netgateway. Options may be either         
incentive stock options or non-qualified stock options under Federal tax laws.  

  This program is administered by the compensation committee of the board of
directors, which currently consists of three non-employee directors of the board
of directors. The committee has appointed a plan administrator to address the   
day-to-day administration of this plan. The compensation committee determines,  
among other things, the individuals who shall receive options, the time period  
during which the options may be partially or fully vested and exercisable, the  
number of shares of common stock issuable upon the exercise of each option and  
the option exercise price.                                                      

   The exercise price per share of common stock subject to an incentive option
may not be less than the fair market value per share of common stock on the date
the option is granted. The aggregate fair market value of common stock for which
any person may be granted incentive stock options which first become exercisable
in any calendar year may not exceed $100,000 on the date of grant.              

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   No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution or, if permitted, pursuant to a qualified      
domestic relations order and, during the lifetime of the optionee, the option   
will be exercisable only by the optionee. In the event of termination of        
employment for reasons other than the death or disability of the optionee, the  
option shall terminate immediately; provided, however, that the board of        
directors may, in its sole discretion, allow the option to be exercised, to the 
extent exercisable on the date of termination of employment or service, at      
anytime within 60 days from the date of termination of employment or service. In
the event of termination of employment by reason of the death or disability of  
the optionee, the option may be exercised, to the extent exercisable on the date
of death or disability, within one year from such date.                         

 Netgateway may grant options under this program within ten years from the
effective date of the plan. The effective date of this program is July 31, 1998.
Holders of incentive stock options granted under this program cannot exercise   
these options more than ten years from the date of grant. Payment of the        
exercise price may be made by (1) delivery of cash or a check, bank draft or    
money order, in United States dollars, payable to the order of Netgateway,      
(2) through delivery to Netgateway of shares of common stock already owned by   
the optionee with an aggregate fair market value on the date of exercise equal  
to the total exercise price, (3) by having shares with an aggregate fair market 
value on the date of exercise equal to the total exercise price (A) withheld by 
Netgateway or (B) sold by a broker-dealer under the circumstances meeting the   
requirements of 12 C.F.R. Section 220 or any successor thereof, (4) by any      
combination of the above methods of payment or (5) by any other means determined
by the board of directors. Therefore, if that is provided in an optionee's      
option agreement, the optionee may be able to tender shares of common stock to  
purchase additional shares of common stock and may theoretically exercise all of
his stock options with no additional investment other than the purchase of his  
original shares.                                                                

Any unexercised options that expire or that terminate upon an optionee's
ceasing to be employed by Netgateway become available again for reissuance under
this program.                                                                   

This program permits Netgateway to grant, in addition to incentive stock
options and non-qualified stock options:                                        

- rights to purchase shares of our common stock to employees;           

- restricted shares of Netgateway common stock;                         

- stock appreciation rights; and                                        

- performance shares of common stock.                                   

However, Netgateway has not issued any other type of compensation under this    
program other than non-qualified stock options and has agreed not to do so in   
the future.                                                                     

    As of March 31, 2000, options exercisable for an aggregate of 720,451 shares
of common stock have been granted pursuant to this program at a weighted average
exercise price of $3.62 per share.                                              

1999 STOCK OPTION PLAN FOR NON-EXECUTIVES                               

   In July 1999, the board of directors adopted the 1999 Stock Option Plan for
Non-Executives. This program is administered by the compensation committee of   
the board of directors, which currently consists of three non-employee directors
of the board of directors. The compensation committee has appointed a plan      
administrator to address the day to day administration of this plan. The        
compensation committee determines, among other things, the individuals who shall
receive options, the time period during which the options may be partially or   
fully vested and exercisable, the number of shares of common stock issuable upon
the exercise of each option and the option exercise price.                      

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The exercise price per share of common stock subject to an option is    
determined on the date of grant, and is generally fixed at 100% of the fair     
market value per share at the time of grant. The exercise price of any option   
granted to an option who owns stock possessing more than 10% of the voting power
of Netgateway's outstanding capital stock must equal at least 110% of the fair  
market value of the common stock on the date of grant. Payment of the exercise  
price may be made by (1) delivery of cash or a check, bank draft or money order 
in United States dollars, payable to the order of Netgateway, (2) through       
delivery to Netgateway of shares of common stock already owned by the optionee  
with an aggregate fair market value on the date of exercise equal to the total  
exercise price (3) by having shares with an aggregate fair market value on the  
date of exercise equal to the total exercise price (A) withheld by Netgateway or
(B) sold by a broker-dealer under circumstances meeting the requirements of 12  
C.F.R. Section 220 or any successor thereof, (4) by any combination of the above
methods of payment or (5) by any other means determined by the board of         
directors.                                                                      

Options granted to employees under the 1999 Stock Option Plan for       
Non-Executives generally become exercisable in increments, based on the         
optionee's continued employment with Netgateway, over a period of up to three   
years. The form of option agreement generally provides that options granted     
under the 1999 Stock Option Plan for Non-Executives is not transferable by the  
optionee, other than by will or the laws of descent and distribution, and are   
exercisable during the optionee's lifetime only by the optionee. In the event of
termination of employment for reasons other than the death or disability of the 
optionee, the option shall terminate immediately; provided, however, that the   
board of directors may, in its sole discretion, allow the option to be          
exercised, to the extent exercisable on the date of termination of employment or
service, at anytime within 60 days from the date of termination of employment or
service. In the event of termination of employment by reason of the death or    
disability of the optionee, the option may be exercised, to the extent          
exercisable on the date of death or disability, within one year from such date. 
Generally, in the event of a merger of Netgateway with or into another          
corporation or a sale of all or substantially all of Netgateway's assets, all   
outstanding options under the 1999 Stock Option Plan for Non-Executives shall   
accelerate and become fully exercisable upon consummation of such merger or sale
of assets.                                                                      

The board may amend the 1999 Stock Option Plan for Non-Executives at any
time or from time to time or may terminate the 1999 Stock Option Plan for       
Non-Executives without the approval of the stockholders, provided that          
stockholder approval is required for any amendment to the 1999 Stock Option Plan
for Non-Executives requiring stockholder approval under applicable law as in    
effect at the time. However, no action by the board of directors or stockholders
may alter or impair any option previously granted under the 1999 Stock Option   
Plan for Non-Executives. The board may accelerate the exercisability of any     
option or waive any condition or restriction pertaining to such option at any   
time.                                                                           

Any unexercised options that expire or that terminate upon an optionee's
ceasing to be employed by Netgateway become available for reissuance by         
Netgateway.                                                                     

The 1999 Stock Option Plan for Non-Executives provides for the grant of 
nonstatutory stock options. Generally, an optionee will not recognize any       
taxable income at the time he or she is granted a nonstatutory option. Upon its 
exercise, however, the optionee will generally recognize taxable ordinary income
measured as the excess of the then fair market value of the shares acquired over
the exercise price of the option. Any taxable income recognized in connection   
with an option exercise by an optionee who is also an employee of Netgateway    
will be subject to tax withholding by Netgateway. Netgateway will be entitled to
a tax deduction in the same amount as the ordinary income recognized by the     
optionee with respect to shares acquired upon exercise of a nonstatutory option.
Upon resale of the shares by the optionee, any difference between the sales     
price received and the fair market value for the shares on the date of exercise 
of the option will be treated as long-term or short-term capital gain or loss,  
depending on the optionee's holding period for the shares.                      

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The foregoing is only a summary, based on the current federal income tax
code and treasury regulations, of the federal income tax consequences to the    
optionee and Netgateway with respect to the grant and exercise of options under 
the 1999 Stock Option Plan for Non-Executives. It does not purport to be        
complete, and does not discuss the tax consequences of the optionee's death or  
the income tax laws of any municipality, state or foreign country in which an   
optionee may reside.                                                            

As of March 31, 2000, options exercisable for an aggregate of 1,577,242 
shares of common stock have been granted pursuant to this plan at a weighted    
average exercise price of $9.08.                                                

Proposals to approve and adopt this plan and to increase the number of  
shares available for grant under this plan from 2,000,000 to 5,000,000 will be  
considered at a special meeting of Netgateway stockholders on May 24, 2000.     

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION                     

   Netgateway did not have a compensation committee during the period from its
inception on March 1, 1998 through September 30, 1998. Messrs. Beebe, Brock and 
Dillon currently are members of the compensation committee. No interlocking     
relationships exist between Netgateway's compensation committee and board of    
directors or compensation committee of any other company, nor has any such      
interlocking relationship existed in the past. There are no interlocking        
relationships between Netgateway and other entities that might affect the       
determination of the compensation of our directors and executive officers.      

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS                             

   Netgateway's certificate of incorporation and/or by-laws include provisions
to (1) indemnify the directors and officers to the fullest extent permitted by  
the Delaware General Corporation Law including circumstances under which        
indemnification is otherwise discretionary and (2) eliminate the personal       
liability of directors and officers for monetary damages resulting from breaches
of their fiduciary duty, except for liability for breaches of the duty of       
loyalty, acts or omissions not in good faith or which involve intentional       
misconduct or a knowing violation of law, violations under Section 174 of the   
Delaware General Corporation Law or for any transaction from which the director 
derived an improper personal benefit. Netgateway believes that these provisions 
are necessary to attract and retain qualified persons as directors and officers.

 Netgateway has directors and officers liability insurance in an amount of
not less than $9 million.                                                       

 Insofar as indemnification for liability arising under the Securities Act
may be permitted to Netgateway's directors, officers and controlling persons    
pursuant to the foregoing provisions or otherwise, Netgateway has been advised  
that, in the opinion of the SEC, such indemnification is against public policy  
as expressed in the Securities Act and is, therefore, unenforceable.            

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF NETGATEWAY 

The following table sets forth, as of March 31, 2000:                   

- each person who is known by Netgateway to be the owner of record or   
beneficial owner of more than 5% of the outstanding common stock;   

- each of our directors and executive officers named in the Summary     
Compensation Table, as of March 31, 2000; and                       

  - all of Netgateway's current directors and executive officers as a group,

the number of shares of common stock beneficially owned by each person and group
and the percentage of the outstanding shares owned by each person and group.    

  Except as otherwise noted below, the address of each of the persons in the
table is c/o Netgateway, Inc., 300 Oceangate, 5th Floor, Long Beach, California 
90802.                                                                          

                                                        [Enlarge/Download Table]

                                                   NUMBER OF WARRANTS                                    
                                                    OR OPTION GRANTS                                     
                                                    UNDER NETGATEWAY                     PERCENT OF CLASS
                                                     STOCK OPTIONS     TOTAL BENEFICIAL    BENEFICIALLY  
NAME OF BENEFICIAL OWNER             SHARES OWNED       PLANS(1)         OWNERSHIP(2)         OWNED      
------------------------             ------------  ------------------  ----------------  ----------------
                                                                                                         
Keith D. Freadhoff.................   1,750,215               0            1,750,215(3)        10.0%     
Roy W. Camblin III.................     500,000         150,000              650,000            3.7%     
Donald M. Corliss, Jr..............     552,000               0              552,000            3.2%     
David Bassett-Parkins..............     840,667               0              840,667            4.8%     
Simon Spencer......................           0          12,500               12,500              *      
Craig S. Gatarz....................           0          93,071               93,071              *      
Hanh Ngo...........................     105,000         150,000              255,000            1.4%     
John Dillon........................           0           2,500                2,500              *      
R. Scott Beebe.....................     773,651           2,500              776,151            4.5%     
William Brock......................           0         125,000              125,000              *      
Ronald Spire.......................      85,302           2,500               87,802              *      
Joseph Roebuck.....................           0               0                    0              0%     
All current directors and executive                                                                      
  officers as a group (12                                                                                
  persons)(4)......................   4,416,533         406,404            4,822,937           27.0%     

------------------------                                                        

*   Less than 1 percent.                                                        

(1) Reflects warrants or options that will be vested as of March 31, 2000 or    
within 60 days thereof.                                                 

(2) Beneficial ownership is determined in accordance with the rules of the SEC. 
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to  
options held by that person that are currently exercisable or become    
   exercisable within 60 days following March 31, 2000 are deemed outstanding.
These shares, however, are not deemed outstanding for the purpose of    
computing the percentage ownership of any other person. Unless otherwise
   indicated in the footnotes to this table, the persons and entities named in
the table have sole voting and sole investment power with respect to the
shares set forth opposite such stockholder's name.                      

(3) Includes 456,666 shares of common stock currently held by the individual    
 trusts of which Mr. Freadhoff is trustee and over which Mr. Freadhoff has
beneficial ownership.                                                   

(4) Netgateway's current directors and executive officers include: Keith D.     
Freadhoff, Roy W. Camblin III, Donald M. Corliss, Jr., Simon Spencer,   
Jon C. Frojen, Jill Padwa, Craig S. Gatarz, David Bassett-Parkins,      
John Dillon, Scott Beebe, William Brock and Joseph Roebuck.             

STOCKHOLDER RETURN FOR LAST FISCAL YEAR                                         

Netgateway's common stock was not registered under Section 12 of the    
Securities Exchange Act of 1934, as amended, at the end of Netgateway's last    
fiscal year.                                                                    

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RELATED PARTY TRANSACTIONS

  In July 1998 and August 1998, Netgateway loaned $600,000 and an additional
$200,000, respectively, to Admor Memory Corp., a California-based computer      
memory maker, during our then pending acquisition of Admor, which acquisition   
was not consummated. This loan was due and payable on December 31, 1999 and     
accrued interest at the rate of 9.5% per annum until October 1999 and 10%       
thereafter per annum. In August 1998, Netgateway agreed to subordinate this     
obligation to a credit facility obtained by Admor and to receive payment of this
obligation from the net income and the proceeds of equity sales of Admor.       
Subsequently, Admor defaulted on this credit facility and entered receivership. 
Netgateway has reduced the value of this loan in its financial statements to $0 
effective December 31, 1998. Keith D. Freadhoff, Netgateway's chairman of the   
board of directors and chief executive officer, and Scott Beebe, one of         
Netgateway's directors, beneficially own less than 1% and 2.89%, respectively,  
of the outstanding capital stock of Admor. Donald Danks, the beneficial owner of
491,783 shares of Netgateway common stock, owned approximately 1.6% of the      
outstanding common stock of Admor. These individuals did not directly or        
indirectly receive any of the proceeds of these loans.                          

  From Netgateway's inception on March 1, 1998 until June 1998, Netgateway's
business plan was to engage in the licensing and distribution of software       
support materials for the governmental and educational markets. In June 1998,   
Netgateway changed its business model to the development of technology to enable
businesses and other organizations to engage in eCommerce. In connection with   
the implementation of Netgateway's initial business plan, Netgateway entered    
into sublicensing agreements related to proprietary courseware of ProSoft, an   
Internet training solutions provider based in Austin, Texas. ProSoft entered    
into a courseware reproduction and licensing agreement with Steps Inc., an      
investment and consulting firm, granting this firm the exclusive right to sell  
courseware to the federal government. This licensing obligation was personally  
guaranteed by Scott Beebe. ProSoft also entered into a courseware reproduction  
and licensing agreement with Training Resources International, granting an      
exclusive right to sell courseware in the education market. This licensing      
obligation was personally guaranteed by Michael Khaled, one of Netgateway's     
significant stockholders. Netgateway, with the consent of ProSoft, entered into 
exclusive sublicense agreements with each of Steps and Training Resources. In   
consideration of the sublicense from Training Resources, Netgateway agreed to   
assume the minimum royalty payments required under their master license,        
totaling $1,600,000. In consideration of the sublicense from Steps, Netgateway  

   - assumed the minimum royalty payments required under their master license,
totaling $1,500,000;                                                

- assumed Steps' $200,000 obligation to Vision Holdings, Inc., which had
advanced funds to Steps in connection with its master license; and  

- issued 1,000,000 shares of common stock to Steps.                     

 Of this aggregate obligation of $3,300,000, Netgateway paid approximately
$1,500,000. Due to a lack of revenue derived from these licenses, Netgateway    
terminated the licenses and, in December 1998, entered into a settlement        
agreement with such corporation pursuant to which Netgateway has been released  
from all further obligation with respect to the remaining amounts payable. Steps
is substantially owned by Scott Beebe, one of Netgateway's directors and a      
significant stockholder. Training Resources is owned by Michael Khaled, another 
of Netgateway's significant stockholders. Mr. Freadhoff was a founder of ProSoft
and ProSoft's chief executive officer and a director until his resignation in   
November 1997. Mr. Freadhoff beneficially owns approximately 3.32% of the       
outstanding common stock of ProSoft. Donald M. Corliss, Jr., Netgateway's       
president and a director, and Scott Beebe, a director, each beneficially own    
less than 1%, of the outstanding common stock of ProSoft. Donald Danks, the     
beneficial owner of 491,783 shares of our common stock, was an officer,         
director, and significant stockholder of ProSoft until early 1998.              

 During the period from March 2, 1998 through June 30, 1998, Mr. Freadhoff
loaned Netgateway $132,429, $100,000 of which was converted into a capital      
contribution in June 1998. The remaining                                        

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balance of $32,429 is not interest bearing and is repayable upon demand. During 
the year ended June 30, 1999, $30,630 was repaid.                               

   During the period from March 2, 1998 through June 30, 1998, Michael Khaled,
Donald Danks, and Lynn Turnbow, stockholders of Netgateway, paid on Netgateway's
behalf to ProSoft pursuant to its master licenses $200,000, $100,000, and       
$100,000, respectively, in exchange for an aggregate of 600,000 shares of       
Netgateway common stock.                                                        

In May 1999, Mr. Freadhoff loaned Netgateway $100,000. This loan was    
non-interest bearing. This loan was repaid with a portion of the proceeds of    
Netgateway's summer 1999 private placement. In June 1999, Netgateway loaned     
Mr. Freadhoff $30,000 which was repaid in July 1999.                            

    In November 1998, Netgateway issued warrants exercisable for an aggregate of
300,000 shares of common stock, 50,000 shares of common stock to each of        
Messrs. Freadhoff, Beebe, Danks, and Vanderhoff, and 100,000 shares of common   
stock to Michael Khaled, a significant stockholder of Netgateway. The warrants  
were issued in order to reimburse Messrs. Freadhoff, Beebe, Danks, and          
Vanderhoof for voluntarily transferring to Mr. Khaled an equal number shares of 
common stock in order to settle a dispute between Netgateway and Mr. Khaled.    
These warrants are exercisable at $1.00 per share and expire in November 2000.  

In December 1998, Messrs. Freadhoff, Beebe, Danks, and Vanderhoof,      
contributed to a master trust 450,000, 100,000, 100,000, and 100,000 shares of  
common stock, respectively. The trustee of the master trust is Mr. Freadhoff and
these individuals are the beneficiaries of the master trust. The master trust   
sold 350,000 of these shares to each of two trusts the trustee of which is      
Mr. Freadhoff and the beneficiary of one of which is Donald M. Corliss, Jr.,    
Netgateway's president, chief operating officer and one of its directors and the
beneficiary of one of which is David Bassett-Parkins, formerly Netgateway's     
chief financial officer and chief operating officer, and one of its directors,  
in exchange for a promissory note from each of these trusts in the principal    
amount of $350,000. The master trust sold the remaining 50,000 of these shares  
to a trust the trustee of which is Mr. Freadhoff and the beneficiary of which is
Hanh Ngo, formerly Netgateway's executive vice president--operations, in        
exchange for a promissory note from this trust in the principal amount of       
$50,000. The individual trusts of which Messrs. Corliss and Bassett-Parkins and 
Ms. Ngo are beneficiaries are, by their terms, permitted to deliver the shares  
of common stock to their beneficiaries in three equal installments for a        
purchase price of $1.00 per share on or after January 1, 2000, 2001, and 2002   
(subject to acceleration in the event of a change of control of Netgateway),    
provided that the individual beneficiary of the individual trust in question has
not voluntarily terminated their employment with Netgateway prior to these      
dates. These individuals will satisfy the purchase price for their shares by    
means of the repayment of their respective promissory note to the respective    
individual trust. In the event that any of these beneficiaries should so        
terminate their employment with us prior to these dates, the trustee of the     
respective individual trust will return these shares in individual trust to the 
master trust in satisfaction of the promissory note from this individual trust  
to the master trust. The master trust will then deliver these shares to its     
beneficiaries in proportion to their contributions of shares of common stock to 
the master trust. In January 2000, a new individual trust was formed, the       
trustee of which is Mr. Freadhoff and the beneficiary of which is Roy W. Camblin
III, Netgateway's chief executive officer and a director. At that time, the     
master trust contracted to sell to Mr. Camblin's trust 100,000 shares of common 
stock in exchange for a promissory note in the amount of $425,000.              
Messrs. Freadhoff and Beebe contributed 50,000 shares of common stock each to   
the master trust in respect of this sale to Mr. Camblin trust. The terms of     
Mr. Camblin's trust are substantially similar to the description of the other   
individual trusts set forth above.                                              

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INFORMATION REGARDING GALAXY ENTERPRISES, INC.
GALAXY ENTERPRISES' SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA 

    The following selected historical consolidated financial data should be read
in conjunction with Galaxy Enterprises' consolidated financial statements and   
related notes thereto and Galaxy Enterprises' "Management's Discussion and      
Analysis of Financial Condition and Results of Operations of Galaxy Enterprises"
included elsewhere in this document. The consolidated statement of operations   
data for each of the three years ended December 31, 1997, 1998 and 1999, and the
consolidated balance sheet data at December 31, 1998 and 1999, are derived from 
the consolidated financial statements of Galaxy Enterprises which have been     
audited by Wisan, Smith, Racker & Prescott, LLP, independent accountants, and   
are included elsewhere in this document. The unaudited consolidated statement of
operations data for the nine months ended March 31, 1999 and 2000, are derived  
from the unaudited financial records of Galaxy Enterprises. The unaudited       
consolidated balance sheet data at March 31, 2000 is derived from the unaudited 
consolidated financial statements included elsewhere in the document. In the    
opinion of management, these statements have been prepared on the same basis as 
the audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair statement of the results of
these periods. Historical results are not necessarily indicative of the results 
to be expected in the future.                                                   

                                                        [Enlarge/Download Table]

                                                                                    NINE MONTHS ENDED 
                                                     YEAR ENDED DECEMBER 31,            MARCH 31,     
                                                  ------------------------------   -------------------
                                                    1997       1998       1999       1999       2000  
                                                  --------   --------   --------   --------   --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)      
                                                                                                      
CONSOLIDATED STATEMENT OF OPERATIONS DATA:                                                            
Revenue..........................................  $2,495     11,448     17,934       8,159    17,840 
Income (loss) from operations....................     126         18     (7,111)     (1,485)   (6,888)
Net income (loss)................................      87         35    (12,639)     (6,628)   (6,927)
Net loss per common share                                                                             
  Basic..........................................    0.02       0.01      (2.23)      (1.23)    (1.20)
  Diluted........................................    0.02       0.01      (2.23)      (1.23)    (1.20)
Weighted average common shares outstanding                                                            
  Basic..........................................   5,272      5,272      5,676       5,390     5,768 
  Diluted........................................   5,272      5,725      5,676       5,390     5,768 

                                                        [Enlarge/Download Table]

                                                                                      AT    
                                                               AT DECEMBER 31,    MARCH 31, 
                                                             -------------------  ----------
                                                               1998       1999       2000   
                                                             --------   --------  ----------
                                                                                            
CONSOLIDATED BALANCE SHEET DATA:                                                            
Cash........................................................  $   25        133          81 
Working capital (deficit)...................................    (800)   (11,330)    (12,834)
Total assets................................................   1,335      3,231       4,473 
Short-term debt.............................................     115        162         543 
Long-term debt..............................................      --          4           5 
Stockholder's equity (deficit)..............................     256    (10,594)    (12,481)

Note 1--In calendar year 1999, Galaxy Enterprises acquired substantially all of 
the assets of Impact Media, LLC. The operations of Impact Media, LLC are        
included in the consolidated statement of operations of Galaxy Enterprises since
the date of acquisition.                                                        

Note 2--In calendar year 1997, Galaxy Enterprises purchased all of the assets of
both Profit Education Systems, Inc. (PES) and CO-OP Business Services (CO-OP).  
Galaxy Enterprises agreed to assume the liabilities of PES and CO-OP in exchange
for their assets.                                                               

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Note 3--As of December 31, 1999, Galaxy Enterprises recorded a charge of        
$5.45 million ($.96 per share), which represents the cumulative effect of a     
change in accounting principle regarding revenue recognition. Upon evaluation of
the accounting requirements of Staff Accounting Bulletin (SAB) 101, Galaxy      
Enterprises determined that it is required to adopt the provisions and that     
revenue recognition will more closely parallel the time period over which the   
revenue is earned. The adoption of this modification in revenue recognition     
policy is reflected in the 1999 financial statements as of and for the year     
ended December 31, 1999.                                                        

Note 4--During 1999, Galaxy Enterprises' board of directors granted an          
additional 788,750 options pending the approval of Galaxy Enterprises'          
shareholders. Shareholder approval is necessary in order to expand the number of
shares authorized under the plan from 1,000,000 to 2,000,000. As shareholder    
approval had not been obtained as of March 31, 2000 all options granted in      
excess of the original 1,000,000 shares authorized are not considered           
outstanding and have not been included in the preceding analysis. Shareholder   
approval was obtained at the annual meeting held on May 17, 2000. For accounting
purposes the options were deemed to have been granted on that date. The fair    
market value of the stock at the closing of the market on May 16, 2000 was $1.69
per share. The difference between the option grant price given to employees and 
$1.69 gives rise to compensation expense which affects the net income (loss) for
the period over which the options become exercisable under the vesting schedule 
in the plan. As a result, approximately $24,000 of compensation expense will be 
recognized each fiscal year. Compensation expense recognized under these options
will be added to the amortization of previously issued options resulting in an  
approximate $60,000 annual increase in compensation expense. These amounts will 
be recognized over the vesting period of five years adjusted for exercises and  
cancellations.                                                                  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
AND RESULTS OF OPERATION OF GALAXY ENTERPRISES

  THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF GALAXY ENTERPRISES' FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND OTHER PORTIONS OF THIS JOINT PROXY      
STATEMENT/PROSPECTUS CONTAIN FORWARD-LOOKING INFORMATION THAT INVOLVE RISKS AND 
UNCERTAINTIES. GALAXY ENTERPRISES' ACTUAL RESULTS COULD DIFFER MATERIALLY FROM  
THOSE ANTICIPATED BY THIS FORWARD-LOOKING INFORMATION. FACTORS THAT MAY CAUSE   
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE     
HEADING "RISK FACTORS" AND ELSEWHERE IN THIS JOINT PROXY STATEMENT/ PROSPECTUS, 
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH GALAXY ENTERPRISES' FINANCIAL     
STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.         

    The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of Galaxy Enterprises and   
other financial information appearing elsewhere in this joint proxy             
statement/prospectus.                                                           

RESULTS OF OPERATIONS                                                           

THREE MONTHS ENDED MARCH 31, 1999 AND 2000                                      

REVENUES                                                                

  Galaxy Enterprises' sales for the three-month period ending March 31, 2000
were $6,282,626 as compared to $2,879,031 for the similar period ending         
March 31, 1999, an increase of 118%. This sales comparison between the two      
periods should only be made taking into account the change in revenue           
recognition policies as described in the notes to the financial statements. The 
increase in sales was partially due to increased attendance at Galaxy           
Enterprises' Internet training workshops. During the first three months of 2000,
Galaxy Enterprises conducted 83 workshops compared with 38 for the similar      
period in 1999. In addition, IMI contributed $1,058,684 in sales. IMI's assets  
were purchased on May 31, 1999 so there were no corresponding sales in the first
quarter of 1999.                                                                

COST OF SERVICES/PRODUCTS SOLD                                          

   Cost of sales during the first quarter of 2000 totaled $4,563,186, which is
equal to 72.5% of revenues. Cost of sales during the first quarter of 1999      
totaled $1,944,500, which is equal to 67.5% of revenues. This increase in the   
cost of sales as a percentage of revenues is primarily due to an increase in the
cost of conducting the Internet training workshops and programming customer     
storefronts. Another factor contributing to the lower gross profit was an       
increase in telemarketing sales, which have lower margins. The products sold by 
IMI consist of multimedia brochures and shaped compact disks which at current   
volume levels have lower gross profit margins than Galaxy Enterprises' other    
products. Cost of sales is made up of the cost of tangible products sold, the   
cost to conduct Internet training workshops, the cost to program customer       
storefronts and contract telemarketing services. Cost of sales does not include 
depreciation.                                                                   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                            

 Selling expenses in the first quarter were $2,405,087 in 2000 compared to
$1,281,558 for the comparable period in 1999. These expenses, as a percentage of
sales, decreased in 2000 to 38% from 45% in 1999. The improved percentage was   
the result of Galaxy Enterprises' increased volume of Internet training         
workshops that provided economies of scale, as well as the contribution to      
revenues from IMI, which has lower selling expenses in its business model.      

Administrative expenses were $1,136,359 during the first quarter of 2000
compared to $481,693 in the preceding year's first quarter. As a percentage of  
sales, these expenses increased to 18% in 2000 from 17% in 1999. Galaxy         
Enterprises moved to larger quarters and incurred other expenses that were      
necessary to sustain the year to year growth. The operations of IMI also        
contributed to higher                                                           

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administrative expenses. Galaxy Enterprises anticipates that such expenses as a 
percentage of sales will improve in the future, as increasing revenues will not 
require proportional increases in overhead type costs.                          

DEPRECIATION                                                            

 Depreciation expense in the first quarter of 2000 was $33,611 compared to
$25,724 in 1999. This was the result of purchases of computer equipment,        
software and other long-term assets.                                            

AMORTIZATION                                                            

During 2000, amortization of goodwill was $16,545 compared to $14,450 in
1999. Total goodwill at the end of the period was $833,889 net of amortization  
to date. The goodwill arose from the purchase by Galaxy Enterprises of the      
assets and business interests of Profit Education Systems, Inc., CO-OP Business 
Services, Inc. and Impact Media, LLC.                                           

INCOME TAXES                                                            

Since Galaxy Enterprises incureed a loss for the period, there is no    
provision for income taxes in the current year. Galaxy Enterprises has not      
recorded an income tax benefit as a result of the loss for the year or other    
temporary differences since it is uncertain as to when Galaxy Enterprises will  
become profitable and thereby be able to use the benefit of such items. The     
income tax benefit recorded in the first quarter of 1999 has been written off.  

NET INCOME/LOSS                                                         

 Galaxy Enterprises reported a net loss of $1,906,913 for the three months
ending March 31, 2000, as compared to a net loss of $6,281,932 for the similar  
period in 1999. On a per share basis, this amounted to a loss of $.32 per share 
in 2000 as compared to a loss of $1.12 per share in 1999. The loss in 1999      
included the cumulative effect on prior years of an accounting change. The      
change was relative to revenue recognition as is more fully explained in the    
notes to the financial statements. The 1999 loss before the cumulative effect   
adjustment was $831,281.                                                        

YEARS ENDED DECEMBER 31, 1998 AND 1999                                          

REVENUES                                                                

Galaxy Enterprises' sales for the calendar year ending December 31, 1999
were $17,934,277 as compared to $11,448,392 for the twelve months ending        
December 31, 1998, an increase of 56.7%. This sales comparison between the two  
years should only be made taking into account that during December 1999, the SEC
published Staff Accounting Bulletin Number 101 which deals with revenue         
recognition issues. The SEC issued the Bulletin to offer guidance on how revenue
should be recognized for various transactions including nonrefundable up front  
fees. Some of Galaxy Enterprises' revenues come from up front fees and therefore
should be accounted for as described in the Bulletin. See the notes to the      
financial statements for a more detailed explanation of this change. Galaxy     
Enterprises deferred $10,551,402 of 1999 revenues into the years 2000 and 2001  
and recognized $5,256,490 as revenues carried into 1999 from 1998. These        
transactions were accounted for as a change in accounting principal pursuant to 
Staff Accounting Bulletin 101 during the year ending December 31, 1999.         

The sales increase was partially due to increased attendance at Galaxy  
Enterprises' Internet training workshops. During 1999, Galaxy Enterprises       
conducted 177 workshops compared to 108 in 1998. In addition Galaxy Enterprises'
Impact Media business generated sales for the year of $3,646,315. Additional    
segment information on the Impact Media business and the Galaxy Mall business is
in footnote 14 to Galaxy Enterprises' financial statements. The Impact Media    
business was acquired effective May 31, 1999 when Galaxy Enterprises, through   
its subsidiary IMI, purchased the assets and                                    

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business interests of Impact Media. There were no corresponding sales in 1998.  
The purchase transaction is more completely described in Galaxy Enterprises'    
Form 8-K/A dated June 25, 1999.                                                 

The pending merger with Netgateway will also offer Galaxy Enterprises   
additional opportunities to increase revenues through contacts with Netgateway's
customers. In particular, the cable division of Netgateway has a program which  
it is anticipated will bring additional people into Galaxy Enterprises'         
workshops.                                                                      

SEASONALITY                                                             

    Revenues during the year are subject to seasonal fluctuations. The first and
second calendar quarters are generally stronger than the third and fourth       
quarters. Customers seem less interested in attending Galaxy Enterprises'       
workshops during the period July 15th through Labor day, and again during the   
holiday season from Thanksgiving Day through the first week of the following    
January.                                                                        

  IMI sales began May 31, 1999 and therefore it is not possible to determine
the seasonal fluctuations that may be present on a quarterly basis until such   
time as we have at least 12 full months of operations.                          

  The change in accounting principle mentioned above was proposed by the SEC
in December 1999 so previously reported quarterly revenues during the year were 
on the same basis used in 1998 and prior periods.                               

COST OF SALES/PRODUCTS SOLD                                             

 Cost of sales during 1999 totaled $13,506,633, which is equal to 75.3% of
revenues. Cost of sales during 1998 totaled $5,105,617, which is equal to 44.5% 
of revenues. This comparison, like the sales comparison, should be made in light
of the effect of adopting Staff Accounting Bulletin 101. The increase in the    
cost of sales as a percentage of revenues is primarily due to the deferral of   
revenue. Also affecting the change was an increase in telemarketing sales, which
have lower margins and IMI's sales which also have lower margins.               

  Galaxy Mall's cost of sales were equal to 67.3% of sales in 1999 and 44.5%
in 1998. This increase is due to the factors explained above. IMI's cost of     
sales was 107.4% in 1999.                                                       

IMI's sales are made up of compact discs and multi media presentations. 
During 1999 only $69,487 were multi media projects. The mix is expected to      
change in favor of the multi media projects which have a higher gross profit.   
IMI has raised its prices for compact discs. Galaxy Enterprises anticipates that
overall margins at IMI will improve in the year 2000.                           

   Cost of sales is made up of the cost of tangible products sold, the cost to
conduct Internet training workshops, the cost to program customer storefronts   
and contract telemarketing services. Cost of sales does not include any         
depreciation.                                                                   

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                            

 Selling, general and administrative expenses were equal to $10,703,741 in
1999 compared to $6,147,356 in 1998. These expenses, as a percentage of sales,  
increased in 1999 to 59.6% from 53.6% in 1998. The increase in the expenses as a
percentage of sales is attributable to increases in advertising, postage,       
mailing expenses and other costs to solicit persons to attend Galaxy            
Enterprises' preview sessions and workshops. In 1998, the revenue generated by  
these activities was recognized when the sale at the workshop was made. Under   
the changed accounting policy much of the revenue from 1999 is deferred into the
year 2000, which results in the higher percentage of recognized sales when      
compared to the same type of expenses.                                          

Galaxy Enterprises anticipates that selling expenses, as a percentage of
sales, will improve in the future as lower cost methods of attracting people to 
the workshops are employed. Galaxy Enterprises                                  

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has developed a number of programs which it believes will have lower costs and  
anticipates that they will be implemented beginning in second quarter of 2000.  

    Certain administrative expenses such as legal, telephone and rent for larger
quarters showed increases as a percentage of sales from 1998 to 1999. Galaxy    
Enterprises anticipates that these expenses, as a percentage of sales, will     
improve in the future as increasing revenues will allow for economies of scale. 

   Selling, general and administrative expenses for IMI totaled $545,621 which
was equal to 14.9% of sales. These same expenses for Galaxy Mall were $9,700,658
which is equal to 69.9% of sales. Galaxy Enterprises' expenses were affected by 
the deferral of revenue mentioned above.                                        

DEPRECIATION                                                            

    Depreciation expense in 1999 was $97,591, ($90,867 at Galaxy Mall and $6,724
at IMI) compared to $53,260 in 1998. This was the result of purchases of        
computer equipment, software and other long-term assets.                        

AMORTIZATION                                                            

During 1999 amortization of goodwill and deferred charges was $61,974   
($57,800 at Galaxy Mall and $4,174 at IMI) compared to $80,175 in 1998. In      
July 1998, the AICPA issued Statement of Position 98-5 "Reporting on the Costs  
of Start-up Activities." SOP 98-5 requires start-up costs to be expensed as     
incurred and requires previously capitalized organization and start-up costs to 
be written-off effective for fiscal years beginning after December 15, 1998.    
Further, SOP 98-5 requires that the write-off be reported as the cumulative     
effect of a change in accounting principle. Accordingly, Galaxy Enterprises     
reported a cumulative effect charge of $67,127 during the year for previously   
capitalized organization costs. The balance of the amortization, $61,974,       
results from the amortization of goodwill. Total goodwill at the end of 1999 was
$850,434, net of amortization. The goodwill arose through the purchase by Galaxy
Enterprises of the assets and business interests of Profit Education            
Systems, Inc., CO-OP Business Services, Inc. and Impact Media, L.L.C.           

INCOME TAXES                                                            

   Income tax expense for 1999 was $2,692, resulting from minimum payments due
for state income taxes and deferred taxes due for various timing differences    
between financial and tax accounting. Galaxy Enterprises has not recorded an    
income tax benefit as a result of the loss for the year or other temporary      
differences since it is uncertain as to when Galaxy Enterprises will become     
profitable and thereby be able to use the benefit of such items.                

NET INCOME/LOSS                                                         

   Galaxy Enterprises reported a net loss of $12,638,600 for the calendar year
ending December 31, 1999, as compared to net income of $35,375 for the          
twelve-month period ending December 31, 1998. The loss included a non-cash      
charge of $5,517,778 which resulted from the deferral of revenue into the years 
2000 and 2001 and the write-off of organization costs which are reflected as a  
change in accounting principle discussed previously. On a per share basis the   
loss amounted to $2.23 per share in 1999 as compared to a profit of $.0067 per  
share in 1998.                                                                  

CAPITAL RESOURCES                                                               

NEW INVESTMENTS                                                         

 Since the end of fiscal year 1998, Galaxy Enterprises sold (1) a $500,000
convertible note to the Augustine Fund through Augustine Capital Management, an 
institutional investor based in Chicago, Illinois; (2) 250,000 shares of Galaxy 
Enterprises common stock to Invest Linc Capital Corp. for                       

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$1,000,000; and (3) 228,570 shares of Galaxy Enterprises common stock to        
Zylo Ltd. for $300,000. During January and February 1999, the Augustine Fund    
converted the note into 169,192 shares of Galaxy Enterprises common stock. These
capital infusions significantly improved Galaxy Enterprises' liquidity and its  
ability to meet ongoing working capital needs. During the first quarter of 2000,
Galaxy Enterprises borrowed $450,000 from Netgateway. These funds were used for 
merger-related expenses and working capital. The notes are due on the earlier of
June 1, 2000 or the date the merger between Galaxy Enterprises and Netgateway   
becomes effective. These capital infusions improved Galaxy Enterprises'         
liquidity and its ability to meet ongoing working capital needs.                

CASH                                                                    

  Cash on hand at March 31, 2000 totalled $81,455 as compared to $132,741 at
December 31, 1999 and $24,719 at December 31, 1998. Bank overdrafts for the same
periods were $420,274, $348,907 and $179,301 respectively.                      

ACCOUNTS RECEIVABLE                                                     

   Accounts receivable, net of allowance for doubtful accounts, was $2,089,525
at March 31, 2000 ($1,913,456 at Galaxy Enterprises and $176,069 at IMI)        
compared to $1,112,947 at December 31, 1999 ($717,971 at Galaxy Mall and        
$394,976 at IMI) and $40,838 at the prior year's end. This increase is the      
result of Galaxy Mall offering to finance customer purchases with monthly       
payments at its Internet training workshops and IMI selling to customers in the 
normal course of business on open account. The receivables associated with the  
Internet training workshops are collected for Galaxy Enterprises by Travelers   
Investment Corporation for a fee.                                               

PREPAID EXPENSES                                                        

Prepaid expenses at March 31, 2000 were $393,909 compared to $336,148 at
December 31, 1999 and $18,549 at December 31, 1998. The increase from 1998 is   
partially the result of payments made by Galaxy Mall for certain marketing costs
that apply directly to Internet training workshops to be held in the future.    
Revenues to be derived from these expenditures will be earned in 2000 and 2001. 
These marketing costs consist of mailings to and newspaper advertising for      
potential customers for Galaxy Enterprises' Internet training workshops that    
target dates in subsequent quarters; the travel costs, meeting rooms and        
supplies used by our employees to hold "preview sessions" which will secure     
attendees to workshops in subsequent quarters; and travel, hotel and other costs
which must be prepaid to support workshops in subsequent quarters.              

CREDIT CARD RESERVES                                                    

Credit card reserves at March 31, 2000 were $447,628 ($425,418 at Galaxy
Mall and $22,210 at IMI) compared to $248,431 at December 31, 1999 and $129,205 
at December 31, 1998. Credit card reserves represent amounts of money due Galaxy
Enterprises from banks and credit card processing companies who have handled    
Visa, Master Card, American Express and Discover Card transactions. Some banks  
require Galaxy Enterprises to leave on deposit with them 5% of the credit card  
proceeds until the amount reaches 50% of one month's transactions. This reserve 
earns interest at the bank's certificate of deposit rate and will be returned to
Galaxy Enterprises at a future date.                                            

ACCOUNTS PAYABLE                                                        

Accounts payable at March 31, 2000 totalled $1,533,833 compared to      
$2,157,389 at December 31, 1999 as compared to $830,774 at the end of 1998.     
These amounts include related party trade payables and bank overdrafts amounting
to $512,543, $348,907 and $224,221, respectively.                               

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DEFERRED REVENUE                                                        

Deferred revenue at March 31, 2000 totalled $13,900,885 ($13,262,974 at 
Galaxy Mall and $637,911 at IMI) compared to $10,745,563 at December 31, 1999   
and $0 at December 31, 1998. As explained under "Revenues" earlier in this      
discussion, Galaxy Enterprises has adopted a change in accounting principle as  
contemplated by Staff Accounting Bulletin 101, which resulted in this amount    
being established for the first time at December 31, 1999. Galaxy Enterprises   
defers revenue from the current quarter into the future, but brings into the    
current quarter amounts deferred in earlier periods that have now been earned   
and can thus be recognized. As long as Galaxy Enterprises continues to grow, as 
it did in the year 2000 first quarter, the amount deferred into the future will 
be greater than the amount recognized from prior quarters and will have a       
negative impact on revenues and earnings. The reverse would be true should sales
fall below current levels.                                                      

CUSTOMER DEPOSITS                                                       

Customer deposits amounted to $532,439 at March 31, 2000 as compared to 
$285,226 at December 31, 1999 and $6,060 at December 31, 1998. This represents  
amounts paid to the company as deposits from customers for orders to be         
delivered in the future. At the time the goods are shipped and title transfers  
to the customer, the amount will be taken into income in accordance with Galaxy 
Enterprises' normal accounting policies.                                        

EQUIPMENT AND PROPERTY                                                  

Equipment increased during the first quarter of 2000 to $262,456 from   
$259,577 at December 31, 1999 and from $171,868 at December 31, 1998 net of     
accumulated depreciation of $190,977 at March 31, 2000, $157,364 at             
December 31, 1999 and $59,773 at December 31, 1998. This was due to the need for
additional computers and other equipment to conduct Galaxy Enterprises'         
business. Additional capital equipment purchases will be necessary as Galaxy    
Enterprises grows. Galaxy Enterprises also leases equipment. Leasing allows     
Galaxy Enterprises the use of equipment without the need to disburse the entire 
purchase price in cash at the time of acquisition.                              

STOCKHOLDERS' EQUITY                                                    

   Total stockholders' equity decreased to a deficit of $12,481,332 during the
first quarter of 2000 compared to a deficit of $10,593,690 at December 31, 1999 
and a positive $256,285 at December 31, 1998. This was mainly the result of the 
change in accounting principle described earlier that established the deferred  
revenue with the resultant net loss from operations for the first quarter of    
2000 and the year ending December 31, 1999. The sale of additional stock        
partially offset the decline during 1999 by the amounts discussed in "New       
Investments" above. Since the establishment of the deferred revenue was a       
non-cash transaction, and no monies were required to be repaid to customers as a
result of the change, Galaxy Enterprises believes it can continue to operate    
inspite of the negative net worth.                                              

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LIQUIDITY                                                                       

RATIOS                                                                  

At March 31, 2000, Galaxy Enterprises' current ratio, current assets    
compared to current liabilities, was .21 to 1 compared to .16 to 1 and .25 to 1 
as of December 31, 1999 and December 31, 1998, respectively. This out of balance
situation is exacerbated by the deferred revenue adjustment. Based on the       
previous accounting policy, the ratios would have been 1.1 to 1 at March 31,    
2000, .68 to 1 at December 31, 1999 and .25 to 1 at December 31, 1998, an       
improving trend.                                                                

FINANCING ARRANGEMENTS                                                  

Galaxy Enterprises has worked out extended payment plans with hotels and
other vendors and is meeting its commitments under the plans. On July 30, 1998, 
Galaxy Enterprises closed on a bank line of credit for $100,000 with Far West   
Bank of Provo, Utah. This credit line is intended to assist Galaxy Enterprises  
through the seasonal slow periods it experiences. Generally, from July 15       
through Labor Day and again from Thanksgiving Day until January 15 of the       
following year, Galaxy Enterprises' business is slower than at other times      
during the year. This seasonal business slow down is the result of fewer        
attendees at Galaxy Enterprises' Internet training seminars during these        
traditional vacation and holiday periods.                                       

CASH FLOW                                                               

  Cash flows from financing activities during the first quarter of 2000 were
$395,683, including a loan from Netgateway of $450,000, which was partially     
offset by repayment of a bank loan. The loan to Netgateway comes due during the 
third quarter of 2000. It will be necessary to obtain additional equity funding 
or long-term loans from banks or other financial institutions for Galaxy        
Enterprises to meet its long-term goals. During the first quarter of 1999,      
Galaxy Enterprises obtained $1,450,000 from the sale of debt and equity         
securities and in the fourth quarter obtained $300,000 from the sale of         
unregistered common stock. $8,850 was obtained from employees who exercised     
their stock options during the year so the total cash in-put from debt and      
equity transactions was $1,758,850.                                             

In conjunction with the merger agreement with Netgateway and upon       
consummation of the merger, Galaxy Enterprises will become a wholly-owned       
subsidiary of Netgateway. The merger is expected to close during the second     
calendar quarter of 2000 and is subject to the satisfaction or waiver by the    
parties of certain conditions. Galaxy Enterprises may be required to pay a      
substantial termination fee if the merger agreement is terminated for certain   
specific reasons. If required, payment of the fee would have a material adverse 
effect on Galaxy Enterprises' business, prospects, financial conditions, results
of operations and its ability to raise future capital.                          

 The foregoing statements are based upon management's current assumptions.

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MARKET PRICE AND DIVIDEND INFORMATION FOR GALAXY ENTERPRISES

    Galaxy Enterprises' common stock has traded on the Nasdaq OTC Bulletin Board
under the symbol "GLXY" since January 7, 1997. The following table sets forth   
the range of high and low bid prices reported on the Nasdaq OTC Bulletin Board  
for Galaxy Enterprises common stock for the periods indicated.                  

                                                                [Download Table]

                                                             HIGH       LOW   
                                                           --------   --------
                                                                              
Fiscal 2000                                                                   
  First Quarter..........................................  $  5.63    $  3.31 

Fiscal 1999                                                                   
  First Quarter..........................................     6.88       2.50 
  Second Quarter.........................................     4.24       1.56 
  Third Quarter..........................................     2.81       1.47 
  Fourth Quarter.........................................     6.00       1.13 

Fiscal 1998                                                                   
  First Quarter..........................................     2.25        .75 
  Second Quarter.........................................     2.12        .75 
  Third Quarter..........................................     2.32        .56 
  Fourth Quarter.........................................     8.63        .56 

  The above bid prices indicate the prices that a market maker is willing to
pay. These quotations do not include retail markups, markdowns or other fees and
commissions and may not represent actual transactions.                          

 Galaxy Enterprises has never paid any cash dividends on its common stock.

   Article VIII, Section 2(e) of Galaxy Enterprises' articles of incorporation
authorizes the board of directors to determine whether any, and if so, what     
part, of Galaxy Enterprises' earned surplus shall be paid in dividends to       
shareholders.                                                                   

    Nevada Revised Statutes Section 78.288 limits Galaxy Enterprises' ability to
pay dividends on its common stock if any such dividend would render the company 
insolvent.                                                                      

  Galaxy Enterprises' credit facility with its bank prohibits the payment of
dividends without the consent of the bank.                                      

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BUSINESS OF GALAXY ENTERPRISES

GENERAL                                                                         

Galaxy Enterprises was organized as a corporation under the laws of the 
State of Nevada on March 3, 1994. Galaxy Enterprises was originally formed under
the name Cipher Voice, Inc., and was incorporated for the purpose of developing,
producing and marketing equipment related to computer hardware security, known  
as a digital voice encryption-decryption electronic device. Galaxy Enterprises  
was unsuccessful in developing the technology and subsequently ceased           
operations. On December 4, 1996, Galaxy Enterprises acquired all of the issued  
and outstanding common stock of Galaxy Mall, Inc., a Wyoming corporation, in    
exchange for 3,600,000 shares of Galaxy Enterprises common stock. As a result of
this stock acquisition, Galaxy Mall became a wholly owned subsidiary of Galaxy  
Enterprises. Galaxy Enterprises has neither filed nor been the subject of a     
bankruptcy, receivership or similar proceeding. On December 16, 1996, Galaxy    
Enterprises changed its name from Cipher Voice, Inc. to Galaxy                  
Enterprises, Inc.                                                               

Effective October 1, 1997 Galaxy Enterprises, through its wholly-owned  
subsidiary Galaxy Mall, acquired the business of Profit Education Systems, a    
Wyoming corporation. Galaxy Enterprises previously had used the services of     
Profit Education Systems as a marketer of its services and as a provider and    
conductor of its Internet education seminars. As part of the Profit Education   
Systems acquisition, Galaxy Enterprises acquired Profit Education Systems'      
marketing strategies and products, employees and assets.                        

Also effective October 1, 1997, Galaxy Enterprises, again through Galaxy
Mall, acquired the business of CO-OP Business Services, Inc., a Utah            
corporation. CO-OP previously had provided Galaxy Mall with customer support,   
electronic storefront programming, and merchant and client interface programs   
for Galaxy Mall's storefronts on the Galaxy Enterprise Mall. As part of the     
transaction, Galaxy Enterprises agreed to assume approximately $85,000 of CO-OP 
payables and liabilities, and assumed future payment of certain existing        
equipment and other leases. CO-OP agreed to transfer to Galaxy Mall its assets  
including computers, office equipment and inventory.                            

Effective May 31, 1999, Galaxy Enterprises, through its wholly owned    
subsidiary IMI, Inc., acquired substantially all of the assets of Impact Media, 
L.L.C., a Utah limited liability company engaged in the design, manufacture and 
marketing of multimedia brochure kits, shaped compact discs and similar products
and services intended to facilitate conducting business over the Internet. The  
assets acquired included, among other things, equipment, inventory and finished 
goods, intellectual property, computer programs and cash and accounts           
receivable, the primary use of which assets relate to the design, manufacture   
and marketing of Impact Media's products and services.                          

SERVICES OFFERED                                                                

GALAXY MALL BUSINESS                                                    

Galaxy Enterprises, through its subsidiary Galaxy Mall, engages in the  
business of selling to its customers Internet services and products which       
include electronic home pages, or storefronts, on its Galaxy Mall, an Internet  
shopping mall, and hosts those storefront sites on its Internet server. Galaxy  
Mall's business is to assist its customers in establishing their businesses on  
the Internet. Storefronts designed and programmed by or for customers by Galaxy 
Enterprises are displayed on the mall. The Galaxy Mall is located at            
HTTP://WWW.GALAXYMALL.COM. Galaxy Mall also operates the portal and search      
engine MatchSite.com. This search engine allows Internet users to locate sites  
of interest on the Web. When a Web user types in a search request, MatchSite    
sends the query to several different resources, including several leading, major
search engines. The responses are then returned to the user organized into a    
uniform format, and ranked by relevance.                                        

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The Galaxy Mall business contracts with consultants and independent     
contractors, or creates and produces in-house, various products and services    
which are used by its customers in marketing their own products or services.    
Galaxy Mall's products include the following:                                   

COMMERCIAL WEB SITES/WEB HOSTING                                        

Galaxy Mall programs commercial web sites with the most current types of
Internet programming, such as HTML, JavaScript and Perl. Each site programmed by
Galaxy Mall for its customer/merchants has available on-line ordering           
capabilities. All orders processed on-line are supported by encrypted security, 
which provides merchants and their customers confidence in the safety of        
ordering products and services on-line. Galaxy Mall either hosts the sites on   
the mall itself, or provides virtual hosting, which gives the                   
customer/merchant's site the appearance of having its own server and a          
non-Galaxy Mall IP address.                                                     

AUTO-RESPONDERS                                                         

    Galaxy Mall sets up e-mail addresses for its merchants that send back to the
individual requesting information an instant reply, then forwards the original  
message to the owner of the auto-responder. Similar to fax-on-demand,           
auto-responders are a powerful marketing tool for merchants offering products or
services. A merchant can write advertising copy for its product and when someone
inquires to the merchant's auto-responder e-mail address, the ad copy is        
immediately sent to the potential customer.                                     

TRACKING SOFTWARE                                                       

Galaxy Mall provides software for a merchant's web site which tracks the
volume of traffic to that web site. It also provides the merchant with          
information concerning the derivation of its potential customer and such        
person's referring universal resource locator, or URL. This enables the merchant
to track its marketing efforts to determine if its potential customer found the 
merchant through the merchant's Internet advertisements or its listings in      
search directories.                                                             

INTERNET CLASSIFIED ADVERTISEMENTS                                      

    Galaxy Mall sells 200 word classified ads on its classified ad network. Each
classified ad runs on the network for 90 days. This network is comprised of     
thousands of listings.                                                          

MERCHANT ACCOUNTS                                                       

   Galaxy Mall sells merchant accounts combined with software which allows the
customer to have real time on-line processing for credit cards and checks.      

BANNER COURSE/BANNER LICENSE                                            

The banner course consists of over 200 pages and 10 audio cassettes of  
instruction. Banners are the equivalent of billboards on the Internet. They are 
graphical images placed throughout the Internet advertising specific web pages. 
Internet users simply click on the banner image when it is displayed and they   
are taken immediately to the site the image is advertising. The purpose of this 
course is to help merchants better understand how banner advertising works on   
the Internet. They enhance their own Internet business by learning how to       
properly use banner advertising to promote their Internet site. The banner      
license, which is sold in conjunction with the course, allows the customer to   
put banners on multiple sites within the Galaxy Mall Banner Network, as well as 
benefit from ongoing discounts for future impression and banner purchases.      

BANNER/IMPRESSIONS                                                      

    Galaxy Mall designs and program banners for its customers. These banners are
then advertised on Galaxy Mall's network of over 20,000 Internet sites. The     
number of banner impressions is determined                                      

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by the number of times the banner advertisement is uploaded, or displayed, on   
one of the banner network's Internet sites. Galaxy Mall's customer purchases a  
number of impressions based upon its specific marketing and advertising needs.  
The Galaxy BannerSource network currently markets in excess of one million      
banner impressions daily to businesses doing commerce on the Internet.          

EXECUTIVE MENTOR PROGRAM                                                

Galaxy Mall's mentoring program is a ten week program in which a select 
number of Galaxy Mall's customers become involved. This program provides a      
personal coach to the customer who works with the customer one-on-one to help   
the customer build its business on the Internet. These services are provided by 
Professional Marketing International, Inc. on a contract basis.                 

IMI BUSINESS                                                                    

 Galaxy Enterprises, through its subsidiary IMI, is engaged in the design,
manufacture and marketing of multimedia brochures, shaped compact disks and     
other products and services intended to facilitate traditional marketing and to 
bridge the gap between conventional and Internet marketing. These CDs are an    
advertising tool and can be used by companies seeking to drive traffic to their 
Web site. Through the use of custom cut CDs, businesses can, in an inexpensive, 
broadband-like format, deliver a multimedia presentation of their corporate     
image or product or tell their story and market their products. A link can be   
embedded on a custom cut CD which activates a local Internet connection and     
browser to connect a customer to that company's Web page, thereby allowing that 
company's customer to place an order or find out the latest information about   
that company and generally interact with that company's Web site. Custom cut    
CD's have also been introduced to the trading card industry to turn traditional 
trading cards into a multimedia presentation or even an Internet experience for 
collectors.                                                                     

IMI's products and services include the following:                      

- MULTIMEDIA PRESENTATIONS. IMI creates custom multimedia presentations 
   which allow a company or individual to deliver its message using sound,
video, text, photos, and which can link to a corporate Web site when
provided on a CD.                                                   

    - CUSTOM CDS. IMI works with clients to design shaped CD-Roms which IMI then
sells to its clients.                                               

  - WEB SITES. IMI designs and develops custom built web sites for small and
medium sized companies.                                             

SALES AND MARKETING                                                             

GALAXY MALL BUSINESS                                                    

Most of the products of Galaxy Enterprises' Galaxy Mall business are    
Internet related and, consequently, do not use traditional distribution         
channels. Galaxy Mall's principal products involve delivering to its customers  
the ability to conduct business over the Internet. Galaxy Mall attracts its     
customers through Internet marketing workshops. These workshops are presented   
several times a week during most weeks of the year. Galaxy Mall rents hotel     
conference rooms in various cities throughout the United States in which it     
hosts its preview sessions and Internet training workshops. Galaxy Mall uses a  
90-minute information seminar which previews the Internet, the "Registered      
Merchant" section and the option to establish a storefront on the Galaxy Mall   
and the Internet marketing workshop. Preview attendees are invited to attend a  
one day workshop at which Galaxy Mall provides an intensive training course on  
Internet marketing using e-mail, news groups, auto-responders, classified ads,  
search engines and other Internet "tools" to market their products and services 
on the Internet. Interested attendees are then offered the opportunity to pay a 
fee to become a registered merchant with the option to establish "storefront"   
presence on the Galaxy Mall to market their products and services.              

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Galaxy Mall advertises its preview sessions in direct mail solicitations
targeted to potential customers meeting certain demographic criteria established
by Galaxy Mall. The direct mail pieces are mailed to persons and small          
businesses located in cities scheduled to be visited by Galaxy Mall's personnel.
Mailing lists approximating the demographics established by Galaxy Mall are     
obtained from list brokers. Announcements of upcoming preview sessions also     
appear in newspaper advertisements in scheduled cities.                         

   Galaxy Mall also uses a telemarketing effort to market Galaxy Mall products
and services, and also conducts its preview sessions and workshops for audiences
assembled by third parties at selected locations.                               

IMI BUSINESS                                                            

  IMI primarily sells its products through two channels, consisting of eight
distributors and an inside sales force of seven employees primarily engaged in  
outbound telemarketing. IMI has no long term agreements with its customers.     

COMPETITION                                                                     

The Internet has developed at a very rapid pace and it is impossible to 
determine what, if any, changes could or will occur that would change current   
competitive business conditions. Galaxy Enterprises anticipates that new        
entrants will try to develop competing Internet malls or new forums for         
conducting e-commerce that could be deemed competitors. Galaxy Enterprises,     
however, believes that it presently has a competitive advantage due to its      
marketing strategies for its Galaxy Mall and other products. In 1995, certain of
Galaxy Enterprises' principals, who at that time were working with Profit       
Education Systems, were instrumental in creating an Internet marketing workshop 
industry. Galaxy Enterprises obtained this Internet marketing workshop expertise
when it acquired Profit Education Systems. To the knowledge of Galaxy           
Enterprises, there were no other businesses engaged in the Internet marketing   
workshop industry at that time. Due to its experience with such marketing       
workshops, Galaxy Enterprises believes it enjoys a strong competitive position  
in this industry. Galaxy Enterprises has used its position as a leader in the   
Internet marketing workshop industry to establish its Galaxy Mall as one of the 
largest malls on the Internet. According to the December 1998 edition of        
Internet World, Galaxy Enterprises is considered "one of the large general      
malls."                                                                         

 Galaxy Enterprises is aware of several companies previously active in the
Internet marketing workshop industry that no longer are connected with the      
industry. Galaxy Enterprises is aware of only three companies currently in the  
industry with which it competes, and to the knowledge of Galaxy Enterprises,    
none of these competitors have been engaged in the industry as long as Galaxy   
Enterprises.                                                                    

 Anticipated and expected technology advances associated with the Internet
itself, increasing use of the Internet, and new software products, are welcome  
advancements expected to attract more interest in the Internet and broaden its  
potential as a viable marketplace and industry. Galaxy Enterprises anticipates  
it can compete successfully, building on its three-year head start in its       
segments of the industry by relying on its infrastructure, existing marketing   
strategies and techniques, systems and procedures, by adding additional products
and services in the future, and by periodic revision of such methods of doing   
business as deemed necessary.                                                   

IMI's markets are relatively new and there is little accumulated data or
accurate means of assessing size but they are believed to be highly fragmented. 
IMI competes with other providers of custom cut CDs, as well as providers of    
regular CDs, zip disks, and other means which may be used to deliver a          
multimedia presentation to the end consumer. IMI's website development business 
and multimedia presentation creation business compete with many different       
businesses, including advertising agencies, web development houses and          
multimedia development houses as well as similar internal resources of many     
businesses.                                                                     

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REAL PROPERTY                                                                   

    Galaxy Enterprises' principal office is located at 754 E. Technology Avenue,
Orem, Utah 84097. The property consists of the basement and third floor of      
approximately 12,700 square feet of a three story office building and includes  
landscaping and a paved parking area adequate for employee and customer vehicle 
parking. The property is leased from an unaffiliated third party for a period of
five years with an annual rental of $241,764. Galaxy Enterprises' IMI business  
is located at 890 North Industrial Park Drive, Orem, Utah 84057. The property is
an unfurnished two-story office building having approximately 8,000 square feet,
and includes landscaping and a paved parking area adequate for employee and     
customer vehicle parking. The property is leased from an unaffiliated third     
party for a period of three years with annual rental of $72,000. Galaxy         
Enterprises maintains tenant fire and casualty insurance on its properties      
located in such buildings in an amount deemed adequate by Galaxy Enterprises.   
Galaxy Enterprises also rents on a daily basis hotel conference rooms and       
facilities from time to time in various cities throughout the United States and 
Canada at which it hosts its preview session and Internet training workshops.   
Galaxy Enterprises is under no long-term obligations in connection with such    
hotels.                                                                         

SUPPLIERS AND CUSTOMERS                                                         

   Galaxy Mall does not rely on any raw materials for its business operations.
IMI purchases its custom cut CDs ready for shipment to IMI's customers pursuant 
to purchase orders without guaranteed supply arrangements from two suppliers.   

   Although Galaxy Enterprises does not rely, nor is it dependent, on one or a
few major customers, IMI's top two customers accounted for approximately 54% of 
IMI's sales during the period May 31, 1999 through December 31, 1999. Neither of
these customers accounted for more than 10% of Galaxy Enterprises' total sales. 

INTELLECTUAL PROPERTY                                                           

   Galaxy Enterprises' business depends significantly on intellectual property
developed by Galaxy Enterprises and intellectual property licensed from third   
parties. Galaxy Enterprises generally does not seek copyright and patent        
protection for its intellectual property but does endeavor to treat such as     
trade secrets where appropriate and has procedures in place to maintain their   
status as such. Galaxy Enterprises has been informed that certain of IMI's      
shaped CD products may infringe patents of third parties. IMI's supplier of     
these CDs has agreed to indemnify Galaxy Enterprises with respect to these      
claims and IMI currently plans to continue to sell these products pending       
further developments. There can be no assurance that Galaxy Enterprises'        
products do not infringe these or other patents.                                

GOVERNMENTAL REGULATIONS                                                        

   Galaxy Enterprises is not aware of any existing governmental regulation and
does not anticipate any governmental regulation which materially affects its    
ability to conduct its business operations. Currently sales on the Internet are 
not taxed. Whether or when governmental agencies impose sales taxes on Internet 
sales, it is expected they will be passed on to the consumer as in traditional  
marketing and sales.                                                            

From time to time, Galaxy Enterprises receives inquiries from attorneys 
general offices and other regulators about civil and criminal compliance matters
with various state and federal regulations. These inquiries sometimes rise to   
the level of investigations and litigation. In the past, Galaxy Enterprises has 
received letters of inquiry from and/or has been made aware of investigations by
the attorney general offices in Hawaii, Illinois, Nebraska, North Carolina, Utah
and Texas and from a regional office of the Federal Trade Commission. Galaxy    
Enterprises has responded to these inquiries, and has generally been successful 
in addressing the concerns of these persons and entities, although there is     
generally no formal closing of the inquiry or investigation and certain of      
these, including Illinois and Utah, are                                         

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believed to be ongoing. Hawaii has taken the position that Galaxy's marketing   
efforts, in their current form, must comply with its "Door-to-Door Sale Law."   

On June 18, 1998, the Commonwealth of Kentucky filed an action against  
Galaxy Mall, Inc. under the Kentucky business opportunity statute. On           
December 15, 1998, an order of dismissal was entered based on Galaxy Mall       
agreeing to advise the Kentucky Attorney General's office of any complaints from
Galaxy Mall customers in Kentucky for a period of twelve months from the date of
entry of the order of dismissal. There can be no assurance that these or other  
inquiries and investigations will not have a material adverse effect on Galaxy  
Enterprises. Cost of compliance with environmental laws are nominal, if any, and
are therefore immaterial to Galaxy Enerprises' operations.                      

RESEARCH AND DEVELOPMENT                                                        

During the last two fiscal years, Galaxy Enterprises has engaged in     
extensive research and development activities, developing the various products  
and services described above. Galaxy Enterprises also has developed the         
following:                                                                      

- An on-line real time order processing system interface allowing its   
customers to have real time verification and processing of all their
orders.                                                             

- A "shopping cart" system allowing unlimited products to be added to an
    on-line order. It calculates the product price totals and adds shipping,
handling and other applicable charges.                              

- A "window shopping" feature allowing users to surf through random     
storefronts with greater ease.                                      

  - Automated auto-responder software allowing a Galaxy Enterprises customer
   to log in to make changes to the customer's auto-responder text, rather
than relying on Galaxy Enterprises programmers to make such changes.

- A database driven merchant registration service allowing Galaxy       
      Enterprises to monitor and keep secure its "Merchants Only" section of the
Galaxy Mall.                                                        

- Integrated directory database and billing database, providing Galaxy  
Enterprises with faster and easier billing of its customers.        

- New banner exchange software allowing Galaxy to sell advertising space
  based upon the impressions each site generates. The banner exchange is
located at bannersource.com.                                        

- Development of "Quick-Links" for incorporation into multimedia        
presentations to allow easy access to customer websites.            

   - A search engine, Matchsite.com, which simultaneously queries other search
engines.                                                            

Galaxy Enterprises estimates that it spent approximately $146,000 during
1999 and $250,000 during 1998 on research and development activities.           

COMPLIANCE WITH ENVIRONMENTAL LAWS                                              

Cost of compliance with environmental laws are nominal, if any, and are 
therefore immaterial to Galaxy Enterprises' operations.                         

EMPLOYEES                                                                       

 As of April 15, 2000, Galaxy Enterprises employed 171 people, 146 of whom
work full-time. Of the total employees, six employees are executive personnel,  
47 are technical personnel, 65 are in marketing and sales, 23 are in fulfillment
and 30 were administrative, accounting, information systems, and clerical       
personnel.                                                                      

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 
OF GALAXY ENTERPRISES 

The following table sets forth, as of April 21, 2000:                   

  - each person who is known by Galaxy Enterprises to be the owner of record
or beneficial owner of more than 5% of the outstanding common stock;

- each of its directors and executive officers; and                     

  - all of Galaxy Enterprises' current directors and executive officers as a
group,                                                              

the number of shares of common stock beneficially owned by each person and group
and the percentage of the outstanding shares owned by each person and group.    

                                                        [Enlarge/Download Table]

                                             NUMBER OF SHARES                        
BENEFICIAL OWNER                           BENEFICIALLY OWNED(1)  PERCENT OF CLASS(2)
----------------                           ---------------------  -------------------
                                                                                     
John J. Poelman...........................      1,030,213(3)              16.2%      
4009 N. Quail Run Drive                                                              
Provo, UT 84604                                                                      

Netgateway, Inc...........................        980,213(4)              15.4%      
300 Oceangate, 5th floor                                                             
Long Beach, CA 90803                                                                 

Brandon B. Lewis..........................        129,333(5)               2.0%      
2952 West 1060 North                                                                 
Provo, UT 84601                                                                      

Frank C. Heyman...........................        101,667(6)               1.6%      
8468 Jardim Way                                                                      
Sandy, UT 84093                                                                      

Darral G. Clarke..........................         22,000(7)                .3%      
4102 N. Quail Run Drive                                                              
Provo, UT 84604                                                                      

All officers and directors as a group                                                
  (5 persons).............................      1,313,213(8)              20.1%      

------------------------                                                        

(1) Except as otherwise indicated, all shares are directly owned with voting and
investment power held by the person named. Amounts shown include, where 
applicable, shares subject to presently exercisable options.            

(2) The percentage shown for each beneficial owner is calculated based upon the 
outstanding Common Stock, including shares of Common Stock subject to   
    presently exercisable options held by such beneficial owner which are deemed
to be outstanding.                                                      

(3) Includes 80,000 shares subject to presently exercisable options.            

(4) Includes 980,213 shares subject to an option granted by John J. Poelman.    

(5) Includes 118,333 shares subject to presently exercisable options.           

(6) Includes 101,667 shares subject to presently exercisable options.           

(7) Includes 22,000 shares subject to presently exercisable options.            

(8) Includes 322,000 shares subject to presently exercisable options.           

STOCKHOLDERS                                                                    

   As of April 21, 2000 there were approximately 142 stockholders of record of
Galaxy Enterprises' common stock.                                               

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LEGAL PROCEEDINGS                                                               

   Galaxy Enterprises completed transactions with over 40,000 customers during
1999 and in its regular course of business receives requests for refunds from   
customers, who at times threaten and/or have brought legal proceedings. Galaxy  
analyzes each refund request on a case-by-case basis and grants refunds where   
appropriate. In the vast majority of cases Galaxy Enterprises has been          
successful in defending these actions. Galaxy Enterprises considers these to be 
routine claims incidental to its business. See "Information Regarding Galaxy    
Enterprises, Business, Governmental Regulation."                                

INDEMNIFICATION OF DIRECTORS AND OFFICERS                                       

    The Nevada Revised Statutes concerning corporations, and Galaxy Enterprises'
articles of incorporation and bylaws, provide for indemnification of its        
officers, directors and others in most instances for any liability suffered by  
them or arising out of their activities as officers, directors, employees or    
agents of Galaxy Enterprises if they were not engaged in intentional misconduct,
fraud or knowing violation of the law.                                          

Specifically, Nevada Revised Statutes Sections 78.7502 (1) and (2) grant
discretionary authority on corporations to indemnify such persons under certain 
conditions, and (3) mandates indemnification of any such person who has         
successfully defended on the merits any action, suit or proceeding, or any      
claim, issue or matter herein, against expenses, including attorneys' fees,     
actually and reasonably incurred in such defense. Nevada Revised Statutes       
Section 78.751 provides that any discretionary indemnification, unless ordered  
by a court, may be made only as authorized in the specific case upon a          
determination that indemnification of the officer, director, officer, employee  
or agent is proper in the circumstances, which determination must be made:      
(a) by the stockholders; (b) by the board of directors by majority vote of a    
quorum consisting of directors who were not parties to the action, suit or      
proceeding; (c) if a majority vote of a quorum of non-party directors so orders,
by independent legal counsel in a written opinion; or (d) if a quorum of        
non-party directors cannot be obtained, by independent legal counsel in a       
written opinion. Officer and director expenses incurred in defending a civil or 
criminal action, suit or proceeding must be paid by the corporation as incurred 
and in advance of final disposition of the action, suit or proceeding, upon     
receipt of an undertaking by or on behalf of the officer or director to repay   
the amount if it is ultimately determined by a court that he is not entitled to 
be indemnified by the corporation. Galaxy Enterprises' articles of incorporation
and bylaws are essentially the same as the statutory provisions except that     
indemnification is not allowed for judgments, fines, excise taxes or penalties  
imposed under the Employee Retirement Income Security Act of 1974, as amended,  
or other excise taxes or penalties.                                             

FUTURE STOCKHOLDER PROPOSALS

  Pursuant to Rule 14a-8 under the Exchange Act, Netgateway stockholders may
present proper proposals for inclusion in Netgateway's proxy statement and for  
consideration at its 2000 annual meeting of stockholders by submitting such     
proposals to Netgateway in a timely manner. In order to be so included for the  
2000 annual meeting stockholder proposals must be received by Netgateway within 
a reasonable time before the meeting, and must otherwise comply with the        
requirements of Rule 14a-8.                                                     

Pursuant to Rule 14a-8 under the Exchange Act, Galaxy Enterprises       
stockholders may present proper proposals for inclusion in Galaxy Enterprises'  
proxy statement and for consideration at its 2001 annual meeting of             
stockholders, in the event the merger has not been consummated prior thereto, by
submitting such proposals to Galaxy Enterprises in a timely manner. In order to 
be so included for the 2001 annual meeting stockholder proposals must be        
received by Galaxy Enterprises within a reasonable time before the meeting, and 
must otherwise comply with the requirements of Rule 14a-8.                      

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EXPERTS 

  The consolidated balance sheets of Netgateway, Inc. and subsidiaries as of
June 30, 1998 and 1999 and the related consolidated statements of operations,   
changes in stockholders' deficit and cash flows for the year ended June 30,1999 
and for the period March 4, 1998 (inception) through June 30, 1998, have been   
included herein and in the Registration Statement in reliance on the report of  
KPMG LLP, independent certified public accountants, appearing elsewhere herein  
and upon authority of said firm as experts in auditing and accounting.          

The consolidated balance sheets of Galaxy Enterprises as of December 31,
1999 and 1998 and the related consolidated statements of operations,            
stockholders' equity and cash flows for each of the three years in the period   
ended December 31, 1999, included in this document, have been so included in    
reliance on the report of Wisan, Smith, Racker & Prescott LLP, independent      
accountants, given on the authority of said firm as experts in auditing and     
accounting.                                                                     

LEGAL MATTERS 

Certain legal matters with respect to the validity of the shares of     
Netgateway common stock offered hereby will be passed upon for Netgateway by    
Nida & Maloney, LLP, Santa Barbara, California. Nida & Maloney, LLP is the      
record and beneficial owner of 15,000 shares of Netgateway common stock.        

WHERE YOU CAN FIND MORE INFORMATION 

    Netgateway filed a registration statement with the SEC on Form S-4 under the
Securities Act to register the Netgateway common stock to be issued to Galaxy   
Enterprises stockholders in the merger. This joint proxy statement/prospectus is
a part of that registration statement and constitutes a prospectus of Netgateway
in addition to being a proxy statement for the meetings of Netgateway and Galaxy
Enterprises stockholders. This document does not contain all the information    
contained in the registration statement. For further information with respect to
Netgateway or Galaxy Enterprises and the shares of Netgateway common stock to be
issued in connection with the merger, Netgateway and Galaxy Enterprises refer   
you to the registration statement and the exhibits and schedules filed with the 
registration statement. Netgateway and Galaxy Enterprises have described all    
material information for each contract, agreement or other document filed with  
the registration statement in this document. However, statements contained in   
this document as to the contents of any contract, agreement or other document   
referred to are not necessarily complete. As a result, you should refer to the  
copy of the contract, agreement or other document filed as an exhibit to the    
registration statement for a complete description of the matter involved.       

Netgateway and Galaxy Enterprises file annual, quarterly and special    
reports, proxy statements and other information with the SEC. You may read and  
copy all or any portion of the registration statement and any reports,          
statements or other information filed by either company at the SEC's public     
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 or at any of   
the SEC's other public reference rooms in New York, New York and Chicago,       
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the  
public reference rooms. Netgateway's and Galaxy Enterprises' SEC filings        
including this registration statement are also available to the public from     
commercial document retrieval services and at the Web site maintained by the SEC
at HTTP://WWW.SEC.GOV.                                                          

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS JOINT PROXY   
STATEMENT/PROSPECTUS TO VOTE ON THE APPROVAL OF THE MERGER AGREEMENT. NEITHER   
NETGATEWAY NOR GALAXY ENTERPRISES HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH     
INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY        
STATEMENT/ PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED MAY 24,   
2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY  
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE, AND NEITHER THE MAILING  
OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO GALAXY ENTERPRISES STOCKHOLDERS NOR 
THE ISSUANCE OF NETGATEWAY COMMON STOCK IN THE MERGER SHALL CREATE ANY          
IMPLICATION TO THE CONTRARY.                                                    

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INDEX TO FINANCIAL STATEMENTS 

                                                                [Download Table]
                                                                    
NETGATEWAY, INC. AND SUBSIDIARIES                                   
Independent Auditors' Report for Netgateway, Inc............     F-2
Consolidated Balance Sheets as of June 30, 1999 and 1998....     F-3
Consolidated Statements of Operations for The Year Ended            
  June 30, 1999 and                                                 
  The Period March 4, 1998 (Inception) Through June 30,             
  1999......................................................     F-4
Consolidated Statements of Changes in Shareholders' Equity          
  (Deficit).................................................     F-5
Consolidated Statements of Cash Flows for The Year Ended            
  June 30, 1999 and The Period March 4, 1998 (Inception)            
  Through June 30, 1998.....................................     F-7
Notes to the Consolidated Financial Statements..............     F-8
Condensed Consolidated Balance Sheets as of March 31, 2000          
  (unaudited) and June 30, 1999.............................    F-22
Unaudited Condensed Consolidated Statements of Operations           
  for The Three and Nine Months Ended March 31, 2000 and            
  1999......................................................    F-23
Unaudited Condensed Consolidated Statements of Cash Flows           
  for The Nine Months Ended March 31, 2000 and March 31,            
  1999......................................................    F-24
Unaudited Condensed Consolidated Statement of Changes in            
  Shareholders' Equity......................................    F-25
Notes to Unaudited Condensed Consolidated Financial                 
  Statements................................................    F-27
GALAXY ENTERPRISES, INC. AND SUBSIDIARIES                           
Independent Auditors' Report for Galaxy Enterprises, Inc....    F-32
Consolidated Balance Sheets as of December 31, 1999 and             
  1998......................................................    F-33
Consolidated Statements of Operations for The Years Ended           
  December 31, 1999, 1998 and 1997..........................    F-34
Consolidated Statements of Stockholders' Equity for The             
  Years Ended December 31, 1999, 1998 and 1997..............    F-35
Consolidated Statements of Cash Flows for The Years Ended           
  December 31, 1999, 1998 and 1997..........................    F-36
Condensed Unaudited Consolidated Balance Sheets as of               
  March 31, 2000 and December 31, 1999......................    F-37
Condensed Unaudited Consolidated Statements of Operations           
  for The Three Months Ended March 31, 2000 and 1999........    F-38
Condensed Unaudited Consolidated Statements of Cash Flows           
  for The Three Months Ended March 31, 2000 and 1999........    F-39
Notes to Unaudited Condensed Consolidated Financial                 
  Statements................................................    F-40
Notes to Consolidated Financial Statements..................    F-42

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INDEPENDENT AUDITORS' REPORT

The Board of Directors                                                          
Netgateway, Inc.:                                                               

   We have audited the accompanying consolidated balance sheets of Netgateway,
Inc. and subsidiaries as of June 30, 1999 and 1998, and the related consolidated
statements of operations, changes in shareholders' equity (deficit) and cash    
flows for the year ended June 30, 1999 and the period March 4, 1998 (inception) 
through June 30, 1998. These consolidated financial statements are the          
responsibility of the Company's management. Our responsibility is to express an 
opinion on these consolidated financial statements based on our audits.         

We conducted our audit in accordance with generally accepted auditing   
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.          

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Netgateway, 
Inc. and subsidiaries as of June 30, 1999 and 1998 and the results of its       
operations and its cash flows for the year ended June 30, 1999 and the period   
March 4, 1998 (inception) through June 30, 1998, in conformity with generally   
accepted accounting principles.                                                 

  The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the         
financial statements, the Company's planned principle operations have commenced,
however, minimal revenues have been generated. Additionally, the Company        
continues to incur net losses and has continuing financial needs. These matters 
raise substantial doubt about its ability to continue as a going concern.       
Management's plans in regard to these matters are also described in note 2. The 
financial statements do not include any adjustments that might result from the  
outcome of this uncertainty.                                                    

As discussed in note 1 to the financial statements, the Company changed its     
method of accounting for revenue in the fiscal year ended June 30, 1999.        

KPMG LLP                                                                        

Los Angeles, California                                                         
August 23, 1999, except for the last two paragraphs                             
of note 1, which is as of October 1, 1999.                              

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NETGATEWAY, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

JUNE 30, 1999 AND 1998

                                                        [Enlarge/Download Table]

                                                              JUNE 30, 1999  JUNE 30, 1998
                                                              -------------  -------------
                                                                                          
                                          ASSETS                                          
Current assets:                                                                           
Cash........................................................  $    569,472        254,597 
Accounts receivable less allowance for doubtful accounts of                               
  $3,000 and $0 June 30, 1999 and 1998, respectively........        44,198         21,305 
Note receivable from officer (note 6).......................        30,000             -- 
Short term notes receivable, net (note 6)...................            --         50,000 
Debt issue costs............................................       336,288             -- 
Prepaid offering costs......................................       325,887             -- 
Other current assets........................................        73,481         45,565 
                                                              ------------    ----------- 
  Total current assets......................................     1,379,326        371,467 
  Property and equipment, net (note 4)......................       496,536        143,384 
Intangible assets, net (note 5).............................     1,562,635        351,804 
Other assets................................................        19,853          4,897 
                                                              ------------    ----------- 
                                                              $  3,458,350        871,552 
                                                              ============    =========== 
                      LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                      
Current liabilities:                                                                      
  Current portion of notes payable (note 8).................  $  1,496,000             -- 
  Convertible debentures (note 8)...........................       200,000             -- 
  Accounts payable..........................................       278,723        106,242 
  Accrued wages and benefits................................       278,741         12,720 
  Accrued interest..........................................        44,301        130,122 
  Accrued liabilities.......................................       543,632         30,000 
  Deferred revenue..........................................        67,694             -- 
  Accrued contract losses...................................       302,543             -- 
  Current portion of notes payable to related parties                                     
    (note 8)................................................         1,799      2,052,159 
                                                              ------------    ----------- 
  Total current liabilities.................................     3,213,433      2,331,243 
Notes payable to related parties, less current portion                                    
  (note 8)..................................................            --        367,892 
                                                              ------------    ----------- 
    Total liabilities.......................................     3,213,433      2,699,135 
Shareholders' equity (deficit) (note 9 and 10):                                           
  Preferred stock, par value $.001 per share. Authorized                                  
    5,000,000 shares; issued and outstanding at June 30,                                  
    1999 and 1998 $0........................................            --             -- 
  Common stock, par value $.001 per share. Authorized                                     
    40,000,000 shares; issued and outstanding 9,912,304 and                               
    7,510,000 at June 30, 1999 and 1998, respectively.......         9,913          7,510 
  Additional paid-in capital................................    15,639,160      2,849,163 
  Deferred compensation.....................................       (52,919)      (112,320)
  Accumulated other comprehensive loss......................        (3,598)            -- 
  Accumulated deficit.......................................   (15,347,639)    (4,571,936)
                                                              ------------    ----------- 
    Total shareholders' equity (deficit)....................       244,917     (1,827,583)
                                                              ------------    ----------- 
Commitments and subsequent events (note 12 and 13)                                        
  Total liabilities and shareholders' equity (deficit)......  $  3,458,350        871,552 
                                                              ============    =========== 

See accompanying notes to consolidated financial statements.

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NETGATEWAY, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                                               PERIOD    
                                                                            MARCH 4, 1998
                                                                 YEAR        (INCEPTION) 
                                                                ENDED          THROUGH   
                                                               JUNE 30,       JUNE 30,   
                                                                 1999           1999     
                                                             ------------   -------------
                                                                                         
Service revenue............................................. $    157,282         2,800  
Operating expenses:                                                                      
  License fees (note 7).....................................           --     3,822,000  
  Depreciation and amortization.............................      257,342        12,249  
  Selling, general and administrative.......................   11,349,049      721,2106  
                                                             ------------    ----------  
    Total operating expenses................................   11,606,391     4,555,459  
                                                             ------------    ----------  
    Loss from operations....................................  (11,449,109)   (4,552,659) 
Loss on sale of equity securities...........................       54,729            --  
Interest expense............................................      925,097        19,277  
                                                             ------------    ----------  
    Loss before extraordinary item..........................  (12,428,935)   (4,571,936) 
Extraordinary gain on extinguishment of debt................    1,653,232            --  
                                                             ------------    ----------  
    Net loss................................................ $(10,775,703)   (4,571,936) 
                                                             ============    ==========  
Basic and diluted extraordinary gain per share.............. $       0.19            --  
                                                             ============    ==========  
Basic and diluted loss per share............................ $      (1.21)        (0.84) 
                                                             ============    ==========  
Weighted average common shares outstanding--basic and                                    
  diluted...................................................    8,912,041     5,416,242  
                                                             ============    ==========  

See accompanying notes to consolidated financial statements.

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NETGATEWAY, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                                                        [Enlarge/Download Table]

                                                                                  COMMON STOCK      ADDITIONAL               
                                                                    PRICE     --------------------   PAID-IN      DEFERRED   
                                                       DATE       PER SHARE    SHARES      AMOUNT    CAPITAL    COMPENSATION 
                                                   ------------  -----------  ---------   --------  ----------  -------------
                                                                                                                             
Sale of common stock for cash....................          3/98  $ .07 - .33    754,545   $   755     199,245           --   
Common stock issued for services.................          3/98         0.22  1,445,455     1,445     316,555           --   
Common stock issued in exchange for shareholder's                                                                            
  payment of Company debt........................          3/98         0.50    400,000       400     199,600           --   
Common stock issued to acquire license...........          3/98         0.22  1,000,000     1,000     219,000           --   
Common stock issued for services.................          4/98         0.22    100,000       100      21,900           --   
Deferred compensation on stock issued for                                                                                    
  services.......................................          4/98                      --        --          --      (14,080)  
Amortization of deferred compensation............   4/98 - 6/98                      --        --          --        1,760   
Common stock issued to acquire license...........          4/98         0.22  1,900,000     1,900     416,100           --   
Common stock issued for services.................          5/98         0.22    200,000       200      43,800           --   
Common stock issued in exchange for shareholder's                                                                            
  payment of Company debt........................          5/98         1.00    200,000       200     199,800           --   
Sale of common stock for cash....................   5/98 - 6/98         1.00    303,000       303     302,697           --   
Conversion of debt to capital contribution.......          6/98                      --        --     100,000           --   
Adjustment resulting from reverse acquisition....          6/98                 450,000       450        (310)          --   
Shares issued in business acquisition............          6/98         1.00    400,000       400     399,600           --   
Conversion of debt to common stock, including                                                                                
  interest.......................................          6/98         1.00    184,000       184     185,349           --   
Stock issued for deferred compensation...........          6/98         1.00    100,000       100      99,900     (100,000)  
Sale of common stock for cash....................          6/98         2.00     73,000        73     145,927           --   
Comprehensive loss:                                                                                                          
  Net loss.......................................                                    --        --          --           --   
Total comprehesive loss..........................                                                                            
                                                                              ---------   -------   ----------    --------   
Balance at June 30, 1998.........................                             7,510,000     7,510   2,849,163     (112,320)  
Sale of common stock for cash....................   7/98 - 9/98         2.00    949,800       950   1,898,650           --   
Exercise of warrants.............................   7/98 - 9/98         2.00    132,100       132     264,068           --   
Warrants granted for services....................  10/98 - 6/99  2.00 - 5.50         --        --   2,340,720           --   
Stock compensation paid by shareholders..........         11/98         2.00         --        --     400,000           --   
Stock option compensation........................                                    --        --     233,211     (233,211)  
Amortization of deferred compensation............                                    --        --          --      282,052   
Forfeited stock..................................                               (48,000)      (48)    (10,512)      10,560   
Capital contributed upon extinguishment of                                                                                   
  debt...........................................         12/98                      --        --     200,000           --   
Subsidiary convertible common stock issued in                                                                                
  business acquisition...........................   1/99 - 4/99  3.00 - 4.50         --        --   1,392,858           --   
Options issued for legal services................          2/99         5.50         --        --     479,708           --   
Warrants granted for debt issue costs............   2/99 - 6/99  3.50 - 5.50         --        --     775,585           --   
Shares issued for debenture conversion...........   3/99 - 5/99         2.50    320,000       320     950,680           --   
Shares issued for services.......................  10/98 - 6/99  2.00 - 5.50    366,500       366   1,261,834           --   
Shares issued for debt issue costs...............          3/99         4.00     30,000        30     127,470           --   
Sale of common stock for cash, net...............   3/99 - 6/99  3.00 - 5.50    614,334       615   2,300,763           --   
Cashless exercise of warrants....................          4/99                   2,570         3          (3)          --   
Shares issued for technology.....................          5/99         5.00     35,000        35     174,965           --   
Comprehensive loss:                                                                                                          
  Net loss.......................................                                    --        --          --           --   
  Foreign currency translation adjustment........                                    --        --          --           --   
Total comprehensive loss.........................                                                                            
                                                                              ---------   -------   ----------    --------   
Balance at June 30, 1999.........................                             9,912,304   $ 9,913   15,639,160     (52,919)  
                                                                              =========   =======   ==========    ========   

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NETGATEWAY, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

                                                        [Enlarge/Download Table]

                                                                                           ACCUMULATED        TOTAL    
                                                                                              OTHER       SHAREHOLDERS'
                                                            COMPREHENSIVE   ACCUMULATED   COMPREHENSIVE      EQUITY    
                                                                 LOSS         DEFICIT          LOSS         (DEFICIT)  
                                                            --------------  ------------  --------------  -------------
                                                                                                                       
Sale of common stock for cash..............................                          --           --           200,000 
Common stock issued for services...........................                          --           --           318,000 
Common stock issued in exchange for shareholder's payment                                                              
  of Company debt..........................................                          --           --           200,000 
Common stock issued to acquire license.....................                          --           --           220,000 
Common stock issued for services...........................                          --           --            22,000 
Deferred compensation on stock issued for services.........                          --           --           (14,080)
Amortization of deferred compensation......................                          --           --             1,760 
Common stock issued to acquire license.....................                          --           --           418,000 
Common stock issued for services...........................                          --           --            44,000 
Common stock issued in exchange for shareholder's payment                                                              
  of Company debt..........................................                          --           --           200,000 
Sale of common stock for cash..............................                          --           --           303,000 
Conversion of debt to capital contribution.................                          --           --           100,000 
Adjustment resulting from reverse acquisition..............                          --           --               140 
Shares issued in business acquisition......................                          --           --           400,000 
Conversion of debt to common stock, including interest.....                          --           --           185,533 
Stock issued for deferred compensation.....................                          --           --                -- 
Sale of common stock for cash..............................                          --           --           146,000 
Comprehensive loss:                                                                                                    
  Net loss.................................................   (4,571,936)    (4,571,936)          --        (4,571,936)
                                                             -----------                                               
Total comprehesive loss....................................   (4,571,936)                                              
                                                             ===========    -----------       ------       ----------- 
Balance at June 30, 1998...................................                  (4,571,936)          --        (1,827,583)
Sale of common stock for cash..............................                          --           --         1,899,600 
Exercise of warrants.......................................                          --           --           264,200 
Warrants granted for services..............................                          --           --         2,340,720 
Stock compensation paid by shareholders....................                          --           --           400,000 
Stock option compensation..................................                          --           --                -- 
Amortization of deferred compensation......................                          --           --           282,052 
Forfeited stock............................................                          --           --                -- 
Capital contributed upon extinguishment of debt............                          --           --           200,000 
Subsidiary convertible common stock issued in business                                                                 
  acquisition..............................................                          --           --         1,392,858 
Options issued for legal services..........................                          --           --           479,708 
Warrants granted for debt issue costs......................                          --           --           775,585 
Shares issued for debenture conversion.....................                          --           --           951,000 
Shares issued for services.................................                          --           --         1,262,200 
Shares issued for debt issue costs.........................                          --           --           127,500 
Sale of common stock for cash, net.........................                          --           --         2,301,378 
Cashless exercise of warrants..............................                          --           --                -- 
Shares issued for technology...............................                          --           --           175,000 
Comprehensive loss:                                                                                                    
  Net loss.................................................  (10,775,703)   (10,775,703)          --       (10,775,703)
  Foreign currency translation adjustment..................       (3,598)                     (3,598)           (3,598)
                                                             -----------                                               
Total comprehensive loss...................................  (10,779,301)                                              
                                                             ===========    -----------       ------       ----------- 
Balance at June 30, 1999...................................                 (15,347,639)      (3,598)          244,917 
                                                                            ===========       ======       =========== 

See accompanying notes to consolidated financial statements.

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NETGATEWAY, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                            MARCH 4, 1998
                                                                             (INCEPTION) 
                                                              YEAR ENDED       THROUGH   
                                                             JUNE 30, 1999  JUNE 30, 1998
                                                             -------------  -------------
                                                                                         
Cash flows from operating activities:                                                    
  Net loss.................................................. $(10,775,703)   (4,571,936) 
  Adjustments to reconcile net loss to net cash used in                                  
    operating activities:                                                                
    Depreciation and amortization...........................      257,432        12,249  
    Common stock issued for services........................    1,262,200       371,680  
    Amortization and write-off of license fees..............           --     3,822,000  
    Loss on sale of equity securities.......................       54,729            --  
    Amortization of deferred compensation...................      282,052            --  
    Gain on extinguishment of debt..........................   (1,653,232)           --  
    Stock compensation paid by shareholders.................      400,000            --  
    Interest expense on debt converted to equity............      236,488        19,277  
    Interest expense on warrants issued as debt issue                                    
     costs..................................................      535,535            --  
    Amortization of debt issue costs........................      144,000            --  
    Options and warrants issued for services................    2,820,428            --  
    Provision for doubtful accounts.........................       26,876        25,000  
    Write-off of note receivable............................      800,000            --  
    Changes in assets and liabilities:                                                   
      Accounts receivable...................................      (49,769)       (2,000) 
      Prepaid offering costs................................     (325,887)           --  
      Other assets..........................................      (76,668)      (45,422) 
      Accounts payable and accrued expenses.................    1,206,064       116,033  
      Accrued contract losses...............................      302,543            --  
                                                             ------------    ----------  
        Net cash used in operating activities...............   (4,552,912)     (253,119) 
                                                             ------------    ----------  
Cash flows from investing activities:                                                    
    Cash assumed in business acquisition....................        4,781         3,321  
    Loan for notes receivable...............................     (830,000)      (75,000) 
    Repayment of notes receivable...........................       50,000            --  
    Purchase of equity securities...........................     (100,733)           --  
    Proceeds from sale of equity securities.................       46,004            --  
    Purchase of property and equipment......................     (250,579)     (102,034) 
                                                             ------------    ----------  
        Net cash used in investing activities...............   (1,080,527)     (173,713) 
                                                             ------------    ----------  
Cash flows from financing activities:                                                    
    Proceeds from issuance of common stock..................    4,253,360       649,000  
    Proceeds from exercise of warrants......................      264,200            --  
    Proceeds from issuance of notes payable to related                                   
     parties................................................      100,000       132,429  
    Proceeds from issuance of notes payable and convertible                              
     debentures.............................................    2,506,000            --  
    Cash paid for debt issue costs..........................     (181,018)           --  
    Repayment of notes payable to related parties...........     (990,630)     (100,000) 
                                                             ------------    ----------  
        Net cash provided by financing activities...........    5,951,912       681,429  
                                                             ------------    ----------  
        Net increase in cash................................      318,473       254,597  
Cash at beginning of period.................................      254,597            --  
Effect of exchange rate changes on cash balances............       (3,598)           --  
                                                             ------------    ----------  
Cash at end of period....................................... $    569,472       254,597  
                                                             ============    ==========  
Supplemental schedule of noncash activities:                                             
  Issuance of common stock for business acquisition......... $         --       400,000  
  Issuance of convertible stock in business acquisition.....    1,392,858            --  
  Accrued asset purchases...................................           --        27,743  
  Conversion of debt to common stock........................      800,000       284,000  
  Common stock issued in exchange for shareholders' payment                              
    of Company debt.........................................           --       400,000  
  Capital contributed upon extinguishment of debt...........      200,000            --  
  Common stock issued for internal-use software.............      175,000            --  
  Warrants issued for debt issue costs......................      723,203            --  
  Stock issued for debt issue costs.........................       77,500            --  
                                                             ============    ==========  

See accompanying notes to consolidated financial statements.

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  DESCRIPTION OF BUSINESS                                                    

  Netgateway, Inc. and its subsidiaries ("Netgateway" or the "Company"), was
formed on March 4, 1998 as a Nevada corporation. Netgateway is an internet      
commerce and connectivity company which provides electronic commerce solutions  
designed to enable companies of any size to extend their business to the        
internet for a wide variety of purposes, including the advertising and sale of  
products or services by retailers and the conduct of commercial transactions    
between business enterprises.                                                   

On June 2, 1998, Video Calling Card, Inc. ("VCC"), a Nevada public shell
corporation, acquired 100 percent of the outstanding common stock of Netgateway 
in exchange for 5,900,000 shares of common stock of VCC. Immediately prior to   
the acquisition, VCC had 450,000 shares of common stock outstanding and         
Netgateway had 590,000 shares of common stock outstanding. Since the            
shareholders of Netgateway received the majority voting interests in the        
combined company, Netgateway is the acquiring enterprise for financial reporting
purposes. The transaction was recorded as a reverse acquisition using the       
purchase method of accounting whereby equity of Netgateway was adjusted for the 
fair value of the acquired tangible net assets of VCC. The historical financial 
statements of Netgateway since March 4, 1998 (inception) have been adjusted     
retroactively to reflect the equivalent number of shares received in the        
business combination prior to the reverse acquisition. The 450,000 shares of    
common stock issued in the reverse acquisition have been included in the        
weighted-average common shares outstanding since the date of acquisition,       
June 2, 1998.                                                                   

    Also on June 2, 1998, the Company acquired certain assets and liabilities of
Infobahn Technologies, LLC (d/b/a Digital Genesis), a California limited        
liability company, in exchange for 400,000 shares of common stock of the Company
valued at $400,000. The consideration was allocated based on the relative fair  
values of the tangible and intangible assets and liabilities acquired, including
acquired technology of $120,000, with the excess consideration of $235,193      
recorded as goodwill. The operations of Digital Genesis are included in the     
consolidated statements of operations of the Company since the date of          
acquisition, June 2, 1998.                                                      

In January 1999, the Company acquired 100% of the outstanding stock of  
Spartan Multimedia, Inc., a Canadian corporation, in exchange for 185,715 shares
of common stock of StoresOnline.com, Ltd., a wholly-owned Canadian subsidiary   
valued at $557,145. The shares are convertible on a one-to-one basis into common
stock of the Company. The issuance of an additional 185,714 shares was          
contingent upon the attainment of certain performance standards in future       
periods. In April 1999, the Board of Directors approved the issuance of the     
contingent shares and waived the performance standards. Accordingly, the        
consideration increased to $1,392,858. The acquisition of Spartan               
Multimedia, Inc. was recorded using the purchase method of accounting. The      
consideration was allocated based on the relative fair values of the tangible   
and intangible assets and liabilities acquired. The operations of Spartan       
Multimedia, Inc. are included in the consolidated statement of operations of the
Company from January 15, 1999 through June 30, 1999. Unaudited pro forma        
consolidated results of operations are summarized below to reflect the          
acquisition of Spartan Multimedia, Inc. as if it had occurred on July 1, 1998:  

                                                                [Download Table]
                                                                           
Revenue.....................................................  $    146,867 
                                                              ============ 
Net loss....................................................   (10,698,625)
                                                              ============ 
Loss per share..............................................         (1.20)
                                                              ============ 

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(1)  DESCRIPTION OF BUSINESS (CONTINUED)                                        
   Effective October 1, 1999, the Company changed its method of accounting for
revenue from the completed contract method to the percentage-of-completion      
method. The Company believes the percentage-of-completion method more accurately
reflects the current earnings process under the Company's contracts. The        
percentage-of-completion method is preferable according to Statement of         
Position 81-1, Accounting for Performance of Construction-Type and Certain      
Production-Type Contracts, issued by the American Institute of Certified Public 
Accountants. The new method has been applied retroactively by restating the     
Company's consolidated financial statements for prior periods in accordance with
Accounting Principles Board Opinion No. 20.                                     

   Prior to October 1, 1999, the Company was a development stage enterprise as
defined in Statement of Financial Accounting Standards ("SFAS") No. 7. Planned  
principal operations commenced and began producing significant revenue on       
October 1, 1999, and accordingly, Netgateway is no longer considered a          
development stage company.                                                      

(2)  LIQUIDITY                                                                  

  The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. As  
of the date of this report, the Company's planned principal operations have     
commenced, however, minimal revenues have been generated. The Company has relied
upon private placements of its stock and issuances of debt to generate funds to 
meet its operating needs and plans to continue pursuing financing in this manner
during the next year. However, there are no assurances that such financing will 
be available when and as needed to satisfy current obligations. As such,        
substantial doubt exists as to whether the Company will continue as a going     
concern.                                                                        

(3)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                 

(A) PRINCIPLES OF CONSOLIDATION                                         

 The consolidated financial statements include the accounts of the Company
    and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.                                  

(B) REVENUE RECOGNITION                                                 

Revenue generated from consulting services is recognized as services are
 provided. Web-site development revenues are recognized upon completion of
 each project. Services billed in advance are recorded as deferred revenue
and recognized when revenue is earned.                                  

(C) INTANGIBLE ASSETS                                                   

Intangible assets are amortized on a straight-line basis over their     
estimated useful lives as follows:                                              

                                                                [Download Table]
                                                                          
Acquired technology.........................................  5 to 7 years
Goodwill....................................................  10 years    

(D) PROPERTY AND EQUIPMENT                                              

   Property and equipment, stated at cost, is comprised of computer and office
   equipment. Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets ranging from 3 to 5 years. 

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                     
(E) RESEARCH AND DEVELOPMENT EXPENDITURES                               

Research and development costs are expensed as incurred.                

(F) INCOME TAXES                                                        

Income taxes are accounted for under the asset and liability method.    
Deferred tax assets and liabilities are recognized for the future tax   
consequences attributable to differences between the financial statement
    carrying amounts of existing assets and liabilities and their respective tax
   bases and operating loss and tax credit carry forwards. 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 be recovered or settled. 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.                                       

   (G) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

  The Company reviews long-lived assets and certain identifiable intangibles
    for impairment whenever events or changes in circumstances indicate that the
    carrying amount of an asset may not be recoverable. Recoverability of assets
    to be held and used is measured by a comparison of the carrying amount of an
  asset to future undiscounted operating cash flows expected to be generated
  by the asset. If such assets are considered to be impaired, the impairment
  to be recognized is measured by the amount by which the carrying amount of
 the assets exceeds the fair value of the assets. Assets to be disposed of
    are reported at the lower of the carrying amount or fair value less costs to
sell.                                                                   

(H) FINANCIAL INSTRUMENTS                                               

    The carrying values of cash, accounts receivable, notes receivable, accounts
payable, accrued liabilities and current portion of notes payable at    
   June 30, 1999 and 1998 approximated fair value due to the short maturity of
  those instruments. The fair value of the notes receivable from and payable
to related parties could not be estimated due to the nature of the      
borrowings. All financial instruments are held for purposes other than  
trading.                                                                

(I) ACCOUNTING FOR STOCK OPTIONS                                        

The Company applies the intrinsic value-based method of accounting      
   prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting
  for Stock Issued to Employees," and related interpretations, in accounting
for its fixed plan employee stock options. As such, compensation expense
  would be recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price.                       

 Compensation expense related to stock options granted to non-employees is
accounted for under Statement of Financial Accounting Standards (SFAS)  
No. 123, "Accounting for Stock-Based Compensation," whereby compensation
    expense is recognized over the vesting period based on the fair value of the
options on the date of grant.                                           

(J) COMPREHENSIVE INCOME                                                

SFAS 130, "Reporting Comprehensive Income" (SFAS No. 130) establishes   
  standards for reporting and displaying comprehensive income (loss) and its
components in a full set of general-purpose                             

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                     
 financial statements. This statement requires that an enterprise classify
 items of other comprehensive income (loss) by their nature in a financial
   statement and display the accumulated balance of other comprehensive income
  (loss) separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position. The Company has
    components of other comprehensive income (loss), which are classified in the
statement of shareholders' equity (deficit).                            

(K) BUSINESS SEGMENTS AND RELATED INFORMATION                           

   Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131) establishes standards for the way public    
  business enterprises are to report information about operating segments in
annual financial statements and requires enterprises to report selected 
   information about operating segments in interim financial reports issued to
shareholders. Is also establishes standards for related disclosure about
    products and services, geographic areas and major customers. It replaces the
    "industry segment" concept of SFAS No. 14, "Financial Reporting for Segments
    of a Business Enterprise," with a "management approach" concept as the basis
for identifying reportable segments. The Company has only one operating 
segment. The Company formed its wholly-owned Canadian subsidiary,       
StoresOnline.com, in January 1999.                                      

    Prior to that time, the Company only had operations in the United States All
 revenues during the year ended June 30, 1999 and the period March 4, 1998
(inception) through June 30, 1998 were generated in the United States.  
Substantially all of the Company's long-lived assets were located in the
United States at June 30, 1999 and 1998.                                

(L) INVESTMENT SECURITIES                                               

   The Company accounts for investment securities in accordance with Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain   
Investments in Debt and Equity Securities" (SFAS 115). SFAS 115 requires
investments to be classified based on management's intent in one of the 
    three categories: held-to-maturity securities, available-for-sale securities
and trading securities. Held-to-maturity securities are recorded at     
amortized cost. Available-for-sale securities are recorded at fair value
with unrealized gains and losses reported as a separate component of    
    shareholders' equity and comprehensive income (loss). Trading securities are
recorded at market value with unrealized gains and losses reported in   
operations. The Company's investment securities have been classified as 
available-for-sale.                                                     

(M) FOREIGN CURRENCY TRANSLATION                                        

The financial statements of the Company's Canadian subsidiary,          
    StoresOnline.com, have been translated into U.S. dollars from its functional
    currency in the accompanying consolidated financial statements in accordance
  with Statement of Financial Accounting Standards No. 52, "Foreign Currency
  Translation." Balance sheet accounts of StoresOnline.com are translated at
year-end exchange rates while income and expenses are translated at     
 weighted-average exchange rates for the year. Translation gains or losses
that related to StoresOnline.com's net assets are shown as a separate   
    component of shareholders' equity (deficit) and comprehensive income (loss).
There were no gains or losses resulting from realized foreign currency  
transactions (transactions denominated                                  

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                     
   in a currency other than the entities' functional currency) during the year
ended June 30, 1999 and the period March 4, 1998 (inception) through    
June 30, 1998.                                                          

(N) LOSS PER SHARE                                                      

 Basic earnings (loss) per share is computed by dividing net income (loss)
 available to common shareholders by the weighted average number of common
shares outstanding during the period in accordance with SFAS No. 128    
"Earnings Per Share". Diluted earnings (loss) per share reflects the    
potential dilution that could occur if securities or other contracts to 
    issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the 
entity. Diluted earnings (loss) per share is computed similarly to fully
 diluted earnings (loss) per share pursuant to Accounting Principles Board
    (APB) Opinion No. 15. There were 3,840,956 options and 1,750,100 warrants to
   purchase shares of common stock that were outstanding during the year ended
    June 30, 1999 which were not included in the computation of diluted loss per
 share because the impact would have been antidilutive. There were 200,000
options and 73,000 warrants to purchase shares of common stock that were
outstanding during the period March 4, 1998 (inception) through June 30,
 1998 which were not included in the computation of diluted loss per share
because the impact would have been antidilutive.                        

(O) COSTS OF START-UP ACTIVITIES                                        

    Pursuant to AICPA Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities," the Company expenses all the costs of start-up    
activities as incurred.                                                 

(P) USE OF ESTIMATES                                                    

Management of the Company has made a number of estimates and assumptions
 relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet date and the     
  reporting of revenues and expenses during the reporting periods to prepare
   these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.           

(Q) RECLASSIFICATIONS                                                   

Certain amounts have been reclassified to conform with current year     
presentation.                                                                   

(4)  PROPERTY AND EQUIPMENT                                                     

   Property and equipment balances at June 30, 1999 and 1998 are summarized as
follows:                                                                        

                                                                [Download Table]

                                                             1999       1998  
                                                           --------   --------
                                                                              
Computers and office equipment...........................  $583,021   152,244 
Less accumulated depreciation............................    86,485     8,860 
                                                           --------   ------- 
                                                            496,536   143,384 
                                                           ========   ======= 

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5)  INTANGIBLE ASSETS                                                          

Intangible assets balances at June 30, 1999 and 1998 are summarized as  
follows:                                                                        

                                                                [Download Table]

                                                            1999        1998  
                                                         ----------   --------
                                                                              
Acquired technology....................................  $1,510,548   120,000 
Goodwill...............................................     235,193   235,193 
                                                         ----------   ------- 
                                                          1,745,741   355,193 
Less accumulated amortization..........................     183,106     3,389 
                                                         ----------   ------- 
                                                         $1,562,635   351,804 
                                                         ==========   ======= 

(6)  NOTES RECEIVABLE AND NOTES RECEIVABLE FROM OFFICER                         

During the period March 4, 1998 (inception) through June 30, 1998, the  
Company issued a $50,000 note receivable to a customer which was repaid during  
the year ended June 30, 1999. In July 1998 and August 1998, the Company advanced
$800,000 to an entity with which the Company was in merger discussions. Certain 
Company officers and directors were minor shareholders of the potential merger  
entity. The merger was not consummated and the advance was deemed uncollectible 
in December 1998 and written-off. During June 1999, the Company issued its chief
executive officer, Keith Freadhoff, a non-interest bearing $30,000 note         
receivable. The note was repaid in July 1999.                                   

(7)  LICENSE AGREEMENTS                                                         

 In March 1998, the Company entered into a sublicense agreement related to
proprietary courseware with Training Resources International (TRI), which is    
wholly-owned by Michael Khaled, a stockholder of the Company, in exchange for   
the assumption of TRI's obligation of $1,600,000 to the original licensor,      
ProSoft I-Net Solutions, Inc. (ProSoft). Michael Khaled personally guaranteed   
the repayment of the Company's obligation under the sublicense agreement with   
TRI to ProSoft. TRI entered into the original license agreement with ProSoft in 
January 1998.                                                                   

 In April 1998, the Company entered into a sublicense agreement related to
proprietary courseware with S.T.E.P.S., Inc. (Steps), whose primary stockholder 
is Scott Beebe, a stockholder and director of the Company, in exchange for      
(1) the assumption of Steps' remaining obligation of $1,500,000 to the original 
licensor, ProSoft, (2) the assumption of Step's obligation of $200,000 to Vision
Holdings Inc. (Vision), an unrelated entity, which had advanced funds to Steps, 
and (3) the issuance of 1,000,000 shares of common stock valued at $220,000 to  
Steps. Scott Beebe personally guaranteed the repayment of the Company's         
obligation under the sublicense agreement with Steps to ProSoft. Additionally,  
the Company acquired supplies, books and other materials related to the licensed
technology from Vision in exchange for $84,000. The Company had previously      
entered into a separate loan agreement for $100,000 with Vision. The Company's  
chief executive officer, Keith Freadhoff, was the chief executive officer at    
ProSoft when the original license agreement with Steps was entered into. Don    
Danks is a stockholder of the Company and was an officer of ProSoft at the time 
the original license agreements were entered into.                              

   In April 1998, the Company converted the $300,000 obligation to Vision into
1,900,000 shares of common stock, valued at $418,000. As a result, license fees 
of $418,000 were recorded for the incremental increase of the stock exchanged   
for the note payable cancellation.                                              

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7)  LICENSE AGREEMENTS (CONTINUED)                                             
 In June 1998, the Company changed its business plan and began focusing on
developing technology to enable businesses and other organizations to conduct   
commerce over the Internet. Therefore, the Company determined that the license  
fees would not ultimately be recoverable. Accordingly, the costs of acquiring   
the sub-license agreements and related supplies are included as license fees    
expense in the accompanying consolidated statements of operations.              

(8) CONVERTIBLE DEBENTURES AND NOTES PAYABLE                                    

During December 1998 and January 1999, the Company issued $1,000,000 of 
convertible debentures bearing interest at the 90-day Treasury Bill rate plus   
4 percent and issued 274,350 detachable stock purchase warrants valued at       
$405,395. The debentures are convertible into the Company's common stock at     
$2.50 per share at the Company's option. The Company recorded interest expense  
of $151,000 related to the beneficial conversion feature. The debentures are due
in December 1999. As of June 30, 1999, $800,000 of the debentures had been      
converted into 320,000 shares of common stock. The convertible debentures are   
secured by the Company's accounts receivable and intellectual property.         

   In March 1999, Keith Freadhoff, the chief executive officer of the Company,
loaned the Company $100,000 which is due within 10 days of the close of bridge  
financing. In March 1999, the Company issued $160,000 of non-interest bearing   
notes payable to third parties, which are due within 10 days of the close of    
bridge financing. The notes were repaid in June 1999.                           

In May and June 1999, the Company obtained bridge financing whereby 12% 
senior notes payable and 288,000 shares of common stock were issued generating  
proceeds of $2,592,000, net of $288,000 of issuance costs. The senior notes     
payable are due the earlier of April 30, 2000 or upon the close of a public sale
of the Company's common stock. The Company also granted 144,000 warrants to     
purchase an equivalent number of shares of common stock at an exercise price of 
$10 per share as additional issuance costs. The warrants are exercisable for a  
period of four years commencing May 18, 2000. The fair value of the warrants on 
the dates of issuance was estimated to be $301,300 using the Black-Scholes      
option-pricing model with the following assumptions: dividend yield of 0%;      
risk-free interest rate of 5%; volatility of 100% and an expected life of       
2 years. The net proceeds from the bridge financing were allocated to the senior
notes payable and common stock based on their relative fair values, taking into 
consideration recent debt and equity transactions. Accordingly, $1,346,000 was  
recorded as notes payable, $1,488,952 as equity, net of $346,349 of stock       
issuance costs, and $302,952 as debt issuance costs. Under the Securities Act,  
the rules and regulations under the Securities Act, and the interpretations of  
the Commission, we may be required to offer rescission to investors in our May  
through September 1999 private placement. If the Company is required to rescind 
the May through September private placement in its entirety, the Company would  
be required to refund all of the gross proceeds of the May through September    
private placement to the investors. Even following the repayment of the notes,  
based on the Securities Act, the rule and regulations under the Securities Act, 
and the interpretations of the Commission, the investors in the May through     
September private placement may have the right to require the Company to        
repurchase the shares of common stock which they received in the May through    
September private placement if they can successfully argue that those shares    
were issued in lieu of a higher interest rate on those notes.                   

  In June 1999, the Company issued a 12% senior note payable of $150,000 and
15,000 shares of common stock valued at $75,000 as settlement of a legal fee    
obligation. The note is due the earlier of                                      

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(8) CONVERTIBLE DEBENTURES AND NOTES PAYABLE (CONTINUED)                        
April 30, 2000 or upon the close of a public sale of the Company's common stock.
The Company also granted 3,750 warrants to purchase an equivalent number of     
shares of common stock at an exercise price of $10 per share. The warrants are  
exercisable for a period of four years commencing May 18, 2000. The fair value  
of the warrants on the dates of issuance was estimated to be $7,098 using the   
Black-Scholes option-pricing model with the following assumptions: dividend     
yield of 0%; risk-free interest rate of 5%; volatility of 100% and an expected  
life of 2 years. As a result, $7,098 of additional legal expense was recorded in
the accompanying consolidated financial statements.                             

    Notes payable and notes payable to related parties at June 30, 1999 and 1998
consists of the following:                                                      

                                                        [Enlarge/Download Table]

                                                                 1999        1998     
                                                              ----------  ----------- 
                                                                                      
12% senior notes payable due the earlier of April 30, 2000                            
  or upon the close of a public sale of the Company's common                          
  stock.....................................................  $1,496,000           -- 
Non-interest bearing note payable to ProSoft I-Net                                    
  Solutions, Inc. under license agreements, maturing through                          
  October 15, 1998..........................................                1,100,000 
Non-interest bearing note payable to ProSoft I-Net                                    
  Solutions, Inc. under license agreements, payable in                                
  quarterly principal and interest installments of $200,000                           
  and maturing through December 31, 1999....................          --    1,287,622 
Non-interest bearing note payable to an officer and                                   
  shareholder, due within 10 days of the close of bridge                              
  financing.................................................       1,799       32,429 
                                                              ----------  ----------- 
                                                               1,497,799    2,420,051 
Less current portion........................................   1,497,799   (2,052,159)
                                                              ----------  ----------- 
                                                              $       --      367,892 
                                                              ==========  =========== 

  During the period from March 4, 1998 (inception) through June 30, 1998, an
officer and shareholder loaned the Company $132,429 of which $100,000 was       
converted into a capital contribution in June 1998. During the year ended       
June 30, 1999, the Company repaid $30,630 of the note payable.                  

    The non-interest bearing note payable to ProSoft I-Net Solutions, Inc. under
license agreements due December 31, 1999, is net of imputed interest of $112,378
at June 30, 1998.                                                               

In August 1998, the notes payable agreements to ProSoft I-Net           
Solutions, Inc. (ProSoft) aggregating $2,387,622 were amended whereby the       
scheduled principal payments of $2,100,000 and $400,000 due in fiscal years 1999
and 2000, were changed to $1,800,000 and $700,000, respectively. During the year
ended June 30, 1999, the Company repaid $700,000 of the notes payable to        
ProSoft. In December 1998, ProSoft released the Company of its remaining        
obligation under the notes payable agreements. As of December 1998, the Company 
recognized $35,488 of imputed interest as interest expense. The remaining       
imputed interest balance was expensed upon extinguishment of the debt in        
December 1998. Additionally, Michael Khaled and Scott Beebe, who personally     
guaranteed repayment of the Company's obligations to ProSoft, paid ProSoft      
$200,000 in the aggregate to terminate their individual personal guarantees of  
the notes payable which was recorded as a capital contribution upon             
extinguishment of debt. Accordingly, the Company recognized $1,653,232 as gain  
on extinguishment of debt during the year ended June 30, 1999.                  

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) SHAREHOLDERS' EQUITY (DEFICIT)                                              

During the period March 4, 1998 (inception) through June 30, 1998, the  
Company issued 1,645,455 shares of common stock valued at $362,000 to certain   
officers and employees in exchange for compensation. The shares vested          
immediately upon grant. In April 1998, the Company granted 100,000 shares of    
common stock under a consulting agreement in exchange for services valued at    
$22,000. Compensation expense of $7,920 was recognized for the value of the     
shares which vested immediately upon grant. Under the agreement, the Company may
repurchase up to 64,000 shares of the common stock issued to the consultant. The
shares eligible for repurchase vest ratably over a 24-month period upon         
performance of services under the consulting agreement. Deferred compensation of
$14,080 was recorded in the accompanying consolidated statement of changes in   
shareholders' equity (deficit) to reflect the unearned compensation. During the 
period March 4, 1998 (inception) through June 30, 1998, 8,000 of the shares     
eligible for repurchase vested resulting in $1,760 of compensation. During the  
year ended June 30, 1999, 8,000 of the shares eligible for repurchase vested and
the consulting agreement was subsequently canceled. As a result, $1,760 of      
additional compensation was recorded and the 48,000 remaining unvested common   
shares were forfeited.                                                          

In June 1998, the Company issued 100,000 shares of common stock to an   
employee in exchange for services valued at $100,000. Half of the shares vested 
on July 1, 1998 with the remaining shares vesting ratably over a 12-month       
period. Accordingly, deferred compensation of $100,000 was recorded at June 30, 
1998. During the year ended June 30, 1999, the 100,000 shares vested resulting  
in compensation of $100,000.                                                    

  During the period March 4, 1998 (inception) through June 30, 1998, Michael
Khaled, Don Danks and Lynn Turnbow, shareholders of the Company, paid, on behalf
of the Company, $400,000 of scheduled payments under the $3,000,000 notes       
payable to ProSoft in exchange for 600,000 shares of common stock valued at     
$400,000.                                                                       

  In March 1998, an officer and shareholder of the Company, Keith Freadhoff,
loaned the Company $100,000. In June 1998, the note was contributed to capital. 

   In June 1998, $184,000 of notes payable to third parties was converted into
184,000 shares of common stock valued at $185,333, including $1,533 of accrued  
interest.                                                                       

During the period March 4, 1998 (inception) through June 30, 1998, the  
Company sold 1,057,545 shares of common stock for $503,000 in cash. In June     
1998, the Company sold 73,000 units in exchange for $146,000. In July 1998      
through September 1998, the Company sold 949,800 units in exchange for          
$1,899,600. Each unit consisted of one share of common stock and one warrant to 
purchase an equivalent number of shares of common stock at an exercise price of 
$4.00. The warrants were exercisable at any time prior to September 1, 1998. The
estimated fair value of the warrants on the date of the grant was estimated to  
be $.02 using the Black-Scholes option-pricing model with the following         
assumptions: dividend yield of 0%; risk-free interest rate of 5.16%; volatility 
of 100%; and an expected life of two months. The warrants were subsequently     
repriced to $2.00 per share and the exercise date was extended to October 1,    
1998. The estimated fair value of the warrants on the date of repricing remained
consistent with the fair value on date of grant. In October 1998, 132,100       
warrants were exercised to purchase 132,100 shares of common stock generating   
proceeds of $264,200.                                                           

During the year ended June 30, 1999, the Company issued warrants as     
consideration for various consulting fees and debt issue costs associated with  
the convertible debentures. The warrants were exercisable within two years from 
the dates of issuance. The fair value of the warrants on the dates of issuance  
was estimated to be $3,169,839 using the Black-Scholes option-pricing model with
the                                                                             

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)                                  
following assumptions: dividend yield of 0%; risk-free interest rate of 5%;     
volatility of 100% and an expected life of 2 years. Accordingly, compensation   
expense of $2,394,254, debt issuance costs of $187,668 and interest expense of  
$535,535 was recorded in the accompanying consolidated financial statements.    

 During the year ended June 30, 1999, the Company issued 366,500 shares of
common stock valued at $1,262,200 as payment of consulting and legal services.  
In May 1999, the Company issued 35,000 shares of common stock valued at $175,000
to acquire internal-use software from UnitNetImaging (Shopping Planet). The     
value of the technology was capitalized in the accompanying consolidated        
financial statements.                                                           

  During March 1999, the Company issued 30,000 shares of common stock valued
at $127,500 as payment of debt issuance costs associated with the issuance of   
$160,000 of notes payable.                                                      

In November 1998, the Company entered into a settlement agreement with  
Michael Khaled, a shareholder of the Company, whereby four shareholders of the  
Company contributed 200,000 shares of common stock valued at $400,000 to        
Mr. Khaled. Additionally, the Company granted warrants to purchase 100,000      
shares of common stock to Mr. Khaled and warrants to purchase 200,000 shares of 
common stock to the four shareholders who contributed their stock. The fair     
value of the warrants on the issuance date was estimated to be $420,000 using   
the Black-Scholes option-pricing model with the following assumptions: dividend 
yield of 0%; risk-free interest rate of 5%; volatility of 100% and an expected  
life of 2 years. Accordingly, compensation expense of $820,000 was recognized in
the accompanying consolidated financial statements.                             

   From March 1999 through May 1999, the Company sold 326,334 shares of common
stock in exchange for cash of $979,000.                                         

In April 1999, the Company issued 2,570 shares of common stock upon the 
cashless exercise of 25,000 warrants at an exercise price of $12.00 per share.  

In May 1999, the Company authorized the issuance of 5,000,000 shares of 
preferred stock, $.001 par value, and approved an increase in the authorized    
number of common shares to 40,000,000.                                          

(10) STOCK OPTIONS                                                              

 In June 1998, the Board of Directors approved, for future grants, 500,000
options to acquire an equivalent number of shares of common stock at an exercise
price of $1 per share to certain senior management. No options were granted as  
of June 30, 1998.                                                               

  In June 1998, the Board of Directors granted 100,000 options to acquire an
equivalent number of shares of common stock at an exercise price of $6 per share
as consideration for legal fees. The options vest ratably as services are       
provided and expire on April 30, 2005. As of June 30, 1998, only a minimal      
amount of legal services had been provided under the agreement. During the year 
ended June 30, 1999, under the anti-dilution clause of the agreement, the number
of options increased to 240,000 and the exercise price was decreased to $2.50   
per share. As a result, compensation for the fair value of the options          
aggregating $479,708 was recorded. The fair value of the options on the date of 
repricing was estimated using the Black-Scholes option-pricing model with the   
following assumptions: dividend yield of 0%; risk-free interest rate of 5%;     
volatility of 100% and an expected life of 1.5 years.                           

  In June 1998, the Company granted a consultant 100,000 options to purchase
an equivalent number of shares of common stock at an exercise price of $3.50 per
share as compensation for services.                                             

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(10) STOCK OPTIONS (CONTINUED)                                                  
The options vest upon the consultant achieving certain sales goals related to   
the sale of training courses under the ProSoft license agreement by June 1999.  
The options expire on June 1, 2003. As of June 30, 1998, no options had been    
earned under the agreement. The fair value of the options on the date of the    
grant was estimated to be $.59 per share using the Black-Scholes option-pricing 
model with the following assumptions: dividend yield of 0%; risk-free interest  
rate of 5.50%; volatility of 100%; and an expected life of 5 years. Subsequent  
to June 30, 1998, these options were canceled.                                  

In July 1998, the Board of Directors adopted the 1998 Stock Compensation
Program ("Program") which consists of an Incentive Stock Option Plan,           
Non-Qualified Stock Option Plan, Restricted Share Plan, Employee Stock Purchase 
Plan, Non-Employee Director Stock Option Plan, Stock Appreciation Rights Plan   
and Other Stock Rights Plan. An aggregate of 1,000,000 shares were reserved for 
issuance under the Program. During the year ended June 30, 1999, the Company    
granted 998,301 options under the Program at exercise prices greater than and   
below the estimated market price of the Company's common stock on the date of   
grant ranging from $2.17 to $5.34 per share. As a result, $180,292 of           
compensation expense was recognized during the year ended June 30, 1999. The    
weighted-average fair value of options granted during the year ended June 30,   
1999 under the Program was $2.07 per share. As of June 30, 1999, 1,699 options  
were available for future grants. The Company applies APB Opinion No. 25 in     
accounting for stock options granted to employees. Had the Company determined   
compensation cost based on the fair value at the grant date for its stock       
options under SFAS No. 123, the Company's net loss would have been increased to 
the pro forma amounts indicated below for the year ended June 30, 1999:         

                                                                [Download Table]
                                                                           
Net loss--as reported.......................................  $(10,775,703)
Net loss--pro forma.........................................   (13,289,478)
                                                              ============ 

   In December 1998, the Board of Directors adopted the 1998 Stock Option Plan
for Senior Executives. An aggregate of 5,000,000 shares were reserved for       
issuance under the Plan. As of June 30, 1999, 2,596,656 options had been granted
under the Plan at an exercise prices ranging from $2.50 to $6.50 per share.     
Because the grant price is greater than the market prices of the Company's      
common stock on the date of grant, there was no intrinsic value on the date of  
grant. The shares begin vesting on January 1, 2000. Accordingly, compensation   
expense related to these stock option grants during the year ended June 30, 1999
is the same under APB 25 and SFAS 123. The weighted-average fair value of the   
options granted under the Plan during the year ended June 30, 1999 was $1.81 per
share. As of June 30, 1999, there were 2,403,333 options available for future   
grants under the Plan.                                                          

The following is a summary of stock option activity:                    

                                                                [Download Table]

                                                                 WEIGHTED AVERAGE
                                               NUMBER OF SHARES   EXERCISE PRICE 
                                               ----------------  ----------------
                                                                                 
Balance at March 4, 1998......................           --            $ --      
Granted.......................................      200,000            4.75      
                                                  ---------                      
Balance at June 30, 1998......................      200,000            4.75      
Granted.......................................    3,734,968            3.85      
Canceled......................................     (100,000)           3.50      
                                                  ---------                      
Balance at June 30, 1999......................    3,834,968            3.80      
                                                  =========            ====      

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(10) STOCK OPTIONS (CONTINUED)                                                  
The following table summarizes information about shares under option at 
June 30, 1999:                                                                  

                                                        [Enlarge/Download Table]

                                       WEIGHTED-AVERAGE                               WEIGHTED
                                          REMAINING         WEIGHTED                  AVERAGE 
                            NUMBER       CONTRACTUAL        AVERAGE        NUMBER     EXERCISE
RANGE OF EXERCISE PRICES  OUTSTANDING        LIFE        EXERCISE PRICE  EXERCISABLE   PRICE  
------------------------  -----------  ----------------  --------------  -----------  --------
                                                                                              
$2.46 to 3.71.........     1,808,636     9.01 years          $ 2.56        670,930     $ 2.50 
3.78 to 6.06..........     1,824,406     9.53 years            4.76        212,880       4.11 
6.15 to 7.75..........       191,926     9.83 years            6.58         35,730       6.75 
13.30.................        10,000     9.75 years           13.30            833      13.30 
                           ---------                                       -------            
                          3,834,968..                          3.80        920,373       3.05 
                           =========                         ======        =======     ====== 

(11)  INCOME TAXES                                                              

Income tax expense for the period March 4, 1998 (inception) through     
June 30, 1998 and the year ended June 30, 1999 represents the California state  
minimum franchise tax and is included in selling, general and administrative    
expenses in the accompanying consolidated statement of operations.              

Income tax expense attributable to loss from operations during the year 
ended June 30, 1999 and the period March 4, 1998 (inception) through June 30,   
1998, differed from the amounts computed by applying the U.S. federal income tax
rate of 34 percent to loss from operations as a result of the following:        

                                                                [Download Table]

                                                         1999          1998    
                                                      -----------   ---------- 
                                                                               
Computed "expected" tax benefit.....................  $(3,565,585)  (1,554,458)
Decrease (increase) in income taxes resulting from:                            
State and local income tax benefit, net of federal                             
  effect............................................     (618,227)    (278,196)
Change in the valuation allowance for deferred tax                             
  assets............................................    4,139,728    1,859,974 
Other...............................................       46,484      (26,520)
                                                      -----------   ---------- 
    Income tax expense..............................  $     2,400          800 
                                                      ===========   ========== 

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(11)  INCOME TAXES (CONTINUED)                                                  
The tax effects of temporary differences that give rise to significant  
portions of the deferred tax assets and deferred tax liabilities at June 30,    
1999 and 1998 are presented below:                                              

                                                                [Download Table]

                                                         1999          1998    
                                                      -----------   ---------- 
                                                                               
Deferred tax assets:                                                           
  Net operating loss carry forwards.................  $ 4,620,070    1,669,316 
  Stock compensation expense........................    1,128,171      179,872 
  Intangible assets, principally due to differences                            
    in amortization.................................       16,902       10,290 
  Deferred compensation.............................      112,821           -- 
  Accounts receivable principally due to allowance                             
    for doubtful accounts...........................        1,200           -- 
  Accrued expenses..................................      106,640           -- 
  Property and equipment, principally due to                                   
    differences in depreciation.....................           --          496 
                                                      -----------   ---------- 
    Total gross deferred tax assets.................    5,985,804    1,859,974 
    Less valuation allowance........................   (5,968,503)  (1,859,974)
Deferred tax liability:                                                        
  Property and equipment, principally due to                                   
    differences in depreciation.....................      (17,301)          -- 
                                                      -----------   ---------- 
    Net deferred tax assets.........................  $        --           -- 
                                                      ===========   ========== 

   In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax 
assets will not be realized. The ultimate realization of deferred tax assets is 
dependent upon the generation of future taxable income during the periods in    
which those temporary differences become deductible. Management considers the   
schedule reversal of deferred tax liabilities, projected future taxable income, 
and tax planning strategies in making this assessment. In order to fully realize
the deferred tax assets, the Company will need to generate future taxable income
of approximately $11,550,000 prior to the expiration of the carry forward period
in 2014. Based on the projections for future taxable income over the periods    
which the deferred tax assets are deductible, management believes it is more    
likely than not that the Company will not realize the benefits of these         
deductible differences. Such potential future benefits have been fully reserved,
and accordingly, there are no net deferred tax assets.                          

As of June 30, 1999, the Company had approximately $11,550,400 and      
11,548,000 of net operating loss carry forwards available for Federal and state 
income tax purposes, respectively, which expire between 2006 and 2018. The      
ultimate realization of the net operating loss carry forwards will be limited by
Section 382 of the Internal Revenue Code as a result of a change of control.    

(12)  LEASE COMMITMENTS                                                         

    The Company has noncancelable operating leases for office space which expire
at various dates through July 2001. Minimum annual commitments under            
noncancelable operates leases are $424,700, $237,300, $135,300 and $10,000      
during the years ended June 30, 2000, 2001, 2002 and 2003, respectively. All    
other operating leases are month-to-month arrangements. Rent expense amounted to
$115,237 and $18,367 during the year ended June 30, 1999 and during the period  
March 4, 1998 (inception) through June 30, 1998, respectively.                  

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(13)  SUBSEQUENT EVENTS                                                         

   In July 1999, the Board of Directors adopted the 1999 Stock Option Plan for
Non-Executives. An aggregate of 2,000,000 shares were reserved for issuance     
under the Plan. From July 1, 1999 through August 10, 1999, the Company granted  
367,266 options under the Plan at exercise prices ranging from $5.25 to $14.50  
per share. The Company also granted 200,000 options under the 1998 Executive    
Plan in July 1999 at an exercise price of $8.18 per share.                      

  In July 1999, the Company entered into a Cable Reseller and Mall agreement
with MediaOne of Colorado, Inc. (MediaOne) whereby the Company also issued to   
MediaOne 50,000 shares of common stock and warrants to purchase 200,000 shares  
of common stock. The exercise price of the warrants is dependent upon the market
price of the Company's common stock on the date that the warrants are earned    
under certain performance criteria.                                             

  From July 21, 1999 through August 18, 1999, the Company issued $503,000 of
12% senior notes payable which are due the earlier of April 30, 2000 or upon the
close of a public sale of the Company's common stock and 50,300 shares of the   
Company's common stock in exchange for $503,000. The net proceeds were allocated
to the notes payable and common stock based on their relative fair values. Under
the Securities Act, the rules and regulations under the Securities Act, and the 
interpretations of the Commission, we may be required to offer rescission to    
investors in our May through September 1999 private placement. If the Company is
required to rescind the May through September private placement in its entirety,
the Company would be required to refund all of the gross proceeds of the May    
through September private placement to the investors.                           

   Even following the repayment of the notes, based on the Securities Act, the
rule and regulations under the Securities Act, and the interpretations of the   
Commission, the investors in the May through September private placement may    
have the right to require the Company to repurchase the shares of common stock  
which they received in the May through September private placement if they can  
successfully argue that those shares were issued in lieu of a higher interest   
rate on those notes.                                                            

(14)  SUBSEQUENT EVENT--UNAUDITED                                               

From August 24, 1999 through September 24, 1999, the Company issued     
$3,075,500 of 12% senior notes payable which are due the earlier of April 30,   
2000 or upon the close of a public sale of the Company's common stock and       
307,550 shares of the Company's common stock in exchange for $3,075,500. The net
proceeds were allocated to the notes payable and common stock based on their    
relative fair values. Under the Securities Act, the rules and regulations under 
the Securities Act, and the interpretations of the Commission, we may be        
required to offer rescission to investors in our May through September 1999     
private placement. If the Company is required to rescind the May through        
September private placement in its entirety, the Company would be required to   
refund all of the gross proceeds of the May trough September private placement  
to the investors. Even following the repayment of the notes, based on the       
Securities Act, the rule and regulations under the Securities Act, and the      
interpretations of the Commission, the investors in the May through September   
private placement may have the right to require the Company to repurchase the   
shares of common stock which they received in the May through September private 
placement if they can successfully argue that those shares were issued in lieu  
of a higher interest rate on those notes.                                       

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NETGATEWAY, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS 
MARCH 31, 2000 AND JUNE 30, 1999

                                                        [Enlarge/Download Table]

                                                               MARCH 31,     JUNE 30,   
                                                                 2000          1999     
                                                              -----------   ----------- 
                                                              (UNAUDITED)               
                                                                                        
                           ASSETS                                                       
Current assets:                                                                         
Cash........................................................  $ 8,739,972       569,472 
  Accounts receivable less allowance for doubtful accounts                              
    of $600 and $3,000 at March 31, 2000 and June 30, 1999,                             
    respectively............................................      618,872        44,198 
  Unbilled receivables (note 6).............................      679,134            -- 
  Note receivable (note 6)..................................      450,000            -- 
  Note receivable from officer..............................           --        30,000 
  Debt issue costs..........................................           --       336,288 
  Prepaid offering costs....................................           --       325,887 
  Deferred acquisition costs................................      361,628            -- 
  Prepaid advertising.......................................      290,000            -- 
  Prepaid expenses and other current assets.................      535,444        73,481 
                                                              -----------   ----------- 
      Total current assets..................................   11,675,050     1,379,326 

Property and equipment, net.................................    2,496,883       496,536 
Intangible assets, net                                          1,323,556     1,562,635 
Other assets................................................       27,284        19,853 
                                                              -----------   ----------- 
                                                              $15,522,773     3,458,350 
                                                              ===========   =========== 
            LIABILITIES AND SHAREHOLDERS' EQUITY                                        
Current liabilities:                                                                    
  Current portion of notes payable (note 4).................  $        --     1,496,000 
  Convertible debentures (note 4)...........................           --       200,000 
  Accounts payable..........................................      813,444       278,723 
  Accrued wages and benefits................................    1,233,125       278,741 
  Accrued interest..........................................           --        44,301 
  Accrued liabilities.......................................      987,900       543,632 
  Deferred revenue..........................................      115,529        67,694 
  Accrued contract losses                                              --       302,543 
  Current portion of notes payable to related parties.......           --         1,799 
                                                              -----------   ----------- 
      Total current liabilities.............................    3,149,998     3,213,433 

Shareholders' equity (note 5):                                                          
  Common stock, par value $.001 per share. Authorized                                   
    40,000,000 shares; issued and outstanding 17,508,327 and                            
    9,912,304 at March 31, 2000 and June 30, 1999,                                      
    respectively............................................       17,508         9,913 
  Additional paid-in capital................................   55,950,432    15,639,160 
  Deferred compensation.....................................     (744,172)      (52,919)
  Accumulated other comprehensive loss......................       (4,396)       (3,598)
  Accumulated deficit.......................................  (42,846,597)  (15,347,639)
                                                              -----------   ----------- 
      Total shareholders' equity............................   12,372,775       244,917 
Commitments and subsequent events...........................                            
                                                              -----------   ----------- 
      Total liabilities and shareholders' equity............  $15,522,773     3,458,350 
                                                              ===========   =========== 

See accompanying notes to unaudited condensed consolidated financial statements.

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NETGATEWAY, INC. AND SUBSIDIARIES 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                              THREE MONTHS  THREE MONTHS  NINE MONTHS   NINE MONTHS
                                                 ENDED         ENDED         ENDED         ENDED   
                                               MARCH 31,     MARCH 31,     MARCH 31,     MARCH 31, 
                                                  2000          1999         2000          1999    
                                              ------------  ------------  -----------   -----------
                                                                                                   
Revenue (note 3)............................  $ 2,042,315        42,208     3,214,997      122,392 
Cost of sales...............................  $   508,464        33,525     1,399,025      102,489 
                                              -----------    ----------   -----------   ---------- 
Gross profit................................    1,533,851         8,683     1,815,972       19,903 
                                              -----------    ----------   -----------   ---------- 

Product development.........................    2,342,665       257,589     4,104,599      911,236 
Selling and marketing.......................    1,356,764       306,974     3,093,634      333,437 
General and administrative..................    1,993,223     1,976,326    16,873,064    6,514,569 
Depreciation and amortization...............      294,708        97,321       608,621      144,702 
                                              -----------    ----------   -----------   ---------- 
      Total operating expenses..............    5,987,360     2,638,210    24,679,918    7,903,944 
                                              -----------    ----------   -----------   ---------- 
      Loss from operations..................   (4,453,509)   (2,629,527)  (22,863,946)  (7,884,041)
Loss on sale of equity securities...........           --            --            --       54,729 
Interest (income) expense, net..............     (133,040)      697,244     4,635,012      679,274 
                                              -----------    ----------   -----------   ---------- 
      Net loss before extraordinary item....   (4,320,469)   (3,326,771)  (27,498,958)  (8,618,044)
Extraordinary gain on debt extinguishment...           --            --            --    1,653,233 
                                              -----------    ----------   -----------   ---------- 
      Net loss..............................  $(4,320,469)   (3,326,771)  (27,498,958)  (6,964,811)
                                              ===========    ==========   ===========   ========== 
Basic and diluted extraordinary gain per                                                           
  share.....................................  $        --            --            --         0.19 
                                              ===========    ==========   ===========   ========== 
Basic and diluted loss per share............  $     (0.25)        (0.37)        (2.02)       (0.80)
                                              ===========    ==========   ===========   ========== 
Weighted average common shares outstanding -                                                       
  basic and diluted                            17,183,314     9,027,916    13,589,267    8,659,851 
                                              ===========    ==========   ===========   ========== 

See accompanying notes to unaudited condensed consolidated financial statements.

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NETGATEWAY, INC. AND SUBSIDIARIES 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                             NINE MONTHS    NINE MONTHS 
                                                                ENDED          ENDED    
                                                              MARCH 31,      MARCH 31,  
                                                                 2000           1999    
                                                             ------------   ------------
                                                                                        
Cash flows from operating activities:                                                   
  Net loss.................................................. $(27,498,958)   (6,964,811)
  Adjustments to reconcile net loss to net cash used in                                 
    operating activities:                                                               
    Depreciation and amortization...........................     608,621        144,702 
    Common stock issued for services........................   3,402,313        902,100 
    Loss on sale of equity securities.......................          --         54,729 
    Amortization of deferred compensation...................     466,147         89,260 
    Gain on extinguishment of debt..........................          --     (1,653,233)
    Stock compensation paid by shareholders.................          --        400,000 
    Stock issued in exchange for cancellation of options....   8,400,000             -- 
    Amortization of debt issue costs........................     585,592             -- 
    Amortization of debt discount...........................   4,022,550         35,488 
    Interest expense on warrants issued as debt issue                                   
     costs..................................................          --        668,904 
    Options and warrants issued for services................     172,853      2,224,987 
    Provision for doubtful accounts.........................          --         23,876 
    Write-off of note receivable............................          --        800,000 
    Changes in assets and liabilities:                                                  
      Accounts receivable...................................    (574,674)       (18,921)
      Unbilled receivables..................................    (679,134)            -- 
      Other assets..........................................    (494,385)        41,297 
      Accounts payable and accrued expenses.................   1,687,897      1,094,763 
                                                             ------------   ----------- 
        Net cash used in operating activities...............  (9,901,178)    (2,156,859)
                                                             ------------   ----------- 
Cash flows from investing activities:                                                   
  Cash assumed in business acquisition......................          --          4,781 
  Loan for notes receivable.................................    (450,000)      (800,000)
  Repayment of notes receivable.............................      30,000         50,000 
  Purchase of equity securities.............................          --       (100,733)
  Proceeds from sale of equity securities...................          --         46,004 
  Purchase of property and equipment........................  (2,369,888)      (118,927)
                                                             ------------   ----------- 
        Net cash used in investing activities...............  (2,789,888)      (918,875)
                                                             ------------   ----------- 
Cash flows from financing activities:                                                   
  Proceeds from issuance of common stock, net...............  25,313,863      2,164,800 
  Proceeds from exercise of options and warrants............   1,173,028        264,200 
  Proceeds from issuance of notes payable to related                                    
    parties.................................................          --        100,000 
  Repayment of notes payable................................  (6,633,500)            -- 
  Proceeds from issuance of notes payable and convertible                               
    debentures..............................................   1,114,950      1,160,000 
  Cash paid for debt issue costs............................    (104,178)            -- 
  Repayment of notes payable to related parties.............      (1,799)      (730,630)
                                                             ------------   ----------- 
        Net cash provided by financing activities...........  20,862,364      2,958,370 
Effect of exchange rate changes on cash balances............        (798)        (1,639)
                                                             ------------   ----------- 
        Net increase in cash................................   8,170,500       (119,003)
Cash at beginning of period.................................     569,472        254,597 
                                                             ------------   ----------- 
Cash at end of period....................................... $ 8,739,972        135,594 
                                                             ============   =========== 
Supplemental schedule of noncash activities:                                            
  Acquisition of StoresOnline...............................          --      1,021,429 
  Conversion of debt to common stock........................ $   200,000        762,500 
  Common stock issued for prepaid advertising...............     300,000             -- 
  Capital contributed upon extinguishment of debt...........          --        200,000 
  Warrants issued to settle an obligation...................      53,534             -- 
  Warrants issued for debt issue costs......................     145,876        746,076 
  Stock issued for debt issue costs.........................          --         75,000 
                                                             ============   =========== 

See accompanying notes to unaudited condensed consolidated financial statements.

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NETGATEWAY INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 

                                                        [Enlarge/Download Table]

                                        COMMON STOCK       ADDITIONAL                              
                                   ----------------------    PAID-IN      DEFERRED    COMPREHENSIVE
                                     SHARES       AMOUNT     CAPITAL    COMPENSATION      LOSS     
                                   -----------   --------  -----------  ------------  -------------
                                                                                                   
Balance at June 30, 1999.........    9,912,304   $ 9,913   15,639,160       (52,919)               
Common stock issued for prepaid                                                                    
  advertising....................       50,000        50      299,950            --             -- 
Common stock issued for                                                                            
  services.......................      515,150       515    3,489,298       (87,500)            -- 
Warrants issued to settle an                                                                       
  obligation.....................           --        --       53,534            --             -- 
Sale of common stock for cash,                                                                     
  net............................    4,155,350     4,155   25,309,708            --             -- 
Warrants issued for debt issue                                                                     
  costs..........................           --        --      145,876            --             -- 
Shares issued for debenture                                                                        
  conversion.....................       80,000        80      199,920            --             -- 
Options granted for services.....           --        --      172,853            --             -- 
Stock option compensation........           --        --    1,069,900    (1,069,900)            -- 
Amortization of deferred                                                                           
  compensation...................           --        --           --       466,147             -- 
Exercise of warrants.............       25,170        25       27,145            --             -- 
Cashless exercise of options and                                                                   
  warrants.......................    1,098,773     1,098       (1,098)           --             -- 
Shares issued for cancellation of                                                                  
  options........................    1,200,000     1,200    8,398,800            --             -- 
Shares issued for exercise of                                                                      
  options........................      326,720       327    1,145,531            --             -- 
Shares issued upon conversion of                                                                   
  subsidiary common stock........      144,860       145         (145)           --             -- 
Comprehensive loss:                                                                                
    Net loss.....................           --        --           --            --    (27,498,958)
    Foreign currency translation                                                                   
      adjustment.................           --        --           --            --           (798)
                                                                                       ----------- 
Total comprehensive loss.........                                                      (27,499,756)
                                   -----------   -------   ----------    ----------    =========== 
Balance at March 31, 2000........   17,508,327   $17,508   55,950,432      (744,172)               
                                   ===========   =======   ==========    ==========                

See accompanying notes to unaudited consolidated financial statements.

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NETGATEWAY INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 
(CONTINUED) 

                                                        [Enlarge/Download Table]

                                                                      ACCUMULATED                
                                                                         OTHER          TOTAL    
                                                       ACCUMULATED   COMPREHENSIVE  SHAREHOLDERS'
                                                         DEFICIT         LOSS          EQUITY    
                                                       -----------   -------------  -------------
                                                                                                 
Balance at June 30, 1999.............................. (15,347,639)      (3,598)         244,917 
Common stock issued for prepaid advertising...........          --           --          300,000 
Common stock issued for services......................          --           --        3,402,313 
Warrants issued to settle an obligation...............          --           --           53,534 
Sale of common stock for cash, net....................          --           --       25,313,863 
Warrants issued for debt issue costs..................          --           --          145,876 
Shares issued for debenture conversion................          --           --          200,000 
Options granted for services..........................          --           --          172,853 
Stock option compensation.............................          --           --               -- 
Amortization of deferred compensation.................          --           --          466,147 
Exercise of warrants..................................          --           --           27,170 
Cashless exercise of options and warrants.............          --           --               -- 
Shares issued for cancellation of options.............          --           --        8,400,000 
Shares issued for exercise of options.................          --           --        1,145,858 
Shares issued upon conversion of subsidiary common                                               
  stock...............................................          --           --               -- 
Comprehensive loss:                                                                              
  Net loss............................................ (27,498,958)          --      (27,498,958)
  Foreign currency translation adjustment.............          --         (798)            (798)
Total comprehensive loss..............................                                           
                                                       -----------       ------      ----------- 
Balance at March 31, 2000............................. (42,846,597)      (4,396)      12,372,775 
                                                       ===========       ======      =========== 

See accompanying notes to unaudited condensed consolidated financial statements.

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) DESCRIPTION OF BUSINESS                                                     

Netgateway, Inc. and subsidiaries ("Netgateway" or the "Company"), was  
formed on March 4, 1998 as a Nevada corporation. Netgateway provides eCommerce  
services designed to enable clients to extend their business to the Internet to 
conduct commercial transactions between business enterprises and between        
business enterprises and consumers. The hub of Netgateway's eCommerce solution  
is its proprietary Internet Commerce Center, which consists of the hardware,    
proprietary and licensed software, and the related technical services necessary 
for Netgateway's clients to transact eCommerce. Netgateway also designs and     
builds custom interfaces, or spokes, to connect business clients to the Internet
Commerce Center. Netgateway's Internet Commerce Center permits a continuum of   
sophisticated and technologically complex, or scalable, solutions ranging from a
simple Internet storefront advertising their products and taking orders through 
e-mail to a highly complex system of secure client extranets allowing vendors to
interact and transact business-to-business eCommerce with one or more specific  
customers.                                                                      

   Prior to October 1, 1999, the Company was a development stage enterprise as
defined in Statement of Financial Accounting Standards ("SFAS") No. 7. Planned  
principal operations commenced and began producing significant revenue on       
October 1, 1999, and accordingly, Netgateway is no longer considered a          
development stage company.                                                      

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                  

(a) PRINCIPLES OF CONSOLIDATION                                         

 The consolidated financial statements include the accounts of the Company
    and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.                                  

(b) REVENUE RECOGNITION                                                 

  Revenues from the design and development of Internet Web sites and related
consulting projects are recognized using the percentage-of-completion   
  method. Unbilled receivables represent time and costs incurred on projects
in progress in excess of amounts billed, and are recorded as assets.    
   Deferred revenue represents amounts billed in excess of costs incurred, and
is recorded as a liability. To the extent costs incurred and anticipated
  costs to complete projects in progress exceed anticipated billings, a loss
is recognized in the period such determination is made for the excess.  

(c) BUSINESS SEGMENTS AND RELATED INFORMATION                           

   Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131) establishes standards for the way public    
  business enterprises are to report information about operating segments in
annual financial statements and requires enterprises to report selected 
   information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosure about
    products and services, geographic areas and major customers. It replaces the
    "industry segment" concept of SFAS No. 14, "Financial Reporting for Segments
    of a Business Enterprise," with a "management approach" concept as the basis
for identifying reportable segments. The Company has only one operating 
segment. The Company formed its wholly-owned Canadian subsidiary,       
StoresOnline.com, Ltd., in January 1999. Prior to that time, the Company
   only had operations in the United States. All revenues during the three and
nine months ended March 31, 2000 and 1999 were generated in the United  
    States. Substantially all of the Company's long-lived assets were located in
the United States at March 31, 2000.                                    

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                      
(d) INVESTMENT SECURITIES                                               

   The Company accounts for investment securities in accordance with Financial
Accounting Standards Board Statement No. 115, "Accounting for Certain   
Investments in Debt and Equity Securities" (SFAS 115). SFAS 115 requires
investments to be classified based on management's intent in one of the 
    three categories: held-to-maturity securities, available-for-sale securities
and trading securities. Held-to-maturity securities are recorded at     
amortized cost. Available-for-sale securities are recorded at fair value
with unrealized gains and losses reported as a separate component of    
    shareholders' equity and comprehensive income (loss). Trading securities are
recorded at market value with unrealized gains and losses reported in   
operations. The Company's investment securities have been classified as 
available-for-sale.                                                     

(e) FOREIGN CURRENCY TRANSLATION                                        

The financial statements of the Company's Canadian subsidiary,          
StoresOnline.com, Ltd. have been translated into U.S. dollars from its  
    functional currency in the accompanying consolidated financial statements in
    accordance with Statement of Financial Accounting Standards No. 52, "Foreign
   Currency Translation." Balance sheet accounts of StoresOnline.com, Ltd. are
translated at period-end exchange rates while income and expenses are   
translated at actual exchange rates on the date of the transaction.     
Translation gains or losses that related to StoresOnline.com, Ltd.'s net
assets are shown as a separate component of shareholders' equity and    
 comprehensive income (loss). There were no gains or losses resulting from
realized foreign currency transactions (transactions denominated in a   
   currency other than the entities' functional currency) during the three and
nine months ended March 31, 2000 and 1999.                              

(f) LOSS PER SHARE                                                      

 Basic earnings (loss) per share is computed by dividing net income (loss)
 available to common shareholders by the weighted average number of common
shares outstanding during the period in accordance with SFAS No. 128    
"Earnings Per Share". Diluted earnings (loss) per share reflects the    
potential dilution that could occur if securities or other contracts to 
    issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the 
entity. Diluted earnings (loss) per share is computed similarly to fully
 diluted earnings (loss) per share pursuant to Accounting Principles Board
    (APB) Opinion No. 15. There were 2,933,407 options and 1,189,075 warrants to
  purchase shares of common stock that were outstanding during the three and
   nine months ended March 31, 2000 which were not included in the computation
  of diluted loss per share because the impact would have been antidilutive.
 There were 3,608,596 options and 1,468,300 warrants to purchase shares of
 common stock that were outstanding during the three and nine months ended
 March 31, 1999 which were not included in the computation of diluted loss
per share because the impact would have been antidilutive.              

(g) COSTS OF START-UP ACTIVITIES                                        

    Pursuant to AICPA Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities," the Company expenses all the costs of start-up    
activities as incurred.                                                 

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                      
(h) USE OF ESTIMATES                                                    

Management of the Company has made a number of estimates and assumptions
 relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet date and the     
  reporting of revenues and expenses during the reporting periods to prepare
   these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.           

(i) RECLASSIFICATIONS                                                   

Certain amounts have been reclassified to conform with current year     
presentation.                                                           

(j) CREDIT CONCENTRATION RISK                                           

   Revenue from one customer represented 49% and 31% of the Company's revenues
and from an additional customer, Galaxy Enterprises, Inc., (see Note 6) 
 represented 33% and 21% of the Company's revenue for the three months and
nine months ended March 31, 2000, respectively.                         

(3) CHANGE IN METHOD OF ACCOUNTING FOR REVENUE                                  

   Effective October 1, 1999, the Company changed its method of accounting for
revenue from the completed contract method to the percentage-of-completion      
method. The Company believes the percentage-of-completion method more accurately
reflects the current earnings process under the Company's contracts. The        
percentage-of-completion method is preferable according to Statement of Position
81-1, Accounting for Performance of Construction-Type and Certain               
Production-Type Contracts, issued by the American Institute of Certified Public 
Accountants. The new method has been applied retroactively by restating the     
Company's consolidated financial statements for prior periods in accordance with
Accounting Principles Board Opinion No. 20.                                     

   The impact of the accounting change was a decrease in net loss and loss per
share as follows:                                                               

                                                                [Download Table]

                                                       NET LOSS   LOSS PER SHARE
                                                       --------   --------------
                                                                                
Three months ended March 31, 2000....................  $ 80,978        .005     
Nine months ended March 31, 2000.....................   665,279        .049     
Three months ended March 31, 1999....................     8,433        .001     
Nine months ended December 31, 1999..................     8,433        .001     

(4) NOTES PAYABLE AND CONVERTIBLE DEBENTURES                                    

   In August and September 1999, the Company obtained bridge financing whereby
12% senior notes payable and 357,850 shares of common stock were issued         
generating proceeds of $2,744,290, net of $803,612 of issuance costs. The senior
notes payable are due the earlier of April 30, 2000 or upon the close of a      
public sale of the Company's common stock. The Company also granted 149,375     
warrants to purchase an equivalent number of shares of common stock at an       
exercise price of $10 per share as additional issuance costs. The warrants are  
exercisable for a period of four years commencing May 18, 2000. The fair value  
of the warrants on the dates of issuance was estimated to be $469,402 using the 
Black-Scholes option-pricing model with the following assumptions: dividend     
yield of 0%; risk-free interest rate of 5%; volatility of 100% and an expected  
life of 2 years. The net proceeds from the bridge financing were allocated to   
the senior notes payable and common stock based on their relative               

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(4) NOTES PAYABLE AND CONVERTIBLE DEBENTURES (CONTINUED)                        
fair values. Accordingly, $957,450 was recorded as notes payable, $2,035,140 as 
equity, net of $555,313 of stock issuance costs, and $248,299 as debt issuance  
costs.                                                                          

   In September 1999, the Company issued a 12% senior note payable of $500,000
and 50,000 shares of common stock valued at $350,000 stock, the proceeds of     
which were received in October 1999. The note is due the earlier of April 30,   
2000 or upon the close of a public sale of the Company's common stock. In       
October 1999, the Company issued a 12% senior note payable of $25,000 and 2,500 
shares of common stock valued at $17,500 generating net proceeds of $22,500. The
note is due the earlier of April 30, 2000 or upon the close of a public sale of 
the Company's common stock. The Company also granted 1,250 warrants valued at   
$3,349. The net proceeds were allocated to the senior notes payable and common  
stock based on their relative fair value.                                       

   In November 1999, the Company repaid all of the $6,633,500 12% senior notes
payable. Upon repayment of the senior notes, the remaining debt discount balance
of $3,253,469 was recognized as interest expense.                               

In October and November 1999, $200,000 of convertible debentures were   
converted into 80,000 shares of common stock.                                   

(5) SHAREHOLDERS' EQUITY                                                        

   In July 1999, the Board of Directors adopted the 1999 Stock Option Plan for
Non-Executives (the "Plan"). An aggregate of 2,000,000 shares were reserved for 
issuance under the Plan. Stockholder approval is necessary in order to adopt a  
new plan. As stockholder approval had not been obtained prior to March 31, 2000,
all options granted are not considered outstanding and have not been included in
the preceding analysis. Management will seek stockholder approval at a special  
meeting of the Company's stockholders on May 24, 2000. Once stockholder approval
is obtained, the additional options will be effectively granted and the         
appropriate calculations to determine compensation can be completed. During the 
nine months ended March 31, 2000, the Company granted 1,803,482 options under   
the Plan at exercise prices ranging from $3.50 to $12.50 per share. The Company 
also granted 535,714 options under the 1998 Executive Plan during the nine      
months ended March 31, 2000 at exercise prices ranging from $3.50 to $8.18 per  
share. The Company also granted 123,916 options under the 1998 Employee Stock   
Option Plan during the nine months ended March 31, 2000 at exercise prices      
ranging from $3.50 to $4.19 per share.                                          

  In July 1999, the Company entered into a Cable Reseller and Mall agreement
with MediaOne of Colorado, Inc. (MediaOne) whereby the Company also issued to   
MediaOne 50,000 shares of common stock and warrants to purchase 200,000 shares  
of common stock. The exercise price of the warrants is dependent upon the market
price of the Company's common stock on the date that the warrants are earned    
under certain performance criteria. As of December 31, 1999, the performance    
criteria had not been met.                                                      

During the nine months ended March 31, 2000, the Company issued 515,150 
shares of common stock valued at $3,489,813 for services, of which 500,000      
shares were issued to the chief executive officer of the Company.               

In October, the Company issued 969,810 shares of common stock upon the  
cashless exercise of warrants, 100 shares of common stock upon the exercise of  
warrants for $100, 1,200,000 shares of                                          

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NETGATEWAY, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(5) SHAREHOLDERS' EQUITY (CONTINUED)                                            
common stock valued at $8,400,000 to three executives upon the cancellation of  
1,980,000 options, and 80,000 shares of common stock upon the conversion of     
$200,000 of convertible debentures. In November 1999, the Company issued 270    
shares of common stock upon the exercise of warrants for $270.                  

  In November and December 1999, the Company sold 3,795,000 shares of common
stock in a public offering generating net proceeds of $23,057,844. The Company  
also granted 190,250 warrants as stock issuance costs.                          

In December 1999, January, February, and March 2000, the Company issued 
86,544, 10,586, 10,586, and 37,144 shares of common stock, respectively, upon   
the conversion of common stock of its Storesonline.com subsidiary.              

  In January, February, and March 2000, the Company issued 128,963 shares of
common stock upon the cashless exercise of warrants and 24,800 shares of common 
stock upon the exercise of warrants for $26,800.                                

  In January, February, and March 2000, the Company issued 326,720 shares of
common stock upon the exercise of options under the Company's plans for         
$1,145,858.                                                                     

(6) GALAXY ACQUISITION                                                          

In March 1999, the Company signed a definitive agreement under which the
Company will acquire Galaxy Enterprises, Inc. ("Galaxy Enterprises") for total  
consideration of approximately 3.9 million shares. Among other things, Galaxy   
Enterprises, through its subsidiary Galaxy Mall, Inc., engages in the business  
of selling electronic home pages, or "storefronts" on its Internet shopping     
mall, and hosts those storefront sites on its Internet server. Galaxy           
Enterprises also conducts Internet training seminars throughout the United      
States for its customers and for others interested in extending their businesses
to the Internet.                                                                

In connection with the merger, on January 7, 2000, the Company advanced 
$300,000 in bridge financing to Galaxy Enterprises for working capital purposes 
and for the payment of certain professional fees incurred by Galaxy Enterprises 
in connection with the merger. On February 4, 2000, the Company advanced an     
additional $150,000 to Galaxy Enterprises for working capital purposes and for  
the payment of certain professional fees incurred by Galaxy Enterprises in      
connection with the merger. Each loan is secured by a pledge of Galaxy          
Enterprises common stock from John J. Poelman, the chief executive officer and  
largest shareholder of Galaxy Enterprises. The notes bear interest at 9.5% and  
are due and payable on the earlier of June 1, 2000 or the consummation date of  
the merger.                                                                     

Pending completion of the merger, the Company has entered into certain  
transactions in the normal course of business with Galaxy Enterprises, Inc. Such
transactions are at negotiated prices and on arm's length terms comparable to   
transactions with other customers of the Company. For the three months ended    
March 31, 2000, Netgateway's sales to Galaxy Enterprises totaled $679,134.      

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INDEPENDENT AUDITORS' REPORT

Board of Directors                                                              
Galaxy Enterprises, Inc.                                                        
Orem, Utah                                                                      

We have audited the accompanying consolidated balance sheets of Galaxy  
Enterprises, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the    
related consolidated statements of operations, stockholders' equity and cash    
flows for each of the three years in the period ended December 31, 1999. These  
consolidated financial statements are the responsibility of the Company's       
management. Our responsibility is to express an opinion on these consolidated   
financial statements based on our audits.                                       

We conducted our audits in accordance with generally accepted auditing  
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are    
free of material misstatement. An audit includes examining, on a test basis,    
evidence supporting the amounts and disclosures in the consolidated financial   
statements. An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audits provide a          
reasonable basis for our opinion.                                               

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Galaxy      
Enterprises, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the    
results of their operations and their cash flows for each of the three years in 
the period ended December 31, 1999 in conformity with generally accepted        
accounting principles.                                                          

    As discussed in Note 7 to the consolidated financial statements, the Company
changed its revenue recognition policies effective January 1, 1999.             

WISAN, SMITH, RACKER & PRESCOTT LLP                                             

Salt Lake City, Utah                                                            
March 15, 2000                                                                  

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

DECEMBER 31, 1999 AND 1998

                                                        [Enlarge/Download Table]

                                                                 1999          1998   
                                                             ------------   ----------
                                                                                      
                                        ASSETS                                        
CURRENT ASSETS                                                                        
Cash........................................................ $    132,741   $   24,719
Trade accounts receivable (net allowance of $677,551 and                              
  $43,832 respectively).....................................    1,112,947       40,838
Related party trade accounts receivable.....................       52,518       38,910
Inventories.................................................      102,203           --
Prepaid expenses............................................      336,148       18,549
Prepaid income taxes........................................        5,030           --
Employee advances...........................................       89,660        1,871
Deferred income tax asset...................................           --       14,200
Credit card reserves........................................      248,431      129,205
                                                             ------------   ----------
  TOTAL CURRENT ASSETS......................................    2,079,678      268,292
EQUIPMENT...................................................      259,577      171,868

OTHER ASSETS                                                                          
Deferred charges............................................           --       67,127
Goodwill....................................................      850,434      794,753
Other.......................................................       40,940       32,815
                                                             ------------   ----------
                                                                  891,374      894,695
                                                             ------------   ----------
    TOTAL ASSETS............................................ $  3,230,629   $1,334,855
                                                             ============   ==========
                                LIABILITIES AND EQUITY                                
CURRENT LIABILITIES                                                                   
Trade accounts payable...................................... $  1,808,482   $  606,553
Related party trade accounts payable........................           --       44,920
Bank overdraft..............................................      348,907      179,301
Accrued expenses............................................      469,286      108,536
Income taxes payable........................................        1,100        7,900
Notes payable--current portion..............................      161,486      115,000
Deferred revenue--current portion...........................   10,334,844           --
Customer deposits...........................................      285,226        6,060
                                                             ------------   ----------
  TOTAL CURRENT LIABILITIES.................................   13,409,331    1,068,270
DEFERRED INCOME TAXES.......................................           --       10,300
DEFERRED REVENUE............................................      410,719           --
NOTES PAYABLE...............................................        4,269           --

STOCKHOLDERS' EQUITY                                                                  
Common stock par value $.007, Authorized 25,000,000 shares,                           
  5,947,514 and 5,281,652 shares issued and outstanding,                              
  respectively..............................................       41,632       36,971
Additional paid-in-capital..................................    2,034,923       91,959
Unearned stock compensation.................................     (159,000)          --
Retained earnings (deficit).................................  (12,511,245)     127,355
                                                             ------------   ----------
  TOTAL STOCKHOLDERS' EQUITY (DEFICIT)......................  (10,593,690)     256,285
                                                             ------------   ----------
    TOTAL LIABILITIES AND EQUITY............................ $  3,230,629   $1,334,855
                                                             ============   ==========

The accompanying notes are an integral part of the financial statements.

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS 

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                                        [Enlarge/Download Table]

                                                           1999          1998          1997     
                                                       ------------   -----------   ----------- 
                                                                                                
INCOME                                                                                          
Sales................................................. $ 17,934,277   $11,448,392   $ 2,495,096 
Cost of sales.........................................   13,506,633     5,105,617     1,056,579 
                                                       ------------   -----------   ----------- 
  GROSS PROFIT........................................    4,427,644     6,342,775     1,438,517 

OPERATING EXPENSES                                                                              
Selling...............................................    8,064,631     4,758,694       856,073 
General and administrative............................    2,639,110     1,388,662       305,215 
Bad debt expense......................................      675,200        43,832            -- 
Depreciation..........................................       97,591        53,260         6,592 
Amortization..........................................       61,974        80,175        36,826 
Merger expenses.......................................                                  108,000 
                                                       ------------   -----------   ----------- 
                                                         11,538,506     6,324,623     1,312,706 
                                                       ------------   -----------   ----------- 
  OPERATING INCOME (LOSS).............................   (7,110,862)       18,152       125,811 

OTHER INCOME (EXPENSES)                                                                         
Interest income.......................................        6,836            11            31 
Other income (expenses)...............................       (2,952)        5,403            -- 
Interest expense......................................      (11,152)       (4,142)         (433)
                                                       ------------   -----------   ----------- 
                                                             (7,268)        1,272          (402)
                                                       ------------   -----------   ----------- 
Income (loss) before income taxes and cumulative                                                
  effect of a change in accounting principle..........   (7,118,130)       19,424       125,409 
Income tax expense (benefit)..........................        2,692       (15,951)       38,081 
                                                       ------------   -----------   ----------- 
  INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE                                            
    IN ACCOUNTING PRINCIPLE...........................   (7,120,822)       35,375        87,328 
  CUMULATIVE EFFECT ON PRIOR YEARS OF ACCOUNTING                                                
    CHANGE............................................   (5,517,778)           --               
                                                       ------------   -----------   ----------- 
  NET INCOME (LOSS)................................... $(12,638,600)  $    35,375        87,328 
                                                       ============   ===========   =========== 
Weighted average number of shares outstanding:                                                  
Basic.................................................    5,675,744     5,272,069     5,271,652 
Diluted...............................................    5,675,744     5,724,683     5,271,652 

Net income (loss) per share:                                                                    
Basic................................................. $      (2.23)  $      0.01   $      0.02 
                                                       ============   ===========   =========== 

Diluted............................................... $      (2.23)  $      0.01   $      0.02 
                                                       ============   ===========   =========== 

The accompanying notes are an integral part of the financial statement. 

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                                        [Enlarge/Download Table]

                                          COMMON STOCK       ADDITIONAL                           
                                      ---------------------   PAID IN                  RETAINED   
                                        SHARES      AMOUNT    CAPITAL      OTHER       EARNINGS   
                                      ----------   --------  ----------  ---------   ------------ 
                                                                                                  
Balance December 31, 1996...........   5,255,352   $36,787   $   78,279  $      --   $      4,652 
Common stock issued for bonuses at                                                                
  $.007 per share...................      16,300       114           --         --             -- 
Net income for the year ended                                                                     
  December 31, 1997.................          --        --           --         --         87,328 
                                      ----------   -------   ----------  ---------   ------------ 
Balance December 31, 1997...........   5,271,652    36,901       78,279         --         91,980 
Common stock issued for stock                                                                     
  options...........................      10,000        70       13,680         --             -- 
Net income for the year ended                                                                     
  December 31, 1998.................          --        --           --         --         35,375 
                                      ----------   -------   ----------  ---------   ------------ 
Balance December 31, 1998...........   5,281,652    36,971       91,959         --        127,355 
Common stock issued on conversion of                                                              
  debt..............................     169,192     1,184      448,816         --             -- 
Common stock issued for cash........     478,570     3,350    1,111,651         --             -- 
Issuance of common stock warrants...          --        --      185,000         --             -- 
Common stock issued for stock                                                                     
  options...........................      11,800        83        8,767         --             -- 
Common stock issued for services                                                                  
  rendered..........................       6,300        44        8,730         --             -- 
Deferred stock compensation.........          --        --      180,000   (159,000)            -- 
Net loss for the year ended                                                                       
  December 31, 1999.................          --        --           --         --    (12,638,600)
                                      ----------   -------   ----------  ---------   ------------ 
Balance December 31, 1999...........   5,947,514   $41,632   $2,034,923  $(159,000)  $(12,511,245)
                                      ==========   =======   ==========  =========   ============ 

The accompanying notes are an integral part of the financial statements.

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                                        [Enlarge/Download Table]

                                                                 1999         1998        1997    
                                                             ------------   ---------   --------- 
                                                                                                  
CASH FLOWS FROM OPERATING ACTIVITIES                                                              
Net income (loss)........................................... $(12,638,600)  $  35,375   $  87,328 
Adjustments to reconcile net income (loss) to net cash used                                       
  by operating activities:                                                                        
  Depreciation..............................................       97,591      53,260       6,592 
  Amortization..............................................       61,974      80,175      36,826 
  Deferred compensation.....................................       21,000          --          -- 
  Deferred income taxes.....................................        3,900     (11,000)      7,100 
  Bad debt provision........................................      675,200      43,832          -- 
  Changes in operating assets and liabilities:                                                    
    Increase in credit card reserves........................     (119,226)    (82,416)    (46,789)
    Increase in trade accounts receivable...................   (1,747,309)    (43,561)    (41,109)
    Increase in employee advances...........................      (87,789)       (871)     (1,000)
    Increase in prepaid expenses............................     (317,599)    (18,549)         -- 
    Increase in prepaid income taxes........................       (5,030)         --          -- 
    Increase in inventories.................................      (89,070)         --          -- 
    (Increase) decrease in trade accounts                                                         
      receivable--related entity............................      (13,608)    (38,910)     87,787 
    Decrease in deferred charges............................       67,127          --          -- 
    Increase in other assets................................       (8,125)    (16,799)   (883,019)
    Increase (decrease) in trade accounts payable...........    1,082,289     (66,491)    673,044 
    Increase (decrease) in trade accounts payable--related                                        
      entity................................................      (44,920)    (20,040)     63,741 
    Increase (decrease) in accrued expenses.................      344,814    (171,507)    280,043 
    Increase (decrease) in income taxes payable.............       (6,800)    (19,736)     26,527 
    Increase in deferred revenue............................   10,745,563          --          -- 
    Increase (decrease) in customer deposits................      279,166        (812)    (80,915)
                                                             ------------   ---------   --------- 
      Net cash flows from (used by) operating activities....   (1,699,452)   (278,050)    216,156 
                                                             ------------   ---------   --------- 
CASH FLOWS FROM INVESTING ACTIVITIES                                                              
  Cash from purchase of subsidiary..........................       16,905          --          -- 
  Purchase of equipment.....................................     (149,839)   (103,426)   (128,294)
                                                             ------------   ---------   --------- 
      Net cash used by investing activities.................     (132,934)   (103,426)   (128,294)
                                                             ------------   ---------   --------- 
CASH FLOWS FROM FINANCING ACTIVITIES                                                              
  Cash from notes payable...................................       11,951     100,000      15,000 
  Increase in bank overdraft................................      169,606     179,301          -- 
  Cash received from short-term debt........................      450,000          --          -- 
  Common stock and common stock warrants issued for cash....    1,308,851      13,750         114 
                                                             ------------   ---------   --------- 
      Net cash flows from financing activities..............    1,940,408     293,051      15,114 
                                                             ------------   ---------   --------- 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........      108,022     (88,425)    102,976 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..............       24,719     113,144      10,168 
                                                             ------------   ---------   --------- 
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $    132,741   $  24,719   $ 113,144 
                                                             ============   =========   ========= 
Supplemental schedule of non-cash investing and financing                                         
  activities:                                                                                     
Conversion of debt for common stock......................... $    450,000   $      --   $      -- 
Deferred stock compensation included in additional paid-in                                        
  capital...................................................       21,000          --          -- 
Common stock issued for services rendered...................        8,774          --          -- 

The accompanying notes are an integral part of the financial statements.

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PART I--FINANCIAL INFORMATION 

GALAXY ENTERPRISES, INC. AND SUBSIDIARY 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF

                                                        [Enlarge/Download Table]

                                                               UNAUDITED       AUDITED    
                                                             MARCH 31, 2000  DEC 31, 1999 
                                                             --------------  ------------ 
                                                                                          
ASSETS                                                                                    
CURRENT ASSETS                                                                            
  Cash......................................................  $     81,455   $    132,741 
  Trade accounts receivable (net of allowance of $984,249                                 
    and $677,551 respectively)..............................     2,089,525      1,112,947 
  Related party trade accounts receivable...................       136,405         52,518 
  Inventories...............................................        87,395        102,203 
  Prepaid expenses..........................................       393,909        336,148 
  Prepaid income taxes......................................         5,030          5,030 
  Employee advances.........................................        94,170         89,660 
  Credit card reserves......................................       447,628        248,431 
                                                              ------------   ------------ 
      TOTAL CURRENT ASSETS..................................     3,335,517      2,079,678 
EQUIPMENT...................................................       262,456        259,577 
OTHER ASSETS                                                                              
  Goodwill..................................................       833,889        850,434 
  Other.....................................................        41,342         40,940 
                                                              ------------   ------------ 
                                                                   875,231        891,374 
                                                              ------------   ------------ 
      TOTAL ASSETS..........................................  $  4,473,204   $  3,230,629 
                                                              ============   ============ 
LIABILITIES AND EQUITY                                                                    
CURRENT LIABILITIES                                                                       
  Trade accounts payable....................................  $  1,021,290   $  1,808,482 
  Related party trade account payable.......................        92,269                
  Bank overdraft............................................       420,274        348,907 
  Accrued expenses..........................................       438,212        469,286 
  Income taxes payable......................................         1,000          1,100 
  Notes payable--current portion............................       543,347        161,486 
  Deferred revenue--current portion.........................    13,120,224     10,334,844 
  Customer deposits.........................................       532,439        285,226 
                                                              ------------   ------------ 
      TOTAL CURRENT LIABILITIES.............................    16,169,055     13,409,331 
DEFERRED REVENUE............................................       780,661        410,719 
NOTES PAYABLE...............................................         4,820          4,269 
STOCKHOLDERS' EQUITY                                                                      
  Common stock par value $.007, Authorized 25,000,000                                     
    shares, 5,965,449 and 5,947,514 issued and outstanding                                
    respectively............................................        41,757         41,632 
  Additional paid-in-capital................................     2,048,069      2,034,923 
  Unearned stock compensation...............................      (153,000)      (159,000)
  Retained earnings.........................................   (14,418,158)   (12,511,245)
                                                              ------------   ------------ 
      TOTAL STOCKHOLDERS' EQUITY (DEFICIT)..................   (12,481,332)   (10,593,690)
                                                              ------------   ------------ 
      TOTAL LIABILITIES AND EQUITY..........................  $  4,473,204   $  3,230,629 
                                                              ============   ============ 

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

                                                        [Enlarge/Download Table]

                                                              THREE MONTHS    THREE MONTHS 
                                                                 ENDED           ENDED     
                                                             MARCH 31, 2000  MARCH 31, 1999
                                                             --------------  --------------
                                                                                           
REVENUE                                                                                    
  Sales.....................................................   $ 6,282,626     $ 2,879,031 
  Cost of sales.............................................     4,563,186       1,944,500 
                                                               -----------     ----------- 
      GROSS PROFIT..........................................     1,719,440         934,531 
OPERATING EXPENSES                                                                         
  Selling...................................................     2,405,087       1,281,558 
  General and administrative................................     1,136,359         481,693 
  Depreciation..............................................        33,611          25,724 
  Amortization..............................................        16,545          14,450 
                                                               -----------     ----------- 
      TOTAL OPERATING EXPENSES..............................     3,591,602       1,803,425 
                                                               -----------     ----------- 
      OPERATING INCOME (LOSS)...............................    (1,872,162)       (868,894)
OTHER INCOME (EXPENSES)                                                                    
  Interest income...........................................            35           2,229 
  Other income (expense)....................................       (29,130)         (6,169)
  Interest expense..........................................        (4,856)         (3,639)
                                                               -----------     ----------- 
      TOTAL OTHER INCOME (EXPENSES).........................       (33,951)         (7,579)
                                                               -----------     ----------- 
      INCOME (LOSS) BEFORE INCOME TAXES.....................    (1,906,113)       (876,473)
Income tax expense (benefit)................................           800         (45,192)
                                                               -----------     ----------- 
Income before cumulative effect of a change in accounting                                  
  principal.................................................    (1,906,913)       (831,281)
Cumulative effect on prior years of accounting change.......                    (5,450,651)
      NET INCOME (LOSS).....................................   $(1,906,913)    $(6,281,932)
                                                               ===========     =========== 
Weighted average shares outstanding:                                                       
  Basic and Diluted.........................................     5,951,830       5,625,272 
Net income per share:                                                                      
  Basic and Diluted.........................................   $    (0.320)    $    (1.117)
                                                               ===========     =========== 

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDING MARCH 31, 2000 AND 1999 

                                                        [Enlarge/Download Table]

                                                                 2000         1999    
                                                              ----------   ---------- 
                                                                                      
CASH FLOWS FROM OPERATING ACTIVITIES                                                  
Net income (loss)...........................................  (1,906,913)  (6,281,932)
Adjustments to reconcile net earnings to net cash flows from                          
  (used by) operating activities:                                                     
  Depreciation..............................................      33,611       25,724 
  Amortization..............................................      16,545       14,450 
  Deferred Compensation.....................................       6,000              
  Changes in operating assets and liabilities:                                        
    Increase in accounts receivable.........................  (1,060,465)    (168,781)
    (Increase) decrease in inventories......................      14,808      (26,000)
    Increase in prepaid expenses............................     (57,761)    (469,742)
    (Increase) decrease in credit card reserves.............    (199,197)     (54,958)
    Increase in employee advances...........................      (4,510)             
    Decrease (increase) in other assets.....................        (402)      19,800 
    Increase in bank overdraft..............................      71,367              
    (Decrease) increase in accounts payable.................    (694,924)     (42,410)
    Increase (decrease) in accrued expenses.................     (31,074)             
    Increase in customer deposits...........................     247,213       51,561 
    (Decrease) increase in accrued income taxes payable.....                  (45,192)
    Increase in deferred revenue............................   3,155,322    6,183,745 
    Increase (decrease) in other current liabilities........                   30,784 
                                                              ----------   ---------- 
      Net cash flows (used by) operating activities.........    (410,380)    (762,951)
                                                              ----------   ---------- 
CASH FLOWS FROM INVESTING ACTIVITIES                                                  
  Purchase of equipment.....................................     (36,589)     (52,030)
                                                              ----------   ---------- 
      Net cash used by investing activities.................     (36,589)     (52,030)
                                                              ----------   ---------- 
CASH FLOWS FROM FINANCING ACTIVITIES                                                  
  Cash from notes payable...................................     450,000              
  Repayment of notes........................................     (67,588)     (25,000)
  Common stock issued for cash..............................      13,271    1,454,500 
                                                              ----------   ---------- 
      Net cash flows from financing activities..............     395,683    1,429,500 
                                                              ----------   ---------- 
NET INCREASE (DECREASE) IN CASH.............................     (51,286)     614,519 
CASH AT THE BEGINNING OF THE PERIOD.........................     132,741       24,718 
                                                              ----------   ---------- 
CASH AT THE END OF THE PERIOD...............................      81,455      639,237 
                                                              ==========   ========== 

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GALAXY ENTERPRISES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION                                                           

In the opinion of management, the accompanying unaudited interim        
consolidated financial statements reflect all adjustments, consisting of normal 
recurring adjustments, necessary to present fairly the financial position, and  
results of operations and cash flows of Galaxy Enterprises, Inc. ("the          
"Company") for the respective periods presented. The results of operations for  
an interim period are not necessarily indicative of the results, which may be   
expected for any other interim period, or for the year as a whole.              

   Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting principles
have been omitted. The accompanying unaudited interim consolidated financial    
statements should be read in conjunction with the consolidated financial        
statements and notes in the Company's Form 10-KSB for the year ending           
December 31, 1999. All inter-company accounts and transactions have been        
eliminated in consolidation.                                                    

REVENUE RECOGNITION                                                             

In December 1999, the Securities and Exchange Commission issued Staff   
Accounting Bulletin No. 101--Revenue Recognition in Financial Statements (SAB   
101). SAB 101 provided guidance on various revenue recognition issues including 
nonrefundable fees received upon entering into arrangements to provide products 
or services. The Company receives such fees on many of the products and services
it provides. In prior years, the Company recognized such fees at the time of    
sale based on the belief that its ongoing obligation did not involve significant
cost or effort and should not impact revenue recognition. Upon evaluation of the
accounting requirements of SAB 101, the Company determined that it was required 
to adopt SAB 101's provisions and that revenue recognition will more closely    
parallel the time period over which the revenue is earned. Adoption of the      
applicable provisions of SAB 101 is to be reported as a change in accounting    
principle in accordance with APB Opinion No. 20, ACCOUNTING CHANGES.            

    As a result of applying SAB 101, the Company adopted new revenue recognition
policies. Such policies are as follows:                                         

   Revenue from customer web site hosting and related products and services is
deferred and recognized over a twenty-four month period which represents the    
twelve months in which a customer can activate a web site plus twelve months of 
free hosting upon activation. Revenue from web site hosting rights that expire  
is recognized at the point of expiration. Revenue from manufactured multimedia  
products is recognized when products are shipped. Fees received from the sale of
third-party merchant credit card processing services are reported on a net      
basis. On a quarterly basis, management reviews all aspects of revenue          
recognition and adjusts recognition of revenue as required, based on actual     
activation and expiration experience.                                           

  At the time of adoption in December 1999, the Company recorded a charge of
$5.45 million, which represented the cumulative effect on prior years of the    
change in accounting principle regarding revenue recognition. The adoption of   
this change was reflected in the Company's annual report filed on Form 10-KSB   
for the year ended December 31, 1999 and was effective for all of 1999.         
Therefore, the accompanying unaudited consolidated financial statements for the 
quarter ended March 31, 1999 have been adjusted to reflect the cumulative effect
adjustment and the adoption of the new revenue recognition policies.            

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CREDIT CARD RESERVES                                                            

  Credit card reserves represent amounts of money due the Company from banks
and credit card processing companies who have handled Visa, Master Card,        
American Express and Discover Card transactions. The Company establishes an     
account receivable at the time the customer's credit card is charged. Later when
the cash is received from a credit card processing company and placed in a      
Company bank account the receivable is credited. Some processing companies      
require the Company to leave on deposit with them an amount of money equal to 5%
of daily credit card transactions until a limit is reached. The limit is        
normally equal to one half month's processing volume. These deposits are also   
included in this category.                                                      

CUSTOMER DEPOSITS                                                               

  Customer Deposits represent advance payments made by some customers to the
Company at the time an order is placed. The prepayment is between 33% and 67% of
the total purchase price. The customer is invoiced for the difference when title
to the products transfers to the customer.                                      

  Also included in this category are amounts withheld from sales commissions
earned by outside telemarketing companies. It is anticipated that some customer 
refunds will be made from these sales and the company retains a small percentage
of the commissions earned to assure recovery of the sales commissions in the    
event that the telemarketing company is no longer earning commissions. There is 
a contractual limit to the amount of reserve the Company is authorized to       
retain. Six months after termination of services by the telemarketing company   
any unused reserve will be given to the contractor.                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES                                         

BUSINESS ACTIVITY                                                               

   The Company, through its Galaxy Mall subsidiary, engages in the business of
leasing to its customers electronic home pages, or "storefronts," through       
galaxymall.com, an Internet shopping mall, and hosts those storefront sites on  
its Internet server. Galaxy Mall's business is to allow its customers (i) to    
acquire a presence on the Internet and (ii) to advertise and sell their products
or services on the Internet. Storefronts designed by or for the customers are   
programmed by Galaxy Mall for display on the mall. Galaxy Mall also contracts   
with consultants and independent contractors, or creates and produces in-house, 
various other internet business related products which it markets. The Company's
other subsidiary, Impact Media, is engaged in the design, manufacture and       
marketing of multimedia brochure kits, shaped compact discs and similar products
and services intended to facilitate conducting business over the Internet.      
Impact Media also performs custom website development. The Company markets its  
products and services throughout the United States.                             

PRINCIPLES OF CONSOLIDATION                                                     

The consolidated financial statements include those of Galaxy           
Enterprises, Inc. and its wholly-owned subsidiaries, Galaxy Mall and IMI (dba   
Impact Media). IMI was purchased during 1999. All significant intercompany      
accounts and transactions have been eliminated.                                 

CASH AND CASH EQUIVALENTS                                                       

Cash equivalents are generally comprised of certain highly liquid       
investments with maturities of less than three months.                          

PROPERTY AND EQUIPMENT                                                          

   Depreciation expense is computed principally on the straight-line method in
amounts sufficient to write off the cost of depreciable assets over their       
estimated useful lives.                                                         

Normal maintenance and repair items are charged to costs and expenses as
incurred. The cost and accumulated depreciation of property and equipment sold  
or otherwise retired are removed from the accounts and gain or loss on          
disposition is reflected in net income in the period of disposition.            

INVENTORIES                                                                     

    Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory consists mainly of manufactured multi-media products.                 

GOODWILL                                                                        

Goodwill resulting from business acquisitions represents the excess of  
purchase price over fair value of net assets acquired and is being amortized    
over 15 years using the straight-line method. Periodically, the Company         
re-evaluates goodwill whenever significant events or changes occur which might  
impair recovery of recorded asset costs.                                        

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                             
ESTIMATES                                                                       

The preparation of financial statements in conformity with generally    
accepted accounting principles requires management to make estimates and        
assumptions that affect the reported amounts of assets and liabilities and      
disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting period. Examples include provisions for bad debts and the length of   
product life cycles and property and equipment lives. Actual results could      
differ from those estimates.                                                    

REVENUE RECOGNITION                                                             

Revenue is recognized when earned. The Company has adopted new revenue  
recognition policies in 1999 (see Note 7). Such policies are as follows:        

   Revenue from customer web site hosting and related products and services is
deferred and recognized over a twenty-four month period which represents the    
twelve months in which a customer can activate a web site plus twelve months of 
free hosting upon activation. Revenue from web site hosting rights that expire  
is recognized at the point of expiration. Revenue from manufactured multimedia  
products is recognized when products are shipped. Fees received from the sale of
third-party merchant credit card processing services are reported on a net      
basis.                                                                          

   On a quarterly basis, management reviews all aspects of revenue recognition
and adjusts recognition of revenue as required, based on actual activation and  
expiration experience.                                                          

   At December 31, 1999, deferred revenue under the aforementioned recognition
policies totaled $10.75 million.                                                

INCOME TAXES                                                                    

   The Company accounts for income taxes using an asset and liability approach
to financial accounting and reporting for income taxes. The difference between  
the financial statement and tax bases of assets and liabilities is determined   
annually. Deferred income tax assets and liabilities are computed for those     
differences that have future tax consequences using the currently enacted tax   
laws and rates that apply to the periods in which they are expected to affect   
taxable income. Valuation allowances are established, if necessary, to reduce   
the deferred tax asset to the amount that will more likely than not be realized.
Income tax expense is the current tax payable or refundable for the period plus 
or minus the net change in the deferred tax assets and liabilities.             

STOCK-BASED COMPENSATION                                                        

The Company applies the Accounting Principles Board ("APB") Opinion 25, 
"Accounting for Stock Issued to Employees", and the related interpretation in   
accounting for all stock option plans. Under APB Opinion 25, compensation cost  
is only recognized for stock options issued when the exercise price of the      
Company's stock options granted is less than the market price of the underlying 
common stock on the grant date. Such costs are expensed over the vesting period 
of the stock options.                                                           

SFAS No. 123, "Accounting for Stock-Based Compensation", requires the   
Company to provide proforma information regarding net income as if compensation 
cost for the Company's stock option plans had been determined in accordance with
the fair value based method prescribed in SFAS                                  

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                             
No. 123. To provide the required proforma information, the Company estimates the
fair value of each stock option at the grant date by using the Black-Scholes    
option-pricing model.                                                           

RESEARCH AND DEVELOPMENT COSTS                                                  

Research and development costs are expensed as incurred. Such costs were
approximately $146,000 in 1999, $250,000 in 1998; and $150,000 in 1997.         

ADVERTISING AND PROMOTION                                                       

  The Company expenses advertising and promotion costs as they are incurred,
except for direct-response advertising, which is capitalized and amortized over 
its expected period of future benefits. Direct response advertising consists    
primarily of advertising costs incurred in connection with the procurement of   
leases for space in the Company's on-line mall. The costs capitalized in        
connection with direct response advertising are amortized over the period in    
which the events (workshops) that have been advertised are held. These events   
are generally held during the three months following the advertising            
expenditure.                                                                    

 Advertising expenses of $4,553,900, $2,414,500 and $524,055 were incurred
for the years ended December 31, 1999, 1998 and 1997, respectively. Direct      
response advertising costs deferred and included in prepaid expenses amounted to
$200,764 and $19,800 at December 31, 1999 and 1998, respectively.               

SEGMENT INFORMATION                                                             

  Subsequent to the purchase of the assets of Impact Media, LLC, the company
adopted Statement of Financial Accounting Standards No. 131, "Disclosures about 
Segments of an Enterprise and Related Information" (SFAS No. 131). This         
statement establishes standards for the reporting of information about operating
segments in annual and interim financial statements and requires restatement of 
prior year information. Operating segments are defined as components of an      
enterprise for which separate financial information is available that is        
evaluated regularly by the chief operating decision maker(s) in deciding how to 
allocate resources and in assessing performance. SFAS No. 131 also requires     
disclosures about products and services, geographic areas and major customers.  
The adoption of SFAS No. 131 did not affect results of operations or financial  
position but did affect the disclosure of segment information, as presented in  
Note 14.                                                                        

RECLASSIFICATIONS                                                               

   Certain amounts in 1998 and 1997 have been reclassified to conform with the
1999 financial statement presentation.                                          

NOTE 2--ACQUISITION OF IMPACT MEDIA, LLC                                        

Effective May 31, 1999, the Company acquired substantially all the net  
assets of Impact Media, LLC (Impact) using the purchase method of accounting by 
assuming the liabilities of Impact. The purchase of Impact resulted in the      
recording of goodwill in the amount of $117,655, which was the extent to which  
liabilities assumed exceeded the fair values of the assets acquired.            

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--ACQUISITION OF IMPACT MEDIA, LLC (CONTINUED)                            
  The terms of the acquisition provide for additional consideration of up to
250,000 shares of common stock to be paid if certain agreed-upon targets are met
during the years ended May 31, 2000 and May 31, 2001. As of December 31, 1999,  
none of the targets had been met. If in the future any of the targets are met   
and the additional consideration becomes issuable, it will be recorded as       
additional goodwill.                                                            

Following are the summarized unaudited proforma combined results of     
operations for the years ended December 31, 1999 and 1998, assuming the         
acquisition had taken place at the beginning of each of those years. No proforma
amounts are presented for 1997 as Impact was not formed until 1998. The         
unaudited proforma results are not necessarily indicative of future earnings or 
earnings that would have been reported had the acquisition been completed when  
assumed.                                                                        

                                                                [Download Table]

                                                        1999          1998     
                                                     -----------   ----------- 
                                                                               
Net sales..........................................  $18,657,177   $14,659,464 
Income (loss) before income........................   (7,380,034)      139,062 
Income taxes.......................................        2,692       (15,951)
Net income (loss)..................................  (12,900,504)      155,013 
Per basic share....................................        (2.27)         0.03 
Per diluted share..................................        (2.27)         0.03 

NOTE 3--EQUIPMENT                                                               

Equipment as of December 31, 1999 and 1998 is detailed in the following 
summary:                                                                        

                                                                [Download Table]

                                                        ACCUMULATED   NET BOOK
1999                                            COST    DEPRECIATION   VALUE  
----                                          --------  ------------  --------
                                                                              
Computer equipment........................... $228,728     $112,730   $115,998
Computer software............................   69,602       20,529     49,073
Office equipment.............................   60,865       16,408     44,457
Furniture and fixtures.......................   26,955        3,452     23,503
Leasehold improvements.......................   30,791        4,245     26,546
                                              --------     --------   --------
                                              $416,941     $157,364   $259,577
                                              ========     ========   ========

                                                                [Download Table]

                                                        ACCUMULATED   NET BOOK
1998                                            COST    DEPRECIATION   VALUE  
----                                          --------  ------------  --------
                                                                              
Computer equipment........................... $157,351    $48,117     $109,234
Computer software............................   32,189      2,263       29,926
Office equipment.............................   33,157      7,883       25,274
Furniture and fixtures.......................    6,104        505        5,599
Leasehold improvements.......................    2,840      1,005        1,835
                                              --------    -------     --------
                                              $231,641    $59,773     $171,868
                                              ========    =======     ========

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--EQUIPMENT (CONTINUED)                                                   

Amounts included in property and equipment for assets capitalized under 
capital lease obligations at December 31, 1999 and 1998 are $18,346 and $0,     
respectively. Accumulated amortization for the items under capitalized leases   
was $2,072 and $0 at December 31, 1999 and 1998, respectively. Amortization     
expense, which is computed using the straight-line method over the term of each 
lease, is included with depreciation expense.                                   

NOTE 4--DEFERRED CHARGES (SEE NOTE 7)                                           

Deferred charges consist of the following:                              

                                                                [Download Table]

                                                             1999       1998   
                                                           --------   -------- 
                                                                               
Organization costs.......................................  $    --    $  7,955 
Startup costs............................................       --     103,923 
                                                           -------    -------- 
                                                           --.....     111,878 
Accumulated amortization.................................       --     (44,751)
                                                           -------    -------- 
                                                           $    --    $ 67,127 
                                                           =======    ======== 

NOTE 5--GOODWILL                                                                

   Goodwill is comprised of the following amounts, resulting from the purchase
of assets from the corresponding entities:                                      

                                                                [Download Table]

                                                           1999        1998   
                                                         ---------   -------- 
                                                                              
Profit Education Systems (PES).........................  $ 793,393   $793,394 
CO-OP Business Services (CO-OP)........................     73,610     73,610 
Impact Media (IMI).....................................    117,655         -- 
                                                         ---------   -------- 
                                                           984,658    867,004 
Accumulated amortization...............................   (134,224)   (72,251)
                                                         ---------   -------- 
                                                         $ 850,434   $794,753 
                                                         =========   ======== 

NOTE 6--INCOME TAXES                                                            

The components of income tax expense (benefit) related to continuing    
operations are as follows:                                                      

                                                        [Enlarge/Download Table]

                                                            1999      1998       1997  
                                                          --------  --------   --------
                                                                                       
Current..................................................  $1,100   $ (4,951)  $30,981 
Deferred.................................................   1,592    (11,000)    7,100 
                                                           ------   --------   ------- 
                                                           $2,692   $(15,951)  $38,081 
                                                           ======   ========   ======= 

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--INCOME TAXES (CONTINUED)                                                
Differences between the U.S. statutory and effective tax rates          

                                                        [Enlarge/Download Table]
                                                                                     
U.S. statutory rate.................................... $     --   $  6,600   $29,692
State income taxes, net of federal tax effect..........    1,100      3,300     3,500
Refund of prior year taxes.............................       --    (17,650)       --
Under (over) accrual of prior year tax.................   11,892     (3,750)       --
Other, net.............................................  (10,300)    (4,451)    4,889
                                                        --------   --------   -------
Income tax expense..................................... $  2,692   $(15,951)  $38,081
                                                        ========   ========   =======
Cash paid for income taxes............................. $  4,003   $ 32,400   $ 4,500
                                                        ========   ========   =======

    The net deferred income taxes in the accompanying balance sheets include the
following amounts of deferred income tax assets and liabilities:                

                                                                [Download Table]

                                                           1999         1998   
                                                        -----------   -------- 
                                                                               
DEFERRED TAX ASSETS                                                            
Receivable valuation..................................  $   253,000   $ 14,200 
Deferred revenue......................................    4,008,000         -- 
Customer deposits.....................................      106,000         -- 
Net operating loss....................................      210,000         -- 
Officer bonuses.......................................       40,300         -- 
Accrued vacation......................................        7,400         -- 
Asset valuation.......................................        3,700         -- 
Deferred compensation.................................        7,800         -- 
                                                        -----------   -------- 
                                                          4,636,200     14,200 
Valuation allowance...................................   (4,636,200)        -- 
                                                        -----------   -------- 
                                                                 --     14,200 
                                                        -----------   -------- 
DEFERRED TAX LIABILITIES                                                       
Depreciation..........................................           --     10,300 
                                                        -----------   -------- 
                                                                 --     10,300 
                                                        -----------   -------- 
Net deferred tax asset (liability)....................  $        --   $  3,900 
                                                        ===========   ======== 
PRESENTATION IN FINANCIAL STATEMENTS                                           
Current deferred tax asset............................  $        --   $ 14,200 
Noncurrent deferred tax liability.....................           --    (10,300)
                                                        -----------   -------- 
Net deferred tax asset (liability)....................  $        --   $  3,900 
                                                        ===========   ======== 

   At December 31, 1999, the Company's deferred tax assets are fully offset by
a valuation allowance. In assessing the realizability of deferred tax assets,   
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of    
deferred tax assets is dependent upon the generation of future taxable income   
during the period in which those temporary differences become deductible.       
Management considers the scheduled reversal of deferred tax liabilities,        
projected future taxable income, and tax planning strategies in making this     

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--INCOME TAXES (CONTINUED)                                                
assessment. Based on the projections for future taxable income over the periods 
that the deferred tax assets are deductible, management believes it is more     
likely than not that the Company will not realize the benefits of these         
deductible differences.                                                         

At December 31, 1999, the Company has approximately $564,000 of net     
operating loss carryforwards available to reduce future taxable income. These   
carryforwards will expire beginning in 2019.                                    

NOTE 7--CHANGES IN ACCOUNTING PRINCIPLES                                        

REVENUE RECOGNITION                                                             

As of December 31, 1999, the Company recorded a charge of $5.45 million 
($0.96 per share), which represents the cumulative effect of a change in        
accounting principle regarding revenue recognition, in accordance with APB      
Opinion No. 20, ACCOUNTING CHANGES. In December 1999, the Securities and        
Exchange Commission released Staff Accounting Bulletin No. 101--Revenue         
Recognition in Financial Statements (SAB 101), which provides guidance on       
various revenue recognition issues including nonrefundable fees received upon   
entering into arrangements to provide products or services. The Company receives
such fees on many of the products and services it provides. In prior years, the 
Company recognized such fees at the time of sale based on the belief that its   
ongoing obligation did not involve significant cost or effort and should not    
impact revenue recognition. Upon evaluation of the accounting requirements of   
SAB 101, the Company determined that it is required to adopt SAB 101's          
provisions and that revenue recognition will more closely parallel the time     
period over which the revenue is earned. The adoption of this change is         
reflected in the accompanying 1999 financial statements. Fees received at the   
time of sale are deferred and recognized systematically over the periods in     
which they are earned. The Company's revenue recognition policies are disclosed 
in Note 1.                                                                      

   The portion of the cumulative effect adjustment recognized in 1999 amounted
to $5.26 million with the remainder to be recognized in 2000. The following     
table presents sales, income before income taxes, net income, and per share     
information for the years ended December 31, 1998 and 1997 as if the new        
principle had been applied during all periods presented.                        

                                                                [Download Table]

                                                        1998          1997     
                                                     -----------   ----------- 
                                                                               
Sales..............................................  $ 7,195,387   $ 1,297,450 
Income (loss) before income taxes..................  $(4,233,581)  $(1,072,237)
Net income (loss)..................................  $(4,217,630)  $(1,110,318)
Per basic share....................................  $      (.80)  $      (.21)
Per diluted share..................................  $      (.80)  $      (.21)

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--CHANGES IN ACCOUNTING PRINCIPLES (CONTINUED)                            

START-UP COSTS                                                                  

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of    
Start-Up Activities." This SOP provides guidance on the financial reporting of  
start-up costs and organization costs. It requires costs of start-up activities 
and organization costs to be expensed as incurred. The Company was required to  
adopt SOP 98-5 for the year ended December 31, 1999. Restatement of previously  
issued financial statements is not permitted. Initial application of this SOP   
was required to be reported as the cumulative effect of a change in accounting  
principle, as described in APB Opinion No. 20, ACCOUNTING CHANGES. The SOP did  
not require the Company to report the proforma effects of retroactive           
application; however, the Company is required to disclose the effect of adopting
this SOP on net income and on the related per share amounts in the period of the
change. As a result of the change in accounting principle, the Company recorded 
a charge of $67,127 ($0.01 per share) during the year ended December 31, 1999,  
representing the balance in capitalized start-up and organization costs as of   
December 31, 1998.                                                              

NOTE 8--NOTES PAYABLE                                                           

    Notes payable as of December 31, 1999 and 1998 are detailed in the following
summary:                                                                        

                                                                [Download Table]

                                                                1999        1998    
                                                              ---------   --------- 
                                                                                    
Note payable to an individual, interest at 8.5%,                                    
  unsecured.................................................  $      --   $  15,000 
Note payable to a financial institution due in June 2000,                           
  interest at 10.75% at December 31, 1999, unsecured........      7,096          -- 
Note payable to a financial institution due September 14,                           
  2000, interest at prime plus 3% (11.50% at December 31,                           
  1999), secured by common stock pledged by a major                                 
  stockholder...............................................    148,347     100,000 
Obligations under leases classified as capital leases due in                        
  monthly installments of $548 including imputed interest at                        
  7.0%......................................................     10,312          -- 
                                                              ---------   --------- 
                                                                165,755     115,000 
Less current portion........................................   (161,486)   (115,000)
                                                              ---------   --------- 
Long-term portion...........................................  $   4,269   $      -- 
                                                              =========   ========= 

 Interest paid during the years ended December 31, 1999, 1998 and 1997 was
approximately $11,200, $4,100 and $400, respectively.                           

Maturities of notes payable over the next five years are as follows:    

                                                                [Download Table]
                                                                      
2000........................................................  $161,486
2001........................................................     4,269
2002........................................................        --
2003........................................................        --
2004........................................................        --
Thereafter..................................................        --
                                                              --------
                                                              $165,755
                                                              ========

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8--NOTES PAYABLE (CONTINUED)                                               
   The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum payments as of
December 31, 1999:                                                              

                                                                [Download Table]
                                                                      
2000........................................................  $ 6,573 
2001........................................................    4,382 
2002........................................................       -- 
2003........................................................       -- 
2004........................................................       -- 
Thereafter..................................................       -- 
                                                              ------- 
Total minimum lease payments................................   10,955 
Amount representing interest................................     (643)
                                                              ------- 
Present value of net minimum lease payments (including                
  $6,043 classified as current).............................  $10,312 
                                                              ======= 

NOTE 9--COMMITMENTS AND CONTINGENCIES                                           

The Company leases certain of its equipment and corporate offices under 
long-term operating lease agreements expiring at various dates through 2004.    
Future aggregate minimum obligations under operating leases as of December 31,  
1999, exclusive of taxes and insurance, are as follows:                         

                                                                [Download Table]

                                                              OPERATING 
                                                                LEASES  
                                                              ----------
                                                                        
Year ending December 31                                                 
2000........................................................  $  467,700
2001........................................................     379,000
2002........................................................     298,800
2003........................................................     301,800
2004........................................................     154,200
                                                              ----------
                                                              $1,601,500
                                                              ==========

   Rental expense totaled approximately $276,000, $186,900 and $83,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.                     

  The Company is involved in various legal proceedings arising in the normal
course of its business. In the opinion of management the liabilities, if any,   
resulting from these matters will not have a material effect on the consolidated
financial statements of the Company.                                            

NOTE 10--RELATED ENTITY TRANSACTIONS                                            

  During 1998, in addition to its direct sales efforts, the Company utilized
the services of American Marketing Systems, Inc. ("AMS"), a Nevada corporation. 
AMS provided telemarketing services to its various clients, including the       
Company. It sold coaching (mentoring) services to Galaxy Mall merchants, and    
coaching services and Company products to prospects who had not previously      
purchased Company products. During the years ended December 31, 1999, 1998 and  
1997, the Company paid AMS $0,                                                  

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 10--RELATED ENTITY TRANSACTIONS (CONTINUED)                                
$1,441,800 and $220,200 in sales commissions, respectively. John J. Poelman,    
President, Chief Executive Officer and a Director of the Company is a 30%       
shareholder of AMS.                                                             

The Company utilizes the services of Electronic Commerce                
International, Inc. ("ECI"), a Utah corporation, which provides merchant        
accounts and leasing services to small businesses. ECI processes the financing  
of Company merchants' storefront leases and also wholesales software to the     
Company used for on-line, realtime processing of credit card transactions. John 
J. Poelman, President, Chief Executive Officer and a Director of the Company is 
the sole stockholder of ECI. Total fees paid to ECI during the years ended      
December 31, 1999 and 1998 totaled approximately $722,400 and $306,400,         
respectively. The Company also has a receivable from ECI for leases in process  
at December 31, 1999 of $52,518.                                                

Effective October 1, 1997, Galaxy entered into a nonexclusive three year
consulting and marketing agreement with Profit Education Specialists which is   
owned by Gary Cochran ("Cochran"), the husband of a shareholder who owns        
approximately 3.1% (at December 31, 1999) of the Company's outstanding stock.   
Such consulting and marketing agreement requires Mr. Cochran to provide services
to improve existing marketing programs of Galaxy, assist in developing          
brochures, advertisements and other marketing materials, training potential     
sales personnel and evaluating future business products, opportunities or       
strategies. Compensation payable to Mr. Cochran is $60,000 per year commencing  
January 1, 1998, and increasing 10% per year commencing the second year and     
subsequent years. The agreement is automatically renewable unless terminated    
prior thereto by consent of the parties. The Company further agrees to pay      
Cochran royalties in various amounts on its sales of Cochran created training   
and Internet educational materials. Payments to Cochran totaled $66,000 and     
$60,000 in 1999 and 1998, respectively.                                         

    Effective May 1, 1998 Galaxy entered into a royalty and consulting agreement
with Cochran in which Galaxy agrees to pay Cochran a royalty on Galaxy's sales  
of training manuals, audio tape presentations and related educational items on  
marketing techniques for the Internet user created by Cochran. Such items are   
designed to explain Internet banner advertising and are used by Galaxy to       
promote sales of its banner impressions, BannerWeb License, and BannerWeb       
Network. The agreement also calls for Cochran to receive speaker fees and       
reimbursement of travel expenses when Cochran participates in Company-sponsored 
seminars. The term of the agreement is for three years, and is renewable yearly 
thereafter provided Galaxy continues to use or distribute such Cochran created  
materials. The agreement can be cancelled at any time upon consent of both      
parties. During the years ended December 31, 1999 and 1998, the Company paid    
Cochran approximately $147,240 and $60,500, respectively for royalties and      
speaker fees.                                                                   

NOTE 11--STOCK PURCHASE WARRANTS                                                

In January 1999, the Company sold a $500,000 convertible promissory note
bearing interest at 7% per annum to an institutional investor. During the first 
quarter, the note was converted into 169,192 shares of the Company's common     
stock. Along with the convertible promissory note, the Company issued the       
institutional investor warrants to purchase 50,000 shares of common stock. The  
warrants are exercisable at $7.05 per share and expire January 11, 2002.        

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--STOCK PURCHASE WARRANTS (CONTINUED)                                    

  During February and March 1999, the Company entered into an agreement with
an institutional investor, whereby the investor invested $1 million in exchange 
for 250,000 shares of common stock. The investor was also issued warrants to    
purchase up to 250,000 additional shares of the Company's stock at an exercise  
price of $2.84 per share. The warrants expire March 18, 2001.                   

NOTE 12--STOCK OPTION PLAN                                                      

The Company has a stock option plan under which officers, employees,    
directors and others may be granted options to purchase the Company's common    
stock. Under the Plan, the Company may grant up to 1,000,000 shares of common   
stock. During 1998, the Company granted 928,250 options to certain employees and
directors at an exercise price of $0.63 to $3.50 per share. During 1999, the    
Company granted 170,750 options to certain employees at an exercise price of    
$1.00 to $2.63 per share.                                                       

   Stock options expire ten years from the date of grant and vest ratably over
five years from the date of grant. There are no shares available for future     
grants at December 31, 1999.                                                    

A summary of the status of the Company's stock option plan as of        
December 31, 1999 and 1998 and changes during the years then ended is presented 
below:                                                                          

                                                        [Enlarge/Download Table]

                                                           EXERCISE   WEIGHTED AVERAGE   NUMBER  
                                                            PRICE      EXERCISE PRICE   OF SHARES
                                                          ----------  ----------------  ---------
                                                                                                 
Balance, December 31, 1997                                $       --       $  --              -- 
  Granted................................................  0.63-3.50        0.80         928,250 
  Exercised..............................................       1.38        1.38         (10,000)
  Cancelled or expired...................................  0.63-2.00        0.82         (76,500)
                                                          ----------       -----         ------- 
Balance, December 31, 1998...............................  0.63-3.50        0.79         841,750 
  Granted................................................  1.00-2.63        1.36         170,750 
  Exercised..............................................       0.75        0.75         (11,800)
  Cancelled or expired...................................  0.63-3.50        1.06         (22,500)
                                                          ----------       -----         ------- 
Balance, December 31, 1999............................... $ .75-3.50       $0.88         978,200 
                                                          ==========       =====         ======= 

Options currently outstanding and exercisable are as follows:           

                                                        [Enlarge/Download Table]

                                                                      WEIGHTED AVERAGE             
                                                           NUMBER        REMAINING        NUMBER   
EXERCISE PRICE                                           OUTSTANDING  CONTRACTUAL LIFE  EXERCISABLE
--------------                                           -----------  ----------------  -----------
                                                                                                   
$0.75 to 1.00...........................................   887,700       8.36 years       291,252  
 1.01 to 2.00...........................................    78,000       9.43 years        16,278  
 2.01 to 3.50...........................................    12,500       9.26 years         1,882  
                                                           -------       ----------       -------  
$0.75 to 3.50...........................................   978,200       8.46 years       309,412  
                                                           -------       ----------       -------  

 The Company has elected to account for stock-based compensation under the
intrinsic value method prescribed by Accounting Principles Board Opinion        
No. 25, "Accounting for Stock Issued to Employees," (APB 25) under which no     
compensation cost for stock options is recognized for stock option awards       
granted at or above fair market value. During 1999, the Company recognized      
$21,000 of                                                                      

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--STOCK OPTION PLAN (CONTINUED)                                          
compensation expense for options granted below fair market value. During 1998,  
the Company recognized no compensation expense.                                 

An alternative method of accounting for stock options is SFAS 123,      
Accounting for Stock-Based Compensation. Under SFAS 123, employee stock options 
are valued at grant date using the Black-Scholes valuation model and            
compensation cost is recognized ratably over the vesting period. Had            
compensation cost for the Company's stock option and employee stock purchase    
plans been determined based on the Black-Scholes value at the grant date for    
awards, the Company's proforma net income and income per share would have been  
as follows:                                                                     

                                                                [Download Table]

                                                           1999         1998   
                                                       ------------   -------- 
                                                                               
Net income (loss) as reported........................  $(12,638,600)  $ 35,375 
Proforma net loss....................................  $(12,748,432)  $ (3,059)
Basic EPS as reported................................  $      (2.23)  $ 0.0067 
Proforma basic EPS...................................  $      (2.25)  $(0.0006)
Diluted EPS as reported..............................  $      (2.23)  $ 0.0062 
Proforma diluted EPS.................................  $      (2.25)  $(0.0006)

The fair value of the options was estimated using the Black-Scholes     
option-pricing model based on the following weighted average assumptions:       

                                                                [Download Table]

                                                               1999      1998  
                                                             --------  --------
                                                                               
Risk-free interest rate.....................................   6.50%     4.70% 
Expected life, in years.....................................   8.46      9.25  
Dividend yield..............................................     --        --  
Volatility..................................................   35.0%     4.40% 

  The weighted average grant date fair value of stock options granted during
the year is summarized as follows:                                              

                                                                [Download Table]

                                                               1999      1998  
                                                             --------  --------
                                                                               
Weighted average fair value.................................  $0.53     $0.27  

   During 1999, the Company's board of directors granted an additional 788,750
options pending the approval of the Company's shareholders. Shareholder approval
is necessary in order to expand the number of shares authorized under the plan  
from 1,000,000 to 2,000,000. As shareholder approval had not been obtained as of
December 31, 1999, all options granted in excess of the original 1,000,000      
shares authorized are not considered outstanding and have not been included in  
the preceding analysis. Management will seek shareholder approval at the next   
annual meeting of shareholders. Once shareholder approval is obtained, the      
additional options will be effectively granted and the appropriate APB 25 and   
SFAS 123 calculations can be completed.                                         

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 13--INCENTIVE COMPENSATION PLAN                                            

  During 1998, the Company adopted an Officers' Incentive Compensation Plan.
The Plan, as amended, provides that incentive compensation will be paid to the  
Company's chief executive officer, chief operations officer and chief financial 
officer if the Company achieves certain levels of revenues and pretax profits as
approved by the Board of Directors. During the years ended December 31, 1999 and
1998, $107,993 and $0 were earned under the Plan.                               

NOTE 14--SEGMENT INFORMATION                                                    

The Company has two principal business segments (Internet access and    
expertise, and multimedia manufacturing). The first is primarily engaged in the 
business of providing its customers with the ability to (i) acquire a presence  
on the Internet and (ii) to advertise and sell their products or services on the
Internet. The second is primarily engaged in providing assistance in the design,
manufacture and marketing of multimedia brochure kits, shaped compact discs and 
similar products and services intended to facilitate conducting business over   
the Internet. Management evaluates segment performance based on the             
contributions to earnings of the respective segment. An analysis and            

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GALAXY ENTERPRISES, INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14--SEGMENT INFORMATION (CONTINUED)                                        
reconciliation of the Company's business segment information to the respective  
information in the consolidated financial statements is as follows.             

                                                        [Enlarge/Download Table]

                                                                 1999          1998     
                                                             ------------   ----------- 
                                                                                        
Segment sales:                                                                          
Internet services........................................... $ 14,341,616   $11,448,392 
Multimedia products and services............................    3,646,315            -- 
                                                             ------------   ----------- 
                                                               17,987,931    11,448,392 
Elimination of intersegment sales...........................      (53,654)           -- 
                                                             ------------   ----------- 
Total consolidated net sales................................ $ 17,934,277   $11,448,392 
                                                             ============   =========== 
Approximate contribution (charge) to earnings:                                          
Internet services........................................... $ (5,823,695)  $   128,059 
Multimedia products.........................................     (825,387)           -- 
Corporate...................................................     (461,780)     (109,907)
                                                             ------------   ----------- 
                                                               (7,110,862)       18,152 
Interest and other income (expense).........................        3,884         5,414 
Interest expense............................................      (11,152)       (4,142)
                                                             ------------   ----------- 
Income (loss) before income taxes...........................   (7,118,130)       19,424 
Income tax expense (benefit)................................        2,692       (15,951)
                                                             ------------   ----------- 
Income (loss) before cumulative effect......................   (7,120,822)       35,375 
Cumulative effect adjustment................................   (5,517,778)           -- 
                                                             ------------   ----------- 
                                                             $(12,638,600)  $    35,375 
                                                             ============   =========== 
Depreciation and Amortization:                                                          
Internet services........................................... $    144,349   $   106,741 
Multimedia products.........................................       10,898            -- 
Corporate...................................................        4,318        26,694 
                                                             ------------   ----------- 
                                                             $    159,565   $   133,435 
                                                             ============   =========== 
Capital expenditures:                                                                   
Internet services........................................... $    122,834   $   103,426 
Multimedia products.........................................      169,812            -- 
                                                             ------------   ----------- 
                                                             $    292,646   $   103,426 
                                                             ============   =========== 
Assets:                                                                                 
Internet services........................................... $  2,525,344   $ 1,302,770 
Multimedia products and services............................      844,909            -- 
Corporate...................................................    1,397,599       101,793 
                                                             ------------   ----------- 
                                                                4,767,852     1,404,563 
Less: Intersegment eliminations.............................   (1,537,223)      (69,708)
                                                             ------------   ----------- 
Total consolidated assets................................... $  3,230,629   $ 1,334,855 
                                                             ============   =========== 

  Intersegment sales for 1999 were made up primarily of the reimbursement of
fees charged related to the fulfillment of orders. There was no profit added to 
the fees. The Company did not have multiple segments in 1997.                   

NOTE 15--SUBSEQUENT EVENTS                                                      

On March 10, 2000 the Company signed a definitive merger agreement to be
acquired by Netgateway, Inc. for approximately 3.9 million shares in an         
all-stock merger plus the assumption of all outstanding stock options. The      
merger calls for Netgateway to issue about six-tenths of one Netgateway share   
for each Galaxy share. The transaction is subject to shareholder approval of    
both companies.                                                                 

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                                                                      APPENDIX A

------------------------

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

NETGATEWAY, INC., 

GALAXY ACQUISITION CORP.

AND 

GALAXY ENTERPRISES, INC.

DATED AS OF MARCH 10, 2000

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TABLE OF CONTENTS 

                                                                [Download Table]

                                                                            PAGE  
                                                                          --------
                                                                                  
ARTICLE I    THE MERGER..................................................    A-2  

    1.01     THE MERGER..................................................    A-2  
    1.02     EFFECTIVE TIME, CLOSING.....................................    A-2  
    1.03     EFFECT OF THE MERGER........................................    A-2  
    1.04     ARTICLES OF INCORPORATION; BYLAWS...........................    A-2  
    1.05     DIRECTORS AND OFFICERS......................................    A-2  
    1.06     EFFECT ON CAPITAL STOCK.....................................    A-2  
    1.07     SURRENDER OF CERTIFICATES...................................    A-4  
    1.08     NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK.........    A-6  
    1.09     LOST, STOLEN OR DESTROYED CERTIFICATES......................    A-6  
    1.10     TAX AND ACCOUNTING CONSEQUENCES.............................    A-6  
    1.11     DISSENTING SHARES...........................................    A-7  

ARTICLE II   REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............    A-8  

    2.01     AUTHORITY...................................................    A-8  
    2.02     DUE ORGANIZATION............................................    A-8  
    2.03     CAPITAL STOCK...............................................    A-8  
    2.04     SUBSIDIARIES................................................    A-9  
    2.05     NO CONFLICTS................................................    A-9  
    2.06     BOOKS AND RECORDS...........................................   A-10  
    2.07     SEC FILINGS.................................................   A-10  
    2.08     ABSENCE OF CHANGES..........................................   A-11  
    2.09     NO UNDISCLOSED LIABILITIES..................................   A-12  
    2.10     LEGAL PROCEEDINGS...........................................   A-12  
    2.11     COMPLIANCE WITH LAWS AND ORDERS.............................   A-12  
    2.12     EMPLOYEE BENEFIT AND COMPENSATION PLANS.....................   A-13  
    2.13     REAL PROPERTY...............................................   A-14  
    2.14     TANGIBLE PERSONAL PROPERTY; INVESTMENT ASSETS...............   A-15  
    2.15     INTELLECTUAL PROPERTY RIGHTS................................   A-15  
    2.16     CONTRACTS...................................................   A-18  
    2.17     LICENSES....................................................   A-19  
    2.18     INSURANCE...................................................   A-20  
    2.19     TRANSACTIONS WITH AFFILIATES................................   A-20  
    2.20     EMPLOYEES; LABOR RELATIONS..................................   A-20  
    2.21     BANK AND BROKERAGE ACCOUNTS; INVESTMENT ASSETS..............   A-21  
    2.22     NO POWERS OF ATTORNEY.......................................   A-21  
    2.23     ACCOUNTS RECEIVABLE.........................................   A-21  
    2.24     INVENTORY...................................................   A-22  
    2.25     BROKERS OR FINDERS..........................................   A-22  
    2.26     DISCLOSURE..................................................   A-22  
    2.27     Y2K.........................................................   A-23  
    2.28     CHANGE OF CONTROL PAYMENTS..................................   A-23  
    2.29     OPINION OF FINANCIAL ADVISOR................................   A-23  
    2.30     BOARD APPROVAL..............................................   A-23  
    2.31     POOLING OF INTERESTS........................................   A-23  

ARTICLE III  REPRESENTATIONS AND WARRANTIES OF PARENT....................   A-24  

    3.01     AUTHORITY...................................................   A-24  
    3.02     ORGANIZATION................................................   A-24  
    3.03     CAPITAL STOCK...............................................   A-24  
    3.04     SUBSIDIARIES................................................   A-24  
    3.05     NO CONFLICTS................................................   A-24  
    3.06     BOOKS AND RECORDS...........................................   A-24  
    3.07     SEC FILINGS.................................................   A-25  
    3.08     ABSENCE OF CHANGES..........................................   A-26  
    3.09     NO UNDISCLOSED LIABILITIES..................................   A-26  

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                                                                             PAGE  
                                                                           --------
                                                                                   
    3.10      LEGAL PROCEEDINGS...........................................   A-26  
    3.11      COMPLIANCE WITH LAWS AND ORDERS.............................   A-26  
    3.12      NO POWERS OF ATTORNEY.......................................   A-26  
    3.13      BROKERS OR FINDERS..........................................   A-26  
    3.14      TAXES.......................................................   A-27  
    3.15      DISCLOSURE..................................................   A-27  

ARTICLE IV    COVENANTS OF COMPANY........................................   A-28  

    4.01      REGULATORY AND OTHER APPROVALS..............................   A-28  
    4.02      INVESTIGATION BY PURCHASER..................................   A-28  
    4.03      NO SOLICITATIONS............................................   A-28  
    4.04      CONDUCT OF BUSINESS.........................................   A-29  
    4.05      CERTAIN RESTRICTIONS........................................   A-29  
    4.06      AFFILIATE TRANSACTIONS......................................   A-30  
    4.07      NOTICE OF CERTAIN MATTERS...................................   A-30  
    4.08      FULFILLMENT OF CONDITIONS; OTHER ACTIONS....................   A-30  

ARTICLE V     COVENANTS OF PARENT.........................................   A-31  

    5.01      REGULATORY AND OTHER APPROVALS..............................   A-31  
    5.02      INVESTIGATION BY COMPANY....................................   A-31  
    5.03      CONDUCT OF BUSINESS.........................................   A-31  
    5.04      CERTAIN RESTRICTIONS........................................   A-31  
    5.05      NOTICE OF CERTAIN MATTERS...................................   A-31  
    5.06      FULFILLMENT OF CONDITIONS; OTHER ACTIONS....................   A-31  
    5.07      DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION......   A-32  

ARTICLE VI    ADDITIONAL AGREEMENT........................................   A-33  

    6.01      PROSPECTUS/PROXY STATEMENT; REGISTRATION STATEMENT; OTHER            
                FILINGS...................................................   A-33  
    6.02      MEETING OF COMPANY STOCKHOLDERS.............................   A-34  
    6.03      MEETING OF PARENT STOCKHOLDERS..............................   A-36  
    6.04      STATE STATUTES..............................................   A-37  

ARTICLE VII   CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER             
                SUB.......................................................   A-37  

    7.01      REPRESENTATIONS AND WARRANTIES..............................   A-37  
    7.02      PERFORMANCE.................................................   A-37  
    7.03      ORDERS AND LAWS.............................................   A-37  
    7.04      REGULATORY CONSENTS AND APPROVALS...........................   A-38  
    7.05      THIRD PARTY CONSENTS........................................   A-38  
    7.06      STOCKHOLDER APPROVAL........................................   A-38  
    7.07      OPINION OF COUNSEL..........................................   A-38  
    7.08      ANCILLARY AGREEMENTS........................................   A-38  
    7.09      REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT...........   A-38  
    7.10      NASDAQ LISTING..............................................   A-38  
    7.11      OFFICERS' CERTIFICATES......................................   A-38  
    7.12      FAIRNESS OPINION............................................   A-39  
    7.13      DISSENTING SHARES...........................................   A-39  

ARTICLE VIII  CONDITIONS PRECEDENT TO OBLIGATIONS OF COMPANY..............   A-39  

    8.01      REPRESENTATIONS AND WARRANTIES..............................   A-39  
    8.02      PERFORMANCE.................................................   A-39  
    8.03      OPINION OF COUNSEL..........................................   A-39  
    8.04      REGULATORY CONSENTS AND APPROVALS...........................   A-39  
    8.05      ORDERS AND LAWS.............................................   A-39  
    8.06      STOCKHOLDER APPROVAL........................................   A-39  
    8.07      REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT...........   A-40  
    8.08      NASDAQ LISTING..............................................   A-40  
    8.09      OFFICERS' CERTIFICATES......................................   A-40  
    8.10      FAIRNESS OPINION............................................   A-40  

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ARTICLE IX     TAX MATTERS.................................................   A-40  

    9.01       REPRESENTATIONS AND OBLIGATIONS REGARDING TAXES.............   A-40  

ARTICLE X      SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND               
                 AGREEMENTS................................................   A-41  

   10.01       SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND               
                 AGREEMENTS................................................   A-41  

ARTICLE XI     TERMINATION.................................................   A-41  

   11.01       TERMINATION.................................................   A-41  
   11.02       EFFECT OF TERMINATION.......................................   A-42  

ARTICLE XII    DEFINITIONS.................................................   A-43  

   12.01       DEFINITIONS.................................................   A-43  

ARTICLE XIII   MISCELLANEOUS...............................................   A-48  

   13.01       NOTICES.....................................................   A-48  
   13.02       ENTIRE AGREEMENT............................................   A-49  
   13.03       PUBLIC ANNOUNCEMENTS........................................   A-49  
   13.04       CONFIDENTIALITY.............................................   A-50  
   13.05       EXPENSES....................................................   A-50  
   13.06       WAIVER......................................................   A-50  
   13.07       AMENDMENT...................................................   A-51  
   13.08       NO THIRD PARTY BENEFICIARY..................................   A-51  
   13.09       NO ASSIGNMENT; BINDING EFFECT...............................   A-51  
   13.10       HEADINGS....................................................   A-51  
   13.11       CONSENT TO JURISDICTION AND SERVICE OF PROCESS..............   A-51  
   13.12       INVALID PROVISIONS..........................................   A-51  
   13.13       GOVERNING LAW...............................................   A-51  
   13.14       COUNTERPARTS................................................   A-51  

EXHIBITS                                                                            

EXHIBIT A      ARTICLES OF INCORPORATION OF THE COMPANY                             
EXHIBIT B      BYLAWS OF THE COMPANY                                                
EXHIBIT C      FORM OF OPINION OF COUNSEL OF THE COMPANY                            
EXHIBIT D      FORM OF EMPLOYMENT AGREEMENT                                         
EXHIBIT E      FORM OF AFFILIATE LOCK-UP AGREEMENT                                  
EXHIBIT F      FORM OF OPINION OF COUNSEL OF PARENT                                 
EXHIBIT G      FORM OF VOTING AGREEMENT                                             
EXHIBIT H      FORM OF OPTION AGREEMENT                                             

DISCLOSURE SCHEDULE                                                                 

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AGREEMENT AND PLAN OF MERGER

  This Agreement And Plan Of Merger is made and entered into as of March 10,
2000, among Netgateway, Inc., a Delaware corporation ("Parent"), GALAXY         
ACQUISITION CORP., a Delaware corporation and a wholly-owned Subsidiary of      
Parent ("Merger Sub"), and GALAXY ENTERPRISES, INC., a Nevada corporation (the  
"Company"). All terms not otherwise defined herein shall have the meanings given
such terms in ARTICLE XII.                                                      

RECITALS

A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("Delaware Law") and the   
Nevada Revised Statutes ("Nevada Law"), Parent, Merger Sub and the Company      
intend to enter into a business combination transaction.                        

    B.  The Board of Directors of the Company (i) has determined that the Merger
is fair to, and in the best interests of, the Company and its stockholders, (ii)
has approved this Agreement, the Merger and the other transactions contemplated 
by this Agreement and the Ancillary Agreements and (iii) subject to the terms   
and conditions of this Agreement, has determined to recommend that the          
stockholders of the Company adopt and approve this Agreement and approve the    
Merger.                                                                         

  C.  The Board of Directors of Parent (i) has determined that the Merger is
fair to, and in the best interests of, Parent and its stockholders, (ii) has    
approved this Agreement, the Merger and the other transactions contemplated by  
this Agreement and (iii) has determined to recommend that the stockholders of   
Parent approve the issuance of shares of Parent Common Stock pursuant to the    
Merger, subject to and upon consummation of the Merger.                         

  D. The parties intend, (i) by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Code and (ii) that the  
Merger shall qualify for accounting treatment as a pooling of interests.        

  E.  As a condition and inducement to Parent's and Merger Sub's willingness
to enter into this Agreement and incur the obligations set forth herein,        
concurrently with the execution and delivery of this Agreement, (i) Parent and  
John J. Poelman ("Poelman") have entered into a Voting Agreement in the form of 
EXHIBIT G-1 hereto, pursuant to which, among other things, such stockholder of  
the Company agrees to vote in favor of approval and adoption of this Agreement, 
(ii) Parent and Sue Ann Cochran have entered into a Voting Agreement in the form
of EXHIBIT G-2 hereto pursuant to which, among other things, such stockholder of
the Company agrees to vote in favor of approval and adoption of this Agreement  
(collectively, the "Voting Agreements"), (iii) Parent and Poelman have entered  
into an Option Agreement in the form of EXHIBIT H hereto (the "Option           
Agreement"), pursuant to which, among other things, Poelman grants to Parent an 
option to purchase his shares of Company Common Stock representing 16% of the   
total outstanding shares of Company Common Stock, (iv) each director, officer   
and ten percent (10%) or greater shareholder of the Company shall have executed 
the Affiliate Lock-Up Agreement, substantially in the form of EXHIBIT E hereto  
(the "Lock-Up Agreements" and together with the Voting Agreements and the Option
Agreement, sometimes collectively referred to herein as the "Ancillary          
Agreements"), and (v) the Company and Poelman, Brandon Lewis, Frank C. Heyman,  
Robert Green, David Wise and Benjamin Roberts have entered into employment      
agreements in the form of EXHIBIT D hereto (the "Employment Agreements"), the   
effectiveness of which are conditioned upon the consummation of the transactions
contemplated hereby.                                                            

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NOW, THEREFORE, in consideration of the covenants, promises and         
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree 
as follows:                                                                     

ARTICLE I 

THE MERGER

     1.01  THE MERGER.  At the Effective Time (as defined in SECTION 1.02)
  and subject to and upon the terms and conditions of this Agreement and the
 applicable provisions of Delaware Law and Nevada Law, Merger Sub shall be
merged with and into the Company (the "Merger"), the separate corporate 
 existence of Merger Sub shall cease and the Company shall continue as the
 surviving corporation. The Company as the surviving corporation after the
   Merger is hereinafter sometimes referred to as the "Surviving Corporation."

 1.02  EFFECTIVE TIME; CLOSING.  Subject to the provisions of this
 Agreement, the parties hereto shall cause the Merger to be consummated by
  filing a Certificate of Merger with the Secretary of State of the State of
   Delaware and Articles of Merger with the Secretary of State of the State of
    Nevada in accordance with the relevant provisions of Delaware Law and Nevada
Law (the "Certificate of Merger") (the time of such filing with the     
Secretary of State of the State of Nevada (or such later time as may be 
    agreed in writing by the Company and Parent and specified in the Certificate
 of Merger) being the "Effective Time") as soon as practicable on or after
the Closing Date (as herein defined). The closing of the Merger (the    
   "Closing") shall take place at the offices of Parent, at a time and date to
be specified by the parties, which shall be no later than the second    
    Business Day after the satisfaction or waiver of the conditions set forth in
ARTICLES VII and VIII, or at such other time, date and location as the  
parties hereto agree in writing (the "Closing Date").                   

     1.03  EFFECT OF THE MERGER.  At the Effective Time, the effect of the
   Merger shall be as provided in this Agreement and the applicable provisions
of Delaware Law and Nevada Law. Without limiting the generality of the  
foregoing, and subject thereto, at the Effective Time all the property, 
rights, privileges, powers and franchises of the Company and Merger Sub 
shall vest in the Surviving Corporation, and all debts, liabilities and 
    duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.                                    

       1.04  ARTICLES OF INCORPORATION; BYLAWS.  Unless otherwise agreed to in
writing by the Company and Parent prior to the Effective Time:          

          (a) the Articles of Incorporation of the Surviving Corporation shall
       be amended and restated as of the Effective Time to conform to EXHIBIT A;
and                                                               

       (b) the By-Laws of the Surviving Corporation shall be amended and
restated as of the Effective Time to conform to EXHIBIT B.        

     1.05  DIRECTORS AND OFFICERS.  The initial directors of the Surviving
 Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or   
  appointed and qualified. The initial officers of the Surviving Corporation
    shall be the officers of Merger Sub immediately prior to the Effective Time,
until their respective successors are duly appointed.                   

     1.06  EFFECT ON CAPITAL STOCK.  Subject to SECTION 1.11 and the other
   terms and conditions of this Agreement, at the Effective Time, by virtue of
   the Merger and without any action on the part of Merger Sub, the Company or
  the holders of any of the following securities, the following shall occur:

    (a) CONVERSION OF THE COMPANY COMMON STOCK. Subject to Section
       1.06(d) and except for Dissenting Shares, each share of Common Stock, par
value $0.007 per share, of the Company                            

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      ("Company Common Stock") issued and outstanding immediately prior to the
   Effective Time will be canceled and extinguished and is automatically
   converted (subject to SECTION 1.06(D)) into the right to receive that
  number of shares of the Common Stock, par value $0.001 per share, of
     Parent ("Parent Common Stock") equal to (i) [(x) 5,000,000 LESS (y) (a)
   the total number of Company Plan Options outstanding at the Effective
     Time MULTIPLIED BY (b) (I) 5,000,000 DIVIDED BY (II) the SUM of (A) the
     total number of shares of Company Common Stock and (B) the total number
   of Company Plan Options issued and outstanding at the Effective Time]
       DIVIDED BY (ii) the total number of shares of Company Common Stock issued
and outstanding at the Effective Time (rounded to the nearest five
       decimal places) (the "Exchange Ratio"), upon surrender of the certificate
representing such share of the Company Common Stock in the manner 
     provided in SECTION 1.07 (or in the case of a lost, stolen or destroyed
       certificate, upon delivery of an affidavit (and bond, if required) in the
   manner provided in SECTION 1.09). If any shares of the Company Common
       Stock outstanding immediately prior to the Effective Time are unvested or
       are subject to a repurchase option, risk of forfeiture or other condition
under any applicable restricted stock purchase agreement or other 
       agreement with the Company, then the shares of Parent Common Stock issued
  in exchange for such shares of the Company Common Stock will also be
       unvested and subject to the same repurchase option, risk of forfeiture or
      other condition, and the certificates representing such shares of Parent
  Common Stock may accordingly be marked with appropriate legends. The
      Company shall take all action that may be necessary to ensure that, from
   and after the Effective Time, Parent is entitled to exercise any such
     repurchase option or other right set forth in any such restricted stock
purchase agreement or other agreement.                            

(b) Stock Options and Warrants.                           

             (i) At the Effective Time, all Company Options issued under the
        Company's 1997 Employee Stock Option Plan (the "Company Plan") and
      the Special Grant disclosed in SECTION 2.03(B) OF THE DISCLOSURE
      SCHEDULE (the "Company Plan Options"), whether or not vested and
       exercisable, shall be assumed by Parent. Each Company Plan Option
           assumed by Parent shall be subject to, and exercisable upon, the same
          terms and conditions as under the applicable Company Plan Option and
          the applicable option agreement issued thereunder (including without
           limitation any vesting, expiration or termination provisions), except
         that (a) each assumed Company Plan Option shall be exercisable for,
         and represent the right to acquire, that number of shares of Parent
         Common Stock (rounded down to the nearest whole share) equal to (i)
          the number of shares of Company Common Stock subject to such Company
       Plan Option immediately prior to the Effective Time multiplied by
           (ii) the Exchange Ratio; and (b) the option price per share of Parent
          Common Stock subject to each assumed Company Plan Option shall be an
      amount equal to (i) the option price per share of Company Common
           Stock subject to such Company Plan Option in effect immediately prior
          to the Effective Time divided by (ii) the Exchange Ratio (rounded up
          to the nearest whole cent). The Company represents and warrants that
      as of the Closing each of the foregoing actions may be taken and
      effected by the Company without the consent of any holder of any
Company Plan Option.                                      

               (ii) At the Effective Time, all Company Options then outstanding,
           whether or not vested and exercisable, under the Invest Linc Emerging
      Growth Fund I Warrant, dated March 18, 1999, and the Bridgewater
        Corporation Warrant, dated as of January 11, 1999, in each case as
        amended (collectively, the "Company Warrant"), shall be assumed by
         Parent. Each Company Warrant assumed by Parent shall be subject to,
      and exercisable upon, the same terms and conditions as under the
     applicable Company Warrant and the applicable warrant agreement
  issued thereunder (including without limitation any vesting,
         expiration or termination provisions), except that (a) each assumed
Company Warrant                                           

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        shall be exercisable for, and represent the right to acquire, that
          number of shares of Parent Common Stock (rounded down to the nearest
      whole share) equal to (i) the number of shares of Company Common
    Stock subject to such Company Warrant immediately prior to the
       Effective Time multiplied by (ii) the Exchange Ratio; and (b) the
           option price per share of Parent Common Stock subject to each assumed
          Company Warrant shall be an amount equal to (i) the option price per
      share of Company Common Stock subject to such Company Warrant in
        effect immediately prior to the Effective Time divided by (ii) the
        Exchange Ratio (rounded up to the nearest whole cent). The Company
          represents and warrants that as of the Closing each of the foregoing
          actions may be taken and effected by the Company without the consent
of any holder of any Company Warrant.                     

           (c) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock of Merger
    Sub (the "Merger Sub Common Stock") issued and outstanding immediately
     prior to the Effective Time shall be converted into one validly issued,
 fully paid and nonassessable share of Common Stock of the Surviving
    Corporation. Each certificate evidencing ownership of shares of Merger
       Sub Common Stock shall evidence ownership of such shares of capital stock
of the Surviving Corporation.                                     

          (d) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
      will be issued by virtue of the Merger, but in lieu thereof, each holder
      of shares of the Company Common Stock who would otherwise be entitled to
 a fraction of a share of Parent Common Stock (after aggregating all
       fractional shares of Parent Common Stock that otherwise would be received
       by such holder) shall, upon surrender of such holder's Certificate(s) (as
defined in SECTION 1.07(C)), receive from Parent an amount of cash
 (rounded to the nearest whole cent), without interest, equal to the
  product of (i) such fraction, multiplied by (ii) the average closing
       price of one share of Parent Common Stock for the twenty (20) most recent
       days that Parent Common Stock has traded ending on the trading day ending
one day prior to the Effective Time (the "Closing Price").        

    (e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
  adjusted to reflect fully the appropriate effect of any stock split,
reverse stock split, stock dividend (including any dividend or    
      distribution to Parent securityholders of securities convertible into or
exercisable for Parent Common Stock or Company Common Stock),     
extraordinary dividend, reorganization, recapitalization,         
       reclassification or other like change with respect to Parent Common Stock
       or Company Common Stock occurring (or with a record date) on or after the
date hereof and prior to the Effective Time.                      

(f) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK.
     Notwithstanding any other provision of this SECTION 1.06, each share of
 Company Common Stock that is owned by the Company and each share of
Company Common Stock that is owned by Parent or Merger Sub shall  
     automatically be cancelled and retired and shall cease to exist, and no
       Parent Common Stock or other consideration shall be delivered in exchange
therefor.                                                         

1.07  SURRENDER OF CERTIFICATES.                                

       (a) EXCHANGE AGENT. Parent shall select an institution reasonably
     satisfactory to the Company to act as the exchange agent (the "Exchange
Agent") in the Merger.                                            

       (b) PARENT TO PROVIDE COMMON STOCK. Within ten (10) Business Days
   after the Effective Time, Parent shall make available to the Exchange
 Agent for exchange in accordance with this Article I, the shares of
   Parent Common Stock issuable pursuant to Section 1.06 in exchange for
   outstanding shares of the Company Common Stock, and cash in an amount
     sufficient for payment in lieu of fractional shares pursuant to Section
1.06(d) and any dividends or                                      

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      distributions which holders of shares of the Company Common Stock may be
entitled pursuant to Section 1.07(d).                             

        (c) Exchange Procedures. Promptly after the Effective Time, Parent
    shall cause the Exchange Agent to mail to each holder of record (as of
       the Effective Time) of a certificate or certificates (the "Certificates")
   which immediately prior to the Effective Time represented outstanding
     shares of the Company Common Stock whose shares were converted into the
right to receive shares of Parent Common Stock pursuant to SECTION
1.06(A), cash in lieu of any fractional shares pursuant to SECTION
1.06(D) and any dividends or other distributions pursuant to      
    SECTION 1.07(D), (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the     
    Certificates shall pass, only upon delivery of the Certificates to the
     Exchange Agent and shall be in such form and have such other provisions
as Parent may reasonably specify) and (ii) instructions for use in
      effecting the surrender of the Certificates in exchange for certificates
     representing shares of Parent Common Stock pursuant to SECTION 1.06(A),
       cash in lieu of any fractional shares pursuant to SECTION 1.06(D) and any
dividends or other distributions pursuant to SECTION 1.07(D). Upon
    surrender of Certificates for cancellation to the Exchange Agent or to
     such other agent or agents as may be appointed by Parent, together with
such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holders of such     
Certificates shall be entitled to receive in exchange therefor    
   certificates representing the number of whole shares of Parent Common
     Stock pursuant to SECTION 1.06(A), payment in lieu of fractional shares
      which such holders have the right to receive pursuant to SECTION 1.06(D)
     and any dividends or distributions payable pursuant to SECTION 1.07(D),
       and the Certificates so surrendered shall forthwith be canceled. Until so
     surrendered, outstanding Certificates will be deemed from and after the
       Effective Time, for all corporate purposes, subject to SECTION 1.07(D) as
     to the payment of dividends, to evidence the ownership of the number of
      full shares of Parent Common Stock into which such shares of the Company
    Common Stock shall have been so converted pursuant to SECTION 1.06(A),
   the right to receive an amount in cash in lieu of the issuance of any
       fractional shares in accordance with SECTION 1.06(D) and any dividends or
distributions payable pursuant to SECTION 1.07(D).                

           (d) Distributions With Respect to Unexchanged Shares. No dividends or
   other distributions declared or made after the date of this Agreement
with respect to Parent Common Stock with a record date after the  
     Effective Time or cash in lieu of fractional shares will be paid to the
     holders of any unsurrendered Certificates with respect to the shares of
    Parent Common Stock represented thereby until the holders of record of
such Certificates shall surrender such Certificates. Subject to   
applicable Law, following surrender of any such Certificates, the 
 Exchange Agent shall deliver to the record holders thereof, without
     interest, certificates representing whole shares of Parent Common Stock
  issued in exchange therefor along with payment in lieu of fractional
  shares pursuant to SECTION 1.06(D) hereof and the amount of any such
     dividends or other distributions with a record date after the Effective
    Time payable with respect to such whole shares of Parent Common Stock.

      (e) Transfers of Ownership. If certificates for shares of Parent
  Common Stock are to be issued in a name other than that in which the
      Certificates surrendered in exchange therefor are registered, it will be
      a condition of the issuance thereof that the Certificates so surrendered
     will be properly endorsed and otherwise in proper form for transfer and
       that the persons requesting such exchange will have paid to Parent or any
      agent designated by it any transfer or other taxes required by reason of
   the issuance of certificates for shares of Parent Common Stock in any
name other than that of the registered holder of the Certificates 
    surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.   

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          (f) Required Withholding. Each of the Exchange Agent, Parent and the
     Surviving Corporation shall be entitled to deduct and withhold from any
       consideration payable or otherwise deliverable pursuant to this Agreement
     to any holder or former holder of the Company Common Stock such amounts
       as may be required to be deducted or withheld therefrom under the Code or
       under any provision of state, local or foreign tax Law or under any other
      applicable Laws. To the extent such amounts are so deducted or withheld,
    such amounts shall be treated for all purposes under this Agreement as
      having been paid to the person to whom such amounts would otherwise have
been paid.                                                        

        (g) No Liability. Notwithstanding anything to the contrary in this
SECTION 1.07, neither the Exchange Agent, Parent, the Surviving   
       Corporation nor any party hereto shall be liable to a holder of shares of
      Parent Common Stock or Company Common Stock for any amount properly paid
 to a public official pursuant to any applicable abandoned property,
escheat or similar Law. If any Certificate shall not have been    
       surrendered prior to the date immediately prior to the date on which such
property would otherwise escheat to or become the property of any 
    Governmental or Regulatory Authority, any such property, to the extent
     permitted by applicable Law, shall become the property of the Surviving
 Corporation, free and clear of all claims or interest of any person
previously entitled thereto.                                      

        (h) Termination. Any property provided to the Exchange Agent which
  remains undistributed to holders of the Certificates for twelve (12)
months after the Effective Time shall be delivered to Parent, upon
  demand, and any holders of the Certificates who have not theretofore
      complied with this Article I shall thereafter look only to Parent or the
       Surviving Corporation for, and Parent shall remain liable for, payment of
 their claim for Parent Common Stock, any cash in lieu of fractional
   shares of Parent Common Stock and any dividends or distributions with
respect to Parent Common Stock, without interest thereon.         

      1.08  NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK.  All shares
  of Parent Common Stock issued upon the surrender for exchange of shares of
   the Company Common Stock in accordance with the terms hereof (including any
   cash paid in respect thereof pursuant to SECTION 1.06(D) and 1.07(D)) shall
   be deemed to have been issued in full satisfaction of all rights pertaining
 to such shares of the Company Common Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of
   shares of the Company Common Stock which were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are   
presented to the Surviving Corporation for any reason, they shall be    
canceled and exchanged as provided in this ARTICLE I.                   

1.09  LOST, STOLEN OR DESTROYED CERTIFICATES.  In the event any 
  Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof, such
    shares of Parent Common Stock, cash for fractional shares, if any, as may be
required pursuant to SECTION 1.06(D) and any dividends or distributions 
   payable pursuant to SECTION 1.07(D); provided, however, that Parent may, in
    its discretion and as a condition precedent to the issuance thereof, require
  the owner of such lost, stolen or destroyed Certificates to deliver a bond
   in such sum as it may reasonably direct as indemnity against any claim that
  may be made against Parent, the Company or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.     

     1.10  TAX AND ACCOUNTING CONSEQUENCES.  It is intended by the parties
   hereto that the Merger shall constitute a reorganization within the meaning
of Section 368(a)(1)(a) and 368(a)(2)(E) of the Code. The parties hereto
adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax      
Regulations. The parties shall consistently treat the Merger as such a  
reorganization for all Tax reporting purposes.                          

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    The parties also intend that the Merger be treated as a pooling of interests
for accounting purposes.                                                

  1.11  DISSENTING SHARES.  Notwithstanding anything to the contrary
contained in this Agreement, any shares of the Company Common Stock     
  outstanding immediately prior to the Effective Time that were not voted in
favor of the Merger and which are held by stockholders who have complied
    with the applicable provisions of Nevada Law (the "Dissenting Shares") shall
   not be converted into or represent the right to receive Parent Common Stock
   in accordance with SECTION 1.06(A) (or cash in lieu of fractional shares in
accordance with SECTION 1.06(D)and any dividends or other distributions 
   pursuant to SECTION 1.07(D)), and each holder of Dissenting Shares shall be
  entitled only to such rights as may be granted to such holder under Nevada
   Law. From and after the Effective Time, a holder of Dissenting Shares shall
  not have and shall not be entitled to exercise any of the voting rights or
    other rights of a stockholder of the Surviving Corporation. If any holder of
   Dissenting Shares shall fail to assert or perfect, or shall waive, rescind,
withdraw or otherwise lose, such holder's right to dissent and obtain   
    payment under Nevada Law, then, as of the later of the Effective Time or the
   occurrence of such event, such shares shall automatically be converted into
and shall represent only the right to receive (upon the surrender of    
Certificate(s) previously representing such Company Common Stock) Parent
Common Stock in accordance with SECTION 1.06(A) (and cash in lieu of any
fractional share in accordance with SECTION 1.06(D) and any dividends or
   other deductions pursuant to SECTION 1.07(D)); provided that if such holder
   effectively withdraws or loses his right to receive payment for such shares
after the Effective Time, then, at such time Parent will comply with    
SECTIONS 1.06(A), 1.06(D) and 1.07(D) with respect to such shares and   
deliver additional certificates representing the appropriate number of  
shares. The Company shall give Parent (x) prompt notice of any written  
 demands for appraisal, withdrawals of demands for appraisal and any other
instruments served pursuant to the applicable provisions of Nevada Law  
relating to the appraisal process received by the Company and (y) the   
   opportunity to participate in all negotiations and proceedings with respect
   to demands for appraisal under Nevada Law. The Company will not voluntarily
make any payment with respect to any demands for appraisal and will not,
  except with the prior written consent of Parent, settle or offer to settle
any such demands.                                                       

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ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY 

The Company represents and warrants to Parent as follows:               

       2.01  AUTHORITY.  This Agreement has been duly and validly executed and
   delivered by the Company, constitutes a legal, valid and binding obligation
 of the Company, and is enforceable against the Company in accordance with
its terms, except as enforcement thereof may be limited by (i) Laws of  
general application relating to bankruptcy, insolvency moratorium,      
   reorganization or other similar Laws, both state and federal, affecting the
  enforcement of creditors' rights or remedies in general, and (ii) rules of
 Law governing specific performance, injunctive relief and other equitable
remedies.                                                               

      2.02  DUE ORGANIZATION.  Each of the Company, and its two wholly owned
   Subsidiaries, Galaxy Mall, Inc., a Wyoming corporation ("Galaxy Mall"), and
IMI, Inc., a Utah corporation ("IMI") is a corporation duly organized,  
   validly existing and in good standing under the Laws of the jurisdiction of
  its incorporation and is duly authorized, qualified and licensed under all
    applicable Laws, regulations, ordinances and orders of public authorities to
own, operate and lease its Assets and Properties and to carry on its    
business in the places and in the manner as presently conducted. SECTION
2.02 OF THE DISCLOSURE SCHEDULE lists the principal lines of business in
which Company, Galaxy Mall and IMI is participating or engaged (the     
 "Business"). Each of the Company, Galaxy Mall, and IMI is duly qualified,
licensed or admitted to do business and is in good standing in those    
 jurisdictions specified in SECTION 2.02 OF THE DISCLOSURE SCHEDULE, which
are the only jurisdictions in which the ownership, use or leasing of its
   Assets and Properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for those       
   jurisdictions in which the adverse effects of all such failures by Company,
Galaxy Mall and IMI to be qualified, licensed or admitted and in good   
    standing can in the aggregate be eliminated without material cost or expense
  by Company, Galaxy Mall and IMI, as the case may be, becoming qualified or
   admitted and in good standing. The name of each director and officer of the
Company, Galaxy Mall and IMI on the date hereof, and the position with  
    Company, Galaxy Mall and IMI held by each, are listed in SECTION 2.02 OF THE
  DISCLOSURE SCHEDULE. Each of the Company, Galaxy Mall and IMI has prior to
    the execution of this Agreement delivered to Parent true and complete copies
  of their articles of incorporation, bylaws, and other charter documents as
in effect on the date hereof.                                           

2.03  CAPITAL STOCK.                                            

  (a) The authorized capital stock of the Company consists of:
      25,000,000 shares of the Company Common Stock, of which 6,206,514 shares
   had been issued and were outstanding as of the date hereof. As of the
     date of this Agreement, there are no shares of the Company Common Stock
held in treasury by the Company.                                  

       (b) As of the date of this Agreement: (i) 1,702,750 shares of the
  Company Common Stock are subject to issuance pursuant to outstanding
     Company Options to purchase Company Common Stock under the Company Plan
  or otherwise for an aggregate exercise price of $1,985,445; and (ii)
307,250 shares of the Company Common Stock are reserved for future
 issuance under the Company Plan. (Stock options or other securities
       convertible into the Company Common Stock granted by the Company pursuant
   to the Company Plan or otherwise are referred to in this Agreement as
       "Company Options"). SECTION 2.03(B) OF THE DISCLOSURE SCHEDULE sets forth
       the following information with respect to each Company Option outstanding
      as of the date of this Agreement: (i) the name of the optionee; (ii) the
      particular plan pursuant to which such Company Option was granted; (iii)
the number of shares of the                                       

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    Company Common Stock subject to such Company Option; (iv) the exercise
     price of such Company Option; (v) the date on which such Company Option
    was granted or assumed; and (vi) the date on which such Company Option
     expires. The Company has made available to Parent accurate and complete
copies of all stock option plans pursuant to which the Company has
   granted stock options that are currently outstanding, the form of all
stock option agreements evidencing such options and the applicable
     vesting schedule for each such option. All shares of the Company Common
    Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are
issuable, would be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in SECTION 2.03(B)(I) OF THE   
DISCLOSURE SCHEDULE, there are no commitments or agreements of any
character to which the Company is bound obligating the Company to 
     accelerate the vesting of any Company Option as a result of the Merger.

  (c) Except as set forth in SECTION 2.03(C) OF THE DISCLOSURE
SCHEDULE, all outstanding shares of the Company Common Stock, all 
      outstanding Company Options, and all outstanding shares of capital stock
of each Subsidiary of the Company have been issued and granted in 
    substantial compliance with (i) all applicable securities Laws and, to
  the knowledge of the Company, all other applicable Laws and (ii) all
material requirements set forth in applicable Contracts.          

           (d) Except as set forth in SECTION 2.03(D) OF THE DISCLOSURE SCHEDULE
      or except for securities the Company owns free and clear of all material
claims and Liens, directly or indirectly through one or more      
   Subsidiaries, and except for shares of capital stock or other similar
       ownership interests of certain Subsidiaries of the Company that are owned
    by certain nominee equity holders as required by the applicable Law of
    the jurisdiction of organization of such Subsidiaries (which shares or
    other interests do not materially affect the Company's control of such
  Subsidiaries), as of the date of this Agreement, there are no equity
     securities, partnership interests or similar ownership interests of any
class of equity security of any Subsidiary of the Company, or any 
      security exchangeable or convertible into or exercisable for such equity
       securities, partnership interests or similar ownership interests, issued,
   reserved for issuance or outstanding. Except as set forth in SECTIONS
2.03(B) and 2.03(D) OF THE DISCLOSURE SCHEDULE, there are no      
subscriptions, options, warrants, equity securities, partnership  
interests or similar ownership interests, calls, rights (including
     preemptive rights), commitments or agreements of any character to which
       the Company or any of its Subsidiaries is a party or by which it is bound
    obligating the Company or any of its Subsidiaries to issue, deliver or
      sell, or cause to be issued, delivered or sold, or repurchase, redeem or
       otherwise acquire, or cause the repurchase, redemption or acquisition of,
     any shares of capital stock, partnership interests or similar ownership
   interests of the Company or any of its Subsidiaries or obligating the
 Company or any of its Subsidiaries to grant, extend, accelerate the
     vesting of or enter into any such subscription, option, warrant, equity
    security, call, right, commitment or agreement. As of the date of this
Agreement, except as contemplated by this Agreement, there are no 
   registration rights and there is no voting trust, proxy, rights plan,
antitakeover plan or other agreement or understanding to which the
   Company is a party or by which it is bound with respect to any equity
security of any class of the Company or with respect to any equity
       security, partnership interest or similar ownership interest of any class
of any of its Subsidiaries.                                       

        2.04  SUBSIDIARIES.  The Company's only Subsidiaries are Galaxy Mall and
IMI. Galaxy Mall and IMI do not have, nor have they ever had, any       
Subsidiaries.                                                           

     2.05  NO CONFLICTS.  Subject to the Company obtaining the approval of
  and adoption of this agreement by the affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock (the "Company
Stockholder Approval"), the execution and delivery by                   

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    the Company of this Agreement does not, and the performance by it of each of
its obligations under this Agreement and the consummation of the        
transactions contemplated hereby will not:                              

        (a) Conflict with or result in a violation or breach of any of the
 terms, conditions or provisions of any articles of incorporation or
bylaws of the Company, Galaxy Mall, or IMI;                       

         (b) Conflict with or result in a violation or breach of any term or
     provision of any Law or Order applicable to the Company, Galaxy Mall or
IMI or any of their respective Assets and Properties; or          

  (c) Except as set forth in SECTION 2.05(C) OF THE DISCLOSURE
     SCHEDULE, (i) conflict with or result in a violation or breach of, (ii)
    constitute (with or without notice or lapse of time or both) a default
 under, (iii) require the Company, Galaxy Mall, or IMI to obtain any
     consent, approval or action of, make any filing with or give any notice
     to any Person as a result or under the terms of, (iv) result in or give
   to any Person any right of termination, cancellation, acceleration or
     modification in or with respect to, (v) result in or give to any Person
any additional rights or entitlement to increased, additional,    
      accelerated or guaranteed payments under, or (vi) result in the creation
       or imposition of any Lien upon any of the Company, Galaxy Mall, or IMI or
any of their respective Assets and Properties under, any material 
       Contract or material License to which any of the Company, Galaxy Mall, or
       IMI are a party or by which any of their respective Assets and Properties
is bound.                                                         

       2.06  BOOKS AND RECORDS.  The minute books and other similar records of
  the Company, Galaxy Mall, and IMI have been made available to Parent prior
   to the execution of this Agreement, and contain a true and complete record,
in all material respects, of all action taken at all meetings and by all
written consents in lieu of meetings of the stockholders, the boards of 
  directors and committees of the board of directors of each of the Company,
  Galaxy Mall, and IMI. The stock transfer ledgers and other similar records
 of the Company, Galaxy Mall, and IMI as made available to Parent prior to
the execution of this Agreement accurately reflect all record transfers 
    prior to the execution of this Agreement in the capital stock of each of the
    Company, Galaxy Mall, and IMI. The Company, Galaxy Mall, and IMI do not have
any of their Books and Records recorded, stored, maintained, operated or
 otherwise wholly or partly dependent upon or held by any means (including
   any electronic, mechanical or photographic process, whether computerized or
not) which (including all means of access thereto and therefrom) are not
under their exclusive ownership and direct control or the control of the
Company's transfer agent.                                               

2.07  SEC FILINGS.                                              

     Except as set forth on SECTION 2.07 OF THE DISCLOSURE SCHEDULE:

         (a) The Company has filed all forms, reports and documents required
    to be filed by Company with the SEC since January 1, 1998 and has made
     available to Parent such forms, reports and documents in the form filed
     with the SEC. All such required forms, reports and documents (including
     those that Company may file subsequent to the date hereof), as amended,
are referred to herein as the "Company SEC Reports." As of their  
respective dates (or, if amended, as of the date of the last such 
     amendment), the Company SEC Reports (i) were prepared in accordance and
       complied (or, with respect to those Company SEC Reports that may be filed
    subsequent to the date hereof, will be prepared in accordance and will
      comply) in all material respects with the requirements of the Securities
    Act of 1933, as amended (the "Securities Act"), or the Exchange Act of
      1934, as amended (the "Exchange Act"), as the case may be, and the rules
  and regulations of the SEC thereunder applicable to such Company SEC
       Reports and (ii) did not at the time they were filed (or, with respect to
those Company SEC Reports that may be filed subsequent to the date
       hereof, will not) contain any untrue statement of a material fact or omit
to state a material fact required to be                           

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     stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not    
   misleading, except to the extent corrected or superseded prior to the
 date hereof by a subsequently filed Company SEC Report. None of the
     Company's Subsidiaries are required to file any forms, reports or other
documents with the SEC.                                           

           (b) Each of the consolidated financial statements (including, in each
   case, any related notes thereto) contained in the Company SEC Reports
       (the "Company Financials"), including each Company SEC Report filed after
  the date hereof until the Closing, (i) complied (or, with respect to
those Company SEC Reports that may be filed subsequent to the date
hereof, will comply) as to form in all material respects with the 
       published rules and regulations of the SEC with respect thereto, (ii) was
       prepared (or, with respect to those Company SEC Reports that may be filed
      subsequent to the date hereof, will be prepared) in accordance with GAAP
      applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes thereto or, in the case of unaudited
  interim financial statements, as may be permitted by the SEC on Form
    10-QSB, 10-KSB or any successor form under the Exchange Act) and (iii)
      fairly presented (or, with respect to those Company SEC Reports that may
 be filed subsequent to the date hereof, will fairly present) in all
      material respects the consolidated financial position of the Company and
      its consolidated Subsidiaries as of the respective dates thereof and the
     consolidated results of the Company's operations and cash flows for the
       periods indicated, except that the unaudited interim financial statements
       may not contain footnotes and were or are subject to normal and recurring
    year-end adjustments. The balance sheet of the Company as of September
30, 1999 contained in the Form 10-QSB filed November 15, 1999 is  
hereinafter referred to as the "Company Balance Sheet." Except as 
disclosed in the Company Financials, since the date of the Company
   Balance Sheet neither the Company nor any of its Subsidiaries has any
       liabilities required under GAAP to be set forth on a consolidated balance
sheet (absolute, accrued, contingent or otherwise) which are,     
    individually or in the aggregate, material to the business, results of
    operations or financial condition of the Company and its Subsidiaries,
     taken as a whole, except for liabilities incurred since the date of the
      Company Balance Sheet in the ordinary course of business consistent with
 past practices and liabilities incurred pursuant to this Agreement.

          (c) The Company has heretofore furnished (or, with respect to copies
 which are not yet available, will furnish) to Parent a complete and
      correct copy of any amendments or modifications, which have not yet been
   filed with the SEC but which are required to be filed, to agreements,
   documents or other instruments which previously had been filed by the
      Company with the SEC pursuant to the Securities Act or the Exchange Act.

        2.08  ABSENCE OF CHANGES.  Except for the execution and delivery of this
   Agreement and the transactions to take place pursuant hereto on or prior to
    the Closing Date or as disclosed in SECTION 2.08 OF THE DISCLOSURE SCHEDULE,
   since December 31, 1998, there has not been (i) any Material Adverse Effect
   on the Company, Galaxy Mall, or IMI, (ii) any declaration, setting aside or
    payment of any dividend on, or other distribution (whether in cash, stock or
    property) in respect of any of the Company's, Galaxy Mall's or IMI's capital
stock, or any purchase, redemption or other acquisition by the Company, 
Galaxy Mall, or IMI of any of Galaxy Mall's or IMI's capital stock, any 
  other securities, or any options, warrants, calls or rights to acquire any
such shares or other securities except for repurchases from employees   
following their termination pursuant to the terms of their pre-existing 
stock option or purchase agreements, (iii) any split, combination or    
reclassification of any of the Company's, Galaxy Mall or IMI's capital  
   stock, (iv) any granting by the Company, Galaxy Mall or IMI of any increase
in compensation or fringe benefits, except for normal increases of cash 
compensation in the ordinary course of business consistent with past    
 practice, or any payment by the Company, Galaxy Mall or IMI of any bonus,
except for bonuses                                                      

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 made in the ordinary course of business consistent with past practice, or
    any granting by the Company, Galaxy Mall or IMI of any increase in severance
   or termination pay or any entry by the Company, Galaxy Mall or IMI into any
 currently effective employment, severance, termination or indemnification
    agreement or any agreement the benefits of which are contingent or the terms
of which are materially altered upon the occurrence of a transaction    
    involving the Company, Galaxy Mall or IMI of the nature contemplated hereby,
(v) entry by the Company, Galaxy Mall or IMI into any licensing or other
agreement with regard to the acquisition or disposition of any material 
Intellectual Property other than licenses, distribution agreements,     
advertising agreements, sponsorship agreements or merchant program      
  agreements entered into in the ordinary course of business consistent with
  past practice, (vi) any amendment or consent with respect to any licensing
agreement filed or required to be filed with the SEC, (vii) any material
change by the Company, Galaxy Mall, or IMI in its accounting methods,   
  principles or practices, except as required by concurrent changes in GAAP,
 or (viii) any material revaluation by any of the Company, Galaxy Mall, or
 IMI of any of its assets, including, without limitation, writing down the
  value of capitalized inventory or writing off notes or accounts receivable
other than in the ordinary course of business.                          

  2.09  NO UNDISCLOSED LIABILITIES.  Except as reflected or reserved
against in the balance sheet and accompanying notes included in the     
Financial Statements or as set forth on SECTION 2.09 OF THE DISCLOSURE  
    SCHEDULE, there are no Liabilities against, relating to or affecting each of
the Company, Galaxy Mall, and IMI or any of their respective Assets and 
  Properties, other than Liabilities incurred since September 30 1999 in the
ordinary course of business, none of which, individually or in the      
    aggregate, would constitute a Material Adverse Effect on the Company, Galaxy
Mall or IMI, taken as a whole.                                          

    2.10  LEGAL PROCEEDINGS.  Except as set forth in SECTION 2.10 OF THE
DISCLOSURE SCHEDULE:                                                    

          (a) There are no Actions or Proceedings pending or, to the Knowledge
      of the Company, threatened against, relating to or affecting each of the
      Company, Galaxy Mall, or IMI or any of their Assets and Properties which
    (i) could reasonably be expected to result in the issuance of an Order
   restraining, enjoining or otherwise prohibiting or making illegal the
       consummation of any of the transactions contemplated by this Agreement or
       otherwise result in a material diminution of the benefits contemplated by
   this Agreement to Parent, or (ii) if determined adversely against the
     Company, Galaxy Mall, or IMI, could reasonably be expected to result in
      (x) any injunction or other equitable relief against the Company, Galaxy
 Mall or IMI that would interfere in any material respect with their
      business or operations or (y) Losses by the Company, Galaxy Mall or IMI,
individually or in the aggregate, exceeding $100,000.00;          

          (b) There are no facts or circumstances Known to any of the Company,
    Galaxy Mall, and IMI that could reasonably be expected to give rise to
      any Action or Proceeding that would be required to be disclosed pursuant
to clause (a) above; and                                          

     (c) There are no Orders outstanding against any of the Company,
Galaxy Mall, and IMI.                                             

      2.11  COMPLIANCE WITH LAWS AND ORDERS.  Except as set forth in SECTION
  2.11 OF THE DISCLOSURE SCHEDULE, each of the Company, Galaxy Mall, and IMI
   is not, nor has at any time been, nor has it received any notice that it is
nor has at any time been, in violation of or in default under, in any   
    material respect, any Law or Order applicable to each of the Company, Galaxy
Mall , and IMI or any of its Assets and Properties, the consequences of 
which will have a Material Adverse Effect on the Company, Galaxy Mall or
IMI.                                                                    

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2.12  EMPLOYEE BENEFIT AND COMPENSATION PLANS.                  

           (a) SECTION 2.12(A) OF THE DISCLOSURE SCHEDULE provides a description
 of each of the following, if any, which is sponsored, maintained or
      contributed to by the Company or its Subsidiaries for the benefit of the
    employees or agents of the Company or its Subsidiaries, or has been so
      sponsored, maintained or contributed to at any time during the Company's
or its Subsidiaries' existence:                                   

               (i) each "Employee Plan," as such term is defined in SECTION 3(3)
      of the Employee Retirement Income Security Act of 1974 ("ERISA")
     (including, but not limited to, employee plans, such as foreign
        plans, which are not subject to the provisions of ERISA) ("PLAN");
and,                                                      

          (ii) each personnel policy, employee manual or other written
         statements of rules or policies concerning employment, stock option
       plan, collective bargaining agreement, bonus plan or arrangement,
          incentive award plan or arrangement, vacation and sick leave policy,
           severance pay policy or agreement, deferred compensation agreement or
           arrangement, consulting agreement, employment contract and each other
 employee plan, agreement, arrangement, program, practice or
          understanding which is not described in SECTION 2.12(A)(I) ("BENEFIT
PROGRAM OR AGREEMENT").                                   

    (b) True, correct and complete copies of each of the Plans and
Benefit Programs or Agreements (if any), and related trusts, if   
  applicable, including all amendments thereto, have been furnished to
   Parent. There has also been furnished to Parent, with respect to each
      Plan required to file such report and description, the three most recent
      reports on Form 5500 and the summary plan description. True, correct and
   complete copies or descriptions of all Benefit Programs or Agreements
have also been furnished to Parent.                               

          (c) The Company and its Subsidiaries do not contribute to or have an
    obligation to contribute to, and the Company and its Subsidiaries have
     not at any time contributed to or had an obligation to contribute to, a
  multiemployer plan within the meaning of Section 3(37) of ERISA or a
    multiple employer plan within the meaning of Section 413(b) and (c) of
the Code.                                                         

 (d) Except as otherwise set forth in SECTION 2.12(D) OF THE
DISCLOSURE SCHEDULE:                                              

               (i) The Company and its Subsidiaries have substantially performed
          all obligations, whether arising by operation of Law or by contract,
         required to be performed by it in connection with the Plans and the
   Benefit Programs and Agreements, and, to the Knowledge of the
           Company, there have been no defaults or violations by any other party
to the Plans or Benefit Programs or Agreements;           

             (ii) All reports and disclosures relating to the Plans required
  to be filed with or furnished to governmental agencies, Plan
        participants or Plan beneficiaries have been filed or furnished in
          accordance with applicable Law in a timely manner, and each Plan and
each Benefit Program or Agreement has been administered in
substantial compliance with its governing documents;      

             (iii) There are no actions, suits or claims pending (other than
       routine claims for benefits) or, to the Knowledge of the Company,
         threatened against, or with respect to, any of the Plans or Benefit
Programs or Agreements or their assets;                   

         (iv) All contributions required to be made to the Plans and
           Benefit Programs or Agreements pursuant to their terms and provisions
and applicable Law have been made timely;                 

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             (v) The Company and its Subsidiaries do not have, nor have they
     ever had, a Plan or Benefit Program or Agreement intended to be
       qualified under Section 401 of the Code or subject to Title IV of
ERISA;                                                    

             (vi) None of the Plans nor any trust created thereunder or with
    respect thereto has engaged in any "prohibited transaction" or
          "party-in-interest transaction" as such terms are defined in Section
       4975 of the Code and Section 406 of ERISA which could subject any
         Plan, the Company or any officer, director or employee thereof to a
    tax or penalty on prohibited transactions or party-in-interest
         transactions pursuant to Section 4975 of the Code or Section 502(i)
of ERISA;                                                 

  (vii) There is no matter pending (other than routine
           qualification determination filings) with respect to any of the Plans
   or Benefit Programs or Agreements before the Internal Revenue
Service, the Department of Labor or the PBGC;             

               (viii)The Company and its Subsidiaries do not have, nor have they
ever had, a trust funding a Plan.                         

             (ix) The Company does not have any obligation to provide health
           benefits to former employees, except as specifically required by Law;

              (x) Neither the execution and delivery of this Agreement nor the
        consummation of any or all of the transactions contemplated hereby
        will: (A) entitle any current or former employee of the Company to
          severance pay, unemployment compensation or any similar payment, (B)
         accelerate the time of payment or vesting or increase the amount of
          any compensation due to any such employee or former employee, or (C)
          directly or indirectly result in any payment made to or on behalf of
          any person to constitute a "parachute payment" within the meaning of
Section 280G of the Code;                                 

          (xi) Since January 1, 1997, there have not been any (i) work
          stoppages, labor disputes or other significant controversies between
Company and its employees, (ii) labor union grievances or 
     organizational efforts, or (iii) unfair labor practice or labor
arbitration proceedings pending or threatened.            

  (e) Except as set forth in SECTION 2.12(E) OF THE DISCLOSURE
SCHEDULE, the Company is not a party to any agreement, and has not
 established any policy or practice, requiring the Company to make a
    material payment or provide any other material form of compensation or
benefit to any person performing services for the Company upon    
    termination of such services which would not be payable or provided in
      the absence of the consummation of the transactions contemplated by this
Agreement.                                                        

         (f) SECTION 2.12(F) OF THE DISCLOSURE SCHEDULE sets forth by number
and employment classification the approximate numbers of employees
      employed by Company as of the date of this Agreement, and, except as set
      forth therein, none of said employees are subject to union or collective
bargaining agreements with Company.                               

     (g) Neither the Parent nor any of its Affiliates shall have any
      liability or obligations under or with respect to the Workers Adjustment
    Retraining Notification Act in connection with any of the transactions
contemplated in connection herewith.                              

2.13  REAL PROPERTY.                                            

     (a) SECTION 2.13 OF THE DISCLOSURE SCHEDULE contains a true and
 correct list of each parcel of real property leased by the Company,
    Galaxy Mall or IMI (as lessor or lessee). The Company, Galaxy Mall and
IMI do not own any real property.                                 

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      (b) The Company, Galaxy Mall and IMI have a valid and subsisting
leasehold estate in and the right to quiet enjoyment of the real  
  properties leased by it for the full term of the lease thereof. Each
    lease referred to in paragraph (a) above is a legal, valid and binding
agreement, enforceable in accordance with its terms, except as    
   enforcement thereof may be limited by (i) Laws of general application
    relating to bankruptcy, insolvency moratorium, reorganization or other
similar Laws, both state and federal, affecting the enforcement of
       creditors' rights or remedies in general, and (ii) rules of Law governing
      specific performance, injunctive relief and other equitable remedies, of
       the Company, Galaxy Mall and IMI and of each other Person that is a party
thereto, and except as set forth in SECTION 2.13 OF THE DISCLOSURE
 SCHEDULE, there is no, and the Company, Galaxy Mall or IMI have not
    received any notice of default (or any condition or event which, after
      notice or lapse of time or both, would constitute a default) thereunder.
   The Company, Galaxy Mall and IMI do not owe any brokerage commissions
with respect to any such leased space.                            

       (c) The Company has delivered to Parent prior to the execution of
       this Agreement true and complete copies of all such leases (including any
amendments and renewal letters).                                  

          (d) The improvements on the real property identified in SECTION 2.13
      OF THE DISCLOSURE SCHEDULE are in good operating condition, are adequate
   and suitable for the purposes for which they are presently being used
and, to the Knowledge of the Company, there are no condemnation or
      appropriation proceedings pending or threatened against any of such real
property or the improvements thereon.                             

2.14  TANGIBLE PERSONAL PROPERTY; INVESTMENT ASSETS.            

          (a) Each of the Company, Galaxy Mall and IMI is in possession of and
    has good title to, or has valid leasehold interests in or valid rights
under Contract to use, all tangible personal property used in or  
   reasonably necessary for the conduct of their business, including all
       tangible personal property reflected on the balance sheet included in the
Financial Statements and tangible personal property acquired since
       September 30, 1999 other than property disposed of since such date in the
 ordinary course of business consistent with past practice. All such
   tangible personal property is free and clear of all Liens, other than
   Permitted Liens, and is in good working order and condition, ordinary
   wear and tear excepted, and its use complies in all material respects
with all applicable Laws.                                         

           (b) SECTION 2.14 OF THE DISCLOSURE SCHEDULE describes each Investment
    Asset owned by the Company, Galaxy Mall or IMI on the date hereof. All
      such Investment Assets are owned by the Company, Galaxy Mall or IMI free
and clear of all Liens other than Permitted Liens.                

   2.15  INTELLECTUAL PROPERTY RIGHTS.  The only Intellectual Property
 owned or exclusively licensed by the Company, Galaxy Mall and IMI, as the
 case may be, is the Company Intellectual Property, the Company Registered
Intellectual Property, Galaxy Mall Intellectual Property, Galaxy Mall   
Registered Intellectual Property, IMI Intellectual Property, and IMI    
 Registered Intellectual Property. SECTION 2.15 OF THE DISCLOSURE SCHEDULE
sets forth a complete and accurate list of all Company Registered       
   Intellectual Property, Galaxy Mall Registered Intellectual Property and IMI
    Registered Intellectual Property. No other material Intellectual Property or
 material Registered Intellectual Property, claimed by the Company, Galaxy
  Mall or IMI, is used in the conduct of the business of the Company, Galaxy
Mall or IMI as it is presently conducted.                               

     Except as set forth on SECTION 2.15 OF THE DISCLOSURE SCHEDULE:

    (a) No Company Intellectual Property, Galaxy Mall Intellectual
Property or IMI Intellectual Property or product or service of the
     Company, Galaxy Mall or IMI is subject to any proceeding or outstanding
   decree, order, judgment, agreement, or stipulation restricting in any
   manner the use, transfer, or licensing thereof by the Company, Galaxy
Mall or IMI, or                                                   

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  which may affect the validity, use or enforceability of such Company
Intellectual Property, Galaxy Mall Intellectual Property or IMI   
      Intellectual Property, which in any such case would be reasonably likely
   to have a Material Adverse Effect on the Company, Galaxy Mall or IMI.

   (b) Each material item of the Company Registered Intellectual
       Property, Galaxy Mall Registered Intellectual Property and IMI Registered
Intellectual Property is valid and subsisting. All necessary      
    registration, maintenance and renewal fees currently due in connection
with such Registered Intellectual Property have been made and all 
   necessary documents, recordations and certificates in connection with
     such Registered Intellectual Property have been filed with the relevant
       patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of    
 maintaining such Registered Intellectual Property, except where the
failure to do so would not be reasonably likely to have a Material
Adverse Effect on the Company, Galaxy Mall or IMI.                

        (c) Each of the Company, Galaxy Mall and IMI owns and has good and
   exclusive title to, or has license (sufficient for the conduct of its
       business as currently conducted and as proposed to be conducted) to, each
 item of the Company Intellectual Property, Galaxy Mall Intellectual
      Property and IMI Intellectual Property, respectively, used in connection
     with the conduct of its business as currently conducted and as proposed
 to be conducted free and clear of any Liens (excluding licenses and
       related restrictions); and, except as disclosed in SECTION 2.15(C) OF THE
  DISCLOSURE SCHEDULE, each of the Company, Galaxy Mall and IMI is the
       exclusive owner of all trademarks and trade names used in connection with
      and material to the operation or conduct of the business of the Company,
      Galaxy Mall and IMI, respectively, including the sale of any products or
the provision of any services by the Company, Galaxy Mall and IMI.

        (d) Each of the Company, Galaxy Mall and IMI owns exclusively, and
      has good title to, all copyrighted works that are Galaxy Mall's products
  or IMI's products or which the Company, Galaxy Mall or IMI otherwise
expressly purports in writing to own.                             

         (e) To the extent that any Intellectual Property has been developed
  or created by a third party for the Company, Galaxy Mall or IMI, the
      Company, Galaxy Mall or IMI, as the case may be, has a written agreement
     with such third party with respect thereto and the Company, Galaxy Mall
      or IMI thereby either (i) has obtained ownership of and is the exclusive
     owner of, or (ii) has obtained a license (sufficient for the conduct of
     its business as currently conducted and as proposed to be conducted) to
    all such third party's Intellectual Property in such work, material or
invention by operation of Law or by valid assignment.             

    (f) SECTION 2.15 OF THE DISCLOSURE SCHEDULE lists all material
     contracts, licenses and agreements to which each of the Company, Galaxy
  Mall and IMI is a party (i) with respect to the Company Intellectual
      Property, Galaxy Mall Intellectual Property or IMI Intellectual Property
      licensed or transferred to any third party (other than end-user licenses
  in the ordinary course); or (ii) pursuant to which a third party has
licensed or transferred any material Intellectual Property to the 
  Company, Galaxy Mall or IMI other than non-exclusive licenses to use
commercially available software products.                         

         (g) All material contracts, licenses and agreements relating to the
      Company Intellectual Property, the Galaxy Mall Intellectual Property and
      IMI Intellectual Property are in full force and effect. The consummation
     of the transactions contemplated by this Agreement will neither violate
   nor result in the breach, modification, cancellation, termination, or
      suspension of such contracts, licenses and agreements in accordance with
    its terms, the effect of which would have a Material Adverse Effect on
       the Company, Galaxy Mall or IMI. Each of the Company, Galaxy Mall and IMI
      is in material compliance with, and has not materially breached any term
     of any of such contracts, licenses and agreements and, to the knowledge
of each of the                                                    

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      Company, Galaxy Mall and IMI, all other parties (other than end users or
       customers under standard form agreements) to such contracts, licenses and
      agreements are in compliance in all material respects with, and have not
       materially breached any term of, such contracts, licenses and agreements.
     Following the Closing Date, Parent will be permitted to exercise all of
 the Company's, Galaxy Mall's and IMI's rights under such contracts,
     licenses and agreements to the same extent the Company, Galaxy Mall and
   IMI would have been able to had the transactions contemplated by this
      Agreement not occurred and without the payment of any additional amounts
       or consideration other than ongoing fees, royalties or payments which the
Company, Galaxy Mall and IMI would otherwise be required to pay.  

           (h) The operation of the business of each of the Company, Galaxy Mall
    and IMI as such business currently is conducted, including each of the
   Company's, Galaxy Mall's and IMI's design, development, marketing and
  sale of the products or services of the Company, Galaxy Mall and IMI
      (including with respect to products currently under development), to the
  Knowledge of the Company, has not, does not and will not infringe or
    misappropriate the Intellectual Property of any third party or, to the
Knowledge of the Company, Galaxy Mall and IMI, constitute unfair  
competition or trade practices under the Laws of any jurisdiction.

           (i) Each of the Company, Galaxy Mall and IMI has not received written
      notice from any third party, and to the Knowledge of the Company, Galaxy
    Mall and IMI, no other pending overt threat from any third party, that
     the operation of the business of the Company, Galaxy Mall or IMI or any
      act, product or service of the Company, Galaxy Mall or IMI, infringes or
misappropriates the Intellectual Property of any third party or   
     constitutes unfair competition or trade practices under the Laws of any
jurisdiction.                                                     

         (j) To the Knowledge of the Company, Galaxy Mall and IMI, no person
    has been or is infringing or misappropriating any Company Intellectual
       Property, Galaxy Mall Intellectual Property or IMI Intellectual Property.

       (k) Each of the Company, Galaxy Mall and IMI has taken reasonable
       steps to protect its confidential information and trade secrets that they
       wish to protect or any trade secrets or confidential information of third
parties provided to the Company, Galaxy Mall or IMI, and, without 
       limiting the foregoing, the Company, Galaxy Mall and IMI have and enforce
      a policy requiring each employee and contractor to execute a proprietary
      information/confidentiality agreement in substantially the form provided
     to Parent, and except under confidentiality obligations, there has been
 not disclosure by the Company, Galaxy Mall or IMI of any such trade
secrets or confidential information.                              

          (l) Each of the Company, Galaxy Mall and IMI has delivered to Parent
      prior to the execution of this Agreement documentation in its possession
       with respect to any material invention, process, design, computer program
     or other know how or trade secret included in the Intellectual Property
      and Registered Intellectual Property, which documentation is accurate in
      all material respects and reasonably sufficient in detail and content to
       identify and explain such invention, process, design, computer program or
      other know how or trade secret and to facilitate its full and proper use
without reliance on the special knowledge or memory of any Person.
       Nothing is this SECTION 2.15(L) shall be construed to require the Company
      or any Subsidiary to prepare any documentation which they do not already
have in their possession.                                         

         (m) Notwithstanding anything to the contrary in this Agreement, the
 only representations and warranties being furnished by the Company,
Galaxy Mall and IMI with respect to Company Intellectual Property,
Company Registered Intellectual Property, Galaxy Mall Intellectual
      Property, Galaxy Mall Registered Intellectual Property, IMI Intellectual
      Property and IMI Registered Intellectual Property are those set forth in
this SECTION 2.15 or as may be                                    

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       necessary in connection with the representations and warranties set forth
in SECTIONS 2.07, 2.08, 2.09, 2.11, 2.26 or 2.27.                 

2.16  CONTRACTS.                                                

    (a) SECTION 2.16(A) OF THE DISCLOSURE SCHEDULE (with paragraph
    references corresponding to those set forth below) contains a true and
    complete list of each of the following Contracts or other arrangements
     (true and complete copies or, if none, reasonably complete and accurate
written descriptions of which, together with all amendments and   
 supplements thereto and all waivers of any terms thereof, have been
    delivered to Parent prior to the execution of this Agreement) to which
 the Company, Galaxy Mall or IMI is a party or by which any of their
Assets and Properties are bound:                                  

            (i) (A) all Contracts (excluding Plans and Benefit Programs or
          Agreements) providing for a commitment of employment or consultation
   services for a specified or unspecified term to, or otherwise
     relating to employment or the termination of employment of, any
   Employee, the name, position and rate of compensation of each
       Employee party to such a Contract and the expiration date of each
       such Contract exceeding $50,000; and (B) any written or unwritten
          representations, commitments, promises, communications or courses of
         conduct (excluding Plans and Benefit Programs or Agreements and any
          such Contracts referred to in clause (A)) involving an obligation of
         the Company, Galaxy Mall or IMI to make payments in any year, other
           than with respect to salary or incentive compensation payments in the
        ordinary course of business, to any Employee exceeding $100,000 or
 any group of Employees exceeding $100,000 in the aggregate;

            (ii) all Contracts with any Person containing any provision or
         covenant prohibiting or limiting the ability of the Company, Galaxy
        Mall or IMI to engage in any business activity or compete with any
           Person in connection with the Business or prohibiting or limiting the
           ability of any Person to compete with the Company, Galaxy Mall or IMI
in connection with the Business;                          

          (iii) all partnership, joint venture, shareholders' or other
        similar Contracts with any Person in connection with the Business;

           (iv) all Contracts with distributors, dealers, manufacturer's
          representatives, sales agencies or franchises with whom the Company,
Galaxy Mall or IMI deals in connection with the Business; 

     (v) all Contracts relating to the future disposition or
          acquisition of any Assets and Properties, other than dispositions or
  acquisitions of inventory in the ordinary course of business
consistent with past practice;                            

       (vi) all collective bargaining or similar labor Contracts
covering any Employee;                                    

              (vii) all other Contracts (other than Plans and Benefit Programs
           or Agreements, the Real Property Leases and insurance policies listed
           in SECTION 2.18 OF THE DISCLOSURE SCHEDULE and those Contracts listed
         on SECTION 2.15 or 2.17 OF THE DISCLOSURE SCHEDULE) with respect to
     the Business that (A) involve the payment or potential payment,
         pursuant to the terms of any such Contract, by or to Galaxy Mall or
           IMI of more than $25,000 annually and (B) cannot be terminated within
           thirty (30) days after giving notice of termination without resulting
         in any material cost or penalty to the Company, Galaxy Mall or IMI;
and                                                       

        (viii)without limiting any of the foregoing, all Contracts
        relating to any strategic alliance with another Person, including,
without limitation, Earthlink, Professional               

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Marketing International, United Marketing Solutions, and  
International Television Products.                        

       Notwithstanding the foregoing, the Company represents and warrants that
    it or its Subsidiaries have entered into approximately 40,000 Contracts with
 online merchants and, with the consent of Parent, will not be required to
    list each such Contract on the DISCLOSURE SCHEDULE unless any such Contract,
  individually, is material to the Business or Condition of the Company. The
    Company has hereto furnished to Parent representative examples of all of the
types of online merchant Contracts presently used by the Company or its 
Subsidiaries. The Company further represents and warrants that IMI has  
  entered into approximately 100 customer Contracts and, with the consent of
 Parent, will not be required to list each such Contract on the DISCLOSURE
SCHEDULE unless any such Contract, individually, exceeds $10,000.       

          (b) Each Contract required to be disclosed in SECTION 2.16(A) OF THE
      DISCLOSURE SCHEDULE is in full force and effect and constitutes a legal,
       valid and binding agreement, enforceable in accordance with its terms, of
     each party thereto, except as enforcement thereof may be limited by (i)
Laws of general application relating to bankruptcy, insolvency    
       moratorium, reorganization or other similar Laws, both state and federal,
    affecting the enforcement of creditors' rights or remedies in general,
     and (ii) rules of Law governing specific performance, injunctive relief
      and other equitable remedies; and except as disclosed in SECTION 2.16(B)
       OF THE DISCLOSURE SCHEDULE, neither the Company, Galaxy Mall nor IMI nor,
     to the Knowledge of the Company, Galaxy Mall or IMI, any other party to
  such Contract is, or has received notice that it is, in violation or
      breach of or default under any such Contract (or with notice or lapse of
   time or both, would be in violation or breach of or default under any
such Contract) in any material respect.                           

  (c) Except as disclosed in SECTION 2.16(C) OF THE DISCLOSURE
     SCHEDULE, (i) the execution, delivery and performance by the Company of
   this Agreement, and the consummation of the transactions contemplated
hereby, will not (A) result in or give to any Person any right of 
termination, cancellation, acceleration or modification in or with
      respect to, (B) result in or give to any Person any additional rights or
      entitlement to increased, additional, accelerated or guaranteed payments
     under, or (C) result in the creation or imposition of any Lien upon the
      Company, Galaxy Mall or IMI or any of their Assets and Properties under,
     any Contract, and (ii) Company, Galaxy Mall, and IMI are not parties to
       or bound by any Contract that has been or could reasonably be expected to
       be, individually or in the aggregate with any other Contracts, materially
       adverse to the Business or Condition of the Company, Galaxy Mall, or IMI.

    2.17  LICENSES.  SECTION 2.17 OF THE DISCLOSURE SCHEDULE contains a true and
complete list of all Licenses used in and material, individually or in the      
aggregate, to the business or operations of the Company, Galaxy Mall and IMI    
(and all pending applications for any such Licenses), setting forth the grantor,
the grantee and the function. Prior to the execution of this Agreement, each of 
the Company, Galaxy Mall or IMI has delivered to Parent true and complete copies
of all such Licenses. Except as disclosed in SECTION 2.17 OF THE DISCLOSURE     
SCHEDULE:                                                                       

          (i) Each of the Company, Galaxy Mall and IMI owns or validly
  holds all Licenses that are material, individually or in the
aggregate, to its business or operations;                 

        (ii) Each License listed in SECTION 2.17 OF THE DISCLOSURE
  SCHEDULE is valid, binding and in full force and effect; and

               (iii) Neither the Company, Galaxy Mall nor IMI is not, nor has it
       received any notice that it is, in default (or with the giving of
          notice or lapse of time or both, would be in default) under any such
License.                                                  

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    2.18  INSURANCE.  SECTION 2.18 OF THE DISCLOSURE SCHEDULE contains a
  true and complete list (including the names and addresses of the insurers,
the names of the Persons to whom such Policies have been issued, the    
expiration dates thereof, the annual premiums and payment terms thereof,
whether it is a "claims made" or an "occurrence" policy and a brief     
 description of the interests insured thereby) of all liability, property,
   workers' compensation and other insurance policies currently in effect that
  insure the Business, the employees or the Assets and Properties. Each such
insurance policy is valid and binding and in full force and effect, all 
premiums due thereunder have been paid and neither the Company nor its  
Subsidiaries have received any notice of cancellation or termination in 
respect of any such policy or is in default thereunder. Such insurance  
 policies are placed with financially sound and reputable insurers and, in
 light of the nature of the business and the Assets and Properties, are in
amounts and have coverages that are reasonable and customary for Persons
   engaged in such business and having such Assets and Properties. Neither the
 Company, its Subsidiaries nor any other Person to whom such policies have
   been issued have received notice that any insurer under any policy referred
  to in this Section is denying liability with respect to a claim thereunder
or defending under a reservation of rights clause.                      

       2.19  TRANSACTIONS WITH AFFILIATES.  Except as set forth in the Company
   SEC Reports, no event has occurred that would be required to be reported by
  the Company pursuant to Item 404 of Regulation S-K promulgated by the SEC.
SECTION 2.19 OF THE DISCLOSURE SCHEDULE identifies each person who is an
"affiliate" (as that term is used in Rule 145 promulgated under the     
Securities Act) of the Company as of the date of this Agreement.        

2.20  EMPLOYEES; LABOR RELATIONS.                               

           (a) SECTION 2.20(A) OF THE DISCLOSURE SCHEDULE contains a list of the
  name of each officer and employee of Galaxy Mall and IMI at the date
   hereof, together with each such person's position or function, annual
      base salary or wages and any incentive or bonus arrangement with respect
to such person in effect on such date.                            

   Except as set forth on SCHEDULE 2.20(B) OF THE DISCLOSURE SCHEDULE:

    (b) Neither the Company, Galaxy Mall, nor IMI has received any
      information that would lead it to believe that a material number of such
 persons will or may cease to be employees, or will refuse offers of
     employment from Parent, because of the consummation of the transactions
      contemplated by this Agreement. All employees, consultants, officers and
       directors of the Company, Galaxy Mall and IMI that have had access to the
       Business are parties to a written agreement, under which each such person
or entity (i) is obligated to disclose and transfer to the Company
 without the receipt by such person of any additional value therefor
(other than normal salary or fees for consulting services), all   
  inventions, developments and discoveries which, during the period of
     employment with or performance of services for the Company, Galaxy Mall
   or IMI, he or she makes or conceives of either solely or jointly with
      others, that relate to any subject matter with which his or her work for
   the Company, Galaxy Mall or IMI in the Business may be concerned, and
(ii) is obligated to maintain the confidentiality of proprietary  
      information of the Business. To each of the Company's, Galaxy Mall's and
       IMI's Knowledge, none of the Company's, Galaxy Mall's or IMI's employees,
consultants, officers or directors is obligated under any contract
   (including licenses, covenants or commitments of any nature) or other
    agreement, or subject to any judgment, decree or order of any court or
 administrative agency, that would conflict with their obligation to
     promote the interests of the Company, Galaxy Mall or IMI with regard to
       the Business or the Assets and Properties or that would conflict with the
  Business or the Assets and Properties. Neither the execution nor the
    delivery of this Agreement, nor the carrying on of the Business by the
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conflict with or result in a breach of the terms, conditions or   
     provisions of, or constitute a default under, any contract, covenant or
       instrument under which any of such persons or entities are now obligated.
     To the Knowledge of the Company, it is currently not necessary nor will
   it be necessary for the Company, Galaxy Mall or IMI to utilize in the
      Business any inventions of any of such persons or entities (or people it
      currently intends to hire) made or owned prior to their employment by or
     affiliation with the Company, Galaxy Mall or IMI, nor, to the Knowledge
       of the Company, is it or will it be necessary to utilize any other assets
       or rights of any such persons or entities (or people it currently intends
    to hire) made or owned prior to their employment with or engagement by
      the Company, Galaxy Mall or IMI, in violation of any registered patents,
trade names, trademarks or copyrights or any other limitations or 
     restrictions to which any such persons or entity is a party or to which
      any of such assets or rights may be subject. To the Company's Knowledge,
   none of the Company's, Galaxy Mall's or IMI's employees, consultants,
     officers, directors or shareholders that has had knowledge or access to
       information relating to their Assets and Properties has taken, removed or
      made use of any proprietary documentation, manuals, products, materials,
      or any other tangible item from his or her previous employer relating to
      their Assets and Properties by such previous employer which has resulted
in the Company's, Galaxy Mall's or IMI's access to or use of such 
       proprietary items included in the Assets and Properties, and the Company,
 Galaxy Mall and IMI will not gain access to or make use of any such
proprietary items in the business.                                

  2.21  BANK AND BROKERAGE ACCOUNTS; INVESTMENT ASSETS.  SECTION 2.21 OF THE
DISCLOSURE SCHEDULE sets forth (a) a true and complete list of the names and    
locations of all banks, trust companies, securities brokers and other financial 
institutions at which the Company, Galaxy Mall or IMI has an account or safe    
deposit box or maintains a banking, custodial, trading or other similar         
relationship; (b) a true and complete list and description of each such account,
box and relationship, indicating in each case the account number and the names  
of the respective officers, employees, agents or other similar representatives  
of the Company, Galaxy Mall or IMI having signatory power with respect thereto; 
and (c) a list of each Investment Asset, the name of the record and beneficial  
owner thereof, the location of the certificates, if any, therefor, the maturity 
date, if any, and any stock or bond powers or other authority for transfer      
granted with respect thereto.                                                   

2.22  NO POWERS OF ATTORNEY.  Except in the ordinary course of business 
consistent with past practice, neither the Company, Galaxy Mall nor IMI have any
powers of attorney or comparable delegations of authority outstanding.          

    2.23  ACCOUNTS RECEIVABLE.  Except as otherwise set forth on SECTION 2.23 OF
THE DISCLOSURE SCHEDULE, the accounts and notes receivable of the Company,      
Galaxy Mall and IMI reflected on the balance sheets included in the Financial   
Statements, and all accounts and notes receivable arising subsequent to December
31, 1998, (i) arose from bona fide sales transactions in the ordinary course of 
business and are payable on ordinary trade terms, except as enforcement thereof 
may be limited by (x) Laws of general application relating to bankruptcy,       
insolvency moratorium, reorganization or other similar Laws, both state and     
federal, affecting the enforcement of creditors' rights or remedies in general, 
and (y) rules of Law governing specific performance, injunctive relief and other
equitable remedies, (ii) are legal, valid and binding obligations of the        
respective debtors enforceable in accordance with their terms, except as        
enforcement thereof may be limited by (x) Laws of general application relating  
to bankruptcy, insolvency moratorium, reorganization or other similar Laws, both
state and federal, affecting the enforcement of creditors' rights or remedies in
general, and (y) rules of Law governing specific performance, injunctive relief 
and other equitable remedies, (iii) are not subject to any valid set-off or     
counterclaim, (iv) do not represent obligations for goods sold on consignment,  
on approval or on a sale-or-return basis or subject to any other repurchase or  
return arrangement, (v) are collectible in the ordinary course of business      
consistent with past practice in the aggregate recorded                         

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amounts thereof, net of any applicable reserve reflected in the balance sheet   
included in the Financial Statements, and (vi) are not the subject of any       
Actions or Proceedings brought by or on behalf of the Company, Galaxy Mall or   
IMI. SECTION 2.23 OF THE DISCLOSURE SCHEDULE sets forth a description of any    
security arrangements and collateral securing the repayment or other            
satisfaction of receivables of the Company, Galaxy Mall or IMI. All steps       
reasonably necessary to render all such security arrangements legal, valid,     
binding and enforceable, and to give and maintain for the Company, Galaxy Mall  
or IMI a security interest in the related collateral, have been taken.          

2.24  INVENTORY.  All inventory of the Company, Galaxy Mall and IMI     
reflected on the balance sheet included in the Financial Statements consisted,  
and all such inventory acquired since September 30, 1999 consists, of a quality 
and quantity usable and salable in the ordinary course of business consistent   
with past practice, subject to normal and customary allowances in the industry  
for spoilage, damage and outdated items. Except as disclosed in SECTION 2.24 OF 
THE DISCLOSURE SCHEDULE or the notes to the Financial Statements, all items     
included in the inventory of the Company, Galaxy Mall or IMI are the property of
the Company, Galaxy Mall or IMI, respectively, free and clear of any Lien other 
than Permitted Liens, have not been pledged as collateral, are not held by the  
Company, Galaxy Mall or IMI on consignment from others and conform in all       
material respects to all standards applicable to such inventory or its use or   
sale imposed by Governmental or Regulatory Authorities.                         

2.25  BROKERS OR FINDERS.  The Company represents, as to itself, its    
Subsidiaries and its Affiliates, that no agent, broker, investment banker,      
financial advisor or other firm or person, other than as set forth on SECTION   
2.25 OF THE DISCLOSURE SCHEDULE, is or will be entitled to any brokers' or      
finder's fee or any other commission or similar fee in connection with any of   
the transactions contemplated by this Agreement, and the Company agrees to      
indemnify and hold Parent and Merger Sub harmless from and against any and all  
claims, liabilities or obligations with respect to any other commissions or     
similar fees in connection with any of the transactions contemplated by this    
Agreement which are asserted by any person on the basis of any act or statement 
alleged to have been made by or on behalf of the Company. The Company has       
heretofore furnished to Parent a complete and correct copy of all agreements    
between the Company and the parties set forth on SECTION 2.25 OF THE DISCLOSURE 
SCHEDULE pursuant to which such party would be entitled to any payment relating 
to the transactions contemplated hereby.                                        

   2.26  DISCLOSURE.  All material facts relating to the Business or Condition
of the Company, Galaxy Mall and IMI have been disclosed to Parent in or in      
connection with this Agreement. No representation or warranty contained in this 
Agreement, and no statement contained in the DISCLOSURE SCHEDULE or in any      
certificate, list or other writing furnished to Parent pursuant to any provision
of this Agreement (including without limitation the Financial Statements),      
contains any untrue statement of a material fact or omits to state a material   
fact necessary in order to make the statements herein or therein, in the light  
of the circumstances under which they were made, not misleading. None of the    
information supplied or to be supplied by or on behalf of the Company for       
inclusion or incorporation by reference in the registration statement on Form   
S-4 (or similar successor form) to be filed with the SEC by Parent in connection
with the issuance of Parent Common Stock in the Merger (including amendments or 
supplements thereto) (the "Registration Statement") will, at the time the       
Registration Statement becomes effective under the Securities Act, contain any  
untrue statement of a material fact or omit to state any material fact required 
to be stated therein or necessary in order to make the statements therein, in   
the light of the circumstances under which they are made, not misleading, except
that no representation or warranty is made by the Company with respect to       
statements made or incorporated by reference therein about Parent or Merger Sub 
supplied by Parent for inclusion or incorporation by reference in the           
Registration Statement. None of the information supplied or to be supplied by or
on behalf of the Company for inclusion or incorporation by reference in the     
Prospectus/ Proxy Statement to be filed with the SEC as part of the Registration
Statement (the "Prospectus/Proxy Statement"), will, at the time the             
Prospectus/Proxy Statement is first mailed to the stockholders of the           

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Company or Parent, at the time of the Company Stockholders' Meeting or Parent   
Stockholders' Meeting or as of the Effective Time, contain any untrue statement 
of a material fact or omit to state any material fact required to be stated     
therein or necessary in order to make the statements therein, in the light of   
the circumstances under which they are made, not misleading. The                
Prospectus/Proxy Statement will comply as to form in all material respects with 
the provisions of the Exchange Act and the rules and regulations promulgated by 
the SEC thereunder, except that no representation or warranty is made by the    
Company with respect to statements made or incorporated by reference therein    
about Parent or Merger Sub supplied by Parent for inclusion or incorporation by 
reference in the Prospectus/Proxy Statement.                                    

  2.27  Y2K.  To the Knowledge of the Company, all Intellectual Property and
Registered Intellectual Property in the form of computer software that is       
utilized by the Company, Galaxy Mall, or IMI in the operation of each of their  
respective Businesses is capable of processing date data between and within 1999
and 2000.                                                                       

  2.28  CHANGE OF CONTROL PAYMENTS.  SECTION 2.28 OF THE DISCLOSURE SCHEDULE
sets forth each plan or agreement pursuant to which any amounts may become      
payable (whether currently or in the future) to current or former employees and 
directors of the Company or any of its Subsidiaries as a result of or in        
connection with the Merger.                                                     

    2.29  OPINION OF FINANCIAL ADVISOR.  The Company has been advised in writing
by its financial advisor, Houlihan Lokey Howard & Zukin, that in its opinion, as
of the date of this Agreement, the Exchange Ratio is fair to the holders of     
shares of the Company Common Stock from a financial point of view.              

   2.30  BOARD APPROVAL.  The Board of Directors of the Company has, as of the
date of this Agreement, unanimously (i) approved, subject to shareholder        
approval, this Agreement and the transaction contemplated hereby, (ii)          
determined that the Merger is in the best interests of the shareholders of the  
Company and is on the terms that are fair to such shareholders and (iii)        
recommended that the shareholders of the Company approve this Agreement and the 
Merger.                                                                         

 2.31  POOLING OF INTERESTS.  To its Knowledge, based on consultation with
its independent accountants, neither the Company nor any of its directors,      
officers or affiliates has taken any action which would interfere with Parent's 
ability to account for the Merger as a pooling of interests.                    

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ARTICLE III 

REPRESENTATIONS AND WARRANTIES OF PARENT

Parent represents and warrants to the Company as follows:               

       3.01  AUTHORITY.  This Agreement has been duly and validly executed and
 delivered by Parent and Merger Sub constitutes a legal, valid and binding
  obligation of Parent and Merger Sub, and is enforceable against Parent and
  Merger Sub in accordance with its terms, except as enforcement thereof may
be limited by (i) Laws of general application relating to bankruptcy,   
   insolvency moratorium, reorganization or other similar Laws, both state and
federal, affecting the enforcement of creditors' rights or remedies in  
 general, and (ii) rules of Law governing specific performance, injunctive
relief and other equitable remedies.                                    

3.02  ORGANIZATION.  Parent and Merger Sub are corporations duly
    organized, validly existing and in good standing under the Laws of the State
  of Delaware . Parent has full corporate power and authority to conduct its
 business as and to the extent now conducted and to own, use and lease its
  Assets and Properties. Parent has prior to the execution of this Agreement
delivered to the Company true and complete copies of Parent's and Merger
Sub's charter documents as in effect on the date hereof.                

        3.03  CAPITAL STOCK.  The authorized capital stock of Parent consists of
40,000,000 shares of common stock. As of March 7, 2000, the number of   
   outstanding shares of common stock was 17,333,217 shares. The Parent Common
Stock, when issued by Parent to the Company's Stockholders in accordance
  with the terms of this Agreement, will be duly authorized, validly issued,
  fully paid and nonassessable, and will be free and clear of any preemptive
or similar rights with respect thereto.                                 

3.04  SUBSIDIARIES.  In addition to Merger Sub, Parent has the  
Subsidiaries listed on SECTION 3.04 OF THE DISCLOSURE SCHEDULE.         

 3.05  NO CONFLICTS.  Subject to Parent obtaining the approval and
adoption of this Agreement by the affirmative vote of the holders of a  
majority of the outstanding shares of Parent Common Stock (the "Parent  
Stockholder Approval"), the execution and delivery by Parent of this    
Agreement does not, and the performance of its obligations under this   
   Agreement and the consummation of the transactions contemplated hereby will
not:                                                                    

        (a) Conflict with or result in a violation or breach of any of the
 terms, conditions or provisions of the articles of incorporation or
 bylaws (or other comparable corporate charter documents) of Parent;

         (b) Conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to Parent or any of its  
respective Assets and Properties; or                              

       (c) (i) Conflict with or result in a violation or breach of, (ii)
    constitute (with or without notice or lapse of time or both) a default
       under, (iii) require Parent to obtain any consent, approval or action of,
  make any filing with or give any notice to any Person as a result or
   under the terms of, (iv) result in or give to any Person any right of
termination, cancellation, acceleration or modification in or with
      respect to, (v) result in or give to any Person any additional rights or
      entitlement to increased, additional, accelerated or guaranteed payments
  under, or (vi) result in the creation or imposition of any Lien upon
       Parent or any of its respective Assets and Properties under, any Contract
     or License to which Parent is a party or by which any of its respective
Assets and Properties is bound.                                   

       3.06  BOOKS AND RECORDS.  The minute books and other similar records of
Parent were made available to the Company prior to the execution of this
Agreement, and contain a true and                                       

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complete record, in all material respects, of all action taken at all   
meetings and by all written consents in lieu of meetings of the         
stockholders, the boards of directors and committees of the board of    
directors of Parent.                                                    

3.07  SEC FILINGS.                                              

          (a) Parent has filed all forms, reports and documents required to be
     filed by Parent with the SEC since June 30, 1999 and has made available
     to the Company such forms, reports and documents in the form filed with
      the SEC. All such required forms, reports and documents (including those
  that Parent may file subsequent to the date hereof), as amended, are
    referred to herein as the "Parent SEC Reports." As of their respective
       dates (or, if amended, as of the date of the last such amendment), Parent
SEC Reports (i) were prepared in accordance and complied (or, with
     respect to those Parent SEC Reports that may be filed subsequent to the
 date hereof, will be prepared in accordance and will comply) in all
   material respects with the requirements of the Securities Act, or the
    Exchange Act, as the case may be, and the rules and regulations of the
      SEC thereunder applicable to such Parent SEC Reports and (ii) did not at
    the time they were filed (or, with respect to those Parent SEC Reports
    that may be filed subsequent to the date hereof, will not) contain any
  untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the   
    statements therein, in the light of the circumstances under which they
     were made, not misleading, except to the extent corrected or superseded
      prior to the date hereof by a subsequently filed Parent SEC Report. None
       of Parent's Subsidiaries are required to file any forms, reports or other
documents with the SEC.                                           

           (b) Each of the consolidated financial statements (including, in each
       case, any related notes thereto) contained in the Parent SEC Reports (the
    "Parent Financials"), including each Parent SEC Report filed after the
    date hereof until the Closing, (i) complied (or, with respect to those
      Parent SEC Reports that may be filed subsequent to the date hereof, will
      comply) as to form in all material respects with the published rules and
      regulations of the SEC with respect thereto, (ii) was prepared (or, with
     respect to those Parent SEC Reports that may be filed subsequent to the
 date hereof, will be prepared) in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be
 indicated in the notes thereto or, in the case of unaudited interim
  financial statements, as may be permitted by the SEC on Form 10-QSB,
   10-KSB or any successor form under the Exchange Act) and (iii) fairly
       presented (or, with respect to those Parent SEC Reports that may be filed
 subsequent to the date hereof, will fairly present) in all material
respects the consolidated financial position of Parent and its    
  consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of Parent's operations and cash flows for the
       periods indicated, except that the unaudited interim financial statements
       may not contain footnotes and were or are subject to normal and recurring
       year-end adjustments. The balance sheet of Parent contained in Parent SEC
Report as of September 30, 1999 is hereinafter referred to as (the
    "Parent Balance Sheet"). Except as disclosed in the Parent Financials,
      since the date of the Parent Balance Sheet neither Parent nor any of its
       Subsidiaries has any liabilities required under GAAP to be set forth on a
     consolidated balance sheet (absolute, accrued, contingent or otherwise)
    which are, individually or in the aggregate, material to the business,
results of operations or financial condition of Parent and its    
      Subsidiaries taken as a whole, except for liabilities incurred since the
 date of the Parent Balance Sheet in the ordinary course of business
      consistent with past practices and liabilities incurred pursuant to this
Agreement.                                                        

           (c) Parent has heretofore furnished (or, with respect to copies which
are not yet available, will furnish) to the Company a complete and
      correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed,            

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     to agreements, documents or other instruments which previously had been
filed by Parent with the SEC pursuant to the Securities Act or the
Exchange Act.                                                     

        3.08  ABSENCE OF CHANGES.  Except for the execution and delivery of this
   Agreement and the transactions to take place pursuant hereto on or prior to
the Closing Date, or as disclosed on SECTION 3.08 OF THE DISCLOSURE     
SCHEDULE, since September 30, 1999, there has not been (i) any Material 
   Adverse Effect on Parent, (ii) any declaration, setting aside or payment of
   any dividend on, or other distribution (whether in cash, stock or property)
   in respect of any of Parent's capital stock, or any purchase, redemption or
other acquisition by Parent of any of Parent's capital stock, any other 
 securities, or any options, warrants, calls or rights to acquire any such
  shares or other securities except for repurchases from employees following
  their termination pursuant to the terms of their pre-existing stock option
   or purchase agreements, (iii) any split, combination or reclassification of
    any of the Parent's capital stock, (iv) any material change by Parent in its
accounting methods, principles or practices, except as required by      
    concurrent changes in GAAP, or (v) any material revaluation by Parent of any
of its assets, including, without limitation, writing down the value of 
    capitalized inventory or writing off notes or accounts receivable other than
in the ordinary course of business.                                     

  3.09  NO UNDISCLOSED LIABILITIES.  Except as reflected or reserved
    against in the balance sheet included in the Parent Financials, there are no
Liabilities against, relating to or affecting Parent or any of its      
respective Assets and Properties, other than Liabilities incurred since 
September 30, 1999 in the ordinary course of business, none of which,   
   individually or in the aggregate, are material to the Business or Condition
of Parent.                                                              

3.10  LEGAL PROCEEDINGS.                                        

         (a) Except as disclosed in SECTION 3.10 OF THE DISCLOSURE SCHEDULE,
 there are no Actions or Proceedings pending or, to the Knowledge of
       Parent, threatened against, relating to or affecting Parent or any of its
       Assets and Properties which (i) could reasonably be expected to result in
      the issuance of an Order restraining, enjoining or otherwise prohibiting
or making illegal the consummation of any of the transactions     
contemplated by this Agreement or otherwise result in a material  
       diminution of the benefits contemplated by this Agreement to the Company,
     or (ii) if determined adversely against the Parent, could reasonably be
expected to result in (x) any injunction or other equitable relief
  against Parent that would interfere in any material respect with its
    business or operations or (y) Losses by Parent, individually or in the
    aggregate with Losses in respect of other such Actions or Proceedings,
exceeding $100,000.00;                                            

        (b) There are no facts or circumstances Known to Parent that could
  reasonably be expected to give rise to any Action or Proceeding that
 would be required to be disclosed pursuant to clause (a) above; and

(c) There are no Orders outstanding against Parent.       

     3.11  COMPLIANCE WITH LAWS AND ORDERS.  Parent is not, nor has at any
time been, nor has it received any notice that it is nor has at any time
   been, in violation of or in default under, in any material respect, any Law
or Order applicable to any or any of its Assets and Properties, the     
consequences of which could have a Material Adverse Effect on Parent.   

3.12  NO POWERS OF ATTORNEY.  Parent does not have any powers of
attorney or comparable delegations of authority outstanding.            

3.13  BROKERS OR FINDERS.  Parent represents, as to itself, its 
  Subsidiaries and its Affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person, other than as set forth on   
SECTION 3.13 OF THE DISCLOSURE SCHEDULE, is or will be entitled to any  
brokers' or finder's fee                                                

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or any other commission or similar fee in connection with any of the    
   transactions contemplated by this Agreement, and Parent agrees to indemnify
and hold the Company harmless from and against any and all claims,      
   liabilities or obligations with respect to any other commissions or similar
fees in connection with any of the transactions contemplated by this    
Agreement which are asserted by any person on the basis of any act or   
 statement alleged to have been made by or on behalf of Parent. Parent has
heretofore furnished to the Company a complete and correct copy of all  
  agreements between Parent and the parties set forth on SECTION 3.13 OF THE
 DISCLOSURE SCHEDULE pursuant to which such party would be entitled to any
payment relating to the transactions contemplated hereby.               

      3.14  TAXES.  Except as otherwise disclosed in the Parent SEC Reports,
 Parent has filed all Tax Returns which are required to have been filed in
    any jurisdiction, and has paid all Taxes shown to be due and payable on such
 returns and all other Taxes payable by Parent to the extent the same have
   become due and payable and before they have become delinquent. Parent knows
of no proposed material assessment for Taxes against Parent and in the  
   opinion of Parent, all liabilities for Taxes are adequately provided for on
the books of Parent.                                                    

 3.15  DISCLOSURE.  All material facts relating to the Business or
  Condition of Parent have been disclosed to the Company in or in connection
with this Agreement. No representation or warranty contained in this    
  Agreement, and no statement contained in the DISCLOSURE SCHEDULE or in any
   certificate, list or other writing furnished to the Company pursuant to any
provision of this Agreement (including without limitation the Parent    
 Financials), contains any untrue statement of a material fact or omits to
 state a material fact necessary in order to make the statements herein or
  therein, in the light of the circumstances under which they were made, not
misleading. None of the information supplied or to be supplied by or on 
behalf of Parent for inclusion or incorporation by reference in the     
   Registration Statement will, at the time the Registration Statement becomes
effective under the Securities Act, contain any untrue statement of a   
material fact or omit to state any material fact required to be stated  
  therein or necessary in order to make the statements therein, in the light
   of the circumstances under which they are made, not misleading, except that
  no representation or warranty is made by Parent with respect to statements
   made or incorporated by reference therein about the Company supplied by the
Company for inclusion or incorporation by reference in the Registration 
Statement. None of the information supplied or to be supplied by or on  
behalf of Parent for inclusion or incorporation by reference in the     
    Prospectus/Proxy Statement, will, at the time the Prospectus/Proxy Statement
    is first mailed to the stockholders of the Company or Parent, at the time of
  the Company Stockholders' Meeting or Parent Stockholders' Meeting or as of
   the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances 
 under which they are made, not misleading. The Prospectus/Proxy Statement
  will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations promulgated by the SEC       
    thereunder, except that no representation or warranty is made by Parent with
 respect to statements made or incorporated by reference therein about the
   Company supplied by the Company for inclusion or incorporation by reference
in the Prospectus/Proxy Statement.                                      

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ARTICLE IV

COVENANTS OF THE COMPANY

The Company covenants and agrees with Parent that, at all times from and
after the date hereof until the Effective Time (unless and until this Agreement 
is earlier terminated in accordance with ARTICLE XI), the Company will comply   
with all covenants and provisions of this ARTICLE IV, except to the extent      
Parent may otherwise consent in writing.                                        

      4.01  REGULATORY AND OTHER APPROVALS.  The Company will as promptly as
practicable (a) take all commercially reasonable steps necessary or     
   desirable to obtain all consents, approvals or actions of, make all filings
  with and give all notices to Governmental or Regulatory Authorities or any
other Person required of the Company to consummate the transactions     
  contemplated hereby, (b) provide such other information and communications
    to such Governmental or Regulatory Authorities or other Persons as Parent or
   such Governmental or Regulatory Authorities or other Persons may reasonably
    request in connection therewith, and (c) cooperate with Parent in connection
with the performance of its obligations hereunder.                      

   4.02  INVESTIGATION BY PURCHASER.  The Company will, and will cause
Galaxy Mall and IMI to (a) provide Parent and its officers, directors,  
    employees, agents, counsel, accountants, financial advisors, consultants and
 other representatives (together "Representatives") with full access, upon
  reasonable prior notice and during normal business hours, to all officers,
  employees, agents and accountants of the Company, Galaxy Mall, and IMI and
 their Assets and Properties and Books and Records, and (b) furnish Parent
and such Representatives with all such information and data (including  
 without limitation copies of contracts, Benefit Plans and other Books and
    Records) concerning the business and operations of the Company, Galaxy Mall,
  and IMI as Parent or any of such Representatives reasonably may request in
connection with such investigation.                                     

4.03  NO SOLICITATIONS.                                         

        (a) Except for discussions, negotiations and due diligence with DJ
     Limited ("DJL") and with investors with whom it works related to a $2.5
    million convertible debt offering, provided, however, that the Company
   shall not consummate such offering without Parent's consent, from and
      after the date of this Agreement until the Effective Time or termination
of this Agreement pursuant to Article XII, the Company and its    
   Subsidiaries will not, nor will they authorize or permit any of their
       respective officers, directors, affiliates or employees or any investment
    banker, attorney or other advisor or representative retained by any of
  them to, directly or indirectly, (i) solicit, initiate, encourage or
induce the making, submission or announcement of any Acquisition  
      Proposal, (ii) participate in any discussions or negotiations regarding,
     or furnish to any person any non-public information with respect to, or
    take any other action to facilitate any inquiries or the making of any
     proposal that constitutes or may reasonably be expected to lead to, any
    Acquisition Proposal, (iii) engage in discussions with any person with
      respect to any Acquisition Proposal, except as to the existence of these
     provisions, (iv) approve, endorse or recommend any Acquisition Proposal
or (v) enter into any letter of intent or similar document or any 
     contract agreement or commitment contemplating or otherwise relating to
    any Acquisition Proposal; provided, however, that nothing contained in
     this Agreement shall prohibit or restrict the Board of Directors of the
    Company from furnishing information to or entering into discussions or
     negotiations with, any person or entity that makes an unsolicited (from
     and after the date of this Agreement) Superior Offer. The Company shall
     provide Parent with a copy of any correspondence to be delivered by the
  Company in connection with such Superior Offer prior to sending such
correspondence to any third party (but not any attachments thereto
   previously provided by the Company to Parent in connection herewith).
      Except for discussions, negotiations and due diligence with DJL and with
     investors with whom it works related to a $2.5 million convertible debt
offering, provided,                                               

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  however, that the Company shall not consummate such offering without
       Parent's consent, the Company and its Subsidiaries will immediately cease
   any and all existing activities, discussions or negotiations with any
    parties conducted heretofore with respect to any Acquisition Proposal.
    Without limiting the foregoing, it is understood that any violation of
       the restrictions set forth in the preceding two sentences by any officer,
   director or employee of the Company or any of its Subsidiaries or any
   investment banker, attorney or other advisor or representative of the
       Company or any of its Subsidiaries shall be deemed to be a breach of this
SECTION 4.03 by the Company.                                      

    (b) In addition to the obligations of the Company set forth in
paragraph (a) of this SECTION 4.03, the Company as promptly as    
      practicable shall advise Parent orally and in writing of any Acquisition
     Proposal or any request for non-public information or inquiry which the
    Company reasonably believes would lead to an Acquisition Proposal, the
    material terms and conditions of such Acquisition Proposal, request or
inquiry, and the identity of the person or group making any such  
    Acquisition Proposal, request or inquiry. The Company will keep Parent
 informed as promptly as practicable in all material respects of the
status of any such Acquisition Proposal, request or inquiry.      

4.04  CONDUCT OF BUSINESS.  The Company will, and will cause its
Subsidiaries to, conduct business only in the ordinary course consistent
with past practice.                                                     

       4.05  CERTAIN RESTRICTIONS.  Except as disclosed in SECTION 4.05 OF THE
  DISCLOSURE SCHEDULE, the Company will, and will cause its Subsidiaries to,
refrain from:                                                           

      (a) Amending their articles of incorporation or bylaws (or other
       comparable corporate charter documents) or taking any action with respect
to any such amendment or any recapitalization, reorganization,    
liquidation or dissolution of any such corporation;               

        (b) Except with respect to the issuance of shares upon exercise of
       existing Options, authorizing, issuing, selling or otherwise disposing of
      any shares of capital stock of or any Option with respect to the Company
      or its Subsidiaries, or modifying or amending any right of any holder of
  outstanding shares of capital stock of or Option with respect to the
Company or its Subsidiaries;                                      

  (c) Declaring, setting aside or paying any dividend or other
distribution in respect of the capital stock of the Company or its
Subsidiaries, or directly or indirectly redeeming, purchasing or  
    otherwise acquiring any capital stock of or any Option with respect to
the Company or its Subsidiaries;                                  

        (d) Acquiring or disposing of, or incurring any Lien (other than a
       Permitted Lien) on, any Assets and Properties, other than in the ordinary
course of business consistent with past practice;                 

           (e) (i) Entering into, amending, modifying, terminating (partially or
       completely), granting any waiver under or giving any consent with respect
       to (A) any material Contract or (B) any material License or (ii) granting
any irrevocable powers of attorney;                               

           (f) Violating, breaching or defaulting under in any material respect,
     or taking or failing to take any action that (with or without notice or
    lapse of time or both) would constitute a material violation or breach
      of, or default under, any term or provision of any material License held
      or used by the Company, Galaxy Mall and IMI or any Contract to which the
      Company, Galaxy Mall or IMI is a party or by which any of its Assets and
Properties is bound;                                              

(g) Incurring Indebtedness in excess of $50,000;          

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     (h) Engaging with any Person in any merger or other Acquisition
      Proposal, except as otherwise permitted by and subject to this Agreement
;                                                                 

(i) Making capital expenditures in excess of $100,000;    

         (j) Writing off or writing down any of the Company's, Galaxy Mall's
and IMI's' Assets and Properties;                                 

  (k) entering into any Contract to do or engage in any of the
foregoing; or                                                     

         (l) engaging in any action that could reasonably be expected to (i)
     cause the Merger to fail to qualify as a "reorganization" under Section
       368(a) of the Code or (ii) interfere with Parent's ability to account for
 the Merger as a pooling of interests, whether or not (in each case)
otherwise permitted by the provisions of this Agreement.          

        4.06  AFFILIATE TRANSACTIONS.  Prior to the Closing, the Company, Galaxy
Mall and IMI will not enter into any Contract or amend or modify any    
existing Contract and will not engage in any transaction, outside the   
ordinary course of business consistent with past practice or not on an  
arm's-length basis, with any officer, director or Affiliate thereof.    

   4.07  NOTICE OF CERTAIN MATTERS.  The Company will notify Parent in
    writing of, and contemporaneously will provide Parent with true and complete
  copies of any and all information or documents relating to, the occurrence
or non-occurrence of any event, transaction or circumstance, as soon as 
 practicable after it becomes known to the Company, after the date of this
 Agreement, the occurrence or non-occurrence of which causes or will cause
  any material failure of the Company to comply with or satisfy any covenant
    or agreement of the Company that renders or will render untrue or inaccurate
in any material respect, at or prior to the Effective Time, any         
 representation or warranty of the Company under this Agreement. No notice
    given pursuant to this Section shall have any effect on the representations,
    warranties, covenants or agreements contained in this Agreement for purposes
of determining satisfaction of any condition contained herein.          

      4.08  FULFILLMENT OF CONDITIONS; OTHER ACTIONS.  Company will take all
   commercially reasonable steps necessary or desirable and proceed diligently
    and in good faith to (i) satisfy each condition to the obligations of Parent
    contained in this Agreement and will not, and will not permit Company or any
Subsidiary to, take or fail to take any action that could reasonably be 
   expected to result in the nonfulfillment of any such condition, (ii) permit
the parties to realize their intentions as set forth in SECTION 1.10 and
(iii) subject to the terms and conditions herein provided, the Company  
agrees to use all reasonable efforts to take, or cause to be taken, all 
action and to do, or cause to be done, all things necessary, proper or  
advisable, whether under applicable Laws or otherwise, or to remove any 
injunctions or other impediments or delays, legal or otherwise, to      
consummate and make effective the Merger and the other transactions     
contemplated by this Agreement and the Ancillary Agreements.            

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ARTICLE V 

COVENANTS OF PARENT 

  Parent covenants and agrees with Company that, at all times from and after
the date hereof until the Effective Time (unless and until this Agreement is    
earlier terminated in accordance with Article XI), Parent will comply with all  
covenants and provisions of this Article V, except to the extent the Company may
otherwise consent in writing.                                                   

 5.01  REGULATORY AND OTHER APPROVALS.  Parent will as promptly as
practicable (a) take all commercially reasonable steps necessary or     
   desirable to obtain all consents, approvals or actions of, make all filings
  with and give all notices to Governmental or Regulatory Authorities or any
   other Person required of Parent to consummate the transactions contemplated
hereby, (b) provide such other information and communications to such   
 Governmental or Regulatory Authorities or other Persons as the Company or
   such Governmental or Regulatory Authorities or other Persons may reasonably
request in connection therewith, and (c) cooperate with the Company in  
connection with the performance of its obligations hereunder.           

        5.02  INVESTIGATION BY COMPANY.  Parent will (a) provide the Company and
its Representatives with full access, upon reasonable prior notice and  
during normal business hours, to all officers, employees, agents and    
accountants of the Parent and its Assets and Properties and Books and   
Records, and (b) furnish Company and such Representatives with all such 
information and data (including without limitation copies of contracts, 
Benefit Plans and other Books and Records) concerning the business and  
 operations of Parent as Company or any of such Representatives reasonably
may request in connection with such investigation.                      

    5.03  CONDUCT OF BUSINESS.  Parent will conduct business only in the
ordinary course consistent with past practice.                          

5.04  CERTAIN RESTRICTIONS.  Parent will refrain from:          

  (a) Declaring, setting aside or paying any dividend or other
distribution in respect of the capital stock of Parent;           

           (b) Engaging in any action that could reasonably be expected to cause
      the Merger to fail to qualify as a "reorganization" under Section 368(a)
of the Code.                                                      

   5.05  NOTICE OF CERTAIN MATTERS.  Parent will notify the Company in
writing of, and contemporaneously will provide the Company with true and
complete copies of any and all information or documents relating to, the
  occurrence or non-occurrence of any event, transaction or circumstance, as
    soon as practicable after it becomes known to Parent, after the date of this
 Agreement, the occurrence or non-occurrence of which causes or will cause
  any material failure of the Company to comply with or satisfy any covenant
  or agreement of Parent that renders or will render untrue or inaccurate in
   any material respect, at or prior to the Effective Time, any representation
    or warranty of Parent under this Agreement. No notice given pursuant to this
   Section shall have any effect on the representations, warranties, covenants
or agreements contained in this Agreement for purposes of determining   
 satisfaction of any condition contained herein but shall not give rise to
any other rights of the Company hereunder.                              

     5.06  FULFILLMENT OF CONDITIONS; OTHER ACTIONS.  Parent will take all
   commercially reasonable steps necessary or desirable and proceed diligently
 and in good faith to (i) satisfy each condition to the obligations of the
  Company contained in this Agreement, and will not take or fail to take any
   action that could reasonably be expected to result in the nonfulfillment of
  any such condition, (ii) permit the parties to realize their intentions as
set forth in SECTION 1.10 and (iii) subject to the terms and conditions 
herein provided, Parent agrees to use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable,                                         

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   whether under applicable Laws or otherwise, or to remove any injunctions or
other impediments or delays, legal or otherwise, to consummate and make 
effective the Merger and the other transactions contemplated by this    
Agreement and the Ancillary Agreements.                                 

5.07  DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION.   

      (a) Parent agrees that at all times after the Effective Time, it
       shall indemnify, or shall cause the Company (or the Surviving Corporation
  if after the Effective Time) and its Subsidiaries to indemnify, each
    person who is now, or has been at any time prior to the date hereof, a
director or officer of the Company or of any of the Company's     
       Subsidiaries, successors and assigns (individually an "Indemnified Party"
    and collectively the "Indemnified Parties"), to the same extent and in
  the same manner as is now provided in the respective certificates of
      incorporation or by-laws or in the indemnity agreements, copies of which
    agreements have been previously provided to Parent, of the Company and
       such Subsidiaries or otherwise in effect on the date hereof, with respect
       to any claim, liability, loss, damage, cost or expense (whenever asserted
    or claimed) ("Indemnified Liability") based in whole or in part on, or
     arising in whole or in part out of, any matter existing or occurring at
       or prior to the Effective Time. Parent shall, and shall cause the Company
     (or the Surviving Corporation if after the Effective Time) to, maintain
in effect for not less than six years after the Effective Time the
current policies of directors' and officers' liability insurance  
maintained by the Company and its Subsidiaries on the date hereof 
    (provided that Parent may substitute therefor policies having at least
     the same coverage and containing terms and conditions which are no less
advantageous to the persons currently covered by such policies as 
       insured) with respect to matters existing or occurring at or prior to the
      Effective Time; provided, however, that if the aggregate annual premiums
    for such insurance at any time during such period shall exceed 150% of
 the per annum rate of premium currently paid by the Company and its
  Subsidiaries for such insurance on the date of this Agreement, which
  amount is set forth in SECTION 5.07 OF THE DISCLOSURE SCHEDULE, then
       Parent shall cause the Company (or the Surviving Corporation if after the
  Effective Time) to, and the Company (or the Surviving Corporation if
      after the Effective Time) shall, provide the maximum coverage that shall
then be available at an annual premium equal to 150% of such rate.
Without limiting the foregoing, in the event any Indemnified Party
becomes involved in any capacity in any action, proceeding or     
   investigation based in whole or in part on, or arising in whole or in
      part out of, any matter, including, without limitation, the transactions
    contemplated hereby or any personal guarantee they may have given with
       respect to any liability, obligation or contract of the Company or any of
  its Subsidiaries, existing or occurring at or prior to the Effective
    Time, then to the extent permitted by law Parent shall, or shall cause
    the Company (or the Surviving Corporation if after the Effective Time)
    to, periodically advance to such Indemnified Party its legal and other
expenses (including the cost of any investigation and preparation 
 incurred in connection therewith), subject to the provision by such
      Indemnified Party of an undertaking to reimburse the amounts so advanced
in the event of a final determination by a court of competent     
jurisdiction that such Indemnified Party is not entitled thereto. 
       Promptly after receipt by an Indemnified Party of notice of the assertion
     (an "Assertion") of any claim or the commencement of any action against
      him in respect to which indemnity or reimbursement may be sought against
   Parent, the Company, the Surviving Corporation or a Subsidiary of the
  Company or the Surviving Corporation ("Indemnitors") hereunder, such
Indemnified Party shall notify any Indemnitor in writing of the   
      Assertion, but the failure to so notify any Indemnitor shall not relieve
   any Indemnitor of any liability it may have to such Indemnified Party
  hereunder except where such failure shall have materially prejudiced
  Indemnitor in defending against such Assertion. Indemnitors shall be
entitled to participate in and, to the extent Indemnitors elect by
      written notice to such Indemnified Party within 30 days after receipt by
   any Indemnitor of notice of such Assertion, to assume, the defense of
such                                                              

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     Assertion, at their own expense, with counsel chosen by Indemnitors and
     reasonably satisfactory to such Indemnified Party. Notwithstanding that
 Indemnitors shall have elected by such written notice to assume the
      defense of any Assertion, such Indemnified Party shall have the right to
 participate in the investigation and defense thereof, with separate
      counsel chosen by such Indemnified Party, but, until there is a conflict
     between the positions of the Indemnified Party and the Indemnitors, the
 fees and expenses of such counsel shall be paid by such Indemnified
      Party. No Indemnified Party shall settle any Assertion without the prior
written consent of Parent, which consent may not be unreasonably  
    withheld, nor shall Parent settle any Assertion without either (i) the
    written consent of all Indemnified Parties against whom such Assertion
     was made, or (ii) obtaining a general release from the party making the
      Assertion for all Indemnified Parties as a condition of such settlement.
      The provisions of this SECTION 5.07 are intended for the benefit of, and
shall be enforceable by, the respective Indemnified Parties.      

       (b) The articles of incorporation and the bylaws of the Surviving
       Corporation shall contain the provisions with respect to indemnification,
      payment of fees and expenses and exculpation from liability set forth in
    the Company's articles of incorporation and bylaws on the date of this
     Agreement, which provisions shall not be amended, repealed or otherwise
      modified for a period of six years from the Effective Time in any manner
     that would adversely affect the rights thereunder of individuals who on
  or at any time prior to the Effective Time were directors, officers,
      employees or agents of the Company, unless such modification is required
by law. Parent shall guarantee the obligations of the Surviving   
     Corporation with respect to the indemnification and payment of fees and
      expenses provisions contained in the Surviving Corporation's articles of
      incorporation and bylaws with respect to acts occurring at or before the
Effective Time (including the transactions contemplated by this   
Agreement).                                                       

        (c) In the event Parent, the Surviving Corporation or any of their
  successors or assigns (i) consolidates with or merges into any other
       person and shall not be the continuing or surviving corporation or entity
    of such consolidation or merger or (ii) transfers all or substantially
   all of its properties and assets to any person, then and in each such
      case, proper provisions shall be made so that the successors and assigns
      of Parent of the Surviving Corporation, as the case may be, shall assume
the obligations set forth in this SECTION 5.07.                   

          (d) Parent shall use reasonable efforts from and after the Effective
      Time to obtain the release of any personal guarantee made by any officer
     or director of the Company with respect to any obligations, liabilities
or contracts of the Company or any of its Subsidiaries.           

            (e)  RETIREMENT OF INTERCOMPANY DEBT.  Parent shall cause, and
         the Surviving Corporation shall, promptly after the Effective Time,
        pay to Parent any outstanding balance remaining with regard to any
   loan from Parent to Company made prior to the Effective Time.

ARTICLE VI

ADDITIONAL AGREEMENTS 

6.01  PROSPECTUS/PROXY STATEMENT; REGISTRATION STATEMENT; OTHER 
   FILINGS.  As promptly as practicable after the execution of this Agreement,
the Company and Parent will prepare and file with the SEC, the          
 Prospectus/Proxy Statement, and Parent will prepare and file with the SEC
  the Registration Statement in which the Prospectus/Proxy Statement will be
    included as a prospectus. Each of the Company and Parent will respond to any
    comments of the SEC, will use its respective commercially reasonable efforts
  to have the Registration Statement declared effective under the Securities
    Act as promptly as practicable after such filing and each of the Company and
Parent will                                                             

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cause the Prospectus/Proxy Statement to be mailed to its respective     
stockholders at the earliest practicable time after the Registration    
    Statement is declared effective by the SEC. As promptly as practicable after
    the date of this Agreement, if required, each of the Company and Parent will
prepare and file (i) any pre-merger notification forms required by the  
merger notification or control Laws and regulations of any applicable   
    jurisdiction, as agreed to by the parties (the "Antitrust Filings") and (ii)
any other filings required to be filed by it under the Exchange Act, the
  Securities Act or any other Federal, state or foreign Laws relating to the
Merger and the transactions contemplated by this Agreement (the "Other  
   Filings"). The Company and Parent each shall promptly supply the other with
any information which may be required in order to effectuate any filings
 pursuant to this SECTION 6.01. Each of the Company and Parent will notify
the other promptly upon the receipt of any comments from the SEC or its 
  staff or any other government officials in connection with any filing made
pursuant hereto and of any request by the SEC or its staff or any other 
government officials for amendments or supplements to the Registration  
    Statement, the Prospectus/ Proxy Statement or any Antitrust Filings or Other
  Filing or for additional information and will supply the other with copies
  of all correspondence between such party or any of its representatives, on
  the one hand, and the SEC, or its staff or any other government officials,
on the other hand, with respect to the Registration Statement, the      
Prospectus/ Proxy Statement, the Merger or any Antitrust Filing or Other
 Filing. Whenever any event occurs which is required to be set forth in an
    amendment or supplement to the Prospectus/ Proxy Statement, the Registration
    Statement or any Antitrust Filing or Other Filing, the Company or Parent, as
the case may be, will promptly inform the other of such occurrence and  
cooperate in filing with the SEC or its staff or any other government   
    officials, and/or mailing to stockholders of the Company and/or Parent, such
amendment or supplement. No amendment shall be made to the Registration 
   Statement or Prospectus/Proxy Statement without consultation with the other
party and no filing shall be made on a successor form to form S-4 not   
permitted under current Law without the prior approval of both parties. 

6.02  MEETING OF THE COMPANY STOCKHOLDERS.                      

          (a) Promptly after the date hereof, the Company will take all action
       necessary in accordance with Nevada Law and its Articles of Incorporation
       and ByLaws to convene a meeting of the Company's stockholders to consider
     adoption and approval of this Agreement and approval of the Merger (the
     "Company Stockholders' Meeting") to be held as promptly as practicable,
      and in any event (to the extent permissible under applicable Law) within
45 days after the declaration of effectiveness of the Registration
    Statement. Subject to SECTION 6.02(c) hereof, the Company will use its
      commercially reasonable efforts to solicit from its stockholders proxies
      in favor of the adoption and approval of this Agreement and the approval
    of the Merger and will take all other action necessary or advisable to
      secure the vote or consent of its stockholders required by Nevada Law to
       obtain such approvals. Notwithstanding anything to the contrary contained
in this Agreement, the Company may adjourn or postpone the Company
Stockholders' Meeting to the extent necessary to ensure that any  
    necessary supplement or amendment to the Prospectus/Proxy Statement is
       provided to the Company's stockholders in advance of a vote on the Merger
and this Agreement or, if as of the time for which the Company    
Stockholders' Meeting is originally scheduled (as set forth in the
      Prospectus/Proxy Statement) there are insufficient shares of the Company
     Common Stock represented (either in person or by proxy) to constitute a
     quorum necessary to conduct the business of the Company's Stockholders'
      Meeting. The Company shall ensure that the Company Stockholders' Meeting
    is called, noticed, convened, held and conducted, and that all proxies
   solicited by the Company in connection with the Company Stockholders'
 Meeting are solicited, in compliance with Nevada Law, the Company's
       Articles of Incorporation and By-Laws, and all other applicable Laws. The
Company's obligation to call, give notice of, convene and hold the
Company Stockholders' Meeting in accordance with this             

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  SECTION 6.02(a) shall not be limited to or otherwise affected by the
    commencement, disclosure, announcement or submission to the Company of
       any Acquisition Proposal, or by any withdrawal, amendment or modification
 of the recommendation of the Board of Directors of the Company with
respect to the Merger and/or this Agreement.                      

       (b) Subject to SECTION 6.02(c): (i) the Board of Directors of the
      Company shall unanimously recommend that the Company's stockholders vote
     in favor of and adopt and approve this Agreement and approve the Merger
       at the Company Stockholders' Meeting; (ii) the Prospectus/Proxy Statement
    shall include a statement to the effect that the Board of Directors of
     the Company has unanimously recommended that the Company's stockholders
     vote in favor of and adopt and approve this Agreement and the Merger at
the Company Stockholders' Meeting; and (iii) neither the Board of 
      Directors of the Company nor any committee thereof shall withdraw, amend
       or modify, or propose or resolve to withdraw, amend or modify in a manner
       adverse to Parent, the unanimous recommendation of the Board of Directors
       of the Company that the Company's stockholders vote in favor of and adopt
and approve this Agreement and the Merger. For purposes of this   
      Agreement, said recommendation of the Board of Directors shall be deemed
to have been modified in a manner adverse to Parent if said       
 recommendation shall no longer be unanimous, provided that, for all
purposes of this Agreement, an action by any Board of Directors or
  committee thereof shall be unanimous if each member of such Board of
     Directors or committee has approved such action other than (i) any such
       member who has appropriately abstained from voting on such matter because
     of an actual or potential conflict of interest and (ii) any such member
       who is unable to vote in connection with such action as a result of death
or disability.                                                    

           (c) Nothing in this Agreement shall prevent the Board of Directors of
  the Company from withholding, withdrawing, amending or modifying its
     unanimous recommendation in favor of the Merger if (i) a Superior Offer
      (as defined below) is made to the Company and is not withdrawn, (ii) the
Company shall have provided written notice to Parent (a "Notice of
       Superior Offer") advising Parent that the Company has received a Superior
  Offer, specifying the material terms and conditions of such Superior
    Offer and identifying the person or entity making such Superior Offer,
     (iii) Parent shall not have, within three (3) Business Days of Parent's
     receipt of the Notice of Superior Offer, made an offer that the Company
     Board by a majority vote determines in its good faith judgment to be at
     least as favorable to the Company's Stockholders as such Superior Offer
(it being agreed that the Company Board shall convene a meeting to
consider any such offer by Parent promptly following the receipt  
    thereof), (iv) the Board of Directors of the Company concludes in good
   faith, after consultation with its outside counsel, that, in light of
such Superior Offer, the withholding, withdrawal, amendment or    
       modification of such recommendation is required in order for the Board of
      Directors of the Company to properly discharge its fiduciary obligations
    to the Company's Stockholders under applicable Law and (v) the Company
       shall not have violated any of the restrictions set forth in SECTION 4.03
  or this SECTION 6.02. The Company shall provide Parent with at least
  three (3) Business Days prior notice (or such lesser prior notice as
   provided to the members of the Company's Board of Directors but in no
      event less than twenty-four hours) of any meeting of the Company's Board
  of Directors at which the Company's Board of Directors is reasonably
 expected to consider any Acquisition Proposal. For purposes of this
      Agreement, "Superior Offer" shall mean an unsolicited, bona fide written
offer made by a third party to consummate any of the following    
transactions: (i) a merger or consolidation involving the Company 
     pursuant to which the stockholders of the Company immediately preceding
such transaction hold less than 50% of the equity interest in the 
     surviving or resulting entity of such transaction, (ii) the acquisition
       by any person or group (including by way of a tender offer or an exchange
  offer or a two step transaction involving a tender offer or exchange
offer followed with reasonable promptness by a cash-out merger    

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     involving the Company), directly or indirectly, of ownership of 100% of
       the then outstanding shares of capital stock of the Company, or (iii) the
       sale or disposition of all or substantially all the assets of the Company
    to a third party, in each case on terms that the Board of Directors of
      the Company determines, in its reasonable judgment, to be more favorable
 to the Company stockholders than the terms of the Merger; provided,
       however, that any such offer shall not be deemed to be a "Superior Offer"
     if any financing required to consummate the transaction contemplated by
      such offer is not committed and is not likely in the reasonable judgment
       of the Company's Board of Directors to be obtained by such third party on
a timely basis.                                                   

           (d) Nothing contained in this Agreement shall prohibit the Company or
     its Board of Directors from taking and disclosing to its stockholders a
     position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act or making any other disclosure to its stockholders as
required by Law.                                                  

6.03  MEETING OF PARENT STOCKHOLDERS.                           

     (a) Promptly after the date hereof, Parent will take all action
  necessary in accordance with the Delaware Law and its Certificate of
       Incorporation and ByLaws to convene a meeting of Parent's stockholders to
    consider the issuance of the shares of Parent Common Stock pursuant to
     the Merger and an amendment to Parent's Certificate of Incorporation to
      increase the authorized number of shares of Parent Common Stock so as to
permit the transactions contemplated hereby, subject to and upon  
    consummation of the Merger, (the "Parent Stockholders' Meeting") to be
held as promptly as practicable, and in any event (to the extent  
       permissible under applicable Law) within 45 days after the declaration of
effectiveness of the Registration Statement. Parent will use its  
      commercially reasonable efforts to solicit from its stockholders proxies
       in favor of the issuance of the shares of Parent Common Stock pursuant to
     the Merger and an amendment to Parent's Certificate of Incorporation to
      increase the authorized number of shares of Parent Common Stock so as to
permit the transactions contemplated hereby, subject to and upon  
     consummation of the Merger, and will take all other action necessary or
     advisable to secure the vote or consent of its stockholders required by
the rules of Nasdaq or Delaware Law to obtain such approvals.     
   Notwithstanding anything to the contrary contained in this Agreement,
    Parent may adjourn or postpone the Parent Stockholders' Meeting to the
      extent necessary to ensure that any necessary supplement or amendment to
    the Prospectus/Proxy Statement is provided to Parent's stockholders in
    advance of a vote on the issuance of the shares of Parent Common Stock
 pursuant to the Merger or a vote on the approval of an amendment to
     Parent's Certificate of Incorporation to increase the authorized number
of shares of Parent Common Stock so as to permit the transactions 
      contemplated hereby, subject to and upon consummation of the Merger, or,
    if as of the time for which Parent Stockholders' Meeting is originally
   scheduled (as set forth in the Prospectus/ Proxy Statement) there are
      insufficient shares of Parent Common Stock represented (either in person
      or by proxy) to constitute a quorum necessary to conduct the business of
     the Parent's Stockholders' Meeting. Parent shall ensure that the Parent
     Stockholders' Meeting is called, noticed, convened, held and conducted,
     that all proxies solicited by the Company in connection with the Parent
      Stockholders' Meeting are solicited in compliance with the Delaware Law,
      its Certificate of Incorporation and ByLaws, the rules of Nasdaq and all
other applicable Laws.                                            

           (b) The Board of Directors of Parent shall unanimously recommend that
  Parent's stockholders vote in favor of the issuance of the shares of
     Parent Common Stock pursuant to the Merger and an amendment to Parent's
      Certificate of Incorporation to increase the authorized number of shares
  of Parent Common Stock so as to permit the transactions contemplated
     hereby, subject to and upon consummation of the Merger. The Prospectus/
       Proxy Statement shall include a statement to the effect that the Board of
Directors of Parent                                               

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     has unanimously recommended that Parent's stockholders vote in favor of
    such matters at the Parent Stockholders' Meeting. Neither the Board of
    Directors of Parent nor any committee thereof shall withdraw, amend or
    modify, or propose or resolve to withdraw, amend or modify in a manner
  adverse to the Company, the unanimous recommendation of the Board of
  Directors of Parent that Parent's stockholders vote in favor of such
       matters. For purposes of this Agreement, said recommendation of the Board
       of Directors shall be deemed to have been modified in a manner adverse to
the Company if said recommendation shall no longer be unanimous.  

          (c) Nothing contained in this Agreement shall prohibit Parent or its
 Board of Directors from taking and disclosing to its stockholders a
     position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act or making any other disclosure to its stockholders as
required by Law.                                                  

       6.04  STATE STATUTES.  The Company and its Board of Directors shall, if
 any state takeover statute or similar Law is or becomes applicable to the
Merger, this Agreement or any of the transactions contemplated by this  
Agreement, use all reasonable efforts to ensure that the Merger and the 
other transactions contemplated by this Agreement may be consummated as 
promptly as practicable on the terms contemplated by this Agreement and 
otherwise to minimize the effect of such statute or regulation on the   
Merger, this Agreement and the transactions contemplated hereby.        
  Notwithstanding anything herein to the contrary, nothing in this Agreement
shall be deemed to require Parent or the Company or any Subsidiary or   
Affiliate thereof to agree to any divestiture by itself or any of its   
affiliates of shares of capital stock or of any business, assets or     
    property, or the imposition of any material limitation on the ability of any
 of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.                                           

ARTICLE VII 

CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB

   The obligations of Parent and Merger Sub hereunder to consummate the Merger
are subject to the fulfillment, at or before the Closing, of each of the        
following conditions (all or any of which may be waived in whole or in part by  
Parent in its sole discretion):                                                 

7.01  REPRESENTATIONS AND WARRANTIES.  The representations and  
  warranties of the Company shall have been true and accurate both when made
 and (except for those representations and warranties that address matters
    only as of a particular date which need only be true and accurate as of such
date) as of the Effective Time as if made at and as of such time, except
  where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or 
"Material Adverse Effect" set forth therein), does not have, and is not 
   likely to have, individually or in the aggregate, a Material Adverse Effect
on the Company and its Subsidiaries taken as a whole; provided, that the
 representations and warranties set forth in SECTIONS 2.01, 2.02, 2.03 and
2.04 shall be true and correct in all respects.                         

       7.02  PERFORMANCE.  The Company shall have performed and complied with,
  in all material respects, each agreement, covenant and obligation required
    by this Agreement to be so performed or complied with by it at or before the
Closing.                                                                

        7.03  ORDERS AND LAWS.  There shall not be in effect on the Closing Date
  any Order or Law restraining, enjoining or otherwise prohibiting or making
    illegal the consummation of the Merger or which could reasonably be expected
  to otherwise result in a material diminution of the benefits of the Merger
   to Parent, and there shall not be pending on the Closing Date any Action or
  Proceeding in, before or by any Governmental or Regulatory Authority which
could reasonably be                                                     

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expected to result in the issuance of any such Order or the enactment,  
   promulgation or deemed applicability to Parent, the Company, any Subsidiary
or the Merger of any such Law.                                          

     7.04  REGULATORY CONSENTS AND APPROVALS.  All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory  
Authority necessary to permit Parent and the Company to perform their   
obligations under this Agreement and to consummate the transactions     
contemplated hereby (as set forth in SECTION 7.04 OF THE DISCLOSURE     
   SCHEDULE) (a) shall have been duly obtained, made or given, (b) shall be in
form and substance reasonably satisfactory to Parent, (c) shall not be  
   subject to the satisfaction of any condition that has not been satisfied or
 waived and (d) shall be in full force and effect, and all terminations or
expirations of waiting periods imposed by any Governmental or Regulatory
    Authority necessary for the consummation of the transactions contemplated by
this Agreement shall have occurred.                                     

      7.05  THIRD PARTY CONSENTS.  All consents (or in lieu thereof waivers)
to the performance by Parent and Company of their obligations under this
   Agreement or to the consummation of the transactions contemplated hereby as
are required under any Contract to which Parent, the Company or any     
Subsidiary is a party or by which any of their respective Assets and    
Properties are bound (as set forth in SECTION 7.05 OF THE DISCLOSURE    
  SCHEDULE) (a) shall have been obtained, (b) shall be in form and substance
reasonably satisfactory to Parent, (c) shall not be subject to the      
   satisfaction of any condition that has not been satisfied or waived and (d)
 shall be in full force and effect, except where the failure to obtain any
  such consent (or in lieu thereof waiver) could not reasonably be expected,
individually or in the aggregate with other such failures, to materially
   adversely affect Parent or the Business or Condition of the Company, Galaxy
    Mall and IMI or otherwise result in a material diminution of the benefits of
the transactions contemplated by this Agreement to Parent.              

     7.06  STOCKHOLDER APPROVAL.  The Company Stockholder Approval and the
 Parent Stockholder Approval shall have been obtained. The issuance of the
 shares of Parent Common Stock pursuant to the Merger shall have been duly
approved by the stockholders of Parent under applicable Nasdaq rules.   

    7.07  OPINION OF COUNSEL.  Parent shall have received the opinion of
Parsons Behle & Latimer, P.C., counsel to the Company, dated the Closing
Date, substantially in the form and to the effect of EXHIBIT C hereto.  

      7.08  ANCILLARY AGREEMENTS.  The Ancillary Agreements shall be in full
    force and effect and shall have been complied with in all material respects.

       7.09  REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT.  The SEC shall
    have declared the Registration Statement effective. No stop order suspending
  the effectiveness of the Registration Statement or part thereof shall have
    been issued and no proceeding for that purpose, and no similar proceeding in
respect of the Prospectus/Proxy Statement, shall have been initiated or 
threatened in writing by the SEC.                                       

        7.10  NASDAQ LISTING.  The shares of Parent Common Stock to be issued in
the Merger shall have been authorized for listing on Nasdaq, subject to 
notice of issuance.                                                     

  7.11  OFFICERS' CERTIFICATES.  The Company shall have delivered to
   Parent certificates, dated the Closing Date and executed by the Chairman of
the Board, the President or any Vice President of the Company, in form  
  reasonably acceptable to Parent, and a certificate, dated the Closing Date
   and executed by the Secretary or any Assistant Secretary of the Company, in
form reasonably acceptable to Parent.                                   

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7.12  FAIRNESS OPINION.  Parent shall have received, in a form  
acceptable to Parent, its legal counsel and Parent's independent        
accountants, a fairness opinion issued by Cruttenden Roth Incorporated. 

     7.13  DISSENTING SHARES.  Holders of no more than two percent (2%) of
    the outstanding shares of the Company Common Stock shall have exercised (and
 not subsequently waived their rights or allowed them to lapse), nor shall
    they have any continued right to exercise, appraisal, dissenters' or similar
 rights under applicable Law with respect to their shares by virtue of the
Merger.                                                                 

ARTICLE VIII

CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY

The obligations of the Company hereunder to consummate the Merger are   
subject to the fulfillment, at or before the Closing, of each of the following  
conditions (all or any of which may be waived in whole or in part by Company in 
its sole discretion):                                                           

8.01  REPRESENTATIONS AND WARRANTIES.  The representations and  
 warranties of Parent shall have been true and accurate both when made and
  (except for those representations and warranties that address matters only
as of a particular date which need only be true and accurate as of such 
date) as of the Effective Time as if made at and as of such time, except
  where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or 
"Material Adverse Effect" set forth therein), does not have, and is not 
   likely to have, individually or in the aggregate, a Material Adverse Effect
on Parent and its Subsidiaries taken as a whole; provided, that the     
  representations and warranties set forth in SECTION 3.01 shall be true and
correct in all respects.                                                

     8.02  PERFORMANCE.  Parent shall have performed and complied with, in
  all material respects, each agreement, covenant and obligation required by
 this Agreement to be so performed or complied with by Parent at or before
the Closing.                                                            

     8.03  OPINION OF COUNSEL.  Company shall have received the opinion of
Nida & Maloney, LLP, counsel to Parent, dated the Closing Date,         
substantially in the form of Exhibit F hereto.                          

     8.04  REGULATORY CONSENTS AND APPROVALS.  All consents, approvals and
actions of, filings with and notices to any Governmental or Regulatory  
Authority necessary to permit Parent and the Company to perform their   
obligations under this Agreement and to consummate the transactions     
contemplated hereby (as set forth in SECTION 7.04 OF THE DISCLOSURE     
   SCHEDULE) (a) shall have been duly obtained, made or given, (b) shall be in
   form and substance reasonably satisfactory to the Company, (c) shall not be
   subject to the satisfaction of any condition that has not been satisfied or
 waived and (d) shall be in full force and effect, and all terminations or
expirations of waiting periods imposed by any Governmental or Regulatory
    Authority necessary for the consummation of the transactions contemplated by
this Agreement shall have occurred.                                     

        8.05  ORDERS AND LAWS.  There shall not be in effect on the Closing Date
  any Order or Law restraining, enjoining or otherwise prohibiting or making
    illegal the consummation of the Merger or which could reasonably be expected
  to otherwise result in a material diminution of the benefits of the Merger
to the Company, and there shall not be pending on the Closing Date any  
Action or Proceeding in, before or by any Governmental or Regulatory    
 Authority which could reasonably be expected to result in the issuance of
any such Order or the enactment, promulgation or deemed applicability to
Parent, the Company, any Subsidiary or the Merger of any such Law.      

     8.06  STOCKHOLDER APPROVAL.  The Company Stockholder Approval and the
 Parent Stockholder Approval shall have been obtained. The issuance of the
shares of Parent Common Stock pursuant                                  

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 to the Merger shall have been duly approved by the stockholders of Parent
under applicable Nasdaq rules.                                          

       8.07  REGISTRATION STATEMENT EFFECTIVE; PROXY STATEMENT.  The SEC shall
    have declared the Registration Statement effective. No stop order suspending
  the effectiveness of the Registration Statement or part thereof shall have
    been issued and no proceeding for that purpose, and no similar proceeding in
respect of the Prospectus/Proxy Statement, shall have been initiated or 
threatened in writing by the SEC.                                       

   8.08  NASDAQ LISTING.  The shares of the Company Common Stock to be
 issued in the Merger shall have been authorized for listing on the Nasdaq
National Market System, subject to notice of issuance.                  

 8.09  OFFICERS' CERTIFICATES.  Parent shall have delivered to the
    Company certificates, dated the Closing Date and executed by the Chairman of
the Board, the President or any Vice President of the Parent, in form   
  reasonably acceptable to the Company, and a certificate, dated the Closing
    Date and executed by the Secretary or any Assistant Secretary of the Parent,
in form reasonably acceptable to the Company.                           

  8.10  FAIRNESS OPINION.  The Company shall have received in a form
  acceptable to the Company, its legal counsel and the Company's independent
accountants, a fairness opinion issued by Houlihan Lokey Howard & Zukin.

ARTICLE IX

TAX MATTERS 

   9.01  REPRESENTATIONS AND OBLIGATIONS REGARDING TAXES.  The Company
represents and warrants to Parent as follows:                           

         (a) Except as set forth in SECTION 9.01 OF THE DISCLOSURE SCHEDULE,
   the Company and each of its Subsidiaries has timely filed (or has had
      timely filed on its behalf) with the appropriate Tax Authorities all Tax
       Returns required to be filed by the Company and each of its Subsidiaries,
  and such Tax Returns are true, correct, and complete in all material
respects.                                                         

     (b) The Company and each of its Subsidiaries has paid, or where
       payment is not yet due, has established an adequate accrual in accordance
    with GAAP for the payment of, all Taxes for all periods ending through
the date hereof.                                                  

         (c) There are no Liens for Taxes upon any property or assets of the
    Company or any of its Subsidiaries, except for liens for Taxes not yet
     due and for which adequate reserves have been established in accordance
with GAAP.                                                        

          (d) No federal, state, local or foreign Audits are presently pending
with regard to any Taxes or Tax Returns of the Company and its    
Subsidiaries and to the knowledge of the Company, no such Audit is
threatened.                                                       

  (e) Except as set forth in SECTION 9.01(e) OF THE DISCLOSURE
   SCHEDULE, the Tax Returns of the Company and each of its Subsidiaries
       have not been examined by the applicable Tax Authority (or the applicable
      statutes of limitation for the assessment of Taxes for such periods have
    expired), and for any year that a Tax Return was examined, no material
      adjustments were asserted as a result of such examination which have not
   been resolved and fully paid, and no issue has been raised by any Tax
       Authority in any Audit of the Company or any of its Subsidiaries that, if
       raised with respect to any other period not so audited, could be expected
    to result in a proposed deficiency for any such period not so audited.

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    (f) There are no outstanding requests, agreements, consents or
     waivers to extend the statutory period of limitations applicable to the
       assessment of any Taxes or deficiencies against the Company or any of its
     Subsidiaries, and no power of attorney granted by the Company or any of
its Subsidiaries with respect to any Taxes is currently in force. 

           (g) Neither the Company nor any of its Subsidiaries is a party to any
    agreement providing for the allocation, indemnification, or sharing of
Taxes.                                                            

           (h) Neither the Company nor any of its Subsidiaries has been a member
       of any "affiliated group" (as defined in section 1504(a) of the Code) and
is not subject to Treas. Reg. 1.1502-6 for any period.            

          (i) Neither the Company nor any of its Subsidiaries is or has been a
    U.S. real property holding company (as defined in Section 897(c)(2) of
the Code) during the applicable period specified in Section       
897(c)(1)(A)(ii) of the Code.                                     

ARTICLE X 

SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS 

10.01  SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND   
  AGREEMENTS  Notwithstanding any right of Parent (whether or not exercised)
to investigate the Business or any right of any party (whether or not   
    exercised) to investigate the accuracy of the representations and warranties
   of the other party contained in this Agreement, the Company and Parent have
   the right to rely fully upon the representations, warranties, covenants and
    agreements of the other contained in this Agreement. The representations and
    warranties of the Company, Parent and Merger Sub contained in this Agreement
    shall terminate at the Effective Time, and only the covenants and agreements
  set forth in this Agreement that by their terms survive the Effective Time
shall survive the Effective Time.                                       

ARTICLE XI

TERMINATION 

11.01  TERMINATION.  This Agreement may be terminated, and the  
   transactions contemplated hereby may be abandoned, at any time prior to the
  Effective Time, whether prior to or after the Company Stockholder Approval
and the Parent Stockholder Approval:                                    

           (a) by mutual written agreement of Parent and the Company hereto duly
      authorized by action taken by or on behalf of their respective Boards of
Directors;                                                        

  (b) by either the Company or Parent upon notification to the
non-terminating party by the terminating party:                   

              (i) at any time after July 31, 2000 if the Merger shall not have
   been consummated on or prior to such date and such failure to
      consummate the Merger is not caused by a material breach of this
Agreement by the terminating party;                       

    (ii) if the Company Stockholder Approval or the Parent
         Stockholder Approval shall not be obtained by reason of the failure
        to obtain the requisite vote upon a vote held at a meeting of such
stockholders, or any adjournment thereof, called therefor;

              (iii) if any Governmental or Regulatory Authority, the taking of
     action by which is a condition to the obligations of either the
           Company or Parent to consummate the transactions contemplated hereby,
           shall have determined not to take such action and all appeals of such
     determination shall have been taken and have been unsuccessful;

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            (iv) if the terminating party is not in material breach of its
           obligations under this Agreement and there has been a material breach
           of any representation, warranty, covenant or agreement on the part of
         the non-terminating party set forth in this Agreement such that the
 conditions in SECTIONS 7.01, 7.02, 8.01 or 8.02 will not be
         satisfied; provided, however, that if such breach is curable by the
    non-terminating party and such cure is reasonably likely to be
         completed prior to the date specified in SECTION 11.01(b)(i), then,
   for so long as the non-terminating party continues to use its
          reasonable efforts to effect and cure, the terminating party may not
terminate pursuant to this SECTION 11.01(b)(iv);          

           (v) if any court of competent jurisdiction or other competent
     Governmental or Regulatory Authority shall have issued an Order
        making illegal or otherwise permanently restricting, preventing or
       otherwise prohibiting the Merger and such Order shall have become
final and nonappealable;                                  

     (c) by Parent or the Company if the Company or its stockholders
      receive a Superior Offer in connection with which the Board of Directors
 of the Company exercises the rights specified in SECTION 6.02(c) to
      withhold, withdraw, amend or modify its recommendation of the Merger; or

          (d) by Parent if the Company breaches SECTION 4.03 of this Agreement
     and Parent is in substantial compliance with its obligations under this
Agreement.                                                        

11.02  EFFECT OF TERMINATION.                                   

          (a) If this Agreement is validly terminated by either the Company or
    Parent pursuant to SECTION 11.01, this Agreement will forthwith become
       null and void and there will be no liability or obligation on the part of
      either the Company or Parent (or any of their respective Representatives
   or affiliates), except (i) that nothing, other than SECTION 11.02(d),
contained herein shall relieve any party hereto from liability for
willful breach of its representations, warranties, covenants or   
       agreements contained in this Agreement, (ii) as provided in paragraph (b)
below and (iii) SECTION 13.04 of this Agreement shall survive and 
continue in full force and effect.                                

         (b) In the event that Parent (and at the time of termination Parent
      was in substantial compliance with its obligations under this Agreement)
    or Company terminates this Agreement pursuant to SECTIONS 11.01(c), or
     Parent terminates this Agreement pursuant to SECTION 11.01(d), then the
   Company shall, within one (1) Business Day after receipt of a request
    from Parent, pay to Parent in cash (x) a termination fee of $1,500,000
       and (y) an amount equal to all documented out-of-pocket expenses and fees
       incurred by Parent in connection with this Agreement and the transactions
   contemplated hereby (including, without limitation, fees and expenses
payable to all banks, investment banking firms and other financial
  institutions and persons and their respective agents and counsel for
   acting as Parent's financial advisor with respect to, or arranging or
committing to provide or providing any financing for, the Merger, 
     Parent's legal counsel and Parent's independent accountants), provided,
      that in no event shall the amount of such reimbursable fees and expenses
exceed $500,000 in the aggregate (collectively, (x) and (y), the  
"Termination Fee").                                               

           (c) If (A) this Agreement is terminated by Parent pursuant to SECTION
  11.01(b)(II), (B) prior to such termination a third party shall have
    publicly announced and not withdrawn a proposal or offer for a Company
Acquisition (as defined below) and (C) within twelve (12) months  
  following the termination of this Agreement a Company Acquisition is
     consummated or the Company enters into a definitive agreement providing
for a Company                                                     

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     Acquisition, then the Company shall pay Parent in immediately available
  funds at or prior to consummating such Company Acquisition an amount
equal to the Termination Fee.                                     

        (d) The Company acknowledges that the agreements contained in this
    SECTION 11.02 are an integral part of the transactions contemplated by
  this Agreement, and that, without these agreements, Parent would not
      enter into this Agreement; accordingly, if the Company fails to pay in a
  timely manner the amounts due pursuant to this SECTION 11.02 and, in
  order to obtain such payment, Parent makes a claim that results in a
    judgment against the Company for the amounts set forth in this SECTION
      11.02, the Company shall pay to Parent its reasonable costs and expenses
    (including reasonable attorneys' fees and expenses) in connection with
such suit, together with interest on the amounts set forth in this
      SECTION 11.02 at the prime rate of Bank of America N.T. & S.A. in effect
on the date such payment was required to be made. Payment of the  
 Termination Fee described in this SECTION 11.02 shall be in lieu of
Losses incurred in the event of breach of this Agreement. For the 
     purposes of this Agreement, "Company Acquisition" shall mean any of the
      following transactions (other than the transactions contemplated by this
Agreement): (i) a merger, consolidation, business combination,    
recapitalization, liquidation, dissolution or similar transaction 
     involving the Company pursuant to which the shareholders of the Company
immediately preceding such transaction hold less then 50% of the  
     aggregate equity interests in the surviving or resulting entity of such
    transaction, (ii) a sale or other disposition by the Company of assets
     representing in excess of 50% of the aggregate fair market value of the
Company's business immediately prior to such sale or (iii) the    
       acquisition by any person or group (including by way of a tender offer or
       an exchange offer or issuance by the Company), directly or indirectly, of
       beneficial ownership or a right to acquire beneficial ownership of shares
       representing in excess of 50% of the voting power of the then outstanding
shares of capital stock of the Company.                           

ARTICLE XII 

DEFINITIONS 

12.01  DEFINITIONS.                                             

           (a)  DEFINED TERMS.  As used in this Agreement, the following defined
terms have the meanings indicated below:                          

     "Acquisition Proposal" means any proposal for a merger or other
      business combination to which the Company, Galaxy Mall or IMI is a party
      or the direct or indirect acquisition of any substantial equity interest
       in, or a substantial portion of the assets of the Company, Galaxy Mall or
IMI, other than the transactions contemplated by this Agreement.  

  "Actions or Proceedings" means any action, suit, proceeding,
  arbitration or Governmental or Regulatory Authority investigation or
audit.                                                            

           "Affiliate" means any Person that directly, or indirectly through one
     of more intermediaries, controls or is controlled by or is under common
 control with the Person specified. For purposes of this definition,
   control of a Person means the power, direct or indirect, to direct or
       cause the direction of the management and policies of such Person whether
      by Contract or otherwise and, in any event and without limitation of the
   previous sentence, any Person owning ten percent (10%) or more of the
 voting securities of another Person shall be deemed to control that
Person.                                                           

   "Agreement" unless the context otherwise requires, means this
     Agreement and Plan of Merger, the exhibits and the schedules hereto and
       the certificates delivered in accordance herewith, and the Certificate of
Merger, as the same shall be amended from time to time.           

"Ancillary Agreements" has the meaning given in RECITAL E.

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           "Assets and Properties" of any Person means all assets and properties
      of every kind, nature, character and description (whether real, personal
  or mixed, whether tangible or intangible, whether absolute, accrued,
  contingent, fixed or otherwise and wherever situated), including the
 goodwill related thereto, operated, owned or leased by such Person,
     including without limitation cash, cash equivalents, Investment Assets,
   accounts and notes receivable, chattel paper, documents, instruments,
general intangibles, real estate, equipment, inventory, goods and 
Intellectual Property.                                            

           "Audit" means any audit, assessment, or other examination relating to
      Taxes by any Tax Authority or any judicial or administrative proceedings
relating to Taxes.                                                

      "Benefit Plan" means any Plan established by the Company, or any
       predecessor or Affiliate of any of the foregoing, existing at the Closing
Date or prior thereto, to which the Company, Galaxy Mall, or IMI  
 contributes or has contributed, or under which any employee, former
employee or director of the Company, Galaxy Mall, or IMI or any   
     beneficiary thereof is covered, is eligible for coverage or has benefit
rights.                                                           

          "Books and Records" means all files, documents, instruments, papers,
   books and records relating to the Business or Condition of the Person
 referred to, including without limitation financial statements, tax
    returns and related work papers and letters from accountants, budgets,
  pricing guidelines, ledgers, journals, deeds, title policies, minute
     books, stock certificates and books, stock transfer ledgers, contracts,
licenses, customer lists, computer files and programs, retrieval  
     programs, operating data and plans and environmental studies and plans.

 "Business" has the meaning given such term in SECTION 2.02.

          "Business Day" means a day other than Saturday, Sunday or any day on
     which banks located in the States of California and Utah are authorized
or obligated to close.                                            

         "Business or Condition" means the business, condition (financial or
       otherwise), results of operations, Assets and Properties and prospects of
the referenced party taken as a whole.                            

    "Certificate of Merger" has the meaning given in SECTION 1.02.

"Certificates" has the meaning given in SECTION 1.07(C).  

"Closing" has the meaning given in SECTION 1.02.          

"Closing Date" has the meaning given in SECTION 1.02.     

"Closing Price" has the meaning given in SECTION 1.06(D). 

         "Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.                     

      "Company" has the meaning ascribed to it in the forepart of this
Agreement.                                                        

   "Company Acquisition" has the meaning given in SECTION 11.02.

      "Company Common Stock" has the meaning given in SECTION 1.06(A).

    "Company Financials" has the meaning given in SECTION 2.07(B).

          "Company Intellectual Property" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, the Company.        

"Company Option" has the meaning given in SECTION 2.03(B).

"Company Plan" has the meaning given in SECTION 1.06(B).  

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      "Company Plan Options" has the meaning given in SECTION 1.06(B).

 "Company Registered Intellectual Property" means all of the
     Registered Intellectual Property owned by, or filed in the name of, the
Company.                                                          

     "Company SEC Reports" has the meaning given in SECTION 2.07(A).

           "Company Stockholder Approval" has the meaning given in SECTION 2.05.

          "Company Stockholders" means all holders of the Company Common Stock
as of the Effective Time.                                         

      "Company Stockholders' Meeting" has the meaning given in SECTION
6.02.                                                             

 "Contract" means any agreement, lease, license, evidence of
     Indebtedness, mortgage, indenture, security agreement or other contract
(whether written or oral).                                        

"Delaware Law" has the meaning given in RECITAL A.        

        "Disclosure Schedule" means the record delivered by Parent and the
     Company herewith and dated as of the date hereof, containing all lists,
 descriptions, exceptions and other information and materials as are
   required to be included therein by Company or Parent pursuant to this
Agreement.                                                        

"Dissenting Shares" has the meaning given in SECTION 1.11.

 "Employment Agreements" has the meaning given in RECITAL E.

"Exchange Act" has the meaning given in SECTION 2.07(A).  

"Exchange Agent" has the meaning given in SECTION 1.07(A).

"Exchange Ratio" has the meaning given in SECTION 1.06(A).

  "GAAP" means the United States generally accepted accounting
     principles, consistently applied throughout the specified period and in
the immediately prior comparable period.                          

"Galaxy Mall" has the meaning given in SECTION 2.02.      

     "Galaxy Mall Intellectual Property" shall mean any Intellectual
 Property that is owned by, or exclusively licensed to, Galaxy Mall.

     "Galaxy Mall Registered Intellectual Property" means all of the
       Registered Intellectual Property owned by, or filed in the name of Galaxy
Mall.                                                             

       "Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other      
       instrumentality of the United States, any foreign country or any domestic
or foreign state, county, city or other political subdivision.    

"IMI" has the meaning given in SECTION 2.02.              

           "IMI Intellectual Property" shall mean any Intellectual Property that
is owned by, or exclusively licensed to IMI.                      

        "IMI Registered Intellectual Property" means all of the Registered
Property owned by, or filed in the name of IMI.                   

           "Indebtedness" of any Person means all obligations of such Person (i)
       for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
     instruments, (iii) for the deferred purchase price of goods or services
       (other than trade payables or accruals incurred in the ordinary course of
      business), (iv) under capital leases and (v) in the nature of guarantees
   of the obligations described in clauses (i) through (iv) above of any
other Person.                                                     

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        "Intellectual Property" shall mean any or all of the following and
   all rights in, arising out of or associated therewith: (i) all United
     States, international and foreign patents and applications therefor and
all reissues, divisions, renewals, extensions, provisionals,      
  continuations and continuations-in-part thereof; (ii) all inventions
     (whether patentable or not), invention disclosures, improvements, trade
    secrets, proprietary information, know how, technology, technical data
and customer lists, and all documentation relating to any of the  
foregoing; (iii) all copyrights, copyrights registrations and     
applications therefor, and all other rights corresponding thereto 
     throughout the world; (iv) all industrial designs and any registrations
  and applications therefor throughout the world; (v) all trade names,
   logos, common law trademarks and service marks, trademark and service
     mark registrations and applications therefor throughout the world; (vi)
      all databases and data collections and all rights therein throughout the
     world; and (vii) any similar or equivalent intellectual property rights
to any of the foregoing anywhere in the world.                    

         "Investment Assets" means all debentures, notes and other evidences
   of Indebtedness, stocks, securities (including rights to purchase and
securities convertible into or exchangeable for other securities),
interests in joint ventures and general and limited partnerships, 
     mortgage loans and other investment or portfolio assets owned of record
       or beneficially by the Company or any Subsidiary and issued by any Person
   other than the Company or any Subsidiary(other than trade receivables
generated in the ordinary course of business of the Company or any
Subsidiary).                                                      

"IRS" means the United States Internal Revenue Service.   

       "Knowledge" or "Known" means the actual knowledge of any officer,
      director or employee of the referenced party hereto or any Subsidiary of
such party.                                                       

         "Laws" means all laws, statutes, rules, regulations, ordinances and
     other pronouncements having the effect of law of the United States, any
     foreign country or any domestic or foreign state, county, city or other
   political subdivision or of any Governmental or Regulatory Authority.

 "Liabilities" means all Indebtedness, obligations and other
      liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).                      

        "Licenses" means all licenses, permits, certificates of authority,
       authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.    

        "Liens" means any mortgage, pledge, assessment, security interest,
  lease, lien, adverse claim, levy, charge or other encumbrance of any
       kind, or any conditional sale contract, title retention contract or other
contract to give any of the foregoing.                            

"Lock-Up Agreements" has the meaning given in RECITAL E.  

           "Loss" means any and all losses, fines, fees, penalties, deficiencies
       and expenses (including without limitation interest, court costs, fees of
      attorneys, accountants and other experts or other expenses of litigation
or other proceedings or of any claim, default or assessment).     

         "Material Adverse Effect" means any materially adverse change in or
       effect (i) that is or will be materially adverse to the business, results
   of operations or financial condition, of any party hereto, taken as a
       whole, or (ii) that will prevent or materially impair any party's ability
     to consummate the Merger, including without limitation, a determination
       by Parent's auditors that the Company's revenues for fiscal year 1999 did
       not exceed $13 million dollars and a determination by Parent, in its sole
discretion, that the threatened patent infringement action        

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  by AVO Media involving certain IMI Intellectual Property or the U.S.
       design patent for a shaped CD product issued on January 18, 2000 to SHAPE
     CD, Inc., may result in a significant patent infringement claim against
       IMI, Parent or any of their affiliates, provided that a "Material Adverse
   Effect" shall not include changes or effects (i) relating to economic
conditions or financial markets in general or the internet or high
technology industries generally, (ii) resulting from the voluntary
      termination of employment by employees or any party and its Subsidiaries
  between the date hereof and the Closing Date or (iii) resulting from
       actions required to be taken by the terms of this Agreement. A decline in
 the stock market price of the shares of Parent or Company in and of
itself shall not be deemed a "Material Adverse Effect."           

"Merger" has the meaning given in SECTION 1.01.           

         "Merger Sub Common Stock" has the meaning given in SECTION 1.06(C).

"Nevada Law" has the meaning given in RECITAL A.          

         "Nasdaq" means the National Association of Securities Dealers, Inc.
National Market System.                                           

    "Option" with respect to any Person means any security, right,
    subscription, warrant, option, "phantom" stock right or other Contract
    that gives the right to (i) purchase or otherwise receive or be issued
    any shares of capital stock of such Person or any security of any kind
       convertible into or exchangeable or exercisable for any shares of capital
     stock of such Person or (ii) receive or exercise any benefits or rights
     similar to any rights enjoyed by or accruing to the holder of shares of
      capital stock of such Person, including any rights to participate in the
equity or income of such Person or to participate in or direct the
   election of any directors or officers of such Person or the manner in
which any shares of capital stock of such Person are voted.       

"Option Agreement" has the meaning given in RECITAL E.    

           "Order" means any writ, judgment, decree, injunction or similar order
    of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).                                            

     "Parent" has the meaning ascribed to it in the forepart of this
Agreement.                                                        

     "Parent Common Stock" has the meaning given in SECTION 1.06(A).

          "Parent Stockholder Approval" has the meaning given in SECTION 3.05.

           "Parent Stockholders' Meeting" has the meaning given in SECTION 6.03.

  "Permitted Lien" means (i) any Lien for Taxes not yet due or
    delinquent or being contested in good faith by appropriate proceedings
  for which adequate reserves have been established in accordance with
      GAAP, (ii) any statutory Lien arising in the ordinary course of business
    by operation of Law with respect to a Liability that is not yet due or
  delinquent and (iii) any minor imperfection of title or similar Lien
   which individually or in the aggregate with other such Liens does not
     materially impair the value of the property subject to such Lien or the
       use of such property in the conduct of the business of the Company or any
Subsidiary.                                                       

          "Person" means any natural person, corporation, general partnership,
      limited partnership, proprietorship, other business organization, trust,
union, association or Governmental or Regulatory Authority.       

       "Representatives" has the meaning ascribed to it in SECTION 4.02.

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 "Registered Intellectual Property" means all United States,
       international and foreign: (i) patents and patent applications (including
    provisional applications); (ii) registered trademarks, applications to
     register trademarks, intent-to-use applications, or other registrations
    or applications related to trademarks; (iii) registered copyrights and
      applications for copyright registration; and (iv) any other Intellectual
  Property that is the subject of an application, certificate, filing,
   registration or other document issued, filed with, or recorded by any
state, government or other public legal authority.                

       "SEC" means the United Stated Securities and Exchange Commission.

       "Subsidiary" means, with respect to any party, any corporation or
       other organization, whether incorporated or unincorporated, of which more
       than fifty percent (50%) of either the equity interests in, or the voting
control of, such corporation or other organization is, directly or
      indirectly through Subsidiaries or otherwise, beneficially owned by such
party.                                                            

"Superior Offer" has the meaning given in SECTION 6.02(C).

    "Surviving Corporation" has the meaning given in SECTION 1.01.

     "Tax Authority" means the IRS and any other domestic or foreign
     governmental authority responsible for the administration of any Taxes.

           "Taxes" means any tax, fee, levy, charge, or other amount assessed by
       or payable to any Governmental or Regulatory Authority, including without
limitation any interest, penalty, or other amount related thereto.

   "Tax Returns" means all federal, state, local and foreign Tax
returns, declarations, statements, reports, schedules, forms and  
information returns and any amendments thereto.                   

  "Termination Fee" has the meaning given in SECTION 11.02(B).

"Voting Agreements" has the meaning given in RECITAL E.   

         (b)  CONSTRUCTION OF CERTAIN TERMS AND PHRASES.  Unless the context
   of this Agreement otherwise requires, (i) words of any gender include
    each other gender; (ii) words using the singular or plural number also
  include the plural or singular number, respectively; (iii) the terms
   "hereof," "herein," "hereby" and derivative or similar words refer to
       this entire Agreement; (iv) the terms "Article" or "Section" refer to the
 specified Article or Section of this Agreement; and (v) the phrases
       "ordinary course of business" and "ordinary course of business consistent
      with past practice" refer to the business and practice of the Company or
 Parent or a Subsidiary, as the case may be. Whenever this Agreement
  refers to a number of days, such number shall refer to calendar days
      unless Business Days are specified. All accounting terms used herein and
      not expressly defined herein shall have the meanings given to them under
GAAP, if applicable.                                              

ARTICLE XIII

MISCELLANEOUS 

13.01  NOTICES.  All notices, requests and other communications 
    hereunder must be in writing and will be deemed to have been duly given only
if delivered personally or by facsimile                                 

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  transmission or mailed (first class postage prepaid) to the parties at the
following addresses or facsimile numbers:                               

If to the Company, addressed to:                                        

Galaxy Enterprises, Inc                                   
754 East Technology Avenue                                
Orem, Utah 84907                                          
Attn: John J. Poelman                                     
Fax: (801) 228-9762                                       

With a copy to:                                                         

Parsons Behle & Latimer, P.C.                             
One Utah Center                                           
201 South Main Street, Suite 1800                         
P.O. Box 45898                                            
Salt Lake City, UT 84145-0898                             
Attn: Brent Christensen, Esq.                             
Fax: (801) 536-6111                                       

If to Parent and Merger Sub, addressed to:                              

Netgateway, Inc.                                          
300 Oceangate, 5(th) Floor                                
Long Beach, CA 90802                                      
Attn: Craig Gatarz, Esq.                                  
Fax: (562) 308-0021                                       

With a copy to:                                                         

Nida & Maloney, LLP                                       
800 Anacapa Street                                        
Santa Barbara, CA 93101                                   
Attn: C. Thomas Hopkins, Esq.                             
Fax: (805) 568-1955                                       

 All such notices, requests and other communications will (i) if delivered
   personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile  
   number as provided in this Section, be deemed given upon receipt, and (iii)
if delivered by mail in the manner described above to the address as    
provided in this Section, be deemed given upon receipt (in each case    
regardless of whether such notice, request or other communication is    
    received by any other Person to whom a copy of such notice, request or other
  communication is to be delivered pursuant to this Section). Any party from
  time to time may change its address, facsimile number or other information
 for the purpose of notices to that party by giving notice specifying such
change to the other party hereto.                                       

13.02  ENTIRE AGREEMENT.  This Agreement supersedes all prior   
  discussions and agreements between the parties with respect to the subject
 matter hereof, including without limitation that certain letter agreement
    between the parties dated December 12, 1999 and contains the sole and entire
agreement between the parties hereto with respect to the subject matter 
hereof.                                                                 

        13.03  PUBLIC ANNOUNCEMENTS.  At all times at or before the Closing, the
Company and Parent will not issue or make any reports, statements or    
  releases to the public or generally to the employees, customers, suppliers
or other Persons to whom the Company, Galaxy Mall and IMI sell goods or 
provide services or with whom the Company, Galaxy Mall and IMI otherwise
have                                                                    

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 significant business relationships, with respect to this Agreement or the
transactions contemplated hereby without the consent of the other, which
consent shall not be unreasonably withheld. If either party is unable to
obtain the approval of its public report, statement or release from the 
other party and such report, statement or release is, in the opinion of 
legal counsel to such party, required by Law in order to discharge such 
party's disclosure obligations, then such party may make or issue the   
    legally required report, statement or release and promptly furnish the other
    party with a copy thereof. Notwithstanding the foregoing, Parent and Company
will attempt to consult with each other, and to the extent practicable, 
agree, before issuing any press release or otherwise making any public  
 statement with respect to the Parent or this Agreement and will not issue
any such press release or make any such public statement prior to such  
    consultation, except as may be required by Law or any listing agreement with
a national securities exchange or Nasdaq. The parties have agreed to the
 text of the joint press release announcing the signing of this Agreement.
Parent may without obtaining Company's approval, issue one or more press
releases following the Closing announcing the consummation of the       
transactions contemplated by this Agreement.                            

      13.04  CONFIDENTIALITY.  Each party hereto will hold, and will use its
  best efforts to cause its Affiliates, and their respective Representatives
    to hold, in strict confidence from any Person (other than any such Affiliate
or Representative), unless (i) compelled to disclose by judicial or     
administrative process (including without limitation in connection with 
obtaining the necessary approvals of this Agreement and the transactions
  contemplated hereby of Governmental or Regulatory Authorities) or by other
   requirements of Law or (ii) disclosed in an Action or Proceeding brought by
  a party hereto in pursuit of its rights or in the exercise of its remedies
  hereunder, all documents and information concerning the other party or any
  of its Affiliates furnished to it by the other party or such other party's
Representatives in connection with this Agreement or the transactions   
    contemplated hereby, except to the extent that such documents or information
  can be shown to have been (a) previously known by the party receiving such
    documents or information, (b) in the public domain (either prior to or after
   the furnishing of such documents or information hereunder) through no fault
 of such receiving party or (c) later acquired by the receiving party from
    another source if the receiving party is not aware that such source is under
    an obligation to another party hereto to keep such documents and information
    confidential; provided that following the Closing the foregoing restrictions
  will not apply to Parent's use of documents and information concerning the
Company furnished by Company hereunder. In the event the transactions   
contemplated hereby are not consummated, upon the request of the other  
party, each party hereto will, and will cause its Affiliates and their  
    respective Representatives to, promptly redeliver or cause to be redelivered
all copies of documents and information furnished by the other party in 
  connection with this Agreement or the transactions contemplated hereby and
   destroy or cause to be destroyed all notes, memoranda, summaries, analyses,
    compilations and other writings related thereto or based thereon prepared by
  the party furnished such documents and information or its Representatives.

13.05  EXPENSES.  Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated hereby are      
consummated, each party will pay its own costs and expenses incurred in 
    connection with the negotiation, execution and closing of this Agreement and
the transactions contemplated hereby.                                   

        13.06  WAIVER.  Any term or condition of this Agreement may be waived at
  any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly 
executed by or on behalf of the party waiving such term or condition. No
  waiver by any party of any term or condition of this Agreement, in any one
or more instances, shall be deemed to be or construed as a waiver of the
same or any other term or condition of this                             

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   Agreement on any future occasion. All remedies, either under this Agreement
or by Law or otherwise afforded, will be cumulative and not alternative.

 13.07  AMENDMENT.  This Agreement may be amended, supplemented or
   modified only by a written instrument duly executed by or on behalf of each
party hereto.                                                           

    13.08  NO THIRD PARTY BENEFICIARY.  The terms and provisions of this
    Agreement are intended solely for the benefit of each party hereto and their
  respective successors or permitted assigns, and it is not the intention of
   the parties to confer third-party beneficiary rights upon any other Person,
except as set forth in Section 5.07.                                    

     13.09  NO ASSIGNMENT; BINDING EFFECT.  Neither this Agreement nor any
   right, interest or obligation hereunder may be assigned by any party hereto
   without the prior written consent of the other party hereto and any attempt
   to do so will be void, except for assignments and transfers by operation of
Law. Subject to the preceding sentence, this Agreement is binding upon, 
   inures to the benefit of and is enforceable by the parties hereto and their
respective successors and assigns.                                      

        13.10  HEADINGS.  The headings used in this Agreement have been inserted
   for convenience of reference only and do not define or limit the provisions
hereof.                                                                 

      13.11  CONSENT TO JURISDICTION AND SERVICE OF PROCESS.  Subject to any
   other provision of this Agreement, each party hereby irrevocably submits to
 the non-exclusive jurisdiction of the federal and state courts located in
  Los Angeles, California in any such action, suit or proceeding arising out
of or relating to this Agreement or any of the transactions contemplated
  hereby, provided, however, that such consent to jurisdiction is solely for
the purpose referred to in this Section and shall not be deemed to be a 
general submission to the jurisdiction of said courts or in the State of
California other than for such purpose. Each party hereby irrevocably   
 waives, to the fullest extent permitted by Law, any objection that it may
    now or hereafter have to the laying of the venue of any such action, suit or
   proceeding brought in such a court and any claim that any such action, suit
 or proceeding brought in such a court has been brought in an inconvenient
  forum. Nothing herein shall affect the right of any party to serve process
in any other manner permitted by Law or to commence legal proceedings or
otherwise proceed against the other in any other jurisdiction.          

      13.12  INVALID PROVISIONS.  If any provision of this Agreement is held
    to be illegal, invalid or unenforceable under any present or future Law, and
  if the rights or obligations of any party hereto under this Agreement will
    not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if
   such illegal, invalid or unenforceable provision had never comprised a part
 hereof, and (c) the remaining provisions of this Agreement will remain in
 full force and effect and will not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom.                   

        13.13  GOVERNING LAW.  This Agreement shall be governed by and construed
in accordance with the Laws of the State of California applicable to a  
   Contract executed and performed in such State, without giving effect to the
   conflicts of Laws principles thereof, except to the extent that the Laws of
   the States of Delaware and Nevada shall apply where mandatorily applicable.

   13.14  COUNTERPARTS.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. Signatures may be
exchanged by telecopy, with original signatures to follow. Each of the  
   parties hereto agrees that it will be bound by its own telecopied signature
  and that it accepts the telecopied signatures of the other parties to this
   Agreement. The original signature pages shall be forwarded to the Parent or
 its counsel and the Parent or its counsel will provide all of the parties
hereto with a copy of the entire Agreement.                             

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  IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each party hereto as of the date first above     
written.                                                                        

PARENT:                                 NETGATEWAY, INC.,                       
                        a Delaware corporation

                                      By:_________________________________
           Name:
            Title:

MERGER SUB:                           GALAXY ACQUISITION CORP.,                 
                        a Delaware corporation

                                      By:_________________________________
           Name:
            Title:

COMPANY:                               GALAXY ENTERPRISES, Inc.,                
                      a Nevada corporation

                                      By:_________________________________
                     John J. Poelman
                                           President and Chief Executive Officer

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APPENDIX B

RIGHTS OF DISSENTING STOCKHOLDERS 

NRS 92A.300 DEFINITIONS.  As used in NRS 92A.300 to 92A.500, inclusive, 
unless the context otherwise requires, the words and terms defined in NRS       
92A.305 to 92A.335, inclusive, have the meanings ascribed to them in those      
sections. (Added to NRS by 1995, 2086)                                          

NRS 92A.305 "BENEFICIAL STOCKHOLDER" DEFINED.  "Beneficial stockholder" 
means a person who is a beneficial owner of shares held in a voting trust or by 
a nominee as the stockholder of record. (Added to NRS by 1995, 2087)            

    NRS 92A.310 "CORPORATE ACTION" DEFINED.  "Corporate action" means the action
of a domestic corporation. (Added to NRS by 1995, 2087)                         

NRS 92A.315 "DISSENTER" DEFINED.  "Dissenter" means a stockholder who is
entitled to dissent from a domestic corporation's action under NRS 92A.380 and  
who exercises that right when and in the manner required by NRS 92A.400 to      
92A.480, inclusive. (Added to NRS by 1995, 2087; A 1999, 1631)                  

NRS 92A.320 "FAIR VALUE" DEFINED.  "Fair value," with respect to a      
dissenter's shares, means the value of the shares immediately before the        
effectuation of the corporate action to which he objects, excluding any         
appreciation or depreciation in anticipation of the corporate action unless     
exclusion would be inequitable. (Added to NRS by 1995, 2087)                    

NRS 92A.325 "STOCKHOLDER" DEFINED.  "Stockholder" means a stockholder of
record or a beneficial stockholder of a domestic corporation. (Added to NRS by  
1995, 2087)                                                                     

   NRS 92A.330 "STOCKHOLDER OF RECORD" DEFINED.  "Stockholder of record" means
the person in whose name shares are registered in the records of a domestic     
corporation or the beneficial owner of shares to the extent of the rights       
granted by a nominee's certificate on file with the domestic corporation. (Added
to NRS by 1995, 2087)                                                           

   NRS 92A.335 "SUBJECT CORPORATION" DEFINED.  "Subject corporation" means the
domestic corporation which is the issuer of the shares held by a dissenter      
before the corporate action creating the dissenter's rights becomes effective or
the surviving or acquiring entity of that issuer after the corporate action     
becomes effective. (Added to NRS by 1995, 2087)                                 

NRS 92A.340 COMPUTATION OF INTEREST.  Interest payable pursuant to NRS  
92A.300 to 92A.500, inclusive, must be computed from the effective date of the  
action until the date of payment, at the average rate currently paid by the     
entity on its principal bank loans or, if it has no bank loans, at a rate that  
is fair and equitable under all of the circumstances. (Added to NRS by 1995,    
2087)                                                                           

    NRS 92A.350 RIGHTS OF DISSENTING PARTNER OF DOMESTIC LIMITED PARTNERSHIP.  A
partnership agreement of a domestic limited partnership or, unless otherwise    
provided in the partnership agreement, an agreement of merger or exchange, may  
provide that contractual rights with respect to the partnership interest of a   
dissenting general or limited partner of a domestic limited partnership are     
available for any class or group of partnership interests in connection with any
merger or exchange in which the domestic limited partnership is a constituent   
entity. (Added to NRS by 1995, 2088)                                            

NRS 92A.360 RIGHTS OF DISSENTING MEMBER OF DOMESTIC LIMITED-LIABILITY   
COMPANY.  The articles of organization or operating agreement of a domestic     
limited-liability company or, unless otherwise provided in the articles of      
organization or operating agreement, an agreement of merger or exchange, may    
provide that contractual rights with respect to the interest of a dissenting    
member are available in connection with any merger or exchange in which the     
domestic limited-liability company is a constituent entity. (Added to NRS by    
1995, 2088)                                                                     

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  NRS 92A.370 RIGHTS OF DISSENTING MEMBER OF DOMESTIC NONPROFIT CORPORATION.

1.  Except as otherwise provided in subsection 2, and unless otherwise  
provided in the articles or bylaws, any member of any constituent domestic      
nonprofit corporation who voted against the merger may, without prior notice,   
but within 30 days after the effective date of the merger, resign from          
membership and is thereby excused from all contractual obligations to the       
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if    
there had been no merger and the membership had been terminated or the member   
had been expelled.                                                              

    2.  Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a    
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit      
corporation as a condition of or by reason of the ownership of an interest in   
real property, may resign and dissent pursuant to subsection 1. (Added to NRS by
1995, 2088)                                                                     

  NRS 92A.380 RIGHT OF STOCKHOLDER TO DISSENT FROM CERTAIN CORPORATE ACTIONS
AND TO OBTAIN PAYMENT FOR SHARES.                                     

  1.  Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder
is entitled to dissent from, and obtain payment of the fair value of his shares 
in the event of any of the following corporate actions:                         

      (a) Consummation of a plan of merger to which the domestic corporation
is a party:                                                             

           (1) If approval by the stockholders is required for the merger by NRS
       92A.120 to 92A.160, inclusive, or the articles of incorporation and he is
entitled to vote on the merger; or                                

        (2) If the domestic corporation is a subsidiary and is merged with
its parent under NRS 92A.180.                                     

        (b) Consummation of a plan of exchange to which the domestic corporation
is a party as the corporation whose subject owner's interests will be   
acquired, if he is entitled to vote on the plan.                        

        (c) Any corporate action taken pursuant to a vote of the stockholders to
   the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting stockholders are   
entitled to dissent and obtain payment for their shares.                

 2.  A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating  
his entitlement unless the action is unlawful or fraudulent with respect to him 
or the domestic corporation. (Added to NRS by 1995, 2087)                       

    NRS 92A.390 LIMITATIONS ON RIGHT OF DISSENT: STOCKHOLDERS OF CERTAIN CLASSES
OR SERIES; ACTION OF STOCKHOLDERS NOT REQUIRED FOR PLAN OF MERGER.    

1.  There is no right of dissent with respect to a plan of merger or    
exchange in favor of stockholders of any class or series which, at the record   
date fixed to determine the stockholders entitled to receive notice of and to   
vote at the meeting at which the plan of merger or exchange is to be acted on,  
were either listed on a national securities exchange, included in the national  
market system by the National Association of Securities Dealers, Inc., or held  
by at least 2,000 stockholders of record, unless:                               

       (a) The articles of incorporation of the corporation issuing the shares
provide otherwise; or                                                   

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     (b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:            

          (1) Cash, owner's interests or owner's interests and cash in lieu of
fractional owner's interests of:                                  

(I) The surviving or acquiring entity; or         

               (II) Any other entity which, at the effective date of the plan of
     merger or exchange, were either listed on a national securities
      exchange, included in the national market system by the National
           Association of Securities Dealers, Inc., or held of record by a least
2,000 holders of owner's interests of record; or          

           (2) A combination of cash and owner's interests of the kind described
     in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph (b).

  2.  There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the       
stockholders of the surviving domestic corporation under NRS 92A.130. (Added to 
NRS by 1995, 2088)                                                              

  NRS 92A.400 LIMITATIONS ON RIGHT OF DISSENT: ASSERTION AS TO PORTIONS ONLY
   TO SHARES REGISTERED TO STOCKHOLDER; ASSERTION BY BENEFICIAL STOCKHOLDER.

  1.  A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts    
dissenter's rights. The rights of a partial dissenter under this subsection are 
determined as if the shares as to which he dissents and his other shares were   
registered in the names of different stockholders.                              

    2.  A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:                                                          

    (a) He submits to the subject corporation the written consent of the
   stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and                             

       (b) He does so with respect to all shares of which he is the beneficial
   stockholder or over which he has power to direct the vote. (Added to NRS by
1995, 2089)                                                             

NRS 92A.410 NOTIFICATION OF STOCKHOLDERS REGARDING RIGHT OF DISSENT.    

   1.  If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that 
stockholders are or may be entitled to assert dissenters' rights under NRS      
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.  

   2.  If the corporate action creating dissenters' rights is taken by written
consent of the stockholders or without a vote of the stockholders, the domestic 
corporation shall notify in writing all stockholders entitled to assert         
dissenters' rights that the action was taken and send them the dissenter's      
notice described in NRS 92A.430. (Added to NRS by 1995, 2089; A 1997, 730)      

NRS 92A.420 PREREQUISITES TO DEMAND FOR PAYMENT FOR SHARES.             

   1.  If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert        
dissenter's rights:                                                             

      (a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the    
proposed action is effectuated; and                                     

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(b) Must not vote his shares in favor of the proposed action.   

   2.  A stockholder who does not satisfy the requirements of subsection 1 and
NRS 92A.400 is not entitled to payment for his shares under this chapter. (Added
to NRS by 1995, 2089; 1999, 1631)                                               

   NRS 92A.430 DISSENTER'S NOTICE: DELIVERY TO STOCKHOLDERS ENTITLED TO ASSERT
RIGHTS; CONTENTS.                                                     

    1.  If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written     
dissenter's notice to all stockholders who satisfied the requirements to assert 
those rights.                                                                   

2.  The dissenter's notice must be sent no later than 10 days after the 
effectuation of the corporate action, and must:                                 

      (a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;                     

        (b) Inform the holders of shares not represented by certificates to what
 extent the transfer of the shares will be restricted after the demand for
payment is received;                                                    

     (c) Supply a form for demanding payment that includes the date of the
   first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's  
    rights certify whether or not he acquired beneficial ownership of the shares
before that date;                                                       

       (d) Set a date by which the subject corporation must receive the demand
  for payment, which may not be less than 30 nor more than 60 days after the
date the notice is delivered; and                                       

  (e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)                                            

NRS 92A.440 DEMAND FOR PAYMENT AND DEPOSIT OF CERTIFICATES; RETENTION OF
RIGHTS OF STOCKHOLDER.                                                

1.  A stockholder to whom a dissenter's notice is sent must:            

(a) Demand payment;                                             

  (b) Certify whether he acquired beneficial ownership of the shares
   before the date required to be set forth in the dissenter's notice for this
certification; and                                                      

     (c) Deposit his certificates, if any, in accordance with the terms of
the notice.                                                             

 2.  The stockholder who demands payment and deposits his certificates, if
any, before the proposed corporate action is taken retains all other rights of a
stockholder until those rights are canceled or modified by the taking of the    
proposed corporate action.                                                      

   3.  The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not    
entitled to payment for his shares under this chapter. (Added to NRS by 1995,   
2090; A 1997, 730)                                                              

NRS 92A.450 UNCERTIFICATED SHARES: AUTHORITY TO RESTRICT TRANSFER AFTER 
DEMAND FOR PAYMENT; RETENTION OF RIGHTS OF STOCKHOLDER.               

1.  The subject corporation may restrict the transfer of shares not     
represented by a certificate from the date the demand for their payment is      
received.                                                                       

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2.  The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until    
those rights are canceled or modified by the taking of the proposed corporate   
action. (Added to NRS by 1995, 2090)                                            

NRS 92A.460 PAYMENT FOR SHARES: GENERAL REQUIREMENTS.                   

1.  Except as otherwise provided in NRS 92A.470, within 30 days after   
receipt of a demand for payment, the subject corporation shall pay each         
dissenter who complied with NRS 92A.440 the amount the subject corporation      
estimates to be the fair value of his shares, plus accrued interest. The        
obligation of the subject corporation under this subsection may be enforced by  
the district court:                                                             

       (a) Of the county where the corporation's registered office is located;
or                                                                      

      (b) At the election of any dissenter residing or having its registered
  office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.   

2.  The payment must be accompanied by:                                 

     (a) The subject corporation's balance sheet as of the end of a fiscal
   year ending not more than 16 months before the date of payment, a statement
   of income for that year, a statement of changes in the stockholders' equity
    for that year and the latest available interim financial statements, if any;

       (b) A statement of the subject corporation's estimate of the fair value
of the shares;                                                          

(c) An explanation of how the interest was calculated;          

     (d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and                                                            

       (e) A copy of NRS 92A.300 to 92A.500, inclusive. (Added to NRS by 1995,
2090)                                                                   

NRS 92A.470 PAYMENT FOR SHARES: SHARES ACQUIRED ON OR AFTER DATE OF     
DISSENTER'S NOTICE.                                                   

1.  A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in   
the dissenter's notice as the date of the first announcement to the news media  
or to the stockholders of the terms of the proposed action.                     

   2.  To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who      
agrees to accept it in full satisfaction of his demand. The subject corporation 
shall send with its offer a statement of its estimate of the fair value of the  
shares, an explanation of how the interest was calculated, and a statement of   
the dissenters' right to demand payment pursuant to NRS 92A.480. (Added to NRS  
by 1995, 2091)                                                                  

NRS 92A.480 DISSENTER'S ESTIMATE OF FAIR VALUE: NOTIFICATION OF SUBJECT 
CORPORATION; DEMAND FOR PAYMENT OF ESTIMATE.                          

1.  A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and    
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or    
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his   
shares or that the interest due is incorrectly calculated.                      

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   2.  A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within      
30 days after the subject corporation made or offered payment for his shares.   
(Added to NRS by 1995, 2091)                                                    

NRS 92A.490 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: DUTIES OF SUBJECT 
CORPORATION; POWERS OF COURT; RIGHTS OF DISSENTER.                    

    1.  If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the    
subject corporation does not commence the proceeding within the 60-day period,  
it shall pay each dissenter whose demand remains unsettled the amount demanded. 

2.  A subject corporation shall commence the proceeding in the district 
court of the county where its registered office is located. If the subject      
corporation is a foreign entity without a resident agent in the state, it shall 
commence the proceeding in the county where the registered office of the        
domestic corporation merged with or whose shares were acquired by the foreign   
entity was located.                                                             

3.  The subject corporation shall make all dissenters, whether or not   
residents of Nevada, whose demands remain unsettled, parties to the proceeding  
as in an action against their shares. All parties must be served with a copy of 
the petition. Nonresidents may be served by registered or certified mail or by  
publication as provided by law.                                                 

    4.  The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of   
fair value. The appraisers have the powers described in the order appointing    
them, or any amendment thereto. The dissenters are entitled to the same         
discovery rights as parties in other civil proceedings.                         

 5.  Each dissenter who is made a party to the proceeding is entitled to a
judgment:                                                                       

      (a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject       
corporation; or                                                         

    (b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment    
pursuant to NRS 92A.470. (Added to NRS by 1995, 2091)                   

 NRS 92A.500 LEGAL PROCEEDING TO DETERMINE FAIR VALUE: ASSESSMENT OF COSTS
AND FEES.                                                             

    1.  The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and expenses 
of any appraisers appointed by the court. The court shall assess the costs      
against the subject corporation, except that the court may assess costs against 
all or some of the dissenters, in amounts the court finds equitable, to the     
extent the court finds the dissenters acted arbitrarily, vexatiously or not in  
good faith in demanding payment.                                                

2.  The court may also assess the fees and expenses of the counsel and  
experts for the respective parties, in amounts the court finds equitable:       

     (a) Against the subject corporation and in favor of all dissenters if
 the court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or               

     (b) Against either the subject corporation or a dissenter in favor of
    any other party, if the court finds that the party against whom the fees and
 expenses are assessed acted arbitrarily, vexatiously or not in good faith
 with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.

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  3.  If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the  
court may award to those counsel reasonable fees to be paid out of the amounts  
awarded to the dissenters who were benefited.                                   

   4.  In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess     
costs against all or some of the dissenters who are parties to the proceeding,  
in amounts the court finds equitable, to the extent the court finds that such   
parties did not act in good faith in instituting the proceeding.                

5.  This section does not preclude any party in a proceeding commenced  
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68  
or NRS 17.115. (Added to NRS by 1995, 2092)                                     

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                                                                      APPENDIX C

March 2, 2000                                                                   
Board of Directors                                                              
Netgateway, Inc.                                                                
300 Oceangate, 5th Floor                                                        
Long Beach, CA 90802                                                            

Gentlemen:                                                                      

You have requested that we render our opinion as to the fairness, from a
financial point of view, to the shareholders of Netgateway, Inc., (the          
"Company"), of the exchange ratio of 0.63217 shares of Common Stock, par value  
$.01 per share (the "Shares"), of the Company (the "Exchange Ratio") to be      
exchanged for each outstanding share of Common Stock, par value $.007 per share 
(the "Galaxy Common Stock"), of Galaxy Enterprises, Inc. ("Galaxy") pursuant to 
the Agreement and Plan of Merger dated as of March 10, 2000 between the Company 
and Galaxy (the "Agreement").                                                   

  Roth Capital Partners, Inc. ("Roth Capital" or the "Firm"), as part of its
investment banking business, is continually engaged in the valuation of         
businesses and their securities in connection with mergers and acquisitions,    
negotiated underwritings, competitive biddings, secondary distributions of      
listed and unlisted securities, private placements and valuations for estate,   
corporate and other purposes. We are familiar with the Company, having provided 
certain investment banking services to it, including having acted as placement  
agent in the private placement of subordinated bridge notes in 1999; having     
acted as lead managing underwriter in the public offerings of Shares in 1999;   
and having participated in certain of the negotiations leading to the Agreement.

   In connection with the review and analysis performed to render our opinion,
among other things, we have:                                                    

i. Reviewed certain interim reports of the Company and Galaxy to their
 respective stockholders and Quarterly Reports on Form 10-Q of the
Company and Galaxy;                                             

ii. Reviewed certain internal financial analyses and forecasts for the
Company and Galaxy prepared by their respective management;   

  iii. Held discussions with members of the senior management of the Company
 and Galaxy regarding the strategic rationale for, and potential
         benefits of, the transaction contemplated by the Agreement and the past
 and current business operations, financial condition and future
        prospects of their respective companies and of the combined operations
of the Company and Galaxy;                                    

   iv. Reviewed a draft copy of the Agreement and Plan of Merger in the form
provided to us by the Company;                                

  v. Reviewed certain publicly available documents relating to the Company
and Galaxy;                                                     

vi. Reviewed internal budgets and projections, marketing materials and
press releases provided to us by the Company;                 

    vii. Reviewed publicly available data and information for companies which we
have determined to be comparable to the Company and Galaxy;   

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viii. Reviewed available research reports for companies which we have     
determined to be comparable to the Company and Galaxy;        

     ix. Reviewed the financial terms of other recent business combinations; and

x. Conducted such other financial analysis as we have determined to be
appropriate for purposes of this opinion.                       

 We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and         
completeness for purposes of rendering this opinion. In that regard, we have    
assumed with the Company's consent that the financial forecasts provided by the 
respective managements of the Company and Galaxy, including the synergies       
expected to be derived from the business combination, have been reasonably      
prepared on a basis reflecting the best currently available judgments and       
estimates of the management of the Company and Galaxy. In addition, we have not 
made an independent evaluation or appraisal of the assets and liabilities of the
Company or Galaxy or any of their subsidiaries and we have not been furnished   
with any such evaluation or appraisal. We have assumed that the transaction     
contemplated by the Agreement will be accounted for as a pooling of interests   
under generally accepted accounting principles. Our advisory services and the   
opinion expressed herein are provided for the information and assistance of the 
Board of Directors of the Company in connection with its consideration of the   
transaction contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Shares should vote on the proposed       
transaction.                                                                    

    Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion as of the date hereof that the Exchange 
Ratio pursuant to the Agreement is fair, from a financial point of view, to     
holders of the Company's common stock.                                          

    This Opinion is furnished solely for your benefit and may not be relied upon
by any other person without our express, prior written consent. This Opinion is 
delivered to each recipient subject to the conditions, scope of engagement,     
limitations and understandings set forth in this Opinion and our engagement     
letter, and subject to the understanding that the obligations of Roth Capital   
hereunder are solely corporate obligations, and no officer, director, employee, 
agent, shareholder or controlling person of Roth Capital shall be subjected to  
any personal liability whatsoever to any person, nor will any such claim be     
asserted by or on behalf of you or your affiliates.                             

    We have tried to apply objective measures of value in rendering our Opinion.
You understand, however, that such a valuation necessarily is based on some     
subjective interpretations of value. We understand that we are not obligated to 
revise our opinion due to events and fluctuating economic conditions occurring  
subsequent to the date of this Opinion.                                         

We hereby consent to the use of this opinion in the Proxy               
Statement/Prospectus.                                                           

Very Truly Yours,                                                               

Roth Capital Partners, Inc.                                                     

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[LOGO]

                                                                      APPENDIX D

March 10, 2000                                                                  

Board of Directors                                                              
Galaxy Enterprises, Inc.                                                        
754 East Technology Avenue                                                      
Orem, Utah 84097                                                                

Dear Gentlemen:                                                                 

We understand that Galaxy Enterprises, Inc. (the "Company") (OTC: GLXY) is being
merged with and into Netgateway, Inc. ("Netgateway") (NASDAQ: NGWY) in a        
stock-for-stock transaction (the Transaction), whereby each share of the        
Company's common stock will be exchanged for 0.632 shares of Netgateway's common
stock (the Consideration). Such transaction and all related transactions are    
referred to collectively herein as the "Transaction."                           

You have requested our opinion (the "Opinion") as to the matters set forth      
below. The Opinion does not address the Company's underlying business decision  
to effect the Transaction. We have not been requested to, and did not, solicit  
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised 
you with respect to alternatives to it.                                         

In connection with this Opinion, we have made such reviews, analyses and        
inquiries, as we have deemed necessary and appropriate under the circumstances. 
Among other things, we have:                                                    

1.  reviewed Galaxy's annual reports on Form 10-KSB for the two fiscal years    
ended December 31, 1998 and quarterly report on Form 10-Q for the period
ended September 30, 1999;                                               

2.  reviewed Netgateway's Form S-1, dated November 18, 1999;                    

3.  reviewed the draft Agreement and Plan of Merger by and between              
Netgateway, Inc., Galaxy Acquisition Corp. and Galaxy Enterprises, Inc.,
dated as of March 8, 2000;                                              

4.  reviewed the draft Form S-4, dated February   , 2000;                       

5.  met with certain members of the senior management of Galaxy and Netgateway  
to discuss the Transaction, the operations, financial condition, future 
    prospects and projected operations and performance of Galaxy and Netgateway;

6.  visited the headquarters and operating facilities of both Galaxy and        
Netgateway in Orem, Utah and Long Beach, California, respectively;      

7.  reviewed Galaxy Business Plan, dated February 16, 1999;                     

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8.  reviewed financial projections for Galaxy prepared by CSK Securities        
Research and approved by Galaxy's management for the years ending       
December 31, 2001;                                                      

9.  reviewed Netgateway's pro-forma projections provided by management for the  
two years ending December 31, 2002;                                     

10. analyzed historical stock performance and trading volume of both Galaxy's   
and Netgateway's common stock;                                          

11. reviewed various industry and research reports for the Internet--eBusiness  
industry;                                                               

12. reviewed transcripts of chat rooms of Galaxy and Netgateway during the      
run-up period before the merger announcement date;                      

13. reviewed certain other publicly available and proprietary financial data for
  certain companies that we have deemed comparable to Galaxy and Netgateway;
and                                                                     

14. conducted such other studies, analyses and inquiries we have deemed         
appropriate.                                                            

We have relied upon and assumed, without independent verification, that the     
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial      
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since  
the date of the most recent financial statements made available to us.          

We have not independently verified the accuracy and completeness of the         
information supplied to us with respect to the Company and do not assume any    
responsibility with respect to it. We have not made any physical inspection or  
independent appraisal of any of the properties or assets of the Company. Our    
opinion is necessarily based on business, economic, market and other conditions 
as they exist and can be evaluated by us at the date of this letter.            

The Company, like other companies and any business entities analyzed by Houlihan
Lokey or which are otherwise involved in any manner in connection with this     
Opinion, could be materially affected by complications that may occur, or may be
anticipated to occur, in computer-related applications as a result of the year  
change from 1999 to 2000 (the "Y2K Issue"). In accordance with long-standing    
practice and procedure, Houlihan Lokey's services are not designed to detect the
likelihood and extent of the effect of the Y2K Issue, directly or indirectly, on
the financial condition and/or operations of a business. Further, Houlihan Lokey
has no responsibility with regard to the Company's efforts to make its systems, 
or any other systems (including its vendors and service providers), Year 2000   
compliant on a timely basis. Accordingly, Houlihan Lokey shall not be           
responsible for any effect of the Y2K Issue on the matters set forth in this    
Opinion.                                                                        

Based upon the foregoing, and in reliance thereon, it is our opinion that the   
consideration to be received by the public stockholders of the Company in       
connection with the Transaction is fair to them from a financial point of view. 

HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.                          

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EXHIBIT 99.1                                                                    

NETGATEWAY, INC.

SPECIAL MEETING OF STOCKHOLDERS, JUNE 21, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
NETGATEWAY, INC.

P  R  O  X  Y 

The undersigned hereby revokes all previous proxies, acknowledges receipt of the
Notice of Special Meeting of Stockholders to be held on June 21, 2000 and the   
Joint Proxy Statement/Prospectus, dated May 24, 2000, and hereby appoints       
Roy W. Camblin III as the Proxy of the undersigned, with full power of          
substitution, to vote on behalf of the undersigned at the Special Meeting of    
Stockholders of Netgateway to be held at the Hilton Hotel--Long Beach, Two World
Trade Center, Long Beach, California, on June 21, 2000, at 10:00 a.m. local     
time, and at any adjournment or postponement thereof, with the same force and   
effect as the undersigned might or could do if personally present thereat. The  
shares represented by this Proxy shall be voted in the following manner:        

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1.  Proposal to approve (a) the Agreement and Plan of Merger, dated as of       
March 10, 2000, among Netgateway Inc., a Delaware corporation, Galaxy   
  Acquisition Corp., a Delaware corporation, and Galaxy Enterprises, Inc., a
Nevada corporation, and (b) the merger of Galaxy Enterprises Acquisition
Corp., a wholly-owned subsidiary of Netgateway, with and into Galaxy    
 Enterprises whereby, among other things, each outstanding share of Galaxy
Enterprises common stock will be converted into the right to receive    
shares of Netgateway common stock.                                      

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED  
FOR PROPOSAL 1. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.        

Please sign your name exactly as it appears below. In the case of shares owned  
in joint tenancy or as tenants in common, all should sign. Fiduciaries should   
indicate their title and authority.                                             

                                              Dated: _____________________, 2000

                                              Signature(s) _____________________

                                              Please print the name(s) appearing
                                             on each share certificate(s) over
                                            which you have voting authority:
                                              (Print name(s) on certificate(s)).
                                             Please sign your name (Authorized
                         Signature(s))

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EXHIBIT 99.2                                                                    

GALAXY ENTERPRISES, INC.

SPECIAL MEETING OF STOCKHOLDERS, JUNE 21, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GALAXY ENTERPRISES, INC.

P  R  O  X  Y 

The undersigned hereby revokes all previous proxies, acknowledges receipt of the
Notice of Special Meeting of Stockholders to be held on June 21, 2000 and the   
Joint Proxy Statement/Prospectus, dated May 24, 2000, and hereby appoints       
John J. Poelman as the Proxy of the undersigned, each with full power of        
substitution, to vote on behalf of the undersigned at the Special Meeting of    
Stockholders of Galaxy Enterprises to be held at 754 E. Technology Avenue, Orem,
Utah on June 21, 2000, at 10:00 a.m. local time, and at any adjournment or      
postponement thereof, with the same force and effect as the undersigned might or
could do if personally present thereat. The shares represented by this Proxy    
shall be voted in the following manner:                                         

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1.  Proposal to approve (a) the Agreement and Plan of Merger, dated as of       
March 10, 2000, among Netgateway Inc., a Delaware corporation, Galaxy   
  Acquisition Corp., a Delaware corporation, and Galaxy Enterprises, Inc., a
Nevada corporation, and (b) the merger of Galaxy Enterprises Acquisition
Corp., a wholly-owned subsidiary of Netgateway, with and into Galaxy    
 Enterprises whereby, among other things, each outstanding share of Galaxy
Enterprises common stock will be converted into the right to receive    
shares of Netgateway common stock.                                      

 FOR / /        AGAINST / /        ABSTAIN / /

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED  
FOR PROPOSAL 1. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.        

Please sign your name exactly as it appears below. In the case of shares owned  
in joint tenancy or as tenants in common, all should sign. Fiduciaries should   
indicate their title and authority.                                             

                                              Dated: _____________________, 2000

                                              Signature(s) _____________________

                                              Please print the name(s) appearing
                                             on each share certificate(s) over
                                            which you have voting authority:
                                              (Print name(s) on certificate(s)).
                                             Please sign your name (Authorized
                         Signature(s))