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GALAXY NUTRITIONAL FOODS
FOR IMMEDIATE RELEASE: CONTACT:
June 25, 2004 Dawn M. Robert, Investor Relations
Galaxy Nutritional Foods, Inc.
(407) 854-0433
GALAXY NUTRITIONAL FOODS REPORTS
FISCAL YEAR END 2004 EARNINGS
REPORTS NET SALES IN LINE WITH LATEST FORECAST
IMPROVEMENT SHOWN IN GROSS MARGIN % AND CASH FLOW FROM OPERATIONS
COMPANY FORECASTS GROWTH IN NET SALES FOR FISCAL 2005
RESULTS FOR THE FISCAL YEAR ENDED MARCH 31, 2004
ORLANDO, Florida (June 25, 2004) - Galaxy Nutritional Foods (AMEX: GXY), a
leading producer of nutritious plant-based dairy alternatives for the retail and
foodservice markets, announced today the results for its fiscal year ended March
31, 2004. The Company reported a net loss of ($2,962,173) for its fiscal year
ended March 31, 2004 (Fiscal 2004) compared to net income of $1,034,128 for its
fiscal year ended March 31, 2003 (Fiscal 2003).
The results for Fiscal 2004 include non-cash compensation expense of $651,273
and a charge for employment contract expenses of $1,830,329 compared to non-cash
compensation income of $2,906,762 for Fiscal 2003. Excluding these non-cash
compensation and employment contract charges, the Company had a net loss, as
adjusted, (a non-GAAP measure) of ($480,571) for Fiscal 2004 compared to a net
loss, as adjusted, of ($1,872,634) for Fiscal 2003. This $1.4 million decrease
in non-GAAP net loss was primarily the result of a substantial decrease in
interest expense due to the debt refinancing and restructuring, which was
completed in the first quarter of Fiscal 2004.
Net loss available to common shareholders for Fiscal 2004, after non-cash
preferred stock dividends and non-cash preferred stock accretion for estimated
redemption value, was ($4,504,907), or ($0.30) per diluted share versus a net
loss available to common shareholders of ($601,077), or ($0.05) per diluted
share for Fiscal 2003.
EBITDA, as adjusted, (a non-GAAP measure) for Fiscal 2004 was $3.1 million, or
8.5% of net sales, versus EBITDA, as adjusted, for Fiscal 2003 of $3.3 million,
or 8.3% of net sales. We calculate EBITDA, as adjusted, as net income before
interest, taxes, depreciation and amortization, and is exclusive of non-cash
compensation related to stock options and warrants as well as employment
contract charges.
As predicted in the Company's most recent forecast, net sales decreased from
$40.0 million in Fiscal 2003 to $36.2 million in fiscal 2004 representing a
decline of $3.8 million or 9.5%. The decrease in net sales is primarily due to a
reduction in retail grocery slice sales in Fiscal 2004. The Company's management
has identified several market factors that they believe have had a negative
affect on the
Company's business. First, consumers eating habits are changing with the
publicly recognized trend toward low-carbohydrate meal preparation during all
meals (breakfast, lunch, snack, and dinner). This has led to decreased
consumption of items such as bread and the Company's primary complementary
product of cheese slices. Second, the number of consumers shopping in the retail
grocery and natural food stores is down versus the prior year due to the further
national emergence and presence of superstores, which include extensive grocery
operations. The Company is currently distributing product through Wal*Mart
superstores and Costco warehouse clubs. Although, the Company experienced sales
growth at Wal*Mart, the increase in sales at this account has not been able to
fully counter the decline in retail grocery trends. In response to this change
in consumer shopping, the Company is redesigning its products and packaging
formats to specifically target growth opportunities in the superstore, warehouse
club and other mass merchandiser markets (such as Wal*Mart, Costco, Kmart,
Target, and Sam's Club). Third, the Veggie brand sales were down due to the
Southern California retail grocery labor strike that occurred during Fiscal
2004, but has since been resolved.
The Company reported an improvement in its gross margin percentage from 29.8% in
Fiscal 2003 to 31.3% in Fiscal 2004. This improvement in gross margin percentage
is primarily due to additional efficiencies obtained in the manufacturing of our
products as well as cost savings obtained in the purchase of our ingredients.
Additionally, the Company is reporting a $1.1 million improvement in net cash
provided by operating activities from $1,175,875 in Fiscal 2003 to $2,236,350 in
Fiscal 2004. This substantial improvement in operating cash flow is primarily
the result of reducing our trade receivables by $999k as well as reducing our
inventories by $662k.
RESULTS FOR THE 4TH QUARTER ENDED MARCH 31, 2004
For the fourth quarter of Fiscal 2004, the Company reported net income of
$614,430 compared to a net loss of ($241,059) for its fourth quarter of Fiscal
2003. After non-cash preferred stock dividends and non-cash preferred stock
accretion for estimated redemption value, net income available to common
shareholders for the quarter ended March 31, 2004 was $906,277, or $0.06 per
diluted share versus net income available to common shareholders for the quarter
ended March 31, 2003 of $70,755, or $0.01 per diluted share. Operating income
for the fourth quarter ended March 31, 2004 was $965,000 (including $528,000 of
non-cash compensation income) versus operating income of $330,000 (including
$112,000 of non-cash compensation income) for the same quarter last year.
MANAGEMENT COMMENTS
Christopher J. New, Galaxy's CEO, stated, "During Fiscal 2004, Galaxy's Board of
Directors and senior management continued to implement and refine our growth
strategies which resulted in improvements in operating cash flow, gross margin
percentage, net income, as adjusted, and EBITDA, as adjusted percentage. These
actions have further strengthened our business capabilities and are reflected in
the positive results we are reporting today. We will continue to leverage our
assets in operations and build additional brand value as we strategically
accelerate our sales initiatives in Fiscal 2005. With our reduced debt service
and more favorable debt structure, the company is in position to aggressively
pursue our growth goals in Fiscal 2005.
Mr. New continued, "Our growth plan and key initiatives for Fiscal 2005 include
creating competitive insulation (through improved product development and
quality), leveraging our strategic brand platforms (through consumer marketing
programs, new distribution, positioning and products),
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introducing a new product position with broader mass market appeal, and
exploiting strategic sales opportunities to leverage unused manufacturing
capacity and create margin for reinvestment into our core brands. We are
spending strategically against consumer programs through our branded platforms
which will create greater shareholder value and promote the growth of our
business as we move the company from 'defense' to 'offense' in the marketplace."
BUSINESS OUTLOOK
The following statements are forward-looking and actual results may differ
materially. Please refer to Galaxy's quarterly and annual reports as filed with
the Securities and Exchange Commission (SEC) for a more complete description of
risks.
FISCAL YEAR ENDED MARCH 31, 2005 GUIDANCE
Given no change in the current business or economic environment, the Company
expects:
<> Annual net sales for Fiscal 2005 to increase 10% or more versus the
prior fiscal year as key growth strategies are implemented into the
market place and begin taking effect in the first quarter of Fiscal
2005.
<> To report positive operating profits (excluding non-cash compensation
charges) for Fiscal 2005.
<> EBITDA (excluding non-cash compensation charges) to remain at positive
levels throughout Fiscal 2005.
<> To report positive cash flow from operating activities for Fiscal
2005.
FOOTNOTE ON NON-GAAP MEASURES PRESENTED ABOVE
Management utilizes certain non-GAAP measures such as net income, as adjusted
and EBITDA, as adjusted, because it provides useful information to management
and investors in order to accurately review the Company's current on-going
operations and business trends related to its financial condition and results of
operations. Additionally, these measure are key factors upon which the Company
prepares its budgets, forecasts and evaluates loan covenants. In its
determination of non-GAAP measures, management excludes the non-cash
compensation related to options and warrants as well as the employment contract
expense from its analysis of operating income because it believes that these
items do not accurately reflect the Company's current on-going operations. With
respect to non-cash compensation, it is calculated based on fluctuations in the
Company's stock price which are outside the Company's control and typically do
not reflect the Company's operations. The employment contract expense reflects
the total costs that will be paid out over the next five years pursuant to the
Amended and Restated Employment Agreement for the Company's founder, Angelo
Morini, which became effective as of October 13, 2003. The Company accrued and
expensed the five-year cost of this agreement in the quarter ended December 31,
2003. These non-GAAP measures are not in accordance with, or an alternative for,
generally accepted accounting principles and may be different from non-GAAP
measures reported by other companies.
CONFERENCE CALL AND WEBCAST INFORMATION
We are also announcing a teleconference and web-cast of the COMPANY'S FISCAL
YEAR END 2004 EARNINGS RESULTS AT 10:00AM ON MONDAY, JUNE 28, 2004. The
conference call invites all shareholders and interested parties to call in on a
toll-free line to ask questions about the Company's results and discuss future
plans. The toll free number for U.S. and Canada callers is 1-800-500-0920. All
other international callers should dial: 1-719-457-2699. THE CONFERENCE CALL
PASS CODE FOR ALL PARTICIPANTS IS 578932.
The call will be simultaneously web-cast at the following link:
HTTP://WWW.VCALL.COM/CEPAGE.ASP?ID=88457
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Individuals within the U.S. and Canada that cannot access the call are invited
to listen to a digitally recorded version, which will be posted to our website
the following Tuesday, June 29, 2004 at:
http//www.galaxyfoods.com/corporate.html
ABOUT GALAXY NUTRITIONAL FOODS, INC.
Galaxy Nutritional Foods is the leading producer of great-tasting, health-
promoting plant-based dairy and dairy-related alternatives for the retail and
foodservice markets. These phytonutrient-enriched products, made from nature's
best grains - soy, rice and oats - are low and no fat (no saturated fat and no
trans-fatty acids), have no cholesterol, no lactose, are growth hormone and
antibiotic free and have more calcium, vitamins and minerals than conventional
dairy products. Because they are made with plant proteins, they are more
environmentally friendly and economically efficient than dairy products derived
solely from animal proteins. Galaxy's products are part of the nutritional or
functional foods category, the fastest growing segment of the retail food
market. Galaxy brand names include: Veggie Nature's Alternative to Milk(R),
Galaxy Nutritional Foods(R), Soyco(R), Soymage(R), Wholesome Valley(R),
formagg(R), Lite Bakery(R), Veggie Cafe(TM) and Veggie Lite Bakery(TM). For more
information, please visit Galaxy's website at www.galaxyfoods.com.
THIS PRESS RELEASE CONTAINS "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, OR OTHER FACTORS
WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THOSE FORWARD-LOOKING STATEMENTS, WHICH SPEAK
ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO RELEASE
PUBLICLY ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT UNANTICIPATED EVENTS OR
DEVELOPMENTS.
(Financial statements on following pages)
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GALAXY NUTRITIONAL FOODS, INC.
BALANCE SHEETS
MARCH 31, MARCH 31,
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 449,679 $ 1,598
Trade receivables, net of allowance for
doubtful accounts of $633,000 and $633,221 3,964,198 4,963,026
Inventories, net 4,632,843 5,294,500
Prepaid expenses and other 191,572 553,396
------------ ------------
Total current assets 9,238,292 10,812,520
PROPERTY AND EQUIPMENT, NET 20,232,089 22,168,404
OTHER ASSETS 416,706 274,918
------------ ------------
TOTAL $ 29,887,087 $ 33,255,842
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Book overdrafts $ -- $ 1,151,276
Line of credit 4,605,277 4,939,894
Accounts payable 1,191,617 2,622,996
Accrued liabilities 1,812,300 1,745,552
Current portion of accrued employment contract 366,305 --
Current portion of term notes payable 1,140,000 1,497,760
Current portion of subordinated note payable -- 2,000,000
Current portion of obligations under capital leases 231,432 363,152
------------ ------------
Total current liabilities 9,346,931 14,320,630
ACCRUED EMPLOYMENT CONTRACT, less current portion 1,293,142 --
TERM NOTES PAYABLE, less current portion 8,241,985 7,786,985
SUBORDINATED NOTE PAYABLE -- 2,000,000
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 204,967 383,210
------------ ------------
Total liabilities 19,087,025 24,490,825
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE CONVERTIBLE PREFERRED STOCK 2,573,581 2,324,671
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 85,000,000
shares; 15,657,321 and 12,761,685 shares issued 156,573 127,617
Additional paid-in capital 64,520,084 59,800,732
Accumulated deficit (43,557,515) (40,595,342)
------------ ------------
21,119,142 19,333,007
Less: Notes receivable arising from the exercise of
stock options and sale of common stock (12,772,200) (12,772,200)
Treasury stock, 26,843 shares, at cost (120,461) (120,461)
------------ ------------
Total stockholders' equity 8,226,481 6,440,346
------------ ------------
TOTAL $ 29,887,087 $ 33,255,842
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GALAXY NUTRITIONAL FOODS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2004 2003 2002
------------ ------------ ------------
NET SALES $ 36,176,961 $ 40,008,769 $ 42,927,104
COST OF GOODS SOLD 24,864,289 28,080,188 35,276,362
------------ ------------ ------------
Gross margin 11,312,672 11,928,581 7,650,742
------------ ------------ ------------
OPERATING EXPENSES:
Selling 4,981,996 4,958,272 8,573,957
Delivery 1,877,682 2,008,638 2,475,989
Non-cash compensation related to options & warrants 651,273 (2,906,762) 2,373,662
Employment contract expense 1,830,329
General and administrative 3,303,030 3,570,889 5,348,513
Research and development 260,410 232,552 261,972
------------ ------------ ------------
Total operating expenses 12,904,720 7,863,589 19,034,093
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,592,048) 4,064,992 (11,383,351)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (1,361,606) (2,923,215) (3,594,091)
Loss on disposal of assets (8,519) (47,649) (464,190)
Other expense -- (60,000) (57,520)
------------ ------------ ------------
Total (1,370,125) (3,030,864) (4,115,801)
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (2,962,173) 1,034,128 (15,499,152)
INCOME TAX BENEFIT (EXPENSE) -- -- (1,560,000)
------------ ------------ ------------
NET INCOME (LOSS) $ (2,962,173) $ 1,034,128 $(17,059,152)
Preferred Stock Dividends 201,791 264,314 709,400
Preferred Stock Accretion to Redemption Value 1,340,943 1,370,891 1,379,443
------------ ------------ ------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (4,504,907) $ (601,077) $(19,147,995)
============ ============ ============
BASIC NET LOSS PER COMMON SHARE $ (0.30) $ (0.05) $ (1.81)
============ ============ ============
DILUTED NET LOSS PER COMMON SHARE $ (0.30) $ (0.05) $ (1.81)
============ ============ ============
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GALAXY NUTRITIONAL FOODS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2004 2003 2002
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (2,962,173) $ 1,034,128 $(17,059,152)
Adjustments to reconcile net income (loss) to net cash
from (used in) operating activities:
Depreciation and amortization 2,205,053 2,273,349 2,362,900
Amortization of debt discount and financing costs 236,321 1,264,273 1,069,522
Deferred tax expense (benefit) -- -- 1,560,000
Provision for losses on trade receivables (221) (177,245) 1,058,335
Non-cash compensation related to options and warrants 651,273 (2,906,762) 2,373,662
Loss on disposal of assets 8,519 47,649 464,190
(Increase) decrease in:
Trade receivables 999,049 364,907 1,844,538
Inventories 661,657 454,152 5,025,888
Prepaid expenses and other 194,248 2,124 1,260,490
Increase (decrease) in:
Accounts payable (1,431,379) (1,589,514) (4,056,922)
Accrued liabilities 1,674,003 408,814 368,060
------------ ------------ ------------
NET CASH FROM (USED IN) OPERATING ACTIVITIES 2,236,350 1,175,875 (3,728,489)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (221,585) (214,003) (140,277)
Decrease in other assets (10,193) 113,977 1,801
------------ ------------ ------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (231,778) (100,026) (138,476)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in book overdrafts (1,151,276) (41,580) 746,027
Net borrowings (payments) on line of credit (334,617) (583,981) (3,252,403)
Borrowings on term notes payable 2,000,000 500,000 330,000
Repayments on term notes payable (1,572,760) (1,763,265) (1,409,964)
Repayments on subordinated note payable (4,000,000) -- (815,000)
Financing costs for long term debt (288,230) (239,539) (25,000)
Principal payments on capital lease obligations (365,635) (431,937) (539,399)
Proceeds from exercise of common stock options 16,217 4,250 19,521
Proceeds from exercise of common stock warrants, net of costs 360,000 -- 2,070,801
Proceeds from issuance of common stock under employee stock
purchase plan 28,527 19,663 32,279
Proceeds from issuance of common stock, net of offering costs 3,751,283 1,461,970 3,808,812
Proceeds from issuance of preferred stock, net of costs -- -- 2,900,959
------------ ------------ ------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (1,556,491) (1,074,419) 3,866,633
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 448,081 1,430 (332)
CASH, BEGINNING OF YEAR 1,598 168 500
------------ ------------ ------------
CASH, END OF YEAR $ 449,679 $ 1,598 $ 168
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GALAXY NUTRITIONAL FOODS, INC.
EBITDA, AS ADJUSTED, (A NON-GAAP MEASURE) RECONCILIATION
(UNAUDITED)
YEARS ENDED MARCH 31, 2004 2003 2002
------------ ------------ ------------
NET SALES $ 36,176,961 $ 40,008,769 $ 42,927,104
------------ ------------ ------------
NET INCOME (LOSS) $ (2,962,173) $ 1,034,128 $(17,059,152)
PLUS:
Non-cash compensation expense (income) 651,273 (2,906,762) 2,373,662
Employment contract expense 1,830,329 -- --
Interest expense 1,361,606 2,923,215 3,594,091
Tax expense (income) -- -- 1,560,000
Depreciation expense 2,205,053 2,273,349 2,362,900
------------ ------------ ------------
EBITDA, AS ADJUSTED $ 3,086,088 $ 3,323,930 $ (7,168,499)
------------ ------------ ------------
------------ ------------ ------------
AS A % OF NET SALES 8.5% 8.3% (16.7%)
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