Exhibit 99.1
[LOGO]
FOR IMMEDIATE RELEASE: CONTACT:
February 14, 2005 Dawn M. Robert, Investor Relations
Galaxy Nutritional Foods, Inc.
(407) 854-0433
GALAXY NUTRITIONAL FOODS REPORTS
THIRD QUARTER OPERATING RESULTS
NINE-MONTH SALES INCREASE 22% TO RECORD $33.7 MILLION
DOWNWARD PRESSURE ON GROSS MARGIN CONTINUES AS KEY COMMODITY COSTS REMAIN HIGH
ORLANDO, Florida (February 14, 2005) Galaxy Nutritional Foods, Inc. (AMEX:GXY),
a leading producer of nutritious plant-based dairy alternatives for the retail
and foodservice markets, today reported its operating results for the third
quarter and first nine months of FY2005.
For the three months ended December 31, 2004, net sales increased 10% to
approximately $10.6 million, compared with approximately $9.6 million in the
third quarter of FY2004. The increase in net sales was primarily due to higher
contract manufacturing revenues. While contract manufacturing sales generate
lower gross profit margins than sales of branded products, the higher sales
volume allows the Company to spread its fixed manufacturing costs across a
larger revenue base. However, the Company has also continued to incur a
substantial increase in the cost of certain key food ingredients and raw
materials, which caused gross margin to decline $579,495 in the most recent
quarter, when compared with the prior-year period. A portion of such increased
costs will be passed through to customers via price increases through the end of
the current fiscal year.
The Company reported a net operating loss of ($450,845) in the third quarter of
FY2005, versus a net operating loss of ($1,124,420) in the quarter ended
December 31, 2003.
"Since the beginning of our second fiscal quarter, Galaxy has been operating in
an environment of rapidly escalating raw materials and ingredients costs," noted
Michael E. Broll, Chief Executive Officer of Galaxy Nutritional Foods, Inc.
"Casein, packaging, film and transportation costs account for the largest
percentage of these increases. Higher casein costs alone accounted for
approximately one million dollars of our margin decline in the third quarter,
when compared with the prior-year period. Through the first nine months of the
current fiscal year, the increase in casein costs was responsible for
approximately two million dollars in margin decline relative to the prior-year
period."
"Management has been aggressively reducing non-essential spending and costs in
other areas, including corporate overhead, and we have responded by raising
finished goods prices," continued Broll. "As a result, the Company generated a
positive operating profit and cash flow during the last half of our fiscal third
quarter, and I am confident that this positive trend will continue for the
balance of the fiscal year."
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Results for the third quarter of FY2005 included non-cash compensation expense
of ($361,186), whereas results for the prior-year quarter included non-cash
compensation income of $255,712. Additionally, results for the third quarter of
FY2005 and FY2004 included employment contract expense of $0 and ($1,830,329),
respectively. Excluding these non-cash compensation and employment contract
items, the Company's operating loss, as adjusted (a non-GAAP measure), totaled
($89,659) in the quarter ended December 31, 2004, compared with operating
income, as adjusted, of $450,197 in the quarter ended December 31, 2003. The
$539,856 decrease in non-GAAP operating income was primarily the result of the
narrowing in gross margin mentioned above.
Net loss for the third quarter of FY2005 totaled ($739,401), versus a net loss
of ($1,378,354) in the quarter ended December 31, 2003. Excluding the non-cash
compensation and employment contract items noted above, the Company incurred a
net loss, as adjusted (a non-GAAP measure), of ($378,215) for the quarter ended
December 31, 2004, compared with net income, as adjusted, of $196,263 in the
year-earlier period. The $574,478 decrease in non-GAAP net income was primarily
due to the decrease in gross margin, as mentioned above.
After non-cash preferred stock dividends and non-cash preferred stock accretion
for estimated redemption value, the Company reported a net loss available to
common shareholders of ($739,401), or ($0.04) per diluted share, for the quarter
ended December 31, 2004, versus a net loss available to common shareholders of
($1,557,986), or ($0.10) per diluted share, for the quarter ended December 31,
2003.
EBITDA, as adjusted (a non-GAAP measure), for the quarter ended December 31,
2004, declined to $451,511, or 4.3% of net sales, compared with EBITDA, as
adjusted, for the quarter ended December 31, 2003 of $998,829, or 10.4% of net
sales. EBITDA, as adjusted, is comprised of net income before interest, taxes,
depreciation and amortization, and is exclusive of employment contract expense
and non-cash compensation related to stock options and warrants.
Cash flow provided by operating activities during the quarter ended December 31,
2004 totaled $443,570, compared with cash flow provided by operating activities
of $1,157,359 in the third quarter of FY2004. The decrease in operating cash
flow versus the prior-year period was primarily due to increased accounts
receivable and inventory levels resulting from higher sales volumes.
For the nine months ended December 31, 2004, net sales increased 22% to a record
$33.7 million, compared with approximately $27.7 million in the corresponding
period of the previous fiscal year. The Company reported a net loss of
($1,820,759) in the first nine months of FY2005, versus a net loss of
($3,576,603) in the prior-year period. After the deduction of non-cash preferred
stock dividends and non-cash preferred stock accretion for estimated redemption
value, the Company's net loss available to common shareholders totaled
($2,106,936), or ($0.13) per share, in the nine months ended December 31, 2004,
compared with a net loss available to common shareholders of ($5,411,184), or
($0.37) per share, in the first nine months of FY2004.
FOOTNOTE ON NON-GAAP MEASURES PRESENTED ABOVE
Management utilizes certain non-GAAP measures such as operating income, as
adjusted, 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 measures 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
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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. 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
THE COMPANY WILL HOST AN INVESTOR CONFERENCE CALL TODAY AT 11:00 A.M. EST;
SHAREHOLDERS AND OTHER INTERESTED PARTIES MAY PARTICIPATE IN THE CONFERENCE CALL
BY DIALING 800-500-0311 (INTERNATIONAL/LOCAL PARTICIPANTS DIAL 719-457-2698), A
FEW MINUTES BEFORE 11:00 AM EST ON FEBRUARY 14, 2005. THE CALL WILL ALSO BE
BROADCAST LIVE ON THE INTERNET AT
HTTP://PHX.CORPORATE-IR.NET/PLAYERLINK.ZHTML?C=102653&S=WM&E=1015145. THE CALL
WILL BE ARCHIVED ON THE INTERNET THROUGH MAY 14, 2005 AT
HTTP://PHX.CORPORATE-IR.NET/PLAYERLINK.ZHTML?C=102653&S=WM&E=1015145.
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: Galaxy Nutritional Foods(R),
Veggie(R), Veggie Nature's AlternatIVe to Milk(R), Veggie Slices(R), Soyco(R),
Soymage(R), Wholesome Valley(R), formagg(R), and Lite Bakery(R). 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
DECEMBER 31, MARCH 31,
2004 2004
--------- ------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 111,618 $ 449,679
Trade receivables, net 5,253,821 3,964,198
Inventories 5,003,660 4,632,843
Prepaid expenses and other 214,542 266,301
------------ ------------
Total current assets 10,583,641 9,313,021
PROPERTY AND EQUIPMENT, NET 18,758,623 20,232,089
OTHER ASSETS 303,718 416,706
------------ ------------
TOTAL $ 29,645,982 $ 29,961,816
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 5,546,703 $ 4,605,277
Accounts payable 2,292,650 1,266,346
Accrued liabilities 1,314,926 1,812,300
Warrant liability 500,000 --
Current portion of accrued employment contracts 586,523 366,305
Current portion of term notes payable 1,657,500 1,140,000
Current portion of obligations under capital leases 194,331 231,432
------------ ------------
Total current liabilities 12,092,633 9,421,660
ACCRUED EMPLOYMENT CONTRACT, less current portion 1,141,433 1,293,142
TERM NOTES PAYABLE, less current portion 6,914,485 8,241,985
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 134,369 204,967
------------ ------------
Total liabilities 20,282,920 19,161,754
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE CONVERTIBLE PREFERRED STOCK -- 2,573,581
STOCKHOLDERS' EQUITY:
Common stock 183,882 156,573
Additional paid-in capital 67,450,115 64,520,084
Accumulated deficit (45,378,274) (43,557,515)
------------ ------------
22,255,723 21,119,142
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 9,363,062 8,226,481
------------ ------------
TOTAL $ 29,645,982 $ 29,961,816
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GALAXY NUTRITIONAL FOODS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------------- ----------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
NET SALES $ 10,632,877 $ 9,638,571 $ 33,725,108 $ 27,664,259
COST OF GOODS SOLD 8,289,551 6,715,750 25,860,850 19,096,843
------------ ------------ ------------ ------------
Gross margin 2,343,326 2,922,821 7,864,258 8,567,416
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling 1,213,549 1,110,097 4,246,419 3,870,829
Delivery 549,379 544,930 1,757,962 1,430,706
Non-cash compensation related to
options & warrants 361,186 (255,712) 402,388 1,179,677
Employment contract expense -- 1,830,329 444,883 1,830,329
General and administrative 595,196 752,123 1,794,506 2,621,621
Research and development 74,861 65,474 226,479 191,466
------------ ------------ ------------ ------------
Total operating expenses 2,794,171 4,047,241 8,872,637 11,124,628
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (450,845) (1,124,420) (1,008,379) (2,557,212)
Interest expense (288,556) (253,934) (812,380) (1,019,391)
Other expense -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (739,401) $ (1,378,354) $ (1,820,759) $ (3,576,603)
Preferred Stock Dividends -- 48,556 82,572 157,172
Preferred Stock Accretion to
Redemption Value -- 131,076 203,605 1,677,409
------------ ------------ ------------ ------------
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS $ (739,401) $ (1,557,986) $ (2,106,936) $ (5,411,184)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER
COMMON SHARE $ (0.04) $ (0.10) $ (0.13) $ (0.37)
============ ============ ============ ============
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GALAXY NUTRITIONAL FOODS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, 2004 2003
-------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,820,759) $(3,576,603)
Adjustments to reconcile net income (loss) to net cash from (used
in) operating activities:
Depreciation and amortization 1,633,256 1,657,431
Amortization of debt discount and financing costs 65,881 192,078
Provision for losses on trade receivables 109,000 14,000
Non-cash compensation related to options and warrants 402,388 1,179,677
(Increase) decrease in:
Trade receivables (1,398,623) 854,539
Inventories (370,817) 1,208,195
Prepaid expenses and other 51,759 26,492
Increase (decrease) in:
Accounts payable 1,026,304 (1,151,801)
Accrued liabilities 120,973 1,564,055
----------- -----------
NET CASH FROM (USED IN) OPERATING ACTIVITIES (180,638) 1,968,063
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (77,207) (175,311)
Decrease in other assets 34,482 1,806
----------- -----------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (42,725) (173,505)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Book overdrafts -- (1,151,276)
Net borrowings (payments) on lines of credit 941,426 (549,916)
Repayments on subordinated note payable -- (4,000,000)
Borrowings on term note payable -- 2,000,000
Repayments on term notes payable (810,000) (1,246,760)
Principal payments on capital lease obligations (190,282) (297,821)
Financing costs for long term debt -- (232,230)
Redemption of preferred stock (2,279,688) --
Proceeds from issuance of common stock, net of offering costs 2,223,846 4,158,587
----------- -----------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (114,698) (1,319,416)
----------- -----------
NET INCREASE (DECREASE) IN CASH (338,061) 475,142
CASH, BEGINNING OF PERIOD 449,679 1,598
----------- -----------
CASH, END OF PERIOD $ 111,618 $ 476,740
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GALAXY NUTRITIONAL FOODS, INC.
EBITDA, AS ADJUSTED, (A NON-GAAP MEASURE) RECONCILIATION
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------- -----------------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
NET SALES $ 10,632,877 $ 9,638,571 $ 33,725,108 $ 27,664,259
------------ ------------ ------------ ------------
NET LOSS $ (739,401) $ (1,378,354) $ (1,820,759) $ (3,576,603)
PLUS:
Non-cash compensation (income)
expense 361,186 (255,712) 402,388 1,179,677
Employment Contract Expense -- 1,830,329 444,883 1,830,329
Interest expense 288,556 253,934 812,380 1,019,391
Depreciation and amortization
expense 541,170 548,632 1,633,256 1,657,431
------------ ------------ ------------ ------------
EBITDA, AS ADJUSTED 451,511 998,829 1,472,148 2,110,225
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
AS A % OF NET SALES 4.3% 10.4% 4.4% 7.6%
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