[LOGO GALAXY NUTRITIONAL FOODS]
For Immediate Release: Contact:
July 14, 2005 Dawn M. Robert, Investor Relations
Galaxy Nutritional Foods, Inc.
(407) 854-0433
GALAXY NUTRITIONAL FOODS REPORTS
FY2005 OPERATING RESULTS
ORLANDO, Florida (July 14, 2005) Galaxy Nutritional Foods, Inc. (AMEX:GXY), a
leading producer and marketer of nutritious plant-based dairy alternatives for
the retail and foodservice markets, today reported its operating results for
FY2005.
For the twelve months ended March 31, 2005, net sales increased 23% to
approximately $44.5 million, compared with approximately $36.2 million in
FY2004. The increase in net sales primarily reflects higher contract
manufacturing (private label) revenues and an increase in sales of Wholesome
Valley(R) organic products. Gross profit margin decreased to 22% of sales in
FY2005, from 31% in the previous fiscal year, due primarily to higher raw
material costs and lower margins on private label business. The average price of
casein, a key ingredient in most of the Company's products, increased an average
of 32% in FY2005, which cost increase resulted in an increase of approximately
$2.7 million in cost of goods sold.
Loss from operations totaled ($3,236,572) in FY2005, versus a loss from
operations of ($1,600,567) in FY2004. Operating results for FY2005 included a
bad debt provision and inventory write-off of approximately $1.8 million related
to a single customer for which Galaxy manufactured private label products. The
Company no longer does business with this customer, and in the future Galaxy
will instead sell the same or similar products directly to the major mass
merchandiser that was the ultimate purchaser of the products previously sold to
the private label customer.
The Company reported a net loss to common stockholders of ($4,652,726), or
($0.27) per share, in FY2005, versus a net loss to common stockholders of
($4,504,907), or ($0.30) per share, in FY2004. "Although our fiscal 2005
operating results suffered due to sharply higher raw materials costs and a large
bad debt expense, I believe we have made tremendous progress in terms of
positioning Galaxy for a return to profitability and a resumption in growth
consistent with our market opportunity," commented Michael E. Broll, Chief
Executive Officer of Galaxy Nutritional Foods, Inc. "Our accomplishments during
the past twelve months include the elimination of a highly dilutive convertible
preferred stock, operating cost reductions, and the recent announcement of an
outsourcing agreement with Schreiber Foods that should result in additional cost
savings of several million dollars annually."
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"We look forward to fiscal 2006 with great optimism," continued Broll. "While
the outsourcing of our manufacturing and distribution activities to Schreiber
Foods will require some non-recurring expenses in the near term, I am optimistic
that an earnings turnaround will be evident during the second half of fiscal
2006 and in future years. Without the cost burden associated with our current
production facilities and with a much-strengthened balance sheet, we can focus
upon marketing and other activities that can leverage Galaxy's strong brands in
the healthy foods marketplace. The recent decision by a major mass merchandiser
to purchase our alternative cheese products directly from our Company
illustrates the power of our brands, and we intend to greatly expand our
visibility within the growing universe of health-conscious consumers in future
years."
Results for FY2005 included non-cash compensation expense of $834,746, whereas
results for the previous year included non-cash compensation expense of
$651,273. Additionally, FY2005 and FY2004 results included employment contract
expense of $444,883 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 ($1,956,943) in FY2005, compared with
operating income, as adjusted, of $881,035 in FY2004. The decrease in non-GAAP
operating income was primarily the result of the reduction in gross margin
primarily due to the $2.7 million casein effect mentioned above
EBITDA, as adjusted (a non-GAAP measure), approximated $215,623 in FY2005,
compared with EBITDA, as adjusted, of approximately $3.1 million in FY2004.
EBITDA, as adjusted, is comprised of net income before interest, taxes,
depreciation and amortization, and is exclusive of employment contract expense
as well as non-cash compensation related to stock options and warrants.
Cash flow provided by operating activities during FY2005 totaled $779,746,
compared with cash flow provided by operating activities of $2,236,350 in
FY2004. The decrease in operating cash flow versus the prior-year period was
primarily due to higher raw material costs and increased accounts receivables
related to higher sales volumes.
In the fourth quarter of FY2005, the Company's sales increased 27% to
approximately $10.8 million, compared with approximately $8.5 million in the
fourth quarter of the previous fiscal year.
Loss from operations, excluding non-cash compensation and employment contract
expense (a non-GAAP measure) totaled ($1,795,835) in the fourth quarter of
FY2005, versus operating income, excluding non-cash compensation and employment
contract expense, of $428,241 in the corresponding period of the previous fiscal
year. The largest factors in the decrease in operating profitability in the
fourth quarter of FY2005, when compared with the fourth quarter of FY2004, are
the above-mentioned $1.8 million bad debt expense and inventory write-off as
well as the higher casein costs in the current fiscal year.
The Company reported a net loss to common stockholders of ($2,545,790), or
($0.14) per share, in the fourth quarter of FY2005, versus net income available
to common stockholders of $906,277, or $0.06 per share, in the fourth quarter of
FY2004.
Business Outlook for FY2006
The following statements are forward-looking in nature, 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.
Given no change in the current business or economic environment, the Company
expects:
>> Double-digit percentage growth in sales in FY2006, primarily through
additional branded sales derived from an expansion in distribution
to specifically identified markets.
>> To report positive operating profits, as adjusted (a non-GAAP
measure) for the fiscal year ending March 31, 2006.
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>> EBITDA, as adjusted, (a non-GAAP measure) to remain at positive
levels throughout FY2006.
>> To report positive cash flow from operating activities for FY2006.
Footnote on non-GAAP Measures Presented Above
Management utilizes certain non-GAAP measures such as operating 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 stock-based compensation 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. EDT;
shareholders and other interested parties may participate in the conference call
by dialing 800-322-0079 (international/local participants dial 973-409-9258), a
few minutes before 11:00 am EDT on July 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=1099448. The call
will be archived on the Internet through October 14, 2005 at
http://phx.corporate-ir.net/playerlink.zhtml?c=102653&s=wm&e=1099448.
About Galaxy Nutritional Foods, Inc.
Galaxy Nutritional Foods(R) is the leading producer of health-promoting
plant-based dairy and dairy-related alternatives for the retail and foodservice
markets. An exclusive, new and technologically advanced, safer "hot process" is
used to produce these phytonutrient-enriched products, made from nature's best
grains - soy, rice and oats. Veggie products are low fat and fat free (saturated
fat and trans-fatty acid free), cholesterol and lactose free, are growth hormone
and antibiotic free, and have more calcium, vitamins and other minerals than
conventional dairy products. Because they are made with plant proteins, the
products are more environmentally friendly and economically efficient than dairy
products derived solely from animal proteins. Galaxy's products are part of the
healthy and natural 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(TM); Veggie Slices(R); Soyco(R); Soymage(R);
Wholesome Valley(R); Lite Bakery(R); and Galaxy Nutritional Foods Smart Choice
Cheese Products(R). For more information, please visit Galaxy's website at:
www.galaxyfoods.com.
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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 PUBLICLY
RELEASE 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 follow)
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GALAXY NUTRITIONAL FOODS, INC.
Balance Sheets
MARCH 31, MARCH 31,
2005 2004
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 561,782 $ 449,679
Trade receivables, net of allowance for
doubtful accounts of $2,299,000 and $633,000 4,644,364 3,964,198
Inventories 3,811,470 4,632,843
Prepaid expenses and other 219,592 266,301
------------ ------------
Total current assets 9,237,208 9,313,021
PROPERTY AND EQUIPMENT, NET 18,246,445 20,232,089
OTHER ASSETS 286,013 416,706
------------ ------------
TOTAL $ 27,769,666 $ 29,961,816
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 5,458,479 $ 4,605,277
Accounts payable 3,057,266 1,266,346
Accrued and other current liabilities 2,130,206 2,452,300
Current portion of accrued employment contract 586,523 366,305
Current portion of term notes payable 1,320,000 1,140,000
Current portion of obligations under capital leases 194,042 231,432
------------ ------------
Total current liabilities 12,746,516 10,061,660
ACCRUED EMPLOYMENT CONTRACT, less current portion 993,305 1,293,142
TERM NOTES PAYABLE, less current portion 6,921,985 8,241,985
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 85,337 204,967
------------ ------------
Total liabilities 20,747,143 19,801,754
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
REDEEMABLE CONVERTIBLE PREFERRED STOCK -- 2,573,581
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, authorized 85,000,000
shares; 18,411,474 and 15,657,321 shares issued 184,115 156,573
Additional paid-in capital 67,655,133 63,880,084
Accumulated deficit (47,924,064) (43,557,515)
------------ ------------
19,915,184 20,479,142
Less: Notes receivable arising from the exercise of
stock options and sale of common stock (12,772,200) (12,772,200)
Treasury stock, 30,443 shares, at cost (120,461) (120,461)
------------ ------------
Total stockholders' equity 7,022,523 7,586,481
------------ ------------
TOTAL $ 27,769,666 $ 29,961,816
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GALAXY NUTRITIONAL FOODS, INC.
Statements of Operations
Years ended March 31, 2005 2004 2003
------------ ------------ ------------
NET SALES $ 44,510,487 $ 36,176,961 $ 40,008,769
COST OF GOODS SOLD 34,736,594 24,864,289 28,080,188
------------ ------------ ------------
Gross margin 9,773,893 11,312,672 11,928,581
------------ ------------ ------------
OPERATING EXPENSES:
Selling 5,148,426 4,981,996 4,958,272
Delivery 2,307,166 1,877,682 2,008,638
Non-cash compensation related to stock-based
transactions-general and administrative 834,746 651,273 (2,906,762)
Employment contract expense-general and administrative 444,883 1,830,329 --
General and administrative 3,970,690 3,303,030 3,570,889
(Gain) Loss on asset disposals (4,500) 8,519 47,649
Research and development 309,054 260,410 232,552
------------ ------------ ------------
Total operating expenses 13,010,465 12,913,239 7,911,238
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (3,236,572) (1,600,567) 4,017,343
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (1,129,977) (1,361,606) (2,923,215)
Other expense -- -- (60,000)
------------ ------------ ------------
(1,129,977) (1,361,606) (2,983,215)
------------ ------------ ------------
NET INCOME (LOSS) $ (4,366,549) $ (2,962,173) $ 1,034,128
Less:
Preferred Stock Dividends 82,572 201,791 264,314
Preferred Stock Accretion to Redemption Value 203,605 1,340,943 1,370,891
------------ ------------ ------------
NET LOSS TO COMMON STOCKHOLDERS $ (4,652,726) $ (4,504,907) $ (601,077)
============ ============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.27) $ (0.30) $ (0.05)
============ ============ ============
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GALAXY NUTRITIONAL FOODS, INC.
Statements of Cash Flows
Years Ended March 31, 2005 2004 2003
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(4,366,549) $(2,962,173) $ 1,034,128
Adjustments to reconcile net income (loss) to net cash
from (used in) operating activities:
Depreciation and amortization 2,172,566 2,205,053 2,273,349
Amortization of debt discount and financing costs 116,522 236,321 1,264,273
Provision for losses on trade receivables 1,666,000 (221) (177,245)
Non-cash compensation related to stock-based transactions 834,746 651,273 (2,906,762)
(Gain) Loss on disposal of assets (4,500) 8,519 47,649
(Increase) decrease in:
Trade receivables (2,346,166) 999,049 364,907
Inventories 821,373 661,657 454,152
Prepaid expenses and other 46,709 189,012 (67,369)
Increase (decrease) in:
Accounts payable 1,790,920 (1,426,143) (1,520,021)
Accrued liabilities 48,125 1,674,003 408,814
----------- ----------- -----------
NET CASH FROM (USED IN) OPERATING ACTIVITIES 779,746 2,236,350 1,175,875
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (104,339) (221,585) (214,003)
Proceeds from sale of equipment 4,500 -- --
(Increase) decrease in other assets 34,837 (10,193) 113,977
----------- ----------- -----------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (65,002) (231,778) (100,026)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in book overdrafts -- (1,151,276) (41,580)
Net borrowings (payments) on line of credit 853,202 (334,617) (583,981)
Borrowings on term notes payable -- 2,000,000 500,000
Repayments on term notes payable (1,140,000) (1,572,760) (1,763,265)
Repayments on subordinated note payable -- (4,000,000) --
Financing costs for long term debt (37,500) (288,230) (239,539)
Principal payments on capital lease obligations (239,603) (365,635) (431,937)
Proceeds from exercise of common stock options 18,856 16,217 4,250
Proceeds from exercise of common stock warrants, net of costs -- 360,000 --
Proceeds from issuance of common stock under employee stock
purchase plan 24,002 28,527 19,663
Proceeds from issuance of common stock, net of offering costs 2,198,090 3,751,283 1,461,970
Redemption of preferred stock (2,279,688) -- --
----------- ----------- -----------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (602,641) (1,556,491) (1,074,419)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 112,103 448,081 1,430
CASH, BEGINNING OF YEAR 449,679 1,598 168
----------- ----------- -----------
CASH, END OF YEAR $ 561,782 $ 449,679 $ 1,598
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GALAXY NUTRITIONAL FOODS, INC.
EBITDA, as adjusted, (a non-GAAP measure) Reconciliation
(Unaudited)
Years ended March 31, 2005 2004 2003
------------ ------------ ------------
NET SALES $ 44,510,487 $ 36,176,961 $ 40,008,769
------------ ------------ ------------
NET INCOME (LOSS) $ (4,366,549) $ (2,962,173) $ 1,034,128
Plus:
Non-cash compensation expense (income) 834,746 651,273 (2,906,762)
Employment contract expense 444,883 1,830,329 --
Interest expense 1,129,977 1,361,606 2,923,215
Depreciation and amortization expense 2,172,566 2,205,053 2,273,349
------------ ------------ ------------
EBITDA, as adjusted $ 215,623 $ 3,086,088 $ 3,323,930
------------ ------------ ------------
------------ ------------ ------------
As a % of Net Sales 0.5% 8.5% 8.3%
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