[COMPANY LOGO]
For Immediate Release: Contact:
February 21, 2006 Dawn M. Robert, Investor Relations
Galaxy Nutritional Foods, Inc.
(407) 854-0433
GALAXY NUTRITIONAL FOODS REPORTS
THIRD QUARTER AND NINE-MONTH OPERATING RESULTS
ORLANDO, Florida (February 21, 2006) 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 the
third quarter and first nine months of FY2006.
For the three months ended December 31, 2005, net sales decreased to
approximately $9.1 million, compared with net sales of approximately $10.6
million in the third quarter of FY2005. The reduction in net sales primarily
reflects a reduction in sales of private label products to Wal-Mart, along with
some consumer resistance to the multiple price increases that were implemented
by the Company in late fiscal 2005 and early fiscal 2006 to offset higher
commodity and other production costs. The Company reported a net loss to common
stockholders of ($11,754,981), or ($0.59) per share, in the most recent quarter,
compared with a restated net loss to common stockholders of ($1,061,807), or
($0.06) per share, in the prior-year quarter. Approximately 84% of the net loss
in the quarter ended December 31, 2005 reflected costs associated with a reserve
against a stockholder note receivable, disposal activities related to the
transition of production to an outside manufacturer, and losses on the sale of
assets. Gross profit margin approximated 21% of sales in the third quarter of
FY2006, versus 22% of sales in the prior-year quarter, primarily due to
inventory disposals and additional overhead costs during the abovementioned
outsourcing transition. General and administrative expenses increased 81% in the
most recent quarter, when compared with the prior-year quarter ($1,394,599 vs.
$771,382), primarily due to professional fees related to evaluating strategic
alternatives, additional bad debt costs and liquidated damages related to a
registration rights agreement.
"Our third quarter financial results continued to be significantly impacted by
non-recurring costs associated with the recent sale of our manufacturing assets
and the transition of production and distribution activities to an outside
manufacturer, along with a $9.1 million reserve against a non-recourse
stockholder note receivable where the collateral value is significantly below
the face value of the note," noted Michael E. Broll, Chief Executive Officer of
Galaxy Nutritional Foods, Inc. "We expect to begin realizing benefits from the
production outsourcing and distribution relationship in the current quarter,
when profitability should improve significantly relative to the prior-year
quarter and first three quarters of Fiscal 2006."
The Company's balance sheet has been transformed significantly since the sale of
its manufacturing assets for $8,700,000 in December 2005. The proceeds allowed
Galaxy to retire approximately $8,694,000 in bank debt and accrued property
taxes. At December 31, 2005, the Company's long-term liabilities approximated
$708,000, compared with over $8 million at the beginning of FY2006.
"We anticipate improved cash flows to fund operations as debt service costs
decline sharply due to the repayment of the majority of our bank debt, and as we
complete our transformation from a manufacturing company into a branded
marketing company," continued Broll. "With significantly lower inventory and
distribution costs, along with the elimination of manufacturing overhead,
management can devote a substantially greater amount of time and resources to
the marketing and sale of our products. Initial results from recent advertising
and promotional initiatives in several cities have been encouraging, and we will
continue to pursue the most effective means of communicating to consumers the
benefits of our healthy food products in terms of no cholesterol, low fat and an
excellent source of calcium."
For the nine months ended December 31, 2005, sales decreased to approximately
$29.4 million, compared with net sales of $33.7 million in the first nine months
of FY2005. The decline in net sales primarily reflects a reduction in private
label sales to Wal-Mart. The Company reported a net loss to common stockholders
of ($22,315,233), or ($1.14) per share, in the first nine months of FY2006,
compared with a restated net loss to common stockholders of ($1,716,065), or
($0.10) per share, in the corresponding period of FY2005. Approximately 83%
($18.4 million) of the net loss in the first nine months of FY2006 reflected
costs related to the transition of production to an outside manufacturer (e.g.,
asset impairment charges, losses on the sale of assets, disposal activities),
along with a $9.1 million reserve against a stockholder note receivable.
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 800-322-0079 (international/local participants dial 973-409-9258) and
referencing the ID code 7066789, a few minutes before 11:00 a.m. EST on February
21, 2006. The call will also be broadcast live on the Internet at
http://phx.corporate-ir.net/playerlink.zhtml?c=102653&s=wm&e=1217907 . The call
will be archived on the Internet through April 22, 2006 at
http://phx.corporate-ir.net/playerlink.zhtml?c=102653&s=wm&e=1217907.
About Galaxy Nutritional Foods, Inc.
Galaxy Nutritional Foods, Inc. (AMEX: GXY) globally markets and distributes
plant-based cheese alternatives and dairy alternatives, as well as processed
organic cheese and cheese food to grocery and natural foods retailers, mass
merchandisers and food service accounts. Veggie, the leading brand in the
grocery cheese alternative category and the Company's top selling product group,
is primarily merchandised in the produce section and provides calcium and
protein without cholesterol, saturated fat or trans-fat. Other popular brands
include: Rice, Veggy, Vegan, and Wholesome Valley. Galaxy Nutritional Foods,
Inc. is dedicated to developing nutritious products to meet the taste and
dietary needs of today's increasingly health conscious consumers. For more
information, visit 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 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
DECEMBER 31, MARCH 31,
2005 2005
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 378,954 $ 561,782
Trade receivables, net 5,432,736 4,644,364
Inventories 565,673 3,811,470
Prepaid expenses and other 634,856 219,592
------------ ------------
Total current assets 7,012,219 9,237,208
PROPERTY AND EQUIPMENT, NET 283,167 18,246,445
ASSETS HELD FOR SALE 90,000 --
OTHER ASSETS 247,334 286,013
------------ ------------
TOTAL $ 7,632,720 $ 27,769,666
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit $ 2,238,722 $ 5,458,479
Accounts payable 3,545,015 3,057,266
Accrued disposal costs 602,762 --
Accrued and other current liabilities 700,550 2,130,206
Current portion of accrued employment contracts 491,147 586,523
Current portion of term notes payable 2,120,645 1,320,000
Current portion of obligations under capital leases 31,464 194,042
------------ ------------
Total current liabilities 9,730,305 12,746,516
ACCRUED EMPLOYMENT CONTRACTS, less current portion 655,020 993,305
TERM NOTES PAYABLE, less current portion -- 6,921,985
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 53,487 85,337
------------ ------------
Total liabilities 10,438,812 20,747,143
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
TEMPORARY EQUITY:
Common stock, subject to registration -- 2,220,590
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 200,513 164,115
Additional paid-in capital 71,379,694 65,838,227
Accumulated deficit (70,622,981) (48,307,748)
------------ ------------
957,226 17,694,594
Less: Note receivable arising from the exercise of stock options,
net (3,642,857) (12,772,200)
Treasury stock (120,461) (120,461)
------------ ------------
Total stockholders' equity (deficit) (2,806,092) 4,801,933
------------ ------------
TOTAL $ 7,632,720 $ 27,769,666
============ ============
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GALAXY NUTRITIONAL FOODS, INC.
Statements of Operations
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
RESTATED RESTATED
NET SALES $ 9,072,097 $ 10,632,877 $ 29,361,475 $ 33,725,108
COST OF GOODS SOLD 7,182,502 8,289,551 22,582,708 25,860,850
------------ ------------ ------------ ------------
Gross margin 1,889,595 2,343,326 6,778,767 7,864,258
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling 1,161,751 1,213,549 3,655,543 4,246,419
Delivery 544,665 549,379 1,886,214 1,757,962
Employment contract expense - general
and administrative -- -- -- 444,883
General and administrative, including
$52,676, $176,186, $923,513 and
$217,388 non-cash compensation
related to stock based transactions 1,394,599 771,382 3,999,362 2,011,894
Research and development 75,961 74,861 256,055 226,479
Reserve on note receivable 9,129,343 -- 9,129,343 --
Cost of disposal activities 668,936 -- 1,342,204 --
Impairment of property and equipment -- -- 7,896,554 --
Loss on sale of assets 65,360 -- 70,966 --
------------ ------------ ------------ ------------
Total operating expenses 13,040,615 2,609,171 28,236,241 8,687,637
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (11,151,020) (265,845) (21,457,474) (823,379)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (595,692) (288,556) (1,246,490) (812,380)
Derivative income (expense) -- (258,658) -- 62,829
Gain/(loss) on fair value of warrants (8,269) (202,414) 388,731 258,937
------------ ------------ ------------ ------------
Total other income (expense) (603,961) (749,628) (857,759) (490,614)
------------ ------------ ------------ ------------
NET LOSS $(11,754,981) $ (1,015,473) $(22,315,233) $ (1,313,993)
Less:
Preferred stock dividends -- 2,174 -- 82,572
Preferred stock accretion to
redemption value -- 44,160 -- 319,500
------------ ------------ ------------ ------------
NET LOSS TO COMMON STOCKHOLDERS $(11,754,981) $ (1,061,807) $(22,315,233) $ (1,716,065)
============ ============ ============ ============
BASIC AND DILUTED NET LOSS PER COMMON
SHARE $ (0.59) $ (0.06) $ (1.14) $ (0.10)
============ ============ ============ ============
See accompanying notes to financial statements.
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GALAXY NUTRITIONAL FOODS, INC.
Statements of Cash Flows
(UNAUDITED)
Nine Months Ended December 31, 2005 2004
------------ ------------
RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(22,315,233) $ (1,313,993)
Adjustments to reconcile net loss to net cash from (used in)
operating activities:
Depreciation and amortization 1,463,036 1,633,256
Amortization of debt discount and financing costs 424,016 65,881
Provision for promotional deductions and losses on trade
receivables 1,543,025 109,000
Provision for loss on note receivable 9,129,343 --
Impairment and loss on sale of property and equipment 7,967,520 --
Change in fair value of derivative instrument -- (62,829)
(Gain) Loss on fair value of warrants (388,731) (258,937)
Non-cash compensation related to stock-based transactions 923,513 217,388
(Increase) decrease in:
Trade receivables (2,331,397) (1,398,623)
Inventories 3,245,797 (370,817)
Prepaid expenses and other (415,264) 51,759
Increase (decrease) in:
Accounts payable 487,749 1,026,304
Accrued and other liabilities (520,555) 120,973
------------ ------------
NET CASH FROM (USED IN) OPERATING ACTIVITIES (787,181) (180,638)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (304,353) (77,207)
Proceeds from sale of equipment 8,747,075 34,482
------------ ------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES 8,442,722 (42,725)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit (3,219,757) 941,426
Borrowing on term notes payable 2,400,000 --
Repayments on term notes payable (8,241,985) (810,000)
Principal payments on capital lease obligations (194,428) (190,282)
Financing costs for long term debt (288,697) --
Redemption of preferred stock -- (2,279,688)
Proceeds from issuance of common stock, net of costs -- 2,211,366
Proceeds from issuance of common stock under employee stock
purchase plan 11,861 12,480
Proceeds from exercise of common stock options 2,879 --
Proceeds from exercise of common stock warrants, net of costs 1,691,758 --
------------ ------------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (7,838,369) (114,698)
------------ ------------
NET INCREASE (DECREASE) IN CASH (182,828) (338,061)
CASH, BEGINNING OF PERIOD 561,782 449,679
------------ ------------
CASH, END OF PERIOD $ 378,954 $ 111,618
============ ============
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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,
------------------------------ ------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
NET SALES $ 9,072,097 $ 10,632,877 $ 29,361,475 $ 33,725,108
------------ ------------ ------------ ------------
NET LOSS $(11,754,981) $ (1,015,473) $(22,315,233) $ (1,313,993)
Plus:
Non-cash compensation expense 52,676 176,186 923,513 217,388
Employment contract expense -- -- -- 444,883
Reserve on stockholder note
receivable 9,129,343 -- 9,129,343 --
Cost of disposal activities 668,936 -- 1,342,204 --
Impairment of property and
equipment -- -- 7,896,554 --
Loss on sale of assets 65,360 -- 70,966 --
Derivative (income) expense -- 258,658 -- (62,829)
(Gain)/loss on fair value of
warrants 8,269 202,414 (388,731) (258,937)
Interest expense 595,692 288,556 1,246,490 812,380
Depreciation and amortization
expense 387,184 541,170 1,463,036 1,633,256
------------ ------------ ------------ ------------
EBITDA, as adjusted (847,521) 451,511 (631,858) 1,472,148
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
As a % of Net Sales (9.3%) 4.2% (2.2%) 4.4%
============ ============ ============ ============
Footnote on non-GAAP Measures Presented Above
Management utilizes certain non-GAAP measures such as 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, the cost of disposal activities, impairment or loss on the sale of
assets, the reserve against a stockholder note receivable, and certain
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, derivative expense
and fair value of warrants, they are 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.
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