For Immediate Release: Contact:
August 14, 2006 Dawn M. Robert, Investor Relations
Galaxy Nutritional Foods, Inc.
(407) 854-0433
GALAXY NUTRITIONAL FOODS REPORTS
FIRST QUARTER OPERATING RESULTS
OPERATING PROFITABILITY RESTORED, EXCLUSIVE OF NON-RECURRING CHARGES
ORLANDO, Florida (August 14, 2006) Galaxy Nutritional Foods, Inc. (OTC BB:
GXYF), a leading developer and marketer of cheese alternative and dairy-related
products, today reported its operating results for the first quarter of FY2007.
For the three months ended June 30, 2006, the Company reported an operating loss
of ($999,287) and a net loss of ($1,342,429), or ($0.07) per share, on net sales
of approximately $7.8 million. Operating expenses during the first quarter of
FY2007 included a previously disclosed final write-down of a non-recurring,
non-cash reserve on a stockholder note receivable in the amount of $1,428,000.
In addition, the Company incurred $101,744 in costs related to asset disposal
activities and $5,830 in non-cash stock-based compensation expense. Exclusive of
these items, the Company would have reported income from operations of $536,287
in the most recent quarter. In the prior-year quarter, the Company reported a
net loss of ($9,144,114), or ($0.49) per share, on net sales of approximately
$9.9 million. Operating expenses in the quarter ended June 30, 2005 included
approximately $7.9 million in charges related to assets that were later sold,
$189,069 in costs related to disposal activities and $867,518 in non-cash
stock-based compensation expense. The Company generated EBITDA, as adjusted, a
non-GAAP measure, of $694,622 (8.9% of net sales) in the quarter ended June 30,
2006, which represented a 61% improvement when compared with $430,631 (4.4% of
net sales) in the prior-year quarter (see EBITDA table at end of this release
for further non-GAAP information and disclosure).
"We are very pleased to report a return to profitability in the first quarter of
our new fiscal year, exclusive of these expenses that were primarily non-cash in
nature," stated Michael E. Broll, Chief Executive Officer of Galaxy Nutritional
Foods, Inc. "This represents the achievement of a major milestone in the
Company's turnaround strategy and primarily reflects the elimination of
significant costs through the outsourcing of our manufacturing and distribution
activities. This was evident in the improvement in our gross margin to 35.2% of
sales in the most recent quarter, compared with 23.0% in the prior-year period,
along with a 50% reduction in delivery expenses as a percentage of net sales
from year-earlier levels."
2
"As anticipated, net sales declined in the first quarter as we eliminated
unprofitable or marginally profitable accounts and non-core product lines. Our
strategy is to increase the effectiveness of our price-based promotions to
generate higher sales of our more profitable branded products, but the
elimination of marginally profitable private label and other products will
result in lower net sales during the balance of Fiscal 2007, when compared with
prior-year periods. Looking forward, management intends to pursue sales and
marketing opportunities that have the ability to realize Galaxy's potential as a
strong brand leader in the cheese alternative niche of the `healthy' foods
marketplace," concluded Broll.
CONFERENCE CALL AND WEBCAST INFORMATION
The Company will host an investor conference call today, August 14, 2006 at
11:00 a.m. EDT; shareholders and other interested parties may participate in the
conference call by dialing 800-865-4425 (international/local participants dial
973-935-2403), and referencing the ID passcode 7679218, a few minutes before
11:00 a.m. EDT on August 14, 2006. The call will also be broadcast live on the
Internet at http://www.vcall.com/IC/CEPage.asp?ID=107745. A replay of the call
will be archived on the Internet through August 22, 2006 at
http://www.vcall.com/IC/CEPage.asp?ID=107745.
About Galaxy Nutritional Foods, Inc.
Galaxy Nutritional Foods, Inc. (OTC BB: GXYF) develops and globally markets
plant-based cheese and dairy alternatives, as well as processed organic cheese
and cheese food to grocery and natural foods retailers, mass merchandisers and
foodservice 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.
Galaxy Nutritional Foods, Inc. is headquartered in Orlando, Florida, and its
common stock is quoted on the OTC Bulletin Board under the symbol "GXYF".
This press release includes a non-GAAP financial measure with respect to EBITDA,
as adjusted. The non-GAAP financial measure included in this press release may
be different from, and therefore may not be comparable to, similar measures used
by other companies. Please see the last page of this release for more
information on EBITDA, as adjusted, and the reconciliation of this financial
measure to GAAP measures.
Any statement of future expectations in this press release, including without
limitation, as to future revenues, earnings and profitability, plans and
objectives for future operations, future economic performance or expected
operational developments, and all other statements regarding the future are
"forward looking" statements within the meaning of the Private Securities
Litigation Act of 1995. These forward looking statements are based on the
Company's strategic plans and involve risks and uncertainties that may cause
actual results to differ materially and adversely from these forward looking
statements. Such risks and uncertainties include, without limitation: the
Company's ability to execute its business strategy in a very competitive service
and pricing environment; risks associated with the launch of new marketing
campaigns; continued relations with and pricing dependence on third party
suppliers; and other risks referenced from time to time in the Company's filings
with the Securities and Exchange Commission. Readers are cautioned not to place
undue reliance on these 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)
3
GALAXY NUTRITIONAL FOODS, INC.
Balance Sheets
JUNE 30, MARCH 31,
2006 2006
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 719,436 $ 435,880
Trade receivables, net 3,212,483 4,018,806
Inventories 290,269 273,528
Prepaid expenses and other 166,228 70,717
------------ ------------
Total current assets 4,388,416 4,798,931
PROPERTY AND EQUIPMENT, NET 173,527 226,349
ASSETS HELD FOR SALE 56,200 61,950
OTHER ASSETS 232,423 162,840
------------ ------------
TOTAL $ 4,850,566 $ 5,250,070
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Secured borrowings $ 2,087,256 $ 1,919,002
Accounts payable 2,033,599 2,665,963
Accrued disposal costs 420,204 480,404
Accrued and other current liabilities 330,238 542,811
Related party notes payable -- 2,273,021
Current portion of accrued employment contracts 378,596 434,114
Current portion of obligations under capital leases 14,766 20,231
------------ ------------
Total current liabilities 5,264,659 8,335,546
ACCRUED EMPLOYMENT CONTRACTS, less current portion 468,658 559,677
RELATED PARTY NOTE PAYABLE 2,685,104 --
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 23,404 37,507
------------ ------------
Total liabilities 8,441,825 8,932,730
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' DEFICIT:
Common stock 200,546 200,546
Additional paid-in capital 71,351,386 71,345,556
Accumulated deficit (73,798,730) (72,456,301)
------------ ------------
(2,246,798) (910,199)
Less: Notes receivable arising from the exercise of
stock options -- (2,652,000)
Treasury stock (1,344,461) (120,461)
------------ ------------
Total stockholders' deficit (3,591,259) (3,682,660)
------------ ------------
TOTAL $ 4,850,566 $ 5,250,070
============ ============
4
GALAXY NUTRITIONAL FOODS, INC.
Statements of Operations
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
2006 2005
------------ ------------
NET SALES $ 7,832,562 $ 9,851,153
COST OF GOODS SOLD 5,075,212 7,582,855
------------ ------------
Gross margin 2,757,350 2,268,298
------------ ------------
OPERATING EXPENSES:
Selling 965,979 936,245
Delivery 246,542 615,471
General and administrative, including $5,830 and
$867,518 non-cash compensation related to stock
based transactions 984,862 1,667,472
Research and development 42,334 91,042
Reserve on stockholder note receivable 1,428,000 --
Cost of disposal activities 101,744 189,069
Impairment of equipment -- 7,896,554
(Gain)/loss on sale of assets (12,824) (636)
------------ ------------
Total operating expenses 3,756,637 11,395,217
------------ ------------
LOSS FROM OPERATIONS (999,287) (9,126,919)
OTHER INCOME (EXPENSE):
Interest expense (343,142) (357,195)
Gain/(loss) on fair value of warrants -- 340,000
------------ ------------
Total other income (expense) (343,142) (17,195)
------------ ------------
NET LOSS $ (1,342,429) $ (9,144,114)
============ ============
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.07) $ (0.49)
============ ============
5
GALAXY NUTRITIONAL FOODS, INC.
Statements of Cash Flows
(UNAUDITED)
Three Months Ended June 30, 2006 2005
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(1,342,429) $(9,144,114)
Adjustments to reconcile net loss to net cash from (used in)
operating activities:
Depreciation and amortization 52,822 539,103
Amortization of debt discount and financing costs 228,308 27,422
Provision for promotional deductions and losses on trade
receivables (774,987) 313,000
Provision for loss on stockholder note receivable 1,428,000 --
(Gain) loss on disposal of assets (12,824) 7,895,918
(Gain) loss on fair value of warrants -- (340,000)
Non-cash compensation related to stock-based transactions 5,830 867,518
(Increase) decrease in:
Trade receivables 1,581,310 (1,221,881)
Inventories (16,741) (206,579)
Prepaid expenses and other (95,511) (272,486)
Increase (decrease) in:
Accounts payable (632,364) 15,335
Accrued and other liabilities (134,206) 123,360
----------- -----------
NET CASH FROM (USED IN) OPERATING ACTIVITIES 287,208 (1,403,404)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (68,850)
Proceeds from sale of equipment 21,855 8,200
(Increase) decrease in other assets (44,775) --
----------- -----------
NET CASH FROM (USED IN) INVESTING ACTIVITIES (22,920) (60,650)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in book overdrafts -- 541,317
Net borrowings (payments) on secured borrowings 168,254 (722,023)
Repayments on term notes payable -- (440,000)
Principal payments on capital lease obligations (22,849) (47,994)
Financing costs for long term debt (126,137) (160,588)
Proceeds from exercise of common stock options -- 2,560
Proceeds from exercise of common stock warrants, net of costs -- 1,729,000
----------- -----------
NET CASH FROM (USED IN) FINANCING ACTIVITIES 19,268 902,272
----------- -----------
NET INCREASE (DECREASE) IN CASH 283,556 (561,782)
CASH, BEGINNING OF PERIOD 435,880 561,782
----------- -----------
CASH, END OF PERIOD $ 719,436 $ --
=========== ===========
6
GALAXY NUTRITIONAL FOODS, INC.
EBITDA, as adjusted, (a non-GAAP measure) Reconciliation
(Unaudited)
THREE MONTHS ENDED
JUNE 30,
2006 2005
----------- -----------
NET SALES $ 7,832,562 $ 9,851,153
----------- -----------
NET LOSS $(1,342,429) $(9,144,114)
Plus:
Non-cash compensation expense 5,830 867,518
G&A expenses related to strategic
alternatives 118,337 65,942
Reserve on stockholder note receivable 1,428,000 --
Cost of disposal activities 101,744 189,069
Impairment of property and equipment -- 7,896,554
(Gain)/Loss on sale of assets (12,824) (636)
(Gain)/loss on fair value of warrants -- (340,000)
Interest expense 343,142 357,195
Depreciation and amortization expense 52,822 539,103
----------- -----------
EBITDA, as adjusted 694,622 430,631
----------- -----------
----------- -----------
As a % of Net Sales 8.9% 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 and
forecasts. In its determination of non-GAAP measures, management excludes the
non-cash compensation related to stock-based compensation, G&A expenses related
to strategic alternatives, the cost of disposal activities, impairment or loss
on the sale of assets, and the reserve against a stockholder note receivable
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 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.
###
7