Galaxy Nutritional Foods Reports Second Quarter Operating Results
Net Sales Rise 28% in Second Quarter and First Half of FY2005
ORLANDO, Fla., Nov. 15 /PRNewswire-FirstCall/ -- 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 second
quarter and first half of FY2005. For the three months ended
September 30, 2004, net sales increased 28% to approximately $11.9
million, compared with approximately $9.3 million in the second
quarter of FY2004. The increase in net sales was primarily due to
higher contract manufacturing revenues, increased sales of
Wholesome Valley organic products, and an increase in the Company's
Food Service business. 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 also incurred a substantial increase in the cost of certain
key food ingredients and raw materials, which caused gross margin
to decline $419,346 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 in the second half
of the fiscal year. The Company reported a net loss of ($839,762)
in the second quarter of FY2005, versus a net loss of ($228,145) in
the quarter ended September 30, 2003. "Our sales efforts, including
more efficient trade and consumer advertising initiatives,
continued to result in strong top line growth during the most
recent quarter," noted Michael E. Broll, Chief Executive Officer of
Galaxy Nutritional Foods, Inc. "We have enhanced our category
market share and grown our Wholesome Valley organic cheese brand
into the #2 brand position at retail. However, we have experienced
unprecedented increases in critical raw materials prices, driven
primarily by a worldwide shortage of casein, which is a key
ingredient in our dairy alternative products. We were able to
offset some of these higher costs through price increases and cost
control measures during the quarter, which allowed us to restore
positive operating profitability in September. "Based upon
information available at the present time, we believe ingredient
costs will begin to moderate in the fourth quarter of the current
fiscal year. This cost stabilization, coupled with continued
operational expense savings in other areas and some minimal
reductions in growth spending, should improve our bottom line
during the balance of the fiscal year. "While our short-term
operating performance suffered due to higher raw materials costs,
we are pleased with the progress being made towards our longer term
strategic goals, from both an operational and financial
perspective," continued Broll. "Shortly after the end of our second
fiscal quarter, we announced the redemption of all outstanding
convertible preferred stock. This eliminated a great uncertainty
surrounding future dilution of our common shareholders, and our
earnings will not be penalized by non-cash preferred stock
dividends and related accretion expense in the future. We believe
the redemption of the preferred will make our common stock more
attractive to investors as we move forward to restore profitability
and realize Galaxy's potential as a leading manufacturer and
developer of healthy food products for the consumer which are
rapidly growing categories in excess of $20 billion." Results for
the second quarter of FY2005 included non-cash compensation income
of $121,172, whereas results for the prior-year quarter included
non- cash compensation expense of ($128,258). Additionally, results
for the second quarter of FY2005 and FY2004 included employment
contract expense of ($444,883) and $0, respectively. Excluding
these non-cash compensation and employment contract items, the
Company's operating loss, as adjusted (a non- GAAP measure),
totaled ($252,043) in the quarter ended September 30, 2004,
compared with operating income, as adjusted, of $170,185 in the
quarter ended September 30, 2003. The $422,228 decrease in non-GAAP
operating income was primarily the result of the narrowing in gross
margin mentioned above. Net loss for the second quarter of FY2005
totaled ($839,762), versus a net loss of ($228,145) in the quarter
ended September 30, 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 ($516,051) for the
quarter ended September 30, 2004, compared with a net loss, as
adjusted, of ($99,887) in the year-earlier period. The $416,164
increase in non-GAAP net loss 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 ($571,372), or ($0.04) per diluted share,
for the quarter ended September 30, 2004, versus a net loss
available to common shareholders of ($933,385), or ($0.06) per
diluted share, for the quarter ended September 30, 2003. EBITDA, as
adjusted (a non-GAAP measure), for the quarter ended September 30,
2004 declined to $294,002, or 2.5% of net sales, compared with
EBITDA, as adjusted, for the quarter ended September 30, 2003 of
$720,859, or 7.7% 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 used in operating activities during the quarter ended
September 30, 2004 totaled ($1,202,246), compared with cash flow
provided by operating activities of $949,081 in the second 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 six months ended September 30, 2004, net sales
increased 28% to approximately $23.1 million, compared with
approximately $18.0 million in the corresponding period of the
previous fiscal year. The Company reported a net loss of
($1,081,358) in the first half of FY2005, versus a net loss of
($2,198,249) 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 ($1,367,535), or ($0.09)
per share, in the six months ended September 30, 2004, compared
with a net loss available to common shareholders of ($3,853,198),
or ($0.27) per share, in the first half 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 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 There will be a
teleconference and webcast of the Company's 2nd Quarter Fiscal 2005
Earnings Results at 4:00 p.m. EST on Monday, November 15, 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 800-289-0544. All other international/local
callers should dial 913-981-5533. The conference call pass code for
all participants is 876797. The call will be simultaneously webcast
at the following link:
http://phx.corporate-ir.net/playerlink.zhtml?c=102653&s=wm&e=961940
The call will be posted to our website the following day on
Tuesday, November 16, 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: 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 http://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) GALAXY NUTRITIONAL FOODS, INC. Balance Sheets
SEPTEMBER 30, MARCH 31, 2004 2004 (UNAUDITED) ASSETS CURRENT
ASSETS: Cash 423,480 $449,679 Trade receivables, net 5,819,826
3,964,198 Inventories 4,972,097 4,632,843 Prepaid expenses and
other 314,103 266,301 Total current assets 11,529,506 9,313,021
PROPERTY AND EQUIPMENT, NET 19,251,686 20,232,089 OTHER ASSETS
336,192 416,706 TOTAL 31,117,384 $29,961,816 LIABILITIES AND
STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $5,881,762
$4,605,277 Accounts payable 2,439,586 1,266,346 Accrued liabilities
1,538,510 1,812,300 Preferred stock redemption liability 2,484,688
-- Current portion of accrued employment contracts 589,254 366,305
Current portion of term notes payable 1,488,750 1,140,000 Current
portion of obligations under capital leases 186,595 231,432 Total
current liabilities 14,609,145 9,421,660 ACCRUED EMPLOYMENT
CONTRACTS, less current portion 1,286,721 1,293,142 TERM NOTES
PAYABLE, less current portion 7,413,235 8,241,985 OBLIGATIONS UNDER
CAPITAL LEASES, less current portion 150,549 204,967 Total
liabilities 23,459,650 19,161,754 COMMITMENTS AND CONTINGENCIES --
-- CONVERTIBLE PREFERRED STOCK 495,183 2,573,581 STOCKHOLDERS'
EQUITY: Common stock 157,882 156,573 Additional paid-in capital
64,536,203 64,520,084 Accumulated deficit (44,638,873) (43,557,515)
20,055,212 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 7,162,551 8,226,481 TOTAL
$31,117,384 $29,961,816 GALAXY NUTRITIONAL FOODS, INC. Statements
of Operations (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, 2004 2003 2004 2003 NET SALES
$11,900,553 $9,329,907 $23,092,231 $18,025,688 COST OF GOODS SOLD
9,319,969 6,329,977 17,571,299 12,381,093 Gross margin 2,580,584
2,999,930 5,520,932 5,644,595 OPERATING EXPENSES: Selling 1,572,470
1,446,859 3,032,870 2,760,732 Delivery 615,257 433,959 1,208,583
885,776 Non-cash compensation related to options & warrants
(121,172) 128,258 41,202 1,435,389 Employment contract expense
444,883 -- 444,883 -- General and administrative 565,968 886,019
1,199,310 1,869,498 Research and development 78,932 62,908 151,618
125,992 Total operating expenses 3,156,338 2,958,003 6,078,466
7,077,387 INCOME (LOSS) FROM OPERATIONS (575,754) 41,927 (557,534)
(1,432,792) Interest expense (264,008) (270,072) (523,824)
(765,457) NET LOSS $(839,762) $(228,145) $(1,081,358) $(2,198,249)
Preferred Stock Dividends 40,180 53,836 82,572 108,616 Preferred
Stock Accretion to Redemption Value (308,570) 651,404 203,605
1,546,333 NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $(571,372)
$(933,385) $(1,367,535) $(3,853,198) BASIC and DILUTED NET LOSS PER
COMMON SHARE $(0.04) $(0.06) $(0.09) $(0.27) GALAXY NUTRITIONAL
FOODS, INC. Statements of Cash Flows (UNAUDITED) Six Months Ended
September 30, 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES: Net
Income (Loss) $(1,081,358) $(2,198,249) Adjustments to reconcile
net income (loss) to net cash from (used in) operating activities:
Depreciation and amortization 1,092,086 1,108,799 Amortization of
debt discount and financing costs 49,615 152,022 Provision for
losses on trade receivables 164,000 (5,000) Non-cash compensation
related to options and warrants 41,202 1,435,389 (Increase)
decrease in: Trade receivables (2,019,628) 746,596 Inventories
(339,254) 803,444 Prepaid expenses and other (47,802) 27,978
Increase (decrease) in: Accounts payable 1,173,240 (1,021,513)
Accrued liabilities 343,691 (238,762) NET CASH FROM (USED IN)
OPERATING ACTIVITIES (624,208) 810,704 CASH FLOWS FROM INVESTING
ACTIVITIES: Purchase of property and equipment (77,207) (100,087)
Decrease in other assets 22,482 1,807 NET CASH FROM (USED IN)
INVESTING ACTIVITIES (54,725) (98,280) CASH FLOWS FROM FINANCING
ACTIVITIES: Book overdrafts -- (1,151,276) Net borrowings
(payments) on lines of credit 1,276,485 (208,802) Repayments on
subordinated note payable -- (4,000,000) Borrowings on term note
payable -- 2,000,000 Repayments on term notes payable (480,000)
(871,760) Principal payments on capital lease obligations (133,731)
(189,542) Financing costs for long term debt -- (231,578) Proceeds
from issuance of common stock, net of offering costs (10,020)
3,796,868 Proceeds from exercise of common stock warrants --
360,000 NET CASH FROM (USED IN) FINANCING ACTIVITIES 652,734
(496,090) NET INCREASE (DECREASE) IN CASH (26,199) 216,334 CASH,
BEGINNING OF PERIOD 449,679 1,598 CASH, END OF PERIOD $423,480
$217,932 GALAXY NUTRITIONAL FOODS, INC. EBITDA, as adjusted, (a
non-GAAP measure) Reconciliation (Unaudited) THREE MONTHS ENDED SIX
MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2004 2003 2004 2003 NET
SALES $11,900,553 $9,329,907 $23,092,231 $18,025,688 NET LOSS
$(839,762) $(228,145) $(1,081,358) $(2,198,249) Plus: Non-cash
compensation (income) expense (121,172) 128,258 41,202 1,435,389
Employment Contract Expense 444,883 -- 444,883 -- Interest expense
264,008 270,072 523,824 765,457 Depreciation and amortization
expense 546,045 550,674 1,092,086 1,108,799 EBITDA, as adjusted
294,002 720,859 1,020,637 1,111,396 As a % of Net Sales 2.5% 7.7%
4.4% 6.2% DATASOURCE: Galaxy Nutritional Foods CONTACT: Dawn M.
Robert, Investor Relations, Galaxy Nutritional Foods, Inc.,
+1-407-854-0433 Web site: http://www.galaxyfoods.com/
http://phx.corporate-ir.net/playerlink.zhtml?c=102653&s=wm&e=961940
http://www.galaxyfoods.com/corporate.html
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