Galaxy Foods (AMEX:GXY)
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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