GXY Galaxy Foods

Galaxy Nutritional Foods Reports 2nd Quarter 2004 Results and Revised Fiscal 2004 Forecast ORLANDO, Fla., Nov. 14 /PRNewswire-FirstCall/ -- Galaxy Nutritional Foods, Inc. , a leading producer of nutritious plant-based dairy alternatives for the retail and foodservice markets, today reported results for its second quarter of fiscal 2004, ended September 30, 2003. In the quarter ended September 30, 2003, the Company reported a net loss of $228,145 compared to a net income of $732,245 for the quarter ended September 30, 2002. Operating income for the quarter ended September 30, 2003 was $41,927 compared to $1,701,875 for the quarter ended September 30, 2002. The results for the quarter ended September 30, 2003 include a $128,258 expense for non-cash compensation compared to $1,348,089 income for non-cash compensation for the quarter ended September 30, 2002. Excluding the non-cash compensation charges, the $515,957 increase in net income was primarily the result of a substantial decrease in interest expense due to the debt refinancing and restructuring, which was completed in the first quarter of fiscal 2004. Net loss available to common shareholders after non-cash preferred stock dividends and non-cash preferred stock accretion for estimated redemption value was $933,385, or $0.06 per diluted share for the quarter ended September 30, 2003 versus a net income of $541,545, or $0.04 per diluted share for the quarter ended September 30, 2002. Net sales were $9,329,907 and $10,062,331 in the quarter ended September 30, 2003 and 2002, respectively, a decrease of $732,424 or 7%. However, the decrease in gross margin was only $15,171 in the quarter ended September 30, 2003 compared to the quarter ended September 30, 2002. The decrease in net sales is primarily due to a reduction in retail grocery sales from fiscal year 2003. Such reduction is mainly a result of management's previous decision to turn away lower margin private label and sandwich slice business in order to reallocate the Company's limited cash resources (prior to the financial restructuring that was completed on May 30, 2003) for production of higher margin "branded" items. While the effect of this decision caused gross sales to diminish, this approach was the key factor that enabled the Company's gross profit to improve 2% in fiscal 2004 compared to fiscal 2003. Operating cash flow for the quarter ended September 30, 2003 was $949,081 compared to operating cash flow of $186,133 for the quarter ended September 30, 2002. This increase in cash flow in fiscal 2004 was primarily due to a substantial reduction in inventories, in accordance with our adjusted sales forecast. Since the Company's refinancing is now complete, it has once again begun to pursue strategic private label business, which it previously turned away due to cash constraints. The Company's management has also identified several market factors, which have had a negative effect on the Company's business. First, consumers eating habits are changing with the recent trend toward low- carbohydrate meal preparation during all meals (breakfast, lunch, snack, and dinner). This has put downward pressure on consumption of items such as bread and complimentary products such as cheese slices. Secondly, the number of consumers shopping in the retail grocery stores is down versus the prior year due to the further emergence and presence of Wal*Mart. The Company's product selection is growing but still limited at Wal*Mart. Therefore, the Company's sales growth with this account has not been able to fully counter the decline in retail grocery trends. In response to this change in consumer shopping, the Company is redesigning its products and packaging formats to specifically target the "warehouse" club and mass merchandiser (such as Kmart, Target, and Wal*Mart) markets. Christopher J, New, Galaxy's CEO, stated, "Our 2nd quarter fiscal 2004 performance was better than expected. We achieved net sales growth of 7% compared to the 1st quarter of fiscal 2004, delivered significant improvement in net income (excluding non-cash compensation), and provided close to $1 million of cash flow from operations. We expect net sales in the third quarter of fiscal 2004 (ending December 31, 2003) to be comparable to the second quarter of fiscal 2004 after incorporating the seasonal reduction on sales and merchandising due to several holidays." Mr. New went on to say, "Looking forward, we anticipate that the annual net sales for fiscal 2004 will be equal to or up by 5% compared to net sales for fiscal 2003. This revised net sales forecast of a 0% to 5% increase compared to prior expectations of a 10% increase in net sales reflect (a) recent changes in consumers eating and shopping behavior; (b) slower than expected timing for securing private label opportunities; and (c) slower than expected placement of additional points of distribution of the Company's branded items. "We are still on the right course and will continue implementation of our strategy to achieve greater availability and visibility of our higher margin branded products. Additionally, now that the Company has sufficient resources, management will also focus its efforts toward generating consumer awareness, product trials, and generating more repeat purchases for its brands. Finally, we are actively redeveloping relationships with strategic private-label customers, which will enable the Company to better utilize some of its excess production capacity. These efforts should result in greater operating cash flow and a higher return on invested capital." Conference Call And Webcast Information There will be a teleconference and web-cast of the Company's 2nd Quarter Fiscal 2004 earnings results at 10:00 am EST on Monday, November 17, 2003. 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 1-800-811-7286. All other international callers should dial: 1-913-981-4902. The conference call pass code for all participants is 380281. The call will be simultaneously web-cast at the following link: http://www.firstcallevents.com/service/ajwz393692333gf12.html Individuals within the U.S. and Canada who cannot access the call are invited to listen to a digitally recorded version by calling the toll free number: 1-888-203-1112. All other international callers should dial the following number for a digital playback: 1-719-457-0820. It will be required to reference the pass code # 380281 for all digital playbacks. The playback will be available after the call on Monday, November 17, 2003 through Friday, November 21, 2003 until midnight. The call will be posted to our website the following week at: http//http://www.galaxyfoods.com/. 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. GALAXY NUTRITIONAL FOODS, INC. Balance Sheets SEPTEMBER 30, MARCH 31, 2003 2003 (UNAUDITED) ASSETS CURRENT ASSETS: Cash $217,932 $1,598 Trade receivables, net 4,367,651 5,109,247 Inventories 4,491,056 5,294,500 Prepaid expenses and other 525,418 553,396 Total current assets 9,602,057 10,958,741 PROPERTY AND EQUIPMENT, NET 21,159,692 22,168,404 OTHER ASSETS 440,769 274,918 TOTAL $31,202,518 $33,402,063 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Book overdrafts $-- $1,151,276 Line of credit 4,731,092 4,939,894 Accounts payable 1,601,483 2,622,996 Accrued liabilities 1,782,167 1,891,773 Current portion of term notes payable 1,181,000 1,497,760 Current portion of subordinated note payable -- 2,000,000 Current portion of obligations under capital leases 302,275 363,152 Total current liabilities 9,598,017 14,466,851 TERM NOTES PAYABLE, less current portion 9,231,985 7,786,985 SUBORDINATED NOTE PAYABLE -- 2,000,000 OBLIGATIONS UNDER CAPITAL LEASES, less current portion 254,545 383,210 Total liabilities 19,084,547 24,637,046 COMMITMENTS AND CONTINGENCIES -- -- REDEEMABLE CONVERTIBLE PREFERRED STOCK 3,713,392 2,324,671 STOCKHOLDERS' EQUITY: Common stock 151,714 127,617 Additional paid-in capital 63,939,117 59,800,732 Accumulated deficit (42,793,591) (40,595,342) 21,297,240 19,333,007 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 8,404,579 6,440,346 TOTAL $31,202,518 $33,402,063 GALAXY NUTRITIONAL FOODS, INC. Statements of Operations (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2003 2002 NET SALES $9,329,907 $10,062,331 $18,025,688 $20,040,035 COST OF GOODS SOLD 6,329,977 7,047,230 12,381,093 14,283,734 Gross margin 2,999,930 3,015,101 5,644,595 5,756,301 OPERATING EXPENSES: Selling 1,446,859 1,345,678 2,760,732 2,335,315 Delivery 433,959 511,954 885,776 1,083,516 Non-cash compensation related to options & warrants 128,258 (1,348,089) 1,435,389 (2,985,350) General and administrative 886,019 747,243 1,869,498 1,588,749 Research and development 62,908 56,440 125,992 114,214 Total operating expenses 2,958,003 1,313,226 7,077,387 2,136,444 INCOME (LOSS) FROM OPERATIONS 41,927 1,701,875 (1,432,792) 3,619,857 Interest expense 270,072 969,630 765,457 1,868,102 NET INCOME (LOSS) $(228,145) $732,245 $(2,198,249) $1,751,755 Preferred Stock Dividends 53,836 70,000 108,616 140,000 Preferred Stock Accretion to Redemption Value 651,404 120,700 1,546,333 459,977 NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $(933,385) $541,545 $(3,853,198) $1,151,778 BASIC NET INCOME (LOSS) PER COMMON SHARE $(0.06) $0.05 $(0.27) $0.10 DILUTED NET INCOME (LOSS) PER COMMON SHARE $(0.06) $0.04 $(0.27) $0.09 GALAXY NUTRITIONAL FOODS, INC. Statements of Cash Flows (UNAUDITED) Six Months Ended September 30, 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $(2,198,249) $1,751,755 Adjustments to reconcile net income (loss) to net cash from (used in) operating activities: Depreciation and amortization 1,108,799 1,138,945 Amortization of debt discount and financing costs 152,022 989,205 Provision for losses on trade receivables (5,000) 158,300 Non-cash compensation related to options and warrants 1,435,389 (2,985,350) (Increase) decrease in: Trade receivables 746,596 184,062 Inventories 803,444 501,719 Prepaid expenses and other 27,978 (37,160) Increase (decrease) in: Accounts payable (1,021,513) (953,465) Accrued liabilities (238,762) 161,661 NET CASH FROM (USED IN) OPERATING ACTIVITIES 810,704 909,672 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (100,087) (192,578) Increase in other assets 1,807 -- NET CASH FROM (USED IN) INVESTING ACTIVITIES (98,280) (192,578) CASH FLOWS FROM FINANCING ACTIVITIES: Book overdrafts (1,151,276) (809,285) Net payments on lines of credit (208,802) (624,053) Repayments on subordinated note payable (4,000,000) -- Borrowings on term note payable 2,000,000 500,000 Repayments on term notes payable (871,760) (904,840) Principal payments on capital lease obligations (189,542) (230,116) Financing costs for long term debt (231,578) (128,289) Proceeds from issuance of common stock, net of offering costs 3,796,868 1,480,994 Proceeds from exercise of common stock warrants 360,000 -- NET CASH FROM (USED IN) FINANCING ACTIVITIES (496,090) (715,589) NET INCREASE (DECREASE) IN CASH 216,334 1,505 CASH, BEGINNING OF PERIOD 1,598 168 CASH, END OF PERIOD $217,932 $1,673 DATASOURCE: Galaxy Nutritional Foods, Inc. CONTACT: Dawn M. Rob�rt, Investor Relations of Galaxy Nutritional Foods, +1-407-854-0433 Web site: http://www.galaxyfoods.com/

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