GXY Galaxy Foods

Galaxy Nutritional Foods Reports 3rd Quarter 2004 Results ORLANDO, Fla., Feb. 17 /PRNewswire-FirstCall/ -- Galaxy Nutritional Foods, Inc. , a leading producer of nutritious plant-based dairy alternatives for the retail and foodservice markets, todayreported results for its third quarter of fiscal 2004, ended December 31, 2003. In the quarter ended December 31, 2003, the Company reported a net loss of $1,378,354 compared to a net loss of $476,568 for the quarter ended December 31, 2002. The results for the quarter ended December 31, 2003 include non-cash compensation income of $255,712 and a charge for employment contract expenses of $1,830,329 compared to non-cash compensation expense of $190,720 for the quarter ended December 31, 2002. Excluding these non-cash compensation and employment contract charges, the Company had non-GAAP net income of $196,263 for the quarter ended December 31, 2003 compared to a non-GAAP net loss of $285,848 for the quarter ended December 31, 2002. This $482,111increase in non-GAAP 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, and a decrease in general and administrative expenses in the quarter ended December 31, 2003 compared to December 31, 2002. In its determination of non-GAAP income or loss, 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 whichare outside the Company's control and typically do not reflect the Company's operations. The employment contract expense reflects the total costs that will be paid out over the next five years pursuant to the Amended and Restated Employment Agreement for the Company's founder, Angelo Morini, which became effective as of October 13, 2003. The Company accrued and expensed the five-year cost of this agreement in the quarter ended December 31, 2003. These non-GAAP income or loss 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. Management believes that its presentation of non-GAAP measures provide useful information to managementand investors regarding certain financial and business trends relating to its financial condition and results of operations. Additionally, these measures are the primary basis upon which the Company prepares its budgets and forecasts. After non-cash preferred stock dividends and non-cash preferred stock accretion for estimated redemption value, net loss available to common shareholders was $1,557,986, or $0.10 per diluted share for the quarter ended December 31, 2003 versus a net loss available to common shareholders of $1,823,610, or $0.15 per diluted share for the quarter ended December 31, 2002. Net sales were $9,638,571 and $9,755,729 in the quarters ended December 31, 2003 and 2002, respectively, a decrease of $117,158 or 1%. The decrease in net sales is primarily due to a reduction in retail grocery slice sales in fiscal 2004. Operating cash flow for the quarter ended December 31, 2003 was $1,157,359 compared to operating cash flow of $1,084,739 for the quarter ended December 31, 2002. This increase in cash flow in the 3rd quarter of fiscal 2004 was primarily due to a substantial reduction in inventories, in accordance with our adjusted sales forecast. Christopher J. New, Galaxy's CEO, stated, "We are pleased with our 3rd quarter fiscal 2004 performance where the Company achieved net sales growth of 3% compared to the 2nd quarter of fiscal 2004, provided over $1.1 million of net cash from operations and reported a non-GAAP net income of $196,263." Mr. New went on to say, "Lookingforward, we anticipate that the annual net sales for fiscal 2004 will be down by 5% to 9% compared to net sales for fiscal 2003. This reduced net sales forecast compared to prior expectations of an equal to or 5% increase in net sales reflects stronger than expected downward pressure on slices in retail grocery and natural food channels due to (a) ongoing changes in consumer's eating and shopping behavior; (b) slower than expected timing for securing new strategic opportunities; (c) lower than expected performance from additional points of distribution of the Company's branded items; and (d) the impact of the Southern California retail grocery labor strike." Mr. New also indicated that, "in order to counter these challenges so we may positively impact sales volume going forward into fiscal 2005, the Company is focusing on three primary areas: (1) the Company is shifting the emphasis and resource allocation of its marketing strategy from vendor promotions to consumer advertising and promotions; (2) generating consumer awareness, product trials, and more repeat purchases for its brands; and (3) pursuing strategic opportunities which will enable the Company to better utilize some of its excess production capacity. These moves 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 3rd Quarter Fiscal 2004 earnings results at 10:00am EST on Wednesday, February 18,2004. 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 1-800-811-7286. All other international callers should dial: 1-913-981-4902. The conference call pass code for all participants is 594933. The call will be simultaneously web-cast at the following link: http://www.ycall.com/CEPage.asp?ID=86006 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 willbe required to reference the pass code # 594933 for all digital playbacks. The playback will be available after 1:00 p.m. EST on Wednesday, February 18, 2004 through Wednesday, February 25, 2004 until midnight. The call will be posted to our website the following week at: 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 TORELEASE 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 DECEMBER 31, MARCH 31, 2003 2003 (UNAUDITED) ASSETS CURRENT ASSETS: Cash $ 476,740 $ 1,598 Trade receivables, net 4,240,708 5,109,247 Inventories 4,086,305 5,294,500 Prepaid expenses and other 359,328 553,396 Total current assets 9,163,081 10,958,741 PROPERTY AND EQUIPMENT, NET 20,686,284 22,168,404 OTHER ASSETS 397,158 274,918 TOTAL $ 30,246,523 $ 33,402,063 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Book overdrafts $ -- $ 1,151,276 Line of credit 4,389,978 4,939,894 Accounts payable 1,471,195 2,622,996 Accrued liabilities 2,129,293 1,891,773 Current portion of term notes payable 1,136,000 1,497,760 Current portion of subordinated note payable -- 2,000,000 Current portion of obligations under capital leases 244,744 363,152 Total current liabilities 9,371,210 14,466,851 ACCRUED EMPLOYMENT CONTRACT, less current portion 1,388,026 -- TERM NOTES PAYABLE, less current portion 8,571,985 7,786,985 SUBORDINATED NOTE PAYABLE -- 2,000,000 OBLIGATIONS UNDER CAPITAL LEASES, less current portion 203,797 383,210 Total liabilities 19,535,018 24,637,046 COMMITMENTS AND CONTINGENCIES -- -- REDEEMABLE CONVERTIBLE PREFERRED STOCK 3,213,849 2,324,671 STOCKHOLDERS' EQUITY: Common stock 154,948 127,617 Additional paid-in capital 64,407,314 59,800,732 Accumulated deficit (44,171,945) (40,595,342) 20,390,317 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 7,497,656 6,440,346 TOTAL $ 30,246,523 $ 33,402,063 GALAXY NUTRITIONAL FOODS, INC. Statements of Operations (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 NET SALES $ 9,638,571 $ 9,755,729 $ 27,664,259 $ 29,795,764 COST OF GOODS SOLD 6,715,750 6,805,863 19,096,843 21,089,597 Gross margin 2,922,821 2,949,866 8,567,416 8,706,167 OPERATING EXPENSES: Selling 1,110,097 1,240,544 3,870,829 3,575,859 Delivery 544,930 478,331 1,430,706 1,561,847 Non-cash compensation related to options & warrants (255,712) 190,720 1,179,677 (2,794,630) Employment contract expense 1,830,329 -- 1,830,329 -- General and administrative 752,123 864,399 2,621,621 2,453,148 Research and development 65,474 60,674 191,466 174,888 Total operating expenses 4,047,241 2,834,668 11,124,628 4,971,112 INCOME (LOSS) FROM OPERATIONS (1,124,420) 115,198 (2,557,212) 3,735,055 Interest expense (253,934) (536,766) (1,019,391) (2,404,868) Other expense -- (55,000) -- (55,000) NET INCOME (LOSS) $ (1,378,354) $ (476,568) $ (3,576,603) $ 1,275,187 Preferred Stock Dividends 48,556 69,020 157,172 209,020 Preferred Stock Accretion to Redemption Value 131,076 1,278,022 1,677,409 1,737,999 NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (1,557,986) $ (1,823,610) $ (5,411,184) $ (671,832) BASIC and DILUTED NET LOSS PER COMMON SHARE $ (0.10) $ (0.15) $ (0.37) $ (0.06) NET INCOME (LOSS) $ (1,378,354) $ (476,568) $ (3,576,603) $1,275,187 Plus: Non-cash compensation related to options & warrants (255,712) 190,720 1,179,677 (2,794,630) Employment contract expense 1,830,329 -- 1,830,329 -- NON-GAAP REPORTING OF NET INCOME (LOSS) $ 196,263 $ (285,848) $ (566,597) $(1,519,443) GALAXY NUTRITIONAL FOODS, INC. Statements of Cash Flows (UNAUDITED) Nine Months Ended December 31, 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) (3,576,603) 1,275,187 Adjustments to reconcile net income (loss) to netcash from (used in) operating activities: Depreciation and amortization 1,657,431 1,707,586 Amortization of debt discount and financing costs 192,078 1,120,145 Provision for losses on trade receivables 14,000 (136,700) Non-cash compensation related to options and warrants 1,179,677 (2,794,630) (Increase) decrease in: Trade receivables 854,539 1,104,625 Inventories 1,208,195 620,921 Prepaid expenses and other 26,492 (44,253) Increase (decrease) in: Accounts payable (1,151,801) (1,054,170) Accrued liabilities 1,564,055 195,700 NET CASH FROM (USED IN) OPERATING ACTIVITIES 1,968,063 1,994,411 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (175,311) (195,868) Decrease in other assets 1,806 -- NET CASH FROM (USED IN) INVESTING ACTIVITIES (173,505) (195,868) CASH FLOWS FROM FINANCING ACTIVITIES: Book overdrafts (1,151,276) (615,998) Net payments on lines of credit (549,916) (1,357,791) Repayments on subordinated note payable (4,000,000) -- Borrowings on term note payable 2,000,000 500,000 Repayments on term notes payable (1,246,760) (1,336,363) Principal payments on capital lease obligations (297,821) (339,636) Financing costs for long term debt (232,230) (128,289) Proceeds from issuance of common stock, net of offering costs 3,798,587 1,480,994 Proceeds from exercise of common stock warrants 360,000 -- NET CASH FROM (USED IN) FINANCING ACTIVITIES (1,319,416) (1,797,083) NET INCREASE (DECREASE) IN CASH 475,142 1,460 CASH, BEGINNING OF PERIOD 1,598 168 CASH, END OF PERIOD $ 476,740 $ 1,628 DATASOURCE: Galaxy Nutritional Foods, Inc. CONTACT: Dawn M. Robert, Investor Relations of Galaxy Nutritional Foods, Inc., +1-407-854-0433 Web site: http://www.galaxyfoods.com/

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