ORLANDO, Fla., Aug. 23 /PRNewswire-FirstCall/ -- Galaxy Nutritional
Foods, Inc. (AMEX:GXY), a leading producer and marketer of
nutritious plant-based dairy alternatives for the retail and
foodservice markets, today reported its operating results for the
first quarter of FY2006. Galaxy reported a significant net loss in
the most recent quarter, primarily due to charges related to the
impairment of property and equipment in anticipation of the
Company's pending sale of its manufacturing equipment to Schreiber
Foods, which will manufacture the Company's products in the future.
While management expects to derive significant and recurring
expense reduction benefits from the production outsourcing
relationship with Schreiber, a non-recurring, non-cash charge of
$7.9 million was recognized in the first quarter of FY2005 to
reflect the difference between the carrying cost of production
equipment on the Company's books and the amount to be received from
Schreiber upon sale of the equipment. For the three months ended
June 30, 2005, net sales approximated $9.9 million, compared with
net sales of $11.2 million in the first quarter of the previous
fiscal year. The 12% decline in net sales primarily reflects a
temporary reduction in sales due to the transition from indirect
sales to Wal- Mart through a private label customer to direct sales
to Wal-Mart in April 2005. Sales also decreased due to no
significant promotions in the most recent quarter. The Company
reported a net loss of ($9.1 million), or ($0.49) per share, in the
first quarter of FY2006, compared with a net loss of ($0.9
million), or ($0.06) per share, in the prior-year period.
Approximately 89% of the net loss in the quarter ended June 30,
2005, was comprised of asset impairment charges and costs
associated with disposal activities, along with $527,518 in
non-cash stock-based compensation expenses. First quarter operating
results were also negatively impacted by a decrease in gross profit
margin to 23% of sales, versus 26% of sales in the prior-year
quarter, primarily due to higher raw materials costs (e.g., casein)
and lower sales volumes. EBITDA, as adjusted (a non-GAAP measure),
approximated $431,267 in the quarter ended June 30, 2005, compared
with EBITDA, as adjusted, of approximately $726,635 in the quarter
ended June 30, 2004. EBITDA, as adjusted, is comprised of net
income before interest, taxes, depreciation and amortization, and
is exclusive of employment contract expense, non-cash compensation
related to stock options and warrants, derivative expense,
impairment of property and equipment as well as cost of disposal
activities. "Our first quarter results were quite unusual and were
dominated by non-recurring charges related to the pending sale of
our manufacturing assets and outsourcing of our production
activities, along with inefficiencies related to the transformation
of Wal-Mart into a direct customer," stated Michael E. Broll, Chief
Executive Officer of Galaxy Nutritional Foods, Inc. "As the year
progresses, we should begin to realize significant benefits from
the production outsourcing and distribution relationship with
Schreiber Foods, and we are expecting Wal-Mart's business to return
to normal levels. Of particular importance is the fact the we will
be able to take advantage of Schreiber's lower production costs
relative to the high production costs of our underutilized plant
facilities, as well as their much greater purchasing power with raw
materials suppliers. We also expect to realize substantial savings
in distribution expense when Schreiber takes over this function
later in the year. Our interest expense and cash requirements for
debt service will decline significantly once we pay down
outstanding debt by approximately $7.4 million from the proceeds of
the asset sale, which should be completed by the end of our third
fiscal quarter. We expect to realize annualized savings from the
outsourcing relationship and interest expense reductions totaling
more than $4 million, and our operating results should begin to
reflect these benefits in the fourth quarter of the current fiscal
year. The transfer of our production activities to Schreiber is
scheduled to be fully completed by December 31, 2005." "Going
forward, we will focus upon 'building our brands' in the healthy
foods category," continued Broll. "We plan to significantly
increase our spending on consumer advertising and consumer
promotions that highlight and communicate the benefits of our
products, in order to meet the consumer demand for healthier foods.
We will also seek to increase our presence on retailer store
shelves, thereby expanding household penetration and building
market share in specific markets. Finally, we plan to increase our
customer base and generate consumer awareness of new products
and/or flavors through new product trials, while increasing repeat
purchases of our Veggie(TM) and Wholesome Valley(R) brands through
improved taste, color, aroma, texture and packaging initiatives."
"In summary, I believe that Galaxy Nutritional Foods is
well-positioned to realize the potential of its strong brands in
the healthy foods category and to improve its financial performance
significantly in coming years, and such trends should become
evident in the fourth quarter of fiscal 2006. We have spent much of
the past two years cleaning up our balance sheet, rationalizing
product lines, and battling high casein prices. The final and very
significant phases of the repositioning of the Company -- the sale
of our manufacturing assets and implementation of the outsourcing
program -- will be completed in the next four months. I can say
with confidence that the future looks bright, for both the Company
and its shareholders." Business Outlook for FY2006 The following
statements are forward-looking in nature, and actual results may
differ materially. Please refer to Galaxy's quarterly and annual
reports as filed with the Securities and Exchange Commission (SEC)
for a more complete description of risks. Given no change in the
current business or economic environment, the Company expects: *
Moderate growth in sales in FY2006, primarily through additional
branded sales derived from an expansion in distribution to
specifically identified markets. * To report positive operating
profits, excluding non-cash stock compensation charges, the cost of
disposal activities and impairment or loss on the sale of assets,
for the fiscal year ending March 31, 2006. * To report positive
EBITDA, as adjusted (a non-GAAP measure), excluding non-cash stock
compensation charges, the cost of disposal activities and
impairment or loss on the sale of assets, for FY2006. * To report
positive cash flow from operating activities for FY2006. Footnote
on non-GAAP Measures Presented Above Management utilizes certain
non-GAAP measures such as operating 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 stock-based compensation, the cost
of disposal activities, impairment or loss on the sale of assets,
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 The Company will host an
investor conference call today at 11:00 a.m. EDT; shareholders and
other interested parties may participate in the conference call by
dialing 800-322-0079 (international/local participants dial
973-409-9258), a few minutes before 11:00 am EDT on August 23,
2005. The call will also be broadcast live on the Internet at
http://phx.corporate-ir.net/playerlink.zhtml?c=102653&s=wm&e=1117301.
The call will be archived on the Internet through November 23, 2005
at
http://phx.corporate-ir.net/playerlink.zhtml?c=102653&s=wm&e=1117301
About Galaxy Nutritional Foods, Inc. Galaxy Nutritional Foods(R) is
the leading producer of health-promoting plant-based dairy and
dairy-related alternatives for the retail and foodservice markets.
An exclusive, new and technologically advanced, safer "hot process"
is used to produce these phytonutrient-enriched products, made from
nature's best grains -- soy, rice and oats. Veggie products are low
fat and fat free (saturated fat and trans-fatty acid free),
cholesterol and lactose free, are growth hormone and antibiotic
free, and have more calcium, vitamins and other minerals than
conventional dairy products. Because they are made with plant
proteins, the products are more environmentally friendly and
economically efficient than dairy products derived solely from
animal proteins. Galaxy's products are part of the healthy and
natural 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(TM); Veggie
Slices(R); Soyco(R); Soymage(R); Wholesome Valley(R); Lite
Bakery(R); and Galaxy Nutritional Foods Smart Choice Cheese
Products(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
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. GALAXY NUTRITIONAL
FOODS, INC. Balance Sheets JUNE 30, MARCH 31, 2005 2005 (Unaudited)
RESTATED ASSETS CURRENT ASSETS: Cash -- $561,782 Trade receivables,
net 5,553,245 4,644,364 Inventories 4,018,049 3,811,470 Prepaid
expenses and other 492,078 219,592 Total current assets 10,063,372
9,237,208 PROPERTY AND EQUIPMENT, NET 9,872,074 18,246,445 OTHER
ASSETS 414,970 286,013 TOTAL 20,350,416 $27,769,666 LIABILITIES AND
STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit $4,736,456
$5,458,479 Book overdraft 541,317 -- Accounts payable 3,072,601
3,057,266 Accrued and other current liabilities 1,660,631 2,130,206
Current portion of accrued employment contract 586,523 586,523
Current portion of term notes payable 7,801,985 1,320,000 Current
portion of obligations under capital leases 154,502 194,042 Total
current liabilities 18,554,015 12,746,516 ACCRUED EMPLOYMENT
CONTRACT, less current portion 846,240 993,305 TERM NOTES PAYABLE,
less current portion -- 6,921,985 OBLIGATIONS UNDER CAPITAL LEASES,
less current portion 76,883 85,337 Total liabilities 19,477,138
20,747,143 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS'
EQUITY: Common stock 200,435 184,115 Additional paid-in capital
72,336,928 69,358,379 Accumulated deficit (58,771,424) (49,627,310)
13,765,939 19,915,184 Less: Notes receivable arising from the
exercise of stock options (12,772,200) (12,772,200) Treasury stock
(120,461) (120,461) Total stockholders' equity 873,278 7,022,523
TOTAL $20,350,416 $27,769,666 GALAXY NUTRITIONAL FOODS, INC.
Statements of Operations (UNAUDITED) THREE MONTHS ENDED JUNE 30,
2005 2004 RESTATED NET SALES $9,851,153 $11,191,678 COST OF GOODS
SOLD 7,582,855 8,251,330 Gross margin 2,268,298 2,940,348 OPERATING
EXPENSES: Selling 936,245 1,460,400 Delivery 615,471 593,326
General and administrative, including $527,518 and $162,374
non-cash compensation related to stock based transactions 1,261,530
795,716 Research and development 91,042 72,686 Impairment of
property and equipment 7,896,554 -- Cost of disposal activities
255,011 -- (Gain)/Loss on sale of assets (636) -- Total operating
expenses 11,055,217 2,922,128 INCOME (LOSS) FROM OPERATIONS
(8,786,919) 18,220 Interest expense 357,195 259,816 Derivative
expense -- 121,119 NET LOSS $(9,144,114) $(362,715) Less: Preferred
Stock Dividends -- 42,392 Preferred Stock Accretion to Redemption
Value -- 500,644 NET LOSS TO COMMON STOCKHOLDERS $(9,144,114)
$(905,751) BASIC AND DILUTED NET LOSS PER COMMON SHARE $(0.49)
$(0.06) GALAXY NUTRITIONAL FOODS, INC. Statements of Cash Flows
(UNAUDITED) Three Months Ended June 30, 2005 2004 RESTATED CASH
FLOWS FROM OPERATING ACTIVITIES: Net Loss $(9,144,114) $(362,715)
Adjustments to reconcile net loss to net cash from (used in)
operating activities: Depreciation and amortization 539,103 546,041
Amortization of debt discount and financing costs 27,422 33,349
Provision for losses on trade receivables 313,000 107,000
Impairment of property and equipment and (gain)/loss on sale of
assets 7,895,919 -- Change in fair value of derivative instrument
-- 121,119 Non-cash compensation related to stock-based
transactions 527,518 162,374 (Increase) decrease in: Trade
receivables (1,221,881) (976,993) Inventories (206,579) (80,798)
Prepaid expenses and other (272,486) (281,686) Increase (decrease)
in: Accounts payable 15,335 1,297,022 Accrued and other liabilities
123,360 13,325 NET CASH FROM (USED IN) OPERATING ACTIVITIES
(1,403,403) 578,038 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase
of property and equipment (68,851) (74,525) Proceeds from sale of
equipment 8,200 -- NET CASH FROM (USED IN) INVESTING ACTIVITIES
(60,651) (74,525) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in
book overdrafts 541,317 -- Net borrowings (payments) on line of
credit (722,023) 53,574 Repayments on term notes payable (440,000)
(150,000) Principal payments on capital lease obligations (47,994)
(67,487) Financing costs for long term debt (160,588) -- Costs
associated with issuance of common stock -- (22,500) Proceeds from
exercise of common stock options 2,560 -- Proceeds from exercise of
common stock warrants 1,729,000 -- NET CASH FROM (USED IN)
FINANCING ACTIVITIES 902,272 (186,413) NET INCREASE (DECREASE) IN
CASH (561,782) 317,100 CASH, BEGINNING OF PERIOD 561,782 449,679
CASH, END OF PERIOD $-- $766,779 GALAXY NUTRITIONAL FOODS, INC.
EBITDA, as adjusted (UNAUDITED) June 30, 2005 2004 $ Change %
Change Net Sales 9,851,153 11,191,678 (1,340,525) -12.0% Net Income
(Loss) (9,144,114) (362,715) (8,781,399) 2421.0% Interest expense
357,195 259,816 97,379 37.5% Derivative expense -- 121,119
(121,119) -100.0% Depreciation 539,103 546,041 (6,938) -1.3%
Non-cash stock compensation 527,518 162,374 365,144 224.9%
Impairment of fixed assets 7,896,554 -- 7,896,554 0.0% Cost of
disposal activities 255,011 -- 255,011 0.0% EBITDA, as adjusted (a
non-GAAP measure) 431,267 726,635 (295,368) -40.6% As a percentage
of sales 4.4% 6.5% 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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