Galaxy Nutritional Foods Reports 1st Quarter Fiscal 2005 Results

ORLANDO, Fla., Aug 12, 2004 /PRNewswire-FirstCall via COMTEX/ -- Galaxy Nutritional Foods, Inc. (GXY), a leading producer of nutritious plant-based dairy alternatives for the retail and foodservice markets, today reported results for its first quarter of fiscal 2005, ended June 30, 2004.

The Company reported that net sales grew substantially from $8,695,781 in the quarter ended June 30, 2003 compared to $11,191,678 in the quarter ended June 30, 2004, an increase of $2,495,897 or 29%. The large increase in net sales is primarily due to higher sales volume in contract manufacturing, Wholesome Valley organic products and our Food Service business. The contract manufacturing sales consist primarily of products that generate lower margins. However, the higher sales volume helped to reduce the fixed cost of production resulting in a gross profit decline of only 4% while generating an additional $295,683 of gross margin for the quarter ended June 30, 2004 versus the same period in the prior year.

The results for the first quarter of fiscal 2005 and fiscal 2004 include non-cash compensation expense of $162,374 and $1,307,131, respectively. Excluding these non-cash compensation charges, the Company had operating income, as adjusted, (a non-GAAP measure) of $180,594 in the quarter ended June 30, 2004 compared to an operating loss, as adjusted, of ($167,588) in the quarter ended June 30, 2003. This $348,182 improvement in non-GAAP operating income was primarily the result of the gross margin increase mentioned above and a decrease in general and administrative expenses.

Net loss for the quarter ended June 30, 2004 was $241,596 compared to a net loss of $1,970,104 for the quarter ended June 30, 2003. Excluding the non-cash compensation charges noted above, the Company had a net loss, as adjusted, (a non-GAAP measure) of $79,222 for the quarter ended June 30, 2004 compared to a net loss, as adjusted, of $662,973 for the quarter ended June 30, 2003. This $583,751 decrease in non-GAAP net loss was primarily the result of the increase in gross margin as mentioned above as well as the substantial decrease in interest expense due to lower principal balances and lower interest rates on the Company's credit facilities after the refinancing in May 2003.

After non-cash preferred stock dividends and non-cash preferred stock accretion for estimated redemption value, net loss available to common shareholders was $796,163, or $0.05 per diluted share for the quarter ended June 30, 2004 versus a net loss available to common shareholders of $2,919,813, or $0.21 per diluted share for the quarter ended June 30, 2003.

EBITDA, as adjusted, (a non-GAAP measure) for the quarter ended June 30, 2004 was $726,635, or 6.5% of net sales, versus EBITDA, as adjusted, for the quarter ended June 30, 2003 of $390,537, or 4.5% of net sales. EBITDA, as adjusted, was calculated as net income before interest, taxes, depreciation and amortization, and is exclusive of non-cash compensation related to stock options and warrants.

Cash flow provided by operating activities for the quarter ended June 30, 2004 was $578,038 compared to cash flow used in operating activities of ($138,377) for the quarter ended June 30, 2003. This increase in operating cash flow was primarily due to the reduction in non-GAAP net loss, as described above, versus the prior year.

Michael E. Broll, Galaxy's CEO, stated, "The 29% increase in net sales for the first quarter has been a very positive achievement for the company. In fact, our overall financial performance for the first quarter of Fiscal 2005 is a genuinely significant improvement over the prior year. Our focus going forward in addition to growing net sales, will be to minimize the higher operational costs we experienced during the ramp up and continue our efforts toward improving our gross margin percentage."

Mr. Broll went on to say, "We remain committed to strengthening our Brands and are refining a number of projects related to product improvement, new products and consumer marketing programs, a number of which we hope to execute later this fiscal year."

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.

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), formdgg(R), and Lite Bakery(R). For more information, please visit Galaxy's website at

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.

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