Galaxy Pares Assets to Pay Debts, Refocus Biz Plan

Galaxy Pares Assets to Pay Debts, Refocus Biz Plan

ORLANDOGalaxy NutritionalFoods Inc. (AMEX:GXY) reported it will pay off its outstanding bank debt byselling its manufacturing assets to Schreiber Foods, a $2 billion global cheesecompany, which will also be under contract to distribute Galaxy products.Following the expected November 2005 closing of the transaction, Galaxy will beonly a developer and marketer of its branded dairy alternative products, whichit plans to expand into retail and food service markets.

This definitive sales agreement followed its fiscal 2005results, which included significant revenue increases but dismal earnings andmargins. On the strength of increased private label sales, revenues for the yearclimbed 23 percent from the previous year to $44.5 million, but the low marginprivate label sales combined with higher raw materials costs lowered grossprofit margin to 22 percent from 31 percent the year prior. Management reportedthe average price of the companys key casein ingredient rose 32 percent,which increased cost of goods by $2.7 million.

Net loss for the year fell to $4.7 million or $0.27 per sharefrom $4.5 million or $0.30 per share lost in 2004. In addition to raw materialscosts, the loss reflected bad debt and an inventory write-off associated with aformer private label customer, Del Sunshine LLC, which failed to pay monies owedGalaxy for private label products sold to Wal-Mart. Instead, Galaxy will now sell these same products to Wal-Martunder a licensing deal with Del Sunshine, under which the licensing fees willsomewhat offset the amount Del Sunshine owed Galaxy.