<PAGE> 1
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
------------------------------
COMMISSION FILE NUMBER 0-16251
GALAXY FOODS COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-1391475
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2441 VISCOUNT ROW
ORLANDO, FLORIDA 32809
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(407) 855-5500
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
On November 1, 2000, there were 9,170,104 shares of Common Stock $.01
par value per share, outstanding.
================================================================================
<PAGE> 2
GALAXY FOODS COMPANY
INDEX TO FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 2000
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets 3
Statements of Income 4
Statement of Stockholders' Equity 5
Statements of Cash Flows 6
Notes to Financial Statements 7-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 12-13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
BALANCE SHEETS
GALAXY FOODS COMPANY
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 116 $ 383
Trade receivables, net 8,106,267 7,456,936
Inventories 11,984,190 9,022,948
Other receivables 458,690 296,291
Deferred tax asset 693,000 453,000
Prepaid expenses 2,867,878 1,521,634
------------ ------------
Total current assets 24,110,141 18,751,192
PROPERTY & EQUIPMENT, NET 21,765,133 16,020,746
DEFERRED TAX ASSET 867,000 867,000
OTHER ASSETS 732,948 811,455
------------ ------------
TOTAL $ 47,475,222 $ 36,450,393
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Book overdrafts $ 2,070,428 $ 1,694,753
Line of credit 8,124,543 4,784,999
Accounts payable - trade 5,583,301 5,016,556
Accrued liabilities 113,699 167,334
Current portion of term note payable 550,935 78,705
Current portion of obligations under capital
leases 45,155 30,364
------------ ------------
Total current liabilities 16,488,061 11,772,711
TERM NOTE PAYABLE,
less current portion 8,835,663 3,914,201
SUBORDINATED NOTE PAYABLE 3,247,297 3,168,607
OBLIGATIONS UNDER CAPITAL LEASES,
less current portion 31,651 69,829
------------ ------------
Total liabilities 28,602,672 18,925,348
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock 91,969 91,845
Additional paid-in capital 48,334,806 48,289,955
Accumulated deficit (16,683,001) (18,084,555)
------------ ------------
31,743,774 30,297,245
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, at cost 99,024 --
------------ ------------
Total stockholders' equity 18,872,550 17,525,045
------------ ------------
TOTAL $ 47,475,222 $ 36,450,393
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
GALAXY FOODS COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $ 23,470,983 $ 20,902,705 $ 12,214,562 $ 10,521,630
COST OF GOODS SOLD 14,940,861 13,109,307 7,732,948 6,518,645
------------ ------------ ------------ ------------
Gross margin 8,530,122 7,793,398 4,481,614 4,002,985
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling 3,957,484 2,948,424 2,044,596 1,202,815
Delivery 1,280,051 987,712 628,676 545,868
General and administrative 1,408,071 1,798,905 733,273 946,694
Research and development 124,311 95,315 67,401 53,653
------------ ------------ ------------ ------------
Total operating expenses 6,769,917 5,830,356 3,473,946 2,749,030
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,760,205 1,963,042 1,007,668 1,253,955
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (613,639) (193,399) (311,186) (114,366)
Other income (expense) 14,988 (3,703) 15,748 (4,333)
------------ ------------ ------------ ------------
Total (598,651) (197,102) (295,438) (118,699)
------------ ------------ ------------ ------------
NET INCOME BEFORE TAXES 1,161,554 1,765,940 712,230 1,135,256
INCOME TAX BENEFIT (EXPENSE) 240,000 (30,000) -- (15,000)
------------ ------------ ------------ ------------
NET INCOME $ 1,401,554 $ 1,735,940 $ 712,230 $ 1,120,256
============ ============ ============ ============
BASIC NET EARNINGS PER
COMMON SHARE $ 0.15 $ 0.19 $ 0.08 $ 0.12
============ ============ ============ ============
DILUTED NET EARNINGS PER
COMMON SHARE $ 0.15 $ 0.19 $ 0.07 $ 0.12
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
GALAXY FOODS COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes
Common Stock Additional Receivable
Paid-In Accumulated for Common Treasury
Shares Par Value Capital Deficit Stock Stock Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 2000 9,184,546 $ 91,845 $ 48,289,955 $ (18,084,555) $ (12,772,200) $ -- $ 17,525,045
Purchase of treasury
stock -- -- -- -- -- (99,024) (99,024)
Issuance of common stock
under employee stock
purchase plan 12,401 124 44,851 -- -- -- 44,975
Net income -- -- -- 1,401,554 -- -- 1,401,554
-----------------------------------------------------------------------------------------------------
Balance at September 30,
2000 (unaudited) 9,196,947 $ 91,969 $ 48,334,806 $ (16,683,001) $ (12,772,200) $ (99,024) $ 18,872,550
=====================================================================================================
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
GALAXY FOODS COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,401,554 $ 1,735,940
ADJUSTMENTS TO RECONCILE NET INCOME
TO NET CASH USED IN OPERATING ACTIVITIES:
Depreciation expense 695,425 436,796
Amortization of debt discount 78,690 --
Deferred tax benefit (240,000) --
Amortization of consulting and director fees paid
through issuance of common stock warrants 78,507 10,921
Changes in Operating Assets:
Trade receivables (649,331) (2,124,777)
Other receivables (162,399) --
Inventories (2,961,242) (37,051)
Prepaid expenses (1,346,244) (218,138)
Accounts payable 566,745 (1,071,757)
Accrued liabilities (53,635) (5,187)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES: (2,591,930) (1,273,253)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,439,812) (1,122,263)
Increase in other assets -- (145,486)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES: (6,439,812) (1,267,749)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit 3,339,544 355,599
Increase (decrease) in book overdrafts 375,675 (502,942)
Net proceeds from subordinated note payable -- 3,865,000
Net borrowings (payments) on term note payable 5,393,692 (216,000)
Principal payments on capital lease obligations (23,387) (453)
Proceeds from issuance of common stock 44,975 --
Purchase of treasury stock (99,024) --
Proceeds from exercise of common stock options -- 3,528
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 9,031,475 3,504,732
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (267) 963,730
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 383 112
----------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 116 $ 963,842
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
6
<PAGE> 7
GALAXY FOODS COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) FINANCIAL STATEMENT PRESENTATION
In the opinion of Galaxy Foods Company (the "Company"), the
accompanying unaudited financial statements contain all adjustments
necessary to present fairly the Company's financial position, results
of operations and cash flows for the periods presented. The results of
operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
The financial statements should be read in conjunction with the audited
financial statements and the related disclosures contained in the
Company's Form 10-K for the year ended March 31, 2000, dated June 27,
2000, filed with the Securities and Exchange Commission.
(2) PRIOR PERIOD RESTATEMENTS
The results of operations for this three and six months ended September
30, 1999 have been restated to reflect the fourth quarter adjustments
made in fiscal 2000. These adjustments include $203,419 of labor,
overhead and interest capitalized to construction in progress and
132,117 of amortization of the debt discount related to warrants issued
in connection with the subordinated note payable.
(3) SEGMENT INFORMATION
The Company does not identify separate operating segments for
management reporting purposes. The results of operations are the basis
on which management evaluates operations and makes business decisions.
(4) INVENTORIES
Inventories are summarized as follows:
SEPTEMBER 30, MARCH 31,
2000 2000
(unaudited)
-----------------------------------------------------------------------
Raw materials $ 4,795,815 $ 4,005,324
Finished goods 7,188,375 5,017,624
-----------------------------------------------------------------------
Total $ 11,984,190 $ 9,022,948
-----------------------------------------------------------------------
(5) EARNINGS PER SHARE
The following is a reconciliation of basic net earnings per share to
diluted net earnings per share for the three and six month periods
ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Basic net earnings per share $ 0.15 $ 0.15 $ 0.08 $ 0.09
========================== ==========================
Weighted average shares outstanding - basic 9,179,052 9,183,226 9,170,104 9,183,615
Potential shares exercisable under stock
Option plans 1,417,785 1,063,618 1,417,785 1,629,035
Potential shares exercisable under warrant
agreements 915,000 614,137 922,143 614,137
Less: Shares assumed repurchased under
Treasury stock method (1,864,535) (1,525,234) (1,716,506) (1,993,470)
-------------------------- --------------------------
Weighted average shares outstanding - diluted 9,647,302 9,335,747 9,793,526 9,433,317
-------------------------- --------------------------
Diluted earnings per share $ 0.15 $ 0.15 $ 0.07 $ 0.08
-------------------------- --------------------------
</TABLE>
7
<PAGE> 8
GALAXY FOODS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
(6) SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the statement of cash flows, all highly liquid
investments with a maturity date of three months or less are considered
to be cash equivalents. Cash and cash equivalents include checking
accounts, money market funds and certificates of deposits.
For the six months ended September 30, 2000 1999
---------------------------------------------------------------------
(unaudited) (unaudited)
Cash paid for:
Interest $ 535,039 $ 325,516
(7) INCOME TAXES
The Company recorded a deferred tax benefit of $240,000 for the six
months ended September 30, 2000 by reducing the Company's valuation
allowance. Management, based on an assessment of all available
evidence, believes that the realization of the deferred tax asset of
$1,560,000 at September 30, 2000 is considered more likely than not.
The deferred tax asset represents mainly tax operating loss
carryforwards incurred in prior years, which are expected to be
realized in the future.
8
<PAGE> 9
GALAXY FOODS COMPANY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto appearing elsewhere in this report.
The following discussion contains certain forward-looking statements, within the
meaning of the "safe-harbor" provisions of the Private Securities Reform Act of
1995, the attainment of which involves various risks and uncertainties.
Forward-looking statements may be identified by the use of forward-looking
terminology such as "may", "will", "expect", "believe", "estimate",
"anticipate", "continue", or similar terms, variations of these terms or the
negative of those terms. The Company's actual results may differ materially from
those described in these forward-looking statements due to among other factors,
competition in the Company's product markets, dependence on suppliers, the
Company's manufacturing experience, and production delays or inefficiencies.
Galaxy Foods Company (the "Company") is principally engaged in the development,
manufacturing and marketing of a variety of healthy cheese and dairy related
products, as well as other cheese alternatives. These healthy cheese and dairy
related products include low or no fat, low or no cholesterol and lactose-free
varieties. These products are sold throughout the United States and
internationally to customers in the retail, food service and industrial markets.
The Company's headquarters and manufacturing facilities are located in Orlando,
Florida.
RESULTS OF OPERATIONS
NET SALES were $12,214,562 in the quarter ended September 30, 2000, compared to
net sales of $10,521,630 for the quarter ended September 30, 1999, an increase
of 16%. Net sales were $23,470,983 for the six months ended September 30, 2000
as compared to $20,902,705 for the same period one year ago, an increase of 12%.
The increase in sales has been a trend for the Company over the last four fiscal
years. The increase in sales was primarily attributed to an increase in sales
generated by marketing activities related to the promotion of the Company's
Veggie brand of products. The Company elected to discontinue approximately
$1,000,000 worth of lower margin private label business for the quarter ended
June 30, 2000. This business was replaced by higher margin sales of the Veggie
line of products. Marketing activities included print, television and radio
advertising in key markets across the country, as well as expansion of shelf
space for the Company's products in certain retail stores.
COST OF GOODS SOLD were $7,732,948 representing 63% of net sales for the quarter
ended September 30, 2000, compared with $6,518,645 or 62% of net sales for the
same period ended September 30, 1999. Cost of Goods Sold were $14,940,861 for
the six months ended September 30, 2000, representing 64% of net sales as
compared to $13,109,307 or 63% of net sales for the six months ended September
30, 1999.
SELLING expenses were $2,044,596 for the quarter ended September 30, 2000,
compared with $1,202,815 for the same period ended September 30, 1999, an
increase of 70%. For the six months ended September 30, 2000, selling expenses
were $3,957,484 as compared to $2,948,424 for the same period one year ago, an
increase of 34%. The Company continues its advertising campaign to promote the
Company's flagship line of Veggie products. This campaign includes print,
television, and radio advertising and focuses on key markets throughout the
country where distribution of the Company's products is widespread. The Company
also incurred increased slotting fees to expand its shelf space in retail stores
in the six months ended September 30, 2000. A portion of the increase in selling
expenses correlates to an increase in sales, as
9
<PAGE> 10
approximately 32% of selling expenses, such as brokerage commissions, are
variable in nature and increase as sales increase.
DELIVERY expenses were $628,676 for the quarter ended September 30, 2000,
compared with $545,868 for the same period ended September 30, 1999, a 15%
increase. Delivery expenses were $1,280,051 for the six months ended September
30, 2000 as compared to $987,712 for the six months ended September 30, 1999.
The increase in delivery costs is a result of the increase in sales shipments to
customers for the periods ended September 30, 2000 as compared with the same
periods in the prior year. In addition, there has been an increase in fuel costs
during the first six months of fiscal 2001, as compared to the same period one
year ago.
GENERAL AND ADMINISTRATIVE expenses were $733,273 for the quarter ended
September 30, 2000, compared with $946,694 for the same period ended September
30, 1999, an 23% decrease. General and administrative expenses decreased 22% to
$1,408,071 for the six months ended September 30, 2000 as compared to $1,798,905
for the same period one year ago. This decrease is primarily attributed to
increased expenses for consulting services related to Year 2000 readiness during
fiscal 2000.
RESEARCH AND DEVELOPMENT expenses were $67,401 for the quarter ended September
30, 2000, compared with $53,653 for the quarter ended September 30, 1999. These
expenses were $124,311 for the six months ended September 30, 2000 as compared
to $95,315 for the same period one year ago. This increase is due to the
addition of a second food scientist to assist in the development and expansion
of the Veggie line of products.
INTEREST EXPENSE was $311,186 for the quarter ended September 30, 2000 as
compared to $114,366 for the quarter ended September 30, 1999. Interest expense
was $613,639 for the six months ended September 30, 2000 as compared to $193,399
for the same period in fiscal 2000. The increase was attributable to additional
borrowings under the Company's term note and line of credit as well as a
subordinated note issued on September 30, 1999. Interest capitalized to
construction in progress was $226,312 and $78,455 during the three months ended
September 30, 2000 and 1999, respectively and $294,178 and $99,835 for the six
months ended September 2000 and 1999, respectively. On September 30, 1999, the
Company entered into a $4,000,000 subordinated note payable with Finova
Mezzanine Corporation. This debt bears interest at a rate of 13.5% and includes
an original issue discount of $786,900, which is amortized as interest expense
over the term of the debt. During the first six months of fiscal 2001, $78,600
was amortized to interest expense. The increase is also the result of additional
borrowings on the Company's line of credit to finance the increase in inventory.
In March 2000, the Company signed an $10 million term note payable, the balance
outstanding as of September 30, 2000 was $9,386,598. This note was used to pay
off the Company's prior term note payable and to finance approximately $7.5
million in new equipment to expand the Company's production capacity.
INCOME TAX BENEFIT for the six months ended September 30, 2000 was $240,000
compared to income tax expense of $30,000 for the same period in the prior year.
The Company has recorded a deferred tax asset of $1,560,000 derived mainly from
tax net operating losses incurred in prior years, which are expected to be
realized in the future. This represents approximately 60% of the tax net
operating loss carry forward available at September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES -- Net cash used by operating activities was $2,591,930 for
the six months ended September 30, 2000 compared to net cash used of $1,273,253
for the same period in fiscal 2000. In the six months ended September 30, 2000,
the increase in cash used in operating activities was a result of an increase in
inventory to support the Company's growth in sales. In addition, during FY 2000,
the Company used some of the proceeds of its $4,000,000 subordinated note
payable to Finova Mezzanine Capital to pay down outstanding accounts payable. In
addition, prepaid expenses increased as a result of additional slotting and
advertising
10
<PAGE> 11
fees paid in advance to facilitate additional shelf space in retail outlets. The
additional shelf space includes expanded product selection at existing retail
stores as well as introduction of the product into new customer stores.
INVESTING ACTIVITIES -- Net cash used in investing activities totaled $6,439,812
for the six month period ended September 30, 2000 compared to net cash used of
$1,267,749 for the same period in fiscal 2000. The increase in cash used for
investing activities during fiscal 2001 is the result of construction of 6 new
production manufacturing lines at the Company's main facility. The production
lines will be used to facilitate the projected growth in sales for fiscal 2002.
The equipment will be used primarily for slice, shred and cup products and will
be located at the Company's main production facility. This expansion is financed
by the $10 equipment note payable and is expected to be complete at the end of
December, 2000 with estimated costs to complete of $2.6 million.
FINANCING ACTIVITIES -- Net cash flows provided by financing activities were
$9,031,475 for the six months ended September 30, 2000 compared to $3,504,732
for the six months ended September 30, 1999. The large inflows in FY 2001 are
the result of increased draws on the Company's line of credit as well as draws
on the term note payable. The increase in cash from financing activities was
used to finance the build up in inventories as well as the purchase and
production of manufacturing equipment. During fiscal 2000, the large cash from
financing activities was primarily attributable to the Company closing on a
$4,000,000 subordinated note payable to Finova Mezzanine Corporation on
September 30, 1999.
During November 1996, the Company entered into a two-year agreement which
provided a $2 million line of credit for working capital and expansion purposes.
The availability under this line of credit was increased to $3 million in
February 1997, $3.5 million in June 1998, $5.5 million in December 1998, $7.5
million in April 2000, and $13 million in August 2000. The amount available
under the line of credit is based on a formula of 80% of eligible accounts
receivable plus 35% of eligible inventories in an amount not to exceed
$3,000,000, as defined in the agreement. Amounts outstanding under the agreement
are collateralized by all accounts receivable, inventory and machinery and
equipment owned by the Company. Interest is payable on the outstanding balance
of the line of credit at a rate of prime plus one half percent (9.25% at
September 30, 2000). The line of credit expires on October 31, 2002.
On June 27, 1997, the Company secured a $1.5 million term note payable to
finance the acquisition of certain production equipment. Amounts outstanding
under the agreement are collateralized by machinery and equipment owned by the
Company. During June 1998, the Company signed an amendment to the above contract
which expanded the term note payable to $3 million. This note was payable at the
rate of $432,000 per year, with a balloon payment due on October 31, 2001. This
note was paid in full during March 2000 through a new financing agreement with
SouthTrust Bank, N.A. The new term note payable has availability to a maximum of
$10 million and bears interest at the prime rate (8.75% at September 30, 2000).
This note is payable interest only through February 1, 2001, with monthly
principal payments of $78,705, plus interest payable beginning March 1, 2001.
The note will mature on March 1, 2005. Amounts under the new agreement are
collateralized by machinery and equipment owned by the Company. The new note is
being used to finance the construction of the production manufacturing lines and
the purchase of production equipment as described above.
On September 30, 1999, the Company secured a $4 million subordinated note
payable less loan costs of $380,000 to finance working capital and capital
improvement needs of the Company. Amounts outstanding under the agreement are
collateralized by a subordinated lien on substantially all assets of the
Company. The subordinated note is payable interest only monthly with a principal
payment in one lump sum upon maturity on September 30, 2004 and bears interest
at a rate of 13.5%. The Company issued a warrant to purchase up to 915,000
shares of common stock to the subordinated note holder at an exercise price of
$3.41 per share which represented 80% of the fair value of the Company's stock
on the date the warrant was issued. The warrant was valued at $786,900 which was
recorded as a debt discount and is being
11
<PAGE> 12
amortized to interest expense from the date of issuance of the note to the
maturity date of the note of September 30, 2004.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"). FAS 133 requires companies to
recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may specifically be designated as a hedge, the objective of which
is to match the timing of gain or loss recognition of: (i) the changes in the
fair value of the hedged asset or liability that are attributable to the hedged
risk; or (ii) the earnings effect of the hedged transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized as income
in the period of change. FAS 133, as amended by FAS 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the
Company has not entered into any derivative contracts either to hedge existing
risks or for speculative purposes. Accordingly, the Company does not expect the
new standard to affect its financial statements.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 ("FIN 44"), Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25. FIN 44 clarifies the
application of Opinion No. 25 for (a) the definition of employee for purposes of
applying Opinion No. 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequences of various
modifications to the previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 2, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998 or January 12, 2000.
The Company believes that the impact of FIN 44 will not have a material effect
on the Company's financial position or results of operations.
On December 3, 1999 the SEC issued Staff Accounting Bulletin 101 ("SAB 101"),
Revenue Recognition in Financial Statements. SAB 101 summarizes some of the
SEC's interpretations of the application of generally accepted accounting
principles to revenue recognition. Revenue recognition under SAB101 was
initially effective for the Company's first fiscal of fiscal year beginning
after December 15, 1999. However, SAB 101B was released June 26, 2000 which
delayed adoption of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. The Company believes that its
revenue recognition practices are in substantial compliance with SAB 101 and
that adoption of it provisions would not be material to its annual or quarterly
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The interest on the Company's debt is floating and based on the prevailing
market interest rates. For market based debt, interest rate changes generally do
not affect the market value of the debt but do impact future interest expense
and hence earnings and cash flows, assuming other factors remain unchanged. A
theoretical 1% change in market rates in effect on September 30, 2000 with
respect to the Company's anticipated debt as of such date would increase
interest expense and hence reduce the net income of the Company by approximately
$20,000 for the quarter.
12
<PAGE> 13
The Company's sales for the six months ended September 30, 2000 and 1999
denominated in a currency other than U.S. dollars were less than 1% of total
sales and no net assets were maintained in a functional currency other than U.
S. dollars at September 30, 2000. The effects of changes in foreign currency
exchange rates has not historically been significant to the Company's operations
or net assets.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders during this period.
13
<PAGE> 14
PART II. OTHER INFORMATION
GALAXY FOODS COMPANY
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed as part of this Form 10-Q.
EXHIBIT NO EXHIBIT DESCRIPTION
---------- -------------------
*3.1 Certificate of Incorporation of the Company, as amended (Filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-18,
No. 33-15893-NY, incorporated herein by reference.)
*3.2 Amendment to Certificate of Incorporation of the Company, filed on
February 24, 1992 (Filed as Exhibit 4(b) to the Company's
Registration Statement on Form S-8, No. 33-46167, incorporated
herein by reference.)
*3.3 By-laws of the Company, as amended (Filed as Exhibit 3.2 to the
Company's Registration Statement on Form S-18, No. 33-15893-NY,
incorporated herein by reference.)
*3.4 Amendment to Certificate of Incorporation of the Company, filed on
January 19, 1994 (Filed as Exhibit 3.4 to the Company's
Registration Statement on Form SB-2, No. 33-80418, and
incorporated herein by reference.)
*3.5 Amendment to Certificate of Incorporation of the Company, filed on
July 11, 1995 (Filed as Exhibit 3.5 on Form 10-KSB for fiscal year
ended March 31, 1996, and incorporated herein by reference.)
*3.6 Amendment to Certificate of Incorporation of the Company, filed on
January 31, 1996 (Filed as Exhibit 3.6 on Form 10-KSB for fiscal
year ended March 31, 1996, and incorporated herein by reference.)
*10.1 Second Amendment to the Security Agreement with Finova Financial
Services dated June 1998 (Filed as Exhibit 10.1 on Form 10-K for
fiscal year ended March 31, 1999, and incorporated herein by
reference.)
*10.2 Third Amendment to the Security Agreement with Finova Financial
Services dated December 1998 (Filed as Exhibit 10.2 on Form 10-K
for fiscal year ended March 31, 1999, and incorporated herein by
reference.)
*10.3 Term Loan Agreement with Southtrust Bank dated March 2000 (Filed
as Exhibit 10.3 on Form 10-K/A for fiscal year ended March 31,
2000, and incorporated herein by reference.)
*10.4 Cabot Industrial Properties L.P. Lease dated July 1999 (Filed as
Exhibit 10.4 on Form 10-K/A for fiscal year ended March 31, 2000,
and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter covered by this report.
14
<PAGE> 15
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GALAXY FOODS COMPANY
Date: November 10, 2000 /s/ Angelo S. Morini
-----------------------------
Angelo S. Morini
Chairman and President
(Principal Executive Officer)
Date: November 10, 2000 /s/ Keith A. Ewing
-----------------------------
Keith A. Ewing, CPA
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
