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GALAXY FOODS COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) Management Representation 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 condensed financial statements should be read in conjunction with the financial statements and the related disclosures contained in the Company's Form 10-KSB dated June 20, 1997, filed with the Securities and Exchange Commission.
(2) Reclassifications Certain items in the financial statements of prior periods have been reclassified to conform to current period presentation.
(3) Restatement of Stockholders' Equity In March 1997, the Securities and Exchange Commission Staff (the "Staff") announced its position on accounting for preferred stock which is convertible into common stock at a discount from the market rate at the date of issuance. The Staff's position is that a preferred stock dividend should be recorded for the difference between the conversion price and the quoted market price of common stock at the date of issuance. To comply with this position, the Company restated its prior year's financial statements to reflect a dividend of $3,130,294 related to the fiscal 1996 sales of convertible preferred stock. In compliance with the Staff's position, the Company also recorded a preferred stock dividend in the amount of $1,594,406 in fiscal 1997, for the April 1996 sale of convertible preferred stock.
(4) Inventories Inventories are summarized as follows: SEPTEMBER 30, MARCH 31, 1997 1997 (unaudited) Raw materials $ 1,598,396 $ 1,136,269 Finished goods 967,563 665,975 Total $ 2,565,959 $ 1,802,244
(5) Net Income (Loss) per Share Net income per share is computed based on the weighted average number of shares outstanding during the period, plus common equivalent shares arising from the effect of convertible preferred stock and the assumed exercise of dilutive common stock warrants and employees' stock options, less the number of treasury shares assumed to be purchased from the proceeds under the treasury stock method and the per share market value of the common stock. The difference between shares for primary and fully diluted income per share was not material; accordingly, fully diluted income per share is not presented.
Net loss per share is computed based on the weighted average number of shares outstanding during the period. Common stock equivalents have not been included in the calculation of net loss per share as the effect would be antidilutive.