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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 Condensed 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.
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, foodservice and industrial markets. The Company's headquarters and manufacturing facilities are located in Orlando, Florida.
Results of Operations
Net Sales decreased 2.0% to $5,031,997 for the quarter ended September 30, 1997, compared to net sales of $5,133,456 for the quarter ended September 30, 1996. Sales for the six months ended September 30, 1997 increased by 28.6% to $10,915,451, compared to $8,488,436 for the same period in fiscal 1997. Sales for the quarter have declined due to a strategic abatement of lower margin foodservice sales during the second quarter of fiscal 1998. Sales for the six month period have improved as the abatement of foodservice sales had not begun until July 1997. Overall, sales by our retail division have been increasing due to the introduction of new products to the retail market and an increase in marketing activities to promote these new products. In addition, there has been an escalation of orders from major retail customers. The Company expects increased sales for the third and fourth quarters as retail sales continue to increase and foodservice sales improve with the introduction of new equipment and product positions.
Cost of Goods Sold were $3,781,453 representing 75.1% of net sales for the quarter ended September 30, 1997, compared with $4,279,885 or 83.4% of net sales for the same period ended September 30, 1996. For the six month period ended September 30, 1997, cost of sales represented 78.3% of sales as compared to 85.2% for the same period in fiscal 1997. The Company was able to improve gross margin by strategically eliminating lower margin foodservice sales and re-balancing the product mix. In addition, the company has been focusing its efforts on production efficiencies to minimize the cost of sales percentage.
Selling expenses were $526,993 for the quarter ended September 30, 1997, compared with $475,122 for the same period ended September 30, 1996, an increase of 10.9%. In addition, selling expenses for the six months ended September 30, 1997 increased 11.9% to $940,190 as compared to $840,079 for the six months ended September 30, 1996. The increase in expenses over the same period a year ago is mainly attributed to an increase in marketing efforts resulting in initial product introduction charges, and increased advertising and brokerage costs associated with the increase in sales volume.
Delivery expenses increased 44.9% to $222,141 for the quarter ended September 30, 1997, compared with $153,293 for the same period ended September 30, 1996. For the six months ended September 30, 1997, delivery expenses increased 62.8% as compared to the same period in fiscal