Dairy alternative producer and marketer Galaxy Nutritional Foods Inc has reorted a rise in sales to approximately $44.5m for the year ended 31 March 2005, compared with approximately $36.2m last year.

The increase in net sales primarily reflects higher contract manufacturing (private label) revenues and an increase in sales of Wholesome Valley organic products.

Gross profit margin decreased to 22% of sales, from 31% in the previous fiscal year, due primarily to higher raw material costs and lower margins on private label business. The average price of casein, a key ingredient in most of the Company's products, increased an average of 32% in FY2005, which cost increase resulted in an increase of approximately $2.7 million in cost of goods sold.

Loss from operations totalled $3.237m, versus a loss from operations of $1,601m in FY2004. Operating results for FY2005 included a bad debt provision and inventory write-off of approximately $1.8 million related to a single customer for which Galaxy manufactured private label products. The company no longer does business with this customer, and in the future Galaxy will instead sell the same or similar products directly to the major mass merchandiser that was the ultimate purchaser of the products previously sold to the private label customer.

"Although our fiscal 2005 operating results suffered due to sharply higher raw materials costs and a large bad debt expense, I believe we have made tremendous progress in terms of positioning Galaxy for a return to profitability and a resumption in growth consistent with our market opportunity," said CEO Michael E. Broll. "Our accomplishments during the past twelve months include the elimination of a highly dilutive convertible preferred stock, operating cost reductions, and the recent announcement of an outsourcing agreement with Schreiber Foods that should result in additional cost savings of several million dollars annually."

"We look forward to fiscal 2006 with great optimism," said Broll. "While the outsourcing of our manufacturing and distribution activities to Schreiber Foods will require some non-recurring expenses in the near term, I am optimistic that an earnings turnaround will be evident during the second half of fiscal 2006 and in future years. Without the cost burden associated with our current production facilities and with a much-strengthened balance sheet, we can focus upon marketing and other activities that can leverage Galaxy's strong brands in the healthy foods marketplace. The recent decision by a major mass merchandiser to purchase our alternative cheese products directly from our company illustrates the power of our brands, and we intend to greatly expand our visibility within the growing universe of health- conscious consumers in future years."