SOURCE: Monterey Gourmet Foods

May 11, 2006 07:45 ET

Monterey Gourmet Foods Announces First Quarter Results With Sales Increasing 27% Compared to First Quarter 2005 and a Return to Profitability

SALINAS, CA -- (MARKET WIRE) -- May 11, 2006 -- Monterey Gourmet Foods (NASDAQ: PSTA) today announced first quarter sales of $22.5 million compared to $17.7 million for the first quarter 2005, or a 27% increase. The Company also reported operating profits of $404,000 compared to $102,000 in the first quarter 2005. Net income was $100,000, or $.01 per share, compared to $17,000, or $.00 per share in the first quarter 2005.

Mr. Jim Williams, President/CEO of Monterey Gourmet Foods, explained, "We are pleased to report another strong quarter of sales growth. Importantly, sales of core Monterey brands increased 21% due to sales growth in both club and retail supermarket channels. Monterey's branded sales in the club channel were up 39%, and branded sales in the retail channel were up 14%. We also saw double-digit organic growth at Emerald Valley Organics and CIBO Naturals."

Commenting further on financial results, Mr. Williams stated, "Our return to profitability in the first quarter was the result of higher sales and a 2.2% improvement in overall gross margins to 30.2%. In addition, there were some positive effects from our 2006 profit improvement program which is expected to be fully in place by July."

In closing, Mr. Williams commented, "Today our Company has a lot of positive momentum. Our new products are succeeding in the market; our acquisitions collectively are contributing positively to results; gross margins are improving due to higher sales and cost-reduction initiatives; and we have a strong, motivated management team. We are optimistic that we will see continued profit improvement in future quarters."

As previously announced, the Monterey Gourmet Foods 2006 Shareholder Meeting is scheduled for May 19, 2006, 10am at the Embassy Suites Hotel, Seaside, CA.

This press release contains forward-looking statements concerning the effect of Monterey Gourmet Foods' corporate acquisitions and product innovations on projected sales for future periods including without limitation statements including such terms as "is expected to be fully in place," "positive momentum," "are succeeding," "are contributing positively," "are improving," "are optimistic," "continued profit improvement" and words of similar import. These forward-looking statements are based on currently available competitive, financial and economic data and management's views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Consequently, the Company wishes to caution readers not to place undue reliance on any forward-looking statements. Among the factors that could cause Monterey Gourmet Foods' actual results to differ from such forward-looking statements are the following: (i) the process associated with the integrations of Sonoma Foods and Casual Gourmet operations, processes, and products, (ii) a significant reduction of sales to two major customers currently comprising a majority of total revenues, (iii) the retention of newly acquired customers including achieving volume projections for these new customers, (iv) the Company's ability to achieve improved production efficiencies in connection with the introduction of its new items, (v) the timely and cost-effective introduction of new products in the coming months, (vi) retention of key personnel and retention of key management, (vii) the risks inherent in food production, (viii) intense competition in the market in which the Company competes and (ix) Monterey Gourmet Foods' ability to source competitively priced raw materials to achieve historical operating margins. In addition, the Company's results may also be affected by general factors, such as economic conditions, political developments, interest and inflation rates, accounting standards, taxes, and laws and regulations in markets where the Company competes.

The Company has provided additional information regarding risks associated with the business in the Company's Annual Report on Form 10-K for fiscal 2005, and its Proxy Statement filed April 21, 2006. The Company undertakes no obligation to update or revise publicly, any forward-looking statements whether as a result of new information, future events or otherwise.

Monterey Gourmet Foods manufactures USDA inspected, fresh gourmet refrigerated food products at its integrated 143,000 square foot corporate headquarters, distribution, and manufacturing facilities in Salinas, (Monterey County) California, its organic food production facility in Eugene, Oregon and its newly acquired facility in Seattle, Washington. Monterey Gourmet Foods has national distribution of its products in over 10,000 retail and club stores throughout the United States and selected regions of Canada, the Caribbean, Latin America, and Asia Pacific.



                       MONTEREY GOURMET FOODS, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                (Unaudited)
(000's $ except earnings per share numbers and share totals)

                                                      Three Months Ended
                                                    ----------------------
                                                     March 31,   March 27,
                                                       2006        2005
                                                    ----------  ----------

Net revenues                                        $   22,478  $   17,663
Cost of sales                                           15,684      12,715
                                                    ----------  ----------

Gross profit                                             6,794       4,948

Selling, general and administrative expenses             6,390       4,846
                                                    ----------  ----------
Operating income                                           404         102

Other income, net                                            1           5

Interest expense, net                                     (200)        (79)
                                                    ----------  ----------

Income before provision for income tax expense             205          28
Provision for income tax expense                          (105)        (11)
                                                    ----------  ----------

Net income                                          $      100  $       17
                                                    ==========  ==========

Basic income per share                              $     0.01  $     0.00

Diluted income per share                            $     0.01  $     0.00

Primary shares outstanding                          14,782,501  14,394,016

Diluted shares outstanding                          14,999,257  14,516,283



                      MONTEREY GOURMET FOODS, INC.
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in thousands of dollars)

                                                      March 31,  December
                                                        2006     31, 2005
                                                      ---------  ---------
                                                     (unaudited)
ASSETS
Current assets:
  Cash and cash equivalents                           $     472  $     330
  Accounts receivable, net                                7,887      9,342
  Inventories                                             7,128      6,949
  Deferred tax assets                                       925      1,030
  Prepaid expenses and other                                722        866
                                                      ---------  ---------

   Total current assets                                  17,134     18,517

  Property and equipment, net                            14,280     14,324
  Deferred tax assets                                     6,172      6,172
  Deposit and other                                         160        148
  Intangible assets, net                                 10,832     11,088
  Goodwill                                               13,144     11,956
                                                      ---------  ---------

   Total assets                                       $  61,722  $  62,205
                                                      =========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Bank overdraft                                      $       -  $   1,507
  Line of credit                                          2,994      3,000
  Accounts payable                                        4,336      4,171
  Accrued liabilities                                     2,268      2,299
  Current portion of long-term debt                       2,379      2,521
                                                      ---------  ---------

   Total current liabilities                             11,977     13,498

Long-term debt                                            6,231      6,626
Deferred tax liability                                    2,812      2,812

Minority interest                                           159        159

Stockholders' equity:
  Preferred stock, $.001 par value, 1,000,000 shares
   authorized, none outstanding                               -          -
  Common stock, $.001 par value,  50,000,000 shares
   authorized, 14,844,171 and 14,514,038 issued and
   outstanding                                               14         14
  Additional paid-in capital                             46,867     45,534
  Accumulated deficit                                    (6,338)    (6,438)
                                                      ---------  ---------
  Total stockholders' equity                             40,543     39,110
                                                      ---------  ---------

   Total liabilities and stockholders' equity         $  61,722  $  62,205
                                                      =========  =========



                       MONTEREY GOURMET FOODS, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (unaudited)

                                                       Three Months Ended
                                                      --------------------
                                                      March 31,  March 27,
                                                        2006       2005
                                                      ---------  ---------
Cash flows from operating activities:
Net income                                            $     100  $      17
Adjustments to reconcile net income to net cash
 provided by operating activities:
              Deferred income taxes                         105         (2)
              Depreciation and amortization                 753        713
              Provisions for allowances for bad debts,
               returns, adjustments and spoils           (1,332)    (1,198)
              Provisions for inventory allowances          (139)      (125)
              Stock option expense                           67          -
              Changes in assets and liabilities:
                  Accounts receivable                     2,787      2,573
                  Inventories                               (40)        53
                  Prepaid expenses                          144        186
                  Deposits and other                        (12)       (51)
                  Accounts payable                          165        679
                  Accrued liabilities                       (31)    (1,097)
                                                      ---------  ---------
                     Net cash provided by operating
                      activities                          2,567      1,748
                                                      ---------  ---------

Cash flows from investing activities:
              Purchase of property and equipment           (434)      (192)
              Acquisition of businesses net of cash
               and minority interest                         (2)    (5,654)
                                                      ---------  ---------
        Net cash used in investing activities              (436)    (5,846)
                                                      ---------  ---------

Cash flows from financing activities:
              Proceeds from bank borrowing                    -      5,000
              Bank overdraft                             (1,507)         -
              Repayment of line of credit                    (6)         -
              Repayment of bank borrowing                  (549)      (207)
              Repayment of capital lease obligations         (7)         -
              Proceeds from issuance of common stock         80         13
                                                      ---------  ---------
      Net cash (used in) provided by financing
       activities                                        (1,989)     4,806
                                                      ---------  ---------

Net increase in cash and cash equivalents                   142        708

Cash and cash equivalents, beginning of period              330        569
                                                      ---------  ---------
Cash and cash equivalents, end of period              $     472  $   1,277
                                                      =========  =========


   Cash payments:                                      March 31,  March 27,
                                                         2006       2005
                                                      ---------  ---------
                Interest                              $     207  $      71
                Income Taxes                          $       6  $      13

   Non-cash investing and financing activities:
                Issuance of stock for acquisition of
                 business                             $   1,186  $       -
                Capital lease obligations             $      19  $       -

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