Vaughan Foods Reports 2007 Operating Results

2007 Sales and Gross Profit Sharply Increase


MOORE, Okla., March 13, 2008 (PRIME NEWSWIRE) -- Vaughan Foods, Inc. (Nasdaq:FOOD), a regional leader in fresh-cut vegetables and fruit products, and a broad line of refrigerated prepared salads, sauces, soups, and side-dishes, announced its operating results for the year ended December 31, 2007.

Net sales increased by 31.0 percent to $67.2 million for 2007, compared to $51.3 million in 2006. Gross profit increased to $6.7 million, or 9.9 percent of net sales in 2007, from $3.7 million, or 7.3 percent of net sales, in 2006. Operating income increased by $754,000 to $469,000 compared to an operating loss of $285,000 in 2006. The net loss was $906,000, or $0.26 per share, compared to a net loss of $1.2 million, or $0.52 per share, in 2006.

The acquisition of Allison's Gourmet Kitchens, on June 30, 2007, accounted for the majority of the increase in both sales and gross profit, but other changes in product mix and production efficiencies in labor and raw material usage also contributed. Excluding the effect of the acquisition of Allison's, our sales increased by $4.0 million, or 7.7%, while legacy gross profit increased from 7.2% to 8.7%.

Selling, general and administrative expenses amounted to $6.2 million or 9.2 percent of net sales in 2007 compared to $4.0 million or 7.8 percent of net sales in 2006. The acquisition of Allison's added $1.4 million in expenses, and costs related to operating as a public company were approximately $1.0 million, partially offset by certain reductions.

Fourth quarter earnings before taxes were adversely affected to the extent of $402,000 by unstable conditions in the lettuce market, recruiting costs for a new Chief Financial Officer and a new General Manager of Fresh Cut Produce, and the effects of rising energy costs.

Herb Grimes, Chairman and CEO of Vaughan Foods, commented, "2007 was a year of transformation, change and progress. Our actions have strengthened us financially, operationally and in our human resource assets, better positioning us for 2008 and beyond. We completed an initial public offering, acquired Allison's and its subsidiary, Wild About Food, put a new revolving credit facility in place, and strengthened our management team. We've also been able to manage through the challenges of higher input costs at all levels.

The implementation of a new Enterprise Resource Planning system is a major initiative in 2008. Among other things, the new ERP system will simplify our back-end operations, provide greater and more timely visibility into our business operations, enable customer e-commerce capabilities and further align our divisions. We are also focused on improving our sourcing processes, to minimize waste, reduce our in-bound shipping costs, assure a more steady supply and price of product, and improve our raw material quality. Overall, we are energized about our prospects in 2008, and we look forward to reporting our progress to you in future quarters," concluded Mr. Grimes.


                            Guidance

Vaughan's Investor Relations policy prohibits management from making specific public earnings forecasts or outlook indications, or commenting on external earnings estimates. However, the Company may provide "macro" guidance from time to time.

Management expects continued revenue growth in 2008, in the 7-10 percent range. Our growth rate will be higher in the prepared foods business, where margins are generally higher than in the fresh-cut produce business. However, overall margins will be under some pressure due to higher costs of labor, packaging and ingredient materials, and fuel. Management expects to see some mitigation of total labor costs later this year and into 2009, as it invests heavily in new equipment to reduce its long-term exposure to a challenging labor market. Overall, we expect gross margins for 2008 to be in the range of 10 to 12 percent for the consolidated business. Capital expenditures will be in the $2.5 million range in 2008, including $800,000 to be invested in a new enterprise resource planning system and several other improvements and upgrades to Vaughan's plant and equipment.

Vaughan estimates that its costs related to operating as a publicly-traded company is in the range of $1.0 million per year.

Conference Call Information

Vaughan management will host an investor conference call on Friday, March 14, 2008 at 10:00 a.m. ET to discuss these results.

Interested parties should call 877-548-7905 (domestic) or 719-325-4901 (international) at least 5 minutes before the scheduled start time (no passcode required). You may also access this call via the Internet at:


                  http://www.vaughanfoods.com

For those who are unavailable to listen to the live broadcast, a replay will be available through April 14, 2008 and can be accessed by dialing 888-203-1112 (domestic), and 719-457-0820 (international). The pass code is 4980881.

About Vaughan Foods, Inc.

Vaughan Foods and its subsidiaries prepare refrigerated salads, soups and sauces, as well as fresh-cut produce (salad and salad mixes), which it distributes to its customers in the Midwest, Southeast, and Southwest. Among its customers are restaurants, grocery store delis and food service businesses.

The Vaughan Foods, Inc. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=4726

Forward-Looking Statement

Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in the Company's Form 10-K, Form 8-K and Form 10-Q reports. The Company undertakes no obligation to update or revise any forward-looking statement.



 The following table shows the results for 2007, compared with the
 results for 2006 (dollars in thousands, except per share data):

                                         Year-Ended Ended December 31,
                                               2007           2006

 Net sales                                 $    67,173    $    51,277
 Cost of sales                                  60,491         47,557
                                           -----------    -----------
 Gross profit                                    6,682          3,720

 Selling, general and
  administrative expenses                        6,213          4,005
                                           -----------    -----------
 Operating income                                  469           (285)

 Interest expense                               (2,072)        (1,617)

 Other income, net                                 490            390
                                           -----------    -----------

 Income (loss) before income taxes              (1,113)        (1,512)
 Income tax expense (benefit)                     (207)          (307)
                                           -----------    -----------
 Net income (loss)                         $      (906)   $    (1,205)
                                           ===========    ===========

 EBITDA                                    $     2,442    $     1,138
                                           ===========    ===========

 Weighted average shares outstanding         3,461,539      2,300,000
                                           -----------    -----------
 Net income (loss) per share
  - basic and diluted                      $     (0.26)   $     (0.52)
                                           ===========    ===========



 The following table shows the results in the fourth quarter of 2007,
 compared with the results in the year-earlier quarter (dollars in
 thousands, except per share data):

                                               Three Months Ended
                                                   December 31,
                                               2007           2006

 Net sales                                 $    20,220    $    12,001
 Cost of sales                                  18,609         10,750
                                           -----------    -----------
 Gross profit                                    1,611          1,251

 Selling, general and
   administrative expenses                       2,235            869
                                           -----------    -----------
 Operating income                                 (624)           382

 Interest expense                                 (345)          (444)
 Other income, net                                 203            150
                                           -----------    -----------
 Income (loss) before income taxes                (766)            88
 Income tax expense (benefit)                     (322)           254
                                           -----------    -----------
 Net income (loss)                         $      (444)   $      (166)
                                           ===========    ===========

 Weighted average shares outstanding         4,623,077      2,300,000
                                           -----------    -----------
 Net income (loss) per share
   - basic and diluted                     $     (0.10)   $     (0.07)
                                           ===========    ===========



 The following table shows the pro-forma results for the full-year
 2007, compared with the pro-forma results for the full-year 2006. The
 pro-forma consolidated results include the assumption that Allison's
 was acquired on or before January 1, 2006 (dollars in thousands,
 except per share data):

                                                Year-Ended Ended
                                                  December 31,
                                                   Pro-Forma
                                               2007           2006

 Net sales                                 $    79,421    $    69,344
 Cost of sales                                  70,129         61,695
                                           -----------    -----------
 Gross profit                                    9,292          7,649

 Selling, general and
   administrative expenses                       7,691          6,372
                                           -----------    -----------
 Operating income                                1,601          1,277
 
 Interest expense                               (2,198)        (1,801)
 Other income, net                                 270             50
                                           -----------    -----------

 Income (loss) before income taxes                (327)          (474)
 Income tax expense (benefit)                     (124)          (180)
                                           -----------    -----------
 Net income (loss)                         $      (203)   $      (294)
                                           ===========    ===========

 EBITDA                                    $     2,640    $     1,290
                                           ===========    ===========

 Weighted average shares outstanding         3,461,539      2,300,000
                                           -----------    -----------
 Net income (loss) per share
   - basic and diluted                     $     (0.06)   $     (0.13)
                                           ===========    ===========



                             Vaughan Foods, Inc
                         Consolidated Balance Sheet
                           As of December 31, 2007
                            (dollars in thousands)

   Assets
   Current assets:
        Cash and cash equivalents                             $ 2,698
        Accounts receivable, net                                5,981
        Inventories                                             2,846
        Prepaid expenses                                          119
        Deferred tax assets                                        40
 ---------------------------------------------------------------------
             Total current assets                              11,684
 ---------------------------------------------------------------------
   Restricted assets:
        Investments                                               708
 ---------------------------------------------------------------------
             Total restricted assets                              709
 ---------------------------------------------------------------------
   Property and equipment, net                                 16,569

   Other assets:
        Loan origination                                          377
        Intangible asset                                          715
        Deferred tax assets, noncurrent                           393
 ---------------------------------------------------------------------
             Total assets                                      30,447
 =====================================================================

   Liabilities and Stockholders' Equity
   Current liabilities:
        Accounts payable                                        4,941
        Short-term borrowings                                   1,000
        Note payable to former owners of Allison's              1,000
        Accrued liabilities                                     1,889
        Current portion of long-term debt                         865
        Current portion of capital lease obligation               189
        Amounts payable to former owners of Wild About Food       222
 ---------------------------------------------------------------------
             Total current liabilities                         10,106
 ---------------------------------------------------------------------

   Long-term debt, net of current portion                       9,146
   Capital lease obligation, net of current portion               297
   Amounts payable to former owners of Wild About Food,
    net of current portion                                        250
 ---------------------------------------------------------------------
             Total long-term liabilities                        9,693

   Total stockholders' equity                                  10,648
 ---------------------------------------------------------------------
             Total liabilities and stockholders' equity       $30,447
 =====================================================================



                             Vaughan Foods, Inc
                   Consolidated Statement of Cash Flows
                   For the Year Ended December 31, 2007
                           (dollars in thousands)

 Cash flows from operating activities:
   Net income (loss)                                          $  (906)
   Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
        Depreciation and amortization                           2,267
        Provision for bad debts                                   109
        Gain on sale of assets                                   (102)
        Deferred income taxes                                    (207)
        Changes in operating assets and liabilities,
          net of amounts acquired in acquisition of
          Allison's Gourmet Kitchens, LP:
             Accounts receivable                                 (265)
             Accounts receivable - related party                  181
             Inventories                                         (489)
             Prepaid expenses and other assets                    (14)
             Accounts payable                                  (1,695)
             Accounts payable, related party                     (424)
             Accrued liabilities                                  345
 ---------------------------------------------------------------------
                  Net cash (used in) operating activities      (1,200)
 ---------------------------------------------------------------------

 Cash flows from investing activities:
   Cash paid for property and equipment                        (1,691)
   Cash paid for acquisition of Allison's Gourmet Kitchens,
    LP, net of cash acquired                                   (1,278)
   Proceeds from sale of assets                                   318
   Distributions from restricted assets                           250
   Restricted assets                                             (111)
 ---------------------------------------------------------------------
                  Net cash (used in) investing activities      (2,512)
 ---------------------------------------------------------------------

 Cash flows from financing activities:
   Cash paid for loan origination                                  (5)
   Proceeds from initial public offering                       11,594
   Proceeds from line of credit                                 1,150
   Repayments on line of credit                                (3,876)
   Repayments on short-term borrowings                         (2,000)
   Increase in amounts payable to former owners of
    Wild About Food                                               (37)
   Cash paid to former owners of Wild About Food                 (118)
   Repayment of long-term debt and capital leases              (1,166)
 ---------------------------------------------------------------------
                  Net cash provided by  financing activities    5,542
 ---------------------------------------------------------------------

 Net increase (decrease) in cash and cash equivalents           1,830
 Cash and cash equivalents at beginning of period                 868
 ---------------------------------------------------------------------
 Cash and cash equivalents at end of period                   $ 2,698
 ---------------------------------------------------------------------


            

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