Galaxy Nutritional Foods Reports Second Quarter Operating Results

ORLANDO, Fla., Nov. 13 /PRNewswire-FirstCall/ -- Galaxy Nutritional Foods, Inc. , a leading developer and marketer of cheese alternatives, organic dairy and other organic and natural food products, today reported its operating results for the second quarter and first half of FY2008.

For the three months ended September 30, 2007, the Company reported net income of $660,341, or $0.03 per diluted share, on net sales of approximately $6.4 million. In the prior-year quarter, the Company reported net income of $561,564 or $0.03 per diluted share, on net sales of approximately $6.7 million.

For the six months ended September 30, 2007, the Company reported net income of $811,340, or $0.04 per diluted share, on net sales of approximately $12.3 million. Operating expenses during the first half of FY2008 included a previously disclosed non-recurring employment contract expense of $346,447. Exclusive of this charge, the Company would have reported net income of $1,157,787 in the six months ended September 30, 2007. In the six months ended September 30, 2006 the Company reported a net loss of ($780,865), or ($0.04) per diluted share, on net sales of approximately $14.6 million. Operating expenses in the first half of FY2007 included $1,428,000 in charges related to a reserve on a stockholder note receivable, $173,308 in costs related to disposal activities and $98,160 in non-cash stock-based compensation expense. Exclusive of these charges, the Company would have reported net income of $918,603 in the six months ended September 30, 2006.

The Company generated EBITDA, as adjusted, (a non-GAAP measure), of $1,424,901 (11.6% of net sales) in the first half of FY2008, compared with EBITDA, as adjusted, of $1,559,638 (10.7% of net sales) in the first half of FY2007 (see EBITDA table at end of this release for further Non-GAAP information).

"We are pleased to report a slight improvement in net income in the second quarter of Fiscal 2008 versus the same prior year quarter. As well, our gross profit % in the second quarter remained relatively stable with prior year results at slightly above 41%," stated Michael E. Broll, Chief Executive Officer of Galaxy Nutritional Foods, Inc.

"The reductions in current period net sales versus the prior period net sales primarily reflect our elimination of unprofitable non-branded product lines. The quarterly decline in net sales versus the prior year periods should level out in the second half of the current fiscal year, as most of the unprofitable sales were eliminated in the first half of the prior year. As well, we are beginning to see stabilization and moderate sales growth in our primary branded product lines versus the prior year. Going forward, we will continue to focus on driving brand oriented sales as well as exploring new product opportunities that fall under the "'healthy foods' umbrella," concluded Broll.

CONFERENCE CALL AND WEBCAST INFORMATION

The Company will host an investor conference call today, November 13, 2007 at 11:00 a.m. EST; Shareholders and other interested parties may participate in the conference call by dialing 888-200-8867 (international/local participants dial 973-935-8765) and referencing the ID code 9447752 a few minutes before 11:00 am EST on November 13, 2007. A replay of the conference call will be available on Galaxy Nutritional Foods Website at: http://www.galaxyfoods.com/investors/transcripts.asp starting on Friday, November 16, 2007.

About Galaxy Nutritional Foods, Inc.

Galaxy Nutritional Foods, Inc. develops and globally markets plant based cheese alternatives, organic dairy and other organic and natural food products to grocery and natural foods retailers, mass merchandisers and foodservice accounts. Veggie, the leading brand in the grocery cheese alternative category and the Company's top selling product group, is primarily merchandised in the produce section and provides calcium and protein without cholesterol, saturated fat or trans-fat. Other popular brands include: Rice, Veggy, Vegan, Rice Vegan and Wholesome Valley. Galaxy Nutritional Foods, Inc. is dedicated to developing nutritious and delicious food products made with high quality natural ingredients that exceed the expectations of today's health conscious consumers. For more information, visit www.galaxyfoods.com. Galaxy Nutritional Foods, Inc. is headquartered in Orlando, Florida, and its common stock is quoted on the OTC Bulletin Board under the symbol "GXYF".

This press release includes a non-GAAP financial measure with respect to EBITDA, as adjusted. The non-GAAP financial measure included in this press release may be different from, and therefore may not be comparable to, similar measures used by other companies. Please see the last page of this release for more information on EBITDA, as adjusted, and the reconciliation of this financial measure to GAAP measures.

Any statement of future expectations in this press release, including without limitation, as to future revenues, net sales, earnings and profitability, plans and objectives for future operations, future economic performance or expected operational developments, and all other statements regarding the future are "forward looking" statements within the meaning of the Private Securities Litigation Act of 1995. These forward looking statements are based on the Company's strategic plans and involve risks and uncertainties that may cause actual results to differ materially and adversely from these forward looking statements. Such risks and uncertainties include, without limitation: the Company's ability to execute its business strategy in a very competitive service and pricing environment; risks associated with the launch of new marketing campaigns; continued relations with and pricing dependence on third party suppliers; and other risks referenced from time to time in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect unanticipated events or developments.

GALAXY NUTRITIONAL FOODS, INC. Balance Sheets SEPTEMBER 30, MARCH 31, 2007 2007 (UNAUDITED) ASSETS CURRENT ASSETS: Cash 996,690 $879,487 Trade receivables, net 2,894,117 2,652,845 Inventories, net 198,444 377,432 Prepaid expenses and other 218,788 261,693 Total current assets 4,308,039 4,171,457 PROPERTY AND EQUIPMENT, NET 78,990 90,181 OTHER ASSETS 81,182 102,980 TOTAL 4,468,211 $4,364,618 LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Secured borrowings $358,945 $556,886 Accounts payable 1,251,530 1,718,088 Accrued and other current liabilities 771,722 823,258 Current portion of accrued employment contracts 544,184 366,305 Total current liabilities 2,926,381 3,464,537 ACCRUED EMPLOYMENT CONTRACTS, less current portion 18,229 194,491 RELATED PARTY NOTE PAYABLE 2,683,815 2,677,144 Total liabilities 5,628,425 6,336,172 COMMITMENTS AND CONTINGENCIES -- -- STOCKHOLDERS' DEFICIT: Common stock 171,100 171,100 Additional paid-in capital 70,167,149 70,167,149 Accumulated deficit (71,498,463) (72,309,803) Total stockholders' deficit (1,160,214) (1,971,554) TOTAL $4,468,211 $4,364,618 GALAXY NUTRITIONAL FOODS, INC. Statements of Operations (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2007 2006 2007 2006 Net Sales $6,401,124 $6,727,777 $12,317,261 $14,560,339 Cost of Goods Sold 3,740,838 3,957,750 7,201,206 9,032,962 GROSS MARGIN 2,660,286 2,770,027 5,116,055 5,527,377 OPERATING EXPENSES: Selling 940,833 880,823 1,830,241 1,846,802 Delivery 262,018 179,741 508,863 426,283 General and administrative, including $0, $92,330, $0 and $98,160 non-cash compensation related to stock based transactions 587,501 872,766 1,211,117 1,857,628 Employment contract expense - general and administrative -- -- 346,447 -- Research and development 79,718 44,449 162,995 86,783 Reserve on stockholder note receivable -- -- -- 1,428,000 Cost of disposal activities -- 47,059 -- 148,803 Loss on disposal of assets -- 37,329 -- 24,505 Total operating expenses 1,870,070 2,062,167 4,059,663 5,818,804 INCOME (LOSS) FROM OPERATIONS 790,216 707,860 1,056,392 (291,427) OTHER EXPENSES: Interest expense (117,875) (146,296) (233,052) (489,438) INCOME (LOSS) BEFORE TAXES 672,341 561,564 823,340 (780,865) Federal income tax expense (12,000) -- (12,000) -- NET INCOME (LOSS) $660,341 $561,564 $811,340 $(780,865) BASIC NET INCOME (LOSS) PER COMMON SHARE $0.04 $0.03 $0.05 $(0.04) DILUTED NET INCOME (LOSS) PER COMMON SHARE $0.03 $0.03 $0.04 $(0.04) GALAXY NUTRITIONAL FOODS, INC. Statements of Cash Flows (UNAUDITED) Six Months Ended September 30, 2007 2006 CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net Income (Loss) $811,340 $(780,865) Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 22,062 106,097 Amortization of debt discount and financing costs 28,469 242,047 Provision for future credits and doubtful accounts on trade receivables (538,500) (619,150) Provision for loss on stockholder note receivable -- 1,428,000 Loss on disposal of assets -- 24,505 Non-cash compensation related to stock-based transactions -- 98,160 (Increase) decrease in: Trade receivables 297,228 1,937,167 Inventories, net 178,988 (9,642) Prepaid expenses and other 42,905 (186,996) Increase (decrease) in: Accounts payable (466,558) (948,851) Accrued and other liabilities (49,919) (624,398) NET CASH FROM OPERATING ACTIVITIES 326,015 666,074 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Purchase of property and equipment (10,871) (9,638) Proceeds from sale of equipment -- 42,955 Decrease in other assets -- 34,440 NET CASH FROM (USED IN) INVESTING ACTIVITIES (10,871) 67,757 CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Net payments on secured borrowings (197,941) (519,820) Borrowings on term notes payable -- 1,200,000 Repayments on term notes payable -- (1,200,000) Principal payments on capital lease obligations -- (64,596) Financing costs for long term debt -- (144,011) NET CASH USED IN FINANCING ACTIVITIES (197,941) (728,427) NET INCREASE IN CASH 117,203 5,404 CASH, BEGINNING OF PERIOD 879,487 435,880 CASH, END OF PERIOD $996,690 $441,284 GALAXY NUTRITIONAL FOODS, INC. EBITDA, as adjusted, (a non-GAAP measure) Reconciliation (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2007 2006 2007 2006 NET SALES $6,401,124 $6,727,777 $12,317,261 $14,560,339 NET INCOME (LOSS) $660,341 $561,564 $811,340 $(780,865) Plus: Non-cash compensation (income) expense -- 92,330 -- 98,160 G&A expenses related to strategic alternatives -- (72,837) -- 45,500 Reserve on stockholder note receivable -- -- -- 1,428,000 Cost of disposal activities -- 47,059 -- 148,803 Employment contract expense -- -- 346,447 -- Loss on disposal and impairment of assets -- 37,329 -- 24,505 Interest expense 117,875 146,296 233,052 489,438 Taxes 12,000 -- 12,000 -- Depreciation and amortization expense 11,091 53,275 22,062 106,097 EBITDA, as adjusted 801,307 865,016 1,424,901 1,559,638 As a % of Net Sales 12.5% 12.9% 11.6% 10.7%

Footnote on non-GAAP Measures Presented Above

Management utilizes certain non-GAAP measures such as EBITDA, as adjusted, because it provides useful information to management and investors in order to accurately review the Company's current on-going operations and business trends related to its financial condition and results of operations. Additionally, these measures are key factors upon which the Company prepares its budgets and forecasts. In its determination of non-GAAP measures, management excludes the non-cash compensation related to stock-based compensation, G&A expenses related to strategic alternatives, the cost of disposal activities, impairment or loss on the sale of assets, employment contract expense, and the reserve against a stockholder note receivable from its analysis of operating income because it believes that these items do not accurately reflect the Company's current on-going operations. With respect to non-cash compensation and fair value of warrants, they are calculated based on fluctuations in the Company's stock price which are outside the Company's control and typically do not reflect the Company's operations. These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures reported by other companies.

Galaxy Nutritional Foods, Inc.

CONTACT: Dawn M. Robert, Investor Relations, Galaxy Nutritional Foods,
Inc., +1-407-854-0433

Web site: http://www.galaxyfoods.com/
http://www.galaxyfoods.com/investors/transcripts.asp/